Is it the end of Modern Retail in India???

Modern Retail in India has become one of the most talked about topics in recent times. Some analysts have even commented that ‘It is the end of Modern Retail in India.’ The issues such as FDI in retail, GST and Supply Chain problems have taken centre stage in the media. No other sector has come under as such close scrutiny as Modern Retail with its leaders criticised for being reckless and committing some strategic/operational errors.

 In my previous blog, I highlighted some of the past failures of Modern Retailers. While they are due some criticism, it is also important to understand the dynamics of Retail in India. Indians have become used to shopping in un-organised retailers like Mom and Pop stores.  Modern Retail in India is relatively new and its adoption can be best explained through the Roger’s Diffusion of Innovation as shown in the figure below:


In the early days of Modern Retail adoption, innovators drove the market; they wanted a new way of shopping.  Despite driving the market in the early days, they only represented a small percentage of it. The bigger market share was with the pragmatists and conservatives who wanted solutions and convenience. These consumers wanted value for money, convenient locations, shopping experience, and prompt service and were not willing to compromise on product quality. To win the segments of early majority/late majority and to build economies of scale, Modern Retailers struggled to employ a different marketing strategy to that of innovators and early adopters.

 So what is the current scenario? Retailers have learned their lessons from past failures and started taking initiatives to address some of the problems [refer to my previous blogs]. They started to:

  1. Strengthen the supply chain and cold chain by building huge warehouses in key locations based on hub and spoke model.
  2. Use analytics for catchment selection, format selection and also to gain insights into consumer behaviour.
  3. Focus more on private labels to improve profitability.
  4. Close unprofitable stores and streamline formats to improve profitability.
  5. Negotiate rentals on a profit sharing basis.

 The steps taken by Modern Retailers to rationalise their operations and to drive the efficiencies will bring the costs down which should enable them to pass these savings onto consumers enticing them to spend more in the stores.

 And what is the future outlook? The future is looking bright for the sunshine sector. The Indian economy is estimated to grow to USD 2 trillion by 2014-15, with per capita income to grow at 12% CAGR. This would change the shape of income distribution from a pyramid to a diamond, with a massive consuming class in the middle. The Indian retail sector is currently estimated at around US$ 350 billion and growing between 15-20% CAGR, with Modern Retail itself growing at around 35% CAGR. Consumer sentiment is improving and after bottoming out in 2009, sales growth is showing signs of recovery.

 To conclude, Modern retail in India is in its nascent stage, with a wide gap between it and Traditional Retail. Traditional Retail still holds 85% of the market while Modern Retail accounts for only 15% with a penetration of 5-8%. The challenge is to bridge the gap between the two and make Modern Retail a success story.  It is too premature to write an obituary to Modern Retail in India as it is still evolving. It could be a case of survival of the fittest.

Is it the end of Modern Retail in India?  Personally, I think it is just the beginning…

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14 Responses to Is it the end of Modern Retail in India???

  1. Prem Mohan Singh says:

    In this nascent stage of retail in India, it has become difficult to sustain the business not only competing with other organized and unorganized retail players , but also with upcoming challenges of SCM, Product Quality, Manpower, Training, Identifying Leaders, High rentals, Right Locations and other factors which has become the neck pain to maintain the top line and Bottom line of retail business.

    India’s population is young, very young. Most consumers have grown up with television, the internet, and have been exposed to the standards of living and consumer culture abroad. This generation is also making money at a younger age , thanks to call centers and other avenues of employment opening up that cater to students in college and schools. As a result they are ready to spend most, if not all of their income on apparel, accessories, and electronics.
    The consumer of today, at least what the multinationals are targeting, is popularly known as the aspiring India – the middle income segment which is growing faster than ever. While 10-15 years ago, people in this segment would ask – “Mera number kab aayega” (When will I be able to afford the simple luxuries of life), today this same segment says – “Mera number ab aayega”, (I am now in a position to afford the simple luxuries of life). The numbers on the Indian economy and retail sector in specific say a lot about the growth potential in India. However, the engine pulling this locomotive of the consumer goods market in India at breakneck speed is the 40 million Indian middle income households. Growing at around 10 percent a year, this section of the economy makes between $4000 to $10,000 per annum ($20,000 to $45,000, adjusted PPP).

    It is required for the retailers to give best of the shopping experience to the customer, which would be the only thriving factor to retain the loyalty of the customer. Today customer is not only focusing on price sensitive issues but looking more toward quality buying.

    Untrained staff, poor VM, Long Queues, are few of the operational errors which are taking their valuable customers away from physical store to online retailing and back to Kirana or unorganized sector.

    The crux is- Doing everything wrong or Focusing on core business which makes a difference.

    Issues like setting up strong SCM is the backbone of all retail companies. However setting up of right IT system and SCM is not every one cup of tea. I strongly believe that we are still into a business of logistics and SCM is far behind in books and theories.

    It is not about the demoralizing of the present retail situation but my indication leads toward the understanding of real professionalism.
    Retail itself has got lot of operational challenges to overcome which are much more crucial then the non-core business of SCM for a retailer.

    I completely agree with Mr. PVN Sastry: It is not the end of Modern Retail in India, but it’s just a beginning.

    Let the retailers concentrate on their core business of : handling RETAIL Operation and pass on the NON-CORE BUSINESS of Retail(SCM) to professional.
    I also believe that if any company like Future group logistics , claims to expertise themselves in SCM with foreign collaboration, then others should pass their SCM business to such professionals. This may shell some percent of money but will lead to huge saving and time.
    This will bring more time and energy to improve customer experience and loyalty toward individual businesses.

    • pvnsastry says:

      Hi Mr. Singh,

      Thanks for your great comments, your time and your insights. I would be very grateful to receive your esteemed feedback for any of my future posts.

      Warm regards,


  2. Paras says:

    Very nice read, rational approach to the issue.

  3. Rajesh says:

    Nice attempt and this is a topic that requires deep discussion and there is still a learning curve over here . It is surely a begining ..Another point that comes to mind besides several mentioned earlier is India the market place and we can focus on urban India first .. Urban India is not a homogenous market and based on demographics and consumer behaviour could be viewed as concotion of multiple markets. The early adopters per your hypothesis is one key segment and as a consumer group they would perhaps be in the same league if they were to be located anywhere else in the world , including the developed countries. With the kind of exposure they have , pulling them towards the modern retail was relatively easy and natural. But that early adopter success and the model that works with them has no guarantee of success in attaracting the majorities both early and late. That is true for any business and almost all products in India. This means that the starategy and the biz model that worked for early adopters may be meaningless for addressing the majorities and there lies the challenge. There are many examples of businesses taking the model that “secured the win” with early adopters to be used to ‘scale” for majorities and with poor results. Several FMCG majors have mastered that and in recent years perhaps Nokia got it right.
    Therefor it would be essential for modern retailers to adopt a diffeternt approach in scaling as they go beyond the early adpters in this country. An inetresting example is the way Big bazar has been experimenting. One was amazed to see crowds pulled in across the consumer segements with an innovative ‘kabadi exchange’ offer. More than the offer ( seemingly a typical exchange sceheme) think of the supply chain as well as logistics planning needed to pull this thru . But the concept would have exposed so many of the majorities to explore and look beyond groceries in a LFR and the point I am making is that pulling this thru’ requires a clear and clever understaning of the majority …. What do you think?… Rgds

    • pvnsastry says:

      Thanks for your great comments, your time and your insights. I agree with you that retailers need to adopt a different strategy with the majority and the challenges in implementing the strategy. It definitely calls for a different approach and a careful understanding of the consumer behaviour of those segments. One of the biggest failures of Modern Retailers is the lack of understanding of the needs of those consumers while scaling their operations. I agree with you that the experimentation and innovation is required to communicate the value proposition to grab the attention of these segments of consumers. I would be very grateful to receive your esteemed feedback for any of my future posts.

      Warm regards,


  4. MVS Murthy says:

    If one would compare with few other industries which more or less had similar roller coaster rides, only difference this time is ‘Aam Janta’ is better informed and expect the netas to take a more rational and optimistic decision. My take home here is when consumer decides he/she is going to have it, that is sufficient to the marketers to bank on, rest the volumes, technology, funds will flow in . You are right in saying we are still in the nascent stage and a long way to go.

    • pvnsastry says:

      Thanks for the comments. I totally agree with you that Modern Retail is not the only sector under pressure, the textile is one of the industries that is reeling under the pressure of debt but no one mentions about it. Modern Retail and FDI make headlines because of the sensitivities and political opportunism. We all need to be patient with the evolution of Modern Retail as the ecosystem need to be developed fully.

  5. Dear P.V.N,
    I do think the retailers in India need to connect better with their customers. It looks to me the value they are providing to customers are still not great in terms of price, quality and service. Real Estate seems to be ridiculously sky high. They have to provide newness to keep the customers coming back for more with incentives and products that speak to their aspiration. It looks to me that all moving parts are not gelling yet at this point of stage for the organized retail sector in India. I may be wrong, but this is my personal opinion looking from outside. Best, Ramesh

    • pvnsastry says:

      Dear Ramesh,
      Thanks for your valuable comments. I agree with you on the issue of value to the customers. The Modern Retailers understood value as price and focussed on price and neglected on product quality and service. Having lived abroad for almost 20 years, I have looked at the issue as an outsider and there are many gaps that need to be filled to cater to the needs of consumer aspirations. Most consumers in India are intelligent enough to differentiate between gimmicks and true value. It is time the retailers focus on not only the primary products but also on the augmented products. Also the sky high rentals are the result of opportunistic realty players to cash in on the demand for prime real estate. The rentals need to be brought in line with international bench marks, other wise there will be ghost malls with no takers for space. What do you think? Please comment!

  6. Jagannath Ojha says:

    Now Organised Retail Basically revolving around Tier-1 and Metro Cities,Why not Other Tier-2 ,Tier-3,Cities,Where Pepole have good buying power.And Some retailers are moving to those cities,But a poor Supply Chain Plan,making there Move a Wrong 1…They need to work smartly on Stock issiues,before moving Small cities…If Somebody will make a good Startegic plan on Stock flow to Store as per demand in every part of Country by Overcomeing all Challenges..I would rather Say..This is a Morning for Modern Retail in India….

    • pvnsastry says:

      Thanks for your comments. Modern Retail has just started its evolution in India. It is a learning curve for most of the companies. I agree with you that tier 2 and 3 cities have huge potential and the infrastructure and ecosystem needs to be developed fully to reach those cities. Demand analysis should be deployed to minimise poor stock fills. The important factor is the integration of vendors with retailers through electronic data interchange(EDI) to monitor stock movements. Infrastructure building takes considerable time and requires huge amounts of capitol. What do you think?

      • Dear Sastry, Based on all the comments posted here from your readers it looks like the focus needs to be on operational systems and expertise required to satisfy the needs of Modern Retail Development in India. The good part is there is growing young population that is open to newness, the bad part is lack of sophisticated methods to satisfy them efficiently. How about forming a group with experts in this field to brainstorm? Best, Ramesh

      • pvnsastry says:

        Dear Ramesh,

        Thank you once again for taking interest in the discussion. I totally agree with you on the need for sophistication to enhance consumer experience and satisfy the Indian customer. Retail is like a symphony and all the players need to play in sync to achieve harmony. There is room for improvement in every aspect of Modern Retail. I am using the Blog and LinkedIn as forums to have a wider debate on all the issues that impact retailers and customers. To begin with I would like to get into any of these retailers to start making the incremental and sustained change for better and more effective/efficient retailing. Please contribute to the discussion with your valuable insights and comments.

        Warm regards,


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