INTEGRATION OF FOOD INDUSTRY – THE KEY DRIVER OF FOOD RETAIL IN INDIA

India is world’s second largest grower of fruits and vegetables after Brazil and China. While the agriculture sector has witnessed several leaps of innovation and technological advancements, the processing sector is still in its infancy. Even with less than 4% processing of fruits and vegetables, the Food Processing Industry sector in India is one of the largest in terms of production, consumption within India, export and growth prospects. The government has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce; for minimising pre/post harvest wastage, generating employment and export growth. As a result of several policy initiatives undertaken since liberalisation in early 90’s, the industry has witnessed fast growth in most of the segments. In the following few paragraphs, it can be noted that the processed food market for India is vast and the amount of scope that retail chains would be exposed to is phenomenal taking into consideration the demographics and raise in standards of living. Retailers could throng the market with all these processed and packaged foods with their private labels.

EVOLUTION OF ORGANIZED RETAILING

Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing. The traditional food and grocery segment has seen the emergence of supermarkets/grocery chains, convenience stores and fast-food chains.

The traditional grocers, by introducing self-service formats as well as value-added services such as credit and home delivery, have tried to redefine themselves. However, the boom in retailing has been confined primarily to the urban markets in the country. Even there, large chunks are yet to feel the impact of organized retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has, therefore, probably not looked at the other markets as seriously. Second, the modern retailing trend, despite its cost-effectiveness, has come to be identified with lifestyles.

Impact of Organized Retail

Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiri’s as early as 1905, the retail revolution happened with the RPG group starting the Foodworld chain of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. The experiment has reaped rich dividends and the group is now foraying into other territories as well. Owing to the success of Foodworld model of RPG group, several new models such as Trinethra, Subhiksha, Margin Free and others have made their foray into this sector albeit at regional levels. Today the food retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the organised food retail segment is about 1 per cent and increasing at a pace of over 20% y-o-y.

In the organized retail industry, the gestation periods are long, institutional funding is difficult, and there is none or little Government support. But the belief among top retailer

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chains in the country is that the industry will see large investments coming once the current ban on foreign direct investment is lifted. But that could be two-three years away. Food and grocery retailing is a tough business in India with margins being very low, and consumers not dissatisfied with existing shops where they buy. For example, the next-door grocery shopkeeper is smart and delivers good customer service, though not value.

Pantaloon Retail (India) Ltd, which operates two types of retail formats, made its maiden foray in food and grocery retailing in North India in mid-2003. Big Bazaar, Pantaloon group's discount store chain, has taken off to a roaring start in Delhi. The Pantaloon Big Bazaar in Delhi is the sixth for the group, and the first in North India. It has been found that existing Big Bazaar stores in cities such as Hyderabad, Bangalore and Mumbai attract average footfalls of 20,000 to 25,000 per day, more so during weekends. While Big Bazaar is essentially a discount store retailing product categories ranging from food and grocery to apparel to footwear to home and interior products, food and grocery retailing forms a significant part of the chain's business. Typically, while food and grocery retailing does well at the beginning of the month, the apparel sector sees maximum off take during festivals.

Likely Transformation of the Supply Chain: To counter the unbeatable advantages of convenience of a hop, skip and a jump access and home delivery, organized retailers seem to have just one option - offer attractive prices to the consumer. A successful retailer's winning edge will therefore come from sourcing - how best it can leverage its scale to drive merchandise costs down, increase stock turns and get better credit terms from its vendors. There are obvious and hidden areas where costs can be pruned and the benefits of this lower cost of retailing can be passed on to customers as lower prices, which in turn should fuel demand. One way of trimming costs is if the pressure points in the long, often unnecessary, supply chain for produce and staples can be identified and suitably dealt with. The food supply chain in India is full of inefficiencies - a result of inadequate infrastructure, too many middlemen, complicated laws and an indifferent attitude.

Corporate and NGO interventions at the farm end in the form of Farm Management Services are emerging to ensure quality and timely supply of produce for the operations. The Farmer-Corporate relationship has helped both the farmers and the corporates in bringing the high quality low cost product to the retail shelf. To ease the burden of the corporate in setting up farm management services, several leading NGO bodies have taken up this activity essentially due to the fact that their operations are mostly at the farm end.

We feel that these farmer-corporate models would be replicated and extended to all the farm end products. With the emergence of Private Label, we would soon find even the retail chains to work with the farm community in developing a efficient supply chain and to leverage on the cost advantage at both ends.

BIG BAZAAR

Big Bazaar is consumer goods retail chain of Future Group Pvt Ltd. Future Group also runs Pantaloons, Lifestyle, EZone, Book Depot, Future Bazaar, Food Bazaar, Home Town, Fair Price, Brand Factory and Central Hypermarket. Future group is a subsidiary of Pantaloon

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Retail India Limited which is listed in NSE and BSE the most established Stock Markets in India. Mr. Kishore Biyani is the person behind Big Bazaar. He is CEO and MD of Pantaloon Retail India Limited. Big Bazaar is based on the concept of Hypermarket or Mega stores. In this kind of Hypermarket consumer get all the daily routine products under single roofBig Bazaar was started in India in September 2001.

Big Bazaar was started as a fashion hypermarket which had Apparels, Accessories, Cosmetics and General Merchandise on sale. Later on a huge range of other products was added to the list. This list includes FMCG products, Electronics, furniture, Stationery, etc. These stores are established on big areas having huge displays and providing cool and comfortable shopping experience to consumers. These stores are based on the concept of Walmart USA.

The starting Tag Line of Big Bazaar was ‘Isse Sasta Aur Accha Kahin Nahin’. After completion of its 10 years in Retail market the company has given a new tag line ‘Naye India Ka Bazaar’. In these 10 years Big Bazaar has become favorites among housewives and other group of consumers too. In overall it has become the favorite retail store of every Indian family.

Most of outlets of Big Bazaar are on an area of minimum 50,000 square feet. In bigger metropolis there are some huge stores on an area of 160,000 square feet. Big Bazaar express stores in small towns are also on 30,000 square feet area only. Big Bazaar also has its own house brand also which it promote in its stores. Big bazaar has some great promotional schemes too. It offers Buy 1 Get 1 Free on many products. There are huge discounts on MRP of many products.

Big Bazaar also has special schemes on weekends and weekdays. They keep on promoting products by having special display of products. Sampling and testing of many products is available in store. Many small companies even launch their products through Big bazaar. There are many schemes by various companies which are available in Big Bazaar only. Big bazaar also provides consumer durables on Low EMI and interest free installments also

Big Bazaar operates at 3 levels Super market, Hyper market and Express stores. Express stores are running in high traffic areas too. It stared in developing areas to take advantage of Real estate Boom. Big Bazaar has changed the face of Indian consumer market a lot by giving consumer a lot of alternatives to choose from.

Big Bazaar’s CommitmentOur commitment is to deliver sustained growth, through empowered people, acting with responsibility and building trust with customers

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FUTURE STRATEGIES AT BIG BAZAAR As we know supply chain i s the back bone of any indust ry . A supply chain consis ts of a l l  par t ies involved d irect ly or indi rec t ly in fu l f i l l ing a customer request . The supply chain inc ludes not only the manufacturer or suppl ier par t but a lso t ransporter , ware house and customer part. In retail especially supply chain begins with the customer and his or her need for the product. In retail supply chain involved in receiving and filling a customer request.

As we know customer i s an integra l par t of the supply chain. In fac t the pr imary par t of any supply chain i s to sat i sfy cus tomer needs and in process generate profi t for i t se l f . In reality a manufacturer may receive material from several suppliers and then supply several distributers. A supply chain may include a variety of stages.

1. Customer2. Retailer3. Wholesaler/distributor4. Manufacturer5. Component/raw material supplier

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Supply chain Process at BIG BAZAAR

The supply chain Big Bazaar is managed by Future Supply chain, which has developed expertise in supply chain management of consumer product categories such as fashion food, home and General Merchandise. The company operates from 60 strategically located hubs, servicing more than 2600 retail outlets spread across the length and breadth of the country. Its network of facilities and specialised expertise enable it to manage more than 3 million SKUs. This requires 30 million supply chains to be managed simultaneously, with their own specific requirements that need customized solutions.

Big Bazaar’s Supply Chain’s transportation capability enables it to implement Factory-Gatelogistics involving pick-up of goods from vendors across the country, national distribution of goods, and city logistics that includes store deliveries and home deliveries. Big Bazaar’s Supply Chains is the first organized intra-city transportation services company in India -carrying out not only B2B deliveries but also B2C deliveries in the form of thousands of home deliveries every day across the country, especially for Furniture and Consumer Durables.

Big Bazaar is also working on the vendor network as well as the logistics network. The company has identified up to 40 anchor vendors, each with turnovers of US$45 million, to achieve economies of scale. The group is also keen to ensure that its smaller vendors are able to reach turnovers of around US$1 million and a growth rate of 40% annually, to be able to pass on the benefits of scales. The company is also working towards bringing its 1,200vendors online, like Wal-Mart.

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In India, Big Bazaar derives significant economies of scale in managing their supply chain. With more than 170000 products, the company maintains a strong supplier relationship in a partnership mode, avoiding the exploitative supplier ± buyer transactional philosophy. The IT enabled back-end operations

and supply chain management increases the reliability and efficiency of the business.

As part of the operation, Big Bazaar is also undertaking to reduce its warehousing costs through a consolidation process. In a country like India, where most retail stores are located in the heart of the city²where rents are high and storage space is scarce²supply chain management has even more serious business implications. Future Logistics now handles two-and-a-half million SKUs (or stock keeping units) a day across the Future Group’s various retail formats around the country. By 2015, this number is expected to increase to more than 80 million SKUs a day.

Even with 98% accuracy, some 1600,000 pieces will not be delivered correctly, resulting in an estimated sales loss of more than Rs 12 crore a day.

Big Bazaar’s four main consumer sectors: Fashion, Food, Home and General Merchandise have varied product lines, each with their own unique needs that require 30 distinct supply chain solutions.

Food Supply Chain

In the present competitive environment customers have become more demanding and asking for quality food which guarantees the safety. n time delivery is becoming a norm to reduce the inventory holding costs. The food industry is facing challenges due to increasing operational complexity, frequently changing consumer needs, government regulations and short product life cycles. It requires a very smart, efficient and agile supply chain to manage the ever changing needs of the end customers.

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Procurement cycle

Manufacturing cycle

Replenishement cycle

Customer order cycle

The food supply chain is complex and difficult to manage due to its perishable nature and short shelf life of the products as compared to other supply chains like electronics, home needs, consumer durables etc. It also requires a robust infrastructure of warehouses and transportation network connecting suppliers, manufacturers, distributors and retailers. The complexity of food supply chain increases further because of the below mentioned parameters

1.Food safety requirements2.Regulatory requirements3.Short shelf life of products leading to expiry and wastage4.Product recalls5.Product traceability requirements6.Effective handling of customer complaints7.High order frequency and low volumes

Food Supply Chain categorization It is basically categorized into two broad categories Perishable and non Perishable

Perishable Supply Chain

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In perishable supply chain the shelf life for the products is very low. It requires managing the end to end supply chain with utmost care. The perishable supply chain typically requires a cold chain to manage it properly. The cold chain infrastructure is very capital intensive. The infrastructure consists of pre-coolers, temperature controlled warehouses, refrigerated transport etc.

Non- perishable Supply ChainThe shelf life for the product is considerable (varying from 3-18 months). Typically FMCG/Processed products, staples etc fall under this category. Although the shelf life of the product is 3-18 months, the products falling under this category requires strict monitoring of FIF at distributors end to ensure that the products reaching the end consumer are left with enough shelf life.

What is needed to manage this unique and complex supply chain? 1. A well organized supply chain infrastructure of warehouses and transportation covering all the major cities.2. Sophisticated cold chain for perishable products which guarantees a cost efficient and safe delivery of products3. Warehouse management system to ensure traceability of products and minimize the losses due to product expiry4.State of the art warehouse infrastructure equipped with the sophisticated material handling equipments to aid cross docking, flow thru which will reduce transit times and inventory5. Adherence to well documented GMP at the storage locations. This would ensure food safety in storage condition (Warehouses)6. Vehicle tracking abilities GPS/GPRS to continuously evaluate the time to destination.

Now Big Bazaar has, Gained and mastered art of managing the food supply chain due to its association with Food

Bazaar. In house expertise to manage perishable ( Fruits and vegetables, dairy ,meat, poultry, Bakery ) and non

perishable ( FMCG-Food, Staples, Processed food) State of the art warehouses across the nation which can cater to the customized needs. A strong in-house transportation department with fleet of vehicles for every need and type Availability of most advanced warehouse management system which would ensure

all aspects like FIF, Lot management, product traceability, product recalls

Availability of transport management system with vehicle tracking facilities to track  product movement at every stage of transportation ( Real time visibility)

 Food supply chain of Big Bazaar can be divided into 3 categories:

a) Farm Fresh-food s supply chain

Currently, Food Bazaar stores across the country have concessionaires handling the Farm Fresh section of their stores. The concessionaires ensure that the supply chain complexities are reduced for the store, because they are in charge of the goods that they bring. Over a period of time Big Bazaar has developed an expertise in managing this farm fresh foods supply chain in the most efficient manner. Big Bazaar has removed the traditional mandi route supply chain that traditionally existed in the Indian market, where fruits and vegetables would come a long

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and tardy way, right from the farmers to finally reach the customers, as depicted below. Food Bazaar has links with farmers growing potatoes and fruits. It has also sourced produce from farmers growing exotic vegetables like red pepper, mushroom, etc.Earlier, agricultural and farm products, would first be collected by aggregators in different villages, and then they would sell the fruits and vegetables at the agricultural farm yards, who would subsequently sell it to a wholesaler. Now semi or smaller wholesalers will buy these products from the larger wholesalers and sell them to different smaller retailers, from where the customers finally bought the products.

But Big Bazaar has shortened the supply chain path in such a way that the farm products can now directly reach the stores or take a slightly longer route of first getting collected at a collection centre which is then passed on to the processing and distribution centre, from where they would be delivered to the store for sale to customers.

These features has enabled Big Bazaar to efficiently carve it s supply chain, reducing irrelevantdelays and fruit s and vegetables wastage. Also farmers are at a benefits since they are selling direct to the retailer, hence cutting out the commission of unnecessary aggregators, wholesalers and farm yards.

b) Cold chain

A cold chain is a temperature controlled supply chain. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a a given temperature range. It is used to help extend and ensure the shelf life of products such as fresh agricultural produce,[1] seafood, frozen food, photographic film, chemicals and pharmaceutical drugs.

c) FMCG Supply Chain

Big Bazaar maintains the supply chain of 3 different kinds of FMCG products ± Food, Non-food, Health & Personal care, with the latter being the latest entry into its product portfolios. While FMCG-Food are again distributed through cold-chain networks, non-food and health and personal care have different supply chain network.

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The FMCG-non food category items follow usual general merchandise supply chain networks, where products are first stored from the factories to different vendors or distribution centres, from where Big Bazaar replenishes its stock based on demand of the items.

Whereas, health and personal care products may or may not be subject to refrigerated distribution. They are more or less distributed as non-food FMCG goods too.

F uture aspects of food retail supply chain

Kishore Biyani’s Future Group is making a vigorous push to increase its share in the fruit and vegetables business, a category that has traditionally been an Achilles heel for the country’s largest retailer. The group behind supermarket chains such as Food Bazaar and Big Bazaar is empowering the specialised entity,  Future Supply Chains which will now totally manage all the efficient supply chain for fruits and vegetables (F&V), marking a shift away from the outsourced model it has followed so far.

Mr Biyani is betting that by putting in place new sorting and grading technologies, better cold storage and aggressively cutting out middlemen, he can bring down the prices of fruits and vegetables by about 15-20% across categories. "The efficiencies created by this exercise will be passed on to the consumer," he observed. The Future Group now outsources retailing of fruits and vegetables to vendors, who are allowed to use space in its shops in exchange for a share of their revenue.

Mr Biyani¶s move to take direct control of the fruits and vegetables business brings to focus the challenges faced by organised retailers in selling fresh and perishable goods. India lacks a network of cold storages and refrigerated trucking facilities that can efficiently transport fresh fruits and vegetables from a farm to the shop-floor while retaining its freshness.

Future Group has a separate company that handles its dry vegetables supplies as well, but the new entity will have independent profit and loss responsibilities as well. It will rent out space from Future Group’s stores and separately branded counters will handle sales of fruits and vegetables.

Mr. Biyani has recently announce that he is planning to introduce the concept of freezing fruits and vegetable prices. That means, prices of fruits and vegetables will not fluctuate throughout the year but sold at one fixed price around the year further adding benefits for the customers. If Big Bazaar does implements such a scheme, it will heavily depend and rely on its highly efficient supply chain to deliver seamless supply of products even when demands are very high and cost of products very low, reaping very less profit..

In the process of setting up the retail networks, these large corporations are changing the domestic agricultural landscape. For starters, they are introducing the Indian farmer to better seeds, new technology, supply chain management and food processing. These

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companies have already brought in technology that increases the shelf life of fruits and vegetables.

Future Supply Chain Solutions will use the capital for enhancing logistics infrastructure, strengthening technology platforms, and expanding supply chain network of the company for its Big and Food Bazaar arms. We are building a world class supply chain infrastructure for the consumption products in India which is presently very limited, despite it being a critical support required in India’s rapidly growing economy. We will be investing in physical as well as technology infrastructure that will reduce the time-to-market and cost-to-market for fashion and apparel and other consumer categories,´ said Anshuman Singh, Managing Director of Big Bazaar. Another important future aspect of supply chain rather the biggest driver in consumer logistics is going to be zero defect in managing the supply chain. While infrastructure, technology, automation, processes and people will all play an important role, zero defect can only be achieved through vertical integration across the entire supply chain²from raw material supply, production, wholesale and retail. The different parts of the supply chain will no longer be able to work in silos as they do today.

LOGISTICS

One of the most important challenge in organized retail in India is faced by poor supply chain and logistics management. The importance can be understood by the fact that the logistics management cost component in India is as high as 7% -10% against the global average of 4% - 5% of the total retail price. Therefore, the margins in the retail sector can be improved by 3% - 5% by just improving the supply chain and logistics management. In India, with demand for end-to-end logistics solutions far outstripping supply, the logistics market for organized retail is pegged at $50 million and is growing at 16%. It is expected to reach $120-$130 million by 2010. Organized retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010.Even supply chain and logistics firms like Hong Kong based Heng Tai Consumables and ABS Procurement Co and ACM China(the greenhouse specialist) is also eying the opportunity for managing the supplies.

The supply chain management is logistics aspect of a value delivery chain. It comprises all of the parties that participate in the retail logistics process: Manufacturers, Wholesalers, and Third Party Specialists like Shippers, Order Fulfillment House etc. and the Retailer. Here, logistics is the total process of planning, implementing and coordinating the physical movement of merchandise from manufacturer to retailer to customer in the timeliest, effective and cost efficient manner possible.

Logistics regards order processing and fulfillment, transportation, warehousing, customer service and inventory management as interdependent functions in the value delivery chain. It oversees inventory management decisions as items travel through a retail supply chain. If a logistics system works well, the retail firm reduces stockouts, hold down inventories and improve customer service – all at the same time. Logistics and Supply Chain enables an organized retailer to move or store products more effectively. Efficient logistics management not only prevents needless movement of goods, vehicles transferring products back and forth; but also frees up storage space for more productive use.

FOR BIG BAZAAR

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Big Bazaar sells variety of merchandise, a t a f f o r d a b l e r a t e s , t h e prices of which it claims are lowest in the city but the level of services offered is also very low. Usually the items are clubbed together for offers as on the lines of Wal-mart and Carrefour and it also offers weekend discounts.

PROBLEMA AT BIG BAZAAR LOGISTICS

Significant losses/damages during shipping.

The next problem in setting up organized retail operations is that of supply chain logistics. India lacks a strong supply chain when compared to Europe or the USA. The existing supply chain has too many intermediaries: Typical supply chain looks like:- Manufacturer - National distributor.

Regional distributor - Local wholesaler - Retailer -Consumer. This implies that global retail chains will have to build a supply chain network from scratch. This might run foul with the existing supply chain operators. In addition to fragmented supply chain, the trucking and transportation system is antiquated. The concept of container trucks, automated warehousing is yet to take root in India.

Inadequate infrastructureThe lack of proper infrastructure and distribution channels in the country results in inefficient processes. This is a major hindrance for retailers as a non-efficient distribution channel is very difficult to handle and can result in huge losses. Infrastructure does not have a strong base in India. Urbanization and globalization are compelling companies to develop infrastructure facilities.

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The storage infrastructure, too, is severely restricted. In 2014, India had a total warehousing capacity of 120 million tonne. Like the rest of the infrastructure sector, warehousing is highly fragmented and unorganised Transportation, including railway systems, has to be more efficient. Highways have to meet global standards. Airport capacities and power supply have to be enhanced. Warehouse facilities and timely distribution are other areas of challenge. To fully utilize India's potential in retail sector, these major obstacles have to be removed.

Almost 78% of total freight is transported by road . But, according to the FICCI-E&Y retail report, roads connect less than half of the half a million Indian villages. The normal distance covered by trucks and trailers in India are250-300 km a day, whereas the international norm is 600-800 km a day. Most roads in India are designed to carry a maximum gross weight of 16.2 tonnes, which allows for a maximum loading of about 9 tonnes. This severely restricts the ability to transport goods on larger vehicles.

Some of the warehouse are located in villages and are far from the city so it takes time for goods to reach mall.

Push MechanismThe Big Bazaar distribution centres act as warehouses alone, unlike Wal-Mart where these centres act as developers of suppliers. There is no pull mechanism in order-generation and it depends largely on the decisions by individual category managers on weekly basis whereas in Wal-Mart, it is a daily pull mechanism based on store consumption

RECOMMENDATIONS

Improvement in supply chains:-Big bazzar should use more better techniques for improvising its supply chains. The organisational structure and the business model of Wal-Mart are its winning-formula for some markets. But this also dooms it to failure in others. The heart of the matter is high-volume-low-cost strategy, which made it a success in cost-conscious smaller, everybody-knows-everybody cities in the US. But this very strategy doomed it to failure in larger (anonymity, high consumerism) cities in the US. A very high real estate cost in big cities was also detrimental to its strategy in such cities.

Warehouse location :-Though it is a cost cutting formula of big bazzar, but now the Indian scenario has changed. Though it has its own logistics called Future logistics, it should try some other ways to improve its in housing of goods. Many a times it happens that goods are not available to customers as the time taken between ordering and processing is very long.

Improvement in packaging:-Big Bazzar should ask suppliers to send goods with good packaging so that losses due to breakage should be avoided. Moreover its own handling and carrying should be improved.

InfrastructureInternal ware house of big bazzar has very low capacity. Its completely hoch- poch. Due to insufficient space of storage losses are very frequent. Shop lifting especially internal is very high. It should allow its suppliers to have a track of their goods so that when stock finishes they will automatically supply.

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Conclusion Big bazaar is having its own logistics called future logistics but in near future to cope up with changes it has to do a lot. At present it provide services from transportation to warehousing and inventory management. But, in the near future, they will have to expand their products basket to include new value-added services, such as packaging, labelling and reverse logistics. The biggest challenge that it faces is that it should quickly imbibe latest technologies, such as GPC/GIS tracking of consignments, and uncork new services to cater to corporate seeking to outsource their logistics needs. Also, the Government should come out with a sound policy that facilitates the operations of the logistics companies

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