News: Cashing in on India's retail mania
(Bloomberg 08/04/2006) Mumbai - Bobby Gupta says he’d never seen a more massive crowd than on January 26, when Big Bazaar, India’s largest chain of discount stores, held its biggest-ever sale.
Two million people jammed Big Bazaar’s 24 locations across India, forcing three-quarters to shut early when employees couldn’t subdue the mobs. In Bhubaneswar in eastern India, hordes of bargain hunters jostled to grab cut-rate jeans, pressure cookers and mobile phones.
‘‘Half the town was in that store,’’ says Gupta, 27, a businessman who was shopping that day. ‘‘A lady in the toys section fainted.’’ Indian consumers, once relegated to sorting through mom-and-pop stores and roadside markets, are shopping with a vengeance at new malls, discount centres and combination food and department stores called hypermarkets.
India’s annual per-capita income has climbed 62% to Rs 25,778 ($581.37) during the six years ended on March 31, the government estimates. India’s middle class, 216 million strong, is clamouring for the latest in flavoured toothpaste and flat-panel TVs.
India’s retailing overhaul is another sign that the world’s biggest democracy is lurching toward modernisation, as it has done with computers, telecommunications and aviation. By 2010, there will be 351 million middle-income Indians in 65 million households, up from 40 million households today, New York-based consulting firm McKinsey & Co predicts.
Wal-Mart, Reliance
Right now, Indians do as much as 97% of their spending at small, independently owned neighbourhood shops. People pick up lentils in one spot, towels in another and sandals in a third. They make their way along streets crowded with cars, scooters and rickshaws and jam into tiny stores or narrow stalls packed to the rafters, bargaining with the proprietor to complete the daily shopping.
‘‘If you believe in the Indian consumer, if you believe in his growing wealth, then you will believe in organized retail,’’ says Pauli Laursen, who helps manage $6.5 billion of stocks and bonds at Sydinvest Asset Management in Aabenraa, Denmark.
Homegrown retailers and foreign hopefuls are rushing to ring up profits from India’s shopping spree. Mumbai-based chemicals and petroleum giant Reliance Industries Ltd plans to spend a total of Rs 15,000 crore by March 2007 to open 1,575 warehouse-style stores in towns and large villages across India, people familiar with the company’s plans said. In January, Reliance announced an initial $750 million investment.
In December, Wal-Mart Stores Inc., which reported $312 billion in sales in the fiscal year ended on Jan. 31, applied to India’s central bank to open an office to study the Indian market. The application is under review.
The numbers explain their enthusiasm. Spending by Indians on products and services outside of education, housing, health care and transportation rose 5 percent to an estimated $219 billion in 2005. Of that amount, retail chains took in just $8.2 billion, according to Technopak Advisors Pvt., a Gurgaon, India-based consulting company. Retailers’ share of consumer spending may increase to $25 billion by 2010, Technopak estimates.
‘‘India is clearly a country that is very attractive,’’ says Beth Keck, director of international corporate affairs at Bentonville, Arkansas-based Wal-Mart. Investors think so, too. They’re driving up shares of Big Bazaar’s parent, Pantaloon Retail India Ltd. The stock of the Mumbai-based company surged 176 percent in the year ended on April 3, to Rs 2001.75. ICICI Venture, the private equity arm of ICICI Bank Ltd., the biggest Indian lender that’s not controlled by the govt, says it made five times its 2001 investment in Pantaloon. Bala Deshpande, ICICI Venture’s director, investments, declined to say how much the firm invested.
Subhiksha Trading Services Ltd., which runs 145 discount grocery and pharmacy stores in the southern state of Tamil Nadu, plans to spend Rs 2.2 billion on 650 new stores this year. The Chennai-based company intends to sell shares to the public worth as much as $35 million by May.
Mumbai-based RPG Enterprises, which took in $1.89 billion of revenue from tyre manufacturing, power generation and other areas in the year ended last March, plans to invest Rs 450 crore to expand its Spencer’s chain. Spencer’s features Big Bazaar-type shops, supermarkets and convenience stores. ‘‘It will raise money from a share sale and through private equity,’’ vice chairman Sanjiv Goenka says.
Vishal Retail Pvt., which competes with Big Bazaar through its Vishal Megamart chain, is in talks with private equity investors to raise as much as Rs 50 crore, says chairman Ram Chander Aggarwal, 41, who declines to name the investors.
He plans an initial public offering worth as much as Rs 150 crore.
Retail Hurdles
Crowds of unruly shoppers aside, the threats to India’s retail ambitions are plentiful. Poor roads and inadequate storage mean that a quarter of the nation’s fruits and vegetables go bad before they get to market, the government estimates. Laws such as the Standards of Weights and Measures Act of 1976 control information on packaging and how products are sold, relegating India to archaic practices. A retailer can’t use the abbreviation ‘‘MFD’’ in place of ‘‘manufactured by,’’ and writing the size of a shirt in inches instead of centimeters is against the law. ‘‘Each of India’s 29 states interprets the statutes differently,’’ Pantaloon managing director Kishore Biyani says.
India’s retailers are forced to build their distribution networks and warehouses from scratch. Space in India’s teeming cities is limited. And because retailing is a new industry, it’s hard to find professional managers and clerks as stores compete for educated workers.
‘‘This country has no human resources in terms of skilled people to operate retail, and you have to build the supply chain because there is none,’’ says BS Nagesh, 46, CEO of Shoppers’ Stop Ltd., which runs 19 department stores. ‘‘Every state and every store goes through a different license, so even the largest player has to start fresh every time he opens a new store.’’
Wholesalers and distributors, afraid the new chains will shut them out, are adding to India’s growing pains. These groups act as middlemen and take a cut of sales. Now, chains such as Subhiksha are buying directly from drugmakers and consumer product companies, luring customers with average discounts of 10% and eliminating the distributors.
‘‘There was a lot of resistance from traders who didn’t like our discounting,’’ says managing director R Subramanian, 39, who founded the company in 1997. ‘‘They tried to organise supply boycotts to make sure we didn’t discount. We had to go to court to ensure we got our supplies.’’
Praveen Khandelwal, New Delhi-based secretary general of the Confederation of All India Traders, which represents about 50 million small shopkeepers, says chains like Big Bazaar are bad for traditional merchants. ‘‘We are opposed to any kind of chain of retail stores, whether Indian or foreign,’’ says Khandelwal, sitting in his hardware shop in New Delhi, which is stocked to the roof with boxes of door knobs and handles. ‘‘Ultimately, it is detrimental to domestic traders.’’
Two million people jammed Big Bazaar’s 24 locations across India, forcing three-quarters to shut early when employees couldn’t subdue the mobs. In Bhubaneswar in eastern India, hordes of bargain hunters jostled to grab cut-rate jeans, pressure cookers and mobile phones.
‘‘Half the town was in that store,’’ says Gupta, 27, a businessman who was shopping that day. ‘‘A lady in the toys section fainted.’’ Indian consumers, once relegated to sorting through mom-and-pop stores and roadside markets, are shopping with a vengeance at new malls, discount centres and combination food and department stores called hypermarkets.
India’s annual per-capita income has climbed 62% to Rs 25,778 ($581.37) during the six years ended on March 31, the government estimates. India’s middle class, 216 million strong, is clamouring for the latest in flavoured toothpaste and flat-panel TVs.
India’s retailing overhaul is another sign that the world’s biggest democracy is lurching toward modernisation, as it has done with computers, telecommunications and aviation. By 2010, there will be 351 million middle-income Indians in 65 million households, up from 40 million households today, New York-based consulting firm McKinsey & Co predicts.
Wal-Mart, Reliance
Right now, Indians do as much as 97% of their spending at small, independently owned neighbourhood shops. People pick up lentils in one spot, towels in another and sandals in a third. They make their way along streets crowded with cars, scooters and rickshaws and jam into tiny stores or narrow stalls packed to the rafters, bargaining with the proprietor to complete the daily shopping.
‘‘If you believe in the Indian consumer, if you believe in his growing wealth, then you will believe in organized retail,’’ says Pauli Laursen, who helps manage $6.5 billion of stocks and bonds at Sydinvest Asset Management in Aabenraa, Denmark.
Homegrown retailers and foreign hopefuls are rushing to ring up profits from India’s shopping spree. Mumbai-based chemicals and petroleum giant Reliance Industries Ltd plans to spend a total of Rs 15,000 crore by March 2007 to open 1,575 warehouse-style stores in towns and large villages across India, people familiar with the company’s plans said. In January, Reliance announced an initial $750 million investment.
In December, Wal-Mart Stores Inc., which reported $312 billion in sales in the fiscal year ended on Jan. 31, applied to India’s central bank to open an office to study the Indian market. The application is under review.
The numbers explain their enthusiasm. Spending by Indians on products and services outside of education, housing, health care and transportation rose 5 percent to an estimated $219 billion in 2005. Of that amount, retail chains took in just $8.2 billion, according to Technopak Advisors Pvt., a Gurgaon, India-based consulting company. Retailers’ share of consumer spending may increase to $25 billion by 2010, Technopak estimates.
‘‘India is clearly a country that is very attractive,’’ says Beth Keck, director of international corporate affairs at Bentonville, Arkansas-based Wal-Mart. Investors think so, too. They’re driving up shares of Big Bazaar’s parent, Pantaloon Retail India Ltd. The stock of the Mumbai-based company surged 176 percent in the year ended on April 3, to Rs 2001.75. ICICI Venture, the private equity arm of ICICI Bank Ltd., the biggest Indian lender that’s not controlled by the govt, says it made five times its 2001 investment in Pantaloon. Bala Deshpande, ICICI Venture’s director, investments, declined to say how much the firm invested.
Subhiksha Trading Services Ltd., which runs 145 discount grocery and pharmacy stores in the southern state of Tamil Nadu, plans to spend Rs 2.2 billion on 650 new stores this year. The Chennai-based company intends to sell shares to the public worth as much as $35 million by May.
Mumbai-based RPG Enterprises, which took in $1.89 billion of revenue from tyre manufacturing, power generation and other areas in the year ended last March, plans to invest Rs 450 crore to expand its Spencer’s chain. Spencer’s features Big Bazaar-type shops, supermarkets and convenience stores. ‘‘It will raise money from a share sale and through private equity,’’ vice chairman Sanjiv Goenka says.
Vishal Retail Pvt., which competes with Big Bazaar through its Vishal Megamart chain, is in talks with private equity investors to raise as much as Rs 50 crore, says chairman Ram Chander Aggarwal, 41, who declines to name the investors.
He plans an initial public offering worth as much as Rs 150 crore.
Retail Hurdles
Crowds of unruly shoppers aside, the threats to India’s retail ambitions are plentiful. Poor roads and inadequate storage mean that a quarter of the nation’s fruits and vegetables go bad before they get to market, the government estimates. Laws such as the Standards of Weights and Measures Act of 1976 control information on packaging and how products are sold, relegating India to archaic practices. A retailer can’t use the abbreviation ‘‘MFD’’ in place of ‘‘manufactured by,’’ and writing the size of a shirt in inches instead of centimeters is against the law. ‘‘Each of India’s 29 states interprets the statutes differently,’’ Pantaloon managing director Kishore Biyani says.
India’s retailers are forced to build their distribution networks and warehouses from scratch. Space in India’s teeming cities is limited. And because retailing is a new industry, it’s hard to find professional managers and clerks as stores compete for educated workers.
‘‘This country has no human resources in terms of skilled people to operate retail, and you have to build the supply chain because there is none,’’ says BS Nagesh, 46, CEO of Shoppers’ Stop Ltd., which runs 19 department stores. ‘‘Every state and every store goes through a different license, so even the largest player has to start fresh every time he opens a new store.’’
Wholesalers and distributors, afraid the new chains will shut them out, are adding to India’s growing pains. These groups act as middlemen and take a cut of sales. Now, chains such as Subhiksha are buying directly from drugmakers and consumer product companies, luring customers with average discounts of 10% and eliminating the distributors.
‘‘There was a lot of resistance from traders who didn’t like our discounting,’’ says managing director R Subramanian, 39, who founded the company in 1997. ‘‘They tried to organise supply boycotts to make sure we didn’t discount. We had to go to court to ensure we got our supplies.’’
Praveen Khandelwal, New Delhi-based secretary general of the Confederation of All India Traders, which represents about 50 million small shopkeepers, says chains like Big Bazaar are bad for traditional merchants. ‘‘We are opposed to any kind of chain of retail stores, whether Indian or foreign,’’ says Khandelwal, sitting in his hardware shop in New Delhi, which is stocked to the roof with boxes of door knobs and handles. ‘‘Ultimately, it is detrimental to domestic traders.’’
posted by InCar Group Press Room at 02:11
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