The Indian retail market - which is estimated at $180 billion, accounting for about 10 per cent of the GDP - has a long way to go so far as organised retailing is concerned. According to a joint report prepared by McKinsey and Confederation of Indian Industry (CII), organised retailing constitutes only 2 per cent of the market.

The share of organised retailing is likely to grow at a faster speed as a number of the drivers of the transformation in retail - such as income growth, the entry of best practice foreign retailers, freeing of real estate markets - are already in place in India, the report said.

With close to 12 million retail outlets, India has the largest retail outlet density in the world. It, however, lacks large players in the sector.

Compared to India, the total number of retail outlets in US is small at 905,000, however, the size of largest retail company in US is $165,000 million. Whereas the largest retail company in India is not more than $140 million.

The study, however, points out that the Indian retail sector is to witness a qualitative change. Organised retailers have begun entering the sector in the past five years. Over the last five years a number of large business groups such as the Tatas, RPG, the Rahejas and the Piramals have not only set up stores and malls but also businesses with retail. These include the Rs 190-crore Foodworld, India's leading supermarket chain set up by the RPG group, the Rahejas' Rs 180-crore Shopper's Stop, India's leading apparel multi-brand outlet and Crossroads, Mumbai's first international class shopping mall set up by the Piramals.

Petroleum retailers including HPCL, IOCL and BPCL are also expending their presence from fuel retail to grocery and convenience stores like SpeedMart, Bazaar and Convenio.

"While many of these initiatives were initially driven by the need to use existing real estate, they are beginning to assume the contours of a serious business today," the report said.

According to the study, the retail development is significant in the southern parts of India. Chennai, Bangalore and Hyderabad have become major retail hubs in the country. In Chennai, about 17 per cent of food sales flow through supermarkets and 25-30 per cent of durables sales come from speciality chains such as Viveks and Vasanth.

The scale of operations by these retail chains are equally impressive. Subhiksha has over 50 stores in Chennai, Bangalore and Hyderabad. The large scale of operation is also advantageous. "It enables these supermarkets to eliminate links in the purchasing chain and to craft deal with food processors directly," the report said.

In fact, the scale of purchases has made India's largest consumer goods company Hindustan Lever Ltd (HLL), dedicate a special team, to deal with these emerging power retailers.

Predicting that the growth of organised retail will get even further accelerated, the study, quoting a survey on the shopping behaviour of Indian women said that 40 per cent of the respondents felt that their shopping pattern had altered in the last five years. However, 30 per cent of the women surveyed said that they bought their toiletries and other personal care products in supermarkets, only 8 per cent bought their fresh produce there. According to a number of surveys carried by research companies, the modern Indian woman is seen to being increasingly under time pressure, desirous of some time for herself, willing to indulge and aware of her shortcomings in terms of knowledge in the home/kitchen. She is therefore, more prone to convenience options, more demanding on store ambience and looking for solution providers and external guarantors of quality and usability, says the report. From an ignored industry, barely 10 years ago, the Indian retail market is becoming one of the most competitive businesssegments. The emerging competition is visible by the fact that large conglomerates including the the Tatas, ITC and the Rahejas have already initiated investment. The Birlas have acquired the Madura Garments' apparel business to foray into retailing, while the Reliance group is planning to develop a retail business along with its proposed fuel retailing network.

As the Indian consumer's shopping behaviour changes, with demand for more variety, quality and easy availability of products, the retail sector sure has a vast field of opportunities open before it. But then the challenges and bottlenecks are equally daunting.

(Tomorrow's focus: Electronics)