The keywords for retailers were “unit economics” and “profitable expansion’, in our view – that’s the takeaway from the ‘India Retail Forum 2013’ (industry conference). After the ‘rush years’ of the last decade, most retailers are focusing on cash flow positive growth, in our view.
The 8 Key Trends in this year India Retail Forum are as under
The share of top-3 retailers in most global markets (except UK) is low – indicating that the small family grocer model will survive albeit with tweaks to its business models.
Most retailers have reduced the store size to improve viability. Moreover, it appears that retailers are now willing to offer a higher revenue share to the mall operator in return for a lower minimum guaranteed rental.
India is one the toughest retail markets to operate – as one presenter put it “first world costs and third world affordability”. High population density is the attributed reason – India has c.3% of world’s land mass whereas it has c.18% of world population
Considering the heterogeneity of India, most retailers concede that a ‘statewise and city-wise’ strategy is required. There is a realization that expansion in concentric circles is the right strategy.
Food and grocery retailers believe that FMCG companies are not investing adequately in new category development. We agree. For example, our longstanding view on Nestle (Sell) is that despite all-time-high operating margins, there are very few actions to (1) prop-up short-term volumes (through higher promotions), or (2) relaunches (medium-term benefit) or (3) incubating new
Social media is advantageous for products which are not allowed to advertise (spirits, beer, cigarettes) as this medium is outside the regulatory purview, at this point in time
In most FMCG categories, the third and fourth brands are relatively weak and there lies the opportunity for “store brands/private labels”.
Spending by Indians is episodic – they spend around weddings and festivals (there are 72 of them in various parts of the country – including regional festivals). In FY2014, the number of auspicious days for wedding are higher 15 YoY and that’s a tailwind