Retail hopes to trade on India's markets

MUMBAI, India (CNN) -- Indian shoppers will spend $300 billion on food, clothing and other household items this year, but only a tiny portion of that, worth about $12 billion, will go through cash registers in an air-conditioned shopping center.

For the overwhelming majority of India's 1.2 billion people, goods are still bought in small amounts on a daily basis, at the hundreds of thousands of mom-and-pop "kirana" corner stores that serve city suburbs, towns and villages.

Changing that equation is the goal of a host of retailers, both Indian and international, eager to invest in India's organized or "modern" retail sector. They want to flood the country with supermarkets, malls, big-box outlets and entertainment complexes in what constitutes a fundamental redrawing of the Indian shopping scene.

The lure is the Indian demographic: the world's youngest population, and a growing number of consumers who are cashed up and ready to spend. Their perceived willingness to shop in a modern setting is driving the organized market sector at a breakneck pace of 40-plus percent a year.

By 2011, industry experts believe modern retail could be worth as much as $100 billion out of a total $600 billion Indian consumer market.

Vinod Sawhny, president and CEO of one of the biggest newcomers, Bharti Retail, says this shopping revolution will be the catalyst for the next stage of India's sustained high economic growth rate.

"It (modern retail) will deliver a 360-degree benefit to all classes of Indian society," he told the India Retail Forum in Mumbai on Tuesday. Sawnhy says it will help lift farmers' incomes while cutting costs to consumers. As well, retail growth will stimulate other industries such as transport, logistics, and information technology, creating millions of new jobs in the process.

Sawnhy sees India entering a golden age of consumerism in which everyone will benefit. But others are not so sure. Along with retail's structural problems such as an abysmal supply chain, high real estate costs, poor quality control and a lack of skilled workers, there are parts of Indian society opposed to what they see as the too-rapid changes in the shopping picture.

They include those against foreign investment -- Bharti has U.S. retail giant Wal-Mart as its partner in two new joint ventures -- and the market traders who stand to lose from direct tie-ups between farmers and retail outlets.

Traditionally these middlemen stood between the farmers and the kirana corner stores, where most customers shop. Their protests last month prompted one state government, in Uttar Pradesh, to put a temporary halt on corporate retailers such as Reliance Fresh from opening more stores.

In the meantime, the Indian government has commissioned a study on the impact of modern retail on kirana stores. Its findings are likely to be available by the end of September.

For modern retail's enthusiastic supporters, none of this can stand in the way of the revolution.

Sawhny says he and his competitors will drive down consumers' costs through efficiency, higher volumes and disintermediation. There will be more and fresher stock, offering a greater diversity of choice to consumers. Farmers will benefit as retailers work closely with them on quality and quantity.

It is a vision shared by rivals such as Chennai-based Ramaswami Subramanian, founder of the Subhiksha supermarket chain. Such is the pace of change in modern retail that Subramanian is adding 100 new stores a month. From 820 today, he expects to reach 1,000 stores by November, and 2,000 by the end of next year. But he also sounds a note of caution.

"This is an unforgiving business, where costs have to be kept razor-sharp. And there is a war for talent. The kind of people we want are hard to find." E-mail to a friend

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