Retail trade in India is valued at $ 300 billion and is the second fastest growing market in the world. The industry comprises of 7 million small stores; a larger number of which are situated in rural India (4 million).

Not just in terms of number of stores; rural India is also fairly developed in categories like Shampoos and Washing powders – where it accounts for almost 40-50% of the category off take in volume terms.

Most of these stores are the over the counter – mom and pop stores – run by the owner. Such stores account for 98% of the retail trade value; the much touted Modern Retail run by the who’s who of corporate India – Reliance, Bharti, Pantaloons, Aditya Birla group – all put together are not even 2% of the trade. And if 2008 was any yardstick, they are all struggling to increase top line sales.

Some of the retail chains like Subhiksha and Spencers (RPG owned), who started the year with a bang, have ended it with a whimper with most FMCG companies asking their distributors to go slow on invoicing to these customers as they fear bad debts. Only retailer who has tasted some measure of success is the Kishore Biyani led – future retail – with its Big Bazaar chain. The much hyped Bharti-Walmart alliance is still in the lab mode, with just 12 stores in Punjab trying to get their model right before expanding any further.

With the small store mom and pop format, most FMCG companies have seen their sales grow in India. This is despite an otherwise gloomy economic environment in India and the world.

Given the performance and potential of the India retail market; it continues to be top priority for most FMCG companies. But in order to win in this market, it’s important to keep winning in the small store format and in Rural India. As that is where most of the category growths will come from. The challenge is that it is expensive to serve these markets; given their low thru-put.

Lets now see how 2009 fares for the FMCG industry and the retail trade in India. For now the small store format still rules. For the 2% Modern retailers; they have to first look inwards and sort out the mess they are in; before they can look to serve the shoppers better.

Also see: Organized Retail and Mall Mania