Sep 24, 2008

Business - India;315 hypermarkets expected in Tier1&2 cities by 2010

New Delhi: In a study conducted by Assocham and KPMG has made a forecast indicates that 315 hypermarkets will come up in most Tier I and Tier II cities by 2011 which will offer a range of articles from automobiles to needles under one roof.
The study,`Reinventing India’s Retail Sector’ in its analysis of Feasibility of Hypermarkets in Tier I & Tier II towns between 2008-11 points out that that even in year 2008, 212 towns have sufficient market potential for hypermarkets for break even existence. That is a different matter that this potential has yet to be realized.
Organized retailers in India have established their presence beyond the major metros and have percolated to top 50 – 60 urban cities and towns. Among large format retail chains, Future Group’s Big Bazaar is currently the most deeply penetrated with 90+ hypermarkets in 45+ towns.
From a retailer’s perspective, the initial focus on the top 50 cities appears to be logical since these account for a significant share of urban consumer population and disposable income. However, going forward, relative attractiveness of these cities is expected to reduce, especially with increased competition from existing domestic retailers.
When global giants such as Wal-Mart, Tesco and Carrefour commence operations in the Indian market, like their Indian competitors, they will initially concentrate on larger cities. Resultantly, for the next 5 – 7 years, foreign retailers are not expected to establish presence of their large format hypermarkets beyond the top 40 – 50 Indian cities. Moreover, benefits of India’s economic boom are not likely to be limited to larger cities alone as consumers in smaller town begin to mirror aspirations of their counterparts in larger cities.
A key finding of the study is that urban towns beyond the top 50 will provide considerable untapped opportunity for organized retail players.
Key Findings
* Responding to increase in number of households, income and consumption levels, five or more hypermarkets are likely to come up in 25 bigger towns by 2008
*Organized retail is expected to grow by 15% by the year 2010 when there would be about 475 hypermarkets across 400 Indian towns
* Tier III, IV and V towns will be on the radar of retail majors who will have to factor in varying consumption patterns; annual disposable incomes and household expenditure levels are higher in larger cities as compared to smaller towns and percentage spend on food and grocery lower since consumers in larger cities spend more on lifestyle-driven categories such as consumer electronics, eating out and entertainment
* Variations in spending patterns exist at a sub-category level. While microwave ovens, ready-to-eat foods and white formal shirts regularly feature on hypermarket shelves in Tier I & II towns, these sub-categories may not find an addressable market in smaller towns. Retailers will have to account for these consumption patterns before deciding on the kind of stores they open up
* Availability of 25,000 – 30,000 sq ft for a single store in high street locations may be a deterrent for retailers in smaller towns. Mall development is not expected to move beyond tier I & II cities in the next 3 – 5 years, especially given the current slowdown in the property market
* Retailers are likely to face difficulty in recruiting sales staff and store managers with an understanding of retail operations. Also, developing and managing an efficient supply chain and logistics network catering to stores in smaller towns will require significant investments, creating need for a cost-benefit analysis

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