Big retailers target India
“Spoiled for choice” is not usually a phrase associated with shopping in this country. But for two hours -- a lot longer than they’d intended -- Sunil and Alka Paralkar puttered through the aisles squeezing fresh fruit, inspecting packaged foods and checking out shelves of knickknacks at a gleaming “hypermarket” here.
“I’ve been shouting at her, ‘We have to go,’ ” Sunil said, shaking his head at his wife in mock exasperation. Yet several minutes later, the couple were still browsing and adding items to their steadily filling cart.
The Paralkars are among the millions of middle-class Indians whose growing purchasing power has domestic and global companies slavering. As Gandhi’s homeland increasingly tosses aside the simplicity he espoused in favor of an eager consumerism, retailers are trying to position themselves to catch the wave.
The result is the rise of a way of shopping that may seem second nature in the West but represents a major shift in India: supermarkets and hypermarkets, with groceries, appliances, toys and numerous other goods under one roof.
Such establishments are relative novelties in a land where even sophisticated urbanites -- or at least their domestic help -- are apt to pick up the phone and order milk and eggs from the corner store or to haggle over vegetables with a roadside vendor on a flatbed bike.
But changing habits of work and play in India’s surging economy have made big one-stop stores a viable alternative -- at least for the small, but burgeoning, contingent of professionals with disposable income.
As Indian consumers who have lived abroad demand a range of choice similar to what they find in other countries, as young hipsters compare BlackBerrys and Burberrys and shopping becomes a recreational pursuit, big-box stores are now attracting thousands of customers a day.
“The reality is that the Indian consumer is exactly the same as the consumer in the rest of the world,” said Andrew Levermore, chief executive of Hypercity, a hypermarket in Mumbai (formerly Bombay). “They’re aspirational. They have a need for nice things, particularly the younger generation.”
Overall, supermarkets, hypermarkets and discount stores account only for a tiny fraction of the retail market in India, but their sales still came to about $1.5 billion in 2006.
And although India’s supermarket sales lag far behind those in Asia’s other developing giant, China, analysts see enormous potential in the subcontinent. New shopping formats are forecast to grow 34% a year by the start of the next decade. Because of legal restrictions on foreign retailers, the expanding hypermarket chains so far are Indian, although some foreign companies, including Wal-Mart Stores Inc., have started partnerships with Indian firms.
Hypercity opened in May 2006 in a vast, two-floor, 120,000-square-foot space in north Mumbai, on a street already filling up with other boutique shops and an upscale mall.
The bottom floor resembles an American supermarket but with extremely wide aisles that are routinely cited in feedback forms as the aspect of Hypercity customers most like -- perhaps not a surprise in the densely crowded country of a billion people. The upper floor is given over to toys, electronics and home furnishings. There are two eating areas, a beauty salon and a 24-hour pharmacy.
The company studied the market for two years before diving in, and its research had not been entirely promising, Levermore said. For example, no one was sure how well packaged food, a big part of the groceries on offer, would sell to Indian housewives who regard meal preparation as their sacred duty.
But pre-packed food has proved a hit, including high-priced imported goods from the British supermarket chain Waitrose. The stock list was refined through trial and error. Mountain bikes are surprisingly popular. Western-style mattresses bombed.
About 25,000 customers a day stream in on the weekends. The average visit lasts more than 2 1/2 hours.
“A shopping expedition for the Indian family is a leisure pursuit right now,” said Levermore, a native of South Africa. “There are not too many sports clubs or parks.”
After a year, Hypercity has turned an operating profit in half the time expected, with revenue of $35 million. The company has six stores slated to open by March in New Delhi, Amritsar, Pune and Mumbai, and 22 others are under development.
Those plans are modest compared with some others’. Reliance Retail, owned by mammoth Reliance Industries, envisions 30 to 40 of its much smaller Reliance Fresh supermarkets in all of India’s major cities. The first stores were launched last fall.
But to many social activists, expansion of such stores spells disaster for traditional corner establishments and their owners.
“It is not like Europe and America where alternate jobs are able to absorb people.... Millions and millions are engaged in this occupation, and they will be thrown out,” said Udit Raj, the chairman of the Indian Justice Party. “Most of the people selling fruit and vegetables are illiterate or at best semiliterate. And businesses such as Reliance won’t take them in because they don’t have the qualifications.”
Raj’s party has organized protests against Reliance Fresh across the country, some of which have turned ugly.
Matthew Stych, head of retail research for Euromonitor International, said independent vendors rang up 99% of grocery sales in India last year. That could drop slightly to 96% in 2011, but in as populous a country as this, even a decline of a few percentage points translates into thousands of shuttered shops.
The big guys will also find a tougher market if the retail sector is liberalized to let in more foreign companies such as Tesco and Carrefour.
“We’re going to see a lot of retail casualties over the next few years.... Not everybody’s going to get it right,” Levermore said.
At the moment, Hypercity and its Indian rivals have a head start. But “we’re extremely conscious that the competition is coming,” he said.
How quickly foreign companies will be able to capitalize on that trend remains to be seen. Indian law prohibits foreign retailers from setting up shop independently, except for single-brand stores. That means Nike Inc. can open an outlet, but multi-brand Wal-Mart cannot. Foreign companies must wait for an easing of the restrictions against them -- a politically charged issue in a country long used to protecting homegrown businesses, including millions of mom-and-pop stores. To get its foot in the door, Wal-Mart has paired up with local player Bharti Enterprises in a wholesale venture instead.
“Wal-Mart has probably made the smartest moves it can under the circumstances. It’s partnering with a partner with a good record on getting things done in India, which is key” in terms of winning over government officials and coping with India’s bad infrastructure, said Stych of Euromonitor.
“All the big retailers should have plans to enter India,” he added. “Whether they dive in right now isn’t necessarily wise.... There’s possibly an argument to say, ‘Let’s sit back and see what mistakes Wal-Mart makes and see if we can learn anything from that.’ India isn’t going to follow the same growth curve as China. It might be slower, but it’s obviously on its way.”
