Posts Tagged ‘FDI’
Cash and carry is a membership based retail store selling limited SKUs in bulk packs. Cash and carry has a membership requirement. Customers are usually members of the club and pay an annual fee in order to continue their membership. It is not like any other retail outlet where in one can go and buy items. It is limited to only certain members like wholesalers, semi-wholesalers and retailers. For example, METRO Cash and Carry India & Wal-Mart Cash & Carry, which are well-known to most people, are a good example of this format. Some of the recent entrants into this format are Carrefour and Reliance Retail.
Cash and carry models are able to sell at lower prices because of the basic, no frills format of the stores, volume of sales, low cost location and lower inventory carrying costs. Cash and Carry offers private labels as well as branded goods. The first Cash & Carry format store was opened in India by METRO in 2003. Most of the Indian companies want to tie-up with the International companies, and vice-versa, as 100% FDI is allowed in this format. This helps the Indian companies to learn the international best practices and technologies. The German company, Metro was the first one to enter the country. If you want to shop in Metro, you need to have a sales tax number with you and it is meant basically for retailers and distributors and not for consumers. And, you cannot shop for less than Rs 1,000 and, in product offerings, you cannot buy two to three, you have to buy six or more pieces of one particular product. Currently, Metro is present in six cities, present in all the Agricultural Produce Marketing Committee (APMC) licensed states.
Indian retailers are interested in venturing with foreign retailers as we do not have capability to manage the operations for a cash and carry format. We do not have the expertise as developed countries do. Cash and carry format requires a strong backend support. Foreign players are looking for joint ventures with local retailers because they are interested in MBOs or retail outlet, apart from cash and carry format. Having an Indian partner gives them local support and they enjoy the chance to capitalize on a network, which is already established by the local player.
Most of the purchases for the hotels business happen through a network of purchase managers, who have long-term relationship with, let’s say, 200 suppliers. It is very unorganized. It is a challenge to convert that habit to a unified buying structure in large hotels. Now Metro supplies the Taj and Oberoi on a national basis. This means those guys had to change the entire system of purchasing and orient themselves to one particular supplier. It takes some time to get convinced of these changes. There are now dedicated supply-chains to these hotel chains from the Cash & Carry stores.
The Cash & Carry format in India is still in its infancy and will face a lot of changes. They need to develop new channels, and optimize their supply chains for more profits. Also, it is to be seen on how the Cash & Carry format business will be affected with the government keen to allow FDI so that the global giants can set their shops in the streets.
The retail sector in India, both organised and unorganised, is set to grow at a rapid pace over the next few years. Retail India is currently ranked as the fifth larest globally, contributing to over 5% of the country’s GDP. India has also been ranked as one of the most attractive investment destinations in retail among 30 emerging markets in A T Kearney’s annual Global Retail Development Index (GRDI) for the past four years. FDI inflows to single brand retail trading stood at $ 195 million.
According to BMI India Retail Report, the total retail sales is expected to grow from $353 billion in 2010 to $543 billion by 2014, with organised retail accounting for 5% of the sales. According to McKinsey, organised retailing itself is set to rapidly increase from 5% to 14%-18% by 2015. While the nod to multi-brand retailing anticipated by mid-2011, and with top retailers entering the space and diversifying, organised retail is expected to have a good robust growth in the coming few years.
But the above projections and growth is dependent upon consistent growth in infrastructure, particularly a more reliable and efficient supply chain and logistics mechanism. The rapid growth of organised retail and the need to reach out to untapped rural markets necessitate massive improvements in infrastructure and the logistics network. The National Highways form a meagre 2% of the total roads in the country, but take over 40% of the load. Almost, 80% of the roads are not suitable for commercial vehicular movement. The average speed of such vehicles in India is only 20 km/hr, compared with 60 km/hr in the developed countries. The inadequacy and the ineffeciency of the logistics network is evident.
Due to these inefficencies in logistics, the cost of logistics as a percentage of the cost of goods sold (COGS) is the highest. There is a lot of promise for retail industry in India, but there are some challenges to overcome. The growth of this sector depends on how we overcome these challenges.
The Textile and Apparel (T&A) industry in India is a major contributor to the GDP, exports, employment and foreign exchange earnings. It contributes about 14% to the industrial production, 4% to the GDP and 17% to the country’s export earnings. It is also the second largest provider of employment after agriculture, providing direct employment to over 35 million people.
The domestic size of the Indian T&A industry was about US$ 33 billion in 2008. It is projected to grow at an annual growth rate of around 10% to reach US$ 47 billion by 2012. Additionally, T&A exports were US$ 22 billion in 2008 and are estimated to reach US$ 36 billion by 2012 at an annual growth rate of 13%.
India’s current domestic consumption is expected to grow to US $200 billion by 2025. One of the major problem is the lack of supply to meet this demand. The current manufacturing capacities cannot meet this unprecedented growth in the demand and we may need huge foreign investments in this area. India needs huge investments of more than US $100 billion in the area of textile and apparel manufacturing. However, if this is not met, then probably the domestic demand will be met by the imports.