Post on 05-Oct-2020
June 10, 2013
Naoki Nagashima
Senior Research Fellow
Economic Research Center, FRI
India’s Economic Growth and Consumer Market Development
Copyright 2013 FUJITSU RESEARCH INSTITUTE
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Report Overview
Background and Presentation of Issues
I. Appearance of New Urban Middle Class
・ Present portrait of consumers based on local consumer survey
・ Similarities and differences with Japan
II. State of India’s Retail Industry and Japanese Companies’
Potential
・ Retail sector is a segmentalized market
・ Supermarkets are problematic, convenience stores have potential
III. Issues with and Hints for Entering Retail in India
・ Permits and licenses systems, rising real estate prices, securing labor, distribution, etc. ・ Cooperation and cohabitation with traditional small-scale shops
Finally…
Background and Presentation of Issues
Background
・ In India, (multiple brand) retailers are still unable to enter the market due to
foreign capital regulations, but last autumn the ban was lifted, albeit conditionally.
・ As a result, large foreign corporations are preparing to expand into the market.
Issues
・ It’s difficult for Japanese retail to take on all of India from the start, but
urban population is growing, the urban middle class profile is gradually
nearing that of developed countries and homogenizing.
・ A clear image of consumers in India is necessary for considering doing
business there.
・ There is a way to enter this new target consumer market, but what are the
challenges? Let’s examine retail in detail.
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I. Appearance of
New Urban Middle Class
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Chennai: One of 4 major cities
Population: 4.7 million
(7.7 million in greater area)
Face-to-face Survey
Behavioral observation important,
but quantitative survey necessary
to grasp trends
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Coimbatore:
Outlying city of Chennai
Pop. 920,000
(urban area 1.45 million)
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Customers: Similarities and Differences
with Japan
・ Rapidly rising demand for frozen/instant foods
Various needs for point-of-sale retail services
・ Customer experience value is greatest differentiator
In past, price was paramount
Moved towards balance of quality and price (value for money)
Recently, customer experience has gained importance
(convenience, comfort)
Some facets nearing developed countries
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Increasing Frozen/Instant Foods Demand
Eating Habits Nearing Developed Countries’
・ Demand for frozen/instant foods is increasing
Vista Processed Foods: Food supplier for McDonald’s and Subway
Started selling frozen french fries
Started making frozen omelets (sales to start in 3-6 mo.)
WalMart: preparing to start private brand of frozen foods
・ Home meal replacements, such as bento lunch boxes, also on the rise
・ Fast food shops also doing well
Recent Trend
Cell phone charging, checking internet also demanded (free answer field)
NB: Survey on 320 middle class residents in Chennai and Coimbatore
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Great Need for Point of Sale Services
1st: Paying utilities
2nd: Ticket reservations
3rd: Send/receive packages
4th: Bank ATMs
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Customers: Similarities and Differences
with Japan
・ Rapidly rising demand for frozen/instant foods
Various needs for point-of-sale retail services
・ Customer experience value is greatest differentiator
In past, price was paramount
Moved towards balance of quality and price (value for money)
Recently, customer experience has gained importance
(convenience, comfort)
Some facets nearing developed countries
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満足要因 不満要因 満足要因 不満要因
(1)品質 72 74 94 8
(2)価格 42 26 39 41
(3)顧客経験(利便性・快適性) 160 78 236 128
立地(近さ・環境) 124 1 7 3
品揃え・お買い得品 8 10 66 7
ワンストップショッピング 0 4 124 0
サービス(配送・ツケ・量・表示など) 20 6 16 8
店の概観・環境 1 23 4 1
店内の雰囲気・美観・混雑 1 16 4 21
店員のアプローチ・反応 4 13 12 22
時間(レジ・パッケージ・売り場移動) 2 1 3 58
パッケージの適切さ 0 4 0 0
駐車スペース 0 0 0 8
食品スーパー・ハイパーマーケットキラナ
Retail Store Satisfaction/Dissatisfaction
Note: conducted on 320 middle class people in Chennai and Coimbatore
Customer Experience
Important
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Examples of Kirana (corner store)
・ Customer experience has greatest correlation with overall evaluation,
followed by quality
・Higher socio-economic classes show this trend strongly
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Factors deciding overall evaluation
(customer satisfaction
Effect on Satisfaction
Coefficient of
correlation
with overall
evaluation
Overall evaluation drops due to “unsatisfactory quality.”
Conversely, it rises due to “satisfactory customer experience.”
In other words,
Quality is a necessary condition for satisfaction
Customer experience is a sufficient condition (after fulfilling necessary condition)
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Slightly finer analysis shows…
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消費者像:日本との共通点・相違点
・ Overall evaluation made up almost entirely 3
factors: quality, price, customer experience
・ Loyalty can be obtained relatively easily
・ Shopping efficiency, time are important (somewhat
impatient)
Facets differing from Japan
Customers: Similarities and Differences
with Japan
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Model of Overall Evaluation
The above model:
Explains only about 30% of Japanese consumers,
But about 80% of Indian consumers.
(Clear and rational)
Overall
Evaluation
Quality
Price
Customer
Experience
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・ Overall evaluation made up almost entirely 3
factors: quality, price, customer experience
・ Loyalty can be obtained relatively easily
・ Shopping efficiency, time are important (somewhat
impatient)
Facets differing from Japan
Customers: Similarities and Differences
with Japan
Loyalty…
インド 日本
ロイヤルティ(再来店の意図)
必ず
たぶん
もしかしたら
無し
不満 まあ満足 満足
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Overall
Eval.
Loyalty
Loyalty (intent to return to
store) easier to obtain in India
(esp. when overall eval. is so-so)
Different from Japanese
consumers on this point
Still few supermarkets, so early
entrants may be at advantage
India Japan
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・ Overall evaluation made up almost entirely 3
factors: quality, price, customer experience
・ Loyalty can be obtained relatively easily
・ Shopping efficiency, time are important (somewhat
impatient)
Customers: Similarities and Differences
with Japan
Facets differing from Japan
Enter Store
(Start)
Browse
(Middle)
Checkout
(Finish)
Japan Speed Accuracy Empathy
India Speed Speed and
comfort
Speed
“Takes too much time” was seen repeatedly as a factor of dissatisfaction
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Indian Consumers Value Speed
Customer Experience Process
Evalu
atio
n
Poin
ts
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Image of Consumers in
Exploding Middle Class
Example:
・ Nuclear family: couple in 30s with 1 child, living in urban area.
Husband a professional with university degree, wife also working, no
maid.
・ Normally shop in neighborhood, but on weekend husband drives
them to nearby hypermarket.
(Frozen foods, cereal, daily goods, cosmetics)
・ Enjoy eating out on weekends. Frequent fast food shops. Great
need for services, emphasis on efficiency; impatient. Concerned about
health, but eating habits becoming similar to developed countries’.
・ Slightly dissatisfied with experience at retail stores, but not many
choices; will continue current shopping pattern. Evaluates stores
rationally based on quality, price, and experience.
II. State of India’s Retail Industry
and Japanese Companies’ Potential
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State of India’s Retail Industry
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Segmentalized Market
Family-run small-scale shops
“Kirana”
Make up 93.5% of all shops (2011)
Sell mostly food, daily goods,
sundries.
15 million shops across India.
20位までのシェア(%)
シェア %
チリ 54.5
ハンガリー 47.4
英国 41.6
チェコ 40.9
タイ 28.8
メキシコ 27.8
マレーシア 25.3
台湾 24.4
ロシア 18.1
インドネシア 9.1
中国 7.8
インド 1.9
(出所)IIM: Center for Retailing
Supply:
Vendor Segmentalization
No oligopolization of retail
(Shares of top 20 vendors)
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Regional Differences
Ex: 21 official languages other than English and Hindi
(Fewer than 15% understand English; more than 1600 local dialects)
Sales of grains, cooking oil differs greatly by province.
(Urban middle class’s lifestyles and values are becoming similar, but…)
In general, difficult to pursue economy of scale
Even national super/hypermarkets which are large local
conglomerates have small profit margins
Are huge foreign-owned companies like
WalMart also having difficulty?
State of India’s Retail Industry
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Japanese Retail Concept
A Co. (Supermarket) Finds differentiation from local conglomerates and huge foreign
affiliates to be difficult.
B Co. (Supermarket) High search costs prevent from moving to feasibility studies.
C Co. (Convenience Store) Interest in Indian home meal replacements. Uncertain of rising real
estate costs and securing HR.
D Co. (Convenience Store) Cultural compatibility of Japanese convenience stores in India unclear.
Depends on agreement partner.
Supermarkets face difficulties ← Indeed
Perhaps convenience stores ← Opportunity
In
summary
Terminal
similar to
MMK (utilities
payment, etc)
Indian Convenience Stores
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III. Issues when
Entering Retail in India
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Challenges
Permits and Licenses System
Indian government policy is one of liberalization, but with conditions
Conditions:
・ Maximum foreign capital 51%
・ Minimum investment $100 million
・ Limited to urban areas
・ Rear infrastructure investment must account for more than half
・ More than 30% of supply chain must be procured from local
small and medium companies
Separate permits and licenses from provincial government
also needed (policies and attitudes vary by province)
If one can take the risk, large-scale investments like
IKEA’s are welcome
・ Small starts are limited
・ Long-term plan needed
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Supply Chain and Distribution
Necessary to either build supply chain and distribution system on one’s
own, or form partnership with organization that already has them.
Ex: American fast food chain
Direct contract with farmers (advise on improving irrigation too)
Establish and tweak cold chain
(Beforehand, refrigerated warehouses, tri-level transportation trucks)
Currently has 500 stores in India
Due to weak warehousing/distribution system, 1/3 of all produce in India
rots every year
Investment very effective (but long-term plan also needed)
Rocketing Real Estate Prices, Securing HR
One idea: turn to kirana (see below)
Challenges
・ Antipathy towards large supermarkets and very strong
competitiveness ・ Low-cost management
・ Strong localties
・ Added services (delivery service, tabs for regulars)
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Existence of Kirana
Many consultants/researchers advise coexistence
and cooperation with kirana, but problem is
kirana store owners
Strong antipathy (1/2) Still against it (1/3)
Two ways of thinking
(Esp. towards large stores)
Not much interest (1/2)
(Status quo is fine)
If cooperation with supermarket would
raise sales?
Might think about it (2/3)
Not interested (all)
Challenges
Local food store chain (green sign: respectable modern distribution
chain)
・ Left: next to kirana, split storefront in 2 to make appear smaller.
(central space rented out to cafe/eatery)
・ Right: displays are tidy but similar to kirana’s
Case Study of “Blending In”
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Finally…
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Urban area: 30% Urban area: 40%
Now In 10-15 years
Rural: 70% Rural: 60% 15% of that
70% of that
4-5% of whole (approx 50 million)
Almost 30% of whole (approx 400 million)
Urban Middle Class will Grow Rapidly
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Possibilities in health, beauty, entertainment, food
services, insurance, etc.
Ex: E Co. (health appliances maker) (2009 onward) High rate of metabolic syndrome (20% of men, 16% of women in urban
areas, 5.1 million cases of diabetes)
Selling health meters through hypermarkets
Expanding sales channels to hospitals and gyms
F Co. (instant foods maker)(1991 onward) Introduced low calorie products
G Co. (large beef-rice bowl chain)
H Co. (Japanese curry chain)
eCommerce as supply method
Even with internet, many averse to online shopping.
Business models with payment and pickup at kirana counter.
Preparing rollout
Big Opportunities in Related Sectors
Must pursue new image of urban middle class consumer from many angles
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