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Why It’s Time to Expand into India

Why It’s Time to Expand into India

India is the 6th largest economy in the world and is projected to be the 2nd largest by 2050. With economic growth projected substantially above other European countries, India is turning retailers’ heads.


Source: Real GDP forecast 2020, OECD Data


This blog post will provide insight into India’s economy, giving you a greater understanding of their retail industry and the opportunities available in the country, which is home to over 1.3 billion people and 17% of the world’s population.


India’s Urbanization

By 2020, 470 million people will reside in Indian cities and they will account for nearly 70% of the national GDP by 2030.



India’s metro cities (Tier 1) are highly commercialized having historically attracted foreign business due to their size (> 4 million). Today, up and coming Tier 2 & 3 cities increasingly attract foreign retailers as they are predicted to account for 45% of India’s consumption by 2025. Additionally, within these cities the real estate is cheaper, labor more affordable and the purchasing power of inhabitants is on the rise.

The greatest opportunities for marginal growth lie in the 30 additional new wave cities (Tier 2& 3)”    EY Consulting


Overall, this new focus on emerging cities is calling retailers to re-strategize their store expansion plans. Some have been quick to pick up on the move for example; apparel brand Lacoste started expanding into tier 2 cities back in 2014 using franchisees, whilst 70% of Amazon’s new customers are expected to come from Tier 2 & 3 cities. However, to note Amazon planned ahead on an extensive product assortment and infrastructure investments (transportation logistics, fulfillment centers & payment systems) prior to starting their operations in India six years ago.


A Booming Retail Industry

The Indian retail market accounts for 10% of India's GDP and 8% of their employment. Being the 4th largest global destination in the retail space after the US, China and Japan, it will be worth US$1.1 trillion by 2020. Food and grocery accounts for the majority share of retail followed by apparel and footwear, consumer durables and IT segments.

Source: KONNECTED to Consumers; Economist Intelligence Unit, Accessed June 2019

India has also recently attracted the Inditex group (Zara), H&M, Michael Kors, Marks & Spencer, Starbucks and other renowned fast food brands such as YUM! Brands (KFC, Pizza Hut). Evidently, we are seeing a shift in focus when it comes to store expansion with a wide range of retailers serving high, medium and low customer segments entering the country. In particular, luxury retail in India has boomed and is confined to Mumbai, Delhi & Bangalore. An increase in wealth for the middle class coupled with increased internet access has resulted in newer segments of first-time luxury buyers. This has presented the opportunity for a variety of retailers to enter India and retail their brands through distribution networks. This has been dubbed the ‘next growth driver’ for luxury companies in India.


Open Barriers

In January 2018, the Government of India relaxed the rules for foreign direct investment (FDI) in single-brand retailing, permitting 100 percent investment under the automatic route (previously 49 percent under the automatic route). The Indian govt. had already permitted 100 percent in FDI in food retailing and food processing for locally made or processed products. Between 2000-2018 India has received equity inflows of US$409.15bn through FDI investments. Having a strong distribution and logistics network is imperative to succeed in India’s retail market. Whilst transport capacity has grown substantially across Air, Road, and Rail, infrastructure standards are behind global standards and leveraging a local partner’s expertise can often pay off. Additionally, Organized Retail Penetration (ORP) in India is low (7%) compared with that in other countries e.g. 85% in the USA and is expected to grow to 10% in 2020. Overall, organized retail in India indicates strong growth potential as it grows at a Compound Annual Growth Rate (CAGR) of 20-25% per year.


Retail Entry Modes

The table below briefly summarizes the advantages and disadvantages of retail operating models in India.

Operating Model  Potential Advantages Potential Disadvantages


  • Lower Investments
  • Higher reach through multi-brand outlets
  • Lower control on business
  • Partner may be a licensee to multiple brands and pay limited attention
Micro Franchisee
  • Posibility of faster roll out
  • Have better understanding of local market
  • Multiple partners, hence difficult to manage
Master Franchisee
  • Lower investments
  • Benefits from partners existing infrastructure
  • Easier to manage
  • Lower control on business
  • Difficult to locate a partner with deep investment capability
Jv with Indian Company
  • Scope to leverage partner's strength
  • Better management
  • High level of control on business
  • Option to undertake e-commerce model
  • High dependence on partner
  • Varying partner interest in the long term
100% Owned Subsidiary
  • Operational flexibility
  • High level of control on business
  • Option to undertake e-commerce model
  • Various operation, regulatory and tax complexities
  • Possibility of slower initial roll out due to longer learning curve

Limited Liability Partnership (LLP)

  • Lesser tax outflow as compared to subsidiary/company model
  • Lesser compliance/reporting requirements
  • Option to undertake e-commerce model
  • Downstream investment by LLP with FDI is subjet to fulfilment of conditions
  • Relatively newer model of operation and accordingly may not be preferred from credit perspective
  • No provision to list the business in future

Source: Retail FDI in India, Deloitte October 2018


A Cashless Future

In 2016, a cashless society was not the intention of the country’s draconian currency ban however, a shortage of banknotes have boosted online banking. Today, India’s currency in circulation is a sixth below where it would have been without the ban. A unified payment interface UPI (mobile payments) is going to take over with smartphone owners who are customers of a bank, able to request a payment from or initiate a payment to another smart phone user of any bank. 140 banks already share this interface and there has been 800 million UPI transactions over the last three years.


The Indian Consumer

The age distribution in India remains skewed in favor of the younger age bracket with the average age of the country resting at 28. This is the result of rapid population growth but also lower life expectancy. 34% are millennials and they constitute 48% of the workforce. Internet usage is also expected to increase to 59% by 2021 (75% coming from more rural areas) whilst mobile users are expected to increase from 260 million in 2016 to 450 million by 2021 and this has been estimated to drive the m-commerce sales up to USD38 billion by 2020. However, BCG’s Centre for Customer Insight surveyed urban consumers and highlight that the purely offline pathway accounts for 78% of purchases and 58% of value and that Omnichannel – though important – is not the way to win with India’s connected consumer.


What are you waiting for?

Overall, India is one of the fastest growing major economies in the world. Its high growth in consumer and retail markets presents massive investment and business opportunities in several retail sectors. As digital technologies become increasingly available across India and barriers to entry fall, foreign competition increases. However, branching out into to Tier 2 & 3 cities is yet to gain full momentum. You should consider how unique your business operating model is and if it can adapt and grow e.g. consider your if your store format, channel, supplier and logistic networks are suitable for different geographies.