A huge and youthful population, a burgeoning spending class and a committed and skilled workforce. It's hard not to get excited about the prospects for retail in India.
The government predicts growth of 9.2% in GDP for 2006-07, the highest for 18 years, and the Indian food and drink sector is expected to more than double in turnover from £104bn today to £248bn by 2020, according to IGD. It is no surprise the world's biggest retail chains are now starting to make their moves. There's Wal-Mart's joint venture with telecoms conglomerate Bharti Enterprises, while Auchan, Carrefour and Tesco have all confirmed "an interest" in the market.
Press speculation has linked Carrefour with Wadia Group, and last month Tesco chief Sir Terry Leahy was rumoured to be meeting Tata, India's biggest private company with a chain of non-food stores, and Landmark, an Indian retailer with a focus on hypermarkets and homeware superstores.
So what chance do international retailers have? And can they expect to compete in a country where 97% of grocery sales come from wet markets, street vendors and one-off mom-and-pop-style stores?
The grocery sales of modern-format multiple retailers are expected to rise from the current 3% to anything up to 35% by 2015. But many analysts are sceptical as to what degree consumers will abandon more traditional outlets.
Because these smaller stores - or 'kiranas' as they're also called - offer short-term credit to customers - many of whom are cash-only consumers - loyalty is high.
"Sustainable business models for the organised players must include collaboration, and not competition with the mom-and-pop outlets," says Soumya Palchoudhuri, retail analyst at Ernst & Young in Bangalore. "Smaller stores can't be replaced because they provide the last-mile connectivity and are the nerve centres for any community."
Further challenges are posed by the primitive infrastructure, restricted investment opportunities, extensive bureaucracy and endemic corruption. The advertising billboards for one of India's national newspapers declare: 'India poised: Our time is now.' Yet Bharti's joint MD Rajan Mittal openly admits that real estate is the biggest challenge to his expansion plans.
That said, many of the big domestic chains are making the most of government policy that bars Foreign Direct Investment or FDI (see box). And they're pursuing highly ambitious expansion plans.
Since it opened its first store in Hyderabad last November, Reliance Retail, the wholly owned subsidiary of Reliance Industries, has opened about 100 stores. It claims it will have 1,000 by the end of the year. Discount chain Subhiksha plans to increase its store count from 600 to 1,000 over the same period and Pantaloon plans to almost double its number of Big Bazaars and Food Bazaars from 108 to 205.
Meanwhile, Twenty Four Seven, which currently has just four stores, expects to open 178 more by the end of the financial year and have 1,000 stores by 2012, according to reports. And Bharti has announced plans to spend £1.3bn on hypermarkets, supermarkets and smaller c-store outlets by 2015 - equating to 10 million sq ft of retail space. It plans to open its first store early next year.
Not everyone is convinced by these grand plans. "To be honest, most of these plans can be taken with a pinch of salt," says a retail analyst in Mumbai. "We've compared what they say they will spend on new stores with the number they want to open, and in most cases they won't make half the openings they plan to."
But there is no doubting the scale of their ambitions. If overseas players are to unlock India's potential, they will need to approach the market in the right way, suggest the experts.
Early entrants have tended to go it alone. Marks & Spencer opted for a franchise model when it entered in 2001 and now has 12 stores in India, with plans to open more. And Metro entered via its cash and carry depots in 2003 - it has three depots now, and will add two more this year. However, joint ventures are now considered the quickest and easiest way to establish a presence.
Wal-Mart took the plunge via a joint venture with Bharti, even though, with its role in the partnership limited to the cash and carry business, 100% FDI would have been permitted. Most of the talk relating to other potential international entrants centres on who will partner whom.
"In the retail environment in India, knowledge of consumers is critical," says Shyamak Tata, partner at Deloitte in Mumbai. "Finding an Indian partner that has a connection with these consumers, such as Bharti with its telephone customers, or Tata with its retail customers, is a great advantage."
That knowledge is so important that even if the market were deregulated, joint ventures would probably remain the preferred entry method, according to Ruchi Jaju, retail analyst at Crisil - an affiliate of Standard & Poor's in India.
But it's not all plain sailing. Concerns about the Wal-Mart connection are thought to have prompted Bharti to announce recently it would franchise out its c-store estate to existing kirana owners, which would appease left-leaning politicians who are concerned about the displacement of local shopkeepers.
Wal-Mart's poor image in terms of workers' rights and its treatment of suppliers has been well documented in the Indian press. Analysts believe Bharti may now be reluctant to associate too closely with the Wal-Mart name, though its use on store fascias has not been ruled out.
"Indians take pride in being socially responsible citizens," says Tata. "If a foreign retailer has a legacy of inappropriate practice, this will impact any potential tie-up."
If the two parties can make the partnership work, the rewards will be significant. Bharti expects sales from the retail stores that the cash and carry joint venture will supply to hit 220 billion rupees (£2.6bn) by 2015. "If a retailer is already present with a partner when deregulation happens, and has gained valuable consumer insights itself, that could lead to exciting opportunities to go it alone," says Jaju.
Tata adds: "I think we'll see at least two or three international retailers with their bases in India within five or seven years."
Meanwhile, the rapid rise of India's retail chains means they are developing international ambitions of their own. Reliance has been linked with both Carrefour and Sainsbury's, for instance.
With this level of ambition evident among domestic as well as international players, it may not just be the Indian grocery market that's poised for a retail revolution. n