4. 51% 55% Rural India
42% Urban India
On average in 2004, Indian consumers spent about 51 per cent of their total expenditure on food; in
rural areas, that figure was about 55 per cent and in urban areas it was 42 per cent according to the
National Sample Survey (Planning Commission 2004).
5. Most Indians are very price sensitive. Any pressure on prices, especially for food, gets the immediate
attention of policymakers. For example, the onion crisis in the summer of 1998 paved the way for the
exit of the ruling government at that time (Desai 1999).
The emergence of organized retail undoubtedly gives consumers a wider choice of goods, more
convenience, and a better shopping environment, among other benefits. This is feasible because
organized retail can take several formats, from small neighbourhood stores in densely populated cities
with high real estate prices to large air-conditioned malls in the periphery where real estate is cheaper.
Organized retail can appear small but spread in all local markets, providing the convenience of a
neighbourhood kirana store but with procurement on a mass scale that keeps prices low and provides
greater variety. With a reasonably long history of organized retail, the United States has shown that
many organized retailers have been able to hold retail prices down, especially for mass-consumption
goods. Fishman (2006) shows that retailers like Wal-Mart have held the US inflation rate down by at
least one percentage point (normal inflation hovers around 2–4 per cent). The success of such retailers
to hold the price line comes largely from their efficient national and global sourcing and scale
economies. In India, given a very large price-sensitive population, holding the price line for a large
mass of consumers could be a great boon to consumer welfare.
6. Impact on Unorganized Retailers Impact on Consumers
• Unorganized retailers in the vicinity of organized retailers • Consumers have definitely gained from organized retail on
experienced a decline in their volume of business and profit in multiple counts.
the initial years after the entry of large organized retailers. • Overall consumer spending has increased with the entry of
• The adverse impact on sales and profit weakens over time. the organized retail.
• There was no evidence of a decline in overall employment in • While all income groups saved through organized retail
the unorganized sector as a result of the entry of organized purchases, the survey revealed that lower income consumers
retailers. saved more. Thus, organized retail is relatively more beneficial
• There is some decline in employment in the North and West to the less well-off consumers.
regions which, however, also weakens over time. • Proximity is a major comparative advantage of unorganized
• The rate of closure of unorganized retail shops in gross outlets.
terms is found to be 4.2 per cent per annum which is much • Unorganized retailers have significant competitive strengths
lower than the international rate of closure of small that include consumer goodwill, credit sales, amenability to
businesses. bargaining, ability to sell loose items, convenient timings, and
• The rate of closure on account of competition from home delivery.
organized retail is lower still at 1.7 per cent per annum.
• There is competitive response from traditional retailers
through improved business practices and technology
upgradation.
• A majority of unorganized retailers is keen to stay in the
Impact on Intermediaries
business and compete, while also wanting the next generation
• There is some adverse impact on turnover and profit of
to continue likewise.
intermediaries dealing in products such as, fruit, vegetables,
• Small retailers have been extending more credit to attract
and apparel.
and retain customers.
• Over two-thirds of the intermediaries plan to expand their
• However, only 12 per cent of unorganized retailers have
businesses in response to increased business opportunities
access to institutional credit and 37 per cent felt the need for
opened by the expansion of retail.
better access to commercial bank credit.
• Only 22 per cent do not want the next generation to enter
• Most unorganized retailers are committed to remaining
the same business.
independent and barely 10 per cent preferred to become
franchisees of organized retailers.
7. Impact on Farmers Impact on Manufacturers
• Farmers benefit significantly from the option of direct sales to • Large manufacturers have started feeling the competitive
organized retailers. impact of organized retail through price and payment
• Average price realization for cauliflower farmers selling pressures.
directly to organized retail is about 25 per cent higher than • Manufacturers have responded through building and
their proceeds from sale to regulated government mandi. reinforcing their brand strength, increasing their own retail
• Profit realization for farmers selling directly to organized presence, ‘adopting’ small retailers, and setting up dedicated
retailers is about 60 per cent higher than that received from teams to deal with modern retailers.
selling in the mandi • Entry of organized retail is transforming the logistics industry.
• The difference is even larger when the amount charged by This will create significant positive externalities across the
the commission agent (usually 10 per cent of sale price) in the economy.
mandi is taken into account. • Small manufacturers did not report any significant impact of
organized retail.
Direction 1
Future of food and grocery retail experience in India :
Getting organized retail to grow in Indian market on the basis of understanding of strengths of unorganized
sector (e.g. kirana stores know the beat of consumer, they have advantage of location accessibility – can we
understand these advantages for consumer and integrate it with organized retail?)
8. Direction 2
Can we relook this
process of payment and
retail invoice/ bills from a
customer’s point of view?
Apps like Moneybook,
Birdy etc. aim to do the
same thing but most of
them look like they are
meant for business users,
can we find a more
home based purchases,
managing everyday
transactions – quick and
hassle free, with not a lot
of technology involved
Shopping Diary
Clockwise from the top: Movie ticket, things I buy using my credit card, my bank
statement, electricity bill
9. Online Retail in India
(Inforgraphic file attached)
Direction 3 :
Understanding the scope of online retail in India, perceptions related to it, what is acceptable as online
purchase and what needs to be purchased only from a shop, inhibitions related to mobile/ online
shopping.
