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India's Retail Sector Set for Dramatic Changes

India's retail sector is set for dramatic changes as the world's largest retailer, Wal-Mart, gets ready to open hundreds of stores in the country with a local partner. As Anjana Pasricha reports from New Delhi, Wal-Mart will be the first foreign superstore to break into India's under-developed retail market.

On a sunny winter day, customers pick up groceries from a small, family-owned store in an up-market area of New Delhi. The owner, Gurvinder Saluja, greets them cheerily. He knows many of them by name.

"They come and stand in front of me, I attend them personally, and I am attending them for years, I give the personal touch," he said.

Millions of mom-and-pop stores like Saluja's do brisk business in a country where even the largest cities, like Delhi, boast only a handful of supermarkets.

That may be about to change. During the next five years, the U.S. retail giant, Wal-Mart, plans to open hundreds of superstores in India.

The stores will actually be owned by the Indian telecommunications company Bharti Enterprises, but operated as a Wal-Mart franchise. The arrangement will allow Wal-Mart to pry open India's retail sector, which is closed to direct foreign investment, but allows outsiders to operate through franchisees.

Bharti chairman Sunil Mittal calls India the world's last, big frontier for retail. He says Wal-Mart's expertise in this area will help his company tap the sector's massive potential in India.

"Wal-Mart has now decades of experience," said Mittal. "More importantly, they have handled size, which is needed for India. India is a very large country, you need very large-scale technology intervention, and I think they will be the right partners."

Wal-Mart and Bharti will be facing domestic competitors. The toughest competition could come from India's largest private sector company, Reliance Industries, which plans to spend more than $5 billion to open more than 5,000 retail stores across the country. The first opened last month in the southern city of Hyderabad.

Large stores have only a three percent share of the retail market, but business analysts say there is enough room in India's huge market for several players. Turnover is expected to more than double in the coming decade, from $300 billion to more than $600 billion.

Raman Manglorkar, head of consumer and retail practice at consulting group A.T. Kearney, says modern retail is set for impressive growth, and other global retail chains like Tesco are also eying the Indian market.

"More encouraging is what we refer to as modern retail, which we anticipate growing at 25- to 30-percent annually," noted Manglorkar. "There is a lot of interest, and most of the major international players are pacing the sidelines, and building up their strategic plans, and getting ready to enter as soon as the opportunity opens up."

It is this potential that prompted Wal-Mart to get a head start in India, even though it had to tie up with a local partner. It may face some opposition, India's leftist parties have threatened to launch a nationwide strike against Wal-Mart, saying it has entered through a backdoor route.

India has kept the retail sector closed to outsiders for fear of endangering the livelihood of owners of 15 million small stores like Gurvinder Saluja's. Saluja is not worried yet, but says he is prepared for tough competition.

"If they will be able to sell cheap, we have to see, we have to compete, that is the only thing," said Saluja.

Saluja may have reason for concern. With fatter incomes and rising expectations, the Indian middle class is getting used to modern conveniences, and is ready to shop the way the developed world does.

It is millions of potential customers like these that have prompted business analysts to rate India as one of the world's most attractive retail markets.