Home NEWS India India’s retail market to touch $1.1-1.3 trillion by 2025: BCG

India’s retail market to touch $1.1-1.3 trillion by 2025: BCG

Image: Flickr/Sankarshan Mukhopadhyay

India’s retail market is estimated to reach $1.1-1.3 trillion by 2025, from $0.7 trillion in 2019, growing at a compound annual growth rate (CAGR) of 9-11%, driven by socio-demographic and economic factors such as urbanisation, income growth and rise in nuclear families.

According to a new report launched by Boston Consulting Group in collaboration with Retailers Association of India, retail is expected to cross the trillion-dollar mark on the back of multiple structural, demographic and economic drivers to boost consumption. India’s consumption is likely to outperform that of developed countries like the US and UK that will only grow at a CAGR of 3.6% and 4.5%, respectively.

The report dwells on likely trends that could shape the retail industry in the next 5-10 years. The future of Indian retail will be determined by factors such as consumer shifts, supply side innovations, data and technology driven disruptions, new competitive forces and government regulations, the report said.

Retail in India continues to be fragmented. There is large headroom for the top five retailers to grow their market share from the current 5% to 10-12% in the next decade. To achieve this, retailers would need to drive business model innovations based on value proposition and operating model.

In its report, BCG said the increasing popularity of supermarkets and investments by large corporates such as RPG Group, Future Group, Aditya Birla (More) in modern trade, along with the rise of e-commerce, among others, has threatened the existence of India’s kirana stores.

However, the report added that a decade on, small neighborhood stores continue to be relevant owing to familiarity, proximity and the convenience of monthly credit that these shops offer. Moreover, more retailers have found resonance with smaller format stores as escalating rents hurt profitability.

While e-commerce has affected categories such as electronics, apparel and footwear, a large shift of grocery retailing in India is yet to happen. Share of all electronics sold online moved from 1.4% in 2008 to 15.3% in 2018. But going forward, BCG expects that innovations aiming small neighbourhood stores driven by e-commerce, B2B (business-to-business), B2C (business-to-consumer) will continue to drive their growth and relevance. BCG anticipates that small format stores and innovations in the B2B distribution side.

The report also points to the evolving consumers and the way they shop. They look for convenience due to paucity of time. They are happy to choose personalised products and services despite higher costs. They shop frequently to maintain a trendy lifestyle or image. Renting of products is preferred as they want an asset-light lifestyle. Not just that, consumers are shifting towards experiences and trading down on possessions for experiences and indulgences, the report said.