News: India's retail shopping revolution
(Bloomberg 05/04/2006) Mumbai - Hypermarkets are changing the nation's spending habits, write Abhay Singh and Subramaniam Sharma.
Bobby Gupta says he had never seen a a crowd as large as that on January 26, when Big Bazaar, India's leading chain of discount stores, held its biggest-ever sale.
Two million jammed Big Bazaar's 24 locations across India, forcing three- quarters to shut early when employees could not handle the influx. In Bhubaneswar in eastern India, hordes of bargain hunters jostled to grab cut- rate jeans, pressure cookers and mobile phones.
Indian consumers, once relegated to sorting through neighborhood stores and roadside markets, are shopping with a vengeance at new malls, discount centers and combination food and department stores called hypermarkets.
India's middle class, 216 million strong, is clamoring for the latest in flavored toothpaste and flat-panel TVs.
By 2010, there will be 351 million middle-income Indians in 65 million households, up from 40 million households today, consulting firm McKinsey predicts.
Indians do as much as 97 percent of their spending at small, independently owned neighborhood shops, where they can pick up lentils in one spot, towels in another and sandals in a third. They jam into tiny stores or narrow stalls, 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 fund manager Pauli Laursen.
Homegrown retailers and foreign hopefuls are rushing to ring up profits from India's shopping spree. Mumbai- based chemicals and petroleum giant Reliance Industries plans to spend a total of 150 billion rupees (HK$26.1 billion) by March 2007 to open 1,575 warehouse-style stores in towns and large villages across India. In January, Reliance announced an initial US$750 million (HK$5.85 billion) investment.
In December, Wal-Mart applied to India's central bank to open an office to study the Indian market. The application is under review.
Spending by Indians on products and services outside of education, housing, health care and transportation rose 5 percent to an estimated US$219 billion in 2005. Of that amount, retail chains took in just US$8.2 billion, according to consulting firm Technopak Advisors. Retailers' share of consumer spending may increase to US$25 billion by 2010, Technopak estimates.
"India is clearly a country that is very attractive," says Beth Keck, director of international corporate affairs at Wal-Mart. Investors think so, too. They are driving up shares of Big Bazaar's parent, Pantaloon Retail India. The stock of the Mumbai-based company surged 176 percent in the year ended April 3, to 2001.75 rupees. ICICI Venture, the private equity arm of ICICI Bank, the biggest Indian lender that is not controlled by the government, says it made five times its 2001 investment in Pantaloon.
RPG Enterprises, which took in US$1.89 billion of revenue from tire manufacturing, power generation and other areas in the year ended March 31, 2005, plans to invest 4.5 billion rupees to expand its Spencer's chain. Spencer's features Big Bazaar-type shops, supermarkets and convenience stores.
Vishal Retail, which competes with Big Bazaar through its Vishal Megamart chain, is in talks with private equity investors to raise as much as 500 million rupees, chairman Ram Chander Aggarwal says. He plans an initial public offering worth as much as 1.5 billion rupees.
However, 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.
Space in India's teeming cities is limited, and because retailing is a new industry, it is hard to find professional managers and clerks as stores compete for educated workers.
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. "Ultimately, it is detrimental to the domestic traders." Khandelwal, 45, has allies in India's communist parties, which support the Congress Party-led government in parliament.
"No one is coming here for philanthropy," says Dipankar Mukherjee, a member of India's upper house of parliament from the Communist Party of India, Marxist. "I'll welcome foreign investment, whatever the industry, as long as it creates an asset, creates employment and gives us technology."
More pressing to Kishore Biyani, managing director of Pantaloon, is how to deal with Wal-Mart and other hovering international competitors. In January, India took the first step in opening retailing to foreign investors. The government now allows overseas businesses to own 51 percent of companies that sell products under a single brand.
Retailers such as Wal-Mart that provide a range of goods made by different manufacturers under one roof are still barred from opening stores in India.
"There's a tearing hurry," Biyani says. "We should be large enough before anybody comes in - whoever that may be. We learned from them that you can sell utensils and fashion together."
In 2001, Biyani opened the first Big Bazaar in Mumbai and followed with two more in the space of 22 days. That year, Pantaloon's average stock price was 17.78 rupees, less than one- hundredth of the price on April 3. The 44 percent holding of Biyani and his family is now worth US$529 million.
The few international companies that have set up stores in India are not finding a similar path to riches. Since 2000, India has allowed foreign cash- and-carry wholesale stores such as Germany-based Metro, the world's third-largest retailer, to operate in the country. Metro stores sell to companies and other retailers, which get a free membership by showing their business license. Consumers cannot use them.
Metro opened two cash-and-carry locations in India in October and November 2003. Since then, it has been slow going. Laws such as the Agricultural Produce Marketing Committee Act restricted Metro to government- controlled markets for fruits and vegetables. Even if Metro had been willing to buy from government markets, the law prevented it from selling the fruits and vegetables in its stores. Metro decided not to stock produce.
As of January, local governments in nine Indian states changed the agricultural act to allow wholesalers and retailers buy produce directly from farmers and sell it from their stores.
Changing the way Indian consumers shop may be the biggest challenge to both foreign and domestic retailers.
"I'm not convinced that for food and groceries, big box-style retail will work in India," says Raman Mangalorkar, of management consulting firm AT Kearney. In India, refrigerators and cars are small, traffic is heavy and people tend to like fresh food, he says.
The most competition for Biyani may come from firms that are just starting to knock on India's retail door. Reliance is to focus on consumers outside cities like Bangalore and Mumbai.
Reliance, India's second-biggest company by market value, plans stores in two formats: a Big Bazaar-style setup spread over 150,000 square feet and 75,000-square-foot supermarkets. The retail foray will require 500,000 employees. Reliance has already hired 6,000 managers from India and overseas, sources say.
"2006 will be the inflection point for retail in India, and the catalyst will likely be Reliance," says Arvind Singhal, chairman of Technopak. "So far, very incremental investments have been made in India by modern retailers ranging between US$5 million and US$50 million a year. The pace of change and the penetration have been very slow."
Wal-Mart, which draws 318 million shoppers each week to more than 6,000 worldwide locations, will shake up the pace even more. "We are hopeful the Indian government will liberalize direct investment," Keck says.
Biyani is not waiting for Wal-Mart. He is already putting its methods into practice - even if the execution may need some tweaking. On January 28, the last day of the Big Bazaar sale, the store in Gurgaon was packed. Biyani says in spite of the apparent chaos, there is a method to his strategy for Big Bazaar.
"We learned one basic formula for retailing from Wal-Mart founder Sam Walton's book [ Made in America: My Story], which has stood us in good stead in all times," he says. "Your operations can be made right tomorrow. But if you get your merchandising wrong, there will be no chance to run your stores ever." That means that figuring out what people want comes first.
Biyani says the next step for Pantaloon is to introduce specialty retailers. Home Town stores will sell everything from doors to hammers. Biyani plans eight by the end of 2008. He intends to open 65 gold jewelry stores called Navarasa by March 2008.
"Biyani is able to strike a chord with the customer; it's a skill," says Rakesh Jhunjhunwala, who owns 1.9 percent of Pantaloon stock. "I predict in five years he will be four times the size of his nearest competitor."
For this to happen, Biyani may have to start watching what his competitors are up to with the same zeal with which he observes shoppers at Big Bazaar.
Bobby Gupta says he had never seen a a crowd as large as that on January 26, when Big Bazaar, India's leading chain of discount stores, held its biggest-ever sale.
Two million jammed Big Bazaar's 24 locations across India, forcing three- quarters to shut early when employees could not handle the influx. In Bhubaneswar in eastern India, hordes of bargain hunters jostled to grab cut- rate jeans, pressure cookers and mobile phones.
Indian consumers, once relegated to sorting through neighborhood stores and roadside markets, are shopping with a vengeance at new malls, discount centers and combination food and department stores called hypermarkets.
India's middle class, 216 million strong, is clamoring for the latest in flavored toothpaste and flat-panel TVs.
By 2010, there will be 351 million middle-income Indians in 65 million households, up from 40 million households today, consulting firm McKinsey predicts.
Indians do as much as 97 percent of their spending at small, independently owned neighborhood shops, where they can pick up lentils in one spot, towels in another and sandals in a third. They jam into tiny stores or narrow stalls, 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 fund manager Pauli Laursen.
Homegrown retailers and foreign hopefuls are rushing to ring up profits from India's shopping spree. Mumbai- based chemicals and petroleum giant Reliance Industries plans to spend a total of 150 billion rupees (HK$26.1 billion) by March 2007 to open 1,575 warehouse-style stores in towns and large villages across India. In January, Reliance announced an initial US$750 million (HK$5.85 billion) investment.
In December, Wal-Mart applied to India's central bank to open an office to study the Indian market. The application is under review.
Spending by Indians on products and services outside of education, housing, health care and transportation rose 5 percent to an estimated US$219 billion in 2005. Of that amount, retail chains took in just US$8.2 billion, according to consulting firm Technopak Advisors. Retailers' share of consumer spending may increase to US$25 billion by 2010, Technopak estimates.
"India is clearly a country that is very attractive," says Beth Keck, director of international corporate affairs at Wal-Mart. Investors think so, too. They are driving up shares of Big Bazaar's parent, Pantaloon Retail India. The stock of the Mumbai-based company surged 176 percent in the year ended April 3, to 2001.75 rupees. ICICI Venture, the private equity arm of ICICI Bank, the biggest Indian lender that is not controlled by the government, says it made five times its 2001 investment in Pantaloon.
RPG Enterprises, which took in US$1.89 billion of revenue from tire manufacturing, power generation and other areas in the year ended March 31, 2005, plans to invest 4.5 billion rupees to expand its Spencer's chain. Spencer's features Big Bazaar-type shops, supermarkets and convenience stores.
Vishal Retail, which competes with Big Bazaar through its Vishal Megamart chain, is in talks with private equity investors to raise as much as 500 million rupees, chairman Ram Chander Aggarwal says. He plans an initial public offering worth as much as 1.5 billion rupees.
However, 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.
Space in India's teeming cities is limited, and because retailing is a new industry, it is hard to find professional managers and clerks as stores compete for educated workers.
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. "Ultimately, it is detrimental to the domestic traders." Khandelwal, 45, has allies in India's communist parties, which support the Congress Party-led government in parliament.
"No one is coming here for philanthropy," says Dipankar Mukherjee, a member of India's upper house of parliament from the Communist Party of India, Marxist. "I'll welcome foreign investment, whatever the industry, as long as it creates an asset, creates employment and gives us technology."
More pressing to Kishore Biyani, managing director of Pantaloon, is how to deal with Wal-Mart and other hovering international competitors. In January, India took the first step in opening retailing to foreign investors. The government now allows overseas businesses to own 51 percent of companies that sell products under a single brand.
Retailers such as Wal-Mart that provide a range of goods made by different manufacturers under one roof are still barred from opening stores in India.
"There's a tearing hurry," Biyani says. "We should be large enough before anybody comes in - whoever that may be. We learned from them that you can sell utensils and fashion together."
In 2001, Biyani opened the first Big Bazaar in Mumbai and followed with two more in the space of 22 days. That year, Pantaloon's average stock price was 17.78 rupees, less than one- hundredth of the price on April 3. The 44 percent holding of Biyani and his family is now worth US$529 million.
The few international companies that have set up stores in India are not finding a similar path to riches. Since 2000, India has allowed foreign cash- and-carry wholesale stores such as Germany-based Metro, the world's third-largest retailer, to operate in the country. Metro stores sell to companies and other retailers, which get a free membership by showing their business license. Consumers cannot use them.
Metro opened two cash-and-carry locations in India in October and November 2003. Since then, it has been slow going. Laws such as the Agricultural Produce Marketing Committee Act restricted Metro to government- controlled markets for fruits and vegetables. Even if Metro had been willing to buy from government markets, the law prevented it from selling the fruits and vegetables in its stores. Metro decided not to stock produce.
As of January, local governments in nine Indian states changed the agricultural act to allow wholesalers and retailers buy produce directly from farmers and sell it from their stores.
Changing the way Indian consumers shop may be the biggest challenge to both foreign and domestic retailers.
"I'm not convinced that for food and groceries, big box-style retail will work in India," says Raman Mangalorkar, of management consulting firm AT Kearney. In India, refrigerators and cars are small, traffic is heavy and people tend to like fresh food, he says.
The most competition for Biyani may come from firms that are just starting to knock on India's retail door. Reliance is to focus on consumers outside cities like Bangalore and Mumbai.
Reliance, India's second-biggest company by market value, plans stores in two formats: a Big Bazaar-style setup spread over 150,000 square feet and 75,000-square-foot supermarkets. The retail foray will require 500,000 employees. Reliance has already hired 6,000 managers from India and overseas, sources say.
"2006 will be the inflection point for retail in India, and the catalyst will likely be Reliance," says Arvind Singhal, chairman of Technopak. "So far, very incremental investments have been made in India by modern retailers ranging between US$5 million and US$50 million a year. The pace of change and the penetration have been very slow."
Wal-Mart, which draws 318 million shoppers each week to more than 6,000 worldwide locations, will shake up the pace even more. "We are hopeful the Indian government will liberalize direct investment," Keck says.
Biyani is not waiting for Wal-Mart. He is already putting its methods into practice - even if the execution may need some tweaking. On January 28, the last day of the Big Bazaar sale, the store in Gurgaon was packed. Biyani says in spite of the apparent chaos, there is a method to his strategy for Big Bazaar.
"We learned one basic formula for retailing from Wal-Mart founder Sam Walton's book [ Made in America: My Story], which has stood us in good stead in all times," he says. "Your operations can be made right tomorrow. But if you get your merchandising wrong, there will be no chance to run your stores ever." That means that figuring out what people want comes first.
Biyani says the next step for Pantaloon is to introduce specialty retailers. Home Town stores will sell everything from doors to hammers. Biyani plans eight by the end of 2008. He intends to open 65 gold jewelry stores called Navarasa by March 2008.
"Biyani is able to strike a chord with the customer; it's a skill," says Rakesh Jhunjhunwala, who owns 1.9 percent of Pantaloon stock. "I predict in five years he will be four times the size of his nearest competitor."
For this to happen, Biyani may have to start watching what his competitors are up to with the same zeal with which he observes shoppers at Big Bazaar.
posted by InCar Group Press Room at 22:11
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