Retail growth in India to be stronger than GDP: KPMG

MUMBAI: The organised retail sector in India is expected to grow stronger than GDP growth in the next five years. This growth will be driven by changing lifestyles, strong income growth and favourable demographic patterns.



KPMG has come out with a report Consumer Markets in India: the next big thing?. The report notes that the structure of retailing is developing rapidly with shopping malls becoming increasingly common in large cities, and development plans being projected at 150 new shopping malls by 2008. According to the report, the annual growth of department stores has been estimated at 24 per cent, which is faster than overall retail; and supermarkets have taken an increased share of general food and grocery trade over the last two decades.

Disposable incomes remain concentrated in urban areas, ‘well-off’ and affluent classes and the growing number of double-income households. However, the report reveals that the sheer size and potential of the rural segment has been underestimated. The Indian market is evolving dynamically and there is hidden consumption power in the low-income rural areas that offers considerable opportunities for organised retailers in the kind of rural territories, that many companies have failed to address. The retail growth therein is expected to be double-digit if infrastructure allows the consumer companies to reach new markets at reasonable costs.



As the market is changing fast with growth in disposable incomes, the KPMG report further reveals that the Indian consumer is emerging to being more trend-conscious with the development of modern urban lifestyles.

Specialised retailers in segments like consumer durables and white goods, books, music, lifestyle goods, household furnishings, furniture, healthcare and beauty are developing rapidly and Indian retailing is undergoing a slow but deep-rooted shift away from total reliance on countless small family-run stores towards larger, more formal retail outlets. However, for foreign retailers willing to do business in India concerns like cost of retail space, FDI controls, ‘unorganised’ sector competition, shortage of urban retail space need to be addressed.



In the absence of compatible FDI norms some of the retailers have adopted strategies like franchise agreements wholesaling, licensing, or by having a manufacturing base in India, or in businesses upstream of retailing, such as distribution services, advertising and infrastructural development. These areas permit 100 per cent foreign equity participation. However a major segment of the market still remains untapped.

With Indian consumers becoming increasingly sophisticated and knowledgeable about products, and media channels allowing companies to communicate, consumer companies are becoming increasingly concerned with marketing issues, as they seek to differentiate their products and communicate their values to potential customers. While quality-conscious consumers, profit potential in best market segments and premiums remain the bait for retailers, marketing concerns and challenges are cited as crucial factors by consumer companies according to the survey.

The report notes that leveraging the opportunity in India will require organisations to develop unique consumer insights and customise products to local needs; give consumers a good deal; overcome infrastructure and distribution issues and manage communication in the context of media and brand proliferation.

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