Logistics is the key for retail growth in India

The retail sector in India, both organised and unorganised, is set to grow at a rapid pace over the next few years. Retail India is currently ranked as the fifth larest globally, contributing to over 5% of the country’s GDP.  India has also been ranked as one of the most attractive investment destinations in retail among 30 emerging markets in A T Kearney’s annual Global Retail Development Index (GRDI) for the past four years. FDI inflows to single brand retail trading stood at $ 195 million.

According to BMI India Retail Report, the total retail sales is expected to grow from $353 billion in 2010 to $543 billion by 2014, with organised retail accounting for 5% of the sales. According to McKinsey, organised retailing itself is set to rapidly increase from 5% to 14%-18% by 2015. While the nod to multi-brand retailing anticipated by mid-2011, and with top retailers entering the space and diversifying, organised retail is expected to have a good robust growth in the coming few years.

But the above projections and growth is dependent upon consistent growth in infrastructure, particularly a more reliable and efficient supply chain and logistics mechanism. The rapid growth of organised retail and the need to reach out to untapped rural markets necessitate massive improvements in infrastructure and the logistics network.  The National Highways form a meagre 2% of the total roads in the country, but take over 40% of the load. Almost, 80% of the roads are not suitable for commercial vehicular movement. The average speed of such vehicles in India is only 20 km/hr, compared with 60 km/hr in the developed countries. The inadequacy and the ineffeciency of the logistics network is evident.
Due to these inefficencies in logistics, the cost of logistics as a percentage of the cost of goods sold (COGS) is the highest. There is a lot of promise for retail industry in India, but there are some challenges to overcome. The growth of this sector depends on how we overcome these challenges.

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3 thoughts on “Logistics is the key for retail growth in India

  1. Agree on the importance of the logistics part! But the connectivity of the country is bad! The other options are Indian railways or the air freight! The former is also loaded while latter is not cheap!

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