RETAIL INDUSTRY IN INDIA – A BIRD’S EYE-VIEW (I)

The Bharti-Walmart split has been creating quite a buzz in the business circles and fortunately or unfortunately, Indians would have to wait for some time to get a ‘feel’ of Walmart in India. The world’s largest Retail store has developed cold feet over its venture in India owing to some “Investment Issues” as quoted by the company officials; but experts tend to differ. Now before developing a postmortem on why the Bharti-Walmart venture failed, we would take you on a tour of the Indian Retail Industry with the aid of a series of blog posts. We will discuss its contribution to the Indian economy, the underlying forces that shape up the Indian Retail Business, the trends and of course the future perspective.

Indian Retail is one of the most blossoming industries in India with an estimated size of $500 billion and a contribution ranging from 14-15% to the national GDP. The peculiar fact about this industry is that 90% of the retail players hail from the unorganized sector. This statistics sound as an encouragement for the bigger organized players who are growing at a rate of 20% per year. Interestingly, the industry is not confined to brick-and-mortar retail and has a significant presence in cyberspace. With the third largest population of netizens, after China and USA, the Retail industry giants can look up to India as a lucrative proposition. Amazon’s venture has just shown the green signal for other retail companies to flock the nation. The online Retail market in India is estimated to be $8.19 billion which has shown a growth of 65% over the previous year. The emergence of foreign players is expected in the near future, but the domestic players are also getting involved in the sector. Sahara has launched Sahara Q shops in the Delhi/NCR region and they are planning to go amass by setting up more than 900 stores by 2015. With majors like Villeroy & Boch  and Bulgari queuing up for entry, the Indian Retail industry is going to witness cut-throat competition in near future. In other words, we should be expecting a ‘Retail Boom’ in a couple of years.

In our next post, we will have a look into the trends of our Retail Customers and their buying behavior.

Insight into Indian Food and Agriculture Market

Even after six decades of independence, Agriculture happens to be the mainstay of the Indian population. The rapid industrialization and growth of other industries haven’t dismissed the dominance of Agriculture in the Indian economy. In spite of being the second largest food producer after China, the contribution to global food trade by India is negligible. With cumulative wastes amounting to nearly 7 billion USD and growth being slow as compared to other industries, Agriculture does not look like a very attractive segment. But the picture is not all grey. The growth in the sectors peripheral to Agriculture has been tremendous and there are ample opportunities to explore provided one employs the right tactics and strategy. A bird’s eye view of how the margins are shifted in agriculture are as follows 

The organizations involved in Agricultural products need to understand that they need a system wide strategy across the value chain so that they can maximize the profits from Farmer’s Markets to Terminal Markets. Of course, horticulture and other allied industries are on a rise and they have been increasing by leaps and bounds. The following is the growth story of fruits and vegetables in India:

Fruit&Vegetable-Production-India

Some of the other allied sectors growth story is tabulated below:

Sector/Industry	Size of the industry  (Billion US$)	Growth Rate (%)
Food processing	176.41	13.07
Cold Storage & Cold Supply Chain	4.06	26.21
Agricultural Equipments and Machinery	9.8	5.2
Food Packaging	22.47	15.1
Poultry & Livestock	10.3	13.75
Herbal & Medicinal Plants	1.84	16.2
Fertilizers	57.08	7.2
Organic Food products	2.47	38.3
Breakfast Cereal	148.3	12.7
Crop Protection Chemicals	12.6	3.4

The Food processing and Agriculture Industry is booming and the growth rate is also noteworthy. But there are a few hindrances which has been affecting the growth:

•         The small players who are unorganized are about 70% and accounts for about 50% of the value.

•         India’s share in global scenario is about 2% which is insignificant.

•         No Indian brands have global presence.

•         Most of the exports are in bulk and lack branding.

•         Mostly units are involved in primary value addition .The secondary and tertiary value addition units are minimal resulting low value addition.

•         Lots of wastage due to post harvest losses. 

In Food and Agriculture domains, the success hugely depends on how well the products are marketed across the channels. The Retail channels play a huge role in the success of the products. The food and beverage retail market is primarily made up of small and independent family owned stores, which hold over 65 percent of market share. With the advent of Supermarkets and Hypermarkets, the market-share of the stores have somewhat reduced. But still they are quintessential for the success of the brands as they influence the retail consumer’s buying decision. Besides the Channels, Packaging and Pricing are very essential to woo customers. The right price with the right package can do wonders for the Agriculture-based-businesses in India.

The PMI Paradox

PMI or Purchasing Managers Index is an indicator of the economic health of Manufacturing Industry which is calculated on a monthly basis. The minimum threshold is considered as 45 while anything above 50 is rendered as an expansion over the previous month. Unfortunately, India’s PMI for the month of September is languishing at 49.6, which is a shade better than the month of August which registered a figure of 48.5. Orders have dried up and employment is on a downward spiral. As per Markit, the firm that carries out the global survey, a drought of export orders has been instrumental in causing the current state-of-affairs.

The picture looks all grey at this instant. But Credit Suisse has claimed an altogether different theory. As per the organization’s analysts, PMI has little or no co-relation with the Indian economy and can be quite misleading. “There have been periods when correlation between India’s manufacturing PMI and output growth has been non-existent or indeed even negative. This has been true of the past couple of years for example, as we have highlighted in chart. From mid-2011 to mid-2013, the correlation between the two series has been just 0.09”, says the note released by Credit Suisse. The following image would clarify the matter further

The figure shows a correlation of 0.09 which is almost negligible. Similar scenario exists in the case of Services PMI. The PMI showed growth while in reality it was a slowdown. With all these facts in the open, it is quite obvious that the PMI would be under the radar in coming days.