Tuesday, 17 January 2012

Category Analysis of Organised Retail in India

We can glean a few pertinent observations from the categorywise break-up of the current status of Organised Retail. I have surmised in my earlier blog post that the Kirana Stores threat does not exist. The key drivers of business in the Organised Retail sector can be said to be:

  • Clothing
  • Footwear
  • Consumer Durables Home Appliances and Equiments
  • Furnishings, Utensils, Furniture
  • Watches
  • Jewellery - new Entrant
A simple observation of the shops on offer in various malls, organised retail chains will throw up the above categories that are present as major drivers. We can list a number of competitors in Clothing, or Footwear. A simple observation of our - and our family and neighbours' purchasing habits will prove my point. In Clothing, we have Fashion Bazaar, Westside, Peter England, Vishal MegaMart, Koutons, ITC, Benetton, Raymond to name but a few.  In other Categories, you have Vijay Sales, Welspun, FabIndia, Lotus, Next, DigiWorld etc etc. The point is the current volume of business from these categories, as also the retail (unorganised) competition. For ex, A durables brand can have between 350 - 1000 stores in a state like Chhatisgarh; For Food and Grocery, the number of retailers goes up to 1000 from a single town! Nestle had 533 outlets in Satna (a 3-lac population town) alone -contrast it with the durables market, where a good brand can have 500 outlets in a state the size of Chhattisgarh! We are talking about a vast difference in scale here, and that is what makes a critical difference.

A further point is that all these categories are high-involvement purchases, and have customers are far more likely to shop around. That means, new stores / formats are easily discovered; the larger stores would obviously have better ranges, more modern products. The importance of Ambience also comes in, since it is easier to evaluate clothing in a relaxed atmosphere; greater space, more amenities actually adds a definable value to the customer since it enables him/her to judge colours for clothes / Proper Fitment  for clothes and shoes / TV performance / Hi-Fi Sound etc. In these categories, there is a distinct value addition to the customer. To Summarise,
  • Restricted Market in terms of retail spread
  • Value Addition - tangible value addition for the customer
  • Customer propensity to think and evaluate a lot more in these caegories
The above 3 factors lead to greater foot-falls; and it is here that the larger pocket-size of the retailer comes into play by stocking up on all the latest models / varieties etc. This is what translated into faster growth and acceptance of these categories in the Organised Space

India has 14 shops per 1000 people - 1.5 Crore retail outlets, and it would be being optimistic in the extreme to expect a handful of Organised Retailers to kill of the unorganised sector. Yes, the Organised Retail Sector is Growing rapidly - the figures are 36% y-o-y, but the main drivers of business as on date are different. In the Food and Grocery segment, the three identified differentiators are conspicuous by their absence.
  • First, this space has a widesrpead, well penetrated market, with each locality and each house being properly serviced
  • There is limited scope for value addition - tangible value addition- in this category for the consumer.
  • These are low-involvement purchases and customers do not think and evaluate purchases too much - they are habit-formation categories - and habits are the hardest to break
  • Proper servicing of this unorganised sector by the companies. One has to understand that for the FMCG category companies, this market is the bulk volume generator. Further, since logistical challenges are limited due to small SKU sizes and low absolute prices per SKU, each store is properly stocked with even the latest products. The critical point here is that the advantage of new products / full ranges is not present for the Food and Grocery Sector. Organised Retail is competing not just with the small retailer  but also the industry norm of weekly servicing of each outlet in the entire nation
  • The fundamental drivers of business in this category are thus different - quite different. So are the ground realities. This category is one of the most streamlined and organised categories, as also the most competitive among all the products categories. Easy logistics, Low SKU Price in absolute terms (how much does even a premium biscuit cost - 50 rs? Contrast it to one shoe- 750/-), established systems and habituated customers create an entirely different paradigm of business
That is not to say the Food and grocery as a category will not grow in Organised Retail - it will. It is one of the top 7 categories. However, the fact remains that today, in the Food and Grocery segment, the share of Organised Retail is only 1% as opposed to more than 10% for other categories


  1. Hey Vishal Nice fact based analysis of modern retail . However I have a different thought on the success of organsied retail in food segments and its ultimate growth .

    Make sure that you read this part as well --

    1. Thanks Amit...

      Saw your blog; good thoughts. You can touch my blog on kirana and organised retail for a better idea on my views (http://reflectionsvvk.blogspot.in/search/label/Business); Kirana will never grow out of fashion for several reasons; but the organised segment will also grow in value terms. It may not grow in percent share terms to the level of expectations...