Reference no: EM13842288

Retailing in India - Impact of hypermarkets

The history of India contains a wealth of change and alteration, and the modern era is no different as the country blossoms into a major player in the global economy. Sizable economic growth during the past decade, particularly in the retail sector, has changed the way consumers behave. Although the size of the current Indian retail sector is impressive, its potential really speaks to what retailing will mean in the future. The retail market in India was approximately $353 billion in 2010, and by 2014 it will reach $543 billion in total sales, of which modern retailing accounts for 27 percent.

International retailers are slowly making their way into India. India's government allows foreign companies to open only single-brand stores. Large retailers with more than one brand are required to engage in a joint venture with an Indian company. Wal-Mart, Tesco, and Carrefour have opened hypermarkets in India, but doing so was not an easy process. Carrefour waited ten years to open its first store as a result of the restrictions. Hypermarkets-large retail outlets-combine the prod- ucts found in a department store and supermarket, with the goal of turning shopping into an experience. The large store layouts and variety of merchandise force customers to spend more time in the stores, which in turn lead to more sales. The potential for hypermarkets in India sheds light on the country's changing retail landscape and the shopping habits of its consumers.

Before 2000, Indian consumers generally purchased many of their retail goods from local mom-and-pop stores called kiranas, which sold mainly provisions and groceries. Shopping at kiranas is easy and convenient, because the small stores serve specific neighborhoods and establish personal relationships with their customers. The new infusion of hypermarkets threatens to rob local store owners of their customer base-approximately a 23 percent decrease in sales in one year.

There are over 300 hypermarkets and 6800 super- markets in India. India has been experiencing 20 per- cent annual growth in retail markets. Hypermarket sales were expected to increase fivefold from 2009 to 2013, and supermarket sales were expected to increase 150 percent during the same period. Each new store opening may draw customers from 20 to 25 kiranas and fruit and veg- etable stands, affecting over 100 000 vendors.

Most kiranas cannot compete with hypermarkets, because these larger retail outlets create more efficiency within the supply chain. Much local produce in India currently gets wasted, because the country lacks sufficient infrastructure. Even as it progresses through rapid development, India still lacks some amenities that Westerners take for granted, such as refrigeration in retail operations. If a large retailer wants to open a hypermarket in India, it will have to invest capital to ensure freshness through- out the supply chain and help reduce waste. The Indian government is expected to spend US$500 billion over the next few years to develop a world-class infrastructure, which should spur growth in the retail sector.

The lack of infrastructure underlies related issue fac- ing hypermarkets. Unlike in Western nations, India's rather poor roads and transportation systems do not allow retailers to locate on large plots of land on the outskirts of town, since fewer consumers can reach them. Therefore, hypermarkets must look for retail space in more urban areas, which provide little available real estate. Buying up space from existing stores means displacing local corner shops already inhabiting that space, and this may prompt protests from Indian consumers and store owners who value the Indian tradition that the kiranas represent. Yet larger retail outlets in India could have a dramatic impact on the economy, possibly creating millions of jobs in the next ten years. Although many Indians may not appreciate the notion of hypermarkets immediately, their presence is likely inevitable.

Much of the impetus for the emergence of hypermarkets in India also comes from changes among Indian consumers. The country's younger generations are exposed to a host of innovative products that were unknown to their parents. They are far more receptive to new products and ideas. In addition, this segment of the population reflects the shifting age demographics; more than half of India's current population is younger than 25 years of age. With such a large percentage of younger consumers, it seems inevitable that India's cultural tastes will evolve. The strong and abundant local kiranas have been a cultural mainstay, but they cannot efficiently offer Indians access to new and technologically advanced products. Because hypermarkets combine department stores and super- markets, they carry product lines that local vendors can- not. They sell brand-name products at affordable prices, thereby enabling Indians to purchase a wide assortment of goods that they otherwise could not have.

This shift, from local mom-and-pop stores to more organized retail outlets, is happening very quickly in India. It is embraced by many consumers despite the cultural and legal considerations associated with hypermarkets. Furthermore, because hypermarkets offer potential benefits for both the economy and the national infra- structure, local governments generally support the arrival of a hypermarket. The ultimate target market, however, is not the government but the consumers, and just as in any country at any time, the challenge lies in understanding what those consumers want and how to get it to them.