Read this article about recent business developments in the retail sector in India.  To check your general understanding, decide which is the correct answer.

Retail revolution on the way

Britain is said to be a nation of shopkeepers, but perhaps the description fits India better.  There are more than 12 million small family-run shops, taking 97% of all retail spending in India.  Market analysts agree that this is about to change dramatically.

Small shopkeepers are protected by strict legislation.  At present, Indian law doesn’t allow foreign direct investment in the retail sector.  Franchise arrangements with Indian companies, however, have allowed western retailers such as Marks and Spencer and Body Shop to get a foothold in Mumbai and Delhi.

Until recently, western style supermarkets were unknown in India, and the general opinion was that they wouldn’t work.  Indian shoppers expected to be able to handle fruit and vegetables, and haggle over prices.  HyperCity, a vast, Indian-owned supermarket in the suburbs of Mumbai has changed that view.

Two years’ planning went into the project, and India’s first supermarket has proved to be a runaway success.  Shoppers flock to the 120,000 sq ft store and cellophane-wrapped vegetables are proving to be just as popular in India as they are elsewhere in the world.

A franchise agreement with Waitrose, the British supermarket group, allows HyperCity to stock 300 Waitrose lines such as pasta and biscuits.  The superstore sells more than just groceries, though.  The surprise best sellers in the first few weeks were mountain bikes, with an average of 10 sold a day.

Western supermarket groups such as Carrefour, Wal-Mart and Tesco have been monitoring events closely.  All three retailers have been holding talks with Indian investors, and Wal-Mart have now signed a deal with a major private Indian company, beating off competition from the other two.

Foreign investors will face stiff competition from local companies.  The owners of HyperCity plan to open another 14 stores within 18 months, and Reliance, a petrochemicals firm and India’s biggest company, has plans for 800 stores throughout India, including hypermarkets and grocery shops on petrol station forecourts.

India’s protective investment laws are expected to be relaxed, but incrementally and over a long period of time.  The country’s ruling coalition is determined to avoid a situation where multinational corporations take over and force family businesses to close.

Analysts point out that western companies are not guaranteed to succeed, as retailing requires knowledge of the local market, and what the customer expects.  Both Wal-Mart and Carrefour went into South Korea, but have had to close down business there.

The main challenge facing retailers in India, whether western or local, is reaching its large young and increasingly big-spending population.  Only 6% of national consumption takes place in the big cities, whereas 70% of urban spending takes place in 700 or more large towns.  Companies investing in the Indian retail sector will need to reach these consumers if they are going to succeed.

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