Updates on the Indian Retail Sector

Weekly Retail News from India

The categories covered in this report are: (Click to view)

General Plans and Information
Big players – plans and investments
Bharti Enterprises-Wal-Mart tie up
Regional Trends
Support Industries
HR News
Unique formats
Government Policy
Sector specific

General Plans and Information

1. Will India have a retail revolution?
The Indian government stood firm on its stance of allowing FDI in retail in phases instead of all at once. The government has permitted FDI in logistics and will also be allowing wholesale trade to be continued. At the India Economic Summit, the government protected the domestic industry by not permitting FDI in retail.

According to Ajay Dua, secretary, department of Industrial Promotion and Policy, the government was reluctant to open the doors to foreign players to protect the ‘mom-and-pop’ stores which employed 21 million people. All industry representatives such as Sunil Mittal, MD of Bharti Enterprises and Adi Godrej, chairman of Godrej Industries did not agree with Mr. Dua’s point of view.
Monday, November 27, 2006
Source: the Economic Times

2. Public-private partnerships will give a boost the retail sector
One of the major requirements for further growth of the retail industry is real estate development and investments in infrastructure, which can be funded through public-private partnerships. According to Ajay Dua, secretary, Department of Industrial Policy and Promotion at the Ministry of Commerce and Industry, "There is scope for public private partnership in real estate management and infrastructure for retail."

There is also a need for an efficient system of logistics in the retail industry, a place where FDI would likely be possible. Mr. Dua urged retailers to go beyond the metros and expand to smaller towns and cities, to enter rural markets and offer micro credit schemes.
Tuesday, November 28, 2006
Source: The Economic Times

3. Retail chains rushing to raise PE funds
Domestic retail chains are rushing to raise funds to cover expansion plans as global giants are all heading towards the Indian market. LifeKen, one of the leading domestic pharmacy retailers based in Bangalore, Mobile NXT, a Delhi based mobile retailer, 24/7 a pharma chain from Delhi and Digital Shoppy a consumer durable chain from Hyderabad are all focusing on raising funds for expansion.
Saturday, December 02, 2006
Source: The Economic Times

Big players – plans and investments

1. Birla Group finalizing retail plans
The AV Birla Group announced that it will be starting operations in the next 7-8 months and is likely to form its own retail business, without tying up with any foreign player. According to sources, the Birla Group is likely to invest Rs. 5,000-6,000 crore in the initial phase of their retail venture, partly financed by Birla TMT Holdings.

The company’s retail venture is likely to be centered around smaller cities, such as Jalandhar, where the company recently acquired land. Company executives say the focus will be on using the existing infrastructure. There will a combination of large and small stores, with multi-format stores focusing on food and grocery and general merchandise.
Wednesday, November 29, 2006
Source: The Economic Times

2. Reliance Retail to focus on Chennai next
After opening its first retail stores in Hyderabad, Reliance Retail is now focusing on opening stores in Chennai, where it will be opening 10 stores in densely populated residential areas around December 25, 2006. Most stores will be in the 1,500 to 3,500 sq ft range. The company also plans to open 6-7 stores in Jaipur, Delhi and Mumbai around the same time. Reliance hopes to have significant presence in 6-7 states by March 2007.

The company has hired the CEO of another retail company as CEO of its B2B business, and is likely to hire another 30 expatriates as consultants. So far 15 expatriates from companies such as Wal-Mart, Carrefour and Dairy Farm have already been hired and are working on its supply chain, operations and planning.

Its first 10 stores in Hyderabad are bringing in Rs. 100,000 per day, selling over 6 tonnes of fresh fruits and vegetables a day. The company had anticipated average sales of 4-5 tonnes per day. The company is planning to open at least 30 more stores in Hyderabad alone.

Reliance has pushed back its plans for its other two formats, Reliance Fresh Plus and its hypermarkets, due to the success of its Reliance Fresh stores. It will now open its first hypermarket, Reliance Mart in Ahmedabad in March 2007, instead of this December as earlier planned.
Thursday, November 29, 2006
Source: The Hindu Business Line

3. Pantaloon Retail targets younger customers
Pantaloon Retail announced that it will be targeting younger customers with its Top 10 brand for college students. The brand has been inspired by Top 10 music and movie chartbusters. The first of these stores will be launched in Mumbai next week. According to Zahid Shaikh, chief of marketing, “Top 10 brand will have a special collection dedicated to colleges in Mumbai. It is well known that campus rivalry exists among college students and one always takes pride in wearing the college batch on their sleeves.”

Pantaloon’s other brand Indus League Clothing, opened its first Jealous 21 store in Mumbai. Jealous 21 offers casual, club and denim wear for women from 17-24. The company plans to offer Jealous 21 through department and lifestyle stores along with 120-130 stand alone outlets in the next three years.
Thursday, November 29, 2006
Source: Business Standard

4. Wal-Mart’s tie up with Bharti does not mean the end of Tesco’s interest in India
Wal-Mart and Bharti Enterprises tie up for the Indian market is not likely to end Tesco’s interest in the Indian market. The UK based retailers has confirmed that it is still interested in tying up with an Indian joint venture partner to enter the Indian market, although plans are unlikely to be finalized before the 2007-08 financial year.

The company is also bullish on its merchandise sourcing from India and has offices in Bangalore and Delhi, buying clothing, household products and garden furniture, totaling approximately GBP 75 million last year.
Saturday, December 02, 2006
Source: The Economic Times

Bharti Enterprises-Wal-Mart tie up

1. Wal-Mart steps in as talks with Tesco fail
Bharti Enterprises talks with Tesco have reportedly not come to a positive conclusion and Wal-Mart will likely be tying up with Bharti to enter the Indian market. According to sources, Bharti was said to be Wal-Mart’s fourth choice as a partner for the Indian market, after it had conducted talks with other business houses such as Birlas, Mahindra & Mahindra and Reliance.

Wal-Mart is now understood to have committed ‘serious money’ on the Indian market, which will enable it to face strong competition from Reliance Retail. While Tesco was taking its time in deciding on a JV, Wal-Mart swiftly decided on the merit of entering the Indian retail market.
Sunday, November 26, 2006
Source: The Economic Times

2. Bharti and Wal-Mart form agreement to open stores jointly in India
Bharti Enterprises and Wal-Mart Stores Inc. announced that the two companies had formed a memorandum of understanding to jointly explore business opportunities in the Indian market. Although Sunil Mittal, chairman of Bharti Enterprises, refused to give the financial details, he did admit that the deal would be involving hundreds of stores across the country, "It is going to be a large investment. There will be stores across the country. We are going to be a big player in this market and Wal-Mart will be a joint venture partner."
Monday, November 27, 2006
Source: The Economic Times

3. Bharti likely to pay 2-3% for Wal-Mart’s name
Bharti Enterprises will be launched Wal-Mart branded stores in India on a revenue-sharing agreement that is expected to be finalized in the next 10 days. In accordance to the agreement, approximately 2-3% of sales will go to Wal-Mart for the use of its brand name. This retail venture is likely to have an investment of Rs. 10,000 crore, although the equal partnership JV is not be investing in real estate.

The first stores will open in Mumbai, Bangalore and Delhi and the company is busy tying up with property and mall developers across the country. The deal is reportedly to be the best fit for the Indian market with Wal-Mart’s concept of everyday low prices.
Monday, November 27, 2006
Source: The Economic Times

4. Reliance Retail’s Mukesh Ambani welcomes Wal-Mart-Bharti tie up
At the India Economic Summit, Reliance Industries chairman, Mukesh Ambani welcomed the JV between Wal-Mart and Bharti Enterprises saying that the Indian market had plenty of room for new companies and ventures. He added that the Indian retail sector could add 6-8 large players as yet and that FDI should be allowed in multi-brand retailing as the sector offered an immense potential that cannot be captured by any one company or brand.

On the effect on kirana stores, he said that, "I think that the last mile (kirana stores) are the most efficient. The owners of these stores know the customers. Therefore, opportunity is to partner them and build supply chains." With an estimate 8 million neighborhood stores, the retail sector is likely to grow even faster rather than impede its growth.
Monday, November 27, 2006
Source: The Economic Times

5. Pantaloon ready to take on Wal-Mart challenge
India’s current retail leader Pantaloon Retail is ready to take on the challenge of Wal-Mart in the local market. According to Kishore Biyani, MD of Pantaloon Retail India Ltd (PRIL), "The market dynamics will change but we are prepared and plan to scale up our number of Big Bazaar stores to 100 by December 2007, before any international retailer opens up its store here."

At the sidelines of the CII National Retail Summit press conference, he emphasized that the scale of operations would depend on the speed of operations. As foreign retailers are entering the Indian market, modern retail will be accounting for close to 25% of total consumer spending of Indian consumers.
Monday, November 27, 2006
Source: The Economic Times

6. Traders Forum against Wal-Mart entry into India
Traders in Delhi have opposed the entry of US giant Wal-Mart into the county as they feel it would leave the domestic traders “totally unprotected”. According to Praveen Khandelwal, General Secretary of the Confederation of All India Traders (CAIT), "The Foreign Direct Investment in retail sector will prove to be much detrimental to the interests of internal trade of the country, which is contributing about 70 per cent to the national exchequer.”
Tuesday, November 28, 2006
Source: The Economic Times

7. Wal-Mart’s Indianization
Even though it is the world’s largest retailer, it is not infallible and has had to withdraw from Germany and South Korea this year itself. For India, the company has to keep its Indian consumers firmly in mind when deciding everything from location, to pricing, to packaging and package size. According to Nirmalya Kumar, professor of marketing at London Business School, “Wal-Mart’s challenge in India will be to customise products and formats for local customers and to work around the infrastructure clearly not equipped to handle a world-class supply chain”.

Another key issue will be to understand the country’s tax system and its variations according to state. According to Andrew Levermore, CEO of Hypercity, “One of the biggest challenges for Wal-Mart in India would be the lack of sophisticated infrastructure that it has not dealt with in other countries yet. The Indian market is extremely diverse and distribution system highly complex. Wal-Mart will clearly have to tweak a whole lot of their processes to ‘Indianise’ systems and work around the country’s peculiarities.”
Tuesday, November 28, 2006
Source: The Economic Times

8. No everyday low prices just yet
Wal-Mart’s famous ‘Everyday Low Prices’ phrase is not applicable to the Indian market as yet. Industry experts feel that consumers will get the benefits of large retailers over the long run, and not immediately in lower prices. According to Asitava Sen, principal consultant at PricewaterhouseCoopers, “I don’t see a great impact on prices in the FMCG space, where the supply chain is fairly organised and there’s hardly any scope for disintermediation. The retailers negotiating power with the manufacturers will come with greater scale of operations.”

The prices are likely to decrease for items where there are several layers of intermediaries such as fruit and vegetables, where there can be as many as 7-8 levels of middlemen. Prices of consumer durables is unlikely to see a decrease in prices.
Wednesday, November 29, 2006
Source: The Economic Times

9. Left comrades upset with Wal-Mart entry
The tie up with Bharti Enterprises and Wal-Mart has angered the Left parties who have asked Prime Minister Manmohan Singh to intervene and stop the US company from entering the country. The Left is one of the strongest opponents of FDI in retail and had earlier even opposed the governments easing the rule to allow 51% FDI in single brand retail. The CPM and CPI has called for a nationwide bandh to protest against Wal-Mart’s entry to India.
Wednesday, November 29, 2006
Source: The Economic Times

10. Wal-Mart takes a serious stand on misuse of its name
Wal-Mart has taking a serious stance on any misuse of its name and has served legal notices to Indian businessmen who have registered trade names under the ‘Wal-Mart’ brand name. Four businessmen in India, have received legal notices in this regard, in Noida, Punjab and West Bengal. Wal-Mart is not the first company to follow strict rules regarding its name, Dairy Farm International of Hong Kong also followed similar procedures when in came to India.
Wednesday, November 29, 2006
Source: The Economic Times

11. Bharti will benefit from Wal-Mart tie up: Narayana Murthy
Infosys founder and chief mentor Narayana Murthy supported the joint venture between Bharti Enterprises and Wal-Mart saying that Bharti would benefit from Wal-Mart’s expertise and technology. He added that the company’s “ability to leverage the power of technology for bringing in efficiency...bringing in customer comfort in an unheard of manner".
Friday, December 01, 2006
Source: The Economic Times

Regional Trends

1. Prepare for long drives to stores
Consumers must be prepared to face long drives to reach Wal-Mart stores, which according to retail and real estate consultants, is likely to set up stores at least 10 kms away from city centres and residential areas. Sunil Mittal, chairman of Bharti said that the company is looking at all options such as leasing, renting and owning property.

Real estate will be one of the critical factors in the retail strategy of the Wal-Mart and Bharti tie up. Rentals and malls have increased by 60-70% in the past year and might be a deciding factor in the company forming its own real estate development.
Wednesday, November 29, 2006
Source: The Economic Times

Support Industries

1. Indian suppliers eager to live the American dream in India
Indian suppliers are eager to relive their American dream, this time in India itself. Companies that are manufacturing a wide variety of goods hope to continue their relationship with the retail giant to supply the Indian Wal-Mart stores. The company will be sourcing approximately $600 million of goods from India this year. Last year, the company sources $400 million from India.

According to Rajinder Gupta, MD of Trident Group, a Ludhiana based home textiles company, “We look at Wal-Mart’s entry not just as an opportunity to supply for its private labels but also to retail our products under our own brands. We already have an established relationship with Wal-Mart and that would work in our favour once they start sourcing for their India operations.”

Other companies such as JHS Svendgaard which manufacturers oral care products and Liberty Shoes which manufacturers and supplies footwear to Wal-Mart are keen on continuing their existing relationship with the company as well as contributing their knowledge of the local market.
Friday, December 01, 2006
Source: The Economic Times

HR News

1. Wal-Mart brings in own high level executives
Wal-Mart and Bharti Enterprises highly anticipated entry to the Indian retail market is not going to create any HR ripples within India. The company will be filling in crucial spots with its own senior executives. One top industry emphasized that the company “doesn’t need to learn retailing from Indian executives”. Andy Guttery and Lance Rettig are likely to head the Indian operations, along with Raj Jain, who will be heading the cash-and-carry business and has been training for the job in Shanghai.

The CFO position is likely to be an Indian and is being scouted by a search firm. Other important back end operations such as logistics, sourcing and merchandising will be taken care of by Wal-Mart executives also. Lance Rettig is likely to be in charge of all overall operations and also of market research and business development. Andy Guttery’s exact job is not yet known, but he will be relocating to India. He was earlier with the company’s South Korean operations.
Friday, December 01, 2006
Source: The Economic Times

Unique formats

1. Attracting customers with door-to-door service
Wal-Mart is considering setting up a home-delivery system in India, the company’s first anywhere in the world. Based on market research, the company has found that Indian households buy fresh fruits and vegetables on a weekly basis and place a high priority on home delivery.

The world’s largest retailer, Wal-Mart is making an entry into the Indian market with the Bharti Group, and had opened its business development and market research centre a year ago and this home delivery service is one of the focuses of Wal-Mart’s study on the Indian market.

According to Jeetu Mehta, President of Spencer’s Retail, “Home-delivery makes more sense for top-ups for a household’s grocery requirements. As a trend, door-step delivery globally grows with better internet connectivity through the online model. In India, the concept is yet to take off in organised retail. On its part, Spencer’s offers this service within a 3/5 km radius from its stores.”

Pranam Barua, CEO of Trinethra Super Retail (TRSL) added that, “As much as 20% of our total sales come from the home-delivery route. At times, customers shop at the store and then ask for the supplies to be delivered or they order from home. Fabmall stores deliver within a 2/3 km radius at a minimum order of Rs. 250.”
Friday, December 01, 2006
Source: The Economic Times

2. Retailers cashing in on private labels
Retailers are gearing up to offer cheaper options for consumers with private labels. For consumers who are not too brand conscious, private labels offer a significant amount of saving for a wide range of items such as food, cosmetics, beverages, durables and apparel.

Reliance Retail will be offering a wide range of products under its Reliance Select brand. According to Gunender Kapur, president of the food division, “The company will extend its private labels across product categories like tea, water, natural food, dairy products, biscuits and cosmetics.”

Private labels contribute a larger share of the profit margin for the retailers, with savings on transportation, marketing and advertising. RPG Retail which operates the Spencer’s stores in three different formats, is considering private labels in electronic items, after having successfully launched them in apparel and foods. RPG Retail president, Jitu Mehta, estimates that private labels contribute 10% to total sales and are expected to increase to 20-30% in the next year.

At Piramyd Retail, the private label business contributes for 12% of sales and is expected to increase to 20% next year. The company has private labels in home linen, apparel and footwear and will be adding luggage and fashion jewelry to its range of private label products.
Saturday, December 02, 2006
Source: The Economic Times

Government Policy

1. Wal-Mart’s entry into Indian market ‘as per the guidelines’
In response to the Left parties criticism for Wal-Mart’s entry to the Indian market, Bharti Enterprises said that the company’s tie up with Wal-Mart was “as per the guidelines”. According to Rajan Bharti Mittal, Joint MD, "Bharati will manage the front-end 100 per cent, while Wal-mart will provide support at the back-end, logistics and supply chain. The deal is as per the (government) guidelines."
Friday, December 01, 2006
Source: The Economic Times

Sector specific:

Apparel & Footwear

1. Future Group to set up 55 Brand Factory stores
The Future Group announced that it will be setting up 55 outlets of its newest format, Brand Factory by 2010 and Central malls in every state capital in the next three to four years. According to Vishnu Prasad, Pantaloon Retail India president (south) and CEO of Central and Brand Factory, the company will have 5 Central stores by the end of 2007.

Baroda will have a Central store opening in December 2006 and one in Gurgaon in June 2007. At present, the company has Central stores in Bangalore, Hyderabad and Pune. At a press conference, Rajesh Seth, marketing chief of Central and Brand Factory, said the company would have 120 brands at discounted prices. Most of the items would be out of season clothes and cater to customers who wear brand name items but cannot afford them at regular prices at lifestyle stores.
Thursday, November 30, 2006
Source: The Economic Times

2. Reliance Retail likely to purchase Ruby Mills for Rs. 400 crore
Mukesh Ambani’s Reliance Retail is likely to purchase Ruby Mills in Dadar for approximately Rs. 400 crore to set up Mumbai’s largest hypermarket. Senior officials have had a series of meetings with Manharlal Chunnilal Shah, executive chairman of Ruby Mills for the past few months and are likely to sign a deal in the next few weeks.

According to sources, Reliance had earlier shown interest in Kohinoor Mills, also located in Dadar, which was eventually bought by Matoshri Realtors, promoted by Raj Thackery-Unmesh Joshi for Rs. 400 crore.
Thursday, November 30, 2006
Source: The Economic Times

Consumer Durables

1. HCL enters into digital lifestyle stores in Hyderabad
HCL Infosystems announced that the company will be opening digital lifestyle stores in the South Indian market. The company currently has 18 stores in north and west India and will be launching 2 stores in Hyderabad. The company will be opening 10 stores in Andhra Pradesh, especially in Chennai, Bangalore, Cochin and Madurai. HCL is targeting 150-200 stores by the end of 2007. Each of the stores will be in the 800-1,000 sq ft in space and will sell brands such as HCL, Apple, Microsoft, Toshiba and Casio. The digital lifestyle industry is estimated to be worth Rs. 2,500 crore, according to a statement of the company.
Thursday, November 30, 2006
Source: The Economic Times

Food & Grocery

1. Subhiksha to open 60 outlets in Delhi
Chennai based food retailer Subhiksha announced that it will be opening 60 new outlets in Delhi to its 100 existing stores. The new stores will have additional facilities such as medical check-up and railway booking counters. According to Ashu Sake, vice president of operations (Delhi region), "Delhi has a huge retail potential and we want to tap this opportunity. Our aim is to become a neighbourhood store with an outlet every two kilometres or so."
Monday, November 27, 2006
Source: The Economic Times

2. UAE group Abbasi Group to launch coffee chain in Mumbai
UAE based Abbasi Group announced that it will be opening three outlets of coffee chain ‘Coffee Bean and Tea Leaf’ in Mumbai. After opening outlets in Mumbai, the company will be opening coffee shops in Pune and Bangalore. The Abbasi Group has the master franchise rights for the company’s coffee shops in the Middle East and India.
Wednesday, November 28, 2006
Source: Business Standard