EXECUTIVE SUMMARY OF

HYPER MARKETS IN INDIA

May 2004

August, 2004

Cygnus Business Consulting & Research 4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India

Tel: +91-40-23430203-07, Fax: +91-40-23430208, E-mail: info@cygnusindia.com Website: www.cygnusindia.com

Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting & Research (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any use of the publication or contents

Executive Summary of Hyper Markets in India

© Cygnus Business Consulting & Research 2004 Page 2 of 3

Table of Contents

• EXECUTIVE SUMMARY

• INTRODUCTION

• KEY DEVELOPMENTS IN THE INDUSTRY

o Entry of international players

• HYPERMARKET STRUCTURE IN INDIA

o Definition

o Structure

o Players

• PRODUCT CATEGORIES IN HYPERMARKET

• COST STRUCTURE

• CONSUMER ANALYSIS

o Price promotion grounds

o Advertised Vs unadvertised brands

o Retailer efforts

o Consequences of price promotion

• VALUE DRIVERS FOR HYPERMARKETS

• 5-FORCE ANALYSIS FOR HYPERMARKETS

• SWOT ANALYSIS

• REAL ESTATE SCENARIO

• REGULATIONS

• OUTLOOK

• BUSINESS ANALYSIS OF KEY PLAYERS

o Big Bazaar

o Giant

Executive Summary of Hyper Markets in India

© Cygnus Business Consulting & Research 2004 Page 3 of 3

EXECUTIVE SUMMARY Liberalization of the economy in the nineties and the entry of large players in the retail business have brought the retail industry into spotlight. Big players and national retail chains are changing the rules of the game. After supermarkets, departmental stores and convenience stores, Indian retail has seen concept of hypermarkets coming of age. The hypermarkets are not new to the western countries. Players like Wal-mart, Metro have established hypermarkets in many countries. In India, hypermarket concept is in nascent stage, retailers like Pantaloons and RPG have started hypermarket operations and they are having plans to expand aggressively to all the regions of India. A large number of international retailers have evinced interest in India, despite the absence of favorable government policy for foreign players. India has one of the largest unorganized retail markets in the world. More than 96% retailers function in less than 500Sq.Ft of area. India's per capita retailing space is thus the lowest in the world. Given the size, and the geographical, cultural and socio-economic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in the Indian context. The industry is witnessing the development of region-specific formats. With organized retail penetrating into B class towns, larger discount formats, popularly known as hypermarkets, are now emerging as major competitors for both unorganized and organized retailers. Penetration of organized retail into the lower income groups and increasing consumer demand for value-for-money has improved the prospects of these formats. It offers customers a wide array of low-priced products ranging over categories like groceries, processed food, fresh food, apparel and consumer durables. On an average in India it is spread over 50,000 sq. ft. There are more than 25,000 SKUs (Stock Keeping Units). The margins and discount rates on various product categories have been discussed. In case of Hypermarket the largest part of their operating cost goes towards rentals. High costs arises from labor, social security to employees, high quality real estate, bigger premises, comfort facilities such as air-conditioning, back-up power supply, taxes etc. Degree of personal involvement and information dependency are the two crucial factors which affect the purchasing behavior of the customer. Recent years have witnessed a sizeable growth in organized retail space in the major Indian cities. Real estate is the most important parameter deciding the profitability of any store. Real Estate in terms of location as well as the cost associated with it will affect the footfalls and the finances of the company. Major development happenings in the area of retail space in India are hypermarkets and malls. India is witnessing an exponential growth in the space occupied by organized retailers. The major places where these malls are coming up are Mumbai, Delhi, Bangalore and Pune. Indian retail industry is still a "protected industry" from foreign direct investment (FDI). Though FDI can help generate employment in this sector, it is likely to pose stiff competition for existing small businesses. Unlike the country's FDI investment objective of technology transfer and export promotion in 1980s, today's infusion of capital can bring in issues like size of investment, percentage of stake or ownerships in the company and takeovers of domestic companies by foreign giants. The report covers Indian hypermarket structure and key trends in the industry. Analysis of product categories,average billing size, costing, and consumer behavior are extensively covered with Michael porter’s 5-forces analysis,SWOT analysis and analysis of value drivers for hypermarkets. The details and business dynamics ofmajor hypermarket retailers in India i.e., Giant and Big Bazaar have also been discussed in this report.