FDI in Retail Sector : “Pros & Cons”
December 6, 2011
India Retail – The Story So Far & Growth Outlook
• The India retail market is estimated at US$ 470 Bn in 2011, accounting for ~35% of GDP and is expected to grow to US$ 675 Bn by 2016, @ CAGR of 7.5% • The organized retail market is estimated at US$ 26 Bn and accounts for ~6% of the overall retail market for 2011. The organized retail market is projected to grow to US$ 84 Bn by 2016, @CAGR of 26% • The retail market in India offers significant opportunities for retailers & brands across categories.
Organized Retail Penetration Level USA France Japan 85% 80% 66%
Malaysia
Brazil Russia China India
55%
36% 33% 20% 5%
Sources : The Retailers, Ernest & Young, Jan 2009 ; Working Paper no. 222, ICRIER & Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market
The retail market in India is estimated at US$ 470 Bn in 2011 and is projected to grow to US$ 675 Bn by 2016, CAGR of 7.5% for the period 2011-16
Overall Retail Market –US$ Bn 675 470
310
2006
2011
2016
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market
The retail market in India is estimated at US$ 470 Bn in 2011 and is projected to grow to US$ 675 Bn by 2016, CAGR of 7.5% for the period 2011-16 Organized Retail Market –US$ Bn
In $ US bn
84
26 10
2006
2011
2016
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
Food and Grocery market in India is estimated at US$ 325 Bn in 2011 (69% of the overall retail and is expected to grow to US$ 425 Bn by 2016 (63% of the overall retail ), @ CAGR of 5.5%
The organized Food and Grocery retail market in India is estimated at US$ 9 Bn in 2011 and is expected to grow to US$ 34 Bn by 2016, @ CAGR of 30% Organized Retail Market
In $ US bn
425 325 217
Category : Food and Grocery
34 2 2006 Total Market 2011 9 2016 Organized Market
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market (Overall) : By Category
The total retail market in India is estimates at US$ 470 Bn in 2011. The Food & grocery segment is the largest retail category and accounts for ~70% of the total retail market. Category
Food and Grocery
2006
217
2011
325
2016
425
CAGR (2011-16)
5.50%
Apparel Jewellery & Watches Consumer Electronics & IT Pharmacy Furnishings & Furniture Restaurants and Food Joints Footwear Beauty Services Health/Fitness Services Others Total (US$ Bn)
25 16.5 16.5 8 6.5 4.6 3.6 0.6 0.4 11 310
35 25.6 22.7 13.9 9.1 8.8 4.5 1.3 1 23 470
50.2 44.2 42.8 23.4 17.1 15.8 8.3 3 2.5 42.5 675
7.50% 11.50% 13.50% 11.00% 13.50% 12.50% 13.00% 18.00% 20.00% 13.10% 7.50%
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market (Organized) : By Category
• At 35%, Food & Grocery has the highest share of organized retail . Food & Grocery along with Apparel, Jewellery & Watches and Consumer Electronics & IT accounts for ~80% of the organized retail market in India in 2011.
Category Food and Grocery Apparel Jewellery & Watches Consumer Electronics & IT Pharmacy Furnishings & Furniture Food and Beverage (Eating Out) Footwear Beauty Services Health/Fitness Services Total (US$ Bn) 2006 2 3.5 1 1.5 0.2 0.4 0.5 1 0.2 0.1 10 2011 9 5.5 2.5 4 0.8 0.7 1.5 1.7 0.2 0.2 26 2016 34 8 7.5 18 4.5 1.2 6 3.8 0.5 0.6 84 CAGR (2011-16) 30.00% 8.50% 25.00% 35.00% 41.00% 12.00% 30.00% 17.50% 20.00% 25.00% 26.00%
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail – The Story So Far & Growth Outlook
In 1999, India had 3 shopping malls, collectively measuring 0.2 million sqft. By the end of 2010, expected mall space is ~50 million sqft.
Shopping Centre Growth
90.0 80.0 70.0 60.0 50.0 49.6 40.0 40.1 Million (Sqft) 69.6 83.6
30.0
20.0 10.0 25.1
33.6
0.2
0.0 1999
0.4
2000
0.7 2001
1.3
2002
4.6
2003
8.0
2004
11.9
2005
16.1
2006
2007
2008
2009
2010F
2011F
Sources :On .Point : JLLM
2012F
India Retail – Key Growth Driver
Economic Growth : The per capita Income in 2009-10 more than doubled to US$ 849 from US$ 348 in 2000-01
Expanding Middle Class : By 2030, 91 million households will be middle class up from 21 million today
Rapid Urbanization : 570 million people will live in cities, nearly twice the population of United States today Investment in Infrastructure : India expected to invest US$ 500 billion in infrastructure, mainly in power, telecommunication, road, railways and oil pipelines by March 2012 Rising Brand Consciousness : 60% of the population is below the age of 30 have exposure to Western consumption
Sources :On .Point : JLLM, McKinsey’s India’s Urban Awakening, 2010
FDI in Retail - Present Scenario
FDI in Single Brand Retail was permitted in 2006, to the extent of 51% and now opened to 100% .
FDI in Multi Brand Retail is now opened up to 51%, with the following conditions:
1) 2) 3) 4) 5) Minimum investment of US$ 100 million 50% of US$ 100 million to be invested in the back-end infrastructure 30% of sourcing to be done from small scale industries Stores can be opened only in cities with a minimum population of 1 million States will have the freedom to decide entry of international retailer with 51% FDI
FDI in Cash & Carry whole sale retailing was permitted, to the extent of 100% ,under the Government approval route, in 1997.
Sources
iscussion Paper on FDI in retail by DIPP
Rationale for FDI in Retail
A. Competition : ? Catalysts to spur competition & innovation in retail industry. ? Ensure highly efficient-low margin business model.
B
Consumers ?Improved product availability, quality & reduce wastages. ? Consumers to get best products and services at reasonable price.
C.
Back End & Supply Chain Improvement : ?Inadequate storage facilities cause heavy losses to farmers. ?25%-30% of F&V and 5%-7% of food grain in India are wasted. ?An 11th plan working group has estimated a total investment of Rs 64312 crore in agriculture infrastructures. ?FDI in retail to bring investment, technology, management know how etc. ?Food inflation and fluctuation in food prices can be controlled.
Sourcesiscussion Paper on FDI in retail by DIPP
Rationale for FDI in Retail
D. Better Realization for Farmers : ?Today, Intermediaries dominate the value chain. ?Indian farmers realize only 1/3rd of the total price paid by the final consumer against 2/3rd by farmers in nations with a higher share of organized retail. ?FDI to ensure better realization for farmers & producers. F. Economic Growth : ?Sourcing from India will increase. Exports to get significant boost. ?India can also become a shopping destination for the world. ?Expansion of stores and operations lead to employment generation . ?Sectors like Textile and handicraft will get a significant boost.
Sourcesiscussion Paper on FDI in retail by DIPP
Rationale against FDI in Retail
Retail industry in India is the second largest employer after agriculture. Any game changing situation can lead to heavy job losses particularly in rural areas and small cities. Unfair competition and abilities of big retailers to sustain losses can lead to large scale exit of domestic retailers, especially the small family managed outlets. Indian retail sector including organized sector is still under-developed and in a nascent stage. It is critical that the retail sector is allowed to grow and consolidate first, before opening to foreign investors.
FDI in Retail – Conclusion
Most of the consumers in India, particularly in urban areas, are exposed to benefits and experience of organized retail. It will be difficult to deny the same benefits and experience to balance consumers for a very long period. India is a big and growing market. Both unorganized and organized sectors can sustain together. Policy makers to ensure a level playing field for small retailers. Better credit availability to unorganized retailers from banks and micro-finance institution through innovative banking. Gradual opening of retail sector to give domestic industry enough time to adjust to the changes. Clear guidelines on investment in Infrastructure and Export commitments for International Retailers would help all stakeholders to benefit. FDI in Retail is not the only solution for growth of Retail in India.
Other steps that are necessary are as follows: 1. Review of all Agriculture production, storage, distribution and pricing laws including APMC Act 2. Introduction of GST and removal of OCTROI, Entry Tax, Service Tax on Rent, Excise Duty on Apparels 3. Investments in Infrastructure, especially Transportation, Cold Storage, Roads for efficient movement of goods 4. Building consensus on Economic benefits of FDI across all the stakeholders – consumers, traders, farmers – as this can also impact the social structure of the country
Thanks a lot…..
doc_140863963.ppt
December 6, 2011
India Retail – The Story So Far & Growth Outlook
• The India retail market is estimated at US$ 470 Bn in 2011, accounting for ~35% of GDP and is expected to grow to US$ 675 Bn by 2016, @ CAGR of 7.5% • The organized retail market is estimated at US$ 26 Bn and accounts for ~6% of the overall retail market for 2011. The organized retail market is projected to grow to US$ 84 Bn by 2016, @CAGR of 26% • The retail market in India offers significant opportunities for retailers & brands across categories.
Organized Retail Penetration Level USA France Japan 85% 80% 66%
Malaysia
Brazil Russia China India
55%
36% 33% 20% 5%
Sources : The Retailers, Ernest & Young, Jan 2009 ; Working Paper no. 222, ICRIER & Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market
The retail market in India is estimated at US$ 470 Bn in 2011 and is projected to grow to US$ 675 Bn by 2016, CAGR of 7.5% for the period 2011-16
Overall Retail Market –US$ Bn 675 470
310
2006
2011
2016
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market
The retail market in India is estimated at US$ 470 Bn in 2011 and is projected to grow to US$ 675 Bn by 2016, CAGR of 7.5% for the period 2011-16 Organized Retail Market –US$ Bn
In $ US bn
84
26 10
2006
2011
2016
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
Food and Grocery market in India is estimated at US$ 325 Bn in 2011 (69% of the overall retail and is expected to grow to US$ 425 Bn by 2016 (63% of the overall retail ), @ CAGR of 5.5%
The organized Food and Grocery retail market in India is estimated at US$ 9 Bn in 2011 and is expected to grow to US$ 34 Bn by 2016, @ CAGR of 30% Organized Retail Market
In $ US bn
425 325 217
Category : Food and Grocery
34 2 2006 Total Market 2011 9 2016 Organized Market
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market (Overall) : By Category
The total retail market in India is estimates at US$ 470 Bn in 2011. The Food & grocery segment is the largest retail category and accounts for ~70% of the total retail market. Category
Food and Grocery
2006
217
2011
325
2016
425
CAGR (2011-16)
5.50%
Apparel Jewellery & Watches Consumer Electronics & IT Pharmacy Furnishings & Furniture Restaurants and Food Joints Footwear Beauty Services Health/Fitness Services Others Total (US$ Bn)
25 16.5 16.5 8 6.5 4.6 3.6 0.6 0.4 11 310
35 25.6 22.7 13.9 9.1 8.8 4.5 1.3 1 23 470
50.2 44.2 42.8 23.4 17.1 15.8 8.3 3 2.5 42.5 675
7.50% 11.50% 13.50% 11.00% 13.50% 12.50% 13.00% 18.00% 20.00% 13.10% 7.50%
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail Market (Organized) : By Category
• At 35%, Food & Grocery has the highest share of organized retail . Food & Grocery along with Apparel, Jewellery & Watches and Consumer Electronics & IT accounts for ~80% of the organized retail market in India in 2011.
Category Food and Grocery Apparel Jewellery & Watches Consumer Electronics & IT Pharmacy Furnishings & Furniture Food and Beverage (Eating Out) Footwear Beauty Services Health/Fitness Services Total (US$ Bn) 2006 2 3.5 1 1.5 0.2 0.4 0.5 1 0.2 0.1 10 2011 9 5.5 2.5 4 0.8 0.7 1.5 1.7 0.2 0.2 26 2016 34 8 7.5 18 4.5 1.2 6 3.8 0.5 0.6 84 CAGR (2011-16) 30.00% 8.50% 25.00% 35.00% 41.00% 12.00% 30.00% 17.50% 20.00% 25.00% 26.00%
Source: Technopak Analysis: Emerging Trends in Indian Retail and Consumer: 2011
India Retail – The Story So Far & Growth Outlook
In 1999, India had 3 shopping malls, collectively measuring 0.2 million sqft. By the end of 2010, expected mall space is ~50 million sqft.
Shopping Centre Growth
90.0 80.0 70.0 60.0 50.0 49.6 40.0 40.1 Million (Sqft) 69.6 83.6
30.0
20.0 10.0 25.1
33.6
0.2
0.0 1999
0.4
2000
0.7 2001
1.3
2002
4.6
2003
8.0
2004
11.9
2005
16.1
2006
2007
2008
2009
2010F
2011F
Sources :On .Point : JLLM
2012F
India Retail – Key Growth Driver
Economic Growth : The per capita Income in 2009-10 more than doubled to US$ 849 from US$ 348 in 2000-01
Expanding Middle Class : By 2030, 91 million households will be middle class up from 21 million today
Rapid Urbanization : 570 million people will live in cities, nearly twice the population of United States today Investment in Infrastructure : India expected to invest US$ 500 billion in infrastructure, mainly in power, telecommunication, road, railways and oil pipelines by March 2012 Rising Brand Consciousness : 60% of the population is below the age of 30 have exposure to Western consumption
Sources :On .Point : JLLM, McKinsey’s India’s Urban Awakening, 2010
FDI in Retail - Present Scenario
FDI in Single Brand Retail was permitted in 2006, to the extent of 51% and now opened to 100% .
FDI in Multi Brand Retail is now opened up to 51%, with the following conditions:
1) 2) 3) 4) 5) Minimum investment of US$ 100 million 50% of US$ 100 million to be invested in the back-end infrastructure 30% of sourcing to be done from small scale industries Stores can be opened only in cities with a minimum population of 1 million States will have the freedom to decide entry of international retailer with 51% FDI
FDI in Cash & Carry whole sale retailing was permitted, to the extent of 100% ,under the Government approval route, in 1997.
Sources
iscussion Paper on FDI in retail by DIPPRationale for FDI in Retail
A. Competition : ? Catalysts to spur competition & innovation in retail industry. ? Ensure highly efficient-low margin business model.
B
Consumers ?Improved product availability, quality & reduce wastages. ? Consumers to get best products and services at reasonable price.
C.
Back End & Supply Chain Improvement : ?Inadequate storage facilities cause heavy losses to farmers. ?25%-30% of F&V and 5%-7% of food grain in India are wasted. ?An 11th plan working group has estimated a total investment of Rs 64312 crore in agriculture infrastructures. ?FDI in retail to bring investment, technology, management know how etc. ?Food inflation and fluctuation in food prices can be controlled.
Sources
iscussion Paper on FDI in retail by DIPPRationale for FDI in Retail
D. Better Realization for Farmers : ?Today, Intermediaries dominate the value chain. ?Indian farmers realize only 1/3rd of the total price paid by the final consumer against 2/3rd by farmers in nations with a higher share of organized retail. ?FDI to ensure better realization for farmers & producers. F. Economic Growth : ?Sourcing from India will increase. Exports to get significant boost. ?India can also become a shopping destination for the world. ?Expansion of stores and operations lead to employment generation . ?Sectors like Textile and handicraft will get a significant boost.
Sources
iscussion Paper on FDI in retail by DIPPRationale against FDI in Retail
Retail industry in India is the second largest employer after agriculture. Any game changing situation can lead to heavy job losses particularly in rural areas and small cities. Unfair competition and abilities of big retailers to sustain losses can lead to large scale exit of domestic retailers, especially the small family managed outlets. Indian retail sector including organized sector is still under-developed and in a nascent stage. It is critical that the retail sector is allowed to grow and consolidate first, before opening to foreign investors.
FDI in Retail – Conclusion
Most of the consumers in India, particularly in urban areas, are exposed to benefits and experience of organized retail. It will be difficult to deny the same benefits and experience to balance consumers for a very long period. India is a big and growing market. Both unorganized and organized sectors can sustain together. Policy makers to ensure a level playing field for small retailers. Better credit availability to unorganized retailers from banks and micro-finance institution through innovative banking. Gradual opening of retail sector to give domestic industry enough time to adjust to the changes. Clear guidelines on investment in Infrastructure and Export commitments for International Retailers would help all stakeholders to benefit. FDI in Retail is not the only solution for growth of Retail in India.
Other steps that are necessary are as follows: 1. Review of all Agriculture production, storage, distribution and pricing laws including APMC Act 2. Introduction of GST and removal of OCTROI, Entry Tax, Service Tax on Rent, Excise Duty on Apparels 3. Investments in Infrastructure, especially Transportation, Cold Storage, Roads for efficient movement of goods 4. Building consensus on Economic benefits of FDI across all the stakeholders – consumers, traders, farmers – as this can also impact the social structure of the country
Thanks a lot…..
doc_140863963.ppt