While the world's leading retailers are still eager to enter the Indian retail market, the impact of the global economic slowdown is starting to be felt in the country's retail sector, as discussed in BMI's India Food & Drink Report for Q209. Mass grocery retail (MGR) sales in India are forecast to undergo explosive growth in coming years, with both domestic and international operators eager to grab a share. Multinationals - typically a driver of sales growth in emerging retail markets - are not yet present in India, except in the wholesale sector, although their arrival is imminent. This delay in multinational entry has provided local operators with a window of opportunity to shore up their presence and accelerate their own expansion and business-activity efforts in preparation for greater competition. However, a number of recent developments have revealed the risks that come with such rapid expansions. Domestic operator Subhiksha is one such retailer that expanded rapidly, growing from some 50 stores in 2006 to a store network of over 1,500 outlets today. While its aggressive approach to growth is typical of India's expansionary local players, unlike many of its more cautious peers, Subhiksha has expanded almost entirely through debt. The dangers of such an approach were made clear when the tightening of credit availability revealed the retailer's lack of equity. The company's inability to re-service its mounting debts resulted in a sustained failure to pay both suppliers and employees. In February around 600 Subhiksha retail outlets and warehousing facilities were vandalised when the normally-guarded units were left unstaffed after the company's repeated non-payment of security service bills, according to a report in the Financial Times. Subhiksha is now in talks with investors about raising an estimated INR3bn (US$61.8mn) to get it back on track in the short term, while it is also examining ways of restructuring its heavy debts. With neither measure likely to have an immediate resolution, it is expected to be forced to close a large number of its stores. However, Subhiksha is not alone. Foodland Fresh, a company that pursued expansion via the introduction of innovative, high-end retail offerings, announced in February that it will close most of its Mumbai store network, shutting down operations at 39 of its 42 stores across the city. Meanwhile, Reliance Retail, a leading conglomerate often linked with the possible entry of grocery multinationals, has revealed that it is considering scrapping its wholesale ambitions, in addition to closing a number of Reliance Fresh supermarkets, in order to control costs. While India may be less vulnerable to an export-led slowdown in growth than East Asian economies, we are still expecting the coming years to be difficult for the burgeoning economy. We are expecting GDP growth to slow to 5.0% in FY09/10 (April-March)
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