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By Uday Pai

With the emergence of organized retailing in India, and a growing demand from consumers for a superior shopping experience, convenience retailing has emerged as a key business area for petroleum companies given their wide retail presence, existing customer base and strategically located sites.

Indians are welcoming this 24/7 retail culture because traditional shopping culture doesn’t fit the needs of today's consumers. Many find it nearly impossible to spare the time to go to the market. Convenience stores, on the other hand, offer the flexibility to go shopping the moment they get some free time out of their daily hectic schedules.

The range of products and services offered under the same roof is the biggest reason why these convenience stores are becoming popular among consumers, said market experts. Besides processed fresh meat and other edibles, cut vegetables and fruits for instant cooking, these convenience stores offer other facilities such as courier services, utility bill payment services and so on.

A Booming, Upbeat Market
Indians are extremely optimistic. India topped the entire world for the third time in a row in the 2006 ACNielsen Global Consumer Confidence Index. This optimism among Indians translates into their perception that it is a good time to buy the things they want in the next 12 months, said Mike Moriarty, vice president in A.T. Kearney's Consumer Industries and Retail Practice.

"India is at the peak of attractiveness for retailers right now, with a $350 billion retail market expected to grow 13 percent this year," Moriarty said. "India's top five retailers together still account for less than 2 percent of the modern retail market."

When it comes to purchasing power parity (PPP), India is the world's fourth largest economy according to the World Development Indicators issued by the World Bank. By conventional calculations, India's gross national income is only $477.4 billion, but it translates into $2,913 billion PPP. This augurs well for the future of c-stores.

By the end of 2010, the organized retail business in India is expected be a $300 billion industry. In the past five years, the cumulative growth in the sector has been 133 percent, according to a study by McKinsey and the Confederation of Indian Industry (CII).

While the organized retailer sector in India is targeted at high-income urban customers, the unorganized retail sector primarily caters to a traditional customer base of lower income sections in the rural pockets of India. This may be why the two forms of retailing manage to co-exist in India. The urban Indian shopper is spending more on food, groceries and personal care than before. According to the 2005 ACNielsen ShopperTrends, the average monthly expenditure on these items grew by a robust 14 percent over the previous year.

"Countries like India seem to be decent locations for the c-stores, as there's less or in fact no competition at present in this part of the world," stated a recent research report titled "Asian Convenience Store Industry Analysis (2005-2009)," published by the Delhi-based RNCOS (Research & Consultancy Outsourcing Services).

Many believe convenience stores will drastically make over the lifestyle to Indian consumers. As the Indian retail industry is changing tremendously, prominent business groups plan to open more c-stores in India.

Retail CEOs and experts say the Western model of convenience stores with petrol stations is relatively new in India, and it is too early to predict if they would succeed like their Western counterparts. Success, in many cases, will depend on the ability of store management to understand the local geographic needs of customers, and to offer location-specific and distinct products.

"With the increasing number of double-income households, the idea behind the concept is to fulfill the multiple requirements of people," said Samir Modi, managing director of Modi Enterprises, which operates a 24-hour c-store, called 24X7, in New Delhi. "So you can stop by to pay your mobile bills, recharge your mobile phone, develop your film roll and do your emergency shopping even as you grab a quick meal."

Besides stocking packaged foods and beverages, personal and home care items, Modi's 1,400-square-foot outlet has a pharmacy and other service counters where customers can pay their bills or send courier documents. Part of the KK Modi group, the company plans to launch three more outlets in south Delhi, besides one in Gurgaon, Mumbai, Bangalore and Kolkata.

"Convenience stores work well in India only where the concept has been understood thoroughly," said Gibson G. Vedamani, CEO of the Retailers Association of India. "If the convenience store is well located (that means if the petrol station is well located) and if the store-mix is right, the going has been easy," he added.

But he warns c-store managers: "Convenience stores with fuel pumps in India have met with success only when the store management has understood its surrounding geographic area needs well, and when they offer a location-specific and distinct product offering mix, tweaked perfectly to meet the needs of the customers whether they drive in or walk in."

Fuel Giants See Opportunity
Oil companies that have started putting up c-stores with their fuel stations in India have yet to gain widespread popularity, but it is expected that this model will gain customer acceptance over a period of time, as is happening with hypermarkets and supermarkets.

"In India, the concept of convenience stores at petrol stations will take some time to gain momentum," said Prashant Mudaliar, general manager of retailer Ferns 'N' Petals.

"People walk in the Ferns 'N' Petals outlet because our brand is known; we have a network of 100-plus outlets in India. Had it been any stand-alone, mom-and-pop style of store it probably wouldn't have had many footfalls. We are not generating an astounding amount of revenues at this store, but we are not into losses either."

Bharat Petroleum Corp. Limited (BPCL) has partnered with a Bangalore-based company, Greens and Grains, to add fresh fruits and vegetables to select outlets next year, in addition to the fuel, chips and toiletries currently sold a its petrol stations. According to S. Ramesh, general manager of retail strategy for BPCL, fruits and vegetables would be brought for retail selling only after proper testing at the quality control laboratories set up for the purpose. The company's convenience stores -- called In and Out -- already stock 70 percent foodstuff, including ready-to-eat items. The other 30 percent of the mix consists of personal care products.

BPCL's In & Out stores, which were launched in 2001, offer a convenience proposition where a number of typical household errands are aggregated under one roof for the benefit of the customers. Today there are more than 240 In & Out stores across India.

Indian Oil Corp. (IOC) has aggressive expansion plans and will strengthen its retail operations by establishing over 10,000 retail outlets by the end of the current financial year. It's annual expenditure on retail expansion is estimated to be around $112 million.

"People are looking for convenience, and oil companies have sites that can lend themselves to convenience stores ... Indian Oil sees an opportunity in this," said Sarthak Behuria, chairman and managing director of ICO, who added that the oil company hopes to provide added convenience to customers while growing revenues and ensuring that the fuel business does not shift to malls.

According to Anil K. Aggarwal, president of ASSOCHAM, an Indian trade association, the petrol station convenience stores essentially function as mini malls. "They have already gained ground in metros and are generating good revenues. All these petrol pumps are highly modern, whether they are owned privately or are run by government. In a couple of years, even smaller cities will have such stores."

Another major Indian petroleum company, HPCL, is also aggressively pursuing the c-store concept. P.T. Suresh, head of Allied Retail Business for HPCL, described the food and grocery convenience store format as small to medium in size (average floor area per outlet around 750 square feet), air conditioned, with nice ambience and displays to attract customers. "Given the fragmented nature of food and grocery retail in India, it is a challenge to attract the desired level of traffic into the store," he said.

Enter New Players
The investments of several millions of dollars by seasoned business entities such as Reliance, Tata, RPG and Pantaloon, in retail stores are a clear indication of the growing retail market. Globally, retail is the largest private industry at $6.6 trillion. In India, the total organized retail market is pegged at $6 billion with only 3 percent to 4 percent being organized retail. This figure is expected to grow by 400 percent, from $7 billion to over $30 billion by 2010.

Reliance Industries has announced plans of a $5.6 billion push into the retail sector, through a new company, Reliance Retail Limited. The company will adopt a multi-format strategy to set up a chain of hypermarkets, supermarkets, discount stores, specialty stores and convenience stores across India. The rollout will be in phases and the company expects to have about 1,600 stores in operation next year, according to chairman Mukesh Ambani.

So far, Reliance Retail purchased land in 24 states and union territories. The target is to acquire 15 million square feet of retail space (ranging in size from 3,000 to 30,000 square feet) for c-stores and hypermarkets alone.

Foreign corporations cannot enter India without a partner because they are not allowed to own real estate in the country. Companies like Nike, McDonald's and Reebok sell at mall outlets through their Indian subsidiaries or franchisees. McDonald's, for example, has appointed two master franchisees in India, and these have appointed numerous sub-franchisees all over the country. A sub-franchisee, therefore, could open a McDonald's outlet either as a stand-alone store or as one of the many mall stores.