Retail scenario in South India

Metros on the growth path


Metros of Bangalore, Hyderabad, and Chennai are growing at an exceptional rate, with the retail buzz in these cities becoming more pronounced day by day. These cities projected to touch over US$ 20,000 million by 2010-11.

 

With the growth in the IT/ITeS sector and other sunrise sectors like bio-technology, hospitality, etc. concentrated in these cities, the metros have experienced exponential growth over the past few years, and are expected to demonstrate robust economic performance in the coming years.

 

Demography of South Indian states


There were only about 11 million people in rural South India who, on an average, spent more than $304 per annum in 2004-05, while about 26 million people spend in the range of $181 and $304 per person per annum. In urban South India, about 3 million people spend in the range of $208 - $363, while about 10 million spent in the range of $363 - $668 per person per annum.

 

Kerala has the highest number of persons belonging to the $304 and more expenditure category in rural South India. In urban South India, Tamil Nadu has the highest number of persons in the $668 and more expenditure category.

 

Consumer behaviour


There are significant variations across cities.  While the single largest expense across all southern regions is food, Chennai spends the highest proportion on education while Delhi spends highest on personal transport. There is tremendous boost in prosperity, both nationally and at regional levels. Distinct regional and city specific variations in spending habits, consumption baskets and eating preferences are observed across the southern states of India.

 

The largest growth in prosperity has been in the south where the high income household has grown the fastest. About 70 per cent of India’s rich live in eight states including Karnataka and Tamil Nadu. Across all the middle and high income classes, except the super rich, growth has been highest in the southern region. The southern states have also seen the largest decline in poor/low income households. Per capita income in South India is around $510. Highest saving rate is also seen in the southern region.

 

Retail potentiality of emerging cities


The emerging cities of Coimbatore, Kochi, Vizag, Vijayawada, Trivandrum, and Madurai contribute to total US$ 7.000 million worth retail activity. Organised retail penetration is lower than in any of the metros, with traditional retail ruling the market across these geographies. These cities are less saturated than the metros, but have greater spending power. Middle class and lower middle class form majority of the households, with more than half the population falling in this category. The combined retail potential of these cities is expected to increase to US$ 10,000 million.

 

Cities of global brands


There are already 250 established brands in the South Indian markets and more are coming in. With advent of modern retail, high street will be edged out because their poor pricing and lack of infrastructure. On the other hand, there will always be locations such as Bangalore’s Brigade Road and Delhi’s Connaught Place, which provide a certain kind of shopping experience that shopping malls cannot match. They will continue to remain in favour and are unlikely to sink under the pressure.

 

Expansion of local chains in South India


While several corporate retailers still struggle to come out of last year’s slowdown blues, family-run regional chains such as MK Retail in Bangalore, Ratnadeep in Hyderabad and Sri Murugan in Chennai are mulling expansion. Same is the story of other regional brands such as Nalli Silk, Kamran Silk Traders and many more. MK Retail, a multi-crore-supermarket chain with six outlets across Bangalore, is now setting up a low-cost model of neighbourhood stores that sell fruit, vegetables and bakery products. The more than 80-year-old retailer also plans to open shops in neighbouring cities.

 

Coimbatore-based Shri Kannan Departmental Stores, which has 28 outlets across cities such as Erode, Madurai, Salem, Pollachi and Tirupur in western Tamil Nadu, plans to enter state capital Chennai next year, and Chennai-based Sri Murugan Department Store, which earns Rs 1.5 crore per month from each of its three outlets, will add three more stores this year. In Kerala, Varkeys Retail, the first mover in organised food and grocery retail in the southern state, plans to triple store count to 150 in four years.

 

Ratnadeep Supermarkets of Hyderabad is taking the franchisee route to enter nearby cities such as Vishakhapatnam and Vijayawada.  These retailers keep up their growth intact when many large corporate retailers are trimming their networks and closing down stores in certain localities due to last year’s slowdown. Ratnadeep Supermarkets offer home delivery services across all its five stores in Hyderabad, while MK Retail makes it a point to help shoppers load bags in to the car.

 

Local brands have an edge over national and global brands


At present, the India’s modern organised retail share of the total retail market is in a range between 6 per cent and 7.5 per cent and there is no dispute over it. Tirunelveli, 89th largest city of India with a current population of around 7 lakh, has local department store, RMKV, occupying 100,000 sq ft for several years. This RMKV store has annual turnover over of Rs110 crore at present. That’s more than any single Lifestyle or Central or Shoppers Stop store in the country. Today, RMKV is in the process of setting up a 55,000 sq ft anchor store at the 450,000 sq ft Brookfield’s Plaza mall in Coimbatore, being co-developed by Mangal Tirth Estates, the people behind India’s oldest mall, Spencer Plaza in Chennai.

 

Kalyan Silk, another regional brand, has a six level, 85,000 sq ft showroom in Thrissur town, which is one of the 100 largest cities of India, and doing a business of Rs 100 crore annually. Emmanuval Silks has over 100,000 sq ft outlet. Kalyan Silks has another nine-level outlet in Ernakulam, Kochi in 125,000 sq ft, which is believed to be the world’s largest silk saree store. In the organised retail business of India, no brand has such large retail outlets.  Other traditional stores include Saravana Stores, Naidu Hall, Pothys and SM Silks in Chennai, Bomanna Brothers in Hyderabad, Chandana Brothers and CMR in Hyderabad and Vizag, amongst dozens of others spread across the country, but much more prevalent in South India.

 

These retailers are not just big in store size - their trading densities of trade are also big compare to their counterpart organised retailers. While the RMKV store in Tirunelveli does business of Rs115 crore per annum, the Pothys Megastore in Panagal Park, Chennai as well as Kalyan Silks megastore in Ernakulam each does more than Rs 150 crore/annum business. Even a much smaller 12,000 square feet Mysore Saree Udyog store in Bangalore does close to Rs 100 crore /annum business.

 

Apart from 2-3 outlets each of Hypercity and Central, there are no 100,000+ square feet stores in the country. The largest Lifestyle (excluding Home Centre) or Shoppers Stop outlet is still below 80,000 square feet. Tamil Nadu and Kerala alone have more 50,000+ square feet stores than all the nationwide stores of Central, Lifestyle and Shoppers Stop.

 

In terms of trading density, the highest selling Central is barely managing to touch Rs 100 crore in annual sales, the highest annual sales of Lifestyle is still under Rs 95 crore and that of Shoppers Stop is under Rs 75 crore. This is despite the fact that each of these modern retailers carries a minimum of 200 brands in their store. On the other hand, most of the traditional retailers carry a maximum of 50 non-house brands. If a 40,000 square feet Pothys store in a mall in Chennai can do business of Rs 100 crore per annum, with a 4.5 per cent revenue share, the landlord can get rent of Rs 93.75 per square feet per month, on carpet area.  Why should the landlord then give the same 40,000 square feet anchor store to a Lifestyle or a Shoppers Stop even at 7.25 per cent revenue share? They will at best do business of Rs 45 crore from the same location, translating to a rent of only Rs 67.97 per square feet.

 

It is often seen that neighbourhood shops or regional players tend to sell more than national and international retailers in certain catchments because of the breadth of their merchandise and local understanding. No doubt, these outlets have less space and narrow isles but are offering consistency in product quality to their consumers. The regional retail chains are matching big retailers in terms of offers and discounts. When corporate chains offer discounts on the back of their store scale, regional chains in South India are able to offer similar rates because their expenses are tightly controlled. Another factor is their lean structure. Most of top management of these retail chains has grown from the salesmen level, which entertain around 50,000 to 75,000 customers a day.

 

The national or international players tend to stock only the fastest-selling brands - while regional players go the extra mile by offering specific consumer favorites such as Double Horse and Nirapara from Kerala or 777 from Chennai to be relevant to more customers.

 

The regional brands or chain stores spend less on rentals and communication and, because owner entrepreneurs manage them, they can make speedier decisions on issues such as managing realty or reacting to customer recommendations. Many such chains refurbished their stores to add air-conditioning and brought in automation to match big retailers in ambience. Industry watchers feel growing in newer markets will be a challenge for these regional players. It is seen some chains are aware of the risk of expansion and have never been in the race to expand and will not grow unless they make money from every store. These businesses need to incorporate a structured approach to expansion which allows them to leverage the phenomenal brand salience they hold.

 

In South India, Fabindia has around 45 outlets; Globus has 5 stores; Koutons has 122 stores; Shoppers Stop has 8 stores; Marks & Spencer has 3 stores; Pantaloons has 7 stores; Khadim has 38 stores; Lifestyles has 10 stores; Viveks has 7 stores; Provogue has 18 stores; Vishal Mega has 7 stores; Westside has 12 stores; Cantabil has 24 stores,; Croma has 11stores; D’Mart Exclusif has 3 stores; Next has around 100 stores; Gitanjali Jewels has 3 stores; Odyssey has 31 stores; Quillon Radio Service has 18 stores; Saga Depot Store has 4 outlets, Spencer’s has 38 outlets; Chennai Silk has 9 outlets; Witco has 7 outlets; Nalli Silk has 15 outlets; and Indus Mobile Distribution has 200 (approx) outlets. However, no national or international brands are doing brisk business as some of the local brands are doing in South India in their respective states where their annual turnover is above Rs 100 crore.

 

Unique features of south Indian retail market


Customer focus is the key to retail success. There are various key elements that differentiate South India from the rest of the country and present retailers with unique challenges and opportunities. Higher literacy rates, lower population growth rates, and higher levels of urbanisation offer tremendous untapped potential for retailers in South India. The diversity in language and ethnic and cultural practices, as well as higher price and brand sensitivity of customers, induce retailers to adopt distinctive retail strategies for different parts of the South.

 

South India has always been at the forefront of the retail revolution with several firsts-examples include the largest toy store, Kemp Fort; the largest film city, Ramoji Film City; and even the first mall of the country, Spencer’s Plaza in Chennai.  The way forward for the retail sector in India should be a growth model that is inclusive of unorganised retailers as well. The huge potential that South India offers to retailers, giving the example of Viveks-the company achieved a turnover of Rs 100 crore in just 105 days last year, which is a stark contrast to the fact that its first landmark of Rs 100 crore has been achieved only after 30 years of operations.

 

Good retail is a judicious blend of information-led customer management and an attitude to serve. South India, by virtue of its high literacy levels, brand loyalty, and quality consciousness, offers huge potential for retailers. The backend information management and technology has an important role to play in the growth of the retail segment. Therefore, this is one retail function where the South, by virtue of its developed technology industry, can significantly contribute to the retail industry.

 

South India has long been acknowledged as a pioneering base for organised retail in India. However, it is now time to move up the chain, with more advanced retailing practices that will integrate it with some of the world’s best practices in store operations, management and vendor sourcing.  The shop can emerge as a nodal point for such information and business opportunities to meet each other.

 

Fashion brand, Allen Solly, has launched a flagship store in Thiruvananthapuram. The new branch is its first exclusive store in Kerala and is an indication of the state’s growing importance in the brand distribution strategy. The new 2,500 sq ft store spread over two floors is in line with Allen Solly’s new brand direction and a completely revamped retail identity. Given the evolving Indian consumer, a very international appeal has been given to with its range of fixtures, mannequins, lighting and music. Allen Solly has witnessed high growth in South India. The Kerala market alone has grown by 25 per cent in the last three years.

 

Large format malls to see highest growth in south


The organised retail sector, with CAGR of 20 -30 per cent, is all set to witness the maximum number of large format malls and branded retail stores in South India, which will be followed by North, West and the East. Retail space is cheaper in South India. Retail rentals in the NCR and Mumbai have gone up three times between financial year 2006-07 and 2008-09 compared to the figures in South and East. High rentals naturally come as a disincentive for setting up new retail properties.

 

Gems and jewellery retail


Around 45 per cent of the gold jewellery business in India comes from the South Indian states comprising Tamil Nadu, Karnataka, Andhra Pradesh (as well as Telengana), Kerala and the Pondicherry. Kerala tops the list for gold jewellery business as a state; as a city Chennai has the major chunk of the jewellery business thereby making it the jewellery-trading hub in the region.

 

Fruits and vegetables retail


Nilgiris, established in 1905 as a dairy farm near Ootacamund (Ooty) in South India, could perhaps be the first organised supermarket in India. Spencer’s has been part of Indian retail since 1863; it began selling groceries only in 1920. 

Establishment and expansion of the “Food World” outlets by the RPG Group starting with the first outlet in Chennai in 1996 led to enhanced corporate interest in food retailing. RPG (Spencers), Reliance (Fresh), ITC (Choupal Fresh), Aditya Birla (More). Heritage (fresh@), Pantaloon Retail (Food Bazaar), Bharti (Easyday), Express Retail (Big Apple), are some of the major corporate houses currently active in food retailing in India. Much of the expansion in food and grocery retailing in India is currently concentrated in the southern states, in and around Chennai, Hyderabad and Bangalore.

Until 2000, Hyderabad had only two organised retailers selling FFVs,  Trinethra and the Food World. Trinethra was founded in 1986 as a retail store network in Hyderabad, Secunderabad and Vizag.

 

Expansion of organised retail selling FFVs


Name                       Year of inception           No. of stores at          Total No of stores

                                      at Hyderabad                   Hyderabad              in India (Mar 2010)

Trinetrhra*                        1986                                     79                                   275

Food World                       1996                                     20                                     67

Spencers                            2001                                     28                                   250

Food Bazaar                      2003                                     11                                   174

Choupal Fresh                  2006                                     06                                     06

Reliance Fresh                 2006                                     45                                   624

@Fresh                               2006                                     32                                     74

More                                   2007                                     92                                   579

SPAR                                    2008                                     01                                     03

*Trinethra is now known as More of Aditya Birla Group

 

Food World


Food World is one of the biggest retail chains in India. The RPG group opened the first Food World outlet on May 9, 1996 at Chennai, which was a 2400 square feet store. A typical store of Food World is between 3000 and 3500 sq ft in size and carries about 5500 items. Food world handles on average 600 customers per day per store, which translates to 1.5 million transactions per month. It is estimated that the chain serves more than three lakh families.

 

Food World has over 100 outlets spread across Tamil Nadu, Karnataka, Andhra Pradesh, Kerala in the south.

 

Margin Free Markets


In Kerala, Margin Free Markets is the largest retail chain and among the leading retail chains of the country. On January 26, 1994, first outlet of Margin Free Markets started its function in Thiruvananthapuram and currently this retail chain has around 300 franchisees spread all over South India. The Consumer Protection & Guidance Society currently controls Margin Free Markets, which is registered as a charitable institution that started functioning in 1993.  Margin Free outlets are typical discount stores, offering one-stop-shop convenience and self-service facility at significant discount to its customers.

 

Supply Co


The Kerala State Civil Supplies Corporation (Supplyco), is a statutory body established in 1974. It procures rice, wheat products, sugar, pulses, vegetables and a range of consumer goods independently from the open market and distributes them through a network of 663 retail outlets called Maveli Stores, 11 supermarkets in district headquarters and 21 mobile Maveli vans operating on designated routes.

 

The Government decides the price of articles sold by Supplyco through these shops, and has used it as a highly effective mechanism, cutting out middlemen and controlling prices in the open market. Its effects on the market are most evident during the festival seasons. Quality products and subsidized pricing are the twin advantages that Supplyco extends to the consumer.

 

Experts speak


“In my view, the retail environment in South India is the most vibrant in the country. It is the most evolved and offers among the best retail experiences to consumers. There are several quality malls and high streets across cities like Bangalore, Chennai and Hyderabad. In the recent past, the next level of cities like Mangalore, Kochi, and Vizag are also emerging as potential shopping vistas for consumers and retailers alike. Today, any national retailer has to have ambitions across India. Most retailers who began their retail business in the South have done well across India because they were able to perfect their model and proposition in the quality environments of the southern cities. The consumers here are informed, aware, and discerning. Younger segments like the IT and BPO sectors have created a vibrant pool of consumers and these consumers are demanding world class retail. Mall developers have also been partners of retailers and have offered quality retail spaces at affordable prices.

 

The southern markets are more evolved for retailers and are also more viable for them. The key is to have an overall business model that makes financial sense and also offers great value to consumers. Consumers here are among the most aware I have seen anywhere. They are educated and informed, and are willing to spend if their expectations are met. There are two broad groups of consumers. The first set of families is locals who need specific products and services. The other set are people who have come to these cities for jobs and businesses from other parts of India. This second category of consumers brings pan national tastes and preferences and is similar to their peers in Delhi or Mumbai. The southern chains are huge success stories and I have tremendous respect for them. They have succeeded across categories with notable success stories in electronics, fashion and apparel, marriage products, jewellery, etc. I know many of them personally and have understood their success formulae. The key to their success is their tremendous respect for their consumers and a deep understanding of their needs and wants. They then deliver on these requirements faultlessly and selflessly. The store ambience is world class and the store size is large enough to be a one stop destination. Products and services are tailormade for the loyal customers. I don’t see this kind of delivery anywhere in the world.  In South India, both high streets and malls are thriving. The successful malls, like Forum Bangalore and Garuda Bangalore, are matched by the evergreen Brigade Road and Commercial Streets. In Chennai, you can shop as pleasantly in Spencer’s Plaza or at T Nagar.”

 

Hemchandra Javeri, Co-founder, Forum Synergies, Bangalore 

 

“The retail scenario is really looking up in South, which can be seen in the rapid growth in sales of supermarkets, departmental stores and hypermarts, but I think the southern states are still to develop before they become the favourite destination in India and the South Indian markets are still lagging behind the organised retail markets especially those in Bombay and Delhi which are still the favourite places to shop. The consumer behavior in the southern regions is still more traditional and geared towards shopping in smaller stores and outlets rather than in malls but slowly it is getting more modernised now. However, retail business has made a good beginning in the southern states and will pick up soon but still has a long way to go to reach the sales level in the western states. In my opinion, shopping malls have become more of places of window shop and the sales volume in the big shopping malls is not still so great. People still prefer smaller shops and smaller departmental stores over huge shopping malls. Moreover, the volume of purchases from the street markets has definitely come down.”

 

Kalpana Heblekar, Handikrafts Sourcing, Bangalore

 

 “You cannot change the habits of consumers overnight. The local brands, which are having their roots in the region, know how to sell to their consumers. It can be gold and jewellery segment, apparel segment, fruits and vegetables or any other sector; you cannot bring changes so easily. For example, the people here are habitual of shirt and lungi and feel comfortable but you cannot force to change over to trousers and shirts. Same is the case of jewellery as the manufacturers know what types of ornaments are their requirements. Luxury retail is not yet pick up in the South compare to West and North. The population of this region is well-educated, traditional and cultured, and believes in their traditional customs. The people are ready to change over but still need some time to change their habits”.

 

Anurag Rajpal, Vice President, Apparel Brands, Spencer’s

 

“Organised retail has undergone radical innovation and adaptation in the last couple of years. However, with the recession many were compelled to rework on their business models. It’s constantly evolving but the challenges in India are unique such as high rental costs, location, intense competition, low margins, lack of inventory management, unavailability of good quality trained manpower and low consumer spending. People are constantly looking for good deals which squeeze the margins even further. However, the penetration of organised retail in south is low so one is witnessing more activities. But it will not be right to say one is better than the other. India is still a virgin market with tremendous scope for growth. Each product category has its own set of challenges. One can’t compare sarees with FMVG or branded garment business or compare one occasion for purchase with the other.”

 

PB Thimmaya & PB Madappa, Promoter of Humming Bird Suites Pvt Ltd, Bangalore

 

 

SOUTH MALL SUPPLY ESTIMATES 2009-11


CITY                                       Supply for                         Supply for                         Supply for

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