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KIRLOSKAR INSTITUTE OF ADVANCED MANAGEMENT STUDIES
Impact of FDI on Urban and Semi Urban
consumers in Retail
SUBMITTED TO: Prof. SATISH IRDE SUBMITTED BY:
ABHISHEK KUMAR - 03
ANJANI KR. MOHANTY - 09
HARSH VERMA - 40
KAMAL KISHORE - 45
LAXMI GUPTA - 54
NITISH PRATAP SINGH - 67
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Who are urban and semi urban consumers
Urban Consumers
Data Highlights
This data release covers the total population, population (0 to 6 years) and number of
literates for each UA/City with a population of 1 Lakh and above as per the provisional
population totals of Census 2011.
Towns:
For the Census of India 2011, the definition of urban area is as follows;
1. All places with a municipality, corporation, cantonment board or notified town areacommittee, etc.
2. All other places which satisfied the following criteria:i) A minimum population of 5,000;
ii) At least 75 per cent of the male main working population engaged in non
agricultural pursuits; and
iii) A density of population of at least 400 persons per sq. km.
The first category of urban units is known as Statutory Towns. These towns are notified
under law by the concerned State/UT Government and have local bodies like municipalcorporations, municipalities, municipal committees, etc., irrespective of their demographic
characteristics as reckoned on 31st December 2009. Examples: Vadodara (M Corp.), Shimla
(M Corp.) etc. The second category of Towns (as in item 2 above) is known as Census Town.
These were identified on the basis of Census 2001 data.
Urban Agglomeration (UA):
An urban agglomeration is a continuous urban spread constituting a town and its adjoining
outgrowths (OGs), or two or more physically contiguous towns together with or withoutoutgrowths of such towns. An Urban Agglomeration must consist of at least a statutory
town and its total population (i.e. all the constituents put together) should not be less than
20,000 as per the 2001 Census. In varying local conditions, there were similar other
combinations which have been treated as urban agglomerations satisfying the basic
condition of contiguity. Examples: Greater Mumbai UA, Delhi UA, etc.
Out Growths (OG):
An Out Growth (OG) is a viable unit such as a village or a hamlet or an enumeration block
made up of such village or hamlet and clearly identifiable in terms of its boundaries and
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location. Some of the examples are railway colony, university campus, port area, military
camps, etc., which have come up near a statutory town outside its statutory limits but
within the revenue limits of a village or villages contiguous to the town. While determining
the outgrowth of a town, it has been ensured that it possesses the urban features in terms
of infrastructure and amenities such as pucca roads, electricity, taps, drainage system fordisposal of waste water etc. educational institutions, post offices, medical facilities, banks
etc. and physically contiguous with the core town of the UA. Examples: Central Railway
Colony (OG), Triveni Nagar (N.E.C.S.W.) (OG), etc. Each such town together with its
outgrowth(s) is treated as an integrated urban area and is designated as an urban
agglomeration. In the 2011 Census, 475 places with 981 OGs have been identified as Urban
Agglomerations as against 384 UAs with 962 OGs in 2001 Census.
Number of UAs/Towns and Out Growths (OGs):
Type of Towns/UAs/OGs Number of towns 2011 Census 2001 Census
1. Statutory Towns 4,041 3,7992. Census Towns 3,894 1,3623. Urban Agglomerations 475 3844. Out Growths 981 962
At the Census 2011 there are 7,935 towns in the country. The number of towns has
increased by 2,774 since last Census. Many of these towns are part of UAs and the rest are
independent towns. The total number of Urban Agglomerations/Towns, which constitutes
the urban frame, is 6166 in the country.
Population of UAs/Towns:
1. The total urban population in the country as per Census 2011 is more than 377million constituting 31.16% of the total population.
2. Class I UAs/Towns: The UAs/Towns are grouped on the basis their population inCensus. The UAs/Towns which have at least 1,00,000 persons as population are
categorized as Class I UA/Town. At the Census 2011, there are 468 such UAs/Towns.
The corresponding number in Census 2001 was 394.
3. 264.9 million persons, constituting 70% of the total urban population, live in theseClass I UAs/Towns. The proportion has increased considerable over the last Census.
In the remaining classes of towns the growth has been nominal.
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4. Million Plus UAs/Towns: Out of 468 UAs/Towns belonging to Class I category, 53UAs/Towns each has a population of one million or above each. Known as Million
Plus UAs/Cities, these are the major urban centres in the country. 160.7 million
persons (or 42.6% of the urban population) live in these Million Plus UAs/Cities. 18
new UAs/Towns have been added to this list since the last Census.
5. Mega Cities: Among the Million Plus UAs/Cities, there are three very large UAs withmore than 10 million persons in the country, known as Mega Cities. These are
Greater Mumbai UA (18.4 million), Delhi UA (16.3 million) and Kolkata UA (14.1
million). The largest UA in the country is Greater Mumbai UA followed by Delhi UA.
Kolkata UA which held the second rank in Census 2001 has been replaced by Delhi
UA. The growth in population in the Mega Cities has slowed down considerably
during the last decade. Greater Mumbai UA, which had witnessed 30.47% growth in
population during 1991-2001 has recorded 12.05% during 2001-2011. Similarly DelhiUA (from 52.24% to 26.69% in 2001-2011) and Kolkata,
Moving to the Cities
Indias still strong growth reflects the fact that it remains a principally rural nation.
According to the 2011 census, only 31% of the population of India lives in urban areas.
Urban migration, of course, is continuing but at a considerably slower rate than in China.
According to the United Nations, the urban population of India will be less than 35% in 2020
and approximately 40% in 2030. Yet despite this, the number of new urban residents will besubstantial. By 2030, another 225 million people will be added to the Indian urban areas,
more than the population of Japan and Germany combined.
The Largest Urban Areas
During the last decade, the number of urban areas (areas of continuous urban
development) in India rose by one half, from 34 to 51 (Table). However, growth was
somewhat less than forecast in the largest urban areas, a phenomena that appears
elsewhere, such as in now slower growing Mexico City, Sao Paulo, New York and Los
Angeles. This pattern seems to be found all around the world, according to a report by
the McKinsey Global Institute.
India: Urban Areas Over 1,000,000 Population: 2011
Rank Urban Area 2001 2011 % Change
1 Delhi, NCT-UP-HAR 15,358,000 21,622,000 41%
2 Mumbai, MAH 16,554,000 18,790,000 14%
3 Kolkata, WB 13,217,000 14,113,000 7%
4 Chennai, TN 6,425,000 8,696,000 35%
5 Bangalore, KAR 5,687,000 8,499,000 49%
http://www.newgeography.com/content/002088-the-evolving-urban-form-the-valley-mexicohttp://www.mckinsey.com/mgi/publications/urban_world/index.asphttp://www.mckinsey.com/mgi/publications/urban_world/index.asphttp://www.newgeography.com/content/002088-the-evolving-urban-form-the-valley-mexico -
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6 Hyderabad, AP 5,534,000 7,749,000 40%
7 Ahmadabad, GUJ 4,519,000 6,352,000 41%
8 Pune, MAH 3,756,000 5,050,000 34%
9 Surat, GUJ 2,811,000 4,585,000 63%
10 Jaipur, RAJ 2,324,000 3,073,000 32%11 Kanpur, UP 2,690,000 2,920,000 9%
12 Lucknow, UP 2,267,000 2,901,000 28%
13 Nagpur, MAH 2,123,000 2,498,000 18%
14 Indore, MP 1,639,000 2,167,000 32%
15 Coimbatore, TN 1,446,000 2,151,000 49%
16 Kochi, KER 1,355,000 2,118,000 56%
17 Patna, BH 1,707,000 2,047,000 20%
18 Kozhikode, KER 880,000 2,031,000 131%
19 Bhopal, MP 1,455,000 1,883,000 29%
20 Thrissur, KER 330,000 1,855,000 462%
21 Vadodara, GUJ 1,492,000 1,817,000 22%
22 Agra, UP 1,321,000 1,746,000 32%
23 Visakhapatnam, AP 1,329,000 1,730,000 30%
24 Malappuram, KER 170,000 1,699,000 899%
25 Thiruvananthapuram, KER 889,000 1,687,000 90%
26 Kannur, KER 498,000 1,643,000 230%
27 Ludhiana, PJ 1,395,000 1,614,000 16%28 Nashik, MAH 1,152,000 1,563,000 36%
29 Vijayawada , AP 1,011,000 1,491,000 47%
30 Madurai, TN 1,195,000 1,462,000 22%
31 Varanasi, UP 1,212,000 1,435,000 18%
32 Meerut, UP 1,167,000 1,425,000 22%
33 Rajkot, GUJ 1,002,000 1,391,000 39%
34 Jamshedpur, JH 1,102,000 1,337,000 21%
35 Srinagar, JK 971,000 1,273,000 31%
36 Jabalpur, MP 1,117,000 1,268,000 14%
37 Asansol, WB 1,090,000 1,243,000 14%
38 Vasai Virar, MAH 293,000 1,221,000 317%
39 Allahabad, UP 1,050,000 1,217,000 16%
40 Dhanbad. JH 1,064,000 1,195,000 12%
41 Aurangabad, MAH 892,000 1,189,000 33%
42 Amritsar, PJ 1,011,000 1,184,000 17%
43 Jodhpur, RAJ 856,000 1,138,000 33%
44 Ranchi, JH 863,000 1,127,000 31%45 Raipur , CHH 699,000 1,123,000 61%
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46 Kollam, KER 380,000 1,110,000 192%
47 Gwalior, MP 866,000 1,102,000 27%
48 Durg-Bhilainagar, CHH 924,000 1,064,000 15%
49 Chandigarh, CH 809,000 1,026,000 27%
50 Tiruchirappalli, TN 847,000 1,022,000 21%51 Kota, RAJ 705,000 1,001,000 42%
Delhi: Delhi (National Capital Territory, Uttar Pradesh and Haryana) was reported by the
United Nations to have become the second largest urban area in the world, following Tokyo
in 2010. However, the Delhi urban area was nearly 1,000,000 people short of the population
than projected by the United Nations. However, over the decade, Delhi managed to become
the nation's largest urban area with a population of 21.6 million people, an increase of 41%
over its 15.5 million people in 2001 (Note 1). This is an impressive accomplishment, since
some demographers have long maintained that Mumbai could be destined to become the
largest urban area in the world in future decades.
Mumbai:Mumbai (formerly Bombay), in Maharashtra, placed second with a population of
18.8 million. This compares to a population of 16.6 million in 2001. The Mumbai urban area
grow only 14% between 2001 and 2011, a much slower rate than before, driven by declines
in the urban core of central Mumbai another general global phenomena and only
modest growth in the suburban Mumbai portion of the central city, with explosive growth in
the suburban areas outside the central city (Note 2). Mumbais 2011 population is
approximately 1.5 million below the level that would have been indicated by the 2010
United Nations projection.
Kolkata: India's third largest urban area, Kolkata (formerly Calcutta), in West Bengal,
registered a population of 14.1 million, an increase of only 7% from its 13.4 million
population in 2001. Like the two larger urban areas, the current population of Kolkata is less
http://www.newgeography.com/content/002172-the-evolving-urban-form-mumbaihttp://www.newgeography.com/content/002172-the-evolving-urban-form-mumbaihttp://www.newgeography.com/content/002172-the-evolving-urban-form-mumbai -
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than project by the UN. As in the case of Mumbai the shortfall is by approximately 1.5
million.
Chennai: Chennai (formerly Madras), in Tamil Nadu, ranked fourth among India's urban
areas with a population of 8.7 million, up from 6.5 million in 2001. This 35% growth rate
propelled Chennai to a population more than 1 million above expectation.
Bangalore: Information technology centerBangalore (Karnataka) was the fastest growing of
the urban areas over 5 million people, with a population of 8.5 million, an increase of 49%over its 2001 population of 5.7 million. Should Bangalore's population growth rate continue,
it is likely to pass Chennai over the next decade to become the fourth largest urban area.
Like Chennai, Bangalore registered a population at least 1 million higher than anticipated.
Hyderabad: Hyderabad (Andra Pradesh), another of the nation's leading information
technology areas, rose to a population of 7.7 million people, from 5.5 million in 2001. With a
40% growth rate, Hyderabad exceeded its population estimate by at least1 million people.
Ahmadabad: Ahmadabad, in Gujarat, is the last of the seven urban areas with more than 5
million population had 6.4 million people, which is an increase from 4.5 million in 2001.
Ahmadabad grew 41% and achieve the population at least one half million higher than was
expected.
Surat: The fastest growing urban area of the 16 Indian urban areas with more than 2 million
people was Surat, in Gujarat. Surat grew from 2.8 million people to 4.6 million, for an
increase rate of 63%.
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Income of the Urban Population:
Income Distribution in India
Income distribution refers to the spread of a country's income percentage throughout its
population and yields a ratio between incomes of the richest in a country to the poorest.
When income is not proportionally distributed, it is called income inequality.
A great portion of India's population is a victim of rising monetary deficits, most of which
has crossed well under the poverty threshold. While the top 10% of Indias population
enjoys 31.1% of the countrys income, the lowest 10% suffers with merely 3.6%.
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The Consumerization of Urban India
India is one of the world's youngest nations with nearly two-third of its population under
the age of 35 years. Urban India accounts for nearly 30% of this burgeoning young
population. There is a significant shift taking place in the consumption pattern of the young
urban Indian consumer, aged between 21 and 40 years, led by various demographic,
psychological and economic factors.
Demographic trends and the strong growth in the Indian economy in the last few years are
charting a new growth path for many consumer goods and services companies. The growth
in the number of young working people in urban India who have grown up post
liberalisation, rise in their aspiration levels and increase in their spending power will be the
key drivers of growth for these businesses.
Favourable demographics
India's urban dwellers form 28% of the total population
but account for about 42% of the total private
consumption expenditure. Larger number of urban
centres and the migration of the young rural
population to urban centres for higher education and
employment have driven urban growth rates. The
growing share of young people in the population as
well as development of urban India is leading to a rising
number of working population in the cities who have higher spending power, led by high
income growth and credit availability.
The urban population between the ages of 15 to 34
years is expected to increase from 107 m in 2001 to
138 m in 2011, an increase of 30%. Also the proportion
of young urban dwellers is growing. The migration to
urban areas for better career opportunities will lead to
an increase in the 15-59 age groups in urban areas.
This group will boost consumption - as they have
higher earning capacity and will also be able to spend
more on themselves.
Aspiration levels
Strong economic growth, increasing globalisation, easy availability of credit and the rise of
BPO and retailing has resulted in higher household incomes, and these continue to rise with
the Indian economy. Also, the easy availability of credit has raised these aspirations. In India
there has been significant increase in the percentage of households in the high-income andmiddleclass groups in recent times. This higher income is driving aspirations, especially
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amongst the middle class, leading to an increase in the desire to change lifestyles by
increasing consumption. Western lifestyle exposure through more foreign travel and higher
penetration of television, internet and other media, has increased the desire of this class to
update its lifestyle. Also, wide availability of financial products and lower interest rates has
accelerated the penetration of credit. Ease of payment due to higher penetration of plasticmoney is also driving consumer-spend on impulse purchases.
Households in India (m)
The Classes 1994-951999-002005-06
Rich (above US$ 4600) 1 3 6
Consuming (US$ 970-4600) 29 66 75
Climbers (US$470-970) 48 66 78
Aspirants (US$340-470) 48 32 33
Destitutes (less than US$ 340) 32 24 17
In the last three to four years, there has been a marked shift in the consumption pattern.
The consumers are not satisfied by purely spending on basic products and services; they
want to indulge by consuming goods and services that satisfy their lifestyle needs, which can
broadly be classified as leisure, convenience & comfort, wellness and aspiration needs. The
malls are rapidly replacing the kirana stores and the cinema houses are now turning into
multiplexes. The number of mobile users has increased by 86.6% CAGR since 1997 to 2006.
Going forward, the demand for lifestyle goods is likely to witness robust growth.
The favourable demographics, rising income and change in lifestyle will lead to an explosive
growth in the lifestyle categories like retail, ready to eat foods, gems, autos, travelling,
hospitality etc. over the next few years. Not only the basic but the lifestyle goods and
services are likely to be the next growth drivers.
Lifestyle and the spending Pattern of the Urban Consumers:
Global retail chains are chomping on the bit to enter the Indian retail market. The promise
of growth in the emerging Indian market, the saturation of growth in their home retail
markets and the lack of mature organized retail markets in India are all reasons for their
interest.
Conventional wisdom about Indian consumers is that they consider the cost of the product
or service as the main criterion to make a purchase decision. But this has changed with time.
The organized retail market in India is growing, but over 90%, of Indian consumers still
depend on micro-shops and street vendors for their daily requirements. The organized retail
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chains are gaining popularity in the bigger metros, but with growing opportunities in tier-2
cities, the potential for a huge market exists.
The urban Indian retail consumer, values product attributes freshness as well as
unobservable attributes such as place of produce or environmental friendliness and is not
driven by the low-prices only. Products (and retailers) that do not share enough information
regarding the production methods tend to be preferred less by the urban Indian consumer.
For retailers interested in the Indian market or those seeking to enter the retail trade, it is
important to note that consumers, on an average, Value the transparency in the supply and
production chain and do not use price as the primary factor to make purchase decisions
there exist distinct consumer groups. Prefer fresh products, but products that are not local
are also well accepted. Prefer environmentally friendly products and attach high utility to
products that represent this information pictorial on the packaging do not accept anymore
products with no information. Urban Indian customers appear to fall into 3 major groupsdepending on their product and purchase choices.
Environment conscious group
Majority of the urban population (around 44%) falls in this group. These consumers attach
maximum value to environmental impact of the products purchased. They prefer local
produces and are willing to pay a small premium to get products that have these
characteristics.
Health conscious group
This group prefers products that are not treated with pesticides and are particularly
sensitive to health issues.
Price dependent group
Consumers belonging to this group make their product choices by considering the price
alone and they are not heavily affected by the method or place of production. They also do
not worry substantially about the environmental impact of the products purchased.
The urban Indian consumer has grown to a large extent from being a price only driven buyer
to a more discerning buyer who needs to be convinced about a product's attributes. Urban
Indian consumers are aware of potential environmental impacts and the effect of bio-
technology on farming. Retailers need to improve their communication related to products,
the supply chain operations and provide better organized retail experience to meet the
requirements of the informed urban Indian buyer who is willing to pay a price premium.
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Comparisons between the marketing strategies adopted in Rural and Urban
Areas
State No. of Towns
West Bengal 43
Andhra
Pradesh
40
Maharashtra 27
Karnataka 26
Tamil Nadu 22
Madhya
Pradesh
20
Haryana 19
Bihar 18
Western UP 16
Gujarat 15
Rajasthan 13
Punjab 11
Eastern UP 8
Orissa 8
Central UP 6
Chhattisgarh 6
Kerala 5
Jharkhand 4Himachal
Pradesh
1
Uttaranchal 1
Total 309
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Semi Urban Areas
Surrounding residential areas of a bigger city, with a population ranging 1 to 5 lacks are said
to be sub urban areas. A group of these can collectively be regarded as the suburbs.
Generally they pertain to residential districts.
Semi Urban Consumers
Male Profile
He is aware about myriad products thatare on offer in the market place, thanks
to television
He is a responsible, family person andstarts looking for employment at an
early age
He looks for respect more than anythingelse
He could be a bank clerk, an accountant,a factory worker, small shop owner, a
teacher etc.
His annual income is pretty low ascompared to an urban male but he is
recognizing better lifestyle needs & aims
for a higher income
Female Profile
She is coming out of her closet andis exercising her choice in selected
categories
She is literate, but nowtransforming as a career oriented
woman
Mostly women seek work in HomeSciences
She is comfortable going out ingroups and tries to find similar
company She is a content woman, happy with
her changing lifestyle and
recognition
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Buying habits
They buy daily usable things in large quantities like wheat flour, edible oil etc. Besidesthe daily use items; they buy things in small quantities and are not concerned with
economy They recognize the need of advanced quality products but buy them only on special
occasions like wedding or festival
They like to show what they have bought when in groups, or evening meets, verycommon in semi urban
The samples or small quantity bottles, in FMCG, is more often preferred by women There is a general perception that if more quantities are bought, it would lead to more
wastage.
They are also flamboyant at times with their purchases so often they go to theirneighbors after shopping or take them along.
Purchase Patterns
Influence Customs - They believe in old customs and traditions which influence a loton the purchasing decision. They look at functionality than on the style, brand and
features.
Packaging and Color - The size, color, shape, and packaging of the product matters alot. For example, in the south people prefer yellow as good, but in the North it is a signof a disease.
Retail Outlet Friendly - More retail outlet friendly customers, and there are fewerstores available per 1000 population.
Long Term Usage - They buy the product if they feel that the product will sustain forlong term usage
Economical with Good Quality - There is a saying in Hindi "sasta, sundar, mazbootThey buy the product if it is in their budget. But if the product is good in technology,
quality and adds value to their role and status in the society then they do not look at
money to buy it. If it is good and long lasting then there is no go back from theconsumers.
Society - They are driven by society. Word of mouth is the key factor in purchasing aproduct
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The Male Member in the family exercises the right to make purchase decisions Only decisions with respect to the eatables are chiefly contributed by the woman in
the family
The neighbours, friends and peers play a crucial role in the decision making for asemi urban consumer
As he is a society man primarily, he also wants to buy what his neighbor or hisfriends have purchased
Category Influencer Decision Maker User
Automobile Peers, Neighbours
Finance Peers
Durables Peers, Neighbours
FMCG Friends, Acquaintances,
Relatives
Telecom Peers, Friends, Neighbours
Decision Making Pattern in Semi Urban
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Markets University/College areas Hotels/Tourist Complexes NRIDefense AreasUP, Haryana, Punjab,MP, HP, Rajasthan
Reasoning
UP, Haryana, Punjab, MP, Rajasthan
People are very flamboyant, enjoyfestivals and spend lavishly during
festivals
Most expensive weddings take place inthese states, also the gatherings are
enormous
HP is a state with high educationalpreferences and only sources of
development as usually research work is
undertaken there A ri studies
Potential
Congregations
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Industrial Govt. Offices Banks Fisheries/Beach IT Belts
Potential Money Belts
Reasoning
Bihar, Jharkhand, Kerala
Extremely rich people, coal and diamond mines,rubber plantations(Kerala, Maharashtra,
Karnataka)
IT Hubs, Industries in all sectors (Orissa, TamilNadu)
Bank chains, posh residential societies
Bihar, Jharkhand,
Maharashtra, Kerala, TamilNadu, Karnataka, Orissa
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Types of Retail outlets urban and semi-urban consumers in India presently use for
shopping:-
Mom and Pop Store (also called Kirana Store in India)
Mom and Pop stores are the small stores run by individuals in the nearby locality to cater todaily needs of the consumers staying in the vicinity. They offer selected items and are not at
all organized. The size of the store would not be very big and depends on the land available
to the owner. They wouldnt offer high-end products.
Merchandise:
Eggs
Bread
Stationery
Toys
CigarettesCereals
Pulses
Medicines
Department Stores
A department store is a set-up which offers wide range of products to the end-users under
one roof. In a department store, the consumers can get almost all the products they aspire
to shop at one place only. Department stores provide a wide range of options to the
consumers and thus fulfil all their shopping needs.
Merchandise:
Electronic Appliances
Apparels
Jewellery
Toiletries
Cosmetics
Footwear
Sportswear
Toys
Books
CDs, DVDs
Examples - Shoppers Stop, Pantaloon
Discount Stores
Discount stores also offer a huge range of products to the end-users but at a discounted
rate. The discount stores generally offer a limited range and the quality in certain cases
might be a little inferior as compared to the department stores.
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Wal-Mart currently operates more than 1300 discount stores in United States. In India
Vishal Mega Mart comes under discount store.
Merchandise:
Almost same as department store but at a cheaper price.
Supermarket
A retail store which generally sells food products and household items, properly placed and
arranged in specific departments is called a supermarket. A supermarket is an advanced
form of the small grocery stores and caters to the household needs of the consumer. The
various food products (meat, vegetables, dairy products, juices etc) are all properly
displayed at their respective departments to catch the attention of the customers and for
them to pick any merchandise depending on their choice and need.
Merchandise:Bakery products
Cereals
Meat Products, Fish products
Breads
Medicines
Vegetables
Fruits
Soft drinks
Frozen Food
Canned Juices
Warehouse Stores
A retail format which sells limited stock in bulk at a discounted rate is called as warehouse
store. Warehouse stores do not bother much about the interiors of the store and the
products are not properly displayed.
Speciality Stores
As the name suggests, Speciality store would specialize in a particular product and would
not sell anything else apart from the specific range. Speciality stores sell only selective items
of one particular brand to the consumers and primarily focus on high customer satisfaction.
Example -You will find only Reebok merchandise at Reebok store and nothing else, thus
making it a speciality store. You can never find Adidas shoes at a Reebok outlet.
Malls
Many retail stores operating at one place form a mall. A mall would consist of several retail
outlets each selling their own merchandise but at a common platform.
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E Tailers
Now a days the customers have the option of shopping while sitting at their homes. They
can place their order through internet, pay with the help of debit or credit cards and the
products are delivered at their homes only. However, there are chances that the products
ordered might not reach in the same condition as they were ordered. This kind of shoppingis convenient for those who have a hectic schedule and are reluctant to go to retail outlets.
In this kind of shopping; the transportation charges are borne by the consumer itself.
Example - EBAY, Rediff Shopping, Amazon
Dollar Stores
Dollar stores offer selected products at extremely low rates but here the prices are fixed.
Example - 99 Store would offer all its merchandise at Rs 99 only. No further bargaining isentertained. However the quality of the product is always in doubt at the discount stores.
Retailers in India
Retailer Stores
Pantaloon Retail Big bazaar, Food bazaar , Hometown, furniture bazaar,
collection-I,e-zone,
shoefactory,Depot,Futurbazaar.com,Bowling co.
K Raheja Group Shopper's Stop, Crossword, Homes stop, Mothercare.Tata Group Westside, Star India Bazaar, Croma, Titan, Tanishq.
RPG Group Foodworld, Spencer's, Music World
Landmark Lifestyle, Home Centre, Landmark International, Max Retail,
Funcity.
Piramal Group TruMart, Priamyd Megastore
Reliance Reliance Hyper-mart
Aditya Birla Group Louis Phillipe, Van Heusen, Allen Solly, Peter England,
Trouser town.
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Impact of retail in USA
The Pre-Modern Period (pre-1945) - During this era, mom-and-pop stores and general
stores operated throughout the country. The mom-and-pops were family-run businesses
(grocery stores, hardware stores, etc.) that served the needs of townspeople. General
Stores were common and offered a variety of items that consumers could buy in one place.
Retail Development 1945-1975
During this era, the development of store chains took place, and bigger discount and
department stores opened across the U.S. The names Woolworth, Sears, J.C. Penney, Wal-
Mart, Montgomery Ward, and Macys became more common in cities and suburbs.
Big Box and Category Killers 1975-1990
This period saw the tremendous expansion of discounters such as Wal-Mart and Kmart, plus
other national chains like Sears and J.C. Penney. It also saw the introduction of specialty
store category killers. These chains introduced specialty superstores that covered an
entire category, such as Best Buy and Circuit City (now bankrupt and out of business) in the
consumer electronics business, or Office Depot and Staples in the office-supply business.
Throughout the U.S., malls, strip centres, stand-alone specialty stores, and big-box general
merchandise chains sprouted up. Markets became saturated and, in many cases,
overstored.
The Consolidation of Retail 1990-2000
This period was marked by rapid industry consolidation in all retail channels,where the big
chains got bigger and many regional chains and mom-andpop stores were laid to waste.
Today every retail channel features several companies that capture a bulk of the market
share. Wal-Mart and Target in thediscount industry, Home Depot and Lowes in the home-
improvement business,CVS, Walgreens, and Rite Aid in the drugstore industry, Best Buy and
Circuit City in the consumer electronics industry, and Wal-Mart, Kroger, Safeway, Ahold,
Costco, and Albertsons in the grocery business.
This decade also saw the rise of the supercenter and warehouse club concepts, which
emphasize one-stop shopping for everything from food to clothes to electronics to tires.These big,impersonal stores with everything under one roof took root, in stark contrast to
the mom-and-pop stores that had once emphasized service and community. They offered a
single destination for shoppers and low prices. The supercentrebecame Wal-Marts biggest
growth vehicle in the 1990s and helped make it, byfar, the worlds largest retailer.A retail
study in 1990 predicted that 50% of all retail stores would be out of business by the year
2000, a bold prediction that, in retrospect, proved fairlyaccurate.
The long list of venerable retailers who existed in 1990, but who are now defunct include
Ames, Bradlees, Caldor, Alexanders, Montgomery Ward, Hills Department Stores, F.W.
Woolworth, G.C. Murphy, E.J. Korvette, McCrory, S.S. Kresge, Venture Stores, JameswayCorp., Zayre, etc. The list goes on and on. The smaller mom-and-pop stores, unable to
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compete with the growingnumber of megastores on price, were affected even worse. The
study recognizedthe impending growth and power of chains like Wal-Mart, Target, Costco,
andHome Depot, and rightly projected that many small and midsized regionalchains would
vanish from the retail landscape. The list of retailers above once represented the core
business of many midsized manufacturers. As the decadeprogressed, vendors found their
list of accounts shrinking, with only severalretailers commanding a large percentage of theirbusiness. To their dismay,these retail giants began to exercise greater power in negotiating
on price andsupply chain procedures, and reduce the number of suppliers. Many vendors
have felt powerless to dispute or challenge the demands of the big chains for fearof losing a
significant portion of their business.
The Future Takes Shape 2000-2005
Industry consolidation has had profound effects on merchandising strategies, on shopping
patterns, and on suppliers. One result has been the loss of clout of brand names as the big
suppliers, as well as retailers private brands, converge in the middle of the market. On theone hand, discount and mass retailers are finding it advantageous to introduce exclusive,
name-brand merchandise lines, while higher- price department stores are trying to lower
costs and increase unit sales by developing store brands, which offer consumers essentially
the same quality as brand names without the higher price tag (and with higher margins for
the retailer).
Shoppers Combining Shopping Experiences
Consumers are finding it advantageous to buy their groceries in the same places that they
buy electronics, toys, shoes, and auto parts. Time-pressed consumers can avoid spending allday travelling to various stores to do their Christmas shopping. To accommodate this, big-
box retailers are expanding their offerings. Discounters are selling food and drugs; drug
chains are selling food and items for the home; home improvement chains are offering
electronics and appliances; and super-centres and warehouse clubs offer everything under
the sun. Costco - A good example of the evolution of shopping can be seen at Costco. This
warehouse club operator offers limited selections of high-quality goods at low mark-ups.
And it makes a handsome profit by keeping its operating costs at a minimum. Consumers
can buy items in bulk, thus reducing the amount of shopping trips while saving money. The
addition of gasoline has put warehouse clubs into competition with gas stations and relatedconvenience store operators like Circle K and 7-Eleven. Wal-Mart Supercenters and its Sams
Club division provide similar experiences for lower-income shoppers. The Mass
Merchandisers The unrelenting consolidation that has characterized the world of mass
merchants continues to this day. Even though their growth has slowed, Wal-Mart continues
to expand its super-centers, putting local merchants out of business. We see retail
consolidation among mass merchants and in other channels continuing unabated.
Supermarkets in Developing Countries
Supermarkets have been around for half a century in several developing countries, but the
phenomenon was limited mainly to large cities, upper-middle-class or rich consumer
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segments, and domestic capital chains. In contrast, a supermarket revolution in developing
countries took off in the early-to-mid-1990s. The patterns and determinants of that
revolution are detailed in the following subsection.
Diffusion of Modern Retail over Regions and Countries
The spread of supermarkets has taken place in three established waves and continues in a
fourth emerging wave. The first-wave countries experienced supermarket sector takeoff in
the early-to-mid-1990s. Included in that group are much of South America and East Asia
(outside China and Japan, north-central Europe and the Baltic countries, and South Africa. In
those countries, the average share of supermarkets in food retail went from roughly 1020
percent in 1990 to 5060 percent on average by the early 2000s (Reardon and Berdegu
2007). Comparing that to the roughly 7580 percent share that supermarkets had in food
retail by 2005 in the United States and western Europe, it appears a process of convergence
was taking place. The first-wave countries saw supermarket diffusion in a single decade that
took some five decades in the United States and the United Kingdom. The second-wave
countries are Mexico and much of Southeast Asia, Central America, and south-central
Europe. In those areas, the share went from about 510 percent in 1990 to 3050 percent
by the early 2000s, with the takeoff occurring in the mid-to-late 1990s.
In the third-wave countries, the supermarket revolution started in the late 1990s or early
2000s, reaching about 520 percent of national food retail today. These areas include parts
of eastern and southern Africa, some countries in Central and South America, transition
East Asia (China and Vietnam), Russia, and India. It is somewhat anomalous that they are
latecomers in the third wave, because their demand-side characteristics (income, absolute
size of the middle-class population, urbanization rate, and share of women in theworkforce) make them similar to many countries in the second wave, which had
supermarket take-off some five to seven years earlier.
The main reasons for the lag were policies imposing severe constraints on retail foreign
direct investment (FDI) that were progressively relaxed in China and Russia in the 1990s.
Note that the growth rates of supermarket food sales and retail FDI are inversely correlated
with the waves. Thus, the fastest growth occurred in the supermarket sector in China (about
40 percent a year), whereas the more mature, relatively saturated supermarket sectors in
Brazil and Taiwan saw growth of only 510 percent.
Example: China
China ranked fourth, fifth, and third in the AT Kearney Global Retail Development Index in
2005, 2006, and 2007, respectively, and is a fascinating case of extremely rapid supermarket
diffusion. Modern retail in China comprises roughly 10 percent of the national retail and 30
percent of urban food markets (Hu et al. 2004). China had no supermarkets in 1989, and
food retail was nearly completely controlled by the government. From its beginning in 1990,
the supermarket sector climbed meteorically to about 15 percent of food retail nationally
(some 35 percent in the big cities) by 2003, and today its annual sales are roughly $100
billion. Many of the driving forces for super marketization were in place (e.g., risingincomes, urbanization), and all it needed to become a reality was the progressive
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privatization of the retail market and, even more importantly, the progressive liberalization
of retail FDI that started in 1992 and culminated in 2004, as a provision of World Trade
Organization (WTO) accession. FDI drove intense competition in investment among foreign
chains and between foreign chains and domestic chains that even accelerated before WTO
accession and thereafter with full liberalization of FDI.
Diffusion over space within a country
Supermarkets tend to start in large cities, then spread to intermediate cities and towns, and
then enter small towns in rural areas. The business strategy is the same as for chains,
spreading in waves over countries: the richest and largest market is entered first because it
offers the highest profit per capital invested; competition and saturation of the initial base
drives investment by a given chain into the series of subsequent markets. While the gross
return declines, cost savings result from economies of scale and the procurement system
change discussed later in the report. Often the multinational chain acquires or joint
ventures with the large domestic chain and both acquire smaller local chains operating invarious regions of a country. Competition from larger chains in turn pushes intermediate-
city-based chains to extend into the hinterland towns, seeking refuge from the increasing
competition in its base market; this process accelerates the diffusion of supermarkets over
space.
Diffusion over consumer segments and socioeconomic strata
Controlling for the pattern of spatial diffusion, similar waves of diffusion occur over
socioeconomic groups and consumer segments. Obeying the same business logic as in
spatial diffusion, supermarkets focus first on upper-income consumer segments (nationaland expatriate), move into the middle class, and finally enter the markets of the urban poor.
Format diversification with diffusion over space and strata
As modern retail spreads, format diversification tends to occur to facilitate the spatial and
consumer segment differentiation. For example, to penetrate the markets of inner cities
and small towns where space is limited and product assortment can be narrow, chains use
discount stores, convenience and neighbourhood stores, and small supermarkets.
Diffusion over product categories
The penetration by supermarkets of food retailing has occurred in the following waves of
food categories:
1. The first wave of product penetration is in processed foods (canned, dry, andpackaged items such as rice, noodles, and edible oils). This is a result of the
economies of scale in procurement as well as direct relations with processed-food
manufacturers.
2. The second wave is in semi processed foods (with extensive or minimal processingsuch as dairy products) and minimal processing and packing (chicken, pork, beef, andfruit).
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3. The third wave, by far the slowest and the longest in starting in developing countries,is into the vegetable market (particularly for leafy vegetables and bulk vegetables).
Example: China compared with Hong Kong
In a study of a random sample of 1,200 consumers in the six largest cities in China, Goldmanand Vanhonacker (2006) found that modern retailers already have a retail market share of
94 percent in non-food goods, 79 percent in packaged and processed goods, 55 percent in
baked goods, 46 percent in meat, 37 percent in fruit, 35 percent in poultry, 33 percent in
fish, and 22 percent in vegetables. Compare that to the more advanced case of Hong Kong,
which likely represents the average Asian consumer sometime in the medium-term future.
Hong Kong supermarkets have a 59 percent share in fruit retail and a 55 percent share in
vegetables (thus, a share similar to supermarket penetration of produce retail in Brazil), 52
percent in meat, 39 percent in poultry, and 33 percent in fish (Coca-Cola Retailing Research
Council Asia 2005). Evidence emerging from a large ACNielsen consumer survey in Asia
suggests that younger consumers are forsaking wet markets and that in less than ageneration the average produce buyer may well be substantially more supermarket
oriented, which will accelerate the effects of the retail transformation on the horticulture
sector (Planet Retail Daily News 2005).
Example: Indonesia
AC Nielsen (2007) undertook a survey of 1,300 consumers in the capital of Jakarta (capital)
and in the second-tier cities of Bandung and Cirebon, focusing on consumers buying habits
in supermarkets versus traditional markets. The survey revealed that penetration of grocery
retailing has occurred much more rapidly in processed, dry, and packaged foods and inhousehold and personal care products, for which supermarkets gain a cost advantage as a
result of economies of scale from centralized procurement and distribution. Savings are
passed on to consumers, drawing them to the channel. The supermarkets progress in
gaining control of fresh-food markets has been slower because of procurement challenges,
price, cultural habits, and perspectives regarding freshness; moreover, shoppers still
purchase fresh produce mainly at wet markets and small vegetable stalls, where they get
low prices, credit, and personal service.
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BRIC NATIONS
RETAIL SECTOR IN BRAZIL
Even in the late 1990s, Brazil was just like any other emerging economy, characterized byextremes of wealth and abject poverty with no social class dividing the bridge between. A
decade and more down the line,the effervescence in the middle cannot be missed. Yes, the
great Brazilian middle class defined as those who earn between $690 and $2,970 a month
has arrived and is here to stay. If Brazil has made a name in the global retail sector, it had
better thank these late comers, empowered with good purchasing power and access to
credit.
Fast Facts
Brazil is the fifth largest country in the world and the largest Latin Americaneconomy.
The Economist Intelligence Unit had forecasted that Brazil will overtake the U.K. tobecome the sixth- largest economy in 2011.
Brazil is the biggest exporter of iron ore and the largest exporter of meat, coffee, andchicken.
Brazil is the fifth most populated country in the world Over the last two decades, thanks largely to welfare schemes launched by the
government, the poverty rate has halved in Brazil.
Income equality in the country has also fallen sharply, declining on average by 1.2% ayear.
The Brazilian retail market is worth about $230 billion. More than 30 million Brazilians have risen out of poverty since 2003 to create a new
middle class.
Demographics also favor the growth of the consumer- oriented sectors of theeconomy. About 80% of the countrys 190 million population lives in urban areas.
Of course, the commodities powerhouse has benefited from the high prices of iron ore
spurred byChinas voracious appetite. But what makes the Brazilian success saga stand outis that someshrewd social engineering by some of the countrys visionary leaders ensured
that thecommodities wealth trickled down to the poorest sections of society. To put thingsin perspective, the so-called middle class, who comprised some 38% of the countryspopulation in2001, currently accounts for a whopping 55%. Social welfare schemes such asthe Bolsa Familiaimplemented by former president Lula da Silva after he took over in 2003also ensured that in addition to benefiting from liberal handouts, low-income families alsoreceived the goldenopportunity to educate their children, which made a real difference intheir lives. The scorchinggrowth of the domestic retail sector over the course of the lastdecade or so, triggered by theemerging middle class, also has something to do with thecountrys demographics. Economistshave pointed out that about 80% of Brazils populationof 190 million lives in urban areas.
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Hyperinflation and its aftermath
By the mid-1990s, international retailers woke up to the fact that developed markets had
reacheda point of saturation and offered little scope for further expansion. Quite naturally,their eyes fellon the newly emerging markets, especially those Eastern European nationsthat had come outfrom behind the Iron Curtain around the same time. Despite the shift inthe retailers mindsetduring the decade, due to a number of economic issues Latin Americadid not figure on theirradar screens until toward the end of the 1990s. To begin with, SouthAmerican markets as a whole were characterized by economic instability. High levels ofpublic debt and hyperinflationwere the hallmarks of many Latin American economies andBrazil was no exception. To putthings in perspective, inflation in Brazil had touched a mind-boggling 5000% in 1994. Thisdaunting inflation scenario worked to the detriment of bothconsumers and retailers alike. If buyers were forced to make purchases soon after they
received salaries for fear of losing the realvalue of their money, retailers too had to revisetheir price lists frequently. To sum up, the economic situation was not encouraging forretailers as they tried to gain a toehold in thedomestic sector.
Thankfully, the situation changed for the better under Fernando Cardoso, the visionary
leaderwho was the president of Brazil from 1995 to 2002. Cardoso launched what has cometo beknown as the Real Plan, which introduced a new Brazilian currency. The Plan, whichwasnothing short of a shock treatment for the economy, also helped tame inflation. Theinitiative unleashed a generation of consumers who for years had been fettered by highinflation. Grantingthe central bank operational independence in 1999 also helped, with thebank setting its inflationtarget at a slightly variable 4.5% beginning in 2005. Brazil was luckyto have an equallycompetent successor to Cardoso in Lula da Silva who assumed office in
2003. In addition to family welfare schemes, Lulas programs included subsidized housing,an easier access to credit, and generous pay hikes, among other initiatives. Consumerlending was boosted as banks were allowed to deduct interest charges on debt directlyfrom the workers payroll. According to a study by Brazils Getulio Vargas Foundationquoted in the Financial Times, about 49 million low-income Brazilians rose to the ranks ofthe middle and upper-middle classes since 2003.Meanwhile, Chinas role in the emergingmarket story was playing out well in the background, with the Asian economy eclipsing theUnited States as Brazils largest trading partner. The current incumbent Dilma Rousseffexpanded the scope of the good work initiated by her predecessors, boding well forconsumers and industries alike. With this, the stage was set for consumer-oriented sectors
such as retail to train their guns on the Brazilian market.
Besides the availability of credit, which was a big boost to the growth of the retail sector in
the country, a typical Brazilian shopping trait also played a role. According to a 2011
McKinseytrait
Quarterly Report, Brazilian consumers are more open to using credit than consumers in
other Report, emerging markets, and low income groups in particular require consumerfinance products to markets, low-incomepurchase goods. The report reveals that 60% ofpeople use credit in Brazil, while in India it is 30%, and in Russia and China the use of creditstands at 24% and 13% respectively.
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TYPES OF CREDIT
DIRECT CONSUMER CREDIT (CDC)
Direct Consumer Credit (CDC) was one of the earliest consumer finance products to be
launched in Brazil. Under this system, consumers purchase goods in instalments through
bank orders or pre-dated bank checks. This form of credit, which mostly works in
arrangement with retailers, has been usurped by credit cards in recent times. HSBCsconsumer finance unit Losango, which has been put up for sale, follows this business model.
PAYROLL LOANS
Under this system, payments are deducted from the borrowers pay check itself. Payroll
loans are considered less risky to lenders as credit is given against payroll guarantees. This
form of credit benefits consumers too, as interest rates tend to be lower than the direct
credit offered by retailers.
CREDIT CARDS
Over the years, credit card transactions have become the favored buying instrument for
Brazilians. The credit card processing segment in Brazil is valued at about $420 billion a year,
with Reuters reporting that there are more than 630 million outstanding credit cards in
Brazil. Home-grown credit card processors Cielo and RedeCard have a vise-like grip on the
industry, while the likes of Visa, MasterCard, and Citibanks Credicard unit have big plans
chalked out for the Brazilian market.
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Retail segment in Brazil
Although organized retail in Brazil could be traced back to 1948 when the current market
leader Companhia Brasileira de Distribuicao (CBD), better known as Pao de Acucar, started
off as a small bakery, the last decade witnessed hectic activity in the sector. Among foreign-
owned entities, French retailer Carrefour S.A. was among the early birds to set up shop inBrazil, coming in as early as 1975. Walmart Brazil, the third in the pecking order, was
established in 1995. However, the deep-pocketed foreign players would soon realize that
the Brazilian market was a different kettle of fish when it came to consumer behavior
patterns. In contrast, home- grown retailers such as Hypermarcas and apparel retailer Lojas
Renner S.A. have continued to grow at faster rates, helped by their knowledge of the local
market.
Brazil became a hot destination for investors since it found a place for itself in the now
famous BRIC group of emerging economies. While some of Brazils bigger counterparts ran
for cover during the financial crisis of 2008-09, the Latin American economy managed tokeep its head above water, thanks to the consumption potential of its people. Of course,
various stimulus packages rolled out by the government also put more money in the hands
of consumers.
Brazils retail market is estimated to be worth about $230 billion, driven mostly by domestic
demand. Besides the 40% growth in GDP per capita during the last eight years or so,
population distribution also plays a vital role in encouraging the growth of sectors such as
retail. About 30% of the countrys population lives in the 10 principal metropolitan cities.
Sao Paulo brims over with a population of 18 million, while Rio de Janeiro has 10 million.
Still, the consumption habits of this predominantly urban population are diverse. As a PwCreport points out, the lower income sections tend to spend more on essentials such as food
and beverages, while those in the upper income bracket splurge on leisure, durable goods,
as well as luxury items. The Brazilian market is also perhaps the most internationalized
among the BRICs, as the top 10 retailers corner almost 60% market share among
themselves. Food retailers, apparel retailers, consumer goods makers, appliance retailers,
and consumer staples companies form the backbone of the sector.
Major Players
Brazil has emerged as the worlds third-biggest grocery market, next only to America andChina, thanks to the aggressive growth strategy adopted by players operating in the market,
both foreign and domestic. Global retailers such as Walmart and Frances Carrefour bank on
the Brazilian market to make up for sagging sales elsewhere. At the same time, domestic
market leaders such as Pao de Acucar give them a run for their money. Still, the new
entrants find it tough to gain a foothold in the highly competitive market, which offers great
potential for growth.
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GRUPO PAO DE ACUCAR
Pao de Acucar is by far the biggest diversified retailer in Brazil, selling everything from
groceries to home appliances to clothing. The company, which has a market share of about
18%, has made strides under the stewardship of Abilio Diniz. The companys foray into the
sale ofhome appliances has been spurred by the acquisitions of the Globex Utilidades SAsPonto Frio chain as well as the Casas Bahia outlets. The retailer operates under brand names
such as Pao de Acucar, Sendas, Extra, CompreBem, and Extra Eletro.
CARREFOUR S.A.
The French retailer, second only to Walmart worldwide, has been a significant market
presence in Brazil for more than 25 years with a market share of about 14.5%. Brazil figures
prominently in the diversified retailers game plan after its hypermarket format failed to
click and European sales tumbled. However, Carrefours attempt to combine itself with Pao
de Acucar last year had to be abandoned after a major shareholder in the Brazilian marketleader objected to the deal.
WAL-MART BRAZIL
Though the worlds largest retailer took some time to become established in the country, its
Brazilian unit is now one among its best performing subsidiaries. Last year, Walmart Brazil,
which has a market share of 12%, created ripples in the market when it implemented its
Everyday Low Prices strategy to take on its rivals. Though Walmart Brazil first entered the
market through a joint venture with local player Lojas Americanas, its growth has been
driven by acquisitions of the local units of Netherlands Royal Ahold and Portugals Sonae.
Apparel Retailers
Unlike the retail grocery and household appliance market, local and traditional brands
dominate the apparel and fashion sector in Brazil, the worlds fifth largest apparel
marketplace. With more than 60% of the countrys population below the age of 29, the
apparel market has been growing at a rate of 7% a year, according to a McKinsey Quarterly
Report published in July 2011. Fashion-conscious Brazilians are heavily swayed by clothing
lines endorsed by local celebrities. Moreover, unlike in other emerging market, they tend to
purchase apparel on credit more frequently.
LOJAS AMERICANAS
Founded in 1929 by four Americans, the discount retailer sells clothing lines, toys,
household goods, small household appliances, chocolates and candies, as well as CDs and
DVDs. Lojas also has a presence in the online retail space under the brand B2W Varejo.
LOJAS RENNER S.A.
This discount clothing retailers clientele is comprised primarily of young females, with the company clocking 60% of its sales revenues through credit. American department store
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chain J.C. Penney had a controlling stake in Lojas, which it divested later.
COMPANHIA HERING (CIA HERING)
Still owned by the founding Hering family, CIA Hering is easily the oldest home-based textile
and clothing maker. In recent times, the retailer has focused on opening stores in tier 2Brazilian cities aimed at the newly emerging middle class who have access to credit.
The mega deal that never materialized
It all began in June 2011 when Carrefour publically announced that it received a proposal to
combine its Brazilian operations with those of Pao de Acucar. Under the terms of the deal,
both Acucar and Carrefour Brazil were supposed to merge into Gama, a holding company
funded by the government-owned Brazilian National Development Bank (BNDES). The
combined entity, as The Economist pointed out, would have had sales of $43 billion or a
21% share in the fast - growing retail market. The deal would have no doubt benefited boththe sides, but for the objections of Casino, a French retailer which holds a 37% stake in
Acucar. Expectedly, Casino cried foul, terming the deal illegal. The stand-off also strained
Acucar-Casino ties, according to media reports from Reuters. Although the business
proposal had the implicit blessings of Brazilian policy makers eager to create true national
champions in fast-growing sectors such as retail, the deal ultimately had to be shelved.
Store Formats
As pointed out by a July 2011 McKinsey Quarterly Report on the retail sector, Brazilian
shoppers stand out for some unique behavioral patterns. First of all, shopping for them is arelaxing, everyday activity where they expect salesmen at the counter to treat them royally.
Most shoppers, the report observes, would like to travel to the stores by foot, which means
they prefer retail shops located closer to their homes. Another marked trait of the domestic
shopper, the study shows, is that he or she is extremely price-conscious compared to their
peers in India, China, and Russia. Keeping these trends in mind, Brazilian retailers have
devised a variety of store formats to reach out to this lucrative consumer. Rather than
focusing on a particular format, these ambitious players have pursued a multi-pronged
approach which includes neighbourhood supermarkets, hypermarkets, convenience stores,
discount stores, and online stores.
Supermarkets
Supermarkets, the typically large modern-day self-service grocery stores, tend to dominate
the segment, accounting for 80% of purchases made. Leading players such as GrupoPao de
Acucar, Wal-Mart, and Carrefour all follow this format.
Hypermarkets
The hypermarket format, a superstore which combines a supermarket and a department
store, is also very well entrenched in the Brazilian retail market. Carrefour, for instance,makes three quarters of its sales from its hypermarkets, in addition to its other store
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formats such as supermarkets, cash&carry, and convenience stores.
Convenience Stores (Hybrid Indigenous format)
Big retailers were quick to realize that the one -size fits all model could not be applied to
the Brazilian market. Thus, retailers operating in Brazil adopted the concept of theconvenience store, mostly located in gas stations, to augment the traditional retail format.
E-Commerce
According to Euromonitor International, Brazilian Internet retailing has shown impressive
growth in recent years. The report points out that increasing access to broadband and
falling prices of personal computers have driven the upsurge. E-commerce has increasingly
expanded beyond traditional economic hubs like Sao Paulo, as lower-income groups join the
Internet bandwagon. Encouragingly, women, who have traditionally lagged men in making
purchases online, now make up 50% of web shoppers in Brazil.
The road ahead for retail
Still, the Brazilian juggernaut would do well to realize that it may not be wise to bank solely
on fluctuating commodity prices and an overstretched consumer in its march forward.
Beneath the glitz and glamor of Brazils shopping aisles lurk some issues that are common to
many emerging markets, such as rampant inflation, hot capital inflows, and poverty, among
other factors. First, the country, through its education system, will likely need to focus on
training a future workforce to support the burgeoning retail industry. Poor infrastructure,
the bane of the Brazilian retail industry for years, is also a concern, although preparationsfor the 2014 soccer World Cup and 2016 Olympics are expected to go a long way to address
the need. Although sectors such as natural resources and banking are dominated by what is
known as state capitalism, where the government exerts control of strategically important
companies, notably Brazils retail industry has remained more or less independent. Still,
corruption and bureaucratic red tape hamper the development of the retail sector and, as
media reports point out, big foreign players find it difficult to navigate the byzantine ways of
Brazilian bureaucracy.
Many analysts are alarmed over Brazils rapid credit growth, fearing that a U.S.-model credit
bubble may be brewing. However, as a Financial Times report pointed out, this concern maybe unfounded as about 60% of consumer loans are made against payrolls, property, or cars
and are offered at fixed rates.
To sum up, the Brazilian retail success story should be understood in the wider context of
the rise of its middle class as is the case with many emerging markets. Yet, unlike in other
developing markets, deep-pocketed multi-nationals such as Wal-Mart and Carrefour have
tasted unprecedented success in the retail sector. Amid the unraveling Euro-zone crisis and
slowing global growth, Brazil, despite all its shortcomings, may yet prove to be an oasis of
growth for global retailers.
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RETAIL SECTOR IN CHINA
Ever since China reformed its economy, understood the immense importance of FDI and
also urged for foreign capital participation in the economy-the country has received
remarkable amount of FDI since 1979. It has become the second largest recipient of FDI just
behind the US and definitely the largest among the developing. The FDI in China becomes
most popular since 1979 and it has received $306 billion in between the next 20 years. That
is attributed to few major incidences in that span of 20 years including the establishment of
Special Economic Zones (SEZs). The government of China established four SEZs in
Guangdong and Fujian provinces and offered special incentive policies for FDI in these SEZs.
That make the movement of FDI in the country towards upward direction and the trend has
not been changed.
To fully appreciate the economic strength of China, one needs to understand the macro
factors that are driving the country. Chinas economy is the second largest in the world
roughly 2.3 times larger than Japans and 70% of the worlds largest economy, the US. Since1978, China has achieved an average 9.9% annual GDP growth, and the International
Monetary Fund (IMF) forecasts the Chinese economy to surpass the US by 2016. Although
growth projections are less bullish for the next five years, the projected 9% annual growth
rate still outpaces other BRIC countries.
Fast Facts
Retail sales increased 16.3% in 2011 Q1, while GDP expanded 9.7%. Retail sales areexpected to double in the next three years.
Retail sales in China amounted to nearly $2.1 trillion in 2010, nearly 50% of those inthe U.S. Chinas retail sales are expected to grow by around 10% in 2011.
Chinas retail sector is showing some signs of consolidation in 2011. The marketshare of the top 20 retail chains rose to 8.9% in 2011 from 8.4% in 2010
Over 25 of the worlds largest retailers are conducting business in China.
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Five of Chinas domestic retailers are ranked among the 250 largest global retailerson the Global Powers of Retailing for 2010.
By 2015, China is poised to zoom to the position of the third biggest consumermarket globally, after the U.S. and Japan.
China slipped to the 6th rank on A T Kearneys Global Retail Development Index2011, from the top position in 2010.
Urbanization is driving the retail boom
China has experienced unparalleled levels of urbanization since the onset of economic
reforms begun in 1978. Compared to 1980, today Chinas urban population has increased by
over 200%. According to a McKinsey research study, by 2025, two thirds of the Chinese will
be living in urban areas. By 2030, Chinas urban centers will be inhabited by 350 million
more people, this increase itself beating the entire population of the U.S. today. Also by
2025, 221 Chinese cities will boast of a population of over one million, with 23 cities
registering over five million. The urban economy is expected to generate 90% of Chinas
GDP by 2025, with its aggregate consumption and disposable incomes twice those of
Germany.
While the 1990-2005 period saw the emergence of two mega-cities in China with a
population of over ten million, namely Beijing and Shanghai, by 2025 the number of mega-
cities is expected to climb to eight, adding Tianjin, Shenzhen, Wuhan, Chongqing, Chengdu
and Guangzhou to the group. These mega-cities are fast emerging as urban retail hubs in
China.
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The power of the aspiring middle-class
World over, the resurgent demand from the growing middle-class has been instrumental in
driving global growth. The World Bank estimates that the global middle-class will grow from
430 million in 2000 to over 1.15 billion in 2030 (incomes ranging from $3650-$7300
annually).
More importantly, while the developing countries
accounted for 56% of the global middle-class in
2000, this figure is expected to zoom to 93% by
2030. China and India together will account for a
phenomenal two-thirds of this expansion. In China,
the process of economic growth led to fast-paced
urbanization and improvements in the standards of
living, and with this, more and more urban migrants
were propelled to the emerging middle-class.
The middle-class has become the face of the contemporary and aspiring Chinese consumer,
who is now being wooed by domestic and foreign retailers alike. Defining the middle-class
as people with incomes ranging from $6000-$25,000 a year. Constituting about 23% of the
Chinese population today, the middle-class is raring to grow to 25% in 2010 and 33% by
2020. The urban middle-class will lead this explosive expansion, with over 60% of urban
households estimated to join this group by 2016, compared to 39% in 2006.
Evolution of consumer behaviour in China
The consumption behaviour of the Chinese population is evolving quickly, along with rapidly
increasing wealth. Wage levels in China have risen steadily after the introduction of the
open door policy, and people are becoming more affluent. This has created a shift in
consumption patterns, from catering solely to primary needs to indulging in the upper layers
of Maslows Hierarchy, improving quality of life and increasing social esteem. All six main
segments gained over 10% in retail value every year, with outperformers such as gold, silver,
jewellery and automobiles, and underperformers such as cosmetics and household
appliances and AV equipments.
Increasing consumer power
Increasing income is another major driving force behind the sectors future growth. In
particular, we see rural households and low-income urban households as one of the main
drivers of retail sales growth during the 12th Five-Year Plan period, with a higher than
average income growth rate. During the period of 2001-2005, the per capita disposable
income of urban households increased at a higher CAGR of 10.8% compared to rural
households net income growth of 7.6%. However, thanks to the governments policy of
improving living standards in rural households, both urban and rural households incomes
increased at a CAGR of 12.7% during 2006-2010.
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The Evolution of the Asset Class
Chinas retail market has undergone a transformation over the past two decades, moving
away from traditional department stores to large-scale integrated shopping malls.24 Much
of this trend can be explained through the transformation of retailing within the country.
From the 1980s to early 1990s, the predominant retailers in China were large department
stores which were often owned and operated by state-owned enterprises (SOEs). Since the
last decade, Chinese shoppers have been gravitating toward more foreign and smaller-
format retailers, producing a need for shopping malls to accommodate these stores.
Department stores were traditionally a popular way for new brands to establish themselves
in China, but in recent years modern shopping centers became mainstream to meet
demand. The shopping center format has become the predominant retailing asset of choice
in Chinas Tier 1 cities, and has begun to take shape in Tier 2 cities as well.
Unleashing the retail dragon through reforms and foreign investment
While by now most prominent global retailers have forged an entry into the thriving retail
industry in China, the framework of rules and regulations governing this sector have
remained largely ambiguous and fraught with contradictions. Prior to 1992, foreign retailers
were prohibited from setting up joint ventures or wholly-owned subsidiaries for wholesale
or retail trade in China. Loosening its tight regulations somewhat, in July 1992 the State
Council permitted foreign investment in retailing on a trial basis in Beijing, Shanghai, Tianjin,
Guangzhou, Dalian, Qingdao, as well as the five Special Economic Zones (Shenzhen, Zhuhai,
Shantou, Xiamen, and Hainan). By 1997, about two dozen foreign-invested stores in China
had been approved by the central government to conduct business. However, hundreds of
foreign invested retailing as well as wholesaling enterprises had already established
themselves in Chinese cities, having sought approval from the provincial or municipalauthorities. In order to curb the mushrooming of foreign-invested retail enterprises, the
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central government ordered a moratorium on local approvals, revoking many approvals
made in 1997 and 1998 as well. The ownership structure of many of these enterprises was
also restructured, making them Chinese majority-owned.
Beyond the First-Tier Cities
Outside of top-tier cities, delivery of products is a bigger problem for retailers than demand.
In these regions, appropriate supply is not available to all retailers. The result is a bifurcation
where the best retail
projects charge high
rents, with a substantial
drop in rents for non-
prime assets. With the
exception of Beijing, the
majority of Chinese cities
are not inundated with
top retail properties.
Rather, the majority of
Tier 2 cities have an
undersupply of stock in
relation to the demand
for products.
Key Criterions
Compiled for closer analysis a list of 19 Tier 1 and 2 cities that will benefit from
transportation linkages and interconnectedness with regional economic hubs. Eight
variables were taken into consideration, including
Population growth
Disposable income growth
Future wealth creation
Amount of current supply
Historical retail sales growth
The level of infrastructure Future development pipeline
Rental outlook
Retail formats in vogue
Chinas retailing sector remains highly fragmented, housing many small and medium-sized
retailers unlike the U.S. where the big retailers have a dominating presence. China was
home to over 549,000 retail enterprises. Despite the fact that the number of chain stores
has grown in recent years, cross-provincial retailers remain less common because of local
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market access barriers. However, China does flaunt a wide array of retail formats, each at a
different level of evolution and development:
Department stores: These stores were popular earlier on, but are facing intense
competition now and are battling to stay ahead. (Golden Eagle, Parkson, Beijing Cuiwei,Shenzhen Suibao)
Hypermarkets: The development of hypermarkets has been led by international retailers,
who are now spreading their wings to tier 2 and 3 cities, as markets in tier 1 cities reach
saturation. (Wal-Mart, Carrefour, Vanguard, Tesco, Metro, RT Mart Shanghai, Trust-Mart)
Supermarkets: This highly fragmented market dominated by domestic players, is witnessing
cutthroat competition, often leading to weeding out of the weaker players coupled with
strategic consolidation. (A-Best Supermarket, Baijia Supermarket)
Convenience stores: Though still in the development stage, this format is witnessing
increasing competition, mostly among domestic chains. (Quick of LianHua, Alldays & Kedi of
NGS)
Specialty stores: Electronics/Appliances: This segment is clearly dominated by domestic
players, with limited foreign investment. (GOME, Suning)
Discount stores: Still evolving, this format remains concentrated in tier 1 cities. The first
discount store was introduced by Carrefour in 2003.
Franchising: Constituting about 3% of Chinas total retail market, franchising seems to have
tremendous potential for future growth. (KFC, McDonalds, 7-eleven, Pizza Hut)
Direct selling: With direct selling rules introduced in 2005, providing the much needed legal
framework, the potential for further growth remains immense. (AMWAY, Mary Kay, Avon)
Online retail: Online shoppers grew 68% between 2009 and 2010 to 185 million. Online
retail sales have been predominantly consumer-to-consumer transactions. However, with
over 29% of its population using the internet, online retail sales are poised to grow over 30%
per year. (Taobao, Alibaba, eBay
Lessons Learned
Over the past decade, there has been a surge of interest from both foreign and domestic
investors in China retail real estate market. However, hard lessons have been learned by
some of these investors, and these lessons include poor asset planning and management,
the lack of local knowledge and various issues with partners (such as lack of alignment ofinterests).
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A number of foreign investors entered China retail real estate markets by replicating the
Western retail malls concept, but many have failed. Main reasons are conflicts with their
local partners, and the lack of local knowledge and professionals, such as misunderstanding
the local culture and consumer behaviour, mismatching product offerings and poor asset
planning and management.
When it comes to asset planning and management, some retail assets in China have been
plagued by poor property management. Notable trends that tend to occur especially with
local owners are:
Leasing space to the highest bidder without much regard on the overall tenant mix. Strata-titled mall for sale for a quick profit, but inhibiting any future value growth for
the property.
No concept for layout and circulation planning leading to inefficient designs. Max out the leasable space allowed by local zoning without regard for demand,
leading to excess space, especially on higher floors.
Lack of proper market analysis and due diligence during the design phase often leadto the wrong product and tenant mix.
Interestingly, the average size of retail projects in Tier 1 and Tier 2 cities reflects the lack of
proper planning. The average size of both shopping malls and department stores tend to be
significantly larger in Tier 2 cities where demand is arguably much lower. By contrast, Hong
Kong has only six projects larger than 100,000 sq m, and they were phased developments.
Overbuilding often results in the developers eagerness to maximize floor area without
taking actual demand into consideration. The lack of sophistication and local knowledge that
are often associated with both local and foreign investors has led to numerous failed
projects. With the exception of a handful of players, the majority of developers continue to
build assets without the proper planning.
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Enhanced Welfare Gains for Consumers India
On average in 2004, Indian consumers spent about 51 percent of their total expenditures on
food; in rural areas, that figure was about 55 percent and in urban areas it was 42 percent
according to the National Sample Survey (Planning Commission 2004). Although India has a
large rising middle class, its income levels are much lower than those in developed
countries. 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). In
2007, inflation crossed the 6 percent mark, triggering a series of inflation-controlling policy
changes spearheaded by food price controls. The lesson seems clear: any relief in food
prices makes consumers happy.
However, policymakers need to remember that policies to rein in inflation should not
conflict with the interests of other major stakeholders in the economy, especially producers
(farmers). If falling prices for food are achieved by making transportation, logistics, and
procurement more efficient (e.g., by better planning), then both producers and consumers
benefit. However, reducing consumer prices by suppressing prices for producers could lead
to a conflict, and policymakers would have to make difficult policy choices. 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 convenienceof a neighbourhood kirana store but with procurement on a mass scale that keeps prices
low and provides greater variety. This is confirmed by the consumer survey in the ICRIER
report (Joseph et al. 2008) and the experiences of countries like the United States, Chile,
and Mexico. 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 U.S.
inflation rate down by at least 1 percentage point (normal inflation hovers around 24
percent). 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 greatboon to consumer welfare. However, that boon is not likely to happen overnight.
Organized retailers tend to start off from first-tier cities with high purchasing power and
then go to second- and third-tier cities with more price sensitive populations. Several chains
in India have started in cities like Hyderabad and Ba