India’s retail market expected to double to $3.6 trillion by 2020: report3 min read . Updated: 01 Sep 2016, 10:39 PM IST
A Ficci-PwC report says the e-commerce market may also reach $125 billion in terms of gross merchandise value by 2020, growing at the rate of 31%
New Delhi: Backed by robust economic growth and rising household incomes, consumer spending in India is expected to touch $3.6 trillion (about ₹ 240 trillion) by 2020, increasing India’s share in global consumption to 5.8%—more than twice its current levels.
Not just that. By 2020, India’s retail sector is expected to double to $1.1-1.2 trillion from $630 billion in 2015 at a compound annual growth rate (CAGR) of 12%, said a joint report released by lobby group Ficci (Federation of Indian Chambers of Commerce and Industry) and consultancy PricewaterhouseCoopers.
Titled Shaping Consumer Trends, the report was released Thursday at Massmerize 2016— an annual convention on retail, packaged consumer goods and e-commerce.
The report’s projections indicate that the average household income in India will triple to $18,500 in 2020, from $6,400 in 2010—acting as a major driver in retail growth and leading to evolution of new consumer segments.
Customers are getting more sophisticated, driving firms to focus on premium products, the report said. “Increasing disposable income levels and a rising number of sophisticated consumers have given rise to consumers seeking ‘premium’ products," it added.
According to IMRB’s Kantar World panel report published in 2013, nearly 50% of the total number of new launches in the personal care category has been in the premium segment.
The report highlights that the growth in the retail sector will be fuelled by both organized brick-and-mortar stores and e-commerce.
“India’s overall retail opportunity is substantial and a strong growth in e-commerce is expected due to a demographic dividend (young population, rising standards of living and upwardly mobile middle-class) and rising internet penetration," stated the report, adding about 32.18 crore people, accounting for about 25.4% of total population, are using Internet in India, according to digital information and research company eMarketer.
The report also noted a shift in the focus of e-commerce players, towards their own private labels.
The report said that private labels account for 10-30% of the total revenues of the e-commerce companies.
In 2015, online grocery platform BigBasket (Supermarket Grocery Supplies Pvt Ltd), which sells fruit, vegetables, meat, pulses and spices under its own brand, generated 35% of its revenues from private labels.
According to the report, the e-commerce market is expected to reach $125 billion in terms of gross merchandise value (GMV) by 2020, growing at the rate of 31%. GMV is the total value of goods sold over a period of time, without accounting for discounts or sales returns.
The report said that the packaged consumer goods sector will cross the $100-billion mark by 2020, growing at a rate of 18%.
“Rapid macroeconomic, demographic and lifestyle shifts in the country clearly point towards exponential growth in the packaged goods industry. These shifts, bolstered by policy and regulatory changes have a strong potential of taking India towards its goal of becoming largest consumer market over the next decade," it said.
According to the report, the maximum consumer spending is likely to occur in food, household, transport and communication segments.
Sanjiv Puri, chief operating officer at consumer goods company ITC Ltd and chairman of Ficci FMCG committee, agreed.
“With a lot of investment initiatives and GST (goods and services tax) coming in, there is a great opportunity in food processing," he said.
FMCG is short for fast moving consumer goods.
Led by opportunities in the sector, ITC has invested nearly ₹ 25,000 crore in about 65 projects—“a lot of which is in food processing," Puri added.
The report said that consumer goods firms will now be focusing on online and social media channels to get into consumer’s mindshare due to the growing mobile internet revolution in India. It said that about 650 million people are expected to be online by 2020, out of which 250 million will be shopping online —spending more than $50 billion. Interestingly, at least $5 billion of this expenditure is expected to be on packaged consumer goods.
“India will be domestic consumption-driven growth story, and, on our part, at Walmart India, we are growing our cash and carry business in the country and plan to take our store count to 70 stores with a full omni-channel strategy. This is an exciting market for us," said Krish Iyer, president and chief executive at Walmart India.
The report also offers insights on the recent changes in policies (100% FDI in trading of food products produced and/or manufactured in India, clarity on FDI in e-commerce, GST among others) that have led to an increase in investment opportunities.
Vasanth Kumar, executive director at apparel retail brand Max Retail, said there are opportunities in both FMCG and retail sectors. “With the GST coming in, productivity will go up, along with manufacturing and retailing. With that we can participate in the consumption and growth story in India," Kumar said.