CPG & Retail in India – A Rapidly Changing Landscape
Over the last few decades, fast moving consumer goods in India were predominantly distributed through neighborhood stores (kirana stores). These stores were small (about 100 sq ft.), and were owned and run by family members. Customers were mostly from the immediate neighbourhood and were usually well known to the store owners, the assortment was limited, and customers were typically loyal. The stores provided convenience in the form of easy credit and free home delivery for bulk purchases. Organized retail had no presence, departmental stores, super markets, hyper-markets and malls were never heard of, and the shopping experience was seen as something that was necessary.
However, in the last 15 years, Indian retail scenario has undergone a dramatic transformationand has witnessed rapid growth across the country. Initially, growth was focused on the southern cities, before it spread to the rest of the country. As retail industry provides one of the largest sources of employment in India, majority stake by foreign investors (FDI's) are not permitted, except in single brand outlets. Hence, organized retail is dominated by local players - such as Future Group, RPG Enterprises, Reliance Industries, Aditya Birla Group, Tata Sons, and Bharti Group.
The size of the retail industry in India is estimated to be of the order of US$ 300 - US$400 billion per year. Organised retailing comprises only about 3% of the total, and is estimated at around US$ 8.7 billion. This represents both an opportunity and a challenge for organized retailers. The need for heavy investments in real estate, technology, warehouses, and other infrastructure, and lack of qualified manpower are all challenges that need to be addressed. However, changing shopper behavior, favourable demographics, increasing purchasing power and the government's emphasis on upgrading education and physical infrastructure, can mitigate these challenges and present opportunities for growth.
To make inroads, organized retailers need to attract consumers with winning strategies - provide better value for money, shopping experience, greater choice of assortment, and better quality, while managing the costs required to do business. In this scenario, retailers have to make the right investments in technology and processes to gather accurate data around consumers, suppliers, purchases, employees, and stores. By themselves, these are necessary and important, however, none of this is going to create a lasting competitive advantage.
Above all, what would separate a winning retailer from the rest of the pack is a culture of data-driven decision making. This would enable retailers to acquire and retain the right customers, make the right pricing, promotion and product placement decisions, develop effective collaborative relationships with their suppliers and hire the right employees and providing the right incentives that motivate them to perform.
LatentView aspires to partner with retailers and CPG manufacturers in India to help them develop a consumer-centric approach to retailing.