Organised retail to contribute 20% of GDP in India

Organised retail is showing signs of traction, a sign of coming of age said Raghu Pillai, President and Chief Executive of Operations and Strategy, Reliance Retail, according to a report published in the Economic Times.

growth_chartPillai who was a participant at the CII’s Marketing Summit also said that organised retail would move from the current level of 10 per cent of the country’s GDP to 20-25 per cent of GDP in the next 5-10 years.

Pillai, however, stressed that while retail was essentially urban-centric, the rural population could not be ignored. He was alluding to famous economist C K Prahalad’s theory of wealth at the bottom of the pyramid. He stressed: “We need to start with respect for the bottom of the pyramid”. Pillai cited several examples where companies both in India and abroad have reaped financial windfalls by catering to the poorest of the poor. He considered that a shift in mind-set combined with innovation and design to suit the lives of the poorer members of society would be instrumental in accessing this very large consuming class.

R Subramanian, CEO Subhiksha Trading Services, on the other hand offered a number of key insights into the future of retail in India. He said that foreign retailers would not necessarily bring in ground-breaking technological advantages or the benefits of new practices. Moreover, he noted that big international players such as Wal-Mart ‘are not run by Gods. While he did not foresee FDI being allowed for at least the next 2-3 years, he did say that he would welcome it when it does happen.

Maureen Johnson of WPP’s retail consultancy, The Store, talked about the future of retail brands in India. She said that FDI would almost definitely happen in the near future, in the meantime global retailers may try a backdoor entry into the country.

She noted that the current situation in India is that consumers display a high level of loyalty to manufactured brands such as Pepsi, Nestle, Coca-Cola and Unilever. These brands provide a low-risk option for using the often limited money available. In contrast, she said retailer brands in developed markets enjoyed rude health and identified Tesco as “best in class in terms of brand development due to its success in United Kingdom, Eastern Europe, S Korea and Thailand, allowing it to capture hearts and minds with its own brand label. Johnson stressed the crucial role that customer relationship management will have to play in this success: “CRM has been key…it is very powerful”.

Johnson predicted that leapfrogging is highly likely in the retail sector. India would develop practices that have slowly come to emerge elsewhere such as supply chain integration, own brand development, extensions into financial services, good store design and emphasis on CRM and consumer focus.

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