The battle for dominance of the physical retail space in India has taken a heavy toll. Even groups like Aditya Birla Group and Godrej Group, which are among the largest conglomerates in the country, have had to pack up and leave.
In 2018, Aditya Birla Group sold its More supermarket chain to Samara Capital and Amazon. Then, in 2019, the Godrej group sold its grocery stores under the Nature’s Basket brand to Spencer’s Retail.
Let’s take a more recent example. With over 1,500 stores, Future Retail was once India’s second largest retailer. Now Future Retail, along with other group companies, is facing the National Company Law Tribunal as the lenders seek to recover their amounts owed under the Insolvency and Bankruptcy Code.
This leaves Reliance Retail and DMart, run by Avenue Supermarts, as India’s leading retailers.
However, things have been just as difficult, if not more so, for foreign companies. According to a recent report by a financial daily, Amazon, Reliance Retail, Avenue Supermarts, Tata Group, Lulu Group and Samara Capital are among those seeking to buy German retailer Metro AG’s Indian cash-and-carry operations for n anywhere between $1.5 and $1.75. billion.
Metro has operated a chain of 31 cash-and-carry stores across India since 2003. According to the report, the decision to cash out came after intense competition and the large investments needed to maintain operations forced the company to carry out a detailed activity. review.
In 2020, Reuters reported that Walmart Inc, the world’s largest retailer, fired 56 of its executives in India. The move, the agency said, underscored the challenges Walmart faced in growing its wholesale business in India.
Carrefour, one of the world’s largest retail chains, also left India in 2014, less than four years after opening its first store in the country.
According to a report from March this year, a senior official at US retail giant Walmart said the company was not keen on opening physical direct-to-consumer stores in India. Instead, it would focus on growing its acquisitions – which are online marketplace Flipkart and major payment method PhonePe.
In 2019, Amazon invested nearly Rs 1,500 crore for a 49% stake in Future Retail promoter entity, Future Coupons. Thus, indirectly gaining a 4.8% stake in the former. Amazon’s goal was to expand its presence in the Indian retail market. But that didn’t happen.
As a previous Morning Show article explained, companies like Amazon face more hurdles when it comes to tapping into India’s consumer base. Indeed, foreign investment in offline multi-brand retail is tightly controlled. India allows 51% FDI in multi-brand retail under the government route. But this is subject to the investor’s compliance with several conditions. Meanwhile, states can also decide whether or not to allow foreign-owned multi-brand stores.
Under Indian rules, 100% foreign investment is allowed in wholesale and cash-and-carry operations.
There is a growing awareness that retail, whether B2B and cash-and-carry or reaching consumers directly, requires a local model, where local considerations trump everything else. For example, cash-and-carry can be a complex proposition due to the low-margin nature of the business. Add to that the high real estate prices in India. In some cases, complexities like focusing on the right store size can prove to be a challenge and one wrong call can be disastrous in this hyper-competitive market. Then there is the nature of the Indian shopper, for whom discounts are a primary expectation.
So why has India been a tough market for foreign retail giants?
Talk to Trade standardLloyd Mathias, business strategist and independent director says Metro’s exit is due to the current state of competition. As well, Addiction has proven particularly disruptive in the field. Mathias sausages fierce competition, headwinds from regulations and small retail lobbies, pressure on prices and the rise of e-commerce have made it difficult to do business for global wholesale retail players in India
According to him, Reliance’s triple strategic advantage in retail includes theconnectivity of ast-mile with its telecommunications customers and JioMart, iinvestments in wholesale centers across the country, and 10 million merchant partners to integrate in the next three years.
A hurdle for global retailers operating in India is Reliance’s ability to deal with regulatory challenges
Also, what do their future options look like?
Mathias says, gglobal wholesalers in India on a back foot due to price pressuresingle-digit or negative EBITDA, tadequate regulatory frameworks, fCoping with supply chain market disruptions on the ground and on the re-commerce.
According to Forrester Research, the Indian retail market was worth $883 billion in 2020. The market size is expected to reach $1.3 trillion by 2024. It is an attractive market, but one that requires deep pockets and the capacity to fight off fierce competition from behemoths like Reliance.