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CHAPTER 1: INTRODUCTION

1.1. THE RETAILING PROCESS

The retailing as a process is least understood in India. For a start up, it is

important to have a comprehensive view of what retailing means and where he

wants to focus on. Most of the world player like Wal Mart-Mart, Circuit city,

Sears has developed in house expertise in each of these processes. The Indian

organized sector needs to understand how to manage each of these processes

and success will be contingent upon mastering them.

The following is the process involved in starting a retail outlet:

• SITE SELECTION: Market selection, site selection, site acquisition,

store design, store construction and store upgrading and remodelling.

• ASSORTMENT PLANNING: Choice of target assortment, product

development, vendor management, outsourcing merchandise

management.

• MANUFACTURING AND SOURCING: Buying raw material,

Manufacturing Buying finished goods, arranging delivery, payments.

• LOGISTICS AND DISTRIBUTION: Ordering and allocation, freight

forwarding, warehousing, distribution, inventory management and

replenishment.

• MARKETING AND BRANDING: Marketing definition research,

brand strategy, pricing, developing advertising strategy, organizing

support events, marketing monitoring.

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• IN STORE OPERATION: Creating store environment, recruiting,

training labour, Managing store operation, selling to and serving

customer, handling after sales services.

1.2. MANAGING A RETAIL STORE / CHAIN

The retailers have to manage their business effectiveness to grow and succeed

as any other businessmen .The organized retail sector must be professionally

controlled to make a mark in the market. Managing retail stores would involve

I. Operational Management

II. Customer service management

III. Advertising management

I. OPERATIONAL MANAGEMENT

In Operational Management, the operations of the store are to be taken care of,

in terms of

a) STORE LOCATION AND SIZE: The initial decision whether to

locate the store in a planned shopping centre and increase productivity

or locate in an unplanned business district and create your own market.

The size of the store will depend on the availability of land; finance

and the customer response expected them.

b) SPACE ALLOCATION: The emphasis is on allocating store between

different product and brands. They must use the facilities as

productively as possible and determine the amount of space and its

placement for each product category. The space allocation can be

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standard or customized (Micro merchandising-as per target customers,

their shopping habits and preferences).

c) STORE MAINTENANCE: This includes managing the retailer’s

physical facility, both external and interior. In external –the parking

lot, points of entry/exit, outside sigh, display windows and in internal –

windows, walls. Flooring, climate control, sign and lighting are the

important things to be considered.

d) INVENTORY MANAGEMENT: This include proper management of

merchandise, assortment and includes management between

Retailer and Supplier (for placing order)

Supplier and Retailer (delivery)

Retailer and Customer (sale)

e) STORE SECURITY: To avoid shopping and theft, proper security

system must be implemented.

f) CREDIT MANAGEMENT: Whether accept cash, credit or both from

customer. Clear instruction to be given to the customers in case of

acceptance of Cheque

II. CUSTOMER SERVICE MANAGEMENT

This is the most critical part to be managed. It include the services offered to

the Customer before, during and after sales like credit, delivery, packaging,

trial purchase, special sales, extended store hours, tailors, baby-sitting, pay

phones and restrooms

III. ADVERTISING MANAGEMENT

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Advertising is a paid presentation of a message on behalf of a product, service

or an idea by an identified sponsor to a mass audience. The objective is to

create awareness, increase disposition to buy, provide information, retain

patronage or enhance store image. A retailer must be clear about the target

segment he intends to address and the message he intends to convey.

1.3. CLASSIFICATION OF RETAIL FORMATS

Broadly the organized retail sector can be divided into two segments, In-store

retailers, who operate through fixed point of sale outlets and designed to

attract a high volume of walk-in customers, as referred to as the brick-and-

mortar formats, and the Non-store Retailers, who reach out to the customers at

their homes or offices through direct selling, telemarketing and E-commerce.

The common formats of brick-and-mortar retailing can be summarized as

follows:

FORMATS DESCRIPTION VALUE PROPOSITION

SPECILITY STORE

(Multi-Brands)

Focus on a specific

product category,

Medium sized layout

in strategic location

Greater choice to the

consumer, Comparison

between brands possible

EXCLUSIVE

BRAND Or

COMPANY

OUTLET

Exclusive store

owned/managed or

franchised out by a

given brand or

manufacturer; Can be

Exclusive Single-

brand store

Complete range available for

a specific brand or

manufacturer with certified

product quality

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DEPATMENT

STORE (Multi-

product/Multi

Brands)

Large store having a

variety of products,

Organized into

different departments

such as clothing,

house ware etc;

skewed towards

apparel

One-stop shop catering to

varied consumer needs,

Service as differentiator

CONVENIENCE

STORE

Small self service

formats located in

crowded urban areas

Convenient, multi-

functional, extended

operating hours

DISCOUNT STORE

Stores offering

discounts on the retail

price through selling

high volume and

reaping the

economies of scale

Low-prices

SUPERMARKETS

Large multiple &

cohesive self-service

retail outlets, catering

to varied customer

needs, located in

residential high

streets

One-stop family shop in food

& household categories

CATEGORY

KILLER (Multi-

Brands)

Very large store with

focus on a specific

products category,

located in busy

marketplace in large

cities

Consumer get extremely

wide choice of brands in a

specific product category

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HYPEMARKET

Huge multi-divisional

layout with a

warehouse-like

appearance, generally

located in remote

parts of a city

Low-price, vast choice,

including service; value

drivers

MALLS

A huge enclosure

housing different

formats of retailers,

Form ideal shopping

destination in Metros,

large cities and easily

accessible urban

outskirts/rural setting

Variety of shop available

close to each other, all under

a common roofs &uniforms

shopping environment; ideal

hangouts

1.4. PRIVATE LABEL BRANDS OR STORE BRANDS:

1.4.1. BACKGROUND

Store brands are products developed by a retailer and available for sale only

from that retailer; some retailers may attempt to utilize this measure of

exclusivity to differentiate them from the competition. Store brands help

retailers to increase sales which indirectly add to the bottom line (profit).

However store brands are priced 20-30%less than the branded goods. Store

brands can used as a powerful tool i.e. The general feeling is that in times of

recession, private labels increase their market share, but tend to maintain that

market share as economies recover. Thus store brands prove to be a useful

tool, depending upon how it is created.

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The definition of private label branding has evolved significantly over time.

Some would argue the term “private label” is a misnomer of great proportions.

There is no question that the words “private label” acknowledges the birth,

history and existence of generic and store brands. Yet, the term does not

adequately capture the extent to which private label has progressed. Today's

retail marketers are managing their proprietary brands with the same

combination of care and innovation as manufacturers of national brands.

In recent years, retailers have been liberating themselves from the traditional

definition of private label marketing as being the poor relative of national

brand consumer goods, and, in doing so, opening up huge opportunities for

private label branding. These opportunities require the adoption of a different

set of marketing and branding practices to support and propel the retailer’s

business and marketing ideals for its private label brands.

The key to successful marketing management for today’s retailers is to

understand the contribution and role of their proprietary or “own” brands in

the long-term business strategy and marketing mix of the retail store and

consider both the supply side and the demand side of the equation. Effective

category management can enable retailers to solidify and optimize supply-

chain relationships. Strategic brand management goes hand in hand with these

endeavours to establish sustainable points of difference in each aisle and

segment within the store. It also spurs decisions about how to appropriately

define the retailer’s “own” brand portfolio in order to galvanize consumers to

connect and reconnect with its franchise in a compelling manner.

1.4.2. HISTORY

Private Label brands were traditionally defined as generic product offerings

that competed with their national brand counterparts by means of a price-value

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proposition. Often the lower priced alternative to the “real” thing, private label

or store brands carried the stigma of inferior quality and therefore inspired less

trust and confidence. Yet, they still grew and prospered by providing

consumers lower priced options for what was often a low involvement

purchase decision. Retailers continued to push more and more private label

products into different categories of the marketplace because they represented

high margins and the promise of profitability with little to no marketing effort.

Over the years, this proliferation of private label offerings perpetuated a

myopic approach to private label brand management. Previously successful

yet, currently failing private label brands clued today’s retailer into some

important pitfalls to avoid in proprietary brand portfolio management. Most

importantly, these examples underscore a need for private label marketers to

be cognizant of how their initiatives play a role in the overall marketing mix

and the long-term definition and impact of their portfolio.

Historically, private label retailers appreciated that it was important to tout

certain category and product benefits to incite consumers to purchase. Yet,

rather than looking at the consumer directly to understand his brand and

product selection criteria, they took their cues from the national brand

competitors that had already identified and manifested some of the category’s

salient attributes and benefits through advertising, packaging and other brand

messaging. The result was often a series of “me-too” private label positioning

that strived to emulate the category leader.

This approach to private label management had resounding impacts on a

category as a whole as well as the individual product offerings within it. By

commoditizing their private label products, retailers undermined and

commoditized a category’s overall potential. They adopted the role of the

omnipresent, cheaper choice and often forced branded competition to lower

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their prices to compete, thereby erasing margins for national products and

private label alike. It also created missed opportunities for all category players

(manufacturers, suppliers or retailers), since they were not considering latent

or untapped consumer needs that their category had the ability to fulfil.

1.4.3. NEW DEVELOPMENTS

Private label brands have clearly become a more instrumental priority for

today’s retailers. They are starting to diversify their offering beyond the

expected, enabling them to compete more effectively in existing product

categories and foray into new and different product categories that have

traditionally been dominated by national brand players.

In many instances, private labels have surpassed a national brand’s capacity to

deliver on visibility, consumer interest, involvement and appeal. Proprietary

brand decision makers are often able to command close to parity or parity

pricing for their products, without articulating cost as the differentiating factor.

This represents a point of departure from the past: there is an

acknowledgement that today’s proprietary brands have the ability to transcend

the negative baggage and problems of traditional store brands, creating unique,

resonant benefit propositions for consumers. Retailers are beginning to

recognize that they cannot simply rely on national branded products to draw

consumers into their stores and sustain loyalty.

There are certain contemporary brands that have either been placed on a

pedestal or carefully noted by retail marketers and consumers alike. Their

situations and strategies start to lend insight into a more compelling definition

for a retailer’s proprietary brand offering and more importantly, a sense of

how to optimize success as an exclusive, proprietary brand.

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Perhaps the strongest success story in this regard was that of the Marks &

Spencer brand in the late 1980s and early 1990s.

1.4.4. BRANDING TRENDS

In order to be truly successful, retailers must advance from the generic or store

brand mindset of the past to a new private label paradigm. Many retailers have

begun to describe their private label brands as “own” brands because there is

recognition that these proprietary, exclusive offerings are tools that represent

momentous power and potential for the retail store.

The term “own” brands acknowledges that today’s visionary retail marketers

have powerful proprietary portfolios that they control and manage and there is

potential to reap bigger and better rewards by taking a closer look at the way

they orchestrate the role and expression of these brand offerings in the eyes of

consumers in each product category. Those retailers who appreciate the

magnitude of this brand opportunity have created a new industry standard in

their realm of influence and activity.

“Own” brands are articulated and developed in a way that they not only fit

with the brand promise of the retail store, but if effective, they also give

consumer drivers a key point of departure to enhance and celebrate the overall

retail brand proposition to keep consumers coming back for more.

1.4.5. CONSUMER PERCEPTION

In order to have store brands or any other product, it is more sensible to know

the consumer buying system or their buying behaviour. The management has

to know about the retail buying process of a consumer to have success of both

long term and short term.

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The buying process of a consumer is as follows:

Figure 1.11: consumer buying process.

Thus the consumer behaviour starts with arousal of need and ends with post

purchase behaviour, which would result in store loyalty.

Though the buying process goes like the above chart, there are some factors

that would influence the decisions of the buyer.

Figure 1.12: Factors influencing consumer decision making.

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1.4.6. RETAILER’S MINDSET AND GOALS

There are certain objectives that a retailer has in mind before getting into

private label goods. Figure lists the benefits that a retailer expects from the in-

store brands.

Figure 1.13: Benefits of private label brands to a retailer.

Higher Margins- Private label goods are cheaper to produce than branded

goods. Besides, due to the lack of advertising and marketing expenses they

provide double advantage to the retailer when it comes to the profit margins.

While majority of branded goods provide margins in the range of 6-12%,

private label goods can offer margins up to 40%. Not only they give a higher

margin to the retailers, private labels have also changed the balance of power

between brand manufacturers and retailers, giving the latter a decided

advantage when negotiating terms with the brand manufacturers.

Stronger Customer Loyalty -As the private label offerings increase and the

quality is assured; a high sense of loyalty is cultivated among its customer

base. This customer loyalty is the result of an affinity with the retailer brand

which implies that the development of private label brands can tangibly

enhance the retailer’s brand itself. So in the long run, the private labels

become an important tool for the retailer to establish its positioning and

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strategically attract the target customers to its outlet. Numerous studies have

also shown that private label buyers are more store-loyal and not as easily

influenced as brand buyers.

Differentiation- Through private labels, retailers get a chance to bring in

unique products in their supply chains that have not been branded before. So if

a retailer can cater to the local tastes and preferences of the consumers will

buy top quality private labels then they can differentiate themselves from other

stores and become destination stores. In effect, it’s a win-win situation even

for the producers who get a chance to display their produce.

Freedom with Pricing Strategy- A retailer promoting a private label has the

added benefit of greater freedom to play with pricing strategies, as a result of

which these are overall cheaper than brand leaders. For instance, in USA,

some private labels are 25 percent cheaper than leading brands. In addition,

since it is an own private label, the retailer has the freedom to create its own

marketing strategy and have more control over its stock inventory. This

command of all the stages that a product goes through, gives the retailer high

flexibility in pricing.

Positioning during economic downturns- The growth of private labels is

likely to continue in the current financial environment as cash-strapped

consumers' perception of the products as a cheaper option changes. The price

advantage of private labels leads to the belief that these score in times of

economic meltdown, and further that this newly-acquired market share is

maintained even as the recession swings out. Even after the economy bounces

back, consumers will naturally gravitate towards products marked at lower

prices yet offering the same quality, especially where the retail name is a

trusted national or regional player.

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1.4.7. STORE BRANDS CREATION FACTORS

There are many factors and things to be considered before introduction of the

store brand. The following are very important in order to make the brand a

successful one; if the following is not right then the brand cannot have a long

term success.

a) Target customers:

Though there is a good response for the store brands introduced by the

retailers, it should be directed towards target customers i.e. to whom the

products must reach. More over for a retail store, the target customers would

be the people above middle income group and people above high income

group (very rich). Because they are people with more income and as a result of

it they are often making visits to the retail store.

PricewaterhouseCoopers (PwC) report claims that the number of households

earning more than Rs.45000 will go up from 30 million in 1999-2000 to 81

million by 20015-16. It also further claims that the number of 'very rich'

households will increase six fold from 1 million to 6 million during the same

period.

The PwC report further adds that the 'consuming class' and 'climbing class' –

the two segments that offer tremendous opportunities to retailers are expected

to grow by 38.8% from 124 million households in 1994-95 to 159 million

households by 20015-16. This increase in the consuming class will lead to

greatly increased purchasing power, signalling a bright future for the

organized retailing. So with the above facts if target customers are targeted

correctly then it do wonders for the store. The income of the people is on a

rise, so if the product is liked by them then it would be a successful one for the

outlet.

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b) Identify the needs of target customers:

Having the target customers, the store has to find the needs of the people

which remain unsatisfied. The needs of the customers have to be given due

importance because the consumers buying behaviour starts with it. If the needs

are found, a product can made in such a way that it satisfies their need. If the

consumer finds that the product is satisfying him then the retail store brand

can be successful one. In order to identify the needs of the people, survey can

be made on the target customers. If this is costly, then information is got from

the key customers.

Feedback is got from the customers regarding their brands performance and if

any need is found not satisfied, the store would be designing a product based

on that. The store is also getting information voluntarily from their customers

i.e. they would be giving the information to their salesmen voluntarily and

they are using this in order to design or develop a product.

c) Quality of the product:

First and foremost thing which makes the consumer to buy the product is the

QUALITY of the brand. If the quality of the product is good then customers

will be attracted towards it. When the quality is good, during alternatives

(consumer behaviour) are evaluated, the consumer attaches more importance

to the retail brand. The store attaches more importance to the quality of their

brands and on anything else.

d) Price of the brand:

Price plays an important role in the creation of store brand. Most of the store

brands are purchased because they are priced 10% to 40% below the national

brand. Because of this most of the consumers are attracted towards the brand

and this also used to differentiate the store brand and the national brand.

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In some it can also be premium store brands. There are two strategies for this.

The first strategy is to identify the gap in the market in accordance launch a

premium store brand.

e) Positioning:

Positioning attracts the customers a lot easily towards the brand. When

positioning of the store brand is perfect, then pricing the brand above premium

is possible. Moreover, when introducing store brands, retailers may use either

a differentiation strategy or an imitation strategy in positioning the store

brands. "Food Bazaar" positioned its private salt brand as premium health salt

which is available in the price of the ordinary salt. It enjoys 40 - 45% market

share in its category among all the "Food Bazaar" outlets. Thus it has used the

differentiation strategy and got success. The long-term losses that can happen

due to retaliation (imitation strategy) from national brand manufacturers who

may withdraw promotional and advertising support, which are essential to the

development of the category itself. Such support helps the whole category

because it builds awareness and drives traffic to the store.

f) Packaging:

Packaging plays a very important role because even if the customers are not

aware about the store brand, the packaging will make the consumer to see the

product and it makes the customer to inquire about the product. The store have

a special unit for packing their store brands and the design, look etc., of the

package is vested with the packing unit. It is already said that the customers of

the retail outlet will be middle and upper class people. So the packaging

should be in such a way that it matches their taste.

g) Training to the employees:

Training is said to be important because the customers of the store will not be

aware about the store brands, its uses, its merits, etc. In order to fill this gap

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the employees of the store must be given adequate training regarding their

brand. Every time when the store introduces its new store brand, they are

providing one month training to their employees. The main advantage of

giving training to the employees is that, media advertising is not given for the

store brands, so the training can act as a substitute for advertising.

h) Promotion of the store brand:

Promotion is that aspect of marketing communications that keeps the product

in the minds of customers and helps stimulate trial and repeat purchase. Most

retail owners and marketing managers are familiar with promotional strategies

such as:

• Advertising

• Personal selling

• Sales promotions (buy one get one, coupons, introductory offers, etc.)

• Public relations & publicity

For a retail store, media advertising is not needed, because it is already

provided by the national brand.

Figure 1.15: strategies adopted by private label brands.

The above chart shows how store brands create customer loyalty and also how

it competes with the national brand.

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i) Feedback from the customers:

Feedback can be got from the customers regarding the store brand's

performance and its improvement. Feedback gives the satisfaction level of the

customers. The store receives feedback from the customers regarding their

brand's performance. Feedback can also be used for improving the qualities of

the brand.

1.5. RETAIL INDUSTRY IN INDIA

1.5.1. BACKGROUND

India being a signatory to World Trade Organization’s General Agreement on

Trade in Services, which include wholesale and retailing services, had to open

up the retail trade sector to foreign investment. There were initial reservations

towards opening up of retail sector arising from fear of job losses,

procurement from international market, competition and loss of

entrepreneurial opportunities. However, the government in a series of moves

has opened up the retail sector slowly to Foreign Direct Investment (FDI). In

1997, FDI in cash and carry (wholesale) with 100 percent ownership was

allowed under the Government approval route. It was brought under the

automatic route in 2006. 51 percent investment in a single brand retail outlet

was also permitted in 2006. FDI in Multi-Brand retailing was prohibited in

India.

In 2004, The High Court of Delhi defined the term ‘retail’ as a sale for final

consumption in contrast to a sale for further sale or processing (i.e.

wholesale). A sale to the ultimate consumer. Thus, retailing can be said to be

the interface between the producer and the individual consumer buying for

personal consumption. This excludes direct interface between the

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manufacturer and institutional buyers such as the government and other bulk

customers retailing is the last link that connects the individual consumer with

the manufacturing and distribution chain. A retailer is involved in the act of

selling goods to the individual consumer at a margin of profit.

The retail industry is mainly divided into:-

Organized retailing refers to trading activities undertaken by licensed

retailers, that is, those who are registered for sales tax, income tax, etc. These

include the corporate-backed hyper markets and retail chains, and also the

privately owned large retail businesses.

Unorganized retailing, on the other hand, refers to the traditional formats of

low-cost retailing, for example, the local kirana shops, owner manned general

stores, paan / beedi shops, convenience stores, hand cart and pavement

vendors, etc.

The Indian retail sector is highly fragmented with 97 per cent of its business

being run by the unorganized retailers. The organized retail however is at a

very nascent stage. The sector is the largest source of employment after

agriculture, and has deep penetration into rural India generating more than 10

per cent of India’s GDP.

1.5.2. POLICY LANDSCAPE

Indian market has high complexities in terms of a wide geographic spread and

distinct consumer preferences varying by each region necessitating a need for

localization even within the geographic zones. India has highest number of

outlets per person (7 per thousand) Indian retail space per capita at 2 sq ft

(0.19 m2)/ person is lowest in the world Indian retail density of 6 percent is

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highest in the world.[1 1.8 million households in India have an annual income

of over 45 lakh (US$81,900).2

While India presents a large market opportunity given the number and

increasing purchasing power of consumers, there are significant challenges as

well given that over 90% of trade is conducted through independent local

stores. Challenges include: Geographically dispersed population, small ticket

sizes, complex distribution network, and little use of IT systems, limitations of

mass media and existence of counterfeit goods.3

The retailing is one of the pillars of its economy and accounts for 14 to 15

percent of its GDP4. The Indian retail market is estimated to

be US$ 450 billion and one of the top five retail markets in the world by

economic value. India is one of the fastest growing retail markets in the world,

with 1.2 billion people5.

India's retailing industry is essentially owner manned small shops. In 2010,

larger format convenience stores and supermarkets accounted for about 4

percent of the industry, and these were present only in large urban centres.

India's retail and logistics industry employs about 40 million Indians (3.3% of

Indian population). Until 2011, Indian central government denied foreign

direct investment (FDI) in multi-brand retail, forbidding foreign groups from

any ownership in supermarkets, convenience stores or any retail outlets. Even

single-brand retail was limited to 51% ownership and a bureaucratic process.

In November 2011, India's central government announced retail reforms for

both multi-brand stores and single-brand stores. These market reforms paved

1Fashion meets tech as handsets get sleek expensive",www.ksa-technopak.com 2 LCD televisions, laptops are flying off the shelves.",www.ksa-technopak.com 3 Traditional Retail Trade in India." ,www.bostonanalytics.com,28 June 2009. 4 "The Bird of Gold - The Rise of India's Consumer Market". McKinsey and Company. May 2007. ^ Anand Dikshit (August 12, 2011). "The Uneasy Compromise - Indian Retail". The Wall Street Journal. 5 "Winning the Indian consumer". McKinsey & Company. 2005. ^ Majumder, Sanjoy (25 November 2011). "Changing the way Indians shop". BBC News.

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the way for retail innovation and competition with multi-brand retailers such

as Walmart, Carrefour and Tesco, as well single brand majors such

as IKEA, Nike, and Apple6. The announcement sparked intense activism, both

in opposition and in support of the reforms. In December 2011, under pressure

from the opposition, Indian government placed the retail reforms on hold till it

reaches a consensus7.

In January 2012, India approved reforms for single-brand stores welcoming

anyone in the world to innovate in Indian retail market with 100% ownership,

but imposed the requirement that the single brand retailer source 30 percent of

its goods from India. Indian government continues the hold on retail reforms

for multi-brand stores8.

In June 2012, IKEA announced it has applied for permission to invest $1.9

billion in India and set up 25 retail stores. Fitch believes that the 30 percent

requirement is likely to significantly delay if not prevent most single brand

majors from Europe, USA and Japan from opening stores and creating

associated jobs in India9.

On 14 September 2012, the government of India announced the opening of

FDI in multi-brand retail, subject to approvals by individual states.10 This

decision has been welcomed by economists and the markets, however has

caused protests and an upheaval in India's central government's political

coalition structure. On 20 September 2012, the Government of India formally

6 "Retailing in India Unshackling the chain stores". The Economist. 29 May 2008 7 Agarwal, Vibhuti; Bahree, Megha (7 December 2011). "India puts retails reforms on hold". The Wall Street Journal. 8 Sharma, Amol; Sahu, Prasanta (11 January 2012). "India Lifts Some Limits on Foreign Retailers". The Wall Street Journal 9 Amol Sharma (24 June 2012). "IKEA Knocks on India's Door". The Wall Street Journal. "Ikea shelves Indian retail market move". The Financial Times. 22 January 2012. 10 Times of India Newsreport".

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notified the FDI reforms for single and multi brand retail, thereby making it

effective under Indian law11.

On 7 December 2012, the Federal Government of India allowed 51% FDI in

multi-brand retail in India. The Feds managed to get the approval of multi-

brand retail in the parliament despite heavy uproar from the opposition. Some

states will allow foreign supermarkets like Walmart, Tesco and Carrefour to

open while other states will not

India in 1997 allowed foreign direct investment (FDI) in cash and carry

wholesale. Then, it required government approval. The approval requirement

was relaxed, and automatic permission was granted in 2006. Between 2000 to

2010, Indian retail attracted about $1.8 billion in foreign direct investment,

representing a very small 1.5% of total investment flow into India.12

Single brand retailing attracted 94 proposals between 2006 and 2010, of which

57 were approved and implemented. For a country of 1.2 billion people, this is

a very small number. Some claim one of the primary restraints inhibiting

better participation was that India required single brand retailers to limit their

ownership in Indian outlets to 51%. China in contrast allows 100% ownership

by foreign companies in both single brand and multi-brand retail presence.

Indian retail has experienced limited growth, and its spoilage of food harvest

is amongst the highest in the world, because of very limited integrated cold-

chain and other infrastructure. India has only 5386 stand-alone cold storages,

having a total capacity of 23.6 million metric tons. However, 80 percent of this

storage is used only for potatoes. The remaining infrastructure capacity is less

than 1% of the annual farm output of India, and grossly inadequate during

11 "Department of Industrial Policy & Promotion (FC-I Section), Press Note No.5 (2012 Series) - multi-brand retail". Ministry of Commerce & Industry, Government of India. 20 September 2012. "FDI in multi-brand retail comes into effect; way clear for Walmart". The Economic Times. 20 September 2012. 12 "FDI IN MULTI-BRAND RETAIL TRADING". KPMG. 2010.

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peak harvest seasons. This leads to about 30% losses in certain perishable

agricultural output in India, on average, every year.13

Indian laws already allow foreign direct investment in cold-chain

infrastructure to the extent of 100 percent. There has been no interest in

foreign direct investment in cold storage infrastructure build out. Experts

claim that cold storage infrastructure will become economically viable only

when there is strong and contractually binding demand from organized retail.

The risk of cold storing perishable food, without an assured way to move and

sell it, puts the economic viability of expensive cold storage in doubt. In the

absence of organized retail competition and with a ban on foreign direct

investment in multi-brand retailers, foreign direct investments are unlikely to

begin in cold storage and farm logistics infrastructure.

Until 2010, intermediaries and middlemen in India have dominated the value

chain. Due to a number of intermediaries involved in the traditional Indian

retail chain, norms are flouted and pricing lacks transparency. Small Indian

farmers realize only 1/3rd of the total price paid by the final Indian consumer,

as against 2/3rd by farmers in nations with a higher share of organized retail.

The 60%+ margins for middlemen and traditional retail shops have limited

growth and prevented innovation in Indian retail industry.

India has had years of debate and discussions on the risks and prudence of

allowing innovation and competition within its retail industry14 Numerous

economists repeatedly recommended to the Government of India that legal

restrictions on organized retail must be removed, and the retail industry in

13 "FDI IN MULTI-BRAND RETAIL TRADING". KPMG. 2010. 14 Mukherjee et al., Arpita (2006). FDI in Retail Sector: INDIA, A Report by ICRIER. Academic Foundation. ISBN 978-81-7188-480-3. 12 Mehta and Chatterjee (June 2011). "Growth and Poverty - the great debate"., cutsInternational.org.pdf Jagdish Bhagwati (14 December 2010). "Hiren Mukerjee Memorial Parliamentary Lecture: Parliament of India". Columbia University, Parliament of India.

24

India must be opened to competition. For example, in an invited address to the

Indian parliament in December 2010, Jagdish Bhagwati, Professor of

Economics and Law at the Columbia University analysed the relationship

between growth and poverty reduction, then urged the Indian parliament to

extend economic reforms by freeing up of the retail sector, further

liberalization of trade in all sectors, and introducing labour market reforms.

Such reforms Professor Bhagwati argued will accelerate economic growth and

make a sustainable difference in the life of India's poorest.15

A 2007 report noted that an increasing number of people in India are turning

to the services sector for employment due to the relative low compensation

offered by the traditional agriculture and manufacturing sectors. The organized

retail market is growing at 35 percent annually while growth of unorganized

retail sector is pegged at 6 percent.16.The Retail Business in India is currently

at the point of inflection. As of 2008, rapid change with investments to the

tune of US $ 25 billion was being planned by several Indian and multinational

companies in the next 5 years. It is a huge industry in terms of size and

according to India Brand Equity Foundation (IBEF), it is valued at about US$

395.96 billion. Organised retail is expected to garner about 16-18 percent of

the total retail market (US $ 65-75 billion) in the next 5 years.

India had topped the A.T. Kearney’s annual Global Retail Development Index

(GRDI) for the third consecutive year, maintaining its position as the most

attractive market for retail investment. The Indian economy has registered a

growth of 8% for 2007. The predictions for 2008 was 7.9%17. The enormous

growth of the retail industry has created a huge demand for real estate.

16 India again tops global retail index." indiafmcg.blogspot.com,22 /6/ 2007. 17 Economic and financial indicators", 3 indiafmcg.blogspot.com uly 2008.

25

Property developers are creating retail real estate at an aggressive pace and by

2010, 300 malls are estimated to be operational in the country.18

Although prior to Jan 24, 2006, FDI was not authorised in retailing, most

general players had been operating in the country.

Some of entrance routes used by them have been discussed in sum as below:-

a) Franchise Agreements

It is an easiest track to come in the Indian market. In franchising and

commission agents services, FDI (unless otherwise prohibited) is allowed with

the approval of the Reserve Bank of India (RBI) under the Foreign Exchange

Management Act. This is a most usual mode for entrance of quick food

bondage opposite a world. Apart from quick food bondage identical to Pizza

Hut, players such as Lacoste, Mango, Nike as good as Marks as good as

Spencer, have entered Indian marketplace by this route.

b) Cash And Carry Wholesale Trading

100% FDI is allowed in wholesale trading which involves building of a large

distribution infrastructure to assist local manufacturers. The wholesaler deals

only with smaller retailers and not Consumers. Metro AG of Germany was the

first significant global player to enter India through this route.

c) Strategic Licensing Agreements

Some foreign brands give exclusive licences and distribution rights to Indian

companies. Through these rights, Indian companies can either sell it through

their own stores, or enter into shop-in-shop arrangements or distribute the

brands to franchisees. Mango, the Spanish apparel brand has entered India

through this route with an agreement with Piramyd, Mumbai, SPAR entered

into a similar agreement with Radhakrishna Foodlands Pvt. Ltd

18 Indian Retail story from Myths to Mall." ,indiafmcg.blogspot.com,11 August 2007.

26

d) Manufacturing and Wholly Owned Subsidiaries.

The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-

owned subsidiaries in manufacturing are treated as Indian companies and are,

therefore, allowed to do retail. These companies have been authorised to sell

products to Indian consumers by franchising, internal distributors, existent

Indian retailers, own outlets, etc. For instance, Nike entered through an

exclusive licensing agreement with Sierra Enterprises but now has a wholly

owned subsidiary, Nike India Private Limited.

1.5.3. CHALLENGES TO INDIAN RETAIL SECTOR

Before 2011, India had prevented innovation and organized competition in its

consumer retail industry. Several studies claim that the lack of infrastructure

and competitive retail industry is a key cause of India's persistently high

inflation. Furthermore, because of unorganized retail, in a nation where

malnutrition remains a serious problem, food waste is rife. Well over 30% of

food staples and perishable goods produced in India spoil because poor

infrastructure and small retail outlets prevent hygienic storage and movement

of the goods from the farmer to the consumer.19

One report estimates the 2011 Indian retail market as generating sales of about

$470 billion a year, of which a minuscule $27 billion comes from organized

retail such as supermarkets, chain stores with centralized operations and shops

in malls. The opening of retail industry to free market competition, some claim

will enable rapid growth in retail sector of Indian economy. Others believe the

growth of Indian retail industry will take time, with organized retail possibly

19 Bahree, Megha (November 25, 2011). "India Unlocks Door for Global Retailers". The Wall Street Journal. "Wal-Mart Waits With Carrefour as India Wins Instant Gain: Retail". Bloomberg BusinessWeek. 30 November 2011.

27

needing a decade to grow to a 25% share.20 A 25% market share, given the

expected growth of Indian retail industry through 2021, is estimated to be over

$250 billion a year: a revenue equal to the 2009 revenue share from Japan for

the world's 250 largest retailers.,21

The Economist forecasts that Indian retail will nearly double in economic

value, expanding by about $400 billion by 202022. The projected increase

alone is equivalent to the current retail market size of France.

In 2011, food accounted for 70% of Indian retail, but was under-represented

by organized retail. A.T. Kearney estimates India's organized retail had a 31%

share in clothing and apparel, while the home supplies retail was growing

between 20% to 30% per year.23 These data correspond to retail prospects

prior to November announcement of the retail reform. The Indian market

offers endless possibilities for investors.24

A McKinsey study claims retail productivity in India is very low compared to

international peer measures. For example, the labor productivity in Indian

retail was just 6% of the labour productivity in United States in 2010. India's

labour productivity in food retailing is about 5% compared to Brazil's 14%;

while India's labour productivity in non-food retailing is about 8% compared

to Poland's 25%.25

Total retail employment in India, both organized and unorganized, account for

about 6% of Indian labour work force currently - most of which is

unorganized.

This about a third of levels in United States and Europe; and about half of

levels in other emerging economies. A complete expansion of retail sector to

20 "Indian retail: The supermarket’s last frontier". The Economist. 3 December 2011. 21 "INDIAN RETAIL INDUSTRY: A Report". CARE Research. March 2011. 21 "Global Powers of Retailing 2011". Deloitte. 2011. 22 "India's retail reform: No massive rush". The Economist. 2 December 2011. 23 "Reasons to Invest in India". Engineeringfromindia.com. 24 Retail Global Expansion: A Portfolio of Opportunities". AT Kearney. 2011. 25 "Retail - India". McKinsey & Co,www.mckinsey.com.

28

levels and productivity similar to other emerging economies and developed

economies such as the United States would create over 50 million jobs in

India. Training and development of labour and management for higher retail

productivity is expected to be a challenge.

To become a truly flourishing industry, retailing in India needs to cross the

following hurdles:26

• Automatic approval is not allowed for foreign investment in retail.

• Regulations restricting real estate purchases, and cumbersome local laws.

• Taxation, which favours small retail businesses.

• Absence of developed supply chain and integrated IT management.

• Lack of trained work force.

• Low skill level for retailing management.

• Lack of Retailing Courses and study options

• Intrinsic complexity of retailing – rapid price changes, constant threat of

product obsolescence and low margins.

In November 2011, the Indian government announced relaxation of some rules

and the opening of retail market to competition.

1.5.4. MAJOR INDIAN RETAILORS

Indian apparel retailers are increasing their brand presence overseas,

particularly in developed markets. While most have identified a gap in

countries in West Asia and Africa, some majors are also looking at

the US and Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and

Royal Classic Polo are busy chalking out foreign expansion plans through the

distribution route and standalone stores as well. Another denim wear brand,

Spykar, which is now moving towards becoming a casual wear lifestyle brand,

26 "Retail Scenario in India",www.ibef.org/attachdisplay.aspx

29

has launched its store in Melbourne recently. It plans to open three stores in

London by 2008-end.27

The low-intensity entry of the diversified Mahindra Group into retail is unique

because it plans to focus on lifestyle products. The Mahindra Group is the

fourth largest Indian business group to enter the business of retail

after Reliance Industries Ltd, the Aditya Birla Group, and Bharti

Enterprises Ltd.

The other three groups are focusing either on perishables and groceries, or a

range of products, or both.

• REI AGRO LTD Retail: 6TEN and 6TEN kirana stores

• Future Groups-Formats: Pantaloons,Big Bazaar, Food Bazaar, Central,

Fashion Station, Brand Factory, Home Town, E-Zone etc.

• Raymond Ltd.: Textiles, The Raymond Shop, Park Avenue, Park Avenue

Woman, Parx, Colourplus, Neck Ties & More, Shirts & More etc.

• Fabindia: Textiles, Home furnishings, handloom apparel, jewellery

• RP-Sanjiv Goenka Group Retail-Formats: Spencer’s Hyper, Spencer's

Daily, Music World, Au Bon Pain, Beverly Hills Polo Club

• The Tata Group-Formats: Westside, Star India Bazaar, Landmark, Titan,

Tanishq, Croma.

• Reliance Retail-Formats: Reliance MART, Reliance SUPER, Reliance

FRESH, Reliance Footprint, Reliance Living, Reliance Digital, Reliance

Jewellery, Reliance Trends, Reliance Autozone, iStore

• K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper

City, Inorbit Mall

• Nilgiri’s-Formats: Nilgiris’ supermarket chain

• Shri Kannan Departmental Store (P) Ltd ., : Groceries, Clothing,

Cosmetics [Western Tamil Nadu's Leading Retailer]

27 "Mahindra joins the retail bandwagon, to sell lifestyle products, www.ksa-technopak/pressroom

30

• Lifestyle International-Lifestyle, Home Centre, Max, Fun City and

International Franchise brand stores.

• Pyramid Retail-Formats: Pyramid Megastore, TruMart

• Next retail India Ltd (Consumer Electronics)

• Aditya Birla Group- Formats: more., acquiured Pantaloon from Future

group, acquired Trinetra (Fabmall and Fabcity)

• Vishal Retail Group-Formats: Vishal Mega Mart

• BPCL-Formats: In & Out

• Gitanjali- Nakshatra, Gili, Asmi, D'damas, Gitanjali Jewels, Giantti,

Gitanjali Gifts, etc.

1.5.5. POPULAR RETAIL FORMATS IN INDIA

a) Exclusive Band Outlets are either company owned or franchised. There

are different levels of control of the company on the store manager or

franchised outlet manager.

b) Company Owned: Management of the manufacturer controls company

outlets and pays for all administrative expenses. They have to work on

lower gross margins because expenses are paid for. With malls and

quality space being created such outlets seems to have a promising future

and should lead to subsequent growth of the brands.

c) FRANCHISE: Management of the franchised outlet controls and pays for

administrative expenses. They can work on higher gross margins because

expenses are not paid for. Franchisee Outlets receive support from the

manufacturer in various forms like training (sometime recruitment) of

staff, visual merchandising, designing store layout (interiors) etc. There

are already new established brands from abroad coming into India and

quality retail space available all across the nation, as long as key

31

considerations of right location, right product at right price and right time

are systematically enforced there is a commanding future for such type of

outlets with promising returns.

d) Both these type of outlets can be present in the High Street shopping

areas or inside a mall wherein they have their own set of advantage and

disadvantages. While stores in the malls attract traffic, many of them are

browsers or prospective future consumer. As more malls come up in the

near future, we expect a large number of such stores to come up and drive

overall branded apparel sales. Stores in high streets attract brand loyal

clientele which often has pre-set positive disposition towards the brands.

e) MULTI-BRAND OUTLETS: Multi-Brand Outlets are the ones which

stock merchandise of more than one brand. They can be a small formats

store (300-1500 sq. ft) present in the high streets, malls or local market

area. While they offer a set of brands to choose from, they often offer

limited range constrained by available space. They usually buy goods on

an outright basis and hence have greater margins. But, at the same time,

they are at a greater risk of being left with unsold stock.

There is also large format multi brand outlet (b/w 1500-5000sq.ft), which

are often city specific. They thus have a loyal consumer base, but due to

their bigger size they often fail to get good returns on capital employed,

often on account of inherent inefficiencies that the un-organized set up

faces.

Key characterized of multi brands outlets includes a large covered area

with many brands on offer, with a complete range of products across

different brands. They have fewer walk-ins than department stores but

more than exclusive outlets or specialty stores. These stores try and offer

lower price than in an exclusive brand outlet or specialty store.

32

f) DEPARTMENT STORES: The third format that sells a number of brands

under one roof is that of department stores. These can be b/w 3000-

5000sq.ft or can extend up to 20,000sq.ft or beyond, depending upon the

company, city in which the store is present and the location within the

city. Key characteristics of department stores are that they have largest

covered area (among all retail formats) with a number of categories and

brands on offer. They attract the highest of walk-ins per day and are often

service oriented, with a knowledgeable sales staff and a systematic,

organizes set up behind them. Department stores try to offer an enjoyable

shopping environment that may lead to increased time spent within the

store, and hence, more sales.

Department stores are generally located in Destination towns, metros and

mega metros. These stores have a large layout, which often enables free

access of merchandise. The merchandise mix is usually of cohesive

category, i.e. cluster/brands, skewed towards garments etc, and their

merchandise range is generally focused towards addressing a wider

audience with service as a main differentiating factor.

Large Department stores such as Shopper’s Stop, Pantaloon, Lifestyle,

Globus and Westside etc that primarily deal in clothing, fashion

accessories and home décor products are the main anchors in most of the

malls and their number will continue to grow due to ongoing upsurge in

Malls and development of quality retail space.

g) SPECIALITY STORES: Specialty Stores are strategically located with a

medium focus and an interactive layout. They are generally single-

category focused and have individual, group cluster of same class with

high loyalty categories of product. Typical examples of such kind of retail

formats are BATA, Planet M, etc. Their general business strategy is the

merchandise value proposition, which is driven and clearly differentiated

from other brands.

33

Specialty Stores also need to know their customer thoroughly as the

merchandise collection is specific, making customers visit again and

again. According to the American Express Retail Index on shopper

loyalty, 56% of specialty store shopper says that they have been loyal to

the same store for more than five years in the United States .The take out

from this simple. It is necessary for specialty store to have a robust

customer loyalty program. Many of the branded specialty stores in India

are yet to get into the process of having an organized customer loyalty

program. This is necessary as product and services tend to be similar in

nature in the competing stores.

Chains such as Bangalore based Kids Kemp, the Mumbai based book

retailer Crossword, RPG’s Music World and the Times Group’s music

chain planet M, are focusing on specific market segment and have

established themselves strongly in their sectors. More recent

developments in this field are the specialty malls like Gold Souk, Auto

Mall, The Homeland and the likes.

h) SUPERMARKETS: Supermarkets as their name suggests are typically

located in busy market or residential localities of the metros and other

large cities. They are generally large in size and their typical layout

enables free access of merchandise. They generally have not only

household categories but also have food as an integral parts of their store

formats. Typical example are Apna Bazaar, Food world, Food Bazaar etc.

these stores are generally catchments focused and relationship driven with

variety, quality and service as their key drivers.

i) HYPERMARKETS: The Hypermarkets format is the latest and most

appealing concept that has hit the Indian consumer. This format is

generally a drive-away destination and is normally very large in size as

compared to the other store formats. Hypermarkets offer various divisions

34

of product and services, often in bulk quantities, high is more akin to

wholesale format. Except in some cases like the Cash & Carry model of

Metros, the hypermarkets are normally family oriented and the bulk

buyers are mostly their loyal customers.

In India, the prime example of such formats is Spencer’s (formerly giant)

have RPG group and Big Bazaar of Pantaloon retail. Of the recent

entrants to this format of retailing in India, and serious ones at that, are

the Germans retail major Metro Cash & South Africa Shoprite. Metro,

though a B2B model has opened two of its outlets in Bangalore. Shoprite

has opened shop in Mumbai. These hypermarkets are a class apart since

they offer variety and price advantage as their key value drivers to gain

footfalls and conversions.

j) POWER RETAILING & CATEGORY KILLERS: Both these terms are

similar in connotation. The first talks of how a retailer can leverage the

intrinsic advantage of his business to create a winning cocktail while the

latter highlights how some retailers have been able to use their strengths

to ‘kill’ competition in the category they service. The main difference is

that the former has been used more in the context of brick and mortar

stores while the latter has been used more in discussions and to describe

internet companies.

The format has not as yet gained popularity in India, perhaps because

even the largest retailer in India is yet to attain the width and depth

enjoyed by a full-blown department store in the West. Thus, while you

have a Spencer’s, Trent, Big Bazaar and Home Store beginning to happen

in the hyper marker space, our retailers are yet to reach the stage and

dimensions of JC penny, Macy’s or even Abdullah’s of Singapore. While

some of big retailers might be stocking 300400 units, a retailer abroad of

the dimensions we are talking about would stock between 1000-1500

units. But new research is beginning to throw up the possibility of

35

extending the concept of power retailing to smaller retail outlets. A prime

example of category killing is “The Loft’, a footwear store in Powai,

Mumbai, and measuring 18,000 sq.ft.

k) DISCOUNT STORE: Discounting is not a dominant format of Retailing

in India as compared to international standards where around 60 percent

of the business comes from this format. Internationally, the largest retailer

in the world, Wal-Mart, is a discounter. These discounters have

advantages of price, assortment dominance, and quality assurance, and

have the ability to quickly build scale and pass on the benefits to their

customers.

Indian retailers have lagged behind in this field mainly because, unlike

their Western counterparts, they have much less bargaining power vis-à-

vis the manufacturers. However, the scenario is now changing. Increased

investments and the entry of big business houses in retailing is leading to

the emergence of big retailers who can both bargain with the suppliers, as

well as reap the benefits of economics of scale.

l) KIOSKS, CORNERS, SHOP-IN-SHOPS AND CONVENIENCE

STORES: Kiosks, Corners, Shop-in-Shops and Convenience Stores are

some of the other retail formats that are fast gaining popularity in India.

The Kiosk and Corner stores are popularity in India. The Kiosk and

Corner stores are generally found in busy market places and are quite

small in comparison to the regular stores found in marketplace. They

normally have fast moving consumer goods (FMCG’s), mostly edible

items such as biscuits, beverages etc. the buying is mostly impulse drive,

they can be easily found along high streets, market places etc. e.g. the

Pepsi fountain shop, which also sells biscuits, minerals water, chewing

gum etc. these Kiosks are generally attractive looking to lure customers

and are readily available in India across regions. The Shop-in-Shops are

36

located with the large department stores whereas the Convenience stores

are now getting popular at fuel stations where people can avail of the

regular shopping while their vehicles get refuelled.

1.5.6. PRIVATE LABEL BRANDS IN INDIA:

Private label brands in India in a growing stage. It will be difficult to get the

details of sales in India because of the highly unorganized structure of Indian

retailing. But still it contributes a turnover of Rs.700 Cr in the organized

structure.

Though the margin of Rs.700 Cr is considered as low when compared to other

countries, India is expected to achieve a sizeable volume in the coming 3-5

years. Moreover in India the products come under private label brands include

mainly food and apparel industry.

Some of the retail players having private label brands in India are as follows:

FOOD AND GROCERY FASHION OTHERS

Spencer's Daily Shoppers' Stop Vivek's

Adani- Rajiv's Westside Planet M

Subhiksha Lifestyle Music World

Nilgris Piramyd Crossword

Nirma-Radhey Ebony Gautier

Globus

Each of these retail stars has identified and settled into a feasible and

sustainable business model of its own. Rather surprisingly, each has developed

a unique model. Westside has very successfully emulated a Marks & Spencer

model (of 100 per cent private label, very good value for money merchandise

37

for the entire family). Spencer's Daily and Nilgris have successfully shown the

viability of the `supermarket' format in India and its ability to co-exist with the

ubiquitous Kirana store. Pantaloon has both demonstrated the potential of

"speciality" retailing in India.

1.5.7. INDIAN RETAIL REFORMS : NEW POLICY & NEW ERA

Until 2011, Indian central government denied foreign direct investment (FDI)

in multi-brand Indian retail, forbidding foreign groups from any ownership in

supermarkets, convenience stores or any retail outlets, to sell multiple products

from different brands directly to Indian consumers.

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and

consolidated which provide the sector specific guidelines for FDI with regard

to the conduct of trading activities.

a) FDI up to 100% for cash and carry wholesale trading and export

trading allowed under the automatic route.

b) FDI up to 51 % with prior Government approval (i.e. FIPB) for retail

trade of Single Brand products, subject to Press Note 3 (2006 Series).

c) FDI is not permitted in Multi Brand Retailing in India.

The government of Manmohan Singh, prime minister, announced on 24

November 2011 the following:28

• India will allow foreign groups to own up to 51 per cent in "multi-brand

retailers", as supermarkets are known in India, in the most radical pro-

liberalisation reform passed by an Indian cabinet in years;

• Single brand retailers, such as Apple and Ikea, can own 100 percent of

their Indian stores, up from the previous cap of 51 percent;

28"FDI policy in multi brand retail". Ministry of Commerce, Government of India. 28 November 2011.

38

• Both multi-brand and single brand stores in India will have to source

nearly a third of their goods from small and medium-sized Indian

suppliers;

• All multi-brand and single brand stores in India must confine their

operations to 53-odd cities with a population over one million, out of some

7935 towns and cities in India. It is expected that these stores will now

have full access to over 200 million urban consumers in India;

• Multi-brand retailers must have a minimum investment of US$100 million

with at least half of the amount invested in back end infrastructure,

including cold chains, refrigeration, transportation, packing, sorting and

processing to considerably reduce the post harvest losses and bring

remunerative prices to farmers;

• The opening of retail competition will be within India's federal structure of

government. In other words, the policy is an enabling legal framework for

India. The states of India have the prerogative to accept it and implement

it, or they can decide to not implement it if they so choose. Actual

implementation of policy will be within the parameters of state laws and

regulations.

1.5.8. PRO AND CONS OF FOREIGN RETAIL IN INDIA

Critics of the Indian retail reforms announcement are making the following

points,29

a) Independent stores will close, leading to massive job losses. Walmart

employs very few people in the United States. If allowed to expand in

India as much as Walmart has expanded in the United States, few

thousand jobs may be created but millions will be lost.

b) Wal-Mart’s efficiency at supply chain management leads to "direct"

procurement of goods from the supplier. In addition to eliminating the

29 Tripathi, Salil (29 December 2011). "India needs Supermarkets". London: The Guardian

39

"middle-man", due to its status as the leading retailer, suppliers of

goods also bends over backwards to drop prices in order to assure

consistent cash flow. There is the fear that this may not benefit the

farmer, or the suppliers of Walmart.

c) The small retailer and the middle man present in the retail industry

plays a large part in supporting the local economy, since they typically

themselves procure goods and services from the area they have their

retail shops in. This leads to increased economic activity, and wealth

redistribution. With large, efficient retailers, the corporate profits are

not spent in the areas where they're generated, hence killing the local

economy.

d) Walmart will lower prices to dump goods, get competition out of the

way, become a monopoly, and then raise prices. We have seen this in

the case of the soft drinks industry. Pepsi and Coke came in and wiped

out all the domestic brands.

e) India doesn't need foreign retailers, since home grown companies and

traditional markets may be able to do the job.

f) Work will be done by Indians, profits will go to foreigners.

g) Remember East India Company. It entered India as a trader and then

took over politically.

h) There will be sterile homogeneity and Indian cities will look like cities

anywhere else.

i) The government hasn't built consensus.

j) The government claims modern retail will create 4 million new jobs.

This cannot be true because Walmart, with over 9000 stores

worldwide, has only 2.1 million employees.30

Supporters claim none of these objections has merit and they claim:31

30 FDI in retail, India debate: Parliament of India, December 4, 2012

31 "Walmart Fact Sheets". Walmart. November 2011,www.walmartstores.com

40

a) Organized retail will need workers. Walmart employs 1.4 million

people in United States alone. With United States population of about

300 million, and India's population of about 1200 million, if Walmart-

like retail companies were to expand in India as much as their presence

in the United States, and the staffing level in Indian stores kept at the

same level as in the United States stores, Walmart alone would employ

5.6 million Indian citizens. Walmart has a 6.5% market share of the

total United States retail. Adjusted for this market share, the expected

jobs in future Indian organized retail would total over 85 million. In

addition, millions of additional jobs will be created during the building

of and the maintenance of retail stores, roads, cold storage centres,

software industry, electronic cash registers and other retail supporting

organizations. Instead of job losses, retail reforms are likely to be

massive boost to Indian job availability.

b) KPMG - one of the world's largest audit companies - finds that in

China, the employment in both retail and wholesale trade increased

from 4% in 1992 to about 7% in 2001, post China opening its retail to

foreign and domestic innovation and competition. In absolute terms,

China experienced the creation of 26 million new jobs within 9 years,

post China announcing FDI retail reforms. Additionally, contrary to

some concerns in China, post retail reforms, the number of traditional

small retailers also grew by 30% over 5 years.

c) India needs trillions of dollars to build its infrastructure, hospitals,

housing and schools for its growing population. Indian economy is

small, with limited surplus capital. Indian government is already

operating on budget deficits. It is simply not possible for Indian

investors or Indian government to fund this expansion, job creation

and growth at the rate India needs. Global investment capital through

FDI is necessary. Beyond capital, Indian retail industry needs

knowledge and global integration. Global retail leaders, some of which

41

are partly owned by people of Indian origin, can bring this knowledge.

Global integration can potentially open export markets for Indian

farmers and producers. Walmart, for example, expects to source and

export some $1 billion worth of goods from India every year, since it

came into Indian wholesale retail market.32

d) Walmart, Carrefour, Tesco, Target, Metro, Coop are some of over 350

global retail companies with annual sales over $1 billion. These retail

companies have operated for over 30 years in numerous countries.

They have not become monopolies. Competition between Walmart-

like retailers has kept food prices in check. Canada credits their very

low inflation rates to Walmart-effect.33 Anti-trust laws and state

regulations, such as those in Indian legal code, have prevented food

monopolies from forming anywhere in the world. Price inflation in

these countries has been 5 to 10 times lower than price inflation in

India. The current consumer price inflation in Europe and the United

States is less than 2%, compared to India's double digit inflation.

e) The Pepsi and Coke example is meaningless in the context of Indian

beverage market. More competition is lacking because of limited

demand. Indian consumer has limited interest in soft drinks. Soft

drinks represent less than 5% of Indian beverage market.34 Indian

consumer prefers milk-based, tea and coffee and these account for

90% of Indian beverage market. In these markets, Coca Cola and Pepsi

have plenty of competition. The next most important market in India is

bottled water that outsells combined soft drink sales of the Pepsi and

Coca Cola. Bottled water, milk, coffee and tea market in India are big

markets, and have plenty of domestic brands, European brands like

Nestle, as well as Pepsi and Coca Cola. Organized retail too will have

numerous brands and strong competition.

32 "Walmart Asia to make India an export hub". Business Standard. April 14, 2010.

33 Grant, Tavia (January 25, 2011). "The Wal-Mart effect: food inflation tame in Canada". Toronto: The Globe and Mail

34 "For India's Consumers, Pepsi Is the Real Thing". Bloomberg BusinessWeek. 16 September 2010.

42

f) Comparing 21st century to 18th century is inappropriate. Conditions

today are not same as in the 18th century. India wasn't a democracy

then, it is today. Global awareness and news media were not the same

in 18th century as today. Consider China today. It has over 57 million

square feet of retail space owned by foreigners, employing millions of

Chinese citizens. Yet, China hasn't become a vassal of imperialists. It

enjoys respect from all global powers. Other Asian countries like

Malaysia, Taiwan, Thailand and Indonesia see foreign retailers as

catalysts of new technology and price reduction; and they have

benefitted immensely by welcoming FDI in retail. India too will

benefit by integrating with the world, rather than isolating itself.35

g) With 51% FDI limit in multi-brand retailers, nearly half of any profits

will remain in India. Any profits will be subject to taxes, and such

taxes will reduce Indian government budget deficit. Many years ago,

China adopted the retail reform policy India has announced; China

allowed FDI in its retail sector. It has taken FDI-financed retailers in

China between 5 to 10 years to post profits, in large part because of

huge investments they had to make initially. Like China, it is unlikely

foreign retailers will earn any profits in India for the first 5 to 10 years.

Ultimately, retail companies must earn profits with hard work and by

creating value.

h) States have a right to say no to retail FDI within their

jurisdiction.36 States have the right to add restrictions to the retail

policy announced before they implement them. Thus, they can place

limits on number, market share, style, diversity, homogeneity and

other factors to suit their cultural preferences. Finally, in future, states

can always introduce regulations and India can change the law to

ensure the benefits of retail reforms reach the poorest and weakest

segments of Indian society, free and fair retail competition does indeed 35 "Aam bania is more powerful than the aam aadmi". The Times of India. 4 December 2011.

36 "Fdi Policy In Multi Brand Retail". Ministry of Commerce, Government of India. 28 November 2011.

43

lead to sharply lower inflation than current levels, small farmers get

better prices, jobs created by organized retail pay well, and healthier

food becomes available to more households.

i) Inbuilt inefficiencies and wastage in distribution and storage account

for why, according to some estimates, as much as 40% of food

production doesn't reach consumers. Fifty million children in India are

malnourished.37 Food often rots at farms, in transit, or in antiquated

state-run warehouses. Cost-conscious organized retail companies will

avoid waste and loss, making food available to the weakest and

poorest segment of Indian society, while increasing the income of

small farmers. Walmart, for example, since its arrival in Indian

wholesale retail market, has successfully introduced "Direct Farm

Project" at Haider Nagar near Malerkotla in Punjab, where 110

farmers have been connected with Bharti Walmart for sourcing fresh

vegetables directly, thereby reducing waste and bringing fresher

produce to Indian consumers.38

j) Indian small shops employ workers without proper contracts, making

them work long hours. Many unorganized small shops depend on child

labour. A well-regulated retail sector will help curtail some of these

abuses.

k) Organized retail has enabled a wide range of companies to start and

flourish in other countries. For example, in the United States, an

organized retailer named Whole Foods has rapidly grown to annual

revenues of $9 billion by working closely with farmers, delighting

customers and caring about the communities it has stores in.39

l) The claims that there is no consensus are without merit. About 10

years ago, when opposition formed the central government, they had

proposed retail reforms and suggested India consider FDI in retail.

37 Tripathi, Salil (29 December 2011). "India needs Supermarkets". London: The Guardian.

38 "Fdi In Multi-Brand Retail Trading". KPMG. 2010.

39"Walmart Asia to make India an export hub". Business Standard. April 14, 2010.

44

Retail reforms discussions are not new. More recently, retail reforms

announced evolved after a process of intense consultations and

consensus building intiative. In 2010, the Indian government circulated

a discussion paper on FDI retail reforms.40 On July 6, 2011, another

version of the discussion paper was circulated by the central

government of India. Comments from a wide cross-section of Indian

society including farmers' associations, industry bodies, consumer

forums, academics, traders' associations, investors, economists were

analyzed in depth before the matter was discussed by the Committee

of Secretaries. By early August 2011, the consensus from various

segments of Indian society was overwhelming in favor of retail

reforms41. The reform outline was presented in India's Rajya Sabha in

August 2011. The announced reforms are the result of this consensus

process. The current opposition is not helping the consensus process,

since consensus is not built by threats and disruption. Those who

oppose current retail reforms should help build consensus with ideas

and proposals, if they have any. The opposition parties currently

disrupting the Indian parliament on retail reforms have not offered

even one idea or a single proposal on how India can eliminate food

spoilage, reduce inflation, improve food security, feed the poor,

improve the incomes of small farmers.

m) A study by Global Insights research found that modern retailers such

as Walmart create jobs directly, indirectly and induced effects. In

Dallas-Fort Worth area of the United States, with a population of about

2 million people, Global Insights found that Walmart alone had helped

create about 6,300 new net jobs with an average salary of over $21,000

each.42 For India's urban population of over 400 million, an average

40 "Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion, Press Note No.1 (2012 Series)". 11 January

2012.

41"Discussion Paper on Foreign Direct Investment (FDI) in Multi-Brand Trading". Indian Venture Capital and Private Equity Association. 2 August 2011.

42 Global Insights. "The Economic Impact of WalMart"www.siouxfalls.org

45

salary of less than $2,100 per year, this scales to over 12 million new

jobs. Other multi-brand retailers, such as Mitsukoshi of Japan, employ

a much higher number of sales support employee per store, than

Walmart, to suit local consumer culture. The Global Insights study

also found that the modern retail such as Walmart were a key

contributor in creating new net jobs.

46

1.6. PERCEPTION

1.6.1. Definition of Perception

Perception is one of the oldest fields within scientific psychology, and there

are correspondingly many theories about its underlying processes. The oldest

quantitative law in psychology is the Weber-Fechner law, which quantifies the

relationship between the intensity of physical stimuli and their perceptual

effects. It was the study of perception that gave rise to the Gestalt school of

psychology, with its emphasis on holistic approach. .

Figure 1.17: Perception and reality

Ambiguous images

Many philosophers contend that perception consists of one's interpretation of

the world, but as commonality of perception trends toward 100% perception

transmogrifies into reality. Case in point: the sky is blue - reality, now imagine

everyone but you perceived the sky to be yellow. The reality would then

become "the sky is yellow". Thus reality is merely a popular consensus of

perception. All things in the universe are understood as received through the

various filters of human understanding and thus are perceptions of reality.

What we commonly refer to as reality

47

Perception is the process by which organisms interpret and organize sensation

to produce a meaningful experience of the world. Sensation usually refers to

the immediate, relatively unprocessed result of stimulation of sensory

receptors in the eyes, ears, nose, tongue, or skin. Perception, on the other hand,

better describes one's ultimate experience of the world and typically involves

further processing of sensory input. In practice, sensation and perception are

virtually impossible to separate, because they are part of one continuous

process.

Thus, perception in humans describes the process whereby sensory stimulation

is translated into organized experience. That experience, or percept, is the joint

product of the stimulation and of the process itself. Relations found between

various types of stimulation (e.g., light waves and sound waves) and their

associated precepts suggest inferences that can be made about the properties of

the perceptual process; theories of perceiving then can be developed on the

basis of these inferences. Because the perceptual process is not itself public or

directly observable (except to the perceiver himself, whose precepts are given

directly in experience), the validity of perceptual theories can be checked only

indirectly.

The following definitions of perceptions are ordered by their degree of

complexity, from the simplest to the most complex.

1. Runyon, Kenneth E.:"A process through which we make sense out of the

world (Runyon, 1977)."

2. Zaltman, Gerald and Wallendorf, Melanie: “The process of giving meaning

to stimuli is referred to as perception."

48

3. Wells, William, Burnett, John and Moriarty, Sandra: "Perception is the

process by which we receive information through our five senses and assign

meaning to it."

4. Markin, Rom J. Jr.: "Perception is a complex process by which people

select, organize, and interpret sensory stimulation into a meaningful picture of

the world (Markin, 1974)."

5. Wilkie, William L.:"In a broad sense, the topic of perception is concerned

with the translation from the external, physical world to the internal, mental

world that each of us actually experiences." "There are three basic functions

that are contained in the definition of perception: sensing a stimulus in the

external world; selecting and attending to certain stimuli and not others; and

interpreting the stimuli and giving them meaning."

Figure 1.18: Formation of perception.

6. Forgus, Ronald H. and Melamed, Lawrence E.:"The way the individual

gains knowledge about his environment in this quest for adaptive behavior is

of prime importance. The gaining of such knowledge necessitates the

extraction of information from the vast array of physical energy which

stimulates the organism's senses. Only those stimuli which have cue value,

i.e., which trigger some kind of reactive or adaptive action from the individual,

should logically be called information.

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1.6.2. Factors influencing perception

How do we explain that individuals may look at the same thing, yet perceive it

differently? A number of factors operate to shape and sometimes distort

perception.

These factors can reside in the perceiver in the object or target being

perceived, or in the context of the situation in which the perception is made

(See Below):

Factors that influence perception:

a) Factors in the perceiver

b) Attitudes

Motives

Interests

Experience

Expectations

a) Factors in the situation

Time

Work setting

Social setting

b) Factors in the target

Novelty

Motion

Sounds

Size

Background

Proximity

Similarity

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c) Personal characteristics that affect perception included a person’s

attitudes, personality motives interest, past experiences, and

expectations. When an individual looks at a target and attempts to

interpret what he or she sees, that interpretation is heavily influenced

by the personal characteristics of the individual perceiver. For instance

if you expect police officers to be authoritative, young people to be

lazy, or individuals holding office to be unscrupulous, you may peeve

them as such regardless of their cultural traits.

d) Characteristics of the target being observed affect what is perceived.

Loud people are more likely to be noticed in a group than quiet ones.

So, too, are extremely attractive or unattractive individuals. Because

targets are not looked at in isolation, the relationship of a target to its

background also influences perception, as does our tendency to group

close things and similar things together. For instance, women people of

color or members of any other group that has clearly distinguishable

characteristics in terms of features or color are often perceived as alike

in other, unrelated characteristics as well.

e) The context in which we see objects or events is also important. The

time at which an object or event is seen can influence attention, as can

location, light, heat, or any number of situational factors.