Required Report - public distribution

**Date:** 12/21/2006

**GAIN Report Number:** IN6111

IN6111

**India**

**Report**

**Retail Food Sector**

**2006**

**Approved by:**

![](media/image1.wmf)Holly Higgins

U.S. Embassy, New Delhi

**Prepared by:**

Santosh Kr. Singh

**Report Highlights:**

Food retailing in India is in transition. 'Organized' retailing is now
in full swing in India with several large Indian corporate entering and
expanding their operations. The optimism in the food retail sector stems
from a vibrant and growing economy, increasing purchasing power, and an
increasing number of urban consumers demanding a more international
shopping experience. This provides an opportunity for the supply of U.S.
food products to India. However, success in introducing a new product in
this highly price sensitive market depends on an effective pricing
strategy and familiarity with India's myriad food laws. High import
tariffs and competition from inexpensive domestic products are other
challenges.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

New Delhi \[IN1\]

\[IN\]

**I. MARKET SUMMARY**

### General Economy and Policy Environment

-   Indian economic growth ranged between 6 to 8.4 percent annually over
    the last decade.

-   India's economy is expected to double by 2010 (Merrill Lynch) and
    will be the third largest economy by 2050 (Goldman Sachs)

-   India is the fourth largest economy in the world in terms of
    purchasing power parity (PPP), next only to USA, China and Japan

The Indian economy is expected to grow at over 8.0 percent in Indian
fiscal year (IFY) 2006/07 (April/March) on top of strong growth in the
manufacturing and services sectors, robust exports, and record foreign
institutional investment. The government's Planning Commission has set
an average gross domestic product (GDP) growth rate target of 9 percent
for the upcoming Eleventh five-year plan (2007 to 2012). India's foreign
exchange reserves are at an all time high of \$ 175 billion as of end
November 2006.

The current Congress party-led United Progressive Alliance (UPA)
government has adopted 'economic reforms with a human face' as a guiding
principal. A lively debate is ongoing in India on the issue of allowing
in foreign direct investment (FDI) in the retail sector, which is
effectively prohibited now, ostensibly to protect the interest of
millions of small retailers. However, the government supports allowing
foreign direct investment in the retail sector in a gradual manner. In
January 2006, the government allowed up to 51 percent FDI in retail
outlets meant exclusively for 'single brands'. Industry observers
believe that FDI through joint ventures may be permitted as
'unrestricted retailing' in the next few years. Initially, foreign
companies may be allowed a minority stake, which could be raised later.

The government has initiated various domestic tax reforms including
introduction of a value added tax (VAT) system in April 2005, which
brought all retailers, whether big or small, into the tax loop. Earlier,
small, unorganized traders and retailers were largely excluded from the
tax regime.

## Status of Food Retail Sector

-   The food and grocery retail sector in India is largely unorganized
    and is madeup of over 6.5 million 'Pop & Son' corner stores. The
    share of large, organized food retailing is less than one percent.

-   Food, grocery, and beverage retail sales in India are estimated at
    \$168 billion, growing at about 5 percent per annum. Organized
    retail sales are growing at 30 to 35 percent per annum in recent
    years and are expected to grow at this rate in the near future.

    ![](media/image2.wmf)

Retailing is not yet an organized industry, probably as a result of
small disposable incomes; regional diversity (ethnicity, food habit,
income, purchasing behavior, etc.); small-scale agricultural production
systems; domestic policies that limit interstate commerce; and
inadequate infrastructure. Retailing is typically a family profession
passed on from father to son, and accounts for about 10 percent of the
GDP and 8 percent of total employment. With an estimated 12 million
retail outlets in the country, India has the highest level of per capita
retail outlet but lowest per capita retail space (2 square feet) in the
world (per Technopak). Food, grocery, and beverage stores account for
the major chunk (6.5 million) of the retail outlets, which are mostly
small, independent, single outlets, family-managed, 'pop & son' grocery
stores with 100 to 500 square feet floor area. The supply chain is
multi-tiered and highly inefficient.

Until 2005-06, there were only a few multi-outlet food and grocery
retail chains in India, mostly in the south, but are now gradually
expanding to other parts of the country. India has no U.S. - type
hypermarkets and only a few supermarket chains. Most large privately
owned 'Indian Supermarkets' (basically larger grocery and convenience
stores) are located in and around major cities. These stores, with
3,000-6,000 square feet of floor space combined with a self-service
approach, somewhat resemble U.S. supermarkets of 40 years ago. However,
in recent years, larger discount stores/hypermarkets (with floor area of
25,000 -- 100,000 square feet) are being set up in major metropolitan
cities, offering increased value to price-conscious middle income
consumers. Convenience stores at gas stations have also made a debut in
larger cities.

# Organized Retail Sector Set to Boom

-   AT Kearney, a consulting firm, ranked India as the most attractive
    retail market for the second consecutive year in its Global Retail
    Development Index 2006.

-   Large Indian corporates such as Reliance, Bharti, ITC Ltd., Aditya
    Birla Group, and Tatas, are entering into retailing.

-   Several global retailers are exploring opportunities of doing
    retailing in India.

Besides the entry of several large Indian corporates with ambitious
plans for the retail sector, the existing large retail players are
aggressively expanding their operations, not only in their current
territories but also in new geographies with their retail formats. Some
foreign companies have entered retailing through "cash & carry"
(wholesaling) and franchising routes where 100 percent FDI is permitted.
Several foreign retailers are exploring this option as they wait for the
full opening of FDI in retailing. Industry sources estimate likely
investment in retail and supply chain to the tune of \$22 billion in the
next five years. Over 600 retail malls are being planned across the
country by 2010.

The food and grocery segment is expected to witness the maximum growth,
with the share of the organized food retail sector expected to reach 9
to 10 percent of the total food & grocery retail market by 2010[^1].
Although the large Indian food retailers have plans to source most of
their requirements domestically through backward linkages, the option to
import cannot be ruled out.

There has already been a visible transformation in food retailing in
urban areas with several new hypermarkets, supermarkets, and convenience
stores springing up. Rising income levels, growing middle class,
increasing young population, larger number of working women, increasing
media penetration, and expanding exposure to western lifestyles are
factors fueling this growth. With more and more urban consumers
demanding an international shopping experience, there has been a gradual
shift from the 'traditional' to the 'organized' format of shopping.
Meanwhile, traditional grocery shop owners are also gradually
reformatting their operation by increasing floor space, and introducing
self-service format, price discounts and other value-added services.

## Consumer Demographics

## 

India has a large and growing middle class (200-300 million), although
it cannot be compared with the \"middle class\" in the United States and
other western countries. It also has a large and growing young
population; the median age of the population is about 24 years, and over
100 million Indians are in the 17-21 years age bracket. The share of
households in the upper middle/high income group (annual household
income \> rs. 90,000 or \$2000[^2]) has grown from 14% in 1989/90 to 28
percent in 2001/02, and is projected at 48 percent in 2009/10[^3].

Increasing urbanization and a growing IT industry has led to emergence
of new upper-end residential areas around large metropolitan cities with
greater aggregation of professionals as well as double-income (working
women) households. There are 35 cities with a population of more than 1
million. The growth of upper/middle income consumers with higher
purchasing power is fueling the demand for life style products and
services including a superior shopping experience. The increasing
pressure on time for the upwardly mobile double-income households is
resulting in consumers increasingly seeking a one-stop shopping venue.

## Food Purchase Behavior

Roughly 51 percent of Indians' household consumption expenditure is on
food (54 percent in rural areas and 42 percent in urban areas). Consumer
spending is largely on basic items like grains, pulses, vegetable oils,
and sugar. The share of value added food items in the consumer basket
typically is very low. However, recent consumer surveys indicate
increased spending on high-value products such as milk, meat, eggs, and
fruits and vegetables.

**INDIAN CONSUMER SPENDING BY CATEGORY**

![](media/image3.png){width="3.25in" height="2.625in"}

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-   India has a large vegetarian population.

-   Indians have a strong preference for fresh products and traditional
    spices and ingredients, which has generally slowed the penetration
    of western style food.

-   Many Indians are willing to try new foods, but usually return to
    traditional fare.

-   Acceptance of packaged food is increasing due to

    -   rising incomes

    -   increasing urbanization

    -   more working women

    -   increasing offering of western style products by multinational
        food companies

    -   increasing exposure of the younger Indian professionals to
        western culture

    -   proliferation of fast food outlets/coffee cafes

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-   Popular processed foods available in shops include-

    -   curry powders (spice mixes)

    -   pickles

    -   wheat flour

    -   noodles

    -   snack foods (mostly spicy Indian types)

    -   biscuits, cakes, pastries, etc.

    -   chocolates and confectionaries

    -   ketchups and sauces; jams and jellies

    -   table butter, ghee (melted butter), cheese

    -   fruit juices, and soft drinks.

-   Demand for specialty and high value foods, including imported, such
    as chocolates, almonds and other nuts, cakes and pastries, exotic
    fruits, fruit juices, and Indian sweetmeats peaks during the fall
    festive season, especially at Diwali - the festival of lights. This
    is the best time to introduce new-to-market food products in India.

**Shopping Habits**

Lacking purchasing power and sufficient home refrigeration, most Indians
shop almost daily at small neighborhood specialty shops or roadside
vendors (i.e., fruits and vegetables in one shop, dairy products in
another, groceries in a third, and meats and fish in yet another).
Quality is important, but there is a reluctance to pay a premium.
Availability of many items, particularly fruits and vegetables, is
seasonal, and people are accustomed to adjusting their food purchases to
the season. Women do most of the shopping and make most food purchasing
decisions. Households able to afford imported food products usually have
servants who buy, clean, and prepare food. Most processed foods are sold
in small containers due to customers' limited purchasing power.

Only over the past few years have Indians (mostly in cities) been
exposed to supermarkets in the Western sense. Consumers from semi-urban,
and rural localities, accounting for over 70 percent of the Indian
population, have yet to experience modern retailing. Very recently, the
'Shopping Mall' culture is gaining ground in metropolitan and larger
cities and urban suburbs in India.

## Consumer Food Import Market

Although quantitative restrictions on imports of most food and
agricultural products were removed in April 2001, the government
continues to discourage imports through relatively high tariffs and
non-tariff barriers. Import tariffs on most consumer food products
currently range from 30.6 to 58.4 percent (applied). Sensitive items
such as alcoholic beverages continue to attract much higher duties
(154-577 percent). Non-tariff barriers include non-transparent sanitary
and phytosanitary regulations, onerous labeling requirements for
packaged goods, and ambiguous procedures for sampling and testing of
food products at the time of imports. Factors that further dampen
prospects for imported food include poor infrastructure (roads and cold
chain), an unorganized retailing sector and multi-layered food
distribution system. Refrigerated warehousing and transportation
facilities are limited and costly, which results in high losses. These
factors together raise the retail costs of imported food products almost
4 times the FOB cost (see Appendix 1).

Nevertheless, the 'untapped' Indian market with a vibrant economy and a
large middle class offers potential opportunities for U.S. suppliers of
food and agricultural products. At present, there are 20-50 million
upper/upper-middle Indian consumers (annual household income \> Rs. 0.6
million or \$ 13,500) who can afford to regularly purchase imported food
products, and this number is growing. Market sources estimate that the
spending of these consumers has been growing annually at about 10-12
percent versus the overall spending growth of 6-8 percent for all
consumer classes.

Imported food items are largely limited to the organized retail sector
and grocery stores catering to high-end consumers in the urban areas.
The share of imported products in the organized sector food and grocery
inventory varies from 3 to 5 percent. Typically, imported food items
that can be found in retail stores in cities include --

-   chocolates & confectionary items

-   biscuits & cookies

-   chocolate syrups

-   cake mixes

-   ketchup & sauces

-   specialty cheese

-   canned fruits/vegetables

-   fruit juices

-   soups & seasonings

-   breakfast cereals

-   dry fruits

-   fresh fruits like apples, pears, grapes, etc.

Typically, most imported consumer food products, including U.S.
products, are transshipped through regional trading hubs such as Dubai
and Singapore, due to their liberal trade policies, efficient handling
and ability of the traders to meet Indian importers requirements. Major
importers are located in Mumbai, Delhi, Chennai, and Kolkatta. A large
share (30-35 percent) of imported food enters India through illegal
channels (smuggling and leakages from duty-free outlets and ships at
dock, etc.). Legitimate importers, who pay high import duties, face
stiff competition from this illegal 'gray market.' However, increasing
trade liberalization, including declining tariffs and adoption of value
added taxation (VAT) system is likely to discourage smuggling over time.

## Advantages and Challenges Facing US Products in India

+----------------------------------+-----------------------------------+
| **Advantages**                   | **Challenges**                    |
+----------------------------------+-----------------------------------+
| -   Large and growing middle     | -   Limited awareness about       |
|     class, of whom 20-50 million |     western products, due to      |
|     can aspire for and afford to |     historically closed market    |
|     consume imported food        |     and divergent food habits.    |
|     products.                    |                                   |
+----------------------------------+-----------------------------------+
| -   Increasing exposure to       | -   Indian food companies         |
|     American products and        |     (including many multinational |
|     lifestyle.                   |     companies) produce products   |
|                                  |     at competitive prices due to  |
|                                  |     diverse agro-industrial base. |
+----------------------------------+-----------------------------------+
| -   Consumer perception that     | -   High tariffs, dated food      |
|     U.S. food products are safe  |     laws, and unscientific        |
|     and high quality.            |     sanitary and phytosanitary    |
|                                  |     regulations.                  |
+----------------------------------+-----------------------------------+
| -   A steady transformation of   | -   Difficulties in accessing     |
|     the retail food sector in    |     vast semi-urban and rural     |
|     urban areas.                 |     markets due to poor           |
|                                  |     infrastructure.               |
+----------------------------------+-----------------------------------+
| -   Increasing urbanization and  | -   Competition from countries    |
|     growing number of working    |     with closer geographic        |
|     women.                       |     proximity to India.           |
+----------------------------------+-----------------------------------+
| -   Growing number of            | -   Competition from products     |
|     western-style fast food      |     imported through the 'gray    |
|     restaurant chains and coffee |     market' (smuggling, etc.)     |
|     shops.                       |                                   |
+----------------------------------+-----------------------------------+
| -   Improved US-India political  | -   Inability of U.S. exporters   |
|     relations.                   |     to meet Indian importers'     |
|                                  |     requirements (mixed           |
|                                  |     shipments, changing product   |
|                                  |     specifications to conform to  |
|                                  |     Indian food laws, etc).       |
+----------------------------------+-----------------------------------+

# 

# II. ROAD MAP FOR MARKET ENTRY

## Entry Strategy

-   It is critical for US exporters to survey existing and potential
    markets for the product before initiating sales. Further, U.S.
    exporters are advised to review the FAS-New Delhi market reports
    (see section V). A visit to India to gain a first-hand feel of the
    Indian market, preferably coinciding with a major food show, such as
    "Aahar", would be useful.

-   Success in introducing a new product in this market depends on good
    local representation and an effective pricing strategy. The local
    representative should preferably be the importer and distributor.
    The U.S. companies should avoid the temptation to establish a
    relationship with an agent/distributor merely because he/she is the
    most persistent suitor. Consider the following before selecting an
    agent:

    -   Determine through surveys who their potential customers are and
        where in India these customers are located.

    -   Recognize that agents with fewer principals and smaller set-ups
        often are more adaptable and committed than those with large
        infrastructure and big reputations.

    -   There may be a conflict of interest where the potential agent
        handles similar product lines, as many agents do.

    -   US firms should evaluate all distributor prospects, and
        thoroughly research the more promising ones. Check the potential
        agent's reputation through local industry/trade associations,
        potential clients, bankers, and other foreign companies.

-   Due to the vast regional diversity in India, it is common to appoint
    more than one representative covering specified regional markets.
    FAS-New Delhi maintains listings of potential importers, and assists
    exporters in meeting members of the Indian trade.

-   Most Indian importers prefer to:

    -   Purchase mixed containers of smaller quantities of individual
        products.

    -   Seek exclusive agreements from exporters.

    -   Use services of freight consolidators to handle their orders
        from various exporters.

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-   The key to success is to focus on 'reasonable' entry pricing for
    their products, which is specifically targeted at the desired
    consumer base.

-   Potential exporters should be familiar with India's varied food
    laws. Some products/ingredients, which are approved in the U.S. or
    in other countries, need not necessarily be approved in India.

**Market Structure**

![](media/image5.png){width="1.6354166666666667in" height="3.125in"}

**Organized Sector:** Due to the relatively small number of outlets and
low sales volume, most organized retailers source their imported
products through distributors. Established patterns are slowly giving
way to more streamlined operations, such as importers sourcing mixed
containers directly from the country of origin and larger retailers
sourcing products directly through importers. Most distributors have a
localized distribution area limited to a large metropolitan city and
adjoining smaller cities. The \"Indian supermarkets\" typically deals
with more than 400 distributors/suppliers, each handling three to four
products. Some of the large retailers have expressed interest in
sourcing products directly from the exporters.

**Unorganized Sector:** This large traditional market segment sources
most of its product from local industry, with the overall share of
imported food products almost negligible. Imported consumer food
products are restricted to traditional outlets in the up-market segment
of the larger cities that cater to higher and upper-middle income
classes. The only difference here is that most retailers source from
distributors. A significant share of imported food products in the
traditional market comes through 'gray' channels. The share of imported
food products currently handled by these retailers is increasing because
of the products' higher retail sales margin (20-25% vs. 6-12% for
local).

**A: Organized Privately Owned Retail Sector: (Hypermarkets/Super
Markets/Store Chains)**

Company Profiles

+-------------------+----------+----------+---------------+-----------+
| **Retailer        | **Own    | **No. of | ######        | **P       |
| Name/**           | ership** | O        | ### Locations | urchasing |
|                   |          | utlets** |               | Agent**   |
| **Outlet Type**   |          |          |               |           |
+-------------------+----------+----------+---------------+-----------+
| Food              | Local    | 60       | National      | Mainly    |
| Ba                | (P       |          | (major metros | dist      |
| zaar/Hypermarkets | antaloon | *(Plans  | and larger    | ributors; |
| & supermarkets    | Group)   | for 250  | cities)       | directly  |
|                   |          | stores   |               | from      |
|                   |          | by       |               | local     |
|                   |          | 2010)*   |               | manu      |
|                   |          |          |               | facturers |
|                   |          |          |               | and few   |
|                   |          |          |               | importers |
+-------------------+----------+----------+---------------+-----------+
| Spenc             | Local    | 97       | Major cities  | Mainly    |
| ers/Hypermarkets, | (RPG     |          | in South      | dist      |
| supermarkets &    | group)   | (Plans   | India         | ributors; |
| convenience       |          | to       |               | directly  |
| stores            |          | expand   |               | from      |
|                   |          | to west  |               | local few |
|                   |          | and      |               | manu      |
|                   |          | north by |               | facturers |
|                   |          | 2008)    |               | and       |
|                   |          |          |               | importers |
+-------------------+----------+----------+---------------+-----------+
| Foodw             | Local    | 90       | Mumbai,       | Mainly    |
| orld/Supermarkets | su       |          | Hyderabad and | dist      |
|                   | bsidiary |          | Vizag         | ributors; |
|                   | of Dairy |          |               | directly  |
|                   | Farm     |          |               | from few  |
|                   | Inter    |          |               | local     |
|                   | national |          |               | manu      |
|                   | (Jardine |          |               | facturers |
|                   | Matheson |          |               | and       |
|                   | Group)   |          |               | importers |
+-------------------+----------+----------+---------------+-----------+
| Nilgi             | Local    | 22       | Major cities  | Mainly    |
| ri's/Supermarkets | (Private |          | in South      | dist      |
| & convenience     | owned    |          | India         | ributors; |
| stores            | fra      |          |               | directly  |
|                   | nchisee) |          |               | from few  |
|                   |          |          |               | local     |
|                   |          |          |               | manu      |
|                   |          |          |               | facturers |
|                   |          |          |               | and       |
|                   |          |          |               | importers |
+-------------------+----------+----------+---------------+-----------+
| Trinethra &       | Local    | 170      | Major cities  | Mainly    |
| including         | (T       |          | in Andhra     | dist      |
| Fab               | rinethra |          | Pradesh,      | ributors; |
| mall/Supermarkets | Group)   |          | Tamil Nadu    | directly  |
| & convenience     |          |          | and Karnataka | from few  |
| stores            |          |          |               | local     |
|                   |          |          |               | manu      |
|                   |          |          |               | facturers |
|                   |          |          |               | and       |
|                   |          |          |               | importers |
+-------------------+----------+----------+---------------+-----------+
| Margin            | Local    | 300      | Major cities  | Local     |
| Free/Discount     | Coo      |          | in Kerala,    | manu      |
| stores and        | perative |          | Tamil Nadu    | facturers |
| supermarkets      | (        |          | and Karnataka | and       |
|                   | Consumer |          |               | dis       |
|                   | Pr       |          |               | tributors |
|                   | otection |          |               |           |
|                   | and      |          |               |           |
|                   | Guidance |          |               |           |
|                   | Society) |          |               |           |
+-------------------+----------+----------+---------------+-----------+
| Subiksha/Discount | Local    | 350      | Major cities  | Local     |
| stores            | (        | *(Plans  | in Tamil      | manu      |
|                   | Subiksha | for 1000 | Nadu, Andhra  | facturers |
|                   | Trading  | stores   | Pradesh and   | and       |
|                   | Services | all over | Pondicherry,  | dis       |
|                   | Pvt.     | the      | and National  | tributors |
|                   | Ltd.)    | country  | Capita Region |           |
|                   |          | by       | Delhi.        |           |
|                   |          | 2007)*   |               |           |
+-------------------+----------+----------+---------------+-----------+
| Adani Stores/     | Local    | 47       | Major cities  | Mainly    |
| Supermarkets &    | (Adani   |          | in Gujarat    | dist      |
| convenience store | Group)   |          |               | ributors; |
|                   |          |          |               | directly  |
|                   |          |          |               | from few  |
|                   |          |          |               | local     |
|                   |          |          |               | manu      |
|                   |          |          |               | facturers |
+-------------------+----------+----------+---------------+-----------+
| Tru               | Local    | 8        | Major cities  | Mainly    |
| mart/Supermarkets | (Piramal | *(Plans  | in            | dist      |
| and convenience   | Ente     | for 128  | Maharashtra   | ributors; |
| stores            | rprises) | outlets  | and Gujarat   | directly  |
|                   |          | by       |               | from few  |
|                   |          | 2010)*   |               | local     |
|                   |          |          |               | manu      |
|                   |          |          |               | facturers |
|                   |          |          |               | and       |
|                   |          |          |               | i         |
|                   |          |          |               | mporters. |
+-------------------+----------+----------+---------------+-----------+
| Reliance          | Local    | 17       | Currently     | Directly  |
| Retail/Plans for  | (        |          | Hyderabad,    | from      |
| hypermarkets,     | Reliance | *(Plans  | and will      | local     |
| supermarkets and  | In       | for 3000 | expand to     | manu      |
| convenience       | dustries | stores,  | major cities  | facturers |
| stores.           | Ltd.)    | 2500     | in the        | and       |
|                   |          | supe     | country.      | i         |
|                   |          | rmarkets |               | mporters, |
|                   |          | and 1000 |               | and       |
|                   |          | hype     |               | i         |
|                   |          | rmarkets |               | nterested |
|                   |          | in over  |               | in        |
|                   |          | 100      |               | sourcing  |
|                   |          | cities   |               | directly  |
|                   |          | by       |               | from      |
|                   |          | 2009)*   |               | e         |
|                   |          |          |               | xporters. |
+-------------------+----------+----------+---------------+-----------+
| My Dollar         | Local    | 40       | 28 cities all | Mostly    |
| Store/Convenience | fr       | *(Plans  | over the      | direct    |
| stores            | anchisee | for 100  | country       | imports   |
|                   | of My    | stores   |               |           |
|                   | Dollar   | by       |               |           |
|                   | Store of | 2007)*   |               |           |
|                   | the U.S. |          |               |           |
+-------------------+----------+----------+---------------+-----------+
| Sho               | Local    | Only 1   | Mumbai        | Directly  |
| prite/Hypermarket | su       |          |               | from      |
|                   | bsidiary | *(Plans  |               | local     |
|                   | of       | to add   |               | manu      |
|                   | Shoprite | 2-3 new  |               | facturers |
|                   | (PTY)    | outlets  |               | and       |
|                   | Ltd.     | by       |               | importers |
|                   | from     | 2007)*   |               |           |
|                   | South    |          |               |           |
|                   | Africa   |          |               |           |
+-------------------+----------+----------+---------------+-----------+
| Metro Cash &      | Foreign  | 3 (Plans | Bangalore and | Mainly    |
| Carry\*/          | (Metro   | to open  | Hyderabad     | local     |
| Hypermarket       | AG,      | 35       |               | manu      |
|                   | Germany) | outlets  |               | facturers |
|                   |          | in next  |               | and       |
|                   |          | two      |               | importers |
|                   |          | years)   |               |           |
+-------------------+----------+----------+---------------+-----------+
| \* Metro Cash &   |          |          |               |           |
| Carry has         |          |          |               |           |
| government        |          |          |               |           |
| permission for    |          |          |               |           |
| wholesale         |          |          |               |           |
| operations only.  |          |          |               |           |
+-------------------+----------+----------+---------------+-----------+

Indians have been exposed to self-service supermarket shopping and
modern food retailing since the early 1990's. Nilgiris, Food World and
other firms pioneered modern food retailing in South India. In recent
years, other players brought organized food retailing to other regions
of India. Several leading industrial groups such as Reliance Industries
Limited (RIL), ITC Ltd., Bharti Enterprises, Aditya Birla Group, Godrej,
and Tata are venturing into the organized food-retailing sector. The new
entrants and several of the existing players have ambitious retail
expansion plans including backward linkages for sourcing, processing and
distribution. In terms of front-end retail formats, hypermarkets are
expected to attract maximum investment, followed by specialty stores
(fresh produce), warehouses and supermarkets.

Recently, Bharti Enterprises announced its foray into retailing in
collaboration with Wal-Mart Stores, Inc. through a 51:49 partnership.
Wal-Mart will provide back-end logistic support including sourcing,
supply chain, technology support, as well as wholesale cash-and-carry
format. Bharti will be Wal-Mart's franchisee and wholly own and manage
the front end retailing by setting up \'several hundred\' stores across
India. Bharti plans to roll out the stores by August next year in
several formats including hypermarkets and supermarkets. Several foreign
retailers (Metro, Shoprite, My Dollar Store) are already operating
through 'cash and carry' or 'franchisee' models.

Emergence of privately owned organized retail formats has predominantly
been an urban phenomenon so far with about 12-15 cities being targeted
by most retailers. However, there are about 35 cities that have a high
concentration (30 percent) of high and upper middle class consumers. In
the next decade, organized retail will percolate to these cities and
further to smaller, second-tier cities and towns throughout India. The
concept of shopping malls is beginning to take shape in India's major
cities. During the last two years, retailers have set up larger discount
outlets with floor areas of 25,000-50,000 square feet, which are being
touted as 'Indian Hyper Markets.'

The retail sales turnover of the current players is relatively low
compared to global retail standards. Sales turnover for Indian fiscal
year 2005/06 (April/March) of groups like Food World is estimated at
\$78.7 million, Food Bazaar at \$76.2 million, Subiksha at \$74.1
million, Spencers at \$ 70.8 million, Trinethra at \$67.4 million, and
Adani Stores at \$24.7 million[^4]. Most customers coming to these
outlets are from upper and middle-income households.

Most of these 'Indian Supermarkets' have a floor area ranging from 3,000
to 6,000 square feet, and convenience stores have a floor area of
1000-1,500 square feet. They stock most national brands, regional and
specialty brands, their own brand of packaged dry products, and some
international brands. Many have a small bakery/confectionary section,
and some have fresh produce and dairy products. Only a few sell small
quantities of frozen foods, as cold storage availability is limited and
electric power supply is erratic. A typical supermarket carries about
6,000 stock-keeping units, but most have no item-based inventory
control. Their margins typically range from 14 to 16 percent. These
relatively high margins are due largely to the ability to get somewhat
better prices from suppliers on bulk purchases.

Gas-station convenience stores are relatively new to India, as petroleum
companies like Hindustan Petroleum Corporation Limited, Indian Oil, and
Bharat Petroleum have introduced branded outlets like 'Speedmart'
(around 100 in number), 'ConveniO's' (around 70), and 'In & Out' stores
(around 310). Most of the oil companies lease out these outlets to
private individuals or companies who run them independently. These
outlets sell impulse items like chocolates, confectionary, soft drinks,
juices, cakes, cookies, potato chips and other snack food and local
savories. However, they have made limited inroads in the retail market,
as their prices are relatively high vis-à-vis traditional retailers.

## B: Traditional/Unorganized Market: Provisions Shops/Grocery Shops/Wet Markets

The traditional 'Pop & Son' and 'wet market' stores in India are similar
to those in other developing and less-developed countries. Of the
roughly 6.5 million outlets, grocery stores account for 32 percent,
general stores 14 percent, and kiosks and wet markets the remaining
share of the total. Most of these outlets offer only the basics: limited
selection, lack of refrigeration, fixed prices, no technology, and
little or no ambience. Floor/display space normally ranges from 100 to
300 square feet. However, with the introduction of the 'Indian
supermarkets,' some of the stores have modernized by expanding floor
size and adding ambience, such as more display space, walking aisles,
refrigeration, etc. Most consumers prefer the traditional market to
larger supermarkets because of proximity, personal attention, credit
service, home delivery, and lower prices. Domestic servants who do most
of the grocery shopping for upper and middle income households also
prefer the traditional markets.

# III: COMPETITION

The biggest competitor for foreign foods in the Indian retail food
market is the local food industry. Potential U.S. exporters should
understand that India's diverse agro-industrial base already offers many
products at competitive prices. The leading multinationals from the U.S.
and Europe have established food processing operations in India, and
offer a range of western-style products at reasonable prices, though the
quality may be inferior to imported products due to poor quality of the
raw material supplies. Most local products are priced lower than
imported products due to high import duties. While some consumers are
aware of quality differences and insist on world standards or global
brands, most must sacrifice quality for affordable prices. The presence
of imported food products even in a typical western-style supermarket is
just 3 to 5 percent of the total product offering.

There are no reliable data on imports of consumer food products for
retail sale in India[^5]. See Appendix 2 and 3 for trends in India's
imports of consumer ready food products and U.S. market share based on
official Indian statistics.

Based on a qualitative assessment of the market and information from
market sources, products from Australia, New Zealand, the European Union
(EU), South Africa, the Middle East, and other South Asian countries
directly compete with like items from the United States. In addition to
the freight advantages, market sources report that suppliers from these
countries are more responsive to importers' demands for smaller shipment
sizes, and are more willing to modify product specifications to meet
Indian food laws, in contrast to some U.S. suppliers.

Australia and New Zealand aggressively promote their products in the
Indian market. Countries like Thailand, South Africa, Chile, Brazil, and
few EU countries also increasingly organize trade promotions in India.
Market promotions by these countries are mainly through trade missions,
trade servicing, and participation in food shows.

# IV: BEST PRODUCT PROSPECTS

## A: Products Present in the Market That Have Good Sales Potential/1

+--------+-------+----------+----------+-------------+-------------+
| P      | Im    | P        | Total    | Key         | Market      |
| roduct | ports | rojected | Import   | Constraint  | Att         |
| Ca     | in    | Annual   | Duty /2  |             | ractiveness |
| tegory | IFY   | Import   |          |             | for USA     |
|        | 20    | Growth   |          |             |             |
|        | 05/06 | in Next  |          |             |             |
|        |       | Five     |          |             |             |
|        | (\$   | Years    |          |             |             |
|        | Mil   |          |          |             |             |
|        | lion) |          |          |             |             |
+--------+-------+----------+----------+-------------+-------------+
| A      | 158.4 | 8%       | Rs.      | Competition | Most        |
| lmonds |       |          | 35/kg    | from        | popular     |
|        |       |          | for      | Afghanistan | dried fruit |
|        |       |          | inshell  | and Iran    | in India;   |
|        |       |          | &        |             | increasing  |
|        |       |          |          |             | use due to  |
|        |       |          | Rs.      |             | health      |
|        |       |          | 65/kg    |             | co          |
|        |       |          | for      |             | nsciousness |
|        |       |          | kernels  |             |             |
+--------+-------+----------+----------+-------------+-------------+
| Apples | 20.4  | 20%      | 51.0%    | Growing     | Seasonal    |
|        |       |          |          | competition | shortages;  |
|        |       |          |          | from China, | demand for  |
|        |       |          |          | Australia,  | high        |
|        |       |          |          | New Zealand | quality     |
|        |       |          |          | and Chile.  | fruits; and |
|        |       |          |          |             | India's     |
|        |       |          |          |             | preference  |
|        |       |          |          |             | for Red     |
|        |       |          |          |             | Delicious   |
|        |       |          |          |             | variety     |
+--------+-------+----------+----------+-------------+-------------+
| Pears  | 2.1   | 25%      | 30.6%    | Growing     | Seasonal    |
|        |       |          |          | competition | shortages;  |
|        |       |          |          | from China, | demand high |
|        |       |          |          | Australia,  | quality     |
|        |       |          |          | and South   | exotic      |
|        |       |          |          | Africa.     | varieties.  |
+--------+-------+----------+----------+-------------+-------------+
| Grapes | 1.7   | 25%      | 30.6%    | Growing     | Seasonal    |
|        |       |          |          | competition | shortages;  |
|        |       |          |          | from        | demand for  |
|        |       |          |          | Australia,  | high        |
|        |       |          |          | Chile and   | quality     |
|        |       |          |          | South       | exotic      |
|        |       |          |          | Africa.     | varieties   |
+--------+-------+----------+----------+-------------+-------------+
| Potato | 4.9   | 10%      | 35.9%    | Competition | Preference  |
| pr     |       |          |          | from        | for         |
| oducts |       |          |          | domestic    | imported    |
| and    |       |          |          | suppliers   | brands and  |
| other  |       |          |          | and the EU  | shortage of |
| snack  |       |          |          | and South   | quality &   |
| foods  |       |          |          | Asia        | range of    |
|        |       |          |          |             | domestic    |
|        |       |          |          |             | products    |
+--------+-------+----------+----------+-------------+-------------+
| Soup,  | 4.5   | 10%      | 35.9%    | Competition | Preference  |
| B      |       |          |          | from        | for         |
| roths, |       |          |          | domestic    | imported    |
| sp     |       |          |          | suppliers   | brands,     |
| reads, |       |          |          |             | growing     |
| salad  |       |          |          |             | fast food   |
| dre    |       |          |          |             | and food    |
| ssings |       |          |          |             | processing  |
| &      |       |          |          |             | sectors.    |
| cond   |       |          |          |             |             |
| iments |       |          |          |             |             |
+--------+-------+----------+----------+-------------+-------------+
| Pet    | 1.2   | 20%      | 30.6%    | Competition | Preference  |
| Food   |       |          |          | from        | for         |
|        |       |          |          | domestic    | imported    |
|        |       |          |          | suppliers   | brands and  |
|        |       |          |          |             | shortage of |
|        |       |          |          |             | quality &   |
|        |       |          |          |             | range of    |
|        |       |          |          |             | domestic    |
|        |       |          |          |             | products    |
+--------+-------+----------+----------+-------------+-------------+
| /1:    |       |          |          |             |             |
| Post   |       |          |          |             |             |
| an     |       |          |          |             |             |
| alysis |       |          |          |             |             |
| based  |       |          |          |             |             |
| on     |       |          |          |             |             |
| trade  |       |          |          |             |             |
| date   |       |          |          |             |             |
| and    |       |          |          |             |             |
| infor  |       |          |          |             |             |
| mation |       |          |          |             |             |
| from   |       |          |          |             |             |
| market |       |          |          |             |             |
| so     |       |          |          |             |             |
| urces. |       |          |          |             |             |
|        |       |          |          |             |             |
| /2:    |       |          |          |             |             |
| Total  |       |          |          |             |             |
| import |       |          |          |             |             |
| duty   |       |          |          |             |             |
| in     |       |          |          |             |             |
| cludes |       |          |          |             |             |
| basic  |       |          |          |             |             |
| duty,  |       |          |          |             |             |
| co     |       |          |          |             |             |
| unterv |       |          |          |             |             |
| ailing |       |          |          |             |             |
| duty,  |       |          |          |             |             |
| s      |       |          |          |             |             |
| pecial |       |          |          |             |             |
| co     |       |          |          |             |             |
| unterv |       |          |          |             |             |
| ailing |       |          |          |             |             |
| and    |       |          |          |             |             |
| edu    |       |          |          |             |             |
| cation |       |          |          |             |             |
| cess.  |       |          |          |             |             |
+--------+-------+----------+----------+-------------+-------------+

## B: Products Not Present in Significant Quantities But Which Have Good Sales Potential /1

+--------+-------+----------+----------+-------------+-------------+
| P      | Im    | P        | Total    | ##          | Market      |
| roduct | ports | rojected | Import   | ####### Key | Att         |
| Ca     | in    | Annual   | Duty /2  |  Constraint | ractiveness |
| tegory | IFY   | Import   |          |             | for USA     |
|        | 20    | Growth   |          |             |             |
|        | 05/06 | in Next  |          |             |             |
|        |       | Five     |          |             |             |
|        | (\$   | Years    |          |             |             |
|        | Mil   |          |          |             |             |
|        | lion) |          |          |             |             |
+--------+-------+----------+----------+-------------+-------------+
| Choco  | 14.0  | 5-10%    | Up to    | Competition | Preference  |
| lates, |       |          | 58.4%    | from        | for         |
| cho    |       |          |          | domestic    | imported    |
| colate |       |          |          | suppliers   | brands and  |
| syrups |       |          |          | and the EU  | shortage of |
| &      |       |          |          | and South   | quality     |
| other  |       |          |          | Asia        | domestic    |
| cocoa  |       |          |          |             | products    |
| pr     |       |          |          |             |             |
| oducts |       |          |          |             |             |
+--------+-------+----------+----------+-------------+-------------+
| Bis    | 2.6   | 5-10%    | Up to    | Competition | Preference  |
| cuits, |       |          | 58.4%    | from        | for         |
| w      |       |          |          | domestic    | imported    |
| afers, |       |          |          | suppliers   | brands and  |
| etc    |       |          |          | and the EU  | shortage of |
|        |       |          |          | and South   | quality &   |
|        |       |          |          | Asia        | range of    |
|        |       |          |          |             | domestic    |
|        |       |          |          |             | products    |
+--------+-------+----------+----------+-------------+-------------+
| Jams,  | 2.5   | 10%      | 35.9%    | Competition | Preference  |
| je     |       |          |          | from        | imported    |
| llies, |       |          |          | domestic    | brands and  |
| and    |       |          |          | suppliers   | shortage of |
| fruit  |       |          |          | and the EU  | quality     |
| juices |       |          |          | and South   | domestic    |
|        |       |          |          | Asia        | products    |
+--------+-------+----------+----------+-------------+-------------+
| Prunes | 0.15  | 10-15%   | 25.5%    | Competition | Increasing  |
|        |       |          |          | from Iran   | demand as   |
|        |       |          |          |             | exotic      |
|        |       |          |          |             | snack       |
|        |       |          |          |             | foods, and  |
|        |       |          |          |             | growing     |
|        |       |          |          |             | health      |
|        |       |          |          |             | co          |
|        |       |          |          |             | nsciousness |
+--------+-------+----------+----------+-------------+-------------+
| /1:    |       |          |          |             |             |
| Post   |       |          |          |             |             |
| an     |       |          |          |             |             |
| alysis |       |          |          |             |             |
| based  |       |          |          |             |             |
| on     |       |          |          |             |             |
| trade  |       |          |          |             |             |
| date   |       |          |          |             |             |
| and    |       |          |          |             |             |
| infor  |       |          |          |             |             |
| mation |       |          |          |             |             |
| from   |       |          |          |             |             |
| market |       |          |          |             |             |
| so     |       |          |          |             |             |
| urces. |       |          |          |             |             |
|        |       |          |          |             |             |
| /2:    |       |          |          |             |             |
| Total  |       |          |          |             |             |
| import |       |          |          |             |             |
| duty   |       |          |          |             |             |
| in     |       |          |          |             |             |
| cludes |       |          |          |             |             |
| basic  |       |          |          |             |             |
| duty,  |       |          |          |             |             |
| co     |       |          |          |             |             |
| unterv |       |          |          |             |             |
| ailing |       |          |          |             |             |
| duty,  |       |          |          |             |             |
| s      |       |          |          |             |             |
| pecial |       |          |          |             |             |
| co     |       |          |          |             |             |
| unterv |       |          |          |             |             |
| ailing |       |          |          |             |             |
| and    |       |          |          |             |             |
| edu    |       |          |          |             |             |
| cation |       |          |          |             |             |
| cess.  |       |          |          |             |             |
+--------+-------+----------+----------+-------------+-------------+

## 

## C: Products Not Present Because They Face Significant Barriers

To protect local producers, the Indian government imposes high tariffs
and other non-tariff barriers (mostly sanitary and phytosanitary
measures). Consequently, it is difficult to export to India basic
commodities like grains, dairy products, meat products, and raisins,
among others. Import of beef is banned due to religious reasons. Imports
of alcoholic beverages are severely constrained by high import tariffs,
local taxes, and by a complex licensing system for distribution and
sales in the local markets.

# V. POST CONTACTS AND FURTHER INFORMATION

If you have any additional queries regarding this report or need
assistance exporting to India, please contact the Office of Agricultural
Affairs, New Delhi, at following address:

**Agricultural Counselor**

**Foreign Agricultural Service**

**Embassy of the United States of America**

**Chanakyapuri, New Delhi - 110 021**

**Ph: (91-11) 24198000, Fax: (91-11) 2419-8530**

**E-Mail:** [agnewdelhi@usda.gov]{.underline}

-   The following reports may be of interest to U.S. exporters. These,
    and related reports prepared by this office, can be accessed via the
    FAS Home Page, ([http://www.fas.usda.gov)]{.underline} by clicking
    on \"Attaché Reports,\" and typing the report number.

  ---------------------- ------------------------------------------------
  **Report Number**      **Report Title**

  IN6089                 Exporter Guide Report

  IN6066                 FAIRS Annual Report

  IN6021                 Trade Policy Monitoring Report

  IN6087                 FAIRS Export Certificate Report

  IN5066                 Hotel Restaurant & Institutional Service Report

  IN5031                 Food Processing Sector Report
  ---------------------- ------------------------------------------------

-   The Country Commercial Guide prepared by the Commercial Section of
    the US Embassy will also be of interest to exporters. This can be
    accessed through
    [www.stat-usa.gov](http://www.stat-usa.gov/)[.]{.underline}

-   To get information on India's imports of select food and
    agricultural products for a particular Indian fiscal year
    (April/March) by countries, please follow the following procedure-

```{=html}
<!-- -->
```
-   Go to the website of Directorate General of Foreign Trade, Ministry
    of Commerce and Industries, Government of India
    <http://dgftcom.nic.in/>.

-   In the 'Trade Related Links' section, select icon 'Export Import
    Databank'.

-   In the 'Imports' section, select icon 'Commodity wise all
    countries'.

-   In the pop-up menu, fill in the **year** and **ITC/HS Code** of the
    commodity.

APPENDIX 1: Breakdown of Cost of Imported Processed Food Product for
Retail Sale

  --------------------------- --------- ----------------------- --------- ---------------- --------- ----------------
  ***Item***                  *** ***   ***Rate***              *** ***   ***Mumbai***     *** ***   ***Delhi***

  *** ***                     *** ***   *** ***                 *** ***   ***Market***     *** ***   ***Market***

  **FOB Price US Port (New    ** **     \$ 1/unit                         1.00                       1.00
  York)**                                                                                            

  Sea Freight/Insurance,                9% of FOB Invoice Price           0.09                       0.09
  Etc./1                                                                                             

                                                                          \_\_\_\_\_\_\_             \_\_\_\_\_\_\_

  **CIF Value India Port      ** **                                       1.09                       1.09
  (Mumbai)**                                                                                         

  Basic Import Duty (BD)                30% of CIF value                  0.33                       0.33

  Countervailing Duty (CVD)             16.32% of 65% of MRP              0.42                       0.42
  /2                                    Value#                                                       

  Special CVD                           4% of CIF value+BD+CVD            0.07                       0.07

  Education Cess (EC)                   2% of BD+CVD+Special              0.02                       0.02
                                        CVD                                                          

  Total Import Duty                     Basic Duty+CVD+Spl                0.83                       0.83
                                        CVD+EC                                                       

  Clearing Charges/3                    6 % of CIF Value                  0.07                       0.07

                                                                          \_\_\_\_\_\_\_             

  **Landed Cost for the                                                   1.99                       na
  Importer at Mumbai**                                                                               

  Inland Transport Cost                 5% of CIF Value                   na                         0.05
  (Mumbai-Delhi)/4                                                                                   

                                                                                                     \_\_\_\_\_\_\_

  **Landed Cost for the                                                   na                         2.04
  Importer at Delhi**                                                                                

  Octroi Tax at Mumbai/5                6% on landed price                0.12                       na

  Importers Margin/6                    18% of landed cost                0.36                       0.37

                                                                          \_\_\_\_\_\_\_             \_\_\_\_\_\_\_

  **Invoice Price of the                                                  2.47                       2.41
  Importer for the                                                                                   
  Distributor**                                                                                      

  Central Sales Tax                     4% of invoice price to            0.10                       0.10
                                        distributor                                                  

                                                                          \_\_\_\_\_\_\_             \_\_\_\_\_\_\_

  **Distributor Cost Price**  ** **                                       2.57                       2.51

  Local sales Tax (VAT)                 12.5% of distributor              0.32                       0.31
                                        cost                                                         

  Distributor Margin                    10% on distributor cost           0.26                       0.25

                                                                          \_\_\_\_\_\_\_             \_\_\_\_\_\_\_

  **Distributor Sale Price to ** **                                       **3.14**         ** **     **3.07**
  Retailer**                                                                                         

  Retailer Margin                       25% of Retailer Price             0.79                       0.77

                                                                          \_\_\_\_\_\_\_             \_\_\_\_\_\_\_

  **Total Retail Price**      ** **                                       **3.93**                   **3.84**
  --------------------------- --------- ----------------------- --------- ---------------- --------- ----------------

Note:*Calculation based on the assumption FOB value of \$ 25,000 for a
20 ft container; MRP of \$ 3.93/unit declared by importer based on
Mumbai costing*

*na - Not Applicable*

/1: can vary from 8-10%

/2: CVD of 16.32% charged on 65% of the MRP value declared by the
importer.

/3: can vary from 3-8%  

/4: can vary from 4-5 %  

/5: can vary from 5-7% depending on the nature of product

/6: can vary from 15-20%

Source: FAS/New Delhi analysis based on information from market sources.

APPENDIX 2: India's consumer food imports in IFY 2005/06 (April/March)

> ![](media/image6.wmf){width="5.75in" height="4.182638888888889in"}

Source: Directorate General of Commercial Intelligence & Statistics,
GOI; FAS/New Delhi.

![](media/image7.wmf){width="6.0in"
height="3.408333333333333in"}APPENDIX 3: Annual growth in consumer food
imports during IFY 2001/02 to 2005/06

Source: Directorate General of Commercial Intelligence and Statistics,
GOI; FAS/New Delhi.

[^1]: Technopak research analysis.

[^2]: \$11,200 on purchasing power parity basis.

[^3]: For more information on the Indian household income profile,
    please refer our 'Exporter Guide (IN6089) report. Primary Source:
    Market Information Survey of Household, National Council of Applied
    Economic Research.

[^4]: Source -- Technopak Ltd.

[^5]: Most consumer food products are imported as mixed consignment from
    transshipments points like Dubai/Singapore and are not necessarily
    identified by their country of origin. Some transshipped, mixed
    consignments are under-invoiced or falsely declared. Over 30-40% of
    imported products are unaccounted as they come through illegal
    channels. Consequently, official import statistics do not reflect
    the market accurately.

    Official Indian statistics are not sufficiently detailed to provide
    a break-up of consumer food items by product category for retail
    sales. Thereby, processed food items under chapters 20-22 include
    consumer food items imported for retail sales, HRI, and for further
    processing.