The story of India’s economic growth is well publicized. The normalization of economic reforms, booming technology and services industries, and increased foreign investment have all contributed to significant gains in the size of India’s economy. As the Indian consumer’s purchasing power has evolved, so too has the Indian retail landscape, which must now cater to an increasingly savvy and connected shopper.
Rapid Expansion of Modern Trade
While modern trade in India today represents just five percent of the total retail landscape, it is poised for expansive growth. Following the established trend of other Asian markets where modern trade retailing has grown an average of 300 percent over the past decade, Nielsen estimates that the Indian consumer will double their fast-moving consumer goods (FMCG) spend through modern trade channels from $1.8 billion today to $5 billion in 2015.
"The Indian consumer is clearly enjoying the modern trade shopping experience and is increasingly shopping there, as is evident from the increased spending at modern stores,” says Roosevelt D’Souza, Executive Director, Nielsen India at the Consumer 360 event in New Delhi. This is also a strong indicator of the growth potential of this trade format.”
Already, modern trade is growing at very high rates, up 31 percent since last year among shoppers across the socio-economic spectrum. For certain food and household good categories, modern trade outlets account for a significant portion of total category sales. Over half (54%) of packaged rice, for example, is purchased at modern stores, as are 42 percent of breakfast cereal purchases. And, for certain types of cleaning products and other household goods, a similar percentage of sales occur in modern outlets.
Exploration Leads to Infidelity
The power of choice is opening Indian consumers to experiment more with new formats, stores and banners within stores. Indeed, 36 percent of shoppers recently reported shopping at more than two stores during the month—compared to 20 percent just one year earlier.
High inflation is also encouraging Indian shoppers to be more discerning—actively seeking value through promotions and sales and through private label brand purchases. In fact, some of the categories that thrive in modern trade are also among the highest contributors to private label growth, such as packaged rice and household cleaners. India’s modern trade shoppers now spend over $100 million on private label goods per year. The challenge for retailers and brand manufacturers will be keeping a loyal shopper base.
“Indian consumers have always been value conscious, but now even more so given inflationary pressures on the household budget,” says D’Souza. “The access to both modern and traditional trade formats coupled with an awareness of various deals being offered in the market, allows the consumer to make a more informed value-for-money shopping decision.”
Tomorrow’s Retail Environment
During a panel session at the Consumer 360 event, Nielsen retailer and manufacturer clients discussed the likely resilience of Indian traditional trade channel in the future despite the imminent growth in modern trade. The panel, which was moderated by ET Now’s Sonali Krishna, included Thomas Varghese, CEO of ABRL; Bijou Kurien, President & CE, Lifestyle Reliance Retail; and Tarun Arora, EVP-Head of Marketing, Godrej Consumer Products. Given the convenience and importance traditional kirana retail outlets offer, many panelists expect the Indian consumer to be even more demanding of modern retail than in other developing markets. But, most agree that modern retail stores stand to gain the most from the increasing spending power of India’s growing middle class. While India is unique, it is not so unique that consumers don’t appreciate the advantages and choices offered by new the new retail market.
As the landscape evolves, expect more retail and shopping experimentation—both in number of stores shopped and in the types of specialty retailers visited. And connected and tech-savvy Indians will increasingly engage with social media and networks as a way to discuss products/brands and to seek deals through group promotional websites. Marketers who understand the future of the Indian retail environment and how consumers’ shopping practices are changing will thrive in this dynamic and expanding market.