Food retailing sector in India – US$ 500 billion and growing

Scope for growth and innovation in food retailing

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Food retailing can be defined as the selling of food commodities that are purchased and consumed by consumers, excluding sections like food-service, restaurant and eatery foods. A recent Business Standard report pegged India’s food retail market at US$ 487 billion (approximately Rs 33,11,600 crore) in 2017, with a CAGR of 9.23%. The food retailing sector constitutes around 16 to 17% of India’s GDP. On the other hand, the region-wise distribution of India’s food retailing sector reveals highest market share for northern India at 29.56% followed by southern India at 27.19%, western India at 25.39% and eastern India at 17.86%.

Socio-economic significance of food retailing in India
One of their most important expenditures, consumers purchase retail food commodities every week including vegetables, fruit, milk, bread, eggs, meat and snacks. Surveys indicate that the food retail market in India is mostly unorganized at 97% wherein the organized sector accounts for only 3%. More than 15 million general (kirana) stores, convenience stores and street markets constitute the unorganized food retail segment in India. The organized segment includes supermarkets, hypermarkets, gourmet stores, eTailers as well as cash-and-carry set-ups – all of which are numbered around 50,000 in India. The food retail market in the country is growing rapidly owing to three main factors:

  • Supply, which includes infrastructure development, food processing, multi-channel marketing, easy credit availability and private labeling;
  • Demand, which includes increasing urbanization, increasing disposable income, growing middle-class population, increasing working women, inclination towards a healthy lifestyle, consumer awareness and changing preferences towards international trends, increasing foreign travel, international TV shows, food festivals and Internet penetration;
  • Regulatory, which includes foreign direct investment (FDI) policy in the multi-brand retail sector and implementation of GST and increased activity of FSSAI in food safety and packaging regulations.

Growth of India’s food retailing sector
In India, the urban youth aged from 16 to 40 years spend over 40% of their income on food commodities and are happy to pay a premium for better quality, variety and taste. The most significant and rapidly emerging trends in the Indian food retail consumers are:

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  • Rise in demand for imported food products;
  • Increasing popularity of gourmet food products; and
  • Rise in demand for organic foods and health-promoting food products. Ready to cook frozen foods, cheese, creams, chocolates, cakes, wine, alcoholic beverages, cookies, croissants, nachos, tortillas, burritos, juices, dips, sauces, honey, fruit, truffles, artichokes, asparagus, Australian lamb meat, Norwegian salmon, packed tuna and whey-protein shakes are the most sought after exotic food products in the Indian food retail market at present.

Challenges before India’s food retailing sector
The major challenges holding back India’s food retailing sector include overwhelming competition from the unorganized segment, uncertain resource base, poor sourcing efficiency, land availability, catapulting of capital cost, unavailability of skilled manpower, inadequate distribution network, shortage of cold chains and high spoilage and wastage of food. Also challenging are factors such as the rise in the ultra-nationalistic indigenous (swadeshi) narrative, currency fluctuation, rising consumer proclivity for fresh home-grown food, managing diversity of Indian palates, fluctuating consumer price index, abrupt shifts in food choices and preferences of consumers due to inflation, tough and inflexible FSSAI norms, harsh import duties and unfavorably high custom duties and taxes.

Scope for innovation in India’s food retailing sector
The Indian food retail sector has a great scope for modernization and innovation that could help foster growth in the future. These innovations include integration of the total agri-value chain for proficient procurement and efficient supply chain management, inclusion of traditional Indian foods, customized food products for targeted consumer segments, establishing stores of fresh produce, tele-retailing and internet retail. The scope for innovation includes the use of artificial intelligence, convenient self-scan checkouts to ease consumers’ shopping experience, tracking of in-store movement patterns of products to reduce inventory stock management costs and occurrence of stock-outs, and the use of predictive analytics to gain insights into customer buying behavior.

By: Ajit Singh Bhatnagar is a visiting faculty at department of Home Science at Govt Girl’s PG college Durg, Chattisgarh. Formerly he worked as an assistant professor at Food Engineering and Post-Harvest Technology, Ambo University, Ethiopia.

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