Indian Retail Sector will Explode when per-capita GDP hits $2500

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India is exactly where China was eight years back. In the next three years, the modern trade format is set to explode; it will change the way the retail market behaves, said Rajeev Bakshi, managing director of Metro Cash & Carry. Excerpts from an interview:
[b]
Why is the modern retail format unable to script a success story? How much time will it take to do so?[/b]
Let’s look at what India’s GDP and per capita income are today, China was in this exact same spot eight years back. The gap between us and them has been exactly eight years since the last 15 years. India’s per capita GDP is at about $1,400 on a nominal basis. China had the same number in 2002. Once, basically, per capita GDP crosses $2,500-3,000, exactly what China has today, the modern trade formats explode big time.

There is going to be a purchasing power to purchase a full basket once a week. When you go to that level, the number products consumed increases dramatically. This will happen in sync with the customers’ demand for new products. The proliferation of assortment becomes so large that modern trade formats are the only solution for delivery for all of that. The mom & pop stores can not deliver that.

At a certain point, the entire thing explodes. Purchasing power, disposable income and the modern trade formats starts becoming much more relevant at that point. Over the next five years, India’s GDP will start catching up with China. India’s GDP is going to double in the next five years. So, the explosion will be tremendous.

[b]But what is shackling things now?[/b]
It’s a very interesting situation. You can never measure the life cycle of a particular service in just seven years. Let’s take airlines. How long did it take to mature? Jet Airways and other airlines started in 1993-94. But the model matured only when the low-cost airlines came in 2004-05. It takes about 12-13 years for a new service model to mature accompanied by incremental purchasing power of the customers. As far as India is concerned, the model will explode when the per capita GDP touches $2,500.

In fact, it is already there since the urban per capita is already much more. The urban per capita is at about $5,000. It is closer to places like Bangkok. Therefore, right now is the right time.
[b]
What are the key issues players like you are facing today?[/b]
Apart from purchasing power, translation of that into buying habits and factors of production like land and labour. Labour is not very expensive in India. Land in urban centres is expensive. That has to match with the overall business throughput. Finding talent is definitely an issue particularly at the senior and middle management level that too trained for India. This is because the history of modern business formats in India is just five years old.
[b]
What do you think will happen in the next three years?[/b]
Currently, the modern trade throughput is about 5% to 6%. In the next three to four years, it would double. The number of items in a household would be at least 50% higher.

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