indian retailing

Group: Section C Group 7 Happy Saini 137/48 Ganesa Kumar KV 128/48 Harshit Krishna 143/48 Ishwar Devdutta Saxena 153/48 Karan Arora 166/48 Jones Arunraj J 160/48 Himanshu Kumar 147/48 J Deepak 154/48 Himanshu Meena 148/48

Project Report Marketing Management-II

Prof. Rohit Varman

Project Report IIM Calcutta

Contents

1. Project summary

2. Introduction

3. Project Objectives

4. Method

5. Findings

6. Conclusion

References

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Project Report IIM Calcutta 1. Project Summary

This project is aimed at finding out how business are adapting to the changing retail

structure in India. The report starts with a brief introduction to the retail sector in India,

divisions of retail business into organized and unorganized sectors, reasons for the growth

of the FMCG industry in India and the drivers for this growth. Retail sector is heavily

regulated by the government in India and FDI in retail sector is being contemplated

seriously. The implications of this on retail industry, the strategies adopted by smaller and

larger organized retailers in this dynamic and competitive environment are analyzed. The

research has been qualitative in nature with in-depth interviews of store managers at

leading organized retail chains ‘Big Bazaar’, Spencer’s and ‘More’. Valuable insights about

the organization, trends in the revenue, brand offerings, footfall, supply chain and product

lines, the reasons behind each were obtained and analyzed. Potential threats as perceived

by these organizations, their competitive advantages and differentiators, and the audience

they target have been analyzed. The marketing techniques adopted by these firms to suit to

changing consumer profiles and preferences, customer retention techniques are a part of

the findings. Various innovative measures have been taken by retail giants to provide an

experience beyond normal shopping and to provide contemporary and international

standard shopping experience.

We also interviewed a number of smaller retails to get first hand information about how

their businesses are adapting in this changing times. Their target segments, change in

operational strategies after the advent of large retail, trends in the SEC of consumers and

revenues, future opportunities of growth have been analyzed. The different types of small

retail stores interviewed have given us a holistic view of the retail scenario in Kolkata & India

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Project Report IIM Calcutta 2. Introduction

The retail industry is fastest growing sector in the Indian economy with a three year CAGR of

46.64%. The retail industry has been divided into two- Organized and unorganized retail.

Organized retail refers to licensed retailers who are registered for sales tax, income tax. It

also includes supermarkets, hypermarkets and retail chains owned by Companies.

Unorganized retail refers to traditional form of mom-n-pop stores, kirana stores,

convenience stores. The Indian retail sector is heavily guarded by the government

regulations. India currently allows 51 per cent foreign investment in single-brand retailers

and 100 percent for wholesale operations.

The unorganized retail has the highest penetration. But the retail scenario in India is

changing fast, with organized retail gaining ground while traditional formats innovate to

compete. The retail sector has witnessed immense growth in the last few years, the

important drivers for this growth being changing consumer profile and demographics,

increase in the number of international brands, economic implications of the government

increasing urbanization, credit availability, improvement in the infrastructure, increasing

investment in technology and real estate building a world class shopping environment for

customers. According to Nielsen survey Indian consumers spending on FMCG items at

modern retail stores is set to nearly triple to USD 5 billion by 2015 from USD 1.8 billion at

present.

Organized retailers have been more responsive in reducing or holding prices of day-to-day

products. This is mainly because of their ability check operational costs bargain hard with

suppliers and launch private labels. The power of modern retail lies in the scale and

efficiencies. In the past few years, modern retailers have been able to significantly cut

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Project Report IIM Calcutta operational costs related to real estate rentals, energy costs and increase per square-feet

productivity of employees. This has led to savings in people costs. By launching private

labels, they are able to get better control on selling prices and profit margins and some

savings being passed on to the customers.

Many kirana stores and other small shops are affected by the organized retail format. Their

margins have decreased. Local grocery shops contribute 75-80 percent to the sales of fast

moving consumer goods (FMCG) companies. Now, the shops plan to associate directly with

FMCG companies to compete with the big retail stores. FMCG companies are now

commencing programmes for this segment to make them run their shops in a competitive

and modern way. To start with Marico Ltd has identified over 7,000 grocery stores in eight

cities, including metros, for its training programme. The programme envisages the kind of

manpower requirement, the right infrastructure, cutting expenses, basics in inventory

management and the need to have credit card machines. Coca Cola too is planning

programmes for training kirana shop owners with opening of a retail university. Dabur India

has launched an initiative named Parivaar to partner with neighbourhood kiranas (grocery

shops) by offering higher margins to drive volumes in the fast moving consumer goods

segment.

The Indian retail industry is also one of the largest employer after agriculture. But the

organized retail industry has been facing severe shortage in skilled man power. To overcome

this Retailers Association Skill Council of India (RASCI), set up by Retailers Association of

India and funded by the National Skill Development Corporation (NSDC), expects to train

five million people for the industry in the next 4-5 years.

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Project Report IIM Calcutta 3. Objective

The objective of this project is to find what are the changes happening in the retailing

structure in India especially in Kolkata, challenges which retailers are facing due to these

changes. The group has tried to find out the reasons behind these changes to better

understand the way businesses are coping and coming out with new strategies to gain

competitive advantage in a dynamic and changing environment. The group also tried to find

out the strategies adopted by organized retailers in building a market for them and retain

their customers against other such retailers and small kirana stores. With the organized

retailing coming on to the business map of India, group tried to understand the challenges

which are now faced by the small retailers.

4. Methodology

The project used qualitative research methodology. We began by collecting secondary data

to gain a broad understanding of the nature of organized retail in India, recent trends, and

challenges faced by it. The major source of secondary used was the database in the BC Roy

Memorial library which gave access to articles from prominent newspapers and magazines

like the Economist, the Economic Times, Portfolio organizer and Business Standard. Once

secondary data collection was done, the research design was formulated. The sampling

method used was judgmental sampling as the project required respondents who had

considerable level of expertise in modern day retail. The design used was a cross sectional

design. The data collection method consisted of a broad mix of interview and interactions.

In the course of the project, a total of five in-depth interviews were conducted with the

store managers of the following retail chains-More, Spencer's, Food Bazaar (Esplanade &

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Project Report IIM Calcutta Camac Street) and Arambagh Food Mart. Each interview lasted for 35-45 minutes followed

by 5-10 minutes of member checking. The interviews were also complemented with

interactions with customers of these retail chains to understand the factors that influenced

their buying behaviour and with the store personnel to gain awareness about the various

practices and tools used by the top management to ensure very high level of service. In

addition, in depth interviews were also conducted with a total of 8 small retailers, to

understand how the entry of the retail chains were affecting their businesses and how are

they reacting to it. The data collection was succeeded by content analysis and preparation

of project report.

The numbers 5 and 8 as used above were arrived in a process of judgmental sampling and

the group find high repetition rates in responses after these many interviews had been

conducted. Given constraints of time these were used as final.

5. Findings

Findings from secondary source:

Impact on Unorganized Retailers

Unorganized retailers in the vicinity of organized retailers experienced a decline in their

volume of business and profit in the initial years after the entry of large organized retailers.

Although the adverse impact on sales and profit weakens over time. The response has been

moderately competitive from traditional retailer through improved business practices and

technology upgrading.

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Project Report IIM Calcutta A majority of unorganized retailers is keen to stay in the business and compete, while also

wanting the next generation to continue likewise. Small retailers have been extending more

credit to attract and retain customers. However, only 12 per cent of unorganized retailers

have access to institutional credit and 37 per cent felt the need for better access to

commercial bank credit. And most unorganized retailers are committed to remaining

independent and barely 10 per cent preferred to become franchisees of organized retailers.

These numbers were confirmed by the small retailers.

Impact on Consumers

Overall consumer spending has increased with the entry of the organized retail. While all

income groups saved through organized retail purchases, it is observed that lower income

consumers saved more. Thus, organized retail is relatively more beneficial to the less well-

off consumers.

Proximity is a major comparative advantage of unorganized outlets. And unorganized

retailers have significant competitive strengths that include consumer goodwill, credit sales,

and amenability to bargaining, ability to sell loose items, convenient timings, and home

delivery.

Impact on Intermediaries

The growth of organized retail and big retailers coming into the market has affected the

intermediaries adversely. But the growth of the unorganized has also given them new

opportunities to grow. Overall there is some adverse impact on turnover and profit of

intermediaries dealing in products such as, fruit, vegetables, and apparel. Over two-thirds of

the intermediaries plan to expand their businesses in response to increased business

opportunities opened by the expansion of retail.

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Project Report IIM Calcutta Impact on Farmers

Farmers benefit significantly from the option of direct sales to organized retailers. Profit

realization for farmers selling directly to organized retailers is about 60 per cent higher than

that received from selling in the mandi. The difference is greater when the amount charged

by the commission agent (about 10% of sale price) in the mandi is taken into account.

Impact on Manufacturers

Large manufacturers have started feeling the competitive impact of organized retail through

price and payment pressures. Manufacturers have responded through building and

reinforcing their brand strength, increasing their own retail presence, ‘adopting’ small

retailers, and setting up dedicated teams to deal with modern retailers.

Entry of organized retail is transforming the logistics industry. This will create significant

positive externalities across the economy. Small manufacturers did not report any

significant impact of organized retail.

Aditya Birla More store, Behala

Retail chain of Aditya Birla Retail Limited, with over 700 stores in India and 23 stores in

Calcutta alone.

Store locations are decided based on population density and economic conditions in the

locality.

The More store in Behala has a square footage of 2000 and a personnel strength of 11

along with 2 duty managers. Average footfall per day is 200 which might reach as high as

500 in peak season. The main target group is the age group of 25 to 50 who hail from

the socio-economic sections A and B. The popular products are ready to eat foods and

packaged foods

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Project Report IIM Calcutta Marketing is mainly through advertisements in printed magazines, telecalling,

announcements in streets, word of mouth and sponsoring local events like Durga Puja.

Inventory management completely automated and on a daily basis. Store layout

centrally planned in Mumbai head office and updated every week

Very high levels of service ensured through the following steps

• Store attendants must know the names of at least 20 customers • Regular mystery audits by top management to check the quality of service • A website where customers can file complaints. Interestingly More does not offer

a customer care number to which customers can call to complain • Tele-calling to customers to keep them updated about offers and schemes of

interest to them • Tracking customer visits and calling up customers who haven’t visited in a long

time to understand the reasons

Big Bazar, Camac Street and Esplanade:

Food Bazar are FMCG retail outlets of Future group which are attached to Pantaloons

stores, Big Bazars and are also established in standalone formats. Food bazar associated

with Pantaloons stores attracts more high end customers than the Food Bazar

associated with big bazar stores. Food Bazar focuses on discounts and availability of

wide variety of products and brands to provide maximum value for money and time of

the customer. The reach of a large retail store like food bazar at Camac Street is

estimated to be 5-6 km

• Food Bazar wants to overcome the aversion of middle class towards entering into an

expensive looking store format.

• Food Bazar has become popular with the wide variety of products, brands and SKUs

available in the store with great discounts and product bundles. These discounts and

offers are controlled by the higher management and stores don’t have control over it

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Project Report IIM Calcutta • Food Bazar has come up with T24 scheme in which they give some talk time on

purchase of certain amount. They also give loyalty cards where you get certain points

on certain amount of shopping which can be redeemed as a discount or gift later on.

Food Bazar provides wheel chair facility to the shoppers who cannot stand for a long

time or cannot walk but want to shop at such places.

• They offer private labels in wide variety of products with high margins like tea,

beverages, liquid cleaners etc. Some private labels are Assam Best tea, Tasty Treat, Care

Mate, Fresh & Pure etc. This not only increases their profitability but also increases

their bargaining power against the big brands. They bargain from companies for up to

15-20% discount and sell to customers at a discount of 5-10%.

• They try to push bigger SKUs and high margin products by making them more accessible

in the store. They keep bigger SKUs and more profitable products at the eye level so

that these products are more accessible. Food Bazar keeps fast moving and essential

items nearer to the exit and keeps the non essential items towards entry which

customers pick and they get more out of the same customers' pocket. As per the store

manager there are certain products which are available in these stores like frozen

foods, exotic vegetables for which many people exclusively come to these stores.

• They allow certain brands to keep their promoters on the store and get a better margin

from these brands and push more volumes with the help of their sales force.

• According to the food Bazar manager they don't have compete with small retailers

because they target very different market segment. They observe more footfalls during

the month beginning and weekends, which creates problems for them with a lot of

customers on the floor and billing counters. Hence, to promote shopping on weekdays

they give offers on weekdays like promoting Wednesday as "hafte ka sabse sasta din"

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Spencer’s Hypermarket, South City Mall, Kolkata

• Interviewed the in-charge of Customer Service. He has a Floor Supervisor, Floor Manager

and Store Manager above him in the hierarchy.

• Spencer’s is the pioneer and one of the fastest growing organised retail stores in India,

with significant expansion plans. Currently Spencer’s offers two different retail formats:

Convenience stores called Spencer’s and Hypermarkets called Spencer’s Hyper

• Hypermarkets are megastores stock large number of items across a wide range of

products - FMCG, food items, fruits and vegetables, fish and meat, apparel, baby care

products, electronics and other hi-tech products with attractive deals. These stores also

have a bakery, food courts and other entertainment facilities all under one roof. Hyper

markets organise country and theme festivals, some also have a Chef Corner where

customers can learn to make exotic dishes. Basically, Spencer’s Hypermarkets try to

provide an enriching experience beyond just shopping.

• Spencer’s offers a range of private brands across different product categories including

food, fashion, and personal care and home utility items.

• Spencer’s Smart Rewards is a programme where customers can earn reward points and

redeem them during future purchases. Loyalty cards are offered to almost all customers

unlike schemes offered by Shopper’s stop for select privileged customers.

• Spencer’s differentiates itself from other brands mainly in terms of quality, which is not

compromised at any cost. Spencer’s offers widest range of products with over 32000

SKUs, and it is a “food first” retailer with “Taste the world” experience. Spencer’s also

provides contemporary and international standard shopping experience. Promotions are

always customer-centric suited to the buying cycle and the product basket of customers.

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Project Report IIM Calcutta • Spencer’s targets India’s burgeoning middle class as well as esteemed customers unlike

Shopper’s Stop. Spencer’s prides itself for its after-sales service. Spencer’s does not

believe in big discounts like Big Bazaar as Quality Assurance becomes difficult.

• All the employees regularly participate in “STUC- Show that you care” sessions which

help employees learn how to interact and deal with customers. Spencer’s have proper

feedback mechanism “Have your say” to get feedback from customers.

• Offers in-store branding opportunities to the suppliers by letting them deploy promoters

• Spencer’s advertises through newspapers, radio and SMS to customers about deals

• Competition is mainly from other major organised retail chains and new entrants like

‘Reliance Fresh’ and ‘More’. Also Spencer’s sees a threat of FDI in retail sector, which

they plan to overcome by leveraging their unique differentiators and providing

international and contemporary shopping experience.

• Spencer’s believes in constant innovation. A welcoming storefront design, upscale look

and convenient location of items through attractive signage, efficient maintenance of

shop-space- these retail design innovations were first introduced in South City Mall

Hypermarket. It is aimed at making shopping not only convenient but also a visual treat

with innovative graphics, innovative lighting and emphasis on interior design.

• Some of the Visual merchandising innovations include having hotspots inside the store

making customers to look at the visually appealing products and enjoy the ambience.

• Category specific colour coding of merchandise, making it easy to locate items. They also

have visual metaphors like “farm-fresh” to drive home the brand promise.

• In-store events like ‘Live Kitchen’ and ‘Spencer’s Chef Corner’ to learn exotic dishes,

“Modern Menu” at food courts make shopping more enjoyable and educative.

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Project Report IIM Calcutta • “Increasing awareness amongst customers, especially middle class people and emphasis

on quality is driving more people into organised retail. More competition forces us to be

on our toes always” says the customer service in-charge.

Small retailers:

The small retail segment can be classified on the basis of their locations: kirana stores for

the lower middle class, street side stores, mid-size stores in semi residential areas and

departmental stores in upscale residential areas.

Jai Maa Durga Store and Madhusudhan Bhandar (provision stores)

• It is a 23 year old provision store in Behala, which is an underdeveloped market since

there is little competition from big retailers & the customers are lower middle class.

• About 60% of the customers generally make weekly purchases due to proximity,

however upper middle class people come here too, for bulk purchases.

• Number of brands stocked is limited as store owner influences the buying decision.

Hence limited changes have been made in the business format except home delivery

• Although no market insights, they retain customers by tracking demand, expanding

their product line, discounts on bulk orders, or giving goods on credit.

Sandhya Store and Sundaram Store (street side stores)

• Located in a non-residential area next to Aditya Birla More, it has lost out to the big

retailer because of no special offers or product variety for customers, and more

importantly, too many intermediaries in the supply chain reducing margin

• Characterized by few, irregular customers with small purchases. Hxence, they don’t

employ any competitive strategy against nearby shops and rely on footfall.

• Highest sales in items that are quickly consumed: biscuits, cigarettes, cold drinks etc

Paul Sweets & Provision Store and Shiv Nath Store (midsize store in semi-residential area)

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• Believe that customers now prefer variety of items on offer compared to price

variations due to a general increase in their purchasing power.

• Their profits are marred due to long supply chains and lack of bargaining power

when it comes to buying from distributors, hence can’t give too many discounts.

• The purchases were of medium range, and more than half the customers were new.

Understandably, the fastest moving items were packed food items or fresh snacks.

• They believe that large retail stores overpriced items whose prices weren’t readily

observable like utensils etc, and charged a brand premium on their own product line

• They believe that they are more efficient than big retail when it comes to small

purchases as they cut down on billing and checking processes. They would perform

better in residential areas, but real estate is expensive & most markets are saturated

• Mom & Pop stores aren’t adept at handling taxation, regulatory requirements for

accounts and return filling, since they lack expertise and money to seek professional

help unlike large retail stores who hire professionals to carry out these tasks

Subidha Departmental Store and Metropolis (situated in residential areas)

• Similar stores in vicinity are the main competition. Hence they appeal to customers

by posting special offers & discounts outside apart from environmentally conscious

posters to appeal to customer instincts. 90% of the customers are regular.

• Provide facilities like home delivery, all cards & meal vouchers accepted.

• Approximately 3000 SKUs on display, mostly packaged products.

• They believe in responding to customer requests and being dynamic with respect to

their product lines, based on surge in demand.

A common perspective that was observed in all small retail stores was that they felt

that big retail had stolen their sales, and had overpriced products. While customers

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would prefer ambience and quality, they thought the whole process was not value-

for-money. Their expansion plans were curtailed by lack of capital.

6. Conclusion:

With the increase in disposable income and standard of living in urban India, customers

are looking for better quality and a better shopping experience. Hence, organized

retailing is growing at a fast pace in India but is limited mainly to metro cities.

Organized retail chains score over the traditional kirana stores in two big areas- service

and price. On the pricing side, they are able to offer fabulous prices by emphasizing

heavily on cost-cutting through efficient inventory management and bulk purchasing. On

the service side, customer delight is a mantra they ardently follow-the top management

ensures this by policies and rules which promote customer service. Combining these

two, they offer a delightful experience for customers.

Big retailers follow different strategies to attract customers to their stores. Food Bazar

focuses on sourcing and buying products at discounts and giving better value for money

to their customers; while stores like Spencer's focus on quality products. Stores like

Arambagh food mart focus on penetration & availability of such stores in local markets.

Big retailers are using private labels in high margin products to increase their

profitability and bargaining power against suppliers and big FMCG companies.

Large retailers are increasingly focusing on differentiating by customer service by

providing, promotional offers and discounts

In Kolkata small retailers are quite passive and have not taken any major steps to rise up

to the competition posed by big retailers. Retailers in Kolkata have not been very

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effectively able to manage the competition posed by big organized retail chains. Yet the

areas of operation are generally distinct for the traditional retail and modern retail

concept, the former catering to daily or weekly needs of customers in areas with no

organized retail presence and the latter capturing the bulk purchase market for monthly

needs where big savings can be realized. In areas with organized retail's direct presence,

the market is very competitive for unorganized retail. Unless time is a constraint or small

purchases are involved, consumers go for the biggies. Major reasons for slow growth of

the sector include unavailability of cash, low market insight and little professional help.

Only in old entrenched lower middle class residential markets and in cases where small

retailers could invest sufficient capital to capture local customers from going to large

retailers, have the unorganized retailers beat the organized retail competition. Small

retailers many a time enjoy a loyal customer base in their locality and also offer credit

facility and discounts on bulk purchases which helps them attract and retain the

customers. Organized retail chains focusing on lower and middle income level segments

face a challenge in attracting these customers. In other areas the organized retailers

have occupied the bulk purchase market quite effectively while the small to medium

purchases market and the lower income segments still accrues to local small retailers.

Big retail chains go beyond traditional FMCG product lines and offer product lines like

fashion, gourmet, electronics and other unique products. These chains also have private

labels of products which have higher margins. This increases their bargaining power with

supplier of these products. In-house marketing of other brands in big retail outlets gives

higher margins to the retailers and it is also beneficial for the brand promoters to push

their products through these retail chains. Innovations have been introduced in

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storefront design, shop space utilization, product location, and in interior design.

Products are strategically placed to maximize convenience for customers & profitability.

References:

References

1. "Impact on Organized Retailing on the Unorganized Sector" Report by "INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS"

2. "Indian Retail: Time to change lanes " Report by "KPMG IN INDIA"

Databases:

1. Business Monitor Online 2. Crisil Research 3. Euromonitor International 4. India Business insight Database 5. ISI Emerging Markets India

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