- Indian retail market size
- Indian retail market structure
- How is modern retail evolving?
- Main domestic retailers
- Popular store formats
- Challenges

What is the size of the grocery retailing market in India?

IGD estimates India's grocery retail market to be worth US$ 299.2bn in 2008, making it the fifth largest grocery retail market in the world after the USA, China, Japan and France. 

How is the retail market structured?

The retail sector in India is highly fragmented and organised retail, which is estimated at 4% of the total market, is at a very nascent stage.

The traditional channel consists of 'mom-and-pop' stores known as 'kirana' stores, owner-manned general stores, paan/beedi shops, convenience stores, hand-cart and pavement vendors, wet markets and employs about 40 to 50 million people. Of the 12 million traditional retail outlets in India, some 7.3 million sell FMCG and 41% of these are in urban India.

Sales in the kirana stores are typically over the counter, and the shopper cannot browse or touch the brands before buying. The kirana stores continue to perform well despite the increase in competition from modern retail chains, owing to their excellent customer service and ability to provide branded goods at low prices.

How is modern retail evolving?

India’s grocery sector has been evolving, since the mid 1990s, from a traditional to a modern retail market. Currently, Foreign Direct Investment (FDI) up to 51% is allowed only in single-brand retail with government approval. However, in the wholesale cash-and-carry segment, up to 100% FDI is allowed. The Indian government wants to promote FDI at the back-end of retail activity such as logistics, cold chain and technology so that it also helps traditional retailers.

FDI in retail continues to be a politically sensitive issue.  There have been a number of conflicting reports regarding the effect of international retailers and of the potential relaxation of FDI rules on the market.  In early 2008, government-commissioned research found that, although initially negative, the impact on small retailers would weaken after five years.  However, a report in mid-2009 recommended a blanket ban on FDI, saying that it would result in unemployment.  Clearly, given the strength of feeling on the issue and the contradictory views emerging, it looks like this is not the end of the debate.

Despite the challenges, international retailers are finding their way into India:

Wal-Mart opened its first BestPrice Modern Wholesale outlet in May 2009.  The move, first indicated back in 2007, is a joint-venture agreement with Bharti Enterprises, in which both companies will hold a 50% stake in Bharti Wal-Mart Private Ltd. 

Tesco meanwhile announced its entry into India in 2008, in a twin-pronged move based on developing a wholesale cash and carry business and entering into an agreement with Tata Group's retail arm, Trent. 

Rumours have continued to circulate regarding France's Carrefour, which is said to be set to open its first Cash & Carry store in the National Capital Region by mid-2009/2010.

Who are the main domestic retailers?

Owing to the restrictions on FDI, the modern retail sector is currently biased towards domestic retailers.  Multi-format retailers Pantaloon and Reliance lead the way with over 1,300 stores between them, closely followed by RPG and Aditya Birla Retail.  Subhiksha had developed a strong presence in the southern states of Kerala and Tamil Nadu, however its future is somewhat uncertain as stores were closed in March 2009 due to financial problems. 

During the brief period when FDI was allowed in retail, Hong Kong's Dairy Farm launched a chain of supermarkets under the Foodworld fascia, in partnership with RPG.  The joint-venture was subsequently terminated and the parties are pursuing their own expansion plans.  South African retailer Shoprite launched a hypermarket in Mumbai through a franchise agreement, and Metro Group now has three Cash & Carry outlets in the wholesale segment where 100% FDI is allowed.  Another international retailer of note is Spar International; India is one of its key markets for expansion.

What are the popular store formats?

Organised retailers in India are trying out a variety of formats, ranging from supermarkets and discount stores to hypermarkets. Nearly all the early retailers in India started with a single-format, single-region focus.

IGD estimates that in the Indian context, the value proposition for the convenience sector is limited as the traditional kirana stores (typically not more than 500 sq ft in size) operate in this space - they are open long hours, offer limited ranges and are conveniently located.

A typical supermarket’s trading area is about 2,000 – 5,000 sq ft, and hypermarkets trade from 15,000 - 65,000 sq ft of space. The current players in India include:
 

Top Grocery Retailers in India 2008

Source: IGD estimates, retailers 2008
 

What are the main challenges in the Indian retail market?

India is a massive, complex market.  Although one country, in reality it has 28 very different markets each with its own tastes and shopping habits.  Understanding this diverse market and the constantly evolving consumer is the biggest challenge.  Regulatory issues, such as the FDI rules, add complexity to operating here.

IGD believes that the Indian market must and will adopt a multi-format route to expansion. Organised retailers are adapting their formats to a variety of locations and customer types. In turn FMCG manufacturers are tailoring their services to the modern retail channel.

Without a doubt, India is more attractive than ever before. And one thing is for certain: its retail story is only just beginning.

	Related Items on IGD.com:  Reports: - India: Planning Your Approach - Ten to Watch 2009