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India still most attractive destination for global retailers
Thursday, 16 April, 2009, 08 : 00 AM [IST]
Sabyasachi Samajdar, New Delhi
Retail growth drops to 5% from 34% in 2007

The current growth rate of Indian organised retail industry is 5 % which is expected to reach around 10.4 % against the earlier expectation of 16 % by 2012. The growth rate of Indian organised retail was 11 % in 2008 compared to 34 % in 2007, is further likely to slow down the rate of growth in sales of 8 to 12 % through 2009 and 2010, according to a report 'Indian Retail: Time to Change Lanes' prepared by global consultancy firm KPMG that was released on 31st March, 2009.

Falling footfalls and poor conversion ratio have led to a decline in sales growth to 11 % in December 2008 compared to 34 % in December 2007, the KPMG report says.

The report also says that factors like store rationalisation, working capital management, regionalisation, cost optimisation and manpower resizing are some of the key top of mind issues for the retailers in the current context. The slowdown was likely to last 12-18 months, but is dependent on the government policies.

This has also led to slowing down of investment flow in the organised retail sector. An estimated investment of $25 billion was expected in the sector over the next 4-5 years, the report added.

"We believe that players who take immediate strategic measures will be the dark horses. Be it store rationalisation, change of supply chain, consolidation of operations, improvement in IT infrastructure, retailers need to think quick to protect their margins," KPMG global head of markets Neil Austin said.

According to another market research report "Booming Retail Sector in India" published by RNCOS recently India is one of the most attractive destinations for retailers from all across the globe. Thanks to the entry of corporate, changing consumer behavior and lifestyle, increasing influence of western culture and rising income, the Indian retail industry has seen phenomenal growth in the last five years (2001-2006) and organised retailing has finally emerged from the shadows of unorganised retailing and is contributing significantly to the growth of the overall retail sector.

Organised retail market in India is expected to reach $50 billion mark by 2011. Number of shopping malls is expected to increase at a CAGR of more than 18.9% from 2007 to 2015. Rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50%. Organised retailing of mobile handset and accessories is expected to reach close to Rs 5000 crore by 2010. Driven by the expanding retail market, third party logistic market is forecast to reach $ 20 billion by 2011. Apparel, along with food and grocery, will lead the organised retailing in India, the report pointed out.

There may be a slowdown in urban retail, but India is still shining for retailers. The next phase of growth is expected to come from rural markets with rural India accounting for almost half of the domestic retail market, valued over $300 billion, retail industry sources said.

Sources also said that rural India is set to witness an economic boom, with per capita income having grown by 50% over the last 10 years, mainly on account of rising commodity prices and improved productivity. Development of basic infrastructure, generation of employment guarantee schemes, better information services and access to funding are also bringing prosperity to rural households.



"Overall there is a huge market which is waiting to be served, ready to splurge, willing to explore new products and services, and retailers can tap on their wallets," said Ramesh Srinivas, national industry director (consumer markets), KPMG India.



In rural markets, consumers are practical and price sensitive. Even though consumers at the bottom of the pyramid do not seem to have predictable income (affects purchasing dynamics), the rural market proved to be surprisingly loyal. So if companies get it right they could really reap the rewards, experts added. This is particularly true as changes in the rural economy such as people moving from agriculture into manufacturing, which pays better, are likely to lead to an economic boom.
 
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