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Retail Sector : Economic & Regulatory Enablers

(Sources: FICCI & Austrade)

A Realistic Figure for the Consuming Class

In India , over 30 million people (2.8% of the entire population) have an ability to spend over US$30,000 a year (in PPP terms) on conspicuous consumption. Consumer demand is driving retail growth, but it is in turn being driven by the following factors:

Boom Time for 40 Million Households

A growth rate averaging 8% has meant greater disposable incomes for the Indian middle class, which comprises 22% of the population. This figure is expected to increase to 32% by 2010. Disposable incomes are expected to rise at an average of 8.5% a year till 2015. About 40 million households earn the equivalent of US$4,000-10,000 per household and comprise salaried employees and self-employed professionals. This segment is expected to grow to 65 million households by 2010. It is the key driver behind the explosive retail sector growth.

Discretionary Income Sees A 16% Rise

India has one of the youngest populations in the world with 54% of the population below the age of 25 and strong growth is expected to continue in this age bracket. Discretionary spending has seen a 16% rise for the urban upper and middle classes and the number of high-income households has grown by 20% year on year since 1995-96.

Steady Progress of Urbanisation

The urban population is projected to increase from 28% to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segment.

Rise of the Self-Employed Class

The self-employed segment has replaced the employed salaried population as India 's mainstream market. At least 40% of the primary wage earners in the top two or three social classes in towns with a population of a million or more belong to this category of self-employed professionals and businessmen. This has driven growth in consumption of productivity.

Regulatory Enablers Aiding Growth

Barring the long overdue decision on FDI in 'single-brand retail', the official economic policies have favoured this sector. In January 2006, the Union Cabinet approved a major rationalisation of the policy on FDI in retail to further simplify procedures for investing in India and to avoid multiple layers of approvals required in some activities.

Till now, Government approval was required for FDI in wholesale cash-and-carry trading and FDI beyond 51% in export trading. To facilitate easier FDI inflow, instead of having to seek FIPB approval, FDI up to 100% will now be allowed under the automatic route for cash and carry wholesale trading and export trading.

The Cabinet has also allowed FDI up to 51% with prior Government approval for retail trade in 'single brand' products with the objective of attracting investment, technology and global best practices and catering to the demand for such branded goods in India . Still, are restrictions on FDI in retail continue, but the common channels for entry of foreign retailers are through strategic licencing and franchising arrangements, besides cash-and-carry wholesale trading.

The Indian Market for Food Products

The market for the imported food products and fresh fruit stands at more than US$1.1 billion per annum and is growing steadily.

Urban Indians spend up to 43 % of their income on food with food consumption growing at an annual average rate of 10%.

Food and grocery retail sales contribute approximately 77% of total retail sales.

The supermarket culture, which began in southern India in the mid-1990s, is spreading its wings to the western and northern cities.

Projections for Organised Food Retail

Organised food retail is likely to grow by 30% in the next five years and become a Rs 110 billion industry by 2010. At present organised food retail accounts for Rs 25-30 billion. It is only because of the entry of corporate houses and the relaxation of FDI policies that the sector can expand to the Rs 110 billion level by 2010.

Trends in India 's Imported Food Sector

Imported Pasta Market Grows at 26% Per Annum

Yoghurt: Pascuals ( Spain ) entered the Indian market three years ago and enjoys a monopoly. The two local brands - Nestle & Viva - are yet to establish themselves.

Cheese: Imported cheese has a 5% market share in the overall cheese market, which is dominated by local brands - Amul & Le Bon. Happy Cow ( Austria ), Laughing Cow (France) and Kraft ( Australia ) are the prominent imported brands selling in India .

Butter: Dominated by local brands - Amul, Britannia and Lebon. Meadow Lee ( Australia ) is most popular in the low-fat category.

Pasta: As a result of the increasing popularity of Italian cuisine - pastas are very popular among vegetarians - the market size for imported pasta is 5,200 tonnes and is growing at 26% a year. Ten pasta brands are available in the market. The two largest selling pasta brands are San Remo (125 metric tonnes) and Barilla (250-300 mt).

Fresh Fruit: Large amounts of fresh fruit have been imported in the last four years. The annual market growth has been 15 %. Apples constitute 80% of fruit imports. Other fruits include: oranges, table grapes, plums and kiwis. Australia has dominated the market for apples ( Tasmania apples). Washington ( USA ), ENZA ( New Zealand ) and Fuji ( China ) are making inroads. South India consumes approximately 60-70% of India 's total fresh fruits imports. Bottlenecks: Absence of cold storage infrastructure, under invoicing, grey market, poor handling and false labelling.

Meat & Fish Products: The Government of India's quality certificate requirements are restrictive. The high cost of meat products is a major barrier to growth in the sector. The five-star hotels are major buyers of imported meat products. Zwanburg ( Holland ) is the best-selling meat brand found in supermarkets. Thailand exports dominate the packed fish market. Tuna is the most popular imported fish product.




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