Helen Dickinson on retail: India is emerging as real opportunity

Much has been written about China's booming economy and the country's potential as an importer and exporter of every kind of item from cars to disposable consumer goods.

As a consequence, you could be forgiven for thinking there is only one significant emerging economy in the world, but there are others.

India, in particular, must be getting fed up with China taking the lion's share of press coverage. Major retailers will know better. Many are well aware of the opportunities India could present in the near future - if only they are allowed in.

Currently, the Indian retail sector remains closed to foreign direct investment (FDI). A few retailers have circumvented this by signing franchising agreements - Mothercare being just the latest. However, most retailers have been content to await a relaxation of the rules, and that moment appears to be drawing closer.

Opinion varies as to what form that relaxation will take, and it is unclear how big a stake a foreign retailer will be allowed in any joint venture.

What does not seem in question any longer is whether the rules will be relaxed sometime soon.

India's consumer market is massive, yet it remains virtually untapped by major multiples. Much of the country's retailing sector is made up of small, family-run operations and is classified as 'unorganised'.

But there are signs of a shift toward shopping malls, department stores and hypermarkets, and commentators fear many of the smaller operators will disappear if the trend is exacerbated by the arrival of foreign giants.

Others argue that foreign investment can only benefit the sector, bringing improvements in infrastructure and retail processes.

A recent report from KPMG highlighted the interest of foreign players in India's 75m households which are classed as 'well off' and characterised by purchases of consumer goods such as TVs, fridges and washing machines.

It is a section of the urban population that has experienced a rapid growth in disposable income and an emergence of the kind of consumer consciousness that India has not seen in the past.

However, many people may be surprised to learn that the report suggests there is an equally substantial opportunity among India's poorer, rural communities. Often dismissed as simply destitute, many of these communities do have some money to spend, even if it is not very much. The issue is not so much the spending power of these poorer communities as whether there is the infrastructure and organisation to reach them.

Any foreign retailer that goes into India is going to face major challenges.

The poor transport infrastructure, coupled with the poor quality of the distribution sector, inflates logistical costs and inventories have to be maintained at very high levels.

Of course, this will not deter too many retailers, given the staggering size of the market. Indian consumers are changing in ways that would excite anyone in the industry, both in terms of the products they buy and the way they respond to marketing.

Concern about distribution will not be addressed overnight. But once the Indian government relaxes its rules on FDI, we can expect to see foreign retailers clamouring to establish a foothold in the market.

When that happens, it will herald an exciting time for everyone involved. After all, very few markets like this - almost untouched by external influences - exist.

India is not quite a blank canvas for retailers, but the scope for developing innovative ideas is immense. There could be interesting times ahead.

- Helen Dickinson is head of retail at KPMG

30 SECONDS ON ... INDIA

- India had 50m mobile phone users in January 2005, and is the world's fifth-biggest market for colour TVs.

- Car sales totalled $5.75bn (£3.3bn) in 2004, PC sales $1.9bn (£1.1bn) and washing machines $240m (£137m).

- Foreign direct investment (FDI) is allowed in consumer durables and FMCGs, and India is now the third-biggest destination for FDI after China and the US.

- There were 9m credit-card users in India in 2003, and use is growing at 25% a year.

- The retail sector is worth $286bn (£163bn), but organised retailing accounts for only 2% of this.

- Coca-Cola had 160,000 outlets in rural India in 2003, selling drinks at an average price of $0.1 (6p).

- India's population passed 1bn in 2001 - 400m live on less than $1 (57p) a day and 42% are illiterate.

- By 2006, it is predicted just 1.7% of households will have an income above $22,800 (£13,000) a year.

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