Source: The Economic Times, June 19, 2017
NEW DELHI: More than 50 mid-rung global retailers are planning to enter India within the next six months, according to data compiled by Franchise India that has tied up with them for their launches, with their eye mostly on smaller, untapped markets within the country.
Brands such as Korres, Migato, Evisu, Wallstreet English, Pasta Mania, Lush Addiction, Melting Pot, Yogurt Lab and Monnalisa, many from the US and Singapore, will invest about $300-500 million — all told to open roughly 3,000 stores, triggered by the country’s expanding economy, booming consumption, urbanising population and growing middle class.
“The first retail wave happened a decade ago when bigger retailers and brands entered India,” said Gaurav Marya, chairman of Franchise India Holdings, a retail solutions provider that is helping these 53 brands find partners and get regulatory clearances. “Now, it’s the turn of small and mid-sized brands as they look to cash in on the open retail policy and huge gap in the market for branded products.” Of the incoming brands, 18 are in food and beverage space followed by 13 each in apparel and lifestyle products and education products.
Earlier this month, India replaced China as the most promising retail market in the world, according to an AT Kearney report.
As retailers struggle in their home markets, India could be the next bright spot for the industry, especially since the government has allowed 100% foreign ownership in businessto-business (B2B) ecommerce businesses and for retailers that sell food products manufactured in India.
“Government efforts to boost cashless payments and reform indirect taxation with a nationwide goods and services tax are also expected to accelerate adoption of modern retail,” the AT Kearney report added.
Relaxed FDI Rules
GST, one of India’s most significant tax reforms in decades, is set to be rolled out on July 1.“India’s current growth and development make it an ideal target for the brand. Chicken products are the major non-vegetable food in the country, making our menu ideally suited to the market,” said Andrew Withers, chairman of Southern Fried Chicken, a British quick service restaurant that runs 700 franchise stores globally.
The government relaxed the rules for foreign direct investment (FDI) in single-brand retail last year, spurring interest on the part of several brands, including Sweden-based Hennes & Mauritz (H&M) and Ikea, Japan’s Uniqlo, American retailer GAP and Massimo Dutti. H&M has already opened stores in India.
However, the latest brands are mostly smaller ones that rely on the franchise system for global expansion.
Also, unlike most large global retailers which focus on urban cities initially, these smaller ones wants to cash in on smaller and untapped markets.
“India is a fast-growing market, huge in size, but Monnalisa’s target is concentrated in Tier 2 and 3 cities, allowing us to more easily reach our final users,” said Thomas Bessi, overseas sales manager, Monnalisa SpA, a European children’s wear retailer. “After the recent expansions in Brazil, Russia and China, and the saturation of the traditional markets in Europe and the Middle East, India was the last big territory that we needed to conquer.”
Opportunity in global food chains
The Indian retail market was worth $641 billion in 2016 and is expected to reach $1.6 trillion by 2026, growing at a compounded annual growth rate of 10%, according to the India Business of Fashion 2017 report. With food and grocery retail just 3% of the overall market, several global food chains sense an opportunity. The 18 QSRs, mostly snacking and ice-cream brands, will enter a market still dominated by Domino’s Pizza and McDonald’s, although the segment hasn’t been doing all that well of late.
“The snack segment in India has been showing some interesting potential as well as India’s economic development as it pertains to many different types of international franchises entering the market and culture to some degree,” said Martin Azambuya, managing director of US-based Doc Popcorn.