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Indian retail food industry revolutionises shopping
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Saturday, 23 September, 2006, 08 : 00 AM [IST]
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Our Bureau, Mumbai
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etail is going to be the major driving force for the retail industry. The changing life styles, tastes and higher disposable income, growing need for convenience, higher aspirations among youth, exposure to the western lifestyle and increasing numbers of working women have revolutionised the food retail scenario of the country. Food retail has surpassed the dominating apparel and accessories sector. "Contrary to the belief that fashion is the largest segment of organised retail in India, food & beverages is the major segment, worth Rs 8,97,000 crore," said Arvind Singhal, Chairman, Technopak, at the Indian Retail Forum recently held in Mumbai.
In every format retail food trade is growing. More and more corporate houses such as HLL, ITC, Godrej and Reliance are now making inroads into food retail, with some even exploring the integrated approach via agri business and food processing. Huge proliferation is expected from the corporate players, which will help grow the entire retail pie. Entrenched players such as Subhiksha, Food Bazaar and Spencer's Daily are also tapping into backward linkages, while trying to match their expanding geographies with retail formats. Food & Beverage News explores the problems and prospects of the modern food retail industry.
Market size
The size of organised foods retail in India stands at Rs 25-30 bn. The organised form of food retail accounts for less than 1% of food consumed in India. Balance sales are dominated by kirana stores.
Organised food retailing has grown at about 25% per annum for the last two years and the momentum is likely to increase with the entry of large corporates and possible relaxation of the FDI policy. The growth rate is likely to be 30% for the next five years and the size of organised food retail can become Rs 110 bn by 2010.
There has been significant growth in the number of supermarkets and neighbourhood stores in the metros and mini metro cities. Speaking to Food & Beverage News Gibson Vedamani, CEO, Retailers Association of India, said, "I think there will be around 1600 supermarkets throughout the country by various companies put together. This also includes the traditional supermarket model like Apna Bazaar."
"I expect a huge proliferation especially in the retailing of food products. In the next four years at least 4 to 5 organisations will have around 1000 supermarkets," he added.
Current scenario
BackgroundHigh degree of fragmen-tation in food retailing
India has the highest number of retail outlets in the world. There are an estimated 12 million outlets in India with a total retail space of about 2 billion sq ft. Owing to this fragmentation; the availability of retail space per capita in India is among the lowest in the world, 2 sq ft per capita compared with 19 sq ft in the US.
Some 5 million of these outlets engage in the retail of food and food products. The degree of fragmentation is much higher among food retailers than among non-food retailers. The majority of food and food products are retailed through neighbourhood kirana stores. A typical kirana store has a retail area of 200 sq ft and sells 500 to 800 stock keeping units (SKUs). The kirana stores focus on dry food products because the infrastructure for cold storage is lacking. The majority of fresh produce is sold from the carts of travelling vendors. Such produce is associated with low product quality, variety and hygiene.
A kirana store's greatest advantage over organised formats is its proximity to consumers. However, the limited space and capital of such stores translate into restricted choice, low value for money, poor quality and lack of shopping experience for the customer.
Until the late 1990s, it had been concentrated in the south of the country. Southern India has been witnessing frenetic activity in food retailing. It has thoroughly experienced the food retailing in various formats such as the supermarkets, hypermarkets and neighbourhood stores. These include Food World, Subhiksha, Nilgiris, Margin Free, Big Bazaar and Giant.
The reason being that most entrepreneurs who started organised retail came from southern India and the cost of real estate in the southern region was less than other regions (particularly north and west). Since then, however, organised food retailing has emerged across the country, stimulated by the presence of high potential markets in the north, west and east as well as the success of some non-food retailers and food services companies in these regions.
Increasing consumption creates golden opportunity
The changing age profile with increasing share of population in the age bracket of 15-59 years, a large proportion of which constitute the active workforce, augurs well for the growth of food consumption. This group has the willingness as well as the ability to spend on processed foods and buy from organised formats. Food accounts for the largest share of consumer spending. Food and food products account for about 50% of the value of final private consumption. This share is significantly higher than in development economies, where food and food products account for about 20% of consumer spending. Significant spending on food and increasing out of home food consumption represent a significant opportunity for food retailers and food service companies.
Emerging multiple formats
Various factors like the consumer needs convenience, choice and value for money from food products have created the opportunity for a number of new formats. "Hypermarket seems to be the most successful retail model because of its giant size. Also 70% of the merchandise mix is food & grocery.
The other two successful model format are supermarket and convenience stores, which are doing really good, in southern India," said Vedamani.
A. Neighbourhood Stores
In India about 90% of food purchases are made within a distance of 1.5 km from the customer's home. This means that an organised retailer would need to have a 'neighbourhood store' close to customers in order to capture the share of wallet that is spent on food. These stores would cater to the consumer's daily and weekly needs. The outlets closest to a neighbourhood store in India are 'Safal' outlets operated by Mother Dairy in Delhi, Margin Free in Kerala and Subhiksha in Tamil Nadu.
B. Supermarkets
This format caters to the consumers' need choice and variety. These needs translate into 'more width' and 'more depth' in each category. These stores cater to the consumers in a catchment area with a radius of 3 to 4 km and therefore need to be destination stores. A supermarket can cater to the consumers' weekly, monthly and occasional needs. Example of supermarkets already in India are FoodWorld, Trinetra and Nilgiri's
C. Hypermarkets
Hypermarkets are essentially destination stores catering to the consumers' bulk shopping needs in both food and non-food categories. The key added values for the customer are 'choice' and 'value for money' because products are sold at a discounted price. The hypermarkets model of food retailing is new to India. Spencers (RPG), Big Bazaar (Pantaloons), Star India Bazaar (Trent).
D. Cash & Carry (C & C) Stores
These stores sell their products to their members only. The members are typically retailers and institutions. The key added value is a wide range of products under one roof, available at wholesale prices. Metro has started the
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