Indian Retail industry

Over the last few years, retail has become one of the fastest growing sectors in the Indian economy. The Indian retail industry is divided into organised and unorganised sectors. Indias retail sector is wearing new clothes and with a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian economy and is expected to grow by around 25 per cent per annum in the next 5-6 years.

The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers like the traditional family run stores and corner stores. There are about 12 million retail outlets spread across India, earning it the epithet of a nation of shopkeepers.

The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the Government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers. In order to keep pace with the increasing demand, there has been a hectic activity in terms of entry of international labels, expansion plans, and focus on technology, operations and processes.

This has lead to more complex relationships involving suppliers, third party distributors and retailers, which can be dealt with the help of an efficient supply chain. A proper

supply chain will help meet the competition head-on, manage stock availability; supplier relations, new value-added services, cost cutting and most importantly reduce the wastage levels in fresh produce.

The sector is witnessing an influx of large domestic conglomerates such as Reliance Group, Bharti Group, Future Group, AV Birla Group and international conglomerates such as Wal-Mart, Marks & Spencer etc. who want to tap the retail opportunity. In addition, large investment announcements have been made both in the front as well as back-end operations of the industry. For instance Reliance industry has announced Rs. 25,000 crore investment into retail foray out of which about 35% to 40% will be spent in the rural retail mainly dealing with logistics supporting urban retail. But to reach the penetration of about 10% by 2011 the amount of investment required would be 52 billion according to KSA Technopak report.

India is already following Chinas example, initially encouraging joint ventures between domestic and foreign retailers before allowing 100% FDI in organized multi-brand retail. This gradual opening up should preserve a vibrant domestic retail sector in the long term, and provide India with a solid foundation of domestic expertise and human capital. For long-term success, organized retailers should pursue a few key strategies.

First, build capabilities and backend logistics infrastructure. Domestic firms should partner with established foreign firms to capitalize on combining foreign retail knowhow with domestic market knowledge. This is happening already. UK-based Tesco is working with the Tatas; USbased Wal-Mart with Bharti, etc. Over time, these joint ventures will dissolve but both the

domestic and foreign firms will have the capabilities to establish successful retail businesses independently.

While the government is rapidly investing in transportation infrastructure, organized retailers should either invest in their own supply-chain infrastructure or promote intermediaries that develop and invest in cutting-edge supply-chain infrastructure.

Second, learn local and regional preferences in developing the merchandising mix. One size fits all is not a winning strategy, as Subhiksha, till recently one of Indias retail success stories, learnt the hard way through bankruptcy when it expanded rapidly into the north from its south Indian roots with little local market knowledge. Merchandising correctly in a diverse country such as India takes time, trial and error, and is critical for success.

Third, to deal with the kirana challenge, organized retailers should actively engage customers and local political leaders, to demonstrate the value of their retail enterprise, especially in the context of political challenges from kirana lobbyists.

For example, Bharti has created a retail academy to train thousands of people in Punjab. Creating thousands of jobs over time develops a political constituency of employees.

But the kirana challenge is not just political, it is also competitive. Given the high customer loyalty to these micro-local outlets, helping kiranas become more efficient while allowing them to effectively serve their clients can be both politically expedient and profitable. One way to

address this situation is for organised retailers to engage in co-opetition: to make customers out of their smaller retail rivals.

We already see this taking form in India with cash-and-carry stores that essentially serve as wholesalers to kiranas and other local establishments, as well as to individual shoppers. TescoTata, Bharti-Wal-Mart and Metro have all created cash-and-carry formats.

In fact, the government has recognized the political benefits of co-opetition by allowing 100% FDI in the cash-and-carry format.

A competitive organized retail sector would be a boon for the Indian consumer because the industry will be forced to continuously improve on products, service and price, letting India be in the vanguard of retail innovation.

Such tough competition can produce strong domestic retailers who themselves may expand overseas. Perhaps, more importantly, the presence of foreign retailers would create a huge opportunity for Indian farmers, food processors and other manufacturers. Foreign retailers that have positive experience with domestic suppliers sourcing for the Indian market are also likely to source from Indian suppliers for their global operations. Consider this: if a $300-billion American behemoth like Wal-Mart sourced even 10% of its products from India, the potential for Indian farmers and manufacturers is huge. The export potential may even dwarf the direct benefits from organized retail.

Big Bazaar: a Review The country wide chain, Big Bazaar is Indias answer to WalMart, by the retail savvy Kishore Biyani, CEO Future Group. A quintessentially Indian experience, it doesnt promise more than it delivers. Basic worth allied with reasonable pricing is their USP. The store itself and the products it stocks may not be on the cutting edge of technology or sometimes even retail but the customer can be assured that he/she is getting their moneys worth. Factors that shaped Big Bazaar during its life cycle The Big Bazaar brand name is in its growth stage (Exhibit 11). Pantaloon group faced various small and large scales troubles in the introductory Stage of the brand. Present years are the high growth in retail sphere as market has high potential to sustain growth. The sales are increasing, more and more firms are coming to markets, foreign players are entering into retail sector and pie of organized retail is increasing in retail sector. The factors that shaped the brand during its life cycle are:Influence of Sarvana Stores located in Theyagraya Nagar, Chennai Many people think that Big Bazaar was inspired by Wall Mart but the truth is that Kishore Biyani and his team members are neither inspired by US ways of doing retailing nor they have been to US much. The credit for foundation and inspiration goes to Saravana Store, a family run 25 years old store, whose philosophy was low margin, high turnover. In that store, food, groceries, clothes everything had a separate section. It had around 120 people just to manage crowd. The single shop was doing business of more than 200 crore per year. This shop was the template for Big Bazaar. Observing customer regularly Regular customer feedback is also an influential factor for the success of Big Bazaar. The Big Bazaar has a separate team that looks for customers purchasing pattern and how they like or dislike products, how they approach to particular products. For example, unlike other stores where the most expensive and catchy item is placed at the front display, Big Bazaar places the Value for Money item at check out point. Imbibed entrepreneurial spirit in organization Decision making power is given to every level of employee at Big Bazaar. KB has given risktaking power, which led to entrepreneurial spirits into every employee. Everybody in big Bazaar operates with speed and confidence when it comes to decision making. Building on core values Core values of Indian-ness, valuing and nurturing relationships and Simplicity shaped the brand. Kishore Biyani always believes in long term relationships, with customers, suppliers and employees. Once thinking about offering gifts to employees close to Diwali, KB suggested giving them wallpaints to keep their house clean. The paint is used in Indian culture to keep house clean and brings freshness. The motive behind was to keep everything clean and bring freshness in organization. Strategic decisions taken to build the Big Bazaar brand

The strategic decisions that lead to building of Big Bazaar were:Real Estate Game For a retailer, location is one of the most important things. According to KB, real estate cost should be less than 5 % of total sales of store in order to provide maximum benefits to customer. The strategic decisions to secure spaces before other retailers join in have resulted in costsaving. Also, it has created early presence in market. Nurturing relationships KB follows strategy to develop trust and nurture relationships with suppliers. This trust led to strategically correct decisions most of the time. Whoever works with Future Group, either leaves in initial deals or continues forever. Use of technology, scenario planning and storytelling Big Bazaar planning and design used advance technologies like scenario planning and storytelling. These techniques were mainly used for store-design layout, store-location selection. The strategy to use user-focused, prototype-based development tool made the brand adapt to the fast-changing external environment. Design management Design-led thinking helped Big Bazaar to achieve customer-first objective and ultimately lead to better financial performance. Big Bazaar strategy to focus on design led to creation of Idiom, an independent design and consultancy firm, based in Bangalore. They are one of the few organizations in India having economist, ethnographers and sociologists working across various teams as a part of Design management team. Back-end operations, supply chain Harvard Business School just did a case study on Pantaloons' supply chain and it says that Pantaloons' is the most cost-effective supply chain in the world. India may not have a modern supply chain but it definitely has a cost-effective one. Retailers have made use of the existing supply chain. Exhibit 11 Life Cycle of Big Bazaar

Porters Five forces analysis

Rivalry among existing players

Rivalry among the existing players is very high as all of them are competing for high market shares and have considerable financial resources at their disposal.

Bargaining power of suppliers

The power varies for different segments. For premium goods, suppliers have a higher bargaining power and for general goods like stationary, toys, daily use items, suppliers have less bargaining power.

There are few players who have a slight edge over others on account of being established players and enjoying brand distinction.

Unorganized sector is dominant. Product differentiation is not high Suppliers like Godrej and HLL are willing to integrate forward.

Bargaining power of buyers:

They have a high bargaining power and are sensitive to price. Consumers have a number of choices due to high competition. Rising income level enables large number of buyers.

Threat of substitutes:

The threat is high as unorganized market constitutes majority of retail sector and does not have any barriers to entry.

Threat of entrants:

Due to unfavorable FDI policy, direct entry of foreign players is not possible yet. Domestic conglomerates diversifying into different retail segments increasing threat to Big Bazar. International players looking to foray into India in joint venture with Indian firms.

SWOT Analysis

Strength o High brand equity compared to other retail companies. o State of the art infrastructure across the major cities in India. o Great promotion strategy and positioning with the customers. o Variety of stuff under one roof is a unique concept that attracts variety of shoppers. Weakness o Unable to meet store opening targets that it has set due to external factors. o Rev declining / sq ft due to high real estate and rental costs. o General perception as a cheap goods store and dilution of brand with entry of retailers in similar format.

Opportunities o Emerging concept of organized retail. o Evolving customer preferences providing opportunity to reposition the brand.

o Weak competition compared to Big Bazaar as other brands have not forayed deep enough in customer psyche. Example,Reliance & Vishal Retail not doing as good as Big Bazaar. Threat o Govt. policy towards protecting small retailers and opening FDI for retail. o Other formats Super market & Specialty stores are fast emerging. o Upcoming MNC Retailers in joint venture with Indian conglomerates. o Unorganized retailers are growing in number.

Product Mix

APPARELS Denims & T-Shirts Fabric & Cut piece Formal Wear Casual Wear Party Wear Ethnic Wear Accessories Under Garments Night Wear Dress Materials Sarees

FOOD Staples Ready to eat Ready to cook International Food Spices Imported Bazaar Tea & Coffee

FARM PRODUCT Fruits Vegetables Imported Fruits Dairy Products

CHILL STATION Soft Drinks Packaged Juices Milk Items Frozen Foods Ice Creams

HOME & PERSONAL CARE Shampoos Detergents Soaps Liquid wash Creams Deodorants Home cleaners Utensils Plastics Crockery Sundries

ELECTRONICS BAZAAR Television sets Washing Machines Refrigerator Personal Care mBazaar Microwaves Small Appliances Laptops Computer Accessories Kitchen Appliances

FASHION & JEWELLERY Footwear Bazaar Beauty Care Navara Star Parivar Meena Bindre

FURNITURE BAZAAR Living Room Bed Room Kitchen Dinning Rooms Kids Room Been Bags Paintings Decorative Ite

CHILD CARE & TOYS Kids Wear Toy Bazaar Stationary Child Care

OTHER SERVICES Mr. right Bakery Loot Mart Tulsi Future Money Future Generally

The way ahead

Retail: Bounty Hunt Biyani Eyes `10,000Cr From Food Biz In 4 Yrs: The Kishore Biyani-run Future Group is eyeing around `10,000-crore revenue from its food business over the next 3-4 years even as the group targets an around 40% growth this fiscal. (PTI, August 29, 2010) PRU Analysis

Indias organised retail czar, Kishore Biyani, who owns the countrys largest organised retailer, Pantaloon, is immensely optimistic about his Future Groups future. He expects it to garner

revenues of `10,000 crore from the food business, mainly vegetarian, over the next 3-4 years. Future has 210 Big Bazaar and Food Bazaar stores spread across the country. For the group, the vegetarian food segment has seen high growth, and is expected to do well in future too. Even during the slow-down, demand for food products and apparel remained strong even as segments like furniture and electronics suffered. So far, food has accounted for a small proportion of the groups revenues compared to apparel. However, the group is now working towards a sizeable chunk of the food segment, which usually accounts for around 50% of a households monthly expenses on retail products. Status Check On The Paper On FDI In Multi Brand Retail (July 6, 2010): The paper has generated lot of debate. However, consensus still eludes the government. On one side is the domestic retail industry, fearing competition. On the other are industry lobbies representing foreign companies. Foreign players such as Frances Carrefour are willing to settle initially for a 49-51% stake due to the political sensitivity of the issue. They have expressed their desire to grow step by step, giving the local industry an opportunity to build and enhance competencies. But representatives of unorganised retail are not willing to buy this idea. They have rather blamed the government for not creating adequate infrastructure.