WWRR Vol.2.015

M
FOUNDATION
Executive Summary: The Stage Is Set for Robust
Growth in Modern Format Retail in India
Various forces have kept the contribution of chained brick
& mortar in India low overall, Yet we think price,
convenience, assortment, and infrastructure should
catalyze a rapid shift to modern format retail. We believe
it's only a matter of time.
Why now?
Growth trends for modern format brick and mortar retail have
failed to live up to the market's growth expectations over the
past decade... Blame the high cost of real estate, weak infrastructure,
a poor economic model for grocery retail – or indeed India's
ubiquitous, entrepreneurial, and efficient mom and pop retail
channel – but the fact is that the contribution of store based retail in
overall retail in India is a mere ~14%.
"This time may be different" is a cliché but may well be true:
There are four key factors that will catalyze a rapid shift to modern
format (brick & mortar as well as eCommerce) retail from here in
India.
ator size, etc.) that will define the evolution of retail channels in
India.
We believe it's only a matter of time before modern format retail
penetration accelerates meaningfully in India: The millennial generation
(defined here as aged 18-35) is a uniquely powerful force in
India. An Internet-savvy and increasingly wealthy population of more
than 400 million may alter time-tested go-to-market strategies. In
our view, this generation is likely more homogeneous than older
demographics, given the powerful leveling influence of the Internet
that fuses global cultural and lifestyle trends – a phenomenon that
is well suited for modern format retail, in our view.
Why the hybrid model may work best in
India
The evolution of a hybrid model can address the
shortcomings of both brick and mortar and eCommerce.
It's a win-win arrangement, and the potential for online
penetration is considerable. There is already evidence of
this trend emerging.
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Price: Simple online price checks show that modern format prices
are 17%-19% cheaper than those of traditional retailers, which
tend to sell close to the listed retail price that is marked on each
product in India.
Convenience: In addition to lower prices, modern format retailers
are rapidly expanding online fulfillment options with free home
delivery, convenient payment options, and free returns.
Assortment: As consumer aspirations rise, consumer preferences
are shifting toward an assortment of products based on such considerations
as specific traits, global brands/categories, health and
wellness, and natural ingredients. Even as grocery stores have
data on consumer shopping pattern, this is based on in-store
assortment – the key is to ascertain what to stock based on
emerging consumer preferences.
Infrastructure: This includes both infrastructure for digital
empowerment of consumers as well as the shortcomings in physical
infrastructure (car ownership, road traffic, parking, refriger-
Success in online grocery retail will separate the winners from
the pack... We expect a 30% CAGR in eCommerce sales through
F2027 (C2026), reaching ~US$200bn of GMV (vs. ~US $18bn in
F2018), translating into 12% online penetration within retail sales.
Now even as online penetration is >18% in electronics and >10% in
apparel & footwear, it is a mere 0.3% in grocery, by our estimates.
With grocery constituting 62% of the retail revenue pool in India, it
is clearly the most important category to unlock the growth potential
of eCommerce and a must capture category to perpetuate the
business.
...which we believe will be via a transition to a hybrid retail model
in India: The unique aspect of eCommerce retail in India is the competitive
intensity, which is arguably the highest when compared to
any other large market in the world.
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