Indian retail sector set to grow at fast pace

The recent acquisition of Kishore Biyani's Future Group by the Colossus, Reliance Retail for Rs 24,731 crore, is expected to make DMart a distant second in a largely duopoly retail market in the country. This has come at a time when various government initiatives for the retail sector like the relaxation in FDI norms, modern retailing, has set the momentum for the sector to grow at a CAGR of 20 per cent. Likewise, the share of e-commerce segment in India is expected to grow from the current 4 per cent to 8 per cent of the country's overall retail trade by 2025.

The Indian retail industry, which is expected to be $1.1 trillion, will now witness competition grow between Ambani's Reliance Retail and Damani's DMart. But since the segment of organised retail within the total retail in the country is still small, sector analysts feel there is enough potential market for both players like DMart and Reliance to comfortably grow. In fact, only 15 per cent of the Indian retail market is organized, and therefore, there is enough room in under-penetrated industry, to accommodate 3-4 large scale national players.

The latest development has to be seen in the wake of the fact that Indian retail industry has developed as one of the most dynamic and fast-paced industries and gained 5th position in world retail space. In fact, it is projected by many studies that India shall be world's fastest growing e-commerce market. Also, India's dynamic retail industry has seen a significant change in this Covid era. Little wonder therefore that the recent Reliance Retail-Future Group deal in which the Future Group will be acquired by Reliance Retail, the behemoth of India's organized retail segment, created a lot of stir. This is bound to bring in some significant changes in the sector.

Reliance's retail market share is increased from 22 per cent to 38 per cent, with the acquisition and thereby having access to 1,800 of Future Group over 420 cities. DMart presence is mainly in Western India, with one-third of them in Maharashtra alone. And due to scalability of Reliance Retail, DMart's stronghold in Mumbai can be weakened as former shall target bigger cities first. There are many analysts who think that the Reliance-Future deal should not have an adverse impact on DMart as the latter has the right business model with a competitive advantage of low-cost approach in retailing. Moreover, the deal is less likely to make a dent as DMart has low-cost terms of trade or procurement.

However, there are still ifs and buts. The deal is currently awaiting approvals from regulatory authorities. Amazon had sent a legal notice to the promoters of Future Group for allegedly breaching a non-compete contract, with the latter's deal with Reliance Industries. Amazon believes that the deal was intentionally structured in a way to keep it out from the retail unit of the Future Group and it violates a right-of-first-refusal pact and a non-compete clause. As part of the deal, before entering into any sale agreement with third parties, Future Group was required to inform Amazon. The deal is on temporary halt. Mind you, if the deal doesn't execute, Future Group might face liquidation.

Either way, it is bound to change the dynamics of Indian retail in the days to come.