Developing a go-to-market strategy of a retail chain based out of Bangalore

Abstract

As with the more and more participation from the corporate and organized sector aim to revolutionize the retailing sector, retail as an industry is gaining more and more importance in India. Most firms now operating in this sector have been attracted from other industries due to its amazing potential for future prospects. Only a few firms have previous experience in retailing. On the other hand India has become the much sought after destination for the premium retailing players from across the globe. The reason behind this is that Indian retail sector is still grossly unsaturated leaving its market potential highly untouched and unexplored. An AT Kearney study on global retailing trends found that India is the least competitive as well as least saturated of all major global markets1 which indicates to the fact that still the entry barriers into Indian retail market are on the lower side compared to other developed markets. India on the other hand is one of top few countries which have been experiencing tremendous growth rate for the last couple of decades in retail domain due to a number of favorable socio-structural, macroeconomic and demographic developments. This whole series of developments can be attributed to the following factors – Rising income levels A large segment of young population Nuclear family structure Growing literacy A rapidly expanding middle class Increasing number of working women Growing urbanization increasing media penetration and Exposure to international brands2 If one refers to [Exhibit 1], he/she will be able to conclude that India is on the radar of Global Retailers and suppliers / brands world-wide are willing to partner with retailers here. The last few years have seen rapid transformation in many areas and setting scalable and profitable retail models across categories. Indian consumers are rapidly evolving and accepting modern formats of retail. Further, large Indian corporate groups like Tata, Reliance, ITC, Bombay Dyeing, Murugappa & Piramal Groups etc and also foreign investors are looking for opportunities in the Indian retail sector. India has steadily risen on GRDI and now claims the top position. The country’s underserved US $330 billion retail market has grown by 10% on average per year over the past years. Also, the market seems to be less saturated and amongst the most fragmented in the world; the combined market share of the top five retailers totals less than 2%. Combined these factors provide a favorable backdrop of growth for the new entrants and the early birds. The Indian retail story has just begun. What one is looking at is just the tip of the iceberg. The sheer size and hidden consumption power in the low-income rural areas offers immense potential for organized retailers. 1.1: Organized Retailing in India-Challenges: There has been a recent change in the regulatory landscape which has made India more attractive to the international retail chains. Previous FDI rules prohibited direct ownership by foreign retailers, forcing them to enter India via franchises. Recent legislation relaxes these rules; proposals under consideration call for ceilings of either 26% or 49% ownership. International retailers eagerly pacing the sidelines will likely be quick to take the advantage of these more favorable FDI rules. Wal-Mart, Carrefour and Tesco are actively seeking local partners to enter into this market. FirstOne can leverage this and partner with any one of them for the deep pocket funding required in rapid expansion plans.Leading domestic retailers such as Pantaloons, Shoppers Stop and Big Bazaar are ramping up their business by increasing their scale and enhancing their logistics and technology processes. So any plans to enter into the supermarket or hypermarket format will see stiff competition from the already established domestic players. There are other obstacles like inadequate infrastructure and efficient supply chain issues. For example, 40% of the perishable goods produced in the country rots during transportation due to lack of refrigerated distribution networks. With 28 different states, and a plethora of languages, customs and traditions, developing local market knowledge becomes critical. The country’s 12 million mom-and-pop stores that form the majority of the fragmented market are not going to sit idle and watch their businesses erode by big players from organized retail.