Robert Damuth, an economist and past Vice President from Nathan Associates, Inc., previewed a forthcoming white paper on retailing in India at a BIG Show session this morning, with nuggets and insights about how retailers can break into and thrive in the world’s 4th largest economy (after the U.S., China and Japan).
By 2015, Damuth says India’s economy will overtake China. And with one of the youngest populations, youngest economies and retail sales that represent 35 percent of GDP, many retailers certainly will be looking to enter the India market. India is also expected to experience the most dramatic middle-class expansion worldwide. Within 25 years, more than one billion middle class consumers will be added to the country’s population.
One of Damuth’s most standout insights centered on the difference between organized and unorganized retailing in India. In the U.S., just 15 percent of retailing is unorganized, while 85 percent is organized. In India, a huge 97 percent is unorganized and only 3 percent is organized.
India’s unorganized sector competes with the organized sector in four main ways:
- Last mile delivery
- Store locations
- Consumer relationship building
- Credit based delivery
And while many differences between U.S. and India’s consumers may be widely known amongst retailers, Damuth offered some lesser known insights, such as: the unpopularity of packaged food, because of concerns around freshness; lack of brand loyalty because of focus on price; and a strong preference for ‘small is beautiful’ when it comes to product size.
Looking to a successful example already established within the organized sector in India, Big Bazaar is a large chain of hypermarkets, which has taken lessons from the unorganized sector and thrived. Some of the tactics employed by Big Bazaar, which have roots in the unorganized sector, include the selling of food staples loose from large, easily accessible bins and recognition of an Indian shopping preference to shop in large family groups with ‘U’ and ‘C’ shaped aisles which allow families to congregate and consult.
Geographical and cultural differences are also critical in India, perhaps even more so than in many other markets. Equally, the differences between urban and rural areas are fundamentally important. Within India’s urban areas, retailers approaching the market must focus on consumers rather than the competition, and strategic partnerships, rather than brand building. In rural markets, retailers need to focus on providing more credit based services and partner with local companies.
Damuth wrapped up the session with both a warning and promise: The opportunities in India are great, but in trying to capture those opportunities retailers will have to step outside their comfort zones and prepare for some potentially challenging times ahead.