Grocery, apparel to attract most investments post FDI in retail: Deloitte

Written By Unknown on Jumat, 11 Januari 2013 | 22.23

MUMBAI: Grocery and apparel have emerged as the two most attractive segments to invest in as far as the modern retail industry goes in India according to a study conducted by a global consulting firm. Closely examining the implications of the policy the report by Deloitte Touche Tohmatsu India says that each of the conditions put out by the government will have a different impact on the various sub-segments of the retail industry in India.

"A policy condition might have a low impact in one segment but could be a major stumbling block for another segment. Mass grocery and apparel are two of the fastest growing organized retail segments in India today. In both these segments there are large domestic retailers who could be potential joint venture partners for foreign retailers", said Gaurav Gupta, Senior Director, Deloitte Touche Tohmatsu India. Foreign retailers could enter India by forming a new joint venture company, which shall have multi-brand retail stores in India, the report titled 'Indian retail market-Opening more doors'. said . Alternatively, the foreign investor may also consider acquiring 51 %in the existing business set-up of the potential Indian joint venture partner, the report elaborated.

Another advantage in the segment is that existing mass grocery retailers already source many products directly from producers and small food processing units. To meet the policy guidelines on sourcing and to have better margins, foreign retailers would need to cultivate relationships with local manufacturers to drive strong private label brand.
Whereas, multi-brand organized retail in specialty stores such as consumer electronics, footwear, furniture and furnishing among others are expected to expand and mature in the next few years. However the policy condition on sourcing will continue to be a major bottleneck for FDI in many of these segments.

The report states that the primary concern for the mass grocery segment would be the condition to invest a minimum of IRs 250-220 crore in the first three years towards back-end infrastructure like food processing unit and cold chains, While, other segments such as apparel, beauty & wellness and consumer electronics have limited requirements in the back end.

"Our opinion is that policies evolve with changes in the business environment and the political landscape. The FDI policy for single brand retail has evolved as the Indian market becomes more mature and the political situation more stable. Similarly, FDI policy for multi brand retail or its implication on the business may also evolve in future", said Gupta.

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