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M<br />
Story in Charts<br />
FOUNDATION<br />
Exhibit 1:<br />
The future of retail in India<br />
Store based retail with omnichannel<br />
capabilities<br />
Pure play e-Commerce<br />
Size (F2018)<br />
Grocery contributes<br />
13% to the store<br />
based retail market<br />
$84bn<br />
$18bn<br />
Online grocery (F2018)<br />
Market size - $1bn<br />
Penetration - 0.3%<br />
$177bn in F2023<br />
$200bn in F2027<br />
e-Commerce and modern trade<br />
retailers currently offer 17-19%<br />
price discount vs General Trade<br />
Current store level operating<br />
margins are ~5% (MSe)<br />
Additional online fulfillment model<br />
can erode margins by 70-280bps<br />
• Penetration of store-based retail is low at<br />
only 14%<br />
• Existing store infrastructure can be<br />
leveraged for scale, reach and customer<br />
experience<br />
• Instore membership models<br />
• Hyperlocal assortment<br />
• Established grocery retail model<br />
• Platform to cross sell high margin<br />
products<br />
Opportunity<br />
• Ability to offer niche products especially<br />
non-perishable products<br />
• Wider assortment<br />
• High consumer convenience<br />
• Low penetration<br />
• Tailwinds from urbanization and<br />
digitization<br />
• Avenues for generating advertising<br />
income<br />
Grocery retail will be a >$0.5tn opportunity by F2023<br />
Constraints<br />
• High investment in stores/technology<br />
• Competition from traditional retailers<br />
• Omni-channel capabilities are still nascent<br />
• Likely dilution of operating margins due<br />
to omni-channel offerings<br />
• Risk of sales cannibalization from online<br />
sales<br />
Addresses shortcomings of the brick and mortar<br />
and eCommerce models<br />
• Limited customer base<br />
• Ticket sizes are low<br />
• High cost of last-mile delivery<br />
• High competition in India<br />
• High rate of returns especially for<br />
apparel<br />
• Customer acquisition and retention is<br />
challenging<br />
We estimate delivery<br />
and customer<br />
fulfillment costs to be<br />
12% of sales in India<br />
Advertisement costs in<br />
India are >5% of sales<br />
vs 1% for Ocado<br />
Online grocery (F2023)<br />
$12-15bn opportunity if<br />
penetration rises to 3%<br />
Hybrid Model<br />
Omni-channel Runway<br />
$30bn opportunity if<br />
penetration rises to 6%<br />
with a hybrid-model<br />
• Potential for 20 to 40% increase in profitability<br />
• Can offer a 'Stack model' - bundle of consumer services<br />
• Price competitive vs traditional retailers<br />
• Improved throughput for offline retailers<br />
• Successful grocery retail model and increased online penetration<br />
• Frictionless apparel retail<br />
• Increased customer reach<br />
Source: Morgan Stanley Research<br />
Exhibit 2:<br />
Large companies focused on grocery retailing in India<br />
Source: Company Data Economic times, Your Story, Business Standard, Fortune India, Live Mint, Forbes, Morgan Stanley Research<br />
MORGAN STANLEY RESEARCH 5
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