The Next Growth Markets for India’s Food & Grocery Retailers

It is no secret that the most prolific and productive urban retail markets in India — metros and tier I cities — today have a pupu platter of food and grocery retailers for the consumers to pick and choose from.
By Sanjay Kumar

The food retail industry in these parts range from hypermarkets to supermarkets, convenience and departmental stores — spawning both offline and online formats — to the baklava-like profusion of mom-and-pop shops, kiranas, corner-side kiosks and carts. No wonder that food retailing has become the most marked in-your-face business in India’s top towns and cities.

Against this backdrop, the competition in the food retail industry and, specifically, among food and grocery retailers of all hues and shades for winning the consumer’s stomach share, wallet share and mind share is growing intensely radioactive by the day.

The unrelenting proliferation of food and grocery retailers in almost all prime economic geographies of India is playing out in ways that not many in the food retail industry would have anticipated. Thanks to the cornucopia of retail choices at their command, shoppers are increasingly becoming brand-fickle and are eager to glad-hand food brands and retailers willing to pander their indulgence and offer maximum sops.

As competition for the food retail business gets more cut-throat, it is forcing retailers to bend over backwards in an attempt to retain their customers — mainly by undercutting prices and offering steep discounts. But clearly, such practices risk damaging the whole food and grocery retail eco-system. In fact, such unviable model of doing business has proved to be, over the years, the nemesis for many entrepreneurs in India’s food retail industry.

The adage that more is merrier and there is enough room for all to grow rings hollow if most grocery retailers are barely able to turn in a profitable penny. With the business of food and grocery retailing in India’s frontline cities becoming crowded and overstuffed, even big and established retailers are having a hard time holding on to their market share and profits. Indeed, one would be a lucky retailer who can still grab a juicy bite off the already fragmented and over saturated food and grocery retail market in India’s top cities.

With the market for food and grocery retail business on the verge of playing itself out in India’s top tier cities, it’s a no-brainer that grocery retailers need to set their sights on the next growth markets to grow their book of business. Thankfully, India’s ginormous living habitats and up-and-coming urban eco-systems can prove to be the oysters with hidden pearls waiting to be prised open and enchased.

“Food & Grocery Retailers need to look out for the new and emerging middle class India. This segment of the population is going to matter most in the coming years – their spending capacity is constantly rising and will account for 40% of the overall wallet share which, in the long run, will make for a significant contribution to the FMCG sector and could help bring about faster growth for the industry and food retailers,” says Shrenik Ghodawat, Managing Director, Ghodawat Consumer Ltd, who runs a long-standing and reputable FMCG business in Maharashtra and Karnataka and has also newly forayed into food and grocery retailing under the brand name “Star Localmart”.

Launched in 2020, in the thick of Covid 19 pandemic, Star Localmart is on track to cross the 100-store milestone by this calendar year. With today’s new-age consumers, even in smaller towns and cities, looking for a shopping experience that promises hygiene as well as ease and convenience, the company has set up stores that are strategically located in rural towns and villages across ten semi-rural districts in Maharashtra and Karnataka.

A majority of Star Localmart stores are located in Tier III smaller towns and cities — places like Kolhapur, Satara, Sangli, Pune, Ratnagiri in Maharashtra and in Belgaum, Hubli, Bijapur and Bagalkot in Karnataka — and this is a conscious and deliberate location strategy by the retailer.

“Retailing is a game where you need to push for and bring in a habit-change ecosystem. People in these regions are used to going to a kirana store which may have 400 SKUs kept in a cluttered arrangement and without the desirable standards of hygiene and health. But today’s new-age consumers are looking for a change and better choice and, as modern retailers, it is incumbent on us to offer them what they wish for and nudge them towards salutary change and better choices. With the increasing education levels of consumers, with greater focus on health and hygiene factors — more so after the pandemic — and with more of new-age consumers entering the market, there is a visible demand for change on the part of consumers and that perhaps also explains why a lot of new people are entering the grocery retailing business,” says Ghodawat.

Currently, Star Localmart is focused on selecting and picking good locations for opening more of its stores in the semi-urban and semi-rural areas of Maharashtra and Karnataka, which will remain its thrust markets for the foreseeable future. The retailer feels that these markets have the potential to float and support over 2,000 3000 Star Localmart stores over the next 2-3 years and generate employment opportunities for over 25,000 people.

Various reports on India’s food retail industry suggest that the growth rate and stability of Tier II and III cities in India are healthy and are bound to get even better – from 36% to 45% in the near future. As the desire among Indians for healthier consumption is increasing with the growing reach of education – whether in urban, semi-urban and rural population, there is a strong move towards value and there are more food and grocery retailing opportunities waiting to be tapped.

“There are many places on the outskirts of magnet cities in West Bengal like Kolkata and Siliguri, and along the beltway through North Bengal, Sikkim, and Bihar that are opening up for business and we are looking at these places for cracking open the market for our grocery business,” says Rahul Raj Prasad, Director, 9to10, a grocery chain that runs 27 supermarkets located in small towns across North Bengal, Bihar, and Sikkim.

Though 9to10 stores are located mostly in underserved markets, the retailer has been able to uncover new business opportunities and new audiences and also earn a fair degree of consumer mindshare in the communities it serves. To cite an example, take the 9to10 store in Islampur, a small town with a 98% Muslim population, located at a distance of about 60 km from Siliguri, and in the North Dinajpur district of West Bengal. Due to the relative isolation of Islampur and its lack of social and physical infrastructure, the town is a considered as an economic laggard compared to other districts and towns of West Bengal.

“Even we had our apprehensions when we opened our 1500 sq.ft store in Islampur, which was the first-of-its-kind modern grocery outlet to come up in this place. But when we opened the store, people came flocking in droves and to our amusement everyone was calling our shop a mall. Despite the pressing crush of shoppers who were drawn to the store, we did not expect sales to cross a lakh of rupees on the opening day. But to our surprise, the collection came in at a little above Rs. five lakh, exceeding our wildest expectations,” says Rahul.

He observes that for many deep-pocketed retailers with their bases in primary towns and cities, taking their brand to somnambulant towns located in the backwoods of Bharat, would look like a mug’s game. However, many sleepy urban clusters in India have the potential to be turned into piñatas for profitable business with the right strategies for store formats, product assortment and customer centricity.

Like Star Localmart and 9to10 grocery stores, other grocery retailers too, even the thriving ones in India’s bigger cities and towns, should look for good locations in the boonies and the underbelly of Bharat as these underserved markets have the potential to grow into promising business hubs and become the thrust markets for India’s food retail industry in the foreseeable future. To sum up, drawing new stores into historically underserved areas can be challenging. However, it can also prove to be more profitable than the average grocery store in an established market.

To know more about how some regional and independent retailers are helping to build a reliable local retail eco-system in small-town India, and how their initiatives stand out for its potential to generate local employment opportunities, create space for local companies to exhibit their products, and promote local entrepreneurship by offering lucrative franchising opportunity to aspiring entrepreneurs, join the upcoming 15th edition of India Food Forum — India’s largest food B2B intelligence event — on Dec 7-8 in Mumbai, where 150+ speakers will come together for some thought-provoking conversations and powerful insights on the key trends impacting India’s food & grocery retail businesses.