Food & Grocery Retail Market in India

Rajat K. Baisya

food-a-grocery-retailFood and grocery segment constitutes about 62 per cent of the total INR 12000 billion (USD 270 billion) Indian retail market. There are about 12 million retailers in India and 80 per cent of those are actually mom and pop shops run by family members. The modern organized retailing is about 3 per cent of the total. In South, however, the modern retailing is said to be 10% of the total. As per IMAGES F&R Research estimates organized food and grocery retail market was a mere 0.5 per cent of the total in 2004. This organized segment has now grown to just about 0.8 per cent in 2006 valued at INR 500 billion at 2004-05 prices. The organized food and grocery retail sector grew at the rate of 35.6 percent in 2005 and at 42.5 per cent in 2006 over the previous year.

Until recently, this segment was dominated by players with regional presence as most of them had established themselves in local markets only such as Subhiksha in Chennai, Trinethra in Andhra Pradesh and Margin Free Markets in Kerala. Food World tried to expand to West India (Pune) but failed. This was primarily attributed to inefficient supply chain management and lack of investment in establishing effective SCM network in different regions. But players like Food Bazaar has established a pan-India presence and Subhiksha has moved towards north India and currently testing the NCR market.

It can be noted that grocery retailing accounts for nearly half of the packaged fast moving consumer goods (FMCG) sales. ACNielsen study indicates that there will be significant switch in spending from traditional grocery stores to modern stores in the region. (Source: India Retail Report 2007: An Images F&R Research)

 

Key Drivers to Food & Grocery Retail growth

l  Changing consumer preferences due to increased disposable income. Consumers are demanding wider range and unique merchandise with consistent quality –‘all under one roof’

l  Gradual increasing cosmopolitization of Indian population due to western influence and internationalization of palates and lifestyle created the need of wider array of products and services

l  New types of packaged and convenience foods such as processed meat and meat products requiring refrigerated storage and transportation and retail shelf space

As of now the emphasis in food and grocery retailing is on dry groceries. The wet groceries like fruits, vegetables and meat products account for only 3-5 per cent of the over all offering of the organized players. However, consumer spending indicate that about 40% of total consumer spending is on wet groceries. The major challenge would thus be putting appropriate supply chain management infrastructure for wet products and those who will be able to do it faster will have a major differentiation advantage to leverage. The signs of eliminating involvement of middlemen and backward integration in SCM among Indian retailers are increasingly visible.

Major players in the fray are Big Bazaar ( belonging to Pantaloon), Giant (rechristened as Spencer’s), Star India Bazaar (of Tata Group), Landmark (in association with South African Retail giant Shoprite), Reliance Industries, Rainbow Retail (of Raheja Group), Godrej, Adani, Trinethra (now under AV Birla Group), Dairy Farm, Jubilant Group among others.

Factors that will determine the success of F&G stores

  • Ability of the companies to achieve economies of scale and supply chain integration leading to cost reduction , improved stock turnover and better credit terms from vendor
  • Building scaleable model that is replicable across regions and extending models to smaller cities and towns
  • Passing on benefits of lower costs to consumers offering better value proposition than what neighbourhood stores offer.
  • Home delivery to match the customer convenience offered by the unorganized segment
  • Better shopping environment benchmarked to international standard
  • Focus on private label particularly for staple foods
  • Extend into other categories for private label brands

Challenges to be overcome

l  Efficiency related issues in supply chain management areas for significant cost reduction

l  Food and grocery is still a localized affair. People are unwilling to travel far off distances for grocery shopping when options are available nearby. Finding solution to this issue is thus a big challenge

An analysis of grocery retailers performance has shown that in year 2006 there was a growth of 73 percent in number of cities covered as against only 18 percent in 2005.Although number of outlets doubled in 2005 and there was 65 percent growth in 2006.

Spinach from Mumbai currently has 60 stores in three western cities. They plan to make it big with 1500 stores in 100 cities by year 2010. Spar, an international FMCG retailer also made its foray into the Mumbai market in November 2004. The retailer who has signed a license agreement for the Mumbai region with Radhakrishna Foodland Pvt. Ltd presently has one store in Mumbai with total retail space of 27000 sqft. Bangalore based Jubilant Group’s Monday to Sunday has two stores in the city across a total retail area of 12500 sft. The Kolkata based C3 supermarket chain has six stores now and Tai chain has four stores with a single city presence. Hyderabad’s Heritage Foods have also launched their Fresh supermarket store in the city in December 2006.Owned by Chandrbabu Naidu, former chief minister of Andhra Pradesh, Fresh F&G chain plans to make it to 80 outlets by 2008.

Leading F&G Retail stores

SUBHIKSHA

Chennai based retail chain is the largest discount stores in India with over 315 stores. Started in 1997 it is the first company to start tie ups with the manufacturers for cost saving. In 2006 it has 315 stores with 60 stores in Bangalore, Mysore and one store in NCR. The turnover of the company is INR 3.34 billion. They have launched aggressive television campaign to reach masses. They plan to invest additional INR 1000 million to add 180 more stores in eight cities of which 100 stores will be in Mumbai city itself. As per plan they would like to have 600 stores by the year end 2007.

FABMALL

Bangalore
based Fabmall operated 12 stores and achieved INR 500 million in sales in 2003-04. It has been

acquired by Trinethra of Hyderabad with 80 outlets in eight cities in Andhra Pradesh covering retail space of more than 1300000 sqft. Post acquisition, Trinethra had added five more stores under Fabmall and now operating both the formats. Trinethra super retail with 172 stores subsequently got acquired by AV Birla Group which acquired 90 percent stake. Balance 10% is still with India Value Fund managed by GW capital, a private equity fund .By year 2006-07 Trinethra has 198 stores in more than four cities with total area of 525566 sqft and sales INR 2780 million

FOODWORLD

Dairy Farm International entered Indian market and took over Food World from Spencer as a route to dilute the shareholding in RPG group. It had a four city presence and 100 stores in 2005-06 as compared to the previous year 79 outlets. Dairy Farm now plans to set up bigger stores as well as large format stores .As per plan they would like to set up 500 outlets by year 2010.

SPENCER’S RETAIL

A RPG group company entered into F&G retail in 2001.In the year 2006-07 they had 68 stores in 17 cities with retail space of 582490 sqft. They have both small (2000sqft) as well as large( 8000-15000 sqft) format outlets selling both fresh products and durable item under one roof. Small format outlets sell fresh food, groceries, chilled and frozen foods.

FOOD BAZAR

Food Bazaar, the Pantaloon group’s F&G chain , has in all 45 outlets across more than 20 cities and is located within the group’s value retail format Big Bazaar. Food Bazaar’s value proposition – selling below MRP – helped in high stock turn over. It has launched private label brands of tea, salt, sugar, spice and processed foods. The turnover for the year 2003-04 was INR 1.5 billion which is expected to go up to INR 32.5 billion by year 2010.The company plans to have 110 outlets in 2007 and 250 outlets in 2010. They have over 10000 SKUs.

TRUMART

Launched by Piramal group and managed by Mumbai based Crossroads. First outlet was opened in Pune in upscale Bhandarkar Road of 6000 sqft size. They have 12 oulets in five cities in 2005-06 although started initially in Pune and Mumbai. Now they have 42 outlets ( 2006-07) in 14 cities with plan to have 150 outlets in the year 2010.They plan to have 82 outlets in 2007.The theme of their stores is AUOR (All under one roof).

NILGIRI’S

It has pioneered the organized retail operation in the country –started as early as 1905 in Bangalore. In 2004-05 it has about 140000 sqft retail space which has now gone up to 200000 sqft. They have mainly franchisees and a few company owned format outlets. They have pioneered franchisee model in India in F&G retail.

ARAMBAG FOODMART

It belongs to the Arambag Hatcheries and is a household name in Kolkata. Spread over Kolkata and other cities in West Bengal company operates 24 stores with an average area of 600-1000 sqft of retail space. It deals in groceries, confectioneries, toiletries, frozen foods and of course its products Arambag Chicken (dressed chicken). The unique features of these stores is below MRP price, good quality and convenient location.There has been gradual increase in sales from INR 181 million in 2004-05 to INR 212 million in 2005-06 to the current to INR 260 million now.

NAMDHARI’S FRESH

Namdgari’s Fresh (NF) a sister concern of Namdhari Seeds Pvt. Ltd, a leading Seed company was started four years back with a vision to be the leader in Quality Fresh Produce following Integrated Pest Management Practices with eco friendly bio- agents. Currently they have 13 outlets in Bangalore and 3 more in New Delhi

RELIANCE FRESH

Reliance entered the F&G sector recently with its Reliance Fresh outlets foraying through the Hyderabad stores. First set of roll out included 11 stores all located in the same city. First day turnover was INR 2.2 million. The company is targeting at least 35 outlets in major cities. Expansion is planned and is in progress to cover immediately Delhi, Mumbai and nearby areas in the first phase. They are planning 70 cities and 784 urban towns and 6000 odd rural mandi towns to cover 100 million sqft of retail space backed by about 68 strong distribution network by year 2011.The company expects to get sales approximately of INR 1000 billion.

-- This article was first published in "Processed Food Industry" monthly magazine.

 

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