How to find a realistic assessment of the country’s brand distribution potential, for international brands aiming to expand into India.
Reading about brand distribution in India lately, has meant encountering an endless stream of comments filled with superlatives. For example:
“India has emerged as the fastest growing major economy in the world” ; “India has become the second most competitive BRICS economy” ; ” … the Indian retail sector is poised for tremendous growth” and so on.
Regardless of whether you listen to real estate agents or brand distributors: India is tipped to be one of the hottest spots for brand expansion in 2017. But isn’t that the same hype the country received in 1995, 2005 and 2015?
Is India Ready for Your Brand?
The truth is, so far the country is not known for delivering on its past economic promises. It’s also true however that many premium and midmarket brands grew their business successfully in India for many years. Leading lifestyle brands such as Tommy Hilfiger and Levis have reported 300+ standalone stores each already.
But the list of costly adventures or financial failures, of prominent brands that went to India with a ‘trial and error’ approach, is equally as long. So, there are many good reasons to look carefully at how to approach the market for (long term) successful brand distribution.
Three Steps to India Brand Distribution Clarity
1. Desk Research (Brand Distribution Readiness)
India is a transparent market and there is a range of public market studies about retail and brand distribution available. However, be cautious – there are several doing a great PR job by overselling the opportunities beyond what is realistic. When you develop a brand distribution strategy we suggest to research and study the following nine key indicators.
The top 7 cities – Bangalore, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune – account for 40% of India’s total modern retail space. Our own research showed that beyond the top tiers, retail is commercially challenging. Even long-term experienced brands operate less than 40% of their stores outside of these cities.
Example: Puzzle Piece F – Shopping Centre
Images Research, India’s leading research source for shopping malls, published an update on the mall development in October 2016 and reported only small growth for last year. Today India has 612 malls, covering an approximate space of 16.3 million m2. The pipeline of new projects is growing and if foreign direct investments grow, the quantity and quality of space may grow as well.
New and modern shopping centres are attractive for the introduction of your brand on the one hand, but on the other hand, you don’t know if they will become good performing malls. Nevertheless, according to industry experts, 60% of existing shopping malls in the top 7 cities in India are reported to have performance issues. Another example that demonstrates the importance of studying carefully before you invest.
The majority of market experts and investors are optimistic on future quantitative and qualitative growth. Around 200 new shopping centres are in the planning and development stage to become operational by 2019, with the purpose of attracting foreign brands.
Example: Puzzle Piece H – Brand Distribution
The real estate agent Knight Frank found that nearly 400 foreign brands from more than 33 countries are currently sold in India; with USA contributing 35% of all foreign brands, followed by UK with 12% and Italy and France both with 8%. Among those are some iconic global brands and retailers, such as Adidas, Benetton, Lacoste, Nike or Tommy Hilfiger. All have entered the Indian market already, but that was in the 90s or early 2000s; a long time before India had become so economically important and interesting. Nowadays they are running 300 or more stores each, all over the country, but with a dominant share in the top 7 cities.
Of course the recently relaxed FDI regulations have already attracted important global players such as Gap, Hennes & Mauritz and Zara. This follows ambitious expansion plans and more foreign brands and retailers are expected to come. Consumer studies into local tastes are of course essential for a brand’s long term success too. In India for example, several brands struggled during the beginning of their expansion by offering non-colourful fashion, while nowadays they make up special colour themes or collections to match the local fashion preferences.
2. Determine (Your) Brand’s Potential
By putting together all 9 of the researched retail criteria puzzle pieces, the picture of brand distribution in India becomes very clear. It’s likely your research will reveal the challenges, but also show the potential for brand distribution in India.
That means it’s time for you to pull your key managers together in a workshop, share the findings and discuss conclusions. Based on those, your midterm brand sales vision should be defined and your strategic options to enter the market discussed. Should go with a partner? What is the best partner? How do you find your partner and more (for more concrete tips see this earlier post on brand distributors). Do you intend to do wholesale in multi brand stores, or retail in stand alone stores? And where in India’s top 7 cities should you have your first locations? Many topics to consider, all questions that you should collect and address in your final implementation plan.
3. Benchmark Study Tour
But before working on the implementation, remember this: research papers and in-house workshops are a great way to fantasize about the distribution of a brand in a new market. However, no desk research work can replace the practical on-site learnings from a local brand distribution study tour.
For a country the size and scope of India, at least 6 weeks travel is needed to truly understand the place. In our experience, a high level strategic market assessment requires 5 days. In this time it’s possible to gain a solid overview, that will adequately inform your key decisions.
We suggest you travel to 2 or 3 key Indian cities and check out several shopping malls and department stores. You may want to meet a real estate agent, a brand distributor and a market research company. They will probably try to sell you on the full beauty of the country first, but you may want to hear the other side too. Meet local experienced brand managers from 1 or 2 non-competing international brands to get a more complete picture. This will help with your final decision and better inform the market investment and strategy plan.
We don’t know whether India is ready for you right now. We can say for sure though, that it’s ready to allow international midmarket and premium brands meaningful sales growth. Local sales may not reach your top 10 countries immediately, but if India finally delivers on its old promises, consumer markets will continue to grow at the highest rates for many years to come.
About the Authors
India, Indonesia, Saudi Arabia and Mexico. These are just a few of the countries Isabell and Guido have worked with, exploring distribution potential for international brands. If you’d like to learn more from them on this topic you can email Isabell or email Guido for further insights.