The profile of the Indian consumer is changing. Per capita incomes, on a PPP basis, have risen from Rs 2,940 in 2005 to Rs 5,350 in 2013. At the same time, people have been moving as urbanisation steadily increases, from 28.5% in 2001 to 31.6% by 2011. This should make it an excellent growth market for consumer goods and retail players. And it does, with more and more companies making a beeline for a market where 20% year on year value growth is a norm.
However, life in India for these players is not an easy one. Companies have to deal with rising inflation and complex, sometimes opaque, supply chains. In the last five years, raw material prices have risen by 32%, aided by a depreciating rupee. This has been coupled with shortages. The Economic Times in July reported that Pepsi missed production targets in the peak summer season due to raw material shortages. Many consumer product companies look to shave off costs from every element to protect margins.
As with many other areas, a reluctance to invest capital has made Indian supply chains more complex. Innovative? Yes. Agile and adaptive? Yes. But efficient? No. Most consumer goods supply chains are both complex and information starved. With growth, the cost of this capital avoidance has been steadily increasing.
The scale of loss is dramatic. Food and groceries account for 67% of all retail trade in India, a trade that is estimated to reach close to USD 1 trillion by 2018. In this market today, there is vast wastage of good products in the overall supply chain. If we avoided this wastage, milk could cost 50% less! Post-harvest losses of grain and vegetables are about 25% every year. Of the 95 million tonnes of wheat production, about 21 million tonnes is lost due to poor storage. All this is caused by limited and primitive storage and handling facilities. The sheer scale makes a strong case for focusing on improving supply chains over yield increase.
In addition to the need for physical infrastructure investments, there is a need for a much stronger information flow. Visibility can lead to more efficient storage and routing of produce. This will increase availability, while helping reduce and stabilise prices. By eliminating long, multi-stage supply chains, we can expect better farmer income combined with lowered delivered cost. Digital India can play a big role in this field.
Sam Pitroda, in an article in the Economic Times, described how the foundations for digital India have been developing, layer by layer, over the past 25 years. Today, two of the three elements are in place: connectivity reaching out to 250,000 village panchayats in the country and platforms to improve efficiency, governance and last mile delivery, such as the UID and e-Kranti projects. Now, the third element i.e. relevant software applications to utilise these platforms, should be forthcoming from the industry. The challenge is to think big, really big. After that, it is quite possible that rural India will become the largest e-commerce community in the world.
References:
http://www.rai.net.in/EY-RAI_Pulse_of_Indian_retail_market_Final.pdf
http://www.ft.com/cms/s/2/c1f2856e-a518-11e3-8988-00144feab7de.html#axzz3gusykAJ3