India: retail giants set to develop own logistics

Bucking international trends, India’s retail giants like Reliance Retail, Bharti-Wal-Mart and AV Birla Retail are developing their own logistics. With demand for end-to-end logistics solutions far outstripping supply, the logistics market for organised retail is pegged at $50 million and is growing at 16%. It is expected to reach $120-$130 million by 2010. Organised retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010.

Not that the current players are inactive. Even before the US retailer Wal-Mart signs up with its Indian partner Bharti, its fully-owned logistics arm Gazeley has confirmed its India foray Reliance Logistics Ltd part of Reliance Industries Ltd, currently handles Reliance Retail’s logistics services. Similarly, Bharti Enterprises is directly negotiating with the rail authorities instead of negotiating with a logistics provider.

Globally the logistics cost component of the total retail price is 4%-5%, while in India it is as high as 7-10%. The higher cost for an industry, which operates on wafer thin margins of 2-3% globally, makes it imperative for retailers to internalise most operations and cut costs.

Says Anand Rangachari, managing director, Frost and Sullivan, “Unlike the mature western markets, retail growth in India is expected to be dominated by large retailers owning the logistics rather than outsourcing it to third and fourth party logistic providers, in near future simply due to the highly fragmented nature and lack of national as well as international logistics providers in the country.”

Source:Financial times

• Logistics has been the hart of many business models like the retail Giants like Walmart - Is it the same happening in India too?
• Is it a lack of transportation infrastructure (like trucks and fleets) from the advanced Third Part Logistic companies that makes retail giants go for their own set logistics set up?
• What will be the logistics business models that the retail companies will come up with ? How does that add to the value chain of the companies?
• Or are the Retailing companies eyeying more on the international market rather than the domestic market, given the fact that less that 2% of the food items produced in India are packaged?