News: On Indian hypermart aisles, franchisee in tow

(DNA 21/04/2006) Mumbai - When the big retailers come, expect most of them to walk down the hypermarket aisle on a franchisee's arm. That's what the Great Indian Retail Story is about, an Ernst & Young report says.

In most emerging retail markets, such as Eastern Europe, Latin America and China, hypermarkets have been the major high growth format.

Hypermarkets provide consumers with a combination of good prices, overall shopping convenience and experience, product range and quality.

Currently there are less than 50 hypermarkets in India, operated by about five big retailers. The report says that India's 67 cities with a population of half a million or more have the potential to absorb many more hypermarkets in the next 4-5 years.

The report draws parallels between consumer behaviour in India and China. It says that the neighbouring consumers have similar buying patterns.

In China, most hypermarkets are located within city limits as consumers shop more than once a week, have low passenger car penetration and limited refrigeration space at home.

Also, the number of malls across the country will increase as retailers firm up plans to enter smaller cities.

The report lists issues like paucity of talented professionals, agile and adaptive supply chains, fraud and theft, and poor infrastructure as some of the challenges. The retail sector in India is highly fragmented and organised retail in the country is at a very nascent stage.

Of the 12 million retail outlets, more than 80% are run by small family businesses which rely on household labour. China and Brazil, took 10-15 years to raise the share of their organised retail sectors from 5% to 20% and 38%, respectively.

"India, too, is moving towards growth and maturity in the retail sector at a fast pace," says Ranjan Biswas, partner, Ernst & Young India.

About 220 malls are expected to come up till 2007. Of these, 81 will be in smaller cities. Increasing awareness levels in Tier II cities are eroding the ‘urban aspirations' lead of the metros and the international brands are considering these pockets to increase their market penetration.

Footwear and clothing emerge as the categories with the highest organised retail penetration (ORP). Footwear has a 22% ORP driven by high levels of franchising activity. It is dominated by multinational Bata.

Increased branding activity has seen clothing apparel retailers and merchandising spread across formats with a 12% penetration. While food & grocery contributes about 41% of the private consumption expenditure and about 77% of total retail sales, it is largely controlled by the unorganised small outlet sector.

Segments like books & music, jewellery, consumer durables, home furnishings, medical care and health & beauty have seen limited penetration of organised retail and will require innovative and aggressive plans on the part of Indian and international retailers to fully exploit their potential.

"Companies have to understand and retain customers. A 5% reduction in customer defection can treble profits," says Biswas.