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 India Growth Story:
Pyramid To Diamond – Rise Of Consuming Class

Arvind Singhal
Chairman, Technopak Advisors
www.technopak.com

Harvard Business School

15th March 2009
India
A nation in transition …
Some Raw Facts …

• Sustained high growth of GDP since 1991 of about 6% per

year has led to a fundamental transformation of Indian
economy. Some dimensions include:

• 12th largest in the world in 2008 and poised to become the 4th largest
in absolute $$$ terms sometime by 2030

• About 300 million Indians pulled out of poverty line in last 20 years,
though over 300 million still await their turn

• At about US$ 400 Billion in private consumer consumption (retail

spending), capable of supporting many multi-billion $$ in revenue size
consumer product and services businesses
Some Raw Facts …

• Many growth drivers including:

• Favorable demographics, dropping dependency ratio, and rapidly

rising education levels

• Steady urbanization

• Very promising broad-basing of components of overall gross domestic

output, encouraging broad-basing of geographic spread of economic
activity, and well-founded optimism on broad-basing of the nature of
jobs that match the current skill sets of the population
Some Raw Facts …

• Other encouraging indicators include:

• While India’s growth story has been dented in the aftermath of global
developments, the economic system has shown an expected
resilience, with no failed financial institutions, no industry wide
bankruptcies, no massive layoffs, no significant increase in consumer
loan defaults

• Surprisingly, though, India’s public sector has shown amazing

resilience to withstand the turbulence in the environment

• At around 6% - 6.5% GDP growth in current year, and probably >6% in

2010, India will still have a very robust growth in absolute terms
Some Raw Facts …

• With major worries stemming largely on account of:

• Increasing fragmentation of political system, leading to fractured

decision making

• Internal security challenges

• Diminished appetite for more fundamental policy reforms

Some Raw Facts …

• However, adequate reason to be very optimistic about India’s

near and long term future on account of:

• The arrival of a voting majority of youth (better educated, more

socially enlightened) when 2014 general elections are held (impact will
be seen even in 2009)

• The resurgence of entrepreneurship in India – as the current business

leadership faces challenges, a new generation of Jamsethji Tata, G.D.
Birla, and Dhirubhai Ambani poised to come into place (but in much
larger numbers)

• The rapidly improving access for India to global intellectual and

financial capital
The Indian Consuming Class
Aspirations rooted in reality ….
Expanding Consumption Basket Of Goods & Services
1991 2009 2015

1. Food and Grocery 1. Food and Grocery 1. Food and Grocery

2. Clothing 2. Clothing 2. Clothing
3. Footwear 3. Footwear 3. Footwear
4. Consumer durables 4. Consumer durables 4. Consumer durables
5. Home linen 5. Expenditure on DVDs and VCD’s 5. Expenditure on DVDs and VCD’s
6. Movies and theatre 6. Home linen 6. Home linen
7. Eating out 7. Home accessories 7. Home accessories
8. Accessories 8. Gifts
9. Gifts 9. Take-away/ Pre cooked / RTE meals
10. Take-away/ Pre cooked / RTE meals 10. Movies and theatre
11. Movies and theatre 11. Eating out
12. Eating out 12. Entertainment parks
13. Entertainment parks 13. Mobile phones and service
14. Mobile phones and service 14. Household help
15. Household help 15. Travel packages
16. Travel packages 16. Club membership
17. Club membership 17. Computer Peripheral & Internet Usage
18. Computer Peripheral & Internet 18. Beauty and Spa
Usage 19. Gaming
20. ??

Note: The above categories account for 80% of consumer spending

Spending Shifting From Basic To Discretionary

32% 32%
Food & Grocery
2013
Rent, Utilities & Education

Fuel, Transport & 5%

Communication 11% 20%
Savings & Investment
30%
36%
Discretionary Expenditure 2008

4%
10%
20%
27%
• The share of food and grocery in the
40% consumer’s wallet continue to drop –
2003 releasing money for discretionary expenditure
4%
9%
• F&G share expected to decline from 36% in
20%
2008 to 32% in 2013

Source: India Consumer Trends ’07, Technopak analysis

 Changing Mindset of the Consuming Base
2003 2008
The Age Of Altered Mindsets The Age Of Consumption

• From belief in karmic destiny to

transforming karma
• From functional needs to
esteem/status needs
• Visible consumption, premium
for products with stand
out/’bling’ value
• Indulgence – enjoyment and
experience
• More instant gratification
• ‘Through the year’ consumption
• Fear of being ‘ordinary’, but still
‘extraordinary’ within social
norms
 Evolving Social Values would impact
Discretionary Spending
• Individualism • Pursuit of pleasure • Concern for
• Out-of-home is fun • Meaningful work environment
High • Belief in people power
• Need for control
Growth in strength of value

• Traditionalism • Health consciousness

• Looking good • Belief in education
• Pro-technology

Flexible gender roles
Openness to change
Saving for tomorrow

Fancy for foreign
Shopping fever
Back to nature
Low/
Use and throw
Faith in religion
A simple life
medium culture
India rules
Brand consciousness

Faith in government
Ostentation
machinery
Towards
exclusiveness

Low Medium High

Current strength of value
 A More Evolved Consumer
2003 2008 2013
The Age Of Altered Mindsets The Age Of Consumption The Age Of Maturity

• From affiliation to individualism

• Connoisseurship – taste and discernment

• From reckless consumption to ‘considered’ indulgence

• Experiences, not products

• Need for balance -- concerned about serious issues without losing out
on the lighter side of life

• Change in value definitions – trade up and trade down : extreme price

sensitivity for functional products, premium for products of high
perceived differentiation
The “New Age” Indian Consumer
Many Differences in Values from the Traditional Middle Class
Self-confident & Assertive
Used to having products and
money. Failure doesn’t mean
threat to survival
More entrepreneurs, more
diverse professions
Increased openness to new
technology, new products &
ideas
Increased experimentation in
food, clothing, dining out,
travel, etc.
Source: Technopak Primary Research
Socially
Conscious
More active and demanding of
their politicians and corporate
leaders
Demand for environment and
ethics-friendly products
Volunteerism, belief in social
causes on the rise
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Seeking
“Themselves”
Willing to exercise ‘different’
choices
Seeking out brands and
products that speak to their
specific belief system
Going beyond the brand –
they give the brand status
Mutating consumers – bargain
hunting in one category,
splurging in another
The Indian Retail Sector
Still in infancy …. Too early to write obituaries …..
India Retail Scenario
• The Indian retail market is expected to be about US $ 535 Billion by
2013. With an anticipated US$ 30 Billion in fresh investments over
next 5 years, modern retail will show impressive CAGR > 40%

Modern Retail Retail GDP

2,135
All Figs in US$ billion

1,487
1,161
783 755
535
410
280 170
8 18 73

2003 2008 2013 (P) 2018 (P)

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Modern Retail Is Well On Track With Several
Established Business Models
Number of Retail Stores
2003 2008 2010 (P)

2,500
2,000
1,214
1,000

1,000

1,000

1,000
700

693
489
300

200

194
115

105
97

65

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10

Big Bazaar Tanishq Reebok Koutons The Mobile Reliance Café Coffee
Store Fresh Day
At least 7 players with ~ 500 stores and above
Over 20,000 new outlets shall be opened in next 2 years
 400
1440
2000
580
1050
1400 700

Reebok
1600 900
500
800
1500 170
& Formats …

250
50

Levi's
150 400
250

110 111
115
140 148
200
Sony India

75
80
180
98
29
36 124
50
Samsung

185
13
25
50 40
77
LG

500
650 100
850

430 134
640
900 150
Pizza Hut

280 160
415
650
120
80
104 130
2008
2007

135
2009 (E)

195
McDonald's

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Significant Growth Continues Across Categories
Retail Consumption in India

GDP: US $ 1,050 GDP: US $ 1,485

Billion Billion
Private Private
Consumption: Consumption:
US $ 650 Billion US $ 890 Billion

Retail: US $ 410 Retail: US $ 535

Billion Billion

Rural Urban Rural Urban

US$ 225 Billion US$ 185 Billion US$ 278 Billion US$ 257 Billion
54% 46% 52% 48%

2008 2013 (P)

 Urban-Rural Market Structure

% of urban
% of urban
City type market Village % of total
population No. of % of Rural
(cum.) Type (Popln Popln.
Villages Popln.
wise) (cum.)
Top 4 16 20%
Top 9 24 30%
> 10,000 3,064 0.5% 0.5%
Top 62 43 50%
5,000-9,000 11,618 1.8% 2.3%
Top 141 53 60%
2,000-4,999 69,135 10.8% 13.1%
Top 338 63 70%
1,000-1,999 125,758 19.7% 32.8%
Top 530 69 75%
500-999 159,400 25.0% 57.8%
Top 784 74 78%
200-499 155,123 24.3% 82.1%
Rest 4,500 26% 100%
towns < 200 114,267 17.9% 100%
Total 638,635 100%
Modern Retail Slowly But Steadily Mirroring
Consumption Basket …
2003 2008 2013
Food & Groceries 12.0% 17% 48%
Apparel 38.0% 34% 12%
CDIT 9.0% 9% 11%
Home Improvement 2.0% 2% 8%
Furniture 2.0% 3% 3%
Footwear 7.0% 9% 2%
Jewellery & Watches 5.0% 7% 2%
Pharmacy 3.0% 4% 1%
Misc. 22.0% 15% 13%
Total 100% 100% 100%

From Apparel and Lifestyle led, the Modern retail contribution will be reflection
of actual share of wallet of an average consumer
 Modern Retail Only Now Entering Expansion
Phase ….
Initiation Conceptualization Expansion and Entry of Consolidation
Global Retailers

I II Entry of large global

III Large Scale
Consolidation

Stiff
IV Movement to
Pure play Retailers, Smaller Cities and
retailers Competition
realizing the potential Rural Areas
start to test waters,
Size of Industry

More Aggression from

International Players

Manufacturers Large Investment More than 5-6 Players with

opening their own Commitments by large Indian Revenues in excess of US $
outlets corporate 700 mn
Expansion by leading
Product Brands Specialty Formats based on
finer segmentation of the
market
Private brands getting
established

Pre 1995 1995 to 2005 2005 to 2010 2010 Onwards

Indian Retail : 1991 - 2008
Key Learnings …..
Key Learnings So Far …

• There is virtue in:

• Spending time and resource to understand consumer needs and

expectations very carefully, and continue to evolve with the
consumers

• Spending time and resources to identify the right format – India needs
modern retail in every sector but different competencies are needed
to be successful in different sectors (e.g. Food, Clothing & Lifestyle,
Consumer Durables & Electronics etc.) and in different formats (e.g.
department stores, hypermarkets, supermarkets etc.)
Key Learnings So Far …

• There is virtue in:

• Spending time & resource in developing an efficient and responsive

supply chain, supported by strong backbone of processes and systems

• Controlling costs very diligently including cost of retail space, cost of

people, and cost of distribution

• And finally, retailing is also a capital intensive business till the

time it reaches the “take-off” scale of operations
Successful Retailers Have Superiority On These
Key Competencies
Obsessive Innovation & Technology & Alliances &
Customer Focus Commerciali- Operational Collaboration
zation Excellence

Understand & focus Develop and Functional Clear strategy and

on target customers continually renew integration and process for selecting
retailer & exclusive excellence, and managing
Ability to turn labels particularly in SCM alliance partners
customer insight into and IT
specific action Innovation extends Expertise in capturing
to services, channels, Foster continuous internal synergies
Tailored customer formats, & business improvement and promoting
marketing and models to better collaboration
enhanced customer engage customers
experience

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The Ones Who Failed In These 17 Years ..

• Erred on one or many of these counts:

• No clear value proposition or differentiation

• Wrong format
• Either too aggressive or too conservative growth
• Too early diversification into multiple formats
• Too early expansion into multiple geographies
• Underfunded
• Poor on internal systems and processes
Indian Retail : 2009 - 2020
The shape of things to come ….
Many Changes Expected …

• Emergence of several local giants and super-stars

• Entry & very steady growth of many international retailers

including Wal-Mart, Tesco, Marks & Spencer, Metro, IKEA
among others

• Built-for-India formats likely to do very well (e.g. Fabindia,

Landmark, Tanishq, The Mobile Store, Reliance’s Delight,
Mahindra’s Mom & Me, Mother Dairy, Shopper’s Stop, Big
Bazaar, Bharti Easy Day etc.)
Many New Start-Up Opportunities
Format/Concept
Cash and Carry
Home Development
Mass, Affordable Fashion
Home Furniture & Furnishing
Stores
Other specialty stores
Key Drivers
More than 12 million Mom
and Pop stores in the country, and KB Wholesale already
growing at 5-6% per annum
Millions of new homes will
come up
Young population
Nuclearization of families
New couples setting-up
homes
Many new needs and
consumer segments
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Global Equivalent
Costco, Sam’s Club; Metro
there, Wal-Mart poised to
enter, but room for many
more
Home Depot, Lowe, B&Q
Primark, H&M
IKEA
Whole Foods, Decathlon /
Oxylane, Game Stop, Muji,
etc.
Other Trends …

• Traditional retail will continue to grow, and co-exist very

successfully with modern retail

• Many successful retailers will be multi-channel (regular stores,

shops-in-shop, multi-level marketing, internet, others) and
will be unbundling / bundling many categories depending
upon on the availability of retail channel options

• Most of the successful retailers – whether at the premium

end of the market or at the value end - will be offering very
high quality in-store shopping experience, exceptional service,
home delivery, and many other value-adding features
Some Positives for Consumer Products and
Retail in India As 2009 Starts Out
• Reduced global commodity prices and the recent excise duty cuts in
India has led to reduction in input costs by around 20-30% in
several categories.

• The process of rationalization and renegotiations by retailers for

real estate prices has been effective. Retail rentals have already
decreased by a wide range of 15-40% in metros as well as tier II and
III cities.

• Retailers are focusing on improving store operations and supply

chains to eliminate inefficiencies which crept in during the front end
high growth phase.

• Finally, retailers have started to focus on store profitability along

with top line growth which is a welcome trend.

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Despite Current Slowdown, Growth Opportunity
For Retail & Consumer Products Is Still Intact
• Medium and long term prospects for the Indian economy continue to be
enthusing with strong domestic consumption and reduction in commodity
prices, inflation, and lowering interest rates.

• Sectors such as Consumer Products, Food & Grocery, Consumer Appliances &
Durables, QSRs, Healthcare, Education, etc. are still showing high growth
prospects as reflected in their recent financial numbers.

• Modern Indian retail is currently experiencing a steep learning curve and the
current turbulence is not entirely unexpected or undesirable.

• Retail will witness expansion, consolidation, acquisition and further entry of

international chains between 2009-2013 giving further fillip to the overall
growth of modern retail.

• Investment options will further increase as the Government will finally open
up international investment in the retail sector during 2009-2013 period.

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Technopak Projections For Modern Retail For
2013 (Or 2014)
• Direct investment : > US$ 30+ Billion (2009-13)

• Revenues : > US$ 100+ Billion

• Share of total retail : ~ 14%

• Space occupied : ~ 500 Million sft

• Direct employment : ~ 2 Million

• Reach : 600+ Towns; 50,000+ Villages

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