Sanjiv Goenka: The retail revolution

GUEST COLUMN

After a long spell of shortages, which shackled consumer buying for decades, retail is becoming India's new mantra.

The Sanskrit word "mantra" is not just "hymn" or "slogan"; it embraces aspiration and encompasses new India's way of life.

The more-than-expected success clocked by the country's retailing pioneers confirms that retailing has finally arrived. The world has started taking note of this in this country of one billion.

However, the uppermost question in the minds of would-be entrants is, environmentally and infrastructurally, are we ready to embrace major investments in retail?

The related issues before potential investors at home and abroad are:

• Is retail organised in India?
• Are back-end people and infrastructure in place?
• And most importantly, is India ready to welcome retail investments from abroad?

Some bits of background information paint a highly optimistic picture. We have entered the 21st century at a time when the demography of our population is changing significantly to drive organised retail growth.

India now has a large young working population with a median age of 24. The number of nuclear families in urban areas is growing fast. Then there is the increase in working-women population. Add to these the emerging opportunities in the service sector.

Next is the astonishing consumer finance boom. Add to this the growing credit card spend. And last but not the least, the changing pattern in rural consumption""a sure sign that the consumer revolution will soon spread to rural India.

To make this a reality, India will require a massive dose of investment. At the beginning of this decade, organised retailing accounted for a mere $2.9 billion. This is only 1.25 per cent of the estimated total retail market. This share has already grown to 2 per cent.

Growth projections for retail business vary widely. Some studies estimate that by 2007, the share of organised retail in the retail pie will jump three times to reach 5""6 per cent.

At RPG, the retail business is expected to grow eight-fold in five years. In the food and grocery business, most of the initial experimentation among retail formats is over now.

With the triumph of large-format hypermarkets like Giant and Spencer's, the debate over single, large or several small stores is coming to an end. At the moment there are two distinct choices in big-box retailing.

At the one end are those who are betting that a food and grocery centre strategy will deliver where about 65 per cent of the retail average will be devoted to this category.

At the other end are those who do not want food to account for more than 30 per cent of their turnover. According to observers, the market is still woefully nascent, the balance of power still lying with manufacturers, not retailers.

By 2007, there will be 20 RPG hypermarkets (branded Spencer's) nationally. Each of these stores is expected to deliver Rs 100 crore""Rs 120 crore, with focus on backend integration.

Some factors need to be kept in mind.

• Street markets still dominate in India;
• Kiranas are successfully moving with the times and are holding their own;
• Organised retailing is still very much a city phenomenon.

And, accountants tell us that spending is still low.

There are a few other questions. How is organised retailing changing the retail landscape in major urban centres and what is its effect on the growing middle class? Another important area of enquiry is its effect on manufacturers, distributors and small retailers.

There is also the question: will franchising and joint ventures become the preferred options for foreign investors? And finally, we must decide we as a country need to do before we invite FDI.

Retail trade is one of the largest contributors to GDP. But a restrictive environment and a mindset which favours denial over consumption, have stunted its development.

Organised retailing is showing signs of enormous creativity. Spectacular innovations are attracting the average consumer in mega cities to the new way of shopping.

It must gain in importance so that it becomes part of the planning process. The best way to do this is to give industry status to retail.

It will give a thrust to infrastructure development and lead to the evolution of an efficient supply chain, which is the oxygen of modern retailing. And it will make finance available for expansion and restructuring. It will also lead to the development of a retail-skilled workforce.

India continues to suffer from a multiplicity of government approvals, both at the central and state levels. A single-window clearing system, therefore, is an urgent necessity.

There is also the need to develop quality standards, particularly in unbranded food products. And last but not the least, the implementation of the much-talked-about VAT regime is an urgent necessity.

Modern retailing does not benefit just the consumer. It can give huge benefits to other industries, to government, and to the entire economy. On average, 30 per cent of the manpower employed in retail could be potential income tax payers.

According to a white paper jointly by the CII and KSA Technopak, organised retailing has the potential to bring 100,000 new employees in the tax bracket in five years.

Fianlly, the retail revolution will have a major impact on the way business has been done in our country for centuries.