Inefficient supply chains and a lack of adequate infrastructure are often cited as impediments to the growth of Indian retail, which otherwise has tremendous potential. But there?s hope in the form of the logistics market. The logistics market for organised retail, which is pegged at $50 million, is growing at 16% and is expected to reach $120-130 million by 2010. And with organised retail growing at 400% and expected to reach around $30 billion by 2010, demand for logistics will continue to outstrip supply.
The woeful state of infrastructure has prompted most corporations entering the $300 billion retail market to own and manage their own logistics operations rather than outsource them to third-party logistics (3PL) or fourth-party logistics (4PL) providers. Even before the entry of the world?s largest retailer, Wal-Mart of the US, into the country, its wholly owned logistics arm, Gazeley, confirmed its India foray. Wal-Mart has been closely studying various logistics providers across India.
Mukesh Ambani-led Reliance Retail?s logistics services are handled by another group company, Reliance Logistics Ltd. Bharti Enterprises, which entering into retail partnering Wal-Mart is negotiating directly with the railways for services, rather than through a logistics service provider.
A recent Ficci-E&Y retail report also highlights the grossly inadequate infrastructure as the main factor impeding the development of an efficient supply chain and, thus, the growth of retail in the country. Unlike mature western markets, analysts expect retail growth in India to be dominated by large retailers owning the logistics rather than outsourcing it to 3PL and 4PL providers in the near future simply due to the highly fragmented nature and lack of national as well as international logistics providers in the country.
Almost 78% of total freight is transported by road in India. But, according to the Ficci-E&Y retail report, roads connect less than half of the half a million Indian villages. The normal distance covered by trucks and trailers in India are 250-300 km a day, whereas the international norm is 600-800 km a day. Most roads in India are designed to carry a maximum gross weight of 16.2 tonnes, which allows for a maximum loading of about 9 tonne. This severely restricts the ability to transport goods on larger vehicles.
The storage infrastructure, too, is severely restricted. In 2006, India had a total warehousing capacity of 81 million tonne. Like the rest of the infrastructure sector, warehousing is highly fragmented and unorganised. An additional warehousing capacity of 35 mt is the estimated requirement by 2012 at a cost of $1.88 billion.
However, small players with limited means cannot follow a model wherein retailers do not depend on 3PL and 4PL providers but on their own in-house companies. These small retailers would need to depend on the infrastructure developed by the government.
According to some analysts, the whole debate on retail is skewed. Rather than debating whether big retail and FDI would kill small retailers, the focus should be on developing infrastructure in terms of logistics, supply chains, warehouses and cold chains so that the small retailers do not face infrastructure handicaps.