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The organised food retailing sector in India is on the verge of a boom with almost all the big corporate houses including Tatas, Reliance, ITC Group, Lohias-promoted Indo Rama, Mumbai-based RK Hospitality, Kishore Biyani with his Big Bazaar, RPG group with its hypermarket and supermarket chain and even multinationals such as Shoprite as well as
Metro AG eyeing the sector aggressively.
While the likes of Reliance and ITC Group are still keeping their plans under wraps, Tatas-owned Trent Ltd managing director Noel N Tata on Wednesday said the first food retail store of the company would come up by the middle of next year.
He was speaking at the retail summit in Delhi which has been organised by CII. Tata, however, refused to divulge any more information.
The $600-million retail chain Landmark Group, which runs the LifeStyle chain of fashion and home retailing in India, has also expressed considerable interest in the sector and sources say that Mumbai-based RK Hospitality has already got a funding from Warburg for its food retailing initiative.
The Goenkas-owned RPG Enterprises also said that it wants to expand the number of its hypermarket stores, Giant, from the current one to 15 within the next 18 months. Considering each Giant entails an investment of Rs 15-35 crore (Rs 150-350 million), the minimum investment would be to the tune of Rs 220 crore (Rs Rs 2.20 billion). Even Pantaloons is planning to expand its Big Bazaar rapidly.
The interest is not restricted to domestic companies. It is spreading to multinationals as well. Some including South Africa's largest retailer - Shoprite Holdings - and Metro AG have already set shop in the country in the business-to-business segment where the foreign direct investment is allowed.
While Metro has already set shop in Bangalore, Shoprite is planning to franchise its retail end to Indian companies. It has signed its first property in Mumbai's Nirmal Lifestyle mall.
Why are the companies making a bee line for the sector? RPG Enterprises president and chief executive officer Raghu Pillai explains by saying that the food and grocery segment is Rs 300,000 crore (Rs Rs 3,000 billion). Lifestyle retailing, therefore, which is about Rs 50,000 crore (Rs Rs 500 billion) is a small proportion of the food retailing market.
He added that the segment is registering a growth of over 100 per cent every year. Giving example of Mumbai, he added that while there was no player in food retailing in Mumbai about a year back, today at least 300,000 square feet of space is with various food retailers.
Speaking on the potential in the sector, Pillai said that a study conducted by them in the top 15 cities in India said that the potential for retail (taking into account those people who spend above Rs 85,000 every year) is over Rs 100,000 crore (Rs 1,000 billion).
According to a study on food and grocery retail market by KSA Technopak, food retail sales make up for close to 63 per cent of total retail sales. In absolute terms, food retail sales had grown from Rs 3,81,000 crore (Rs Rs 3,810 billion) in 1996 to Rs 7,03,900 crore (Rs Rs 7,039 billion) in 2001 when the non-food retail sales grew from Rs 2,22,400 crore (Rs Rs 2,224 billion) in 1996, to Rs 4,19,000 crore (Rs Rs 4,190 billion) in 2001.
The report said that the food and grocery sector now accounts for 14 per cent of total organised retail, after clothing and textiles (at 36 per cent) and watches and jewellery (at 17 per cent). Industry experts, however, say that soon food retailing will overtake both the categories since food accounts for over 60 per cent of the wallet's share.