Organised retailing set to come of age

2007 THE YEAR THAT WILL BE

The new year could well end up being the year of organised retailers. Wal-Mart has announced its plans for India in partnership with Bharti, Reliance Industries has already rolled out its first outlets in Hyderabad and Jaipur, and others are expected to join the party: the Aditya Birla and Munjal groups among them.

Among the big international players, Tesco on the rebound from failed negotiations with Bharti is sure to try again, and Carrefour too might finally find the right partner.

Says B S Nagesh, managing director of Shoppers' Stop: "Almost all the big international food retailers should have established a presence of some sort in India by the end of 2007."

Also on the cards for the new year is possible policy change, allowing multi-brand foreign players to bring in foreign direct investment (FDI) into this space for select categories of products.

AT Kearney estimates that the penetration of organised retailing in the country is barely 3 per cent of the total estimated pie of $320 billion (Rs 14.4 lakh crore). The untapped potential is large enough to attract more players to the retail bandwagon.

Says Deepankar Sanwalka, executive director, KPMG: "There are several business groups that want to be in the retail space. And we could see them wooing mid-sized foreign retailers. A real estate player or even an FMCG firm may look to work with a not-so-big foreign retailer, so that it can retain control over the venture, yet benefit from the expertise."

As Kishore Biyani, chairman of the Future Group, puts it, "The way things are going, people might sell their existing businesses to get into retailing."

With incumbents ramping up and new players coming in, the market will get more competitive. Says Neeti Chopra, marketing head at Trent, the Tata group's retailing enterprise: "For some time, before the market grows, everyone will be fighting for the same set of customers. And that will mean more sweet deals for buyers."

That's possibly why Shoppers Stop's Nagesh is hoping that buying trends, which today are skewed towards the festive and marriage seasons, change.

"We believe there should be more fashion and lifestyle buying next year, rather than just festival and wedding shopping," he says. Retailers are also likely to do more homework on the rural market this year, in an attempt to expand their footprint in areas where there is purchasing power.

Says Ranjan Biswas, a partner at Ernst & Young: "While they may not have a presence in these areas, by mid-or end-2007, there will be a definite roll-out plan in place."

Meanwhile, those trying to scale up will continue to battle the twin challenges of people and property. Players like Trent, which has teamed up with real estate companies, are looking forward to getting more property next year.

Says Chopra, "We have tied up with DLF for 21 properties, so we should be able to set up quite a few stores in the new year."

The rolling out of malls will continue""approximately 35-40 million sq feet of retail space is expected to be ready for use in 2007, adding to the existing 40-45 million sq feet.

Sanwalka believes that the increasing presence of modern trade channels will compel FMCG suppliers to use them more than they have been doing so far.

Says he: "FMCG firms will start thinking of ways in which to sell more through organised retail." Not that this will hurt the kiranas. With players like Reliance planning to rope in kiranas, possibly through a franchisee model, they're unlikely to become an endangered species.

As a spin-off benefit of large companies entering the business, 2007 is sure to see increasing spends on infrastructure and supply chain management.

The Future group, for instance, has decided to set up a company to handle logistics. Biswas says that the benefits of the increasing spends on warehousing and cold storage will start to be felt in the new year, whether it's in lower wastage, better availability of products or lower prices.

Meanwhile, all the new players want more states to amend their agricultural product marketing laws, so as to allow the private sector to directly purchase agricultural produce from farmers: today only 13 states and three union territories permit that.

All in all, 2007 promises to be exciting for the retail sector. Biyani, however, believes that "The retail battle will be fought more in the media and on the party circuit in 2007, the battle on the ground will be fought in 2008."