To promote excursions and products from the country, the India Ministry of Tourism has been running a marketing campaign with the brand line "Incredible India." My favorite post this past week was a reminder that this same tag line "Incredible India"can be applied to the nascent modern organized India retail industry.
- Favorite Weekly Post: Government of #India opens #retail supermarket sector to foreign chains. http://ow.ly/dJask Good news for global retailers, eg #Walmart
Words that come to mind when describing India include expansive, chaotic, exciting, multi-cultural, traditional, challenging, optimistic, a top 5 country that will drive future global retail growth. The underlying trends leading to the changes in foreign direct investment regulations discussed in the above news headline post include (*):
- Retailing in India today represents 14% to 15% of total GDP. The country has 50 million kiranas (mom & pop general stores) and about 220 million people dependent on them for their income. (Source: Confederation of All India Traders).
- With $450 Billion in consumer spending, India is one of the top 5 global retail markets in the world. By 2015, the retail market will reach $785 Billion. By 2020, a new report from PricewaterhouseCoopers, projects further retail growth to $1.3 Trillion.
- While most Western markets are experiencing declining birth rates and aging populations, India is one of the fastest growing nations in the world with a 10 year compounded average growth rate of 1.5%. Worldwide average is 1.2%; Brazil is at 1.1%; USA is at 1%; China is at 0.7%; Russia is at -0.4%. (OECD Fact Book 2010)
- India's total population is 1.2 billion people -- equivalent to USA, Indonesia, Brazil, Russia, Japan, Mexico, Germany, and France COMBINED. Current projections have India overtaking China as the most populous country by 2030. 30% of the population in India is under the age of 15.
- Over the past decade, the percentage of low income India households have declined by almost half while the number of high income households have nearly tripled. (Images India Retail Report 2010) According to McKinsey, Indian incomes are set to triple over the next two decades.
- Only 5% of the India retail market is organized (large retailers and chain stores). This compares to USA at 85%, Brazil at 36%, Russia at 33%, and China at 20%. (IBEF). According to McKinsey, organized retail will continue to grow reaching 14% to 18% by 2015.
- In 2011-2012, Mumbai and Delhi, two of India's major cities added 13.4 million new square feet of retail space. This is not far behind Beijing and Shanghai in China which added 17.9 million square feet of retail space.
Analyzing the India retail potential for the top three global retailers:
- Walmart stands to be the first global retailer to benefit by India's opening up foreign direct investment in retail. The USA based retailer began setting up wholesale operations in India through a joint venture with Bharti in 2007 and currently has 17 stores.
- Carrefour, the world's number 2 global retailer has two wholesales store in India. The French based retailer is struggling globally because of high debt / costs and has cut its profit outlook 5 times in the past two years.
- Tesco, the number 3 global retailer, is working with the Tata group on their strategy for India. The British based retailer has had four straight quarters of sales declines and has struggled to make its USA operations profitable.
There are multiple challenges that global retailers need to overcome in growing successful business ventures in India:
- Politics - India is a very large country with lots of diversity / political views / acceptance levels towards change. Opening up foreign direct investment (FDI) has been an ongoing challenge for the current central Indian government. This is the second time that the government announced the opening of the FDI. Will the pressure from all those small store owners or from regions resisting change force another reconsideration of this latest market opening declaration?
- Lack of basic infrastructure - Having traveled on multiple India roads and highways and navigated though heavy traffic in Tier 1 cities, a major challenge will be creating an efficient supply chain infrastructure to keep those modern stores stocked. If you look up and see all those twisted wires across multiple streets, you will also understand that reliable power can also be a challenge.
- Security - A surprise in walking through multiple of the malls was the presence of metal detectors at the main entrances. India has experienced terrorism on multiple occasions in its history. Shoplifting in stores is also seen as a growing problem with some surveys placing it at 50% of overall retail shrink.
- Cost - Costs are going up for both personnel and real estate for store locations. Not having a legacy in organized retail means substantial investment in training employees is required. High growth rates also mean high turnover as employees move on to better paying jobs.
Having said all this, it is no longer a question of whether India is on the same road already being traveled by China of aggressively moving towards organized retail models. The reason for the central government reopening FDI now is very simple. The India economy was slowing down and the government understood they needed to encourage foreign direct investment. Global retailers that will succeed in India are actually already working in the country on building the foundations for future growth. The winners will be those than clearly understand the cultural challenges of this very diverse fast growing country, operationalize the challenges outlined above in their growth strategy, and set a measured pace to grow starting from the Tier 1 cities.
"Carpe Diem" NOW to take advantage of "Incredible India" retail opportunities.