Widening Aisles For Indian Shoppers

Big retailers are jostling to replace millions of small merchants with chain stores

It's a scene that would be positively ho-hum in any U.S. supermarket: Shoppers carefully select perfectly ripe tomatoes from a bin, place them in a plastic bag, weigh them on a digital scale, then slip the bag into a clean shopping cart. But what's no big deal for Americans is unusual in India.

The store is a newly opened Reliance Fresh produce shop in the southern city of Hyderabad. With 200 different types of fruits and vegetables displayed along brightly lit, air-conditioned aisles, the compact store is a revelation for many middle-class Indians. "It's good to shop here—the cleanliness, the prices—everything," says Sarah Khan, a burka-clad shopper with two children in tow.

A retail revolution is sweeping India. For decades, Indians have largely relied on kirana stores—tiny neighborhood shops—and produce markets, where the fruit and vegetables are often well past their prime. But Reliance Industries Ltd. and other Indian conglomerates are changing that. All told, investors both local and foreign plan to spend more than $25 billion over the next five years to change the way Indians shop. The prize? A retail market that is expected to surge to $637 billion by 2015 from some $300 billion today.

Problem is, the road to retail riches in India runs uphill. The market is dominated by 12 million mom-and-pop stores, and those small-time merchants aren't going to let the big boys in without a fight. They've already staged several protests calling on the government to stop the conglomerates from sweeping them aside. "These big companies are luring our customers with discounts, and this shouldn't be done," says Dhaijibhai Ravji, an eldery kirana shop owner in suburban Mumbai.

Keeping shelves stocked can be a challenge, too. India's narrow roads slow traffic to a crawl, and the country has only 1,500 refrigerated trucks, so one-third of produce rots before reaching customers. Finding a good location is also tough. With all the new retail investment, prices for suitable space have jumped by 60% in the past six months, says Vivek Kaul, head of Jones Lang LaSalle's (SU ) retail advisory service in India. "For one retail property, there are five tenants looking at it," Kaul says. Another consultant says Reliance is opening only 30 stores a month, down from a projected 50, because of difficulties in getting leases.


Those concerns haven't stopped the rush into the sector. The Tata Group is opening hypermarkets and appliance shops, and the Aditya Birla Group is plowing $2 billion into a national chain of supermarkets. And while foreign retailers are largely banned from setting up shop in India, multinational giants are slowly creeping in. Wal-Mart Stores Inc. (WMT ) is negotiating a deal to provide logistics and technology for Bharti Enterprises, an Indian conglomerate that has earmarked $2.5 billion for food, clothing, and electronics stores. German discounter Metro operates wholesale outlets in Bangalore and Hyderabad, while France's Carrefour and Britain's Tesco (TSCDY ) are also putting out feelers.

Reliance, though, has the most ambitious plans. Since launching its first store in October, the Mumbai-based company has opened more than 100 Reliance Fresh outlets as part of a $6 billion push into retail that will also include hypermarkets, wholesale outlets, and electronics stores. Ambitious, sure, but Reliance says it's prepared for the competition. Says Raghu Pillai, head of Reliance's retail arm: "There's room for everybody."

By Steve Hamm and Nandini Lakshman

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