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Promise of Indian Retail
From Vision to Execution
PwC
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
The Promise of Indian Retail – Unparalleled yet elusive
Why Retailers Have Struggled – 4 key reasons
Rethinking The Future – Actions for profitable growth
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PwC
India’s macro-economic indicators remain strong
1. 17% of world population
and 3% of global
consumption
2. India is fastest growing
major economy
3. Per capita income has
quadrupled in last 15 years
to ~$1600
4. Consumption growth not
just restricted to the Metros
Key Highlights10.3%
6.6%
5.5%
6.4%
7.5% 8.0%
7.1%
8.7%
9.3%
5.5%
7.3%
6.2% 6.1%
8.7%
2010 2011 2012 2013 2014 2015 2016
GDP y-o-y growth HFCE y-o-y growth
Source: World Bank DataIndia Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
PwC
Organized Retail in India – An unparalleled opportunity
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
43%
16%
45%
25%
28%
8%
57%
84%
55%
75%
72%
92%
Malaysia
Indonesia
Thailand
Vietnam
Phillippines
India
Modern Retail Traditional Retail
+ $164
Bn
2016 2020
2015-20 CAGR
32%
4.2%
4.5%
3.2%
2.5%
1%
63%
7.5%
25.4%
14.1%
38%
11%
Brick and mortar E-retail
Total retail market size (USD Mn)
553 983
Source: Spire Research and Consulting, Images Group Research for India Retail Report 2017, IBEF, PwC Analysis
15%
PwC
Organized Retail in India – Fuelled by an emerging India
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
1. Growing urban, young population
2. Growing aspiration
3. Growing digital influence
4. Ease of doing business
47% of population below 25 yrs
Rising urbanization
Increasing nuclear families
Rise of branded products Willingness to pay for service &
convenience Focus on healthier living
31% internet penetration, growing at a CAGR of ~16% till 2021
77% of urban users and 92% of rural users consider mobile as the primary device for internet access
Easing FDI rules in retail
GST – A boost to organized retail economic model
India ranks 1 in Global Retail Index among 30 developing countries
Source: IAMAI-IMRB report
PwC
However, We are short of the early promise the Industry showed
% share of organized and traditional
retail in India
YearOrganized
retail
Traditional
retail
2005 3.6% 6.4%
2007 4.1% 95.9%
2010 5.0% 95.0%
2012E 8.0% 92.0%
2015E 21.0% 79.0%
2020E 24.0% 76.0%
• At 8-10 % penetration of organized retail is far short of Initial estimates
• Profitability projections for retailers have been revised across the market
• Several global & Indian players exited not achieving profitability and scale
Early projections carried out for organized retail penetration in India have been way above those that have actually been achieved
Source: Images Group Research for India Retail Report 2017, PwC AnalysisIndia Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
PwC
So what stopped retailers from building toward this promise?
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Did they not have the right vision for this market?
Did their strategy fail to capture the market
nuances?
Did they fall short on execution?
Did regulations and infrastructure not support
their aspirations?
PwC
To isolate the reasons, we surveyed a breadth of Indian retailers
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Total Retailers Surveyed: 40
30%
30% international retailers surveyed
5 Retailers > USD 500 Mn
26 Retailers between USD
100-USD 500 Mn
9 Retailers <USD 100 Mn
PwC
Our survey revealed..
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
On ground realities were different than envisioned
In a bid to scale fast, they faltered on execution
Over time, value proposition got ignored
As they were correcting past mistakes, competition from well -funded online players posed a new challenge
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4Key reasons
for slow growth
PwC
#1. On ground realities different than envisioned
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Met, 10%
Did not meet, 90%
In a bid to quickly expand and grow in an
under-penetrated market, retailers could not
meet their envisioned scale of business
because of…
1
2
3
Infrastructural challenges - Limited
availability of quality real estate. 75% of retailers surveyed cited this as a major constraint limiting scale
Access to capital- 50% of retailers
surveyed cited this as a major constraint for growth
Retail Talent – Acquiring, developing and retaining retail talent was challenging.
40% of retailers surveyed felt this to be
a major constraint
Source: PwC survey for IRF 2017 report
PwC
#2. In a bid to scale fast, execution suffered
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Pressure on unit economics on account of…
1. Suppliers with strong hold over retail margins
2. Value conscious consumer
3. Strong competition from traditional trade
4. Higher cost to serve due to infrastructure challenges
…resulted in suboptimal execution
Rapid scale resulted in a large percentage of new stores that pushed
out profitability
55%
28%
40%
38%
Poor location
Underdeveloped supplyecosystem
Limited store talent
Geographically dispersedstore base
Source: PwC survey for IRF 2017 report
PwC
#3. Over time, value proposition got ignored or diluted
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Internal factors preventing profitability and challenges in value proposition
20%
40%
30%
60%
30%
60%
Target Group Location Format Pricing Brand andcommunication
Assortment
Unclear value
proposition, 35%
Poor operational execution,
65%
One size fits all approach didn’t work in heterogeneous Indian market
Source: PwC survey for IRF 2017 report
PwC
#4. Competition from online posed a new challenge
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
1 Discounts and sales have become a way of life
2 There has been a shift in how consumers buy
Date CompanyAmount (in
USD Mn)
Jul-14 Flipkart 1,000
Dec-14 Flipkart 700
Oct-14 Snapdeal.com 637
May-14 Flipkart 210
Oct-14 Olacabs 210
Feb-14 Snapdeal.com 134
May-14 Snapdeal.com 100
Nov-14 Housing.com 90
Mar-14 Quikr 90
Sep-14 Quikr 60
Source: PwC report – e-commerce in India accelerating growth, Images Group Research for India Retail Report 2017
The top 10 PE deals in e-commerce in 2014 amounted to ~USD 3.2 Bn
The total size of non food and grocery retail in India in USD Mn (2014 and 2016)
Category 2014 2016
Fashion 32.4 44.2
Foodservice 26.6 30.9
Telecom & Broadcasting 18.0 23.1
Home and interiors 11.1 14.7
Gaming 9.6 12.6
Books, stationery, etc 7.9 9.4
Pharmacy 10.5 14.5
Mobile phones 9.9 14.9
Others 63.3 85.9
Total 189.3 250.2
PwC
The market has also evolved over this decade
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Growing customer needs
Heightened competition
Evolving Technology
Changing role of retailers
Larger infrastructure investments
Smoother regulatory
environment
PwC
Rethinking the future for profitable growth
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
acts that will transform your future
Actions to Replan the Future
PwC
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Don’t let the past limit how you think about the future.
• Think Big Break free of low growth orbit by thinking how to maximize on opportunities
• Bring clarity of vision Revisit core of your existence and define vision that’s clear to your employees & customers
• Recognize key trends and invest Allocate resources on opportunities of the future rather than problems of the past
Action #1
Source: PwC Analysis
PwC
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Be clear of who you are. Stay true to that in what you do.
• Strengthen brand franchise How are you investing in creating a sustainable customer engagement?
• Create cost barrier Is your value proposition difficult / expensive for competitors to emulate?
• Create lasting change in consumer behavior Does your proposition align better with what customers really want?
Action #2
Source: PwC Analysis
PwC
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution
Rethink execution.
• Translate vision to performance metrics Create KPI’s that are controllable & have significant impact on vision
• Structure that drives ownership Build structure that promotes rather than inhibit end to end ownership
• Culture that promotes continuous improvement Culture should drive innovation in how you serve customers
Action #3
Source: PwC Analysis
PwC
Thank you
India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution