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BCG-RAI report shows retail market growth to continue at 9-10%

By Retail4Growth Bureau | March 01, 2024

The Boston Consulting Group (BCG) and Retailers Association of India (RAI)’s report “Unlocking the $2 Tn retail opportunity in the next decade : An activist agenda” shows, among other things, that store expansions continue to happen and with increasing urbanization, there is more consumption expected to happen in T1-4 cities.

The Boston Consulting Group (BCG) and Retailers Association of India (RAI), have jointly published a report today titled “Unlocking the $2 Tn retail opportunity in the next decade : An activist agenda”. The report examines recent trends across sub sectors, identifying key themes shaping the future of retail and their implications for retailers. It poses key considerations for retailers in current times and seeks to highlight imperatives for value creation. 

India continues to be a bright spot among the major economies – growing fastest among top 5 global economies and expected to become 3rd largest by GDP in 2030. India retail market is expected to reach $2Tn in next 10 years and presents a large opportunity for retailers. 

Organized retail in India has consistently demonstrated faster growth in comparison to the underlying category. However, performance in the recent quarters has been subdued owing to potential headwinds. The drop in the growth rate for organized retailers is higher vs that of category. Some large retailers have reported a decline in LFL store growth. Profitability at the same time has remained consistent and in line with global peers. 

The report delves into key factors propelling pace and shape of growth especially shifts in consumer spending preferences, trends on affluence, increasing urbanization, supply expansion and channel shifts. 

Report lays out imperatives for retailers to win by adapting the model given the trends. It also lays out how best performing retailers (on shareholder returns) drive both above-market growth AND profitability.

Retailers will have a $2 Tn annual opportunity over the next decade

  • Retail market growth expected to continue at 9-10% 
  • Organized retailers need to sustain performance and continue to grow shares

Retail is going through key shifts impacting the pace and shape of growth 

  • Income growth remains steady, and consumers are optimistic on personal income outlook. At the same time, consumers increasingly looking to spend on “experiences” or save more through newer/ nascent vehicles. 
  • Categories are shaping up differently due a range of factors. Also, growth driven by varied mix of volumes v/s ASP.
  • Store expansions continue to happen and with increasing urbanization, there is more consumption expected to happen in T1-4 cities.
  • While e-commerce continues to grow, net new user addition has seen a slower pace in the year. Role and proposition of online needs to be re-imagined.

“The Indian retail sector will more than double in size to 2 trillion dollars in the next decade - across categories and formats - and the successful retailers are the ones who continue to challenge the perceived growth profitability trade off”, stated Abheek Singhi, Managing Director and Senior Partner at BCG.

The trends covered in the study are a combination of short-term and long-term drivers. It is important to note that while themes are universal, there are bound to be nuances and retailers will need to discern the impact of various factors into their business. The report also prompts retailers to address key considerations for sustainable growth in future.

“The retail sector offers very significant opportunity, but at the same time we see very significant variation in performance across retailers. In the retail sector, opportunity abounds, yet so does a stark divergence in performance outcomes. The key to standing out and achieving success lies in retailers' commitment to sharpening their CVP & the delivery model, leveraging the transformative potential of AI & analytics and aggressively managing costs” explained Namit Puri, Managing Director and Senior Partner, BCG.

The report highlights 5 value creation themes that retailers can activate, providing inspirations from global retailers. It advocates challenging traditional trade-offs with innovations in business models, leveraging digital and GenAI for personalized customer experiences, enhancing value chain efficiencies with AI, fostering partnerships to unlock new revenue streams, and adopt systemic localization in merchandize & formats to win in “Many Indias”.

“New-age retailers globally and in India have challenged traditional trade-offs in consumer proposition. This has enabled retailers to provide superior offerings ‘consistently’ and deliver break-through LFL growth. Retailers have also leveraged AI and data actively” explained Bharat Mimani, Managing Director and Partner, BCG.

“As we stand at the cusp of a transformative retail era, it is crucial for Indian retailers to embrace the wave of constant innovation. This report not only highlights the immense potential in our rapidly evolving market but also provides actionable insights for retailers to adapt and thrive amidst changing consumer preferences, and technological advancements. By focusing on personalized customer experiences, exploring new collaborations, and leveraging AI for efficiency, we can propel India's retail industry towards unprecedented growth and global competitiveness. This report is more than an analysis; it is a call for Indian retailers to innovate, collaborate, and lead the charge in shaping a dynamic and prosperous retail landscape for our nation.” opined Kumar Rajagopalan, CEO, Retailers Association of India (RAI)

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