Arvind Singhal: A revolution in the making

MARKETMIND

In the last one decade or so, a lot has been written, spoken, and debated about the growth of modern retail in India. Many times, we have mistaken some new developments in select metros in India as signs of revolution in the retail sector.

For many years, we have crowned a host of current Indian retail entrepreneurs as India's Richard Sears, Michael Marks & Tom Spencers, and Sam Waltons, notwithstanding the fact that modern retail accounts for a very low single-digit share of the overall consumer spend and that the largest of modern retailers will probably have revenues in the range Rs 600-1,200 crore in 2005-6 and hence account for a negligible share of the over Rs 900,000 crore of consumer spend across India or even the Rs 360,000 crore consumer spend of urban India.

However, finally, there are some very interesting developments in the offing that should augur well for an exponential growth of modern retail in India from now onwards, and in the process, touch the lives (largely in a positive way) for hundreds of millions of Indians.

For the first time, Indian entrepreneurs are realising the virtue of rapid scaling up and looking at a plethora of product categories and formats, and also looking beyond the top 8-10 cities in India.

This growth is being led by the more well-known players like Pantaloon, Shoppers' Stop, and Trent (Westside)""all of whom are expanding both organically as well as through acquisition. However, there are some others less well-covered in the media who have been rapidly scaling up or have imminent plans for a rapid scale-up. These include Subhiksha, Trinethra-Fabmall, Fabindia, and Piramyd, to name but a few, who so far are operating in the Rs 100-300 crore revenue range but could well double their size in the next two or three years.

Most encouragingly, with about 60 per cent of India's consumer spend accounted for by the rural population, finally there are several very encouraging growth stories led by some of the most resourceful and dynamic business houses in India, e.g. ITC's Choupal Sagar, DSCL's Haryali Kisan Bazaar, and Godrej's Adhar chains.

Other trailblazers include Reliance Infocomm, through their Web World stores, which are creating the platform for a new kind of e-commerce/entertainment and gaming businesses, and RIL's very ambitious and aggressively growing network of fuel stations, which come with a wide range of retail and other services.

With very encouraging response from the consumers to these new retail concepts, and an extraordinary support to the promoters from investors/stock markets, it is imminent that some of the largest Indian business groups will be shortly announcing their own entry in this space.

Some of the major ones as listed in the context of rural markets have already been making substantial investment in the overall business infrastructure including supply chain, logistics, and information technology.

Other large investments are on the anvil, giving a critical mass for the take-off of modern retail in India""FDI or no FDI""though ironically, with the rapid growth of organised retail in the country and with the entry of some new large Indian players in this space, the pressure on the government to open up the sector for FDI will further increase.

In this situation, in the context of entrepreneurship, I see many opportunities for all kinds of start-ups of a very wide range of manufacturing and other support services to take care of the current and future needs of these large, organised retailers.

Almost all of the modern retailers will increasingly focus on developing a wide range of "private label" merchandise, creating unprecedented opportunities for small and medium enterprises to make specific products for specific retailers.

Food and grocery will undoubtedly be the focus area of almost all the current and future retail start-ups""hence incredible opportunities will be there for grabbing right from the farm level and up to the retail store""with or without many intermediate value-adding processing steps.

Hundreds of millions of additional square feet of new retail space need to be created in the next 5-7 years, leading to many exciting opportunities not only in the real estate domain but also in design, store fit-out, information technology hardware and software, and other relatively untapped areas that could be as mundane as producing tens of thousands of shopping carts that would be needed by the large format retailers, or the recruitment and training of hundreds of thousands of sales associates across hundreds and even thousands of locations in urban and rural India.

It is difficult today to spot the winners of tomorrow, though it is certain that some of the current "kings" could well end up losing their kingdoms to some of the new entrants in as few as three years from now.

It is also certain that the average Indian consumer, the small farmer, the small- and medium-scale Indian handicrafts and other consumer product manufacturers, and a host of other small entrepreneurs providing services to the future retail giants will the real winners. Let us raise a toast to that!

arvind@ksa-technopak.com