Grocery Retail in India: Current Status and Future Scenarios

It is expected that the grocery retail market in India will be reaching approximately $1.10 trillion by the year 2030. In view of its strategic importance in the Indian economy, we analyze the current status based on secondary data and predict some likely future scenarios. We consider the shift and share of the organized and unorganized retail in India, the level of digitization in India, the effect of the COVID-19 pandemic, and the Indian ethos and values in purchasing behavior. A few feasible alternative scenarios are sketched here based on the historical past and the adoption of technology by various players involved in both organized and unorganized retail sectors in India.

The Indian retail industry has significantly evolved with time. The growth trajectory of organized Indian retail is marked with certain significant developments since the opening of the economy in 1991. The retail industry is continuously evolving with various models in place, but data reflects the charm of “value retail” among consumers. Grocery consumption amounts to half the total of the country’s retail consumption [1], and the traditional “kirana” stores dominate, covering 90% of the market [2] with more than 12 million. In 2010, the Indian community was skeptical about the survival of kirana stores because of the emergence of supermarkets/hypermarkets. However, more than a decade later, kirana and small stores are surviving due to the service specialty involving personal touch, monthly credit and proximity to the consumers. That said, growth in e-commerce and organized retail is being witnessed post-COVID-19 with preferences for a hygienic environment as well as discounts and loyalty points offered by organized retailers. Another significant trend that has emerged is large retailers (Reliance 7-Eleven stores, Tata Fresho stores, D-Mart and many more) collaborating with local kirana stores to help manage efficient delivery and expand their networks [3].

India’s retail market contributes 10% to India’s GDP and employs 8% of India’s population [4].

Global Position of India’s Grocery Retail

The global grocery market grew at 3.1% CAGR (compound annual growth rate) between 2020 and 2022, according to a 2021 forecast by The Institute of Grocery Distribution, U.K. (IGD).

Table 1: Global market size of grocery retail – Top 10 countries

Source: Global grocery retail to generate an additional $440 billion in sales by 2022 (The Institute of Grocery Distribution, U.K.).

The global forecasted scenario in Table 1 depicts India as the third largest grocery retail market. The U.S. is poised to retain the top rank with the largest market size but has the lowest CAGR (2020-2022) of 0.2%. China has a robust CAGR of 5.8% (2020-2022), and the online grocery segment is likely to see a major boost in China and the U.K. If the current CAGR continues, India will be the second largest grocery market of the world by the year 2036.

Emerging Trends in India

The Indian retail market is dominated by the food and grocery segment, which captured around 65% ($525 billion) of market share in FY 2019, followed by apparel and footwear (9.8%) and consumer durables and IT (9.2%). However, the penetration of organized retail in the food and grocery segment was merely 3.6% in 2019, thus revealing the prominence of unorganized retailers, who own around 61% market share [5].

Organized Grocery Retail. Organized grocery retail in India is highly competitive, with a few big players trying to lure consumers with lucrative offers. They want to give consumers a unique experience of shopping with properly stocked shelves and a neat and tidy, well-lit space with a variety of products to stimulate the consumers to purchase them.

The supermarket format is the most prevalent in Indian markets, which is estimated to be around 49%, followed by convenience stores (43%) and hypermarkets (8%) in 2021.

In 2018-2019, the added net food and grocery retail stores included 600 midsize (4,000-25,000 square feet) and neighborhood kirana stores (<4,000 square feet) and 180 hypermarkets (>25,000 square feet) [6]. This shows a trend of grocery retailers moving to smaller spaces because of rental pricing pressures.

Easy Day dominates the grocery stores in organized retail, with 538 stores across India in 2017, followed by More with 503 stores and Reliance Fresh with 465 stores.

In 2021, the number of modern grocery retail outlets increased to more than 8,000, but this number is quite small compared with traditional grocery retailers (kirana stores and corner shops), which amount to around 12.8 million stores [7].

Traditional (Unorganized) Grocery Retail. Traditional grocery retail stores are the largest segment, with around 12.8 million stores. The size of traditional grocery stores varies from 100 to 1,000 square feet – most of these stores measure less than 500 square feet. The customization of local preference by the traditional grocer is their greatest strength, apart from personalized care, credit facility and home delivery provided to the consumers [8].

There has been a consistent rise in traditional grocery outlets across India since 2013, but there was a decline in the number of stores in 2020, from 12.83 million in 2018 to 12.64 million in 2020. The reason for this decline could be the COVID-19 pandemic. In 2021, the number of stores in India increased to 12.79 million.

Online Grocery Market. The online grocery market is in a nascent stage in India and was valued at $4.3 billion in 2021. COVID-19 forced consumers to opt for online grocery shopping for safety reasons; however, due to tech-savvy and comfort-seeking individuals, online shopping will persist. It is predicted that online grocery shopping will continue to increase at an annual compound growth rate of 37.1% during 2021-2030. Another significant reason for the increase in online grocery shopping is increasing internet access along with cheaper smartphones and low data tariffs in India. Largely, consumers from Tier 1 cities opt for online payment methods, whereas consumers from Tier 2 and 3 cities opt for cash on delivery for security issues. Prominent players in the Indian online grocery market include Supermarket Grocery Supplies Pvt. Ltd. (BigBasket), Grofers India Pvt. Ltd., Amazon India Pvt. Ltd., Godrej Nature’s Basket Ltd., Paytm E-Commerce Pvt. Ltd., Reliance Retail Ltd., Spencer’s Retail and UrDoorstep eRetail Pvt. Ltd.

In the online grocery segment, BigBasket captured the largest market share of 35.2%, followed by Grofers India Pvt. Ltd. (31.50%), Amazon India Pvt. Ltd. (31.2%) and others (2.1%).

Impact of COVID-19 and Digitization on the Grocery Retail Market in India

The COVID-19 pandemic has clearly affected the way consumers around the world shop for groceries, and India was impacted in the following ways.

• The share of grocery spending increased and was estimated to be around 73.4% in 2020. This increase was due to reduction in overall spending limiting the expenses largely on essential items only. The estimate of grocery spending will remain around 65% in 2025 [9].
• The concept of digital stores emerged during the pandemic. COVID-19 has taught large retailers to minimize operational cost and relocate their stores at cheaper locations. The use of technology and data analytics allowed retailers to combat the supply chain bottlenecks and expand their network by collaborating with the local kirana shops for catering to the demand of the customers [10].
• Home delivery options and digital payment methods (through Unified Payment Interface such as Phone Pe, Google Pay, PayTM, Bharat Pe) accelerated during the pandemic and will continue, as both retailers (even at kirana stores) and customers now feel comfortable with this mode of payment.
• An emergence of integration of both online and offline retailing enables hyperlocal and speedy delivery, reducing the warehousing requirements from retailers. The pandemic has persuaded digitization in kirana stores, making it a Phygital model (combining physical and digital), which enhances efficiency with the use of digital technology and builds trust with physical presence [11].
• Retail stores emerged as the more reliable source for sourcing essential supplies during COVID-19 as compared with online stores, according to the survey conducted by LocalCircles in May 2020 (www.localcircles.com).
• The digital adaptability of kirana stores during COVID-19 was incredible in transforming into a new supermarket. Around 1 million of them went digital and fulfilled consumer demand during lockdowns, and 80% of the kirana stores saw exponential growth in 2020 [12].
• The digitized kirana stores are leveraging their strength of personal touch, flexibility of payment and proximity to retain returning customers and acquire new ones.
• Disruptions in supply chains emerged during the pandemic but have had long-term impact on local as well as international consumers [13]. Ivanov [14] proposed a robust supply chain model to control the ripple effects of an adverse situation such as pandemics. He suggested the use of digital technology to build a supply chain model based on agility and resilience, which is strong enough to mitigate the demand and supply-side bottlenecks. 

Future of Grocery Retail in India

The future growth of the grocery segment in India is likely to come both from semiurban (Tier 2 and Tier 3 cities) and rural areas. With a rapid pace of urbanization, emerging cities and semiurban areas are likely to witness an increase in monetary value of consumption of grocery items (value growth). Rural areas, however, are likely to witness an increase in quantity of consumption (volume growth), which can be attributed to enhancing employment generation through the Mahatma Gandhi National Rural Employment Guarantee Act, agricultural reforms and reverse migration of labor class back to the rural areas. Retail giants have identified the growth potential in India’s retail sector and are investing large amounts in this segment.

The future of grocers will depend on personalization. Retailers that are able to take personalization to the next level through the use of data analytics and prescriptive algorithms will be most likely to satisfy consumers. The support provided to consumers in preparing the cart, simplifying the checkout process and having out-of-stock items delivered directly to doorsteps will go a long way in retaining customers. Process agility, adaptability and automation as well as building new capabilities in omnichannel is required to be successful in grocery retail business [15].

To become successful, retailers will have to upskill and build an effective digital infrastructure and a very robust and agile supply chain distribution network. Those who can quickly adapt and strategically reorient themselves to changes will be able to survive and generate substantial profits and will remain in business in the long run.

Future Predictions and Alternative Feasible Scenarios

Based on the previous discussion and data obtained from Euromonitor, we have tried to predict the likely grocery retail sales in India in 2030. The forecast is based on existing historical values from 2016 to 2021 by using the AAA version (additive error, additive trend and additive seasonality) of the exponential triple smoothing (ETS) algorithm. This algorithm smooths out minor deviations in past data trends by detecting seasonality patterns and confidence intervals. The predicted value is a continuation of historical values in the specified target date, which should be a continuation of the timeline. Forecasting is done on components of store-based and non-store-based retailing. Individual components – i.e., direct selling, home shopping vending and online shopping – are aggregated to provide forecast of non-store retailing. The forecasts of modern grocery retail and traditional grocery retail are aggregated to get store-based retailing (see Table 2). However, we find that the forecasts are underestimates because they do not properly capture the actual data from the unorganized retail sector and the continuing (turnaround) good performance of grocery retail sales in reality.

In light of this, we have also tried to generate a few alternative feasible scenarios. The three alternative scenarios generated are based on a realistic assessment of the grocery retail market in India over the past few years. The forecast for 2030 is calculated at a constant growth rate under three scenarios (presented in Table 3): pessimistic (8% growth), most likely (10% growth) and optimistic (12% growth). We strongly feel that scenario 2 (most likely) will be the real picture in 2030 (reaching a total grocery retail sales figure of USD $1.10 trillion).

Table 2: Grocery retail, future predictions in INR million

Data source: 2016-2021 Report Euromonitor International, February 2022 (2022-2030 forecasted).

Table 3: Alternative feasible scenarios (assuming constant growth rates) in INR trillion

(USD $1 = INR 75.86 as of May 1, 2022)

Summary and Conclusions

India’s grocery retail segment is witnessing a high growth trajectory amid high-end disruption across the unorganized and organized retail segment. The grocery retail segment has significantly evolved, giving way to new business models aligning customers’ need for speed, efficiency and frugality. The dominance of traditional store formats will also continue. As noted, traditional kirana stores are sought after because of proximity, human interface and reasonable prices, but their share has seen a recent decline due to the rise in organized modern grocery retail, in online and blended formats. Organized grocery formats are on the rise in India, owing to the liberal government policy of allowing 100% foreign direct investment in food retail, changing consumer habits, an increase in disposable income and urbanization. Omnichannel solutions are being adopted by grocery retailers, which are now preferred by consumers as well. To remain competitive and increase their consumer base, large, organized grocers such as Reliance, D-Mart, BigBasket and Grofers are partnering with the local kirana stores and e-tailers. E-tailers such as Flipkart and Amazon are collaborating with both big, organized retailers and kirana stores. With the evolving e-commerce landscape and emergence of a tech-savvy cashless consumer, the online grocery segment will see a substantial growth in the next decade. Further, India’s quick commerce market is set to deliver groceries within 10-15 minutes, which will substantially boost the growth of its online grocery segment [16].

In conclusion, the Indian grocery retail market has a high growth potential and is consolidating to reap the benefits of synergy in procuring, marketing and delivering products. It is evolving by incorporating the advancement in technology with the application of augmented reality, robotics and automation. Our predictions show that the total grocery retail market will most likely reach INR 85.46 trillion, or approximately $1.10 trillion, by the year 2030. (This figure supports the predictions made by the Boston Consulting Group’s Retailers Association of India report in February 2021, which was between INR 85 trillion and 90 trillion, or $1.1 trillion and $1.2 trillion, in the year 2030.) The adoption of new technology, better supply chain partnerships and the mutual trust and cooperation between the big key players and the cost-effective new kirana stores will go a long way in determining whether India will become the second largest grocery market in the world by the year 2036.

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