A fast growing young population and rising GDP is providing plenty of impetus for India’s retail sector to thrive
The Indian retail sector is one of the fastest growing industries and it is one of the few countries enjoying high growth in this sector. Some of the key elements supporting growth of the Indian retail sector are a growing young population, fast technology development, supportive government policies and simplified tax structure, rising disposable income, changing lifestyles, and improving internet connectivity. The entry of various international brands has additionally supported the growth of the retail sector in India.
Nandini Kelkar, Research Director, Customer Research, Frost & Sullivan.
India is one of the few countries that continues to witness brisk growth in GDP. India’s 7.4% growth has surpassed China’s GDP growth at 6.8% in 2018. India is the second most populous country in the world and population is expected to grow at the rate of 1.1% over the next five years. Of India’s population, 62% is young (in age group 15-34) and of high importance as it will drive demand for various products, including premium, bridge to luxury and luxury products. The urban population as a percentage of India’s total population is estimated to increase from the current 32.8% (2017) to 35% by 2020, thereby increasing the number of people that access better retail facilities. An increase in the overall per capita income has resulted in a rise of per capita disposable income in the country, which has increased at a CAGR of 10% over past five years.
The retail industry is valued at US$680 billion and contributed 8% of the overall workforce of India in 2017. While the overall retail market is expected to grow at 12% per annum, the modern trade would expand twice as fast at 20 % per annum and traditional trade at 10%. The organised retail sector currently has less than 10% contribution to the total retail market, and is expected to account for 24% of the market by 2020. The growth of the Indian economy is being witnessed not only in large cities but also in small cities. FMCG players are focussing on the rural market as this accounts for a large base of potential consumers. This market is yet to be well tapped for other product categories. A hub-spoke approach can be adopted for other categories where cost of reaching out to the deep rural consumer is high.
Rising incomes, an increasing population of working women, changing lifestyles, an increase in travel (including overseas travel), increasing internet penetration, infrastructure development and urbanisation are key drivers of the growing retail industry.
Indian consumers welcome different shopping formats. The industry has seen a drastic change from ‘mom and pop’ stores to modern trade and now to e-commerce. However, the Indian shopping culture is still dominated by unorganised retail outlets operating through small 300-500 sq. ft. shops. The organised sector accounts for approximately 9% of the total market indicating huge potential for growth.
In addition to exploring and welcoming new shopping formats, open-minded Indian consumers look forward to new products, new brands and new experiences. Indian consumers offer a large addressable market for regular or popular brands and products as well as for luxury and bridge to luxury goods and services.
While the growth of the FMCG products is not very high, product categories like mobile phones, apparel, fashion accessories, cosmetics, shoes, watches and jewellery are some that have been witnessing very high retail growth recently.
Exponential growth of e-commerce has changed the face of retailing in India, particularly in lower rung cities. E-commerce shopping formats offer a variety of products, easy accessibility, never-seen-before discounts and promotions for Indian consumers. Indian consumers now are looking forward to more evolved retail experiences with better technology.
The majority of the retail chains are offering online shopping along with brick and mortar shops in India. Online shopping has aided these chains in reaching out to Tier 2 and 3 cities’ consumers and helped them survive the deep discounting challenge offered by e-commerce.
The high cost of real estate is a key challenge for the retail industry in top rung cities. Smaller cities face challenges such as a lack of easy availability of the desired products, quality and variants,
Indian consumers are very price sensitive but are not willing to compromise on product quality, and other aspects like aftersales service for durables, or product freshness in the case of food and beverages. Product delivery expectations are high and hence delivery needs to be at very competitive prices.
The cost of real estate and deep discounts offered by e-commerce to price sensitive Indian consumer challenge brick and mortar retail. Since the retail sector is largely dominated by unorganised retailing, there is a huge opportunity for organised retail. Local players like Reliance and Future Group are expanding their wings beyond metros to cater to a larger consumer base, and many international retailers including the Middle East’ Landmark Group and global giants like Walmart have invested in the growing Indian retail sector. Powerful Indian consumers have backed these investments through their transformed retail buying behaviour and they are now looking forward to better experiences, technology, and wide product and service offerings.
Summing it up, the retail sector has a very bright future in India with investments from local and global giants, leading to the organised sector dominating and holding high potential for growth in the complete retail chain. Nandini Kelkar is Research Director, Customer Research, Frost & Sullivan
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