Indian shoppers increase spending

INDIAN shoppers will spend close to $500 billion on consumer goods and services in 2010, up from $360 billion last year, according to a bullish outlook released on Thursday by India¿s fast-growing retail industry.

Despite the global market turmoil, retailers expect 300 million aspirational middle-class Indians will lead the cash-register assault, their confidence buoyed by likely wage rises of 15 percent a year over the next few years and an economy growing at around 8 per cent.

Total annual retail spending in India should hit 18.1 trillion rupees ($490 billion) by 2010, according to the India Retail Report 2009, which was released in Mumbai for the industry’s peak event, the India Retail Forum.

The report produced by New Delhi-based research group Images F&R Research, envisages that modern organised retailing is likely to have a 13 percent share ($62 billion) of the total spend, as Indian middle class shoppers increasingly turn to air conditioned malls, mini-marts, supermarkets and "big-box" outlets.

The shopping needs of India’s 1.2 billion people traditionally have been served by a combination of 12 million "mom-and-pop" corner stores, wet markets, bazaars and weekly or monthly rural fairs, plus a relative handful of department stores. It is only in the last decade that modern organised retail has begun to make an impact, with the opening of supermarket chains and shopping malls in India’s key cities such as Mumbai, Delhi, Kolkata, Chennai, Bangalore and Hyderabad.

As recently as two years ago, modern retail’s share of the total consumer spending pie was only 3 to 4 per cent. According to the new report, modern retail grew at more than 40 per cent in 2007 and now has a share of 5.9 per cent.

But with the rapid growth has come a storm of protest from small traders’ associations, market middlemen and political groups opposed to large Indian business groups such as Reliance, Birla and Bharti entering the retail sector. The protesters argue that the big modern retailers will destroy the livelihoods of millions of street vendors, small traders and corner-store (or "kirana") operators.

In some states, Reliance Industries – which is controlled by India’s richest man, Mukesh Ambani -- has closed or scaled back its retail stores in the face of sometimes violent protests.

A government-initiated report released by the ICRIER think tank in May found that while there would be some initial loss of revenue for the kirana stores from competing modern retailers, the small corner stores would survive for many years to come and would often fo rm mutually beneficial relationships with organised retailers.

Activist groups such as India FDI Watch also oppose investments by overseas retailers, arguing that allowing in US giant Wal-Mart -- which has set up a wholesale cash-and-carry venture with the Bharti Group -- will spark a "race to the bottom" in terms of workers’ rights and conditions. For now, foreign entrants to India’s retail sector are limited to franchises, wholesaling and certain single-brand outlets.

According to the India Retail Report 2009, fears of job losses in the sector are groundless. "Modernising retail will see some 15 million people engaged in retail and retail support activities by 2010 – including front-end retail operations, supply chain management, logistics, process and infrastructure development and supplies," it says.

A much more pressing problem than fear of foreign investment is fixing India’s abysmal supply chain, particularly for refrigerated foodstuffs. As much as 40 per cent of the dairy, fruit and vegetables produced in India is lost or spoilt because of poor storage, handling, distribution and transport.

Commerce Minister Kamal Nath told the India Retail Forum this week that that the supply chain problem was India’s greatest agricultural challenge. Better handling techniques and infrastructure to reduce this wastage would deliver a substantial benefit to the retail industry, to farmers, and to the rural sector in general, he said.

Reflecting the needs of the hundreds of millions of Indians who survive on less than $2 a day, the 2009 report found spending on food and groceries is the dominant category, accounting for almost 60 per cent of the total retail outlay of $360 billion. Clothing and accessories ranks second with a 10 per cent share share, followed by out-of-home food services with a 5.4 per cent market share. The report says this last category "largely reflects the massive employment opportunities to youngsters in the services sector and accompanying changes in consumer lifestyles."

The organised retail sector offers a different picture, with spending on clothing and fashion accessories the largest category at 38.1 per cent. This is followed by food and groceries 11.5 per cent, footwear 9.9 per cent and consumer durables 9.1 per cent.

Shoes and timepieces are the most organised of all retail categories, with more than 48 per cent of the money spent on these items going to the modern retail sector. They are followed by clothing and fashion accessories, where the modern retail sector controls 22.7 per cent of the market.

With incomes rising, the modern sector can expect even higher figures over the next few years. According to the 2009 report, 70 million Indians already earn more than $24,500 a year, and that number will likely rise to 140 million by 2011.

At the same time as incomes are rising, tastes and spending habits are changing in line with an Indian demographic profile that becomes ever younger. Already, 55 per cent of the population is under 25; by 2015, more than half the population will be 22 or younger, and will only have ever known an economically liberalised India.

This is why industry experts such as Arvind Singhal, chairman of Indian retail consulting firm Technopak, believe modern retail is well on its way to being the key driver of the Indian economy over the next decade. In their view, despite high real estate prices, hyper-competition, a difficult political environment and shortcomings in supply chain logistics and management skills, India’s consumer demand is simply unstoppable.