Food Retailing in India

INTRODUCTION:
The food industry is on a roller coaster ride as Indians continue to have a feast. Fuelled by– large
disposable incomes – the food sector is witnessing a remarkable change in consumption patterns,
especially in terms of food. Food retailing has come of age -- from a period when food items were sold
in small road side grocer shops & mandis, haats and bazzars by vendors to a stage when food
products (processed and groceries) are retailed through supermarket stores where consumers can
inspect, select and pick up the products they like in a comfortable ambience and still pay a fair price
for the product and the merchandise and sometimes even pay less than the price they would have
paid at the nearest food stores. Shopping for groceries is no longer a strenuous and uncomfortable
affair.

Instead, it is a pleasurable experience. From simple trading activity, food retailing is now heading to
the status of an industry. Imagine yourself walking through the air conditioned lanes smelling fresh
food and groceries, enjoying light music, experiencing five star ambiences and above all buying food
products (vegetables, spices and beverages) without bargaining with the vendors. Food retail has
surpassed the dominating apparel and accessories sector. "Contrary to the belief that fashion is the
largest segment of organised retail in India, food & beverages is the major segment, worth Rs
8,97,000 crore," said Arvind Singhal, Chairman, Technopak, at the Indian Retail Forum held in
Mumbai. There is an old industry saying that “ customer is king” Food retailers today will update that
saying to “customers is the dictator” because of fierce competition, new technology and business
practices the market power of customer is strong and growing stronger.

THE FOOD RETAIL TALE:

Traditionally, Indians were used to buying their sugar, wheat, pulses, rice etc. from their
neighborhood baniya. The majority of food and food products were and still are retailed through
neighborhood kirana (baniya) stores. A typical kirana store has a retail area of 200 sq ft and sells 500
to 800 stock keeping units (SKUs). The kirana stores focus on dry food products because the
infrastructure for cold storage is lacking. The majority of fresh produce is sold from the carts of
traveling vendors. Such produce is deemed to be of low product quality, variety and hygiene. This
concept is still popular in B-class and II Tier cities of India and giving employment to thousands of its
inhabitants.

Initially the food retail format was seen in A-class cities like Mumbai, Delhi, Chennai which had co-
operative stores like "Apna Bazaar" in Mumbai and "Kendriya Bhandar" in Delhi. Both were very
successful and are operating many outlets in all strategic localities in the city. Escorts group in the late
eighties diversified into non-auto sectors by getting into agri business or food business. It came out
with first "Nanz" store at South Extension in Delhi in 1990.

The first visible sign of the change in food retailing was seen in mid-eighties. Around that time a few
new food stores were set up in all metro cities in India. Calcutta was the only exception where it
started a little later. At that time couple of leading food stores started operating such as "Morning
Stores" and "Modern Stores" in Delhi, "Nilgiri" in Bangalore, and “Food Land" in Mumbai "Spencers
Food Stores" in Chennai. Spencers were the first to tie up with a Singapore based large retail chain --
"Dairyland" and had set up the food stores in Chennai. This was a technology tie up. In Mumbai,
Garware group during the late eighties had set up a large food store, which is now reported to have
been closed down.

Until the late 1990s, food retailing has been concentrated in the south of the country. Southern India
has been witnessing revolutionized activity in food retailing. It has thoroughly experienced the food
retailing in various formats such as the supermarkets, hypermarkets and neighbourhood stores. These
include Food World, Subhiksha, Nilgiris, Margin Free, and Big Bazaar. The reason being that most
entrepreneurs who started organised retail came from southern India and the cost of real estate in the
southern region was less than other regions (particularly north and west). Since then, however,
organised food retailing has emerged across the country, inspired by the presence of high potential
markets in the north, west and east as well as the success of some non-food retailers and food
services companies in these regions.

FOOD RETAILING – THE BUZZ WORD:

Indian retail food industry has revolutionized shopping experience of Indian customers. Growing at the
rate of 30%, the Indian food retail is going to be and no doubt is the major driving force for the retail
industry. Food accounts for the largest share of consumer spending. Food and food products account
for about 50% of the value of final private consumption. This share is significantly higher compared to
developed economies, where food and food products account for about 20% of consumer spending.
Ireena Vittal, principal, McKinsey & Co in Food Forum 2008, said, "At US$ 175 billion today the food
industry is likely to grow to US$ 400 billion by 2025. The percentage of income spent in households
will drive growth in the food market. Indian consumers are happy with store goods than branded
goods and are very conservative on packaged goods. There are 10 million street vendors in India, of
which 6 million only sell food. Currently, the retail food sector is US$ 70 billion and is expected to rise
to US$ 150 billion by 2025. Food has the largest consumption in the Indian economy and will remain
the single largest category."

Modern state of the food retailing is not a demand led but the supply led one. Major spending on food
and increasing usage of out of home food consumption represent a significant opportunity for food
retailers and food service companies. Speaking in Food Forum India 2008, on the government's role in
the food retailing development, Dave said, "The retail stores need to empower its stakeholders and
deliver what the consumer wants. The vision for 2020 should be appropriate extension network,
implementation of appropriate practice at farmers' level and infrastructure in the country."

There are various factors paving the way to revolutionizing food retailing in India. Among them few
are:

 Changing life styles and tastes

 Growing need for convenience
 Increasing disposable income
 Increasing numbers of working women
 Change in consumption patterns
 Higher aspirations among youth
 Impact of western lifestyle
 Plastic Revolution – Increased use of credit cards and debit cards
UP-AND-COMING FOOD RETAIL FORMATS:

With the changing food consumption patterns, consumers need for convenience, choice and value for
money the set-up of retail format is changing. The Indian consumers do visit about eight to ten outlets
to purchase various food products, which make up the daily consumption basket. These outlets include
neighbourhood kirana stores, bakeries, fruit and vegetable outlets, dairy booths and chakkies (small
flour mills), which is very time-consuming and unproductive way of shopping for food. With changing
lifestyle there is growing scarcity of time, and convenience in food shopping is emerging as an
important driver of growth of one-stop retail formats that can offer consumer 'value for time' in
addition to 'value for money'. These are giving an opportunity to various other retail formats:

A. Neighbourhood Stores

In India about 90% of food purchases are made within a distance of 1.5 km from the customer's
home. This means that an organised retailer would need to have a 'neighbourhood store' close to
customers in order to capture the share of wallet that is spent on food. These stores would cater to
the consumer's daily and weekly needs. The outlets closest to a neighbourhood store in India are
'Safal' outlets operated by Mother Dairy in Delhi, Margin Free in Kerala and Subhiksha.

B. Supermarkets

This format caters to the consumers' need for choice and variety. These needs translate into 'more
width' and 'more depth' in each category. These stores cater to the consumers in a catchment area
with a radius of 3 to 4 km and therefore need to be destination stores. A supermarket can cater to the
consumers' weekly, monthly and occasional needs. Examples of supermarkets already in India are
Food World, Trinetra and Nilgiri's.

C. Hypermarkets

Hypermarkets are essentially destination stores catering to the consumers' bulk shopping needs in
both food and non-food categories. The key added values for the customer are 'choice' and 'value for
money' because products are sold at a discounted price. The hypermarkets model of food retailing is
new to India. Spencers (RPG), Big Bazaar (Pantaloons), Star India Bazaar.

D. Cash & Carry (C & C) Stores

These stores sell their products to their members only. The members are typically retailers and
institutions. The key added value is a wide range of products under one roof, available at wholesale
prices. Metro has started the first C & C store in India in Bangalore. The typical area of a C & C store is
70,000 to 100,000 sq. ft. and both food and non-food products are stocked.

KEY DEVELOPMENTS IN FOOD RETAIL:

The major development in food retail is consideration of Foreign Direct Investment (FDI) with a
limitation that all companies would have to meet mandated export obligations. Food processing
minister Subodh Kant Sahay told ET that “We are considering a proposal to allow FDI in food retail. It
should be in such a way that it would boost our agriculture. Our farmers must also get benefits of
economic liberalization”.

The government is also considering the opening up of the $330-billion retail market with adequate
provisions to protect neighborhood stores.

In every retail format food trade is growing. More and more corporate houses such as HLL, ITC,
Godrej and Reliance are already working into food retail. Huge increase is expected from the
corporate players, which will help grow the entire food retail sector. Dabur’s Amit Burman has also
forayed into food retailing. According to Amit "Food and beverages retailing is a very attractive
segment and with Lite Bite Concepts we are targeting Rs 1,000 crore sales in a couple of years with
around 200 outlets," Well-established players such as Subhiksha, Food Bazaar and Spencer's Daily are
also tapping into backward linkages, while trying to match their expanding geographies with retail
formats. Also, most food retail players have been region-specific as far as geographical presence is
concerned. Take the RPG Group's FoodWorld, Nilgiris, Margin Free, Giant, Varkey's, all of which are
more or less spread in the Southern region; Sabka Bazaar, Big Apple has a presence only in and
around Delhi; names such as Haiko and Radhakrishna Foodland are Mumbai-centric; while Adani is
Ahmedabad-centric.

Retailers' entrance in the unbranded food space

Modern food formats like Food Bazaar and Spencer's have their eye on the unbranded part of the
consumer's shopping basket. This constitutes as much as 60% of the total purchases and growing
sharply, says AC Nielsen estimates. Retailers are offering a package of convenience and freshness,
and have an edge over manufacturers that focus mainly on packaged conveniences.

Food retailers are offering 'live kitchen' formats, which offer on-the-spot home-style gravies, dal,
cooked rice and kneaded dough with options like grinding coffee fresh at store, idli batter, paneer,
curd and cut vegetables.

FOOD RETAIL AND ITS STEPPING STONES:

The opportunities in food retail sector are as follows:

Rising Investment: There are strong opportunities in food retail as a result of encouraging changes
in consumer purchasing patterns, the availability of real estate and supply chain development.
Organised food retail presents a unique investment opportunity for corporates looking to diversify. A
good understanding of consumer, access to the right locations and the ability to manage the supply
chain efficiently will be critical success factors for the new entrant.

FDI Policy for Retail: Gates have been opened up for single brand retailers. In February 2006, the
door was opened to some extent when the government allowed 51% FDI by single brand companies
subject to government approvals.

Emergence Of Logistic Providers: The present lack of logistic support exposes the need for an
integrated logistic provider. As retail activity gathers momentum and large quantities of perishables
are sold in modern formats, the logistic service providers would have a crucial role to play in bridging
the supply gap. Retail players would also benefit from an efficient supply chain inventory
management.

CONCLUSION:
The past 4-5 years have seen increasing activity in food retailing. Various business houses have
already planned for few investments in the coming 2-3 years. Though the retailers will have to face
increasingly demanding customers and intensely competitive rivals, more investments will keep
flowing in and the share of organized food sector will grow rapidly.

Organized food retailing in India is surely poised for a takeoff and will provide many opportunities both
to existing players as well as new entrants.