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Why 2017 will be a profitable year for grocery retail to bank on

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Modern grocery retailing has come a long way, registering a value growth of 17 per cent in 2016. This increment was stronger as compared to the 10 per cent growth for traditional grocery retailers. The jump in growth has been credited to increased footfalls by urban consumers at hypermarkets and supermarkets, with young urban consumers preferring to shop for their groceries once a week.

Convenience is the key here, as offers given by these retailers when purchasing in bulk translate to lower pricing as compared to that offered by traditional grocery retailers. Demand for luxury and ready-to-eat food items result in higher spending on food and groceries, with hyperlocals providing exclusively sourced products at local prices.

The experience of shopping in a comfortable setting, along with a variety of local and global products housed in an affordable range, makes modern grocery platforms such as hyperlocals and supermarkets a viable/ popular choice in a developing nation like India. In fact, world’s top most retailers rated India as the second most preferred destination when they were asked about their next targeted countries for expansion.

The segment enjoys the larger chunk of the market pie and is expected to grow consistently over the next few years, owing to its product catalogue that caters to every household requirement. Improving living standards, a strong desire for a healthy lifestyle, and a rising affluent middle class population are influencing the overall market, in terms of products consumed.

Although India is majorly made of rural regions and low income consumer still consume unpackaged food and groceries, a rise in the number of consumers turning towards packaged food and groceries has helped the market in acclimatizing grocery retailership for a substantial period of time.

A few factors that will define grocery retail this year:

• Diversity of preferences – India’s status as a melting pot of diversity remains unchallenged. Multiple cultures, languages and religions end up having a huge influence on the preferences of the Indian consumer. With no two consumers alike, this gives space for multi-functional platforms such as supermarkets to flourish, catering to the myriad demands efficiently. This will help retailers to develop their business and cash in on the underlying diversity of tastes and consumer preferences.

• Sourcing base and efficiency – The fragmented agri-supply base coupled with an inadequate legal framework makes it easy for organized grocery retailers to trounce the unorganized mom-and– pop shops.

• Real estate availability and cost – Rentals account for 7-7.5 per cent of the combined costs for organized retail in India, in comparison with global benchmarks of less than 3 per cent. Real estate availability and costs will ease up post the recent move of demonetization. Real estate expenditure for grocery retail space would be nominized in the upcoming years.

• Manpower availability – As organized retail expands, there is expected to be a rise in the demand for manpower. Th e lack of institutions and courses for catering to diverse aspects of retail management may have an impact on the supply of quality of manpower. Yet the country’s young and burgeoning population would supplement the manpower requirement with the sheer force of quantity and bulk hires.

• More players to enter the retail space – Globally, retailers are realizing that size influences profitability, not just through scale in operations but also by way of higher bargaining power leading to better margins. With this in mind, many international players are primed to infiltrate the retail space in India and the growth stage will be characterized by rapid expansion and consolidation among these players.

• Rise of organic and wellness – Consumer attitudes and preferences are undergoing a tectonic shift owing to factors such as increase in disposable incomes, changes in lifestyle choices, increase in number of working women and multi cultural exposure. These lead to increasing health consciousness, which will frame the purchase behaviour of the average consumer. Organic foods and wellness products would be emerging opportunities that champion the organized retailers in their tryst for market infiltration.

• Increased focus on private labels – Discounts and promotions will continue to play a critical part in generating footfalls. To counter the impact on factory-made banal products, organized players will find it more profitable to promote private labels or store brands given their higher margins. The consumer too would benefit from lower prices available in the retailership, as compared to those in standalone stores. Here are a few ways through which retail innovation can be a game changer in 2017.

• Through targeting specific customer segments and serving their needs in an efficient manner e.g. working women, single office goers, etc.

• Th rough altering the product mix, catering to specific needs, e.g. entirely private label stores, exclusively fresh produce stores.

• By offering new forms of convenience, enhancing consumer experience significantly, e.g. tele-retail and internet retail.

• Through incorporating self-scan checkouts that have the potential of reducing both check-out time lag and excess expenditure on the manpower cost for the retailer.

• Using RFID tags which can help keep tabs and reduce in-store inventory management costs and provide retailers better insights into customer instore movement patterns.

Growth will continue for India’s retail food market while major organized food and beverage retailers begin expanding into semi-urban markets, escalating their reach through consolidation.

High land or rental space prices, stringent food and labelling laws, and rising capital costs may prove to be small roadblocks to retail growth. Yet, with industry members exploring new formats and adding more locations, 2017 will be another profi table year for grocery retail to bank on.