RETAIL 4.0: WINNING THE 20s - THREE DECADES GONE BY, A NEW WORLD OF POSSIBILITIES AWAITS FEBRUARY 2020 - Boston Consulting Group
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RETAIL 4.0: WINNING THE 20s
THREE DECADES GONE BY, A NEW
WORLD OF POSSIBILITIES AWAITS
FEBRUARY 2020
About BCG Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage and driving bottom-line impact. To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive. About RAI Retailers Association of India (RAI) is the unified voice of retailers in India. A not for profit organization, RAI, works with various stakeholders to create the right environment for the growth of modern retail in India. It represents an entire gamut of retailers, from chain store retailers and department stores to independent emerging retailers. RAI encourages, develops, facilitates and supports retailers to modernize and adopt best practices. It works with all levels of the government and stakeholders to drive employment opportunities, promote retail investments, drive thought leadership, enhance customer choice and build industry competitiveness.
Authors Abheek Singhi Rachit Mathur Amrita Dutta Managing Director and Managing Director and Principal, Senior Partner, Partner, Boston Consulting Group Boston Consulting Group Boston Consulting Group
Abheek Singhi Managing Director and Senior Partner, Boston Consulting Group Kumar Rajagopalan CEO, Retailers Association of India (RAI)
Foreword Organized retail in India has been shaped by three distinct growth waves over the past decades. As we step into the 20s, we look back and reflect on how the major predictions by the industry, of the past decade, have played out. Have the themes around consumer preferences, retailer profitability, big-box formats, digital, e-commerce and the unorganized sector developed as anticipated? This report talks about likely trends that could shape the industry in the next 5-10 years, considering multiple dimensions of consumer shifts, supply side innovations, data and technology driven disruptions, new competitive forces and regulations. Retail in India continues to be fragmented. There is large headroom for the top five retailers to grow their market share from the current
CONTENT
10 28 44 REFLECTIONS OF FORCES EXPECTED TO THEMES FOR THE THE PAST DECADE SHAPE INDIAN RETAIL NEXT DECADE
Retail in India has come a long way. Evolution has seen
waves of growth over the past three decades which
can be synthesized into three distinct waves. The
first wave was all about a new physical world of retail
experience through large format multi-brand stores
and exclusive branded stores, the second was triggered
by the entry of large players in food retail through
hyper and supermarkets, and the third fueled by rise of
e-commerce and foreign brands.
As we step into a new decade, retail is expected to
cross the trillion-dollar mark on the back of multiple
structural, socio-demographic and economic drivers to
boost consumption – but winners will need to establish
models to viably tap the demand.
We take a moment to reflect whether major industry
expectations of the past decade have played out
as anticipated. The past decade saw sustained
profitable models emerge in large retail categories
with ‘Value retail’ being a clear proposition that has
appealed to consumers. Small neighborhood stores
continue to stay relevant amidst competition from
e-commerce and modern trade. E-commerce has
shown strong growth but penetration and share vary
across categories. Mixed pathways have started to
gain prominence vs. pure channel specific customer
journeys. Hence, while many predictions landed well,
EXECUTIVE
a few have turned out differently.
We believe that with constantly evolving market
dynamics, the future of Indian retail is likely to be shaped
SUMMARY
by five distinct forces - consumer shifts, supply side
innovations, data and technology driven disruptions,
new forms of competition and regulatory direction.
The India consumer is gradually but distinctly A significant portion of Indian retail continues to changing across multiple dimensions. The need for be fragmented. There is large headroom for the top convenience, personalization, shopping on trend, retailers to increase their market share from the multi-channel engagement and bias towards healthy current
REFLECTIONS OF
THE PAST DECADE
10 Retail 4.0: Winning the 20sReflections of the past decade 11
Organized retail in India has come a long way
Organized retail in India
has come a long way,
Size of market
since its inception in the
early 1990s.
Wave 1 Wave 2
Three distinct
growth waves have
revolutionized Indian Organized players started competing
retail over the past few With the opening up of the economy, with smaller stores, through larger
decades. Regulations organized players launched modern trade multi-category stores and formalized
related to opening up formats and exclusive branded stores supply chains
the market and bold
bets by domestic and
international players 1991 2001
have fueled these waves. first Modern Trade store first hypermarket
(Shoppers Stop in Mumbai) (Big Bazaar)
The market has grown 1995-96 2003
steadily in the past and is first exclusive Adidas, Reebok store first cash & carry
likely to continue on this first Foodworld store from RPG (Metro in Bengaluru)
growth trajectory in the
long term, on the back 1997-98 2006
Reliance enters organized
of multiple structural, first Pantaloons store from Future Group
retail with Reliance Fresh
socio-demographic and first Westside from Trent
economic drivers.
1990s 2000s
New world of Physical Retail
Entry of Hypers & Supers
(Modern Trade & Exclusive Branded Stores)
FDI in cash & carry Future Group reached
Milestones permitted (1996) $1 billion (2007)
Select events
12 Retail 4.0: Winning the 20sWave 4
Wave 3
What will drive the next big
FDI permits led to the introduction of
multiple foreign brands and attractiveness of
wave of growth in the 2020s?
e-commerce paved the way for a new digital age
2010
Zara first store in Delhi
2012
Amazon enters India
2015
H&M first store in Delhi
2018
Walmart acquires Flipkart
Ikea first store in Hyderabad
2019
Uniqlo first store in Delhi
2010s 2020s
Rise of E-commerce & Foreign Brands
Time
51% FDI in Multi-brand, DMart most valued retailer
100% in Single-brand (2013) inIndia’s long term India retail market estimated to reach $1.1–1.3 Tn by 2025
consumption and retail
growth drivers are
expected to provide a Indian consumption likely to outperform developed countries
strong foundation for
future growth. Consumption
2025 ($ Tn) 3.2 18.1 2.4 2.5 1.8
However, in the past few 9.9%
months, the economy Consumption CAGR1 (2019–2025)
witnessed signs of a
consumption 4.5%
slowdown. The extent 3.6% 3.4% 3.4%
of this slowdown varies
across categories,
channels and
geographies, e.g.
• Product categories
such as white goods
and mobile phones
delivered double digit
growth
Indian retail expected to grow at 9-11%
• E-commerce and
physical multi-category
Size of retail ($ Tn) CAGR
organized retail grew 9-11% 1.1-1.3
robustly
• FMCG grew by 7% over 0.7
the past 12 months
The strength of multiple
structural, socio-
demographic and
economic drivers can 2019 2025
sustain high growth in the
Note: 1. Private consumption expenditure at current market prices in US$
industry over the 20s. Source: RBI, IMF, EIU, Oxford Economics, Euromonitor, CCI Proprietary Consumption Model, BCG analysis
14 Retail 4.0: Winning the 20sMultiple structural, socio-demographic and economic drivers well in place to
drive consumption over the next decade
Factor Shift Implications
Increase in income per capita Spend increase with income growth
Income growth 2.5X 2.5X
from 2016 to 20273 from $1.6k to $4k per annum
Urban population by 2027 1.2– Average consumption per
Urbanization 38% 2.3X
versus 32% in 20165 household in urban versus rural
Households to be nuclear1 by 20– Higher consumption of nuclear
Nuclear families 75%
2027 versus 71% in 2016 30% versus joint families
Population will belong to Gen ‘I’2 Have options, higher appetite to
Gen ‘I’ 80%
by 2027 versus ~70% in 20165 spend, comfortable with credit
Farm and factory Steady increase in farm and Steady agri-supply and stable
production income and operating commodity markets drive
output growth environment4 consumption and price stability
Note: 1. Nuclear households are households comprised of a married couple or a man or a woman living alone or with unmarried children (biological, adopted, or
fostered) with or without unrelated individuals. 2. Gen I constitutes individuals who have grown up in the liberalized economy (What would the industry have predicted?
10 years ago…
Having outlined the
size of prize (i.e the
Indian retail market), Retail profitability improvement could be difficult, with
let us take a moment 1 industry facing multiple challenges
to look back at the past
decade.
Multiple retail formats expected to drive scale and returns,
2 with the rise of premiumization across categories
The 2010s were shaped
by multiple trends Small neighborhood stores would be threatened by increased
such as:
3 competition from super/ hypermarkets and e-commerce
• New FDI regulations
making global brands
accessible to the 4 Hypermarkets would gain prominence and lead growth
Indian consumer
• E-commerce
unicorns, large 5 E-commerce would gain fair share across categories
retailers and
burgeoning startups
giving consumers Digital would likely create a face-off between pure online
new shopping 6 and offline channels
experiences
7 Supply chain would move to integrated farm-to-fork
Role of store associates would diminish, given increasing
8 use cases of technology
16 Retail 4.0: Winning the 20sWhat actually happened?
10 years later…
Sustained profitable models emerging across categories
Value retail clear winner amongst formats; ‘Value’ still the core of Indian consumption
Small neighborhood stores continue to be relevant owing to familiarity, proximity,
monthly credit
Retail moving to smaller sized stores amidst rental pressures
E-commerce has grown but still has a long way to go; penetration varies across categories
Mixed pathways playing out; Multi-channel has unlocked growth for retailers
Some momentum observed in integration, end-to-end flows yet to be solved
Store associates still relevant, also play the role of experts and advisors
Reflections of the past decade 171 Select models across some categories showing profitability
Retail profitability
EBITDA margin of select
improvement could listed Indian retailers
be difficult, with The real size of prize for retail has been
industry facing demonstrated when concepts and
multiple challenges operations are scalable, driving sustained
Category EBITDA margin profitability. Indian retail is highly
10 years ago… fragmented today and offers massive
headroom for growth
Food and Grocery 6–8%
Illustration: Listed retailer financial
performance
EBITDA, Rs. Cr. 1,400
Apparel 8–11%
1,000
660
Footwear 14–16%
FY16 FY17 FY18
EBITDA 7.7% 8.1% 8.9%
Jewelry and Watches 10–11% margin
10 years later…
EV/ EBITDA 39.2 58.5
Sustained
profitable models
emerging across Food QSR1 12–15% While some categories have started to see
categories sustainable profitable models, a few others,
such as consumer electronics/ appliances,
continue to be challenged
Note: 1. QSR - Quick Service Restaurant
Source: Company annual reports, Analyst reports, Press search
18 Retail 4.0: Winning the 20sIndia values “value” 2
Pricing/ promotions still a key factor influencing purchase
% respondents1
Multiple retail
formats expected
100% 6%
14% 13% 14% 14%
30% to drive scale and
33% 40% 7% 14%
26% 31%
35% 3%
returns, with the rise
27% of premiumization
22% 31% 18% 25%
19%
18% across categories
61%
45% 41% 52% 40% 45%
33% 42% 10 years ago…
Eat-out Order-in Staples Apparel Flight Hotel Electricals Mobile
Food
Leisure travel
Brand Recommendation/own usage Pricing/Promotions Features of offering
What’s worked for value retail in Food and Grocery in India
Sharp/ consistent positioning of consumer
Optimized assortment
segments and shopping missions
10 years later…
Price led proposition High throughput and turns
Value retail clear
Low cost operating model (supplier deals,
winner amongst
Clear in-store communication
payment terms, optimal staff, rentals) formats; ‘Value’ still
the core of Indian
Note: 1. Considering Rank 1 responses only: Q - Thinking about your last purchase for XYZ, can you tell me the 3 most consumption
important factors which helped decide what product should be bought? Data of only urban consumers
Source: CCI Survey & BCG analysis 2019, N=1367
Reflections of the past decade 193 Kiranas associated with familiarity, proximity, monthly credit
Small neighborhood
stores would be
threatened with
increased competition Convenient payment options
from super/ Provide monthly credit
Store experience
hypermarkets and
Great shopping
e-commerce environment and Trust the quality
ambiance of product
10 years ago…
Store has freshly
Proximity
stocked products
Store is conveniently
located from my
house
Familiarity with store /
owner of the store
Pricing/Offers
Reasonable prices /
promotions compared to
10 years later… other stores Familiarity/trust with the channel
Small neighborhood
stores continue to Hypermarket Supermarket Kirana Online
be relevant owing
to familiarity,
Note: Q: I am going to read out a number of statements and I would like to know which of these statements apply to any of these
proximity, monthly channels. You can select multiple channels for each statement. I would like your impressions of these channels, whether or not
you’ve purchased from them in the past; Data of urban consumers shown. Top 7 factors of channel preference are shown.
credit Source: CCI Survey & BCG analysis 2019, N=918
20 Retail 4.0: Winning the 20sShift to smaller formats observed, driven by 4
convenience and space productivity
Count and % of net stores added Hypermarkets would
88% gain prominence and
2014–2015 2% ~3,700
lead growth
10%
10 years ago…
59% ~2,400
2016–2017 21%
20%
52% ~3,700
2018–2019 35%
13%
Average size
of store (sq. ft) 38k 11k 2k
Large format and Mid size Neighborhood and
Hypermarket (>25k sq. ft) (4k - 25k sq. ft) convenience (5 Online disruption varies by category, with fast gains in
Electronics and Toys & Games
E-commerce would Online share of total retail sales in India
gain fair share across
categories
Faster shift to online
10 years ago… 2008 1.4% 15.3% 2018
Electronics
2008 0.5% 13.0% 2018
Toys & Games
2008 0.3% 10.8% 2018
Apparel &
Footwear
2013 0.1% 5.0% 2018
Homeware &
Furnishings
2008 0.5% 2.3% 2018
Health
10 years later…
Slower shift to online
E-commerce has 2008 0.2% Accessories & 1.8% 2018
grown but still a Eyewear
long way to go;
penetration varies 2010 0.1% 1.6% 2018
Beauty &
across categories Personal Care
Source: Euromonitor. ‘Toys & Games’ excludes retailers specializing in computer games. ‘Health’ excludes prescription
medication. Data not available for ‘Beauty & Personal Care’ prior to 2010, ‘Homeware & Furnishings’ prior to 2013.
22 Retail 4.0: Winning the 20sOnline important for mobile and service categories; offline continues to
dominate across others
Spend/
% spend by channel1 Trigger2 Occasions/ year
occasion (Rs.)
Leisure 46% 54% Experimentative 1.8 15,051
travel
Order- 44% 56% Experimentative 13.8 605
in food
Mobile 35% 65% Functional 0.4 10,860
Apparel
Celebratory/
Apparel 7% 93% 7.2 2,097
Societal
Electricals 2% 98% Functional 1.5 718
Staples 1% 99% Functional 17.0 1,966
Online Offline (Includes modern trade, general trade)
Note: 1. Q - Can you tell me what proportion of total spends did you make across the channels for purchasing category? Data of only urban consumers. 2. Now I want you to
think about the last time you purchased XYZ, what was the occasion/reason for your purchase? Data of only urban consumers. CCI Survey and BCG analysis, 2019, N=1367
Reflections of the past decade 236 Mixed pathways prevalent across many categories
Largely offline
% transactions
Digital would likely
create a face-off 100% 5% 5% 4% 7%
16%
between pure online
and offline channels
10 years ago…
94% 94% 93% 91% 80%
1% 1% 2% 2% 4%
Packaged Fresh Health Staples FMCG
food food care
Pure Online Pure Offline Mixed
10 years later… Players leveraging multi-channel to drive growth
Mixed pathways • Several online only players have extended their physical presence,
playing out; Multi- either independently or via associations
channel has • Many offline only players have scaled their e-commerce portfolios
unlocked growth to build a complementary multi-channel presence
for retailers
Source: CCI Digital daily survey, Digital deep dive panel, CCI Buzz to bucks 2016, press search, N=12088 transactions
24 Retail 4.0: Winning the 20sSignificant mixed Largely online
23% 13%
34%
51% 52% 57%
58% 23%
65%
49%
54% 37% 34%
42% 38%
22%
17% 12% 14% 5%
Large Mobile Apparel Small Leisure Travel Movie
Appliances Appliances tour ticket ticket
Online only players experimenting with physical stores
A leading Indian beauty retailer, as part of its offline expansion, has two types of
stores – one houses luxury premium brands and the other carries a portfolio of
brands that trend on its online platform
Offline only players growing online presence
Some leading apparel players in India have established their online business and
are actively looking to scale this channel – some even creating their own online
only portfolios
Reflections of the past decade 257 Farm-to-fork integration largely unsolved, however headed
in the right direction
Supply chain would Structural challenges and how it
Some progress seen
move to integrated affected the industry
farm-to-fork
Taxation and
10 years ago… sourcing • Differential tax regimes across states GST enables better efficiencies
in logistics, consolidated
• Suboptimal network of stock points and warehouses; 20% reduction in
inventory build-up truck turnaround time
Transportation
Transportation still mostly
• Fragmented transport market and fragmented; 3PL growing at
players increased logistics costs ~15% CAGR, yet only ~5% of
logistics market
Infrastructure
Road and ports have improved,
• Poor infrastructure led to inefficiencies
long way to go; cold chain
through the value chain (ports, highways,
infrastructure yet to scale, ~30%
warehouses, cold chain)
10 years later… agricultural produce wastage
Some momentum
observed in Internal
• Low technology adoption and limited Retailers started to solve a few
integration, end-to- end-to-end communication affected challenges, e.g. supplier integration,
end flows yet to be operations and collaboration rationalizing SKUs, using technology
solved • Supplier integration limited to improve operations
Source: Secondary research, BCG experience
26 Retail 4.0: Winning the 20sStaff/ store experience and familiarity/ trust in channel 8
continue to be important for consumers
Cross-category differences in preferred channel
% respondents1 Role of store associates
100%
5%
would diminish, given
8% 10% 13% 13% increasing use cases of
9% 18%
7% 5%
8% 11% 5% technology
14% 10% 17%
14% 9% 17% 27% 10 years ago…
16% 35%
7%
28% 31% 19%
23%
37% 10%
8% 21%
18% 13%
24% 30%
12% 16% 18% 16%
Staples Electricals Hotel Apparel Mobile Flight
Leisure travel Leisure travel
Others Proximity Convenience to shop/ to pay Pricing/ attractive offers/ bargaining
Familiarity/ Trust in channel Good staff/ Store experience Variety
Reinventing the store associate role 10 years later…
A leading beauty retailer has in-store makeup advisors, color and skincare experts, who Store associates
provide customers with consultations, touch-ups and makeovers still relevant,
also play the role
A leading paint company has in-house color consultants who help customers decide of experts and
what works best for their homes advisors
Note: 1. Q - Considering Rank 1 responses only: Can you look at the list below and rank top 3 reasons basis which you selected
the channel? Data of only urban consumers
Source: CCI Survey 2019, N=1367 and BCG analysis
Reflections of the past decade 27FORCES EXPECTED
TO SHAPE INDIAN
RETAIL
28 Retail 4.0: Winning the 20sForces expected to shape Indian retail 29
CONSUMER SUPPLY SIDE
SHIFTS INNOVATIONS
Given the attitudinal and Increased margin
demographic change in pressures, retail
consumer preferences, space crunch, rising
there has been a costs are putting
significant shift in the considerable strain
way consumers shop on business models
– forcing retailers to – pushing retailers to
Forces that could constantly adapt to stay innovate to win in the
shape the future ahead of the curve next decade
Indian retail
landscape
30 Retail 4.0: Winning the 20sDATA AND TECHNOLOGY NEW COMPETITIVE REGULATIONS
DRIVEN DISRUPTIONS FORCES
With the onset of the As boundaries across With changes in FDI,
digital revolution, industries continue to GST and other rules, the
it is imperative for blur, the retail industry Indian retail industry
retailers to embrace might see itself facing continues to be sensitive
data and technology competition from a to regulations and
to shape consumer new genre of players a changing political
shopping preferences – unsettling retailers landscape – driving
and minimize costs – and traditional models retailers to rethink
prompting retailers to by bringing in a fresh businesses and models
up their game perspective
Forces expected to shape Indian retail 31The Indian consumer is fundamentally changing
Preference Consumers in the past
Need for convenience Were willing to spend time/ effort in identifying right product out of offerings
Personalization Accepted mass product offering ‘push’; were willing to skim through and select
Shop on trend Shopped mainly for utility
Rent or own Took pride in owning possessions
Shift towards experiences Conservative outlook, believed in asset creation
Brand affinity Attracted to international brands
Relied on offline channels for entire
Multi-channel engagement
purchase journey
Focused on health largely by managing
Healthy living
food, exercise
Shift in purchase decision maker Men were the dominant decision makers
Many Indias Limited choice, were willing to go with mass product
Interaction and influence Select interaction with retailers via traditional media
Note: 1. CCI Survey, 2019, N=5000 and BCG analysis
Source: Ten Trends That Are Altering Consumer Behavior in India, BCG 2019
32 Retail 4.0: Winning the 20sConsumer shifts
Consumers of today Future expectation
Convenience on the rise with time compression, expectation to access Potential conflict with
whenever and wherever: 57%1 use time saving products or services evolving preferences
Seek individualistic choices: 56%1 opt for personalization even at an
added cost
Shopping frequently to maintain a trendy lifestyle or image:
62%1 bought a product to stay updated with latest trends
Renting gaining favor with trend of asset-light lifestyle:
37%1 consider renting a practical option vs. buying
Slowly shifting towards experiences: 37%1 trading down
on possessions for experiences or indulgences
Preferring Indian brands: 50%1 consciously buying Could go up or
Indian over international down – Wild card
Gradually using multi-channel in purchase journeys, though
Expected to
preference varies across categories
continue as is
Actively spending on health and wellness to stay and look fit:
57%1 spend on healthy food, services and products
Women rising as key decision makers: 54%1 final say of
women in purchases, rising say in male dominant categories
Local product and brand preferences vary across the country, as
choice increases
Interacting with family, friends, social media influencers, in addition to
traditional channels
Forces expected to shape Indian retail 33Evolution of some
consumer trends
might be conflicted
by evolving
preferences
‘Convenience culture’ Acceptance for hyper- Being more trendy could
Potential trade-off on the rise, may conflict personalization, could conflict conflict with rising awareness of
with awareness towards with rising concern for data excess consumption, leading to
that could play out sustainability and privacy minimalism
Leading cosmetics General Data Protection US apparel start-up adopted
brand anchoring around Regulation (GDPR) in the ‘less is more’ by minimalist
Global example sustainability; became EU, aims to give individuals designs for daily wear; lean
popular with young adults control over personal data closet, free of clutter
Source: Secondary research, BCG experience
34 Retail 4.0: Winning the 20sIndian consumers to further evolve, based on trends Consumer shifts
observed in global markets
With increased incomes
and more exposure to
new ideas, experiences
and technologies, the
Indian consumer is
steadily evolving.
Some trends may be
nascent, yet to develop
With more informed even in more mature
choices, rise in ‘conscious markets, while others
consumption’; more alignment may be gaining firm
with corporate values ground across the
globe.
With steady adoption in Despite a more connected It would be interesting
automation, rising need world, shift towards single to see how these global
for human and physical and loners with evolving trends play out in India
element of retail society dynamics
over the next decade.
Luxury department store Global sportswear retailer Singles’ day started as an
redefined customer launched ad campaign obscure ‘anti-Valentine’s’
experience, by adding supporting a socio-political celebration for single Chinese
staff with expert product issue; supported by in 90s; became prominent 24-
knowledge who guide consumers, sales increase, hour online shopping event;
consumers stock prices surge replicated globally
Forces expected to shape Indian retail 35Globally, retailers continue to face multiple challenges
1 8
Reducing footfall in stores High supply chain costs
Need to refresh brick and mortar 2 7 Need to drive transparency
3 6
Driving penetration to next tier towns Lack of talent and high attrition
Need to balance economics 4 5 Need to retain talent
Challenge
Limited multi-channel presence High employee costs
Need to scale presence across channels Need to optimize variable staff mix
Suboptimal assortment planning Gross margins under pressure
Need to rethink end–end merchandising Need to differentiate products
US retail store traffic declined at a Leading US retailer’s operating Top agenda of a leading food
4% average annual rate since 20101 profits declined over time2 and grocery retailer in China
2010 2014 2018 Profits as a % of revenue
Data and 0.0%
2010 6.1
anecdotes -2.0% How do we drive rural
2013 5.6 penetration and integrate
-3.0% -2.6% 2016 offline and online to tap into
4.7
-3.8% China’s $5.3 Tn offline market?
2019 4.1
-6.0%
Source: 1. ProdCo, Morgan Stanley research, 2. Annual reports, BCG experience
36 Retail 4.0: Winning the 20s... but ‘always on’ innovation high on the agenda Supply side innovations
Global example Trend playing out
Leading US retailer Retailers building Leading US retailer Retailers building US technology Retailers benefiting
opened several a number of found huge own private company uses gig with flexible
small-format small store success with its labels to improve workers as ‘personal workforce through
stores, focusing on formats to deliver own private-labels; value proposition shoppers’, to help gig platforms
curated inventory, convenience generates quarter and drive higher consumers shop for
convenient of its sales margins groceries through
locations app or website
Leading Chinese Retailers shifting to Global fast-food Retailers providing UK technology Retailers getting
retailer expanded decentralized asset chain has it’s training and company built a warehousing
physical footprint by ownership for own institute educational platform for renting solutions through
transforming and rapid expansion on restaurant support – either out empty space shared spaces,
integrating mom- through alliances management; in-house or in warehouses, whose costs flex
and-pop stores into and ecosystems trained 275,000+ through tie ups allows retailers to with fluctuations in
own ecosystem employees with educational variablize costs demand
institutions
Source: Secondary research, Press search, BCG experience
Forces expected to shape Indian retail 37Retailer led innovations likely to gain significance in India
Possible retailer trend How the trend would likely play out? Some implications
• Partnerships with small neighborhood stores
Alliances and started, led by e-commerce, B2B, B2C Shift of power to few;
consistent customer service
ecosystems • Likely to evolve, scale and lead to ecosystems harder to implement
over time
• B2C retailers starting smaller store formats
Smaller to provide convenience/ ease of access Think through
concentration of stores
store formats • Likely to become more mainstream and within an area
play out across markets
• Start-ups in ride sharing and eating out have
started using flexible workforce Employees may become
Leveraging
transactional, amidst rising
gig • Likely to extend to other retailers e.g. physical need for relational retail
retailers with high variability in footfall
• Private labels have gained prominence in few
Likely impact on quality/
Private categories, both offline and online
consistency of products
labels • Likely to extend to other categories, as in initial period, supplier
retailers build new capabilities relationships
Source: Secondary research, BCG experience
38 Retail 4.0: Winning the 20sAlliances and ecosystems critical to retail Supply side innovations
Ecosystems could involve combinations of multiple
Alliances and ecosystems critical as they alliances with different stakeholders
enable players to leverage each other’s core Illustrative
Big retailer
capabilities
B2B Small/ Niche
Nature of these alliances could vary from wholesale retailer
the past, considering the advent of data /
technology, fintech, social media giants
Messaging/ Unorganized
Social media small stores
No one size fits all solution. Players could leverage Data/ Fintech/
different shapes and forms of alliances, to create Technology Payments
own ecosystems
Logistics/ Delivery
Potential alliances Rationale
Big retailer Unorganized small stores Potential to scale quickly in hard to reach markets
Big retailer Niche retailer Augments customer value proposition
Retailer Fintech Delivery Messaging players Creates seamless transactions
Retailer Social media Technology players Enhances capability to understand consumer behavior, target consumers
B2B wholesaler Unorganized small stores Improves economics, access to consumer data
Source: Secondary research, BCG experience
Forces expected to shape Indian retail 39Data and technology Data/ Technology driven disruptions will trigger new trends
driven disruptions provide
a real opportunity for
those willing to move fast,
Multiple emerging ... likely to drive key
integrate operations and
technologies trends Global examples
outpace competition.
Retail is evolving–and Natural language
processing Asian technology giant has mobile-
retailers must evolve Digital consumer journeys enabled stores, shoppers use app for
as well.
Technologies playing out in India
Physical robotics Biometric payments, AR based product information, recommendations,
product trials, etc. personalized offers
Augmented and
virtual reality
Voice technology French retailer anticipates demand
AI at scale
by categorizing large datasets quickly,
Machine learning Inventory management, saw uptick in forecasting which keeps
assortment planning, etc. stocks shelved
Artificial intelligence
Key drivers Big data Global coffee giant uses digital supply
Digital supply chain chain to maintain close control over
Cognitive algorithms Schedule optimization, roasting process, to ensure coffee
Mobile replenishment planning, etc. tastes same across stores
3D printing
Social
Biometric recognition Automation of operations Leading e-commerce player started
using robotics testing autonomous vehicles that travel
Cloud Facial recognition In-store stocking, last mile along sidewalks, to deliver packages
delivery, etc. directly to doorsteps
Block-chain
Internet of Things
Internet of Things Leading US retailer provides VR headsets
Technology driven staff
enablement to all stores for training and development
Advanced analytics Computer vision - particularly for soft skills e.g. customer
VR assisted training, mobile
POS, etc. service, empathy
Wearables
Digital reality
... and more
Source: Secondary research, BCG experience
40 Retail 4.0: Winning the 20sNew genre of competitors will bring a fresh perspective to retail
Social commerce Cross-industry play Financial institutions
Right platform for user generated Cross-industry players entering Financial players strengthen small stores
content, peer-network advocacy, retail by extending offerings/ by additional income, deeper customer
integral part of shopping journeys business models relationships, streamlined payments
Example Example Example
In Thailand, social commerce drives Indian film entertainment company Some Indian Payments Banks
40%+1 of online sales in few categories, selling own branded F&B in partnering with small shops, where
e.g. grocery, household products theaters, online channels, pop-up people can deposit/ withdraw cash/
stores in malls transfer to other banks
Note: 1. BCG Thailand consumer survey, 2016, BCG analysis
Forces expected to shape Indian retail 41Regulatory changes could shape business models
Regulations ...and how they could likely play out Some implications
• Rethink models to compete with
FDI Relaxation of FDI, 100% in multi-brand retail
global retail giants
Minimum Higher minimum wage or benefits for • Reliance on flexible workforce,
wage employees improve employee productivity
Gig Formalization or inclusion of independent • Increase pay/ benefits/ change
formalization contractors as employees model to incorporate gig workers
Data privacy Stringent laws on capture, storage, • Clearly communicate, build greater
protection utilization of personal data transparency for personal data use
Private
Curtailment of private labels
labels
• Rethink store economics and
operating models
Changes in tariffs, localized sourcing
Tariffs
norms, GST rules
Source: Secondary research, BCG analysis
42 Retail 4.0: Winning the 20sTo summarize: Forces that could shape the future Indian retail landscape
Data and technology driven
Consumer shifts Supply side innovations
disruptions
Potential conflict with evolving • Alliances and ecosystems • Digital consumer journeys
preferences • Smaller store formats • AI at Scale
• Need for convenience • Leveraging Gig • Digital supply chain
• Personalization • Private labels • Automation of operations
• Shop on trend using robotics
• Technology driven staff enablement
Could go up or down - Wild card
• Rent or own
• Shift towards experiences
• Brand affinity
Expected to continue as is
• Multi-channel engagement
• Healthy living
• Shift in purchase decision maker New competitive forces Regulations
• Many Indias
• Interaction and influence
• Social commerce • FDI in multi-brand retail
• Cross-industry play • Minimum wage
Emerging preferences based on trends
• Financial institutions • Gig formalization
in mature Geos
• Data and privacy
• Concern for data and privacy
• Private labels
• Mindful of sustainability
• Tariffs/ Local sourcing/ GST
• Need for human element
• Minimalism
• Conscious of corporate values
• Rise of singles and loners
Forces expected to shape Indian retail 43THEMES FOR THE
NEXT DECADE
44 Retail 4.0: Winning the 20sThemes for the next decade 45
In the next decade, top players could take on a bigger slice of
the industry
A significant portion of Current Estimated
Indian retail continues
to be fragmented. There
is large headroom for
the top 5 retailers to
increase their market
share from the current USA UK India IndiaWinning the 20s would require a holistic rethink of
business models
In order to win in Indian
retail, players would need
to actively respond to
Forces that could shape retail in Retailers would need to make changing trends across the
the next decade business model innovations industry.
Retailers who stop
Consumer shifts Value proposition improving their core
business, could gradually
Product range, lose their competitive
Target Brand advantage and run the risk
price, quality,
segments promise of falling revenues, store
design, service
Supply side closures, losing scale
innovations (Factoring lens of business economics)
(“Vicious Retail cycle”)
Strong interplay
Data and technology based on
Retailers must instead
driven disruptions choices made constantly innovate to
improve formats, drive
customer experience, push
for bigger baskets, loyalty,
Operating model lower costs and improve
New competitive profits
forces (“Virtuous Retail cycle”)
Store Cost
Channel
concept model
Value
Organization, Data and
Regulations chain, Go
alliances Technology
to market
Themes for the next decade 47Key themes around value proposition likely to unfold
Based on BCG’s learnings
Low
globally and forces that Responsible Retail Mainstream sustainability, localized sourcing, fair trade
could potentially shape Conscious play and alignment with consumer values
retail going forward, we
believe multiple themes
Level of maturity with sufficient scale observed currently in India
could play out and gain
Alternate retail New business models, e.g. subscriptions, renting, or
prominence over the next
Non traditional offerings solution based retailing
5-10 years.
These themes could Personal Retail Individual level personalization, customization of
translate into choices for Individual is important product/ service
retailers either on Value
Proposition or Operating
Model. Omni-channel Retail Uniform, smooth and integrated experience across in-
Seamless channels store and online channels
Each of these choices
would come with a set of Spectacular Retail Retailtainment (entertainment, gamification, experiences,
imperatives, that need to Experience led additional services) to engage/ involve consumers
be thought through.
Value Retail
Low price
India values “value”
Convenient Retail Ultra-convenient in-store experience, delivery, online
High
Quick and easy journey; customer access through smaller stores
Source: BCG analysis, experience
48 Retail 4.0: Winning the 20s.. along with complementary choices to be made on
operating model
Level of maturity with sufficient scale observed currently in India Players can pick a theme
or choose to straddle
Low High across multiple themes,
depending on category,
geography, investments,
synergy with core etc.
Prominence of each
Alliances and High-tech Gig Multi- Many No frill theme would vary by
ecosystems channel Indias category
Collaboration Data Flexible Be present Regional Low cost e.g. High engagement
is key driven play labor everywhere play operation categories would see
more innovative models
Partnerships/ Automation, Gig Presence in Anchored Low costs, of spectacular retail
alliances AI; predictive platforms both physical on needs, leverage
with players, technology, – flexible stores and preferences private
including digital supply labor (day online of different labels, Despite different
unorganized chain, voice of week, channels, regions to provide themes, a few elements
to create tech, digital time of day, to drive improve minimal would continue to hold
ecosystem, payments location) accessibility local play shopping prominence
increase experience
reach e.g. Customer experience
is still very important –
has different implications
across themes
Source: BCG analysis, experience
Themes for the next decade 49Globally, few retailers making choices across themes to craft ‘Win the 20s’ strategy
Omni-channel
Gig
High-tech
Personal
Leading Chinese e-commerce company creating a unique food &
grocery ecosystem
• Mobile app for information/ payments, omni-channel
• Personalizes recommendations through customer journey
Multi- • Convenience by leveraging store as a fulfillment center
Convenient
channel • Gig personnel for deliveries
Alliances • Integrates physical store operations with online ecosystem
& ecosystems • Efficient inventory management, fully digitized supply chain
Spectacular
Personal Responsible
Leading American sportswear retailer focusing on accessibility,
innovation, customization
• Stores/ assortment localized to catchment
• Personalizes videos with tailored recommendations
• Provides basketball court, style consultations to experience products
• Convenience - pick-ups at smart lockers, Consumers message associates for Multi-
Convenient
return / exchange channel
• Digitalizes demand sensing and inventory, responsive supply chain High-tech
• Supported a sociopolitical issue
Source: BCG analysis, experience
50 Retail 4.0: Winning the 20sAlternate
Spectacular
Gig
Leading global furniture retailer delivering low price and
unique shopper experience
• Flagship store with VR, innovative 3D experience
• Smaller format stores in urban areas, curated assortment
• Subscription model for temporary furniture rentals
Value Multi-
• AR at home using mobile apps to envision look Convenient
• Gig for customer DIY installations channel
• Multi-channel, in-store/ online shopping
Omni-channel
Personal Multi- Indian start-up creating a health and wellness
channel omni-channel ecosystem
• Entire solution for health/ wellness
High-tech • Subscription and app-based healthy food service
Convenient • Personalizes healthcare solutions
• Gym subscription for fitness, mental well-being
Alternate • Machine-driven technology to personalize offerings
• App-based technology for managing operations
Themes for the next decade 51Some Must Do’s to win the next wave of retail
Speed organization, be on Develop destination Build cost efficient and Look out for partners,
the constant look-out to products/ experiences, technology enabled retail alliances help to
evolve retail model to stay the more differentiated operations, essential maximize resources,
relevant with emerging the better ingredient to success capabilities, play to
trends own strengths
Build own unique Improve customer Attract best talent Apply a test and learn
portfolio/ platform - experience, personally with new capabilities approach, consider
invest in models that connect with customers, when and how to scale
work, divest where focus on customer aligned with goals
needed relationship vs. product
leadership alone
52 Retail 4.0: Winning the 20s... while others are optional based on choices made
Themes Call for action Watch outs
Responsible Find appropriate product/ service proposition that Balance consumer willingness to
retail can be sufficiently scaled pay vs. higher costs
Alternate Look for emerging models, develop internal Disrupt yourself before getting
retail innovation capabilities to build new concepts disrupted by others
Personal Understand current data, build advanced models Balance hyper-personalization with
retail to monetize, road-map to enhance models privacy
Omni-channel/ Outline shopper’s journey across channels, Don’t lose your loyal customer due
Multi-channel optimize operations for frictionless experience to cross channel friction
Spectacular Build a compelling offer, find expertise Re-evaluate associate role and
retail internally/ externally to execute experience offer profile – need experts
Convenient Right store formats, redefine role of store, rework No longer a race to have most stores,
retail infra to service faster/ more seamlessly but right stores in right locations
Harness technology across value chain, find right Balance human element, employee
High tech
partners to develop and scale adoption while deploying digital
Understand where flexible labor provides greater Balance transactional gig labor vs.
Gig
returns, evaluate end-end costs customer warmth
Themes for the next decade 53For Further Reading
Boston Consulting Group publishes reports on related topics that may be of interest to senior executives. Recent examples include:
Demystifying the online food consumer: An $8 Bn Fashion Forward 2020
opportunity A report by Boston Consulting Group in association with
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Google, January 2020
The New Indian: The Many Facets of a Changing
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India An article by Boston Consulting Group, March 2017
An article by Boston Consulting Group, October 2019
Decoding the digital opportunity in retail
Going for gold by creating customers who create A report by Boston Consulting Group, February 2017
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A report by Boston Consulting Group, February 2019 Decoding Digital @ Retail: Winning the omnichannel
consumer
Decoding value creation in retail A report by Boston Consulting Group, February 2016
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A report by Boston Consulting Group, February 2018Note to the Reader
ABOUT THE AUTHORS FOR FURTHER CONTACT
Abheek Singhi is a Managing Director and Senior Partner, in the If you would like to discuss the themes and content of this report,
Mumbai office of Boston Consulting Group and led the Consumer and please contact:
Retail practice in Asia-Pacific.
Rachit Mathur is a Managing Director and Partner, in the New Delhi
office of Boston Consulting Group and leads the Consumer and Retail Abheek Singhi
practice in India. Managing Director and Senior Partner,
Amrita Dutta is a Principal in the Mumbai office of Boston Consulting BCG, Mumbai
Group. +91 22 6749 7017
Singhi.Abheek@bcg.com
ACKNOWLEDGMENTS
This study was undertaken by Boston Consulting Group (BCG) with Rachit Mathur
support from the Retailers Association of India (RAI). Managing Director and Partner,
We would like to thank Kumar Rajagopalan, Bhakti Modle and BCG, New Delhi
Dr. Hitesh Bhatt from the Retailers Association of India for their +91 124 459 7293
support and guidance while developing this report. Mathur.Rachit@bcg.com
We would like to thank Kanika Sanghi, Mitesh Goradia, Chirag
Khandelwal and Ekta Seth for their assistance in writing this report.
We are thankful to Jasmin Pithawala for managing the marketing Amrita Dutta
process as well as Jamshed Daruwalla, Saroj Singh, Rajthilak R and Principal,
Vijay Kathiresan for their contribution to the editing, design and BCG, Mumbai
production of this report. +91 22 6749 7000
Dutta.Amrita@bcg.comYou can also read
