The expansion of the retail market in India can be mapped in
direct proportion to the expansion of its infrastructure – a town expands and
proportionately its retail market too, into its new areas and markets. A small
town like Tumkur in Karnataka had only one shopping area - the Mandipet main
road market, until a few years ago. But soon came with the expansion of the
town and its infrastructure, the new high streets like the SIT Main Road, SS
Puram Main Road, that have now become the shopping haven for the Tumkur
customers. The town of Tumkur is just one example and in the case of any Indian
small to mid-sized town, as rapid infrastructure growth is registered during
the current decade, shopping high streets have been emerging at a frenetic
pace. These are tier three and tier two towns with population spanning from three
to five lakhs and from over five to ten lakhs respectively. The real estate
market has been witnessing a distinctly higher percentage of growth than that
of the economic growth rate of the country. A larger supply of retail space is
also projected by analysts due to an expected increase in the Floor Space Index
in towns and smaller towns are expected to have a good supply of quality real
estate spaces at affordable prices. Therefore one expects retail to grow by a
good measure that is by double digits, in tier two and tier three towns this
year (2013). That said, the growth of modern retailing in cities is on a
different pitch. It has been estimated by industry experts
that in larger cities like Bangalore, Delhi and Mumbai retailers may continue to ‘actively lease space in superior quality malls
due to the limited availability of new space and the low vacancy rates in
existing prime malls’.
While seriously growth-seeking retailers and new retailers
may aim to grow in affordable smaller towns, those that come with great
investments – like the Starbucks kind – may continue to look for establishing
presence in key established markets at higher occupancy costs. As I was hunting
for a small retail space for a proposed new retail venture recently, I came
across an interesting landlord who had a 300 square feet space in a prime
location in Seven Bungalows and he said that he was keen to have Starbucks as
his tenant! When I asked him whether he would come down on the quoted lease rental of
Rs.500 per square foot per month, pat came the reply that he might consider a
considerable discount. Therefore, many landlords may be willing to forge a
joint venture with reputed brands being ready to settle for a percentage of the
topline without even demanding a minimum guaranteed return every month on their
leased premises. The situation seems to be hunky dory for big brands seeking to
enter the country. The homegrown big brands do not seem to have such good luck!
We are yet to see a Shoppers Stop open in the SOBO (South Bombay) region! This
trend shows that the reputed retailers entering India may fill even the limited
vacancies that may emanate in established malls in big cities. There may not be
a huge threat to small retailers in small and mid-sized towns as the big guys
from abroad may not immediately rush into these markets as they might take time
to establish in big cities first. Strategically while domestic retailers may
seek to grow outside cities, debuting foreign retailers of say, categories such as food and apparel, may logically look within the big cities first!
It may be a rat race and a race for the survival of the
fittest, as domestic retailers may keep moving fast outside cities into the
smaller and smaller towns while foreign retailers who may seek to spread their
wings into these markets closely following their heels. But the foreign retailers may have to become
Indian completely. The question of expansion feasibility of Starbucks into
smaller towns to give a tough fight for Café Coffee Day that has already
achieved scale of expansion in India having established in many small towns,
may be answered within just the next two to three years and both the brands may
compete on a level playing ground soon! After all they say that Starbucks in
India has indigenized itself completely with its entire foodstuff sourced from
Taj Stats and the coffee beans from Tata’s very own estates in India though the
brand identities may only remain Starbucks!
- Dr. Gibson G. Vedamani
The country is witnessing a great infrastructure growth, the real estate prices seems to hit the sky in most of the metros. People are moving to the suburbs because affordability. The infrastructure growth in the suburbs is also gaining momentum, and a lot of retail space is coming up.
ReplyDeleteI live in a suburb in Chennai called Keelkatalai. About 15 years ago people in Keelkatalai used say that they are going to Chennai for shopping. But today it has become part of Chennai. It houses some of the big retail names, like Dominos, KFC, LG, Megamart Reliance, Bata, Adyar Anadha Bhavan , Café Coffee Day etc. There are a couple of local players like Kavitha Textiles, Malaysian Protta Point, Pazzo shoes and so on.
About a year ago when Dominos had open their store, there used be maddening crowd there. Weekends were chocking. This year, when KFC opened their store, Dominos footfall has fallen to 50% of what it used to be. Both KFC and Dominos have an average footfall. On the contrary Adyar Anantha Bhavan and Malaysian Protta Point continue to have the same kind of footfalls that they used have. These local players have the capability to dent the business of the Big Boys .
The Big Boys have deep pockets, but we have to wait and watch to see who wins the race.
Eric Manickam
Yes, Eric. That's the retail percolation process! The suburbs and towns have great potential. The race will be on for a long time to come... We are only in the initial stages of the race as we have a long way to go and cover all 28 states and 7 union territories, their towns and suburbs too!
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