neha retailmarketing thesis

8/12/2019 Neha Retailmarketing Thesis

1/109

RETAIL MARKETING IN INDIA

A

RESEARCH REPORT

Submitted in fulfillment of the requirements for the postGraduate Diploma in Management (PGDM)

By:Neha Upadhyay

PGDM- 2012-2014

Under The Guidance Of:

Bidisha Bhattacharya

Submitted To:

Department OF Thesis

IIPM


2/109

SSYYNNOOPPSSIISS

Thesis Title: Retail Marketing in India

Introduction: The Indian retail industry is now beginning and growing day by

day.The concept of retail which includes the shopkeeper to customer interaction, has

taken many forms and dimensions, from the traditional retail outlet and street local

market shops to upscale multi brand outlets, especially stores or departmental stores.

In this thesis, I had focusing on two aspects of retail marketing i.e. Store Retailingand

Non store Retailing.

Store Retailing: Store Retailing includes departmental store, which is a store or multi

brand outlet, offering an Varity of products in various categories under one roof,

trying to cater to not one or two but many segments of the society

Non store Retailing. : Non store Retailing Includes direct selling, direct marketing,

automatic vending.

Therefore, this concept of retail marketing through departmental stores, which is coming

up in a big way in India was decided to be studied in detail, through an exploratory and

conclusive research.

Objective:-

The over all objective of the thesis is to study the concept of Retail Marketing in India

OBJECTIVE:

Retailing in IndiaPast, present and future


3/109

Future growth potential of Retail Marketing in India.

How do Indian retailers sell their product?

Which International retailers eyeing Indian market..


4/109

OBJECTIVE

The over all objective of the thesis is to throw light on Retail Marketing in India

SUB OBJECTIVE:


Future growth potential of Retail Marketing in India.

How do Indian retailers sell their product?

Which International retailers eyeing Indian market..


5/109

RESEARCH METHODOLOGYT

Themethods adopted to fulfill the objective of the study that included collecting

primary and secondary data. I conducted the survey in order to gather the

informations from the knowledgeable person of retail stores on the isssue

reverent to my thesis topic.

The secondary data collected from :

Magazines The Franchising World.Journals Indian Management.

Web sited : www.franchiseindia.com

www.ksatechnopak.com

INTRODUCTION

Any business that directs its marketing efforts towards satisfying the final

consumer based upon the organization of selling goods and services as a means of

distribution
http://www.franchiseindia.com/http://www.franchiseindia.com/http://www.franchiseindia.com/


6/109

A retailer or retail store is any business enterprise whose sales volume comes

primarily from retailing. Retail organizations exhibit great variety and new forms keep

emerging. There are store retailers, non store retailers, and retail organizations.

Consumers today can shop for goods and services in a wide variety of stores. The best-

known type of retailer is the department store. Japanese department stores such as

Takashimaya and Mitsukoshi attract millions of shoppers each year. These stores feature

art galleries, cooking classes, and childrens playgrounds.

A retailer is at the end of the distributive channel. He provides goods and service

to the ultimate consumers. This he does through his small organization, with the help of a

few personnel. In an individual retail store there is not much scope for organization

except in the sense that the shopkeeper has to organize o apportions his time and

resources. The need for organization becomes essential as soon as he hires people o

enters into partnership or takes the help of members of his family in running his store. A

retailer deals in an assortment of goods to cater to the needs of consumers. His objective

is to make maximum profit out of his enterprise. With that end in view he has to pursue a

policy to achieve his objective. This policy is called retailing mix. A retailing mix is the

package of goods and services that store offers to the customers for sale. It is the

combination of all efforts planned by the retailer and embodies the adjustment of the

retail store to the market environment. Retailing mix, a communication mix and a

distribution mix. The maximum satisfaction to the customers is achieved by a proper

blend of all three.

The success of the retail stores, therefore, depends on customers reaction to the

retailing mix which influences the profits of the store, its volume of turnover, its share of

the market, its image and status and finally its survival.

There are three main phases in the life of a retailing institution. These are: -

Innovation ( Entry )

Trading Up

Vulnerability.

In the entry stage, a new retailer enters with new price appeal, limiting


7/109


8/109

1. The annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the

size of Indian retail industry (estimated at about $180 billion) and almost 100 times more

than the turnover of HLL (India's largest FMCG company).

2. The size of any Wal-Mart store is much higher than the size of any existing shopping

mall in India.

3. Wal-Mart has over 4,800 stores (over 47 million square meters) where as none of

India's large format store (Shoppers' Stop, Westside, Lifestyle) have more than 10 stores.

4. New stores opened annually by Wal-Mart are about 420, much higher than all

organized Indian retailers put together.

5. The sales per hour of $22 million are incomparable to any retailer in the world.

Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail

industry (one of the most fragmented in the world) employs about three million people.

6. Wal-Mart has around 30,000 suppliers throughout the world and more than 600,000

SKU's on its web site, a number that cannot be compared.

7. Daily customers are about 15.7 million (almost equivalent to Mumbai's entire

population).

8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at which

babies are produced in India!)

9. One-day sales record at Wal-Mart (11/23/01) $1.25 billion (roughly two third of HLL's

annual turnover).

10. None of the Indian organized retailer has ventured overseas where as Wal-Mart is

now in 10 countries and will expand to 21 countries in two years.

Retail: A strong pillar of Indian economy


9/109

Retailing is the last mile infrastructure to access and deliver goods to consumers. Retail

forms the backbone of the nation's delivery system and its importance can be exemplified

by the network of 15,000 KVIC outlets which support 4 lakh plus small and medium

handicraft manufacturers across the country.

It also serves as the last mile infrastructure to the manufacturers as well as the

government for tax collection. For instance, the success of the VAT proposal depends on

its being able to be implemented at the retailer level, but nobody has consulted with them

as a body yet on this issue. Furthermore, retailing is also an important and large

contributor to the GDP and a major employment generator. In India, for the last four

years its contribution to the GDP was around 13%. The sector gainfully employs 6-7%

of the total workforce in India.

Changing Retail Landscape

Indian retail is fragmented with over 12 million outlets operating in the country and only

4% of them being larger than 500 square feet in size. This is in comparison to 0.9 million

outlets in USA, catering to more than 13 times of the total retail market size as compared

to India. Thus India has the highest number of outlets per capita in the world with a

widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per

person).

Recently, majority of store formats have hit India. Yet traditional format stores namely

the kirana shops, pan/bidi shop, hardware shops, weekly haats and bazaars form the bulk.

Formats like department stores, malls, speciality stores as well as discounters are shapingthe burgeoning organized sector in India.

Though still in its infancy with less than 2% share of the retail sector, organized retail has

definitely struck its roots in India. What we are looking now are more corporate backed

organised retail operations. Till seven years back organized retail was largely restricted to


10/109

the southern India, barring the Bata chain. Organized retail has now shifted gears and is

moving ahead with accelerated speed throughout the country, without any direct

incentive provided by the government. Organised retail is growing at a rate of about 40%

per annum over the last three years.

With a size of Rs. 15,000 crore (USD 3 billion), organized retail is very much on track

according to KSA Technopak's projections made in 1999 based on in-house research.

The projections claimed that organized retail would grow to be a Rs. 35,000 crore (USD

7.1 billion) by 2005.


Executive summary

Retailing, considered a sunrise industry today after infotech, is the most happening

industry with almost all the big players vying for a share of the coveted pie. Buoyed by a

strong increase in private consumption (see raph), retailing is one industry that is waiting

to explode.


11/109

Today however, organised retailing is less than 2 per cent of the retailing industry in

India, that is, about Rs 5,000 crore.(see table) Therefore, there is no real retail revolution

in India; the industry is still in the stages of infancy.

Share of Organised Retail

1999 2002 2005

Total Retail (US $ Billion) 150 180 225

Organised Retail (US $ Billion) 1.1 3.3 7

% Share of organised Retail. 0.7 1.8 3.2

Source: KSA Technopack

Organized retailing is bound to grow tremendously provided the right mark-eting

strategies are adopted. Retail businesses have broken rank and seem poised to surge

ahead with renewed vigour, optimism, confidence and cap-ability.

There is an incredible amount of activity in terms of creation of retail-riented space

across India. As per some estimates, there are over 200 retail mall projects under

construction or under active planning stage spanning over 25 cities. This may translate

into over 25 million sq. ft. of new retail space in the market within next 24 months.

Huge retail formats, with high quality ambience and very courteous and ambivalent sales

staff, are the regular features of retail formats in most Asian countries. However, in India

except for a few big towns where modern retailing formats abound, these features are

grossly missing. ETIG expects organised retailing to slowly penetrate the second rung

and smaller towns which will catapult the growth rate for the sector.

Even though the big retail chains are concentrating on the upper segment and selling

products at higher prices like Crossroads, Akbarally's and Shopper's Stop, retail stores are

sprouting that cater to the needs of middle class. With a huge middle class population, the

retailers like RPG's


12/109

Foodworld are tapping this market. The market is flooded with products branded

and unbranded. The customers are in a dilemma as to pick which one. Simon Bell of AT

Kearney says "There is a close relation between the growth of brands and the growth of

the organized retailing.Companies selling branded products prefer to have big and

organized retail outlets such as supermarkets where they can be differentiated from

unbranded products"

Though doubts have been cast on the future of Indian retailing it is our belief that the

retail boom is yet to happen. While the industry is in the introduct-ion stage in most

geographies, it has just entered the growth region in the metro cities. Today, the right

product mix, right sourcing strategy, and the right communications are the mantras for

success.

This paper begins by analyzing the retail formats in the present Indian scenario and

proceeds to outline the key strategic factors in retailing. In the last part the paper shows

the challenges facing retail and our recomme-ndations for making organized retailing a

success.

Organized retail formats in India

Each of the retail stars has identified and settled into a feasible and sustainable

business model of its own.


13/109

Shoppers' Stop - department store format

Westside - emulated the Marks & Spencer model of 100 per cent private label,

verygood value for money merchandise for the entire family

Giant and Big Bazaar - hypermarket/cash & carry store

Food World and Nilgirissupermarket format

Pantaloons and The Home Store - speciality retailing

Tanishq has very successfully pioneered a very high quality organized retail business

in fine jewellery

Structure of the retailing industry according to ownership patterns:

An unaffiliated or independent retailer

A chain retailer or corporate retail chain

A franchise system


14/109

A Leased Department (LD)

Vertical Marketing System (VMS)

Consumer Co-operatives

A new entrant in the retail environment is the 'discounter' format. It is also is known as

cash-and-carry or hypermarket. These formats usually work on bulk buying and bulk

selling. Shopping experience in terms of ambience or the service is not the mainstay here.

RPG group has set up the first 'dis-counter' in Hyderabad called the Giant. Now

Pantaloon is following suit.

Two categories of customers visit these retail outlets.

1. The small retailer. For example, a customer of Giant could be a dhabawala who needs

to buy edible oil in bulk.

2. The regular consumer who spends on big volumes (large pack sizes) because of a

price advantage per unit.

Key Strategic Factors in Retailing

The key to success is identifying a superior value-promise and who is in a better

position to do it than retailers? Retailers are the closest to the point of purchase and have

access to a wealth of information on consumer shopping behaviour. Retailers have some

unique advantages for managing brands such as continuous and actionable dialogue with

consumers, control over brand


15/109

presentation at point-of-sale, control over shopping environment, display

location/adjacencies, and signage. And they have used this advantage with tremendous

success.

The 3 stages of evolution of the trade channel are shown in the exhibit below:

EXTENDED LIMITED DIRECT

MANUFACTURER

DEPO/CNF

DISTRIBUTOR

RETAILER

SHOPPER

MANUFACTURER

DEPO/CNF

RETAILER

SHOPPER

MANUFACTURER

SHOPPER


16/109

As seen, the role of the intermediary is being diminished gradually, which has

obvious implication of backlash of the trade channel upwards towards the suppliers. This

is more severe in countries such as India, where the channel economics in favour of the

middlemen is still strong enough given the fragmentation of the retail sector. Therefore

when FoodWorld, the

largest grocer in India has a direct supply contract with over 20% of its key suppliers, it

gives rise to conflict of interest with the distribution infrastructure that suppliers have

painstakingly built over the years. Thus companies like HLL have evolved a distinct

distribution channel altogether (called Modern Trade) to service the needs of such large

grocers. Even the mom and pop stores (known as kirana shops) are affected due to this

unfair back-end advantage extended by the supplier to its leading accounts (the

emerging supermarket chains).

The strategies adopted by the retailer to compete with branded goods are illustrated by

the following diagram. Branding the store and following a private label strategy is the

key strategy which helps the retailer to compete with branded roducts.

Leverage Brands

Brand the

Store

StrongPrivate

LevelStrater

Maximize customer

traffic &

Profitability.

Keep Formats

Constsnt.

DevelopNew

Formats.

ReinvigorateExisting

OptimizeAssortment

Loyalty Cards.


17/109

Challenges Ahead For Retailing

The unorganised nature of retailing has stunted its growth over several years. "Lack of

industry status affects financing prospects and stunts growth of the industry", says

Kishore Biyani, managing director, Pantaloon Retail India. In the current scenario, only

players with deep pockets have been able to make it big. In addition to the advent of

Internet, there are many other challenges which retailers have to address.

Human Resources

Availability of trained personnel and retaining the human resources is a major challenge

for these big retailers. The bigwigs like Crossroads offer high compensation and create a

cohesive environment that makes an employee proud to be a part of such big retail

chains.

Space and Infrastructure

To establish a retail shop / mall, the real estate and the infrastructure are very vital. The

expenditure and availability on both the accounts do hinder the growth of the retail chain.

The lack of secondary infrastructure also affects the logistics and supply chain

management for retail companies.

Absence of retailer friendly laws

Pricing &Promotion

Strategry.

Online

shopping.


18/109

India still does not have retail-friendly laws especially relating to the movement of

goods from one state to another. Retailers need to put in a whole lot of products from

different parts of the country - at times from outside the country - on the shelf. But

question of multiple tax levels is an issue. Then there are laws like shops cannot be open

for all seven days, shops have to be open after or close before a certain time which affects

operations.

Lack of technical know-how

The Indian government does not encourage any foreign direct investment (FDI) in the

retail industry. FDI is normally one of the ways of getting technical inputs. And because

of this dearth of FDI in this sector, develop-ment in terms of people, skills etc is

happening the hard way.

Future perspective

We should see fundamental shifts in the way Indians shop in the very near future. The

Year 2003 could well be a landmark year for organised Indian retailing. According to a

recent study done by ETIG the organized retail industry is expected to grow by 30 per

cent in the next five years and is expected to touch Rs. 45,000 crore. Thus, the growth

potential for the organised retailer is enormous. In the next 2-3 years, India will finally

see operations of a number of very serious international players- notwithstandi-ng the

current restrictions on FDI in retail. Metro from Germany is a very successful and

resourceful retailer and their cash & carry format should offer

a good run for money to others. Some others will also find perfectly legitim-ate ways to

operate in India, for example, Marks & Spencer, Mango and Shoprite.

Change Accelerators


19/109

The following factors will be significant in driving growth in the retail sector:

Consumer factors

Increase in income

Working women

Changes in lifestyledemand for global trends

Supply side factors

Growing importance of retailing in political and economic agenda

Real estate reforms to be undertaken in the next 24 months

Major restructuring of the manufacturing sector easing product

supply constraints for efficient retailing

Reduction in import duties-offering more global sourcing options

Which categories will grow?

The single biggest opportunity in India in organised retailing is bound to be food and

groceries; it is in this sector that the largest amount of consumer spends is concentrated.

This sector has maximum opportunity for investm-ents and entrepreneurs to come in and

try to make the supply chain a little more efficient.

Consumer durables is another promising sector because, with increasing purchasing

power, consumers tend to spend the most on this category. Also, there is nothing to


20/109

prevent a company from putting up shops outside the city limits, because consumer

durables are a premeditated purchase. Further-more, availability of finance options has

increased spending in this sector.

Third are home products - with increasing private ownership of homes by relatively

young couples, across most major cities in India, national retail chains offering home

furniture (and accessories) have great potential.

Finally, personal care products, pharmaceutical products, and healthcare services have

tremendous growth potential. Recently, we have seen some interest from organised

healthcare players like Max, Fortis, Birlas and the Reliance group

Where is this growth going to happen?

The top 15 cities in India cater to 33 per cent of total urban population, but as high as 38

per cent of Sec A and B (the top two socio-economic consumer strata) urban population.

The next 15 cities only add to another 7 per cent of Sec A and B population. So logically

the focus will be restricted only to the top 15 cities. Research conducted by KSA

Technopak, shows that today 96

per cent of total organised retail is in the top 10 cities, of which the top six cater to 82 per

cent. However, the rate of growth will be higher in the bottom four of the top 10, which

will have a 20 per cent share by 2005 against the present share of 15 per cent.

Which formats will grow?

KSA Technopak's research suggests the top four formats to emerge in the next five years

are:

* Shopping Malls

* Specialty Stores (in new categories such as office products, specialty food, optical and

travel)


21/109

* Departmental Stores

* Supermarkets

Recipe for Success

Focus on the consumer: It is clear that consumers have changed and they are looking for

something different. Understanding their evolving needs, aspirations and lifestyles is the

underlying key to success for any retailer. The primary emphasis should be on access,

experience and service and the secondary emphasis on product and price. There should be

an effort to improve service by having better trained sales staff, better availability of

products, and minor but important conveniences, e.g. delivery of goods either to the car

or even home. Collaborative advertising and promotion can then round off this effort

Brand the store: branding the store will increase volume and enhance customerloyalty.Branding is critical to maintaining competitive diff-erentiation in an increasingly

challenging retail environment. However, the brand needs to be clearly communicated to

the customer.

Develop private label brand: Private labels act as margin generators, increasing sales

volume by positioning the label as providing higher perceived value to consumers. In the

long run, they also increase the retailers bargaining power with national brand suppliers.

Private labels generate customer loyalty by providing exclusive products, which works

towards differentiation strategy, much sought after by the retailers.

In terms of geography some entrepreneurs should put efforts in creating custom-

developed solutions for tapping the rural and semi-urban spending potential. Even in


22/109

non-metro urban centres, there are very good oppo-rtunities in looking at starting or

expanding operations. Some cities that should see greater organised retail action in the

future would be Ludhiana, Chandigarh, Lucknow, Nagpur, Ahmedabad, Surat, Pune,

Kochi, Thiruvananthapuram, Guwahati and Bhubaneshwar.

In terms of format malls have a sustainable competitive advantage over other formats.

Consumer preferences are shifting towards malls from traditional markets. As a result of

consumer shifts, retailers also prefer to be located in malls in anticipation of higher

footfall. KSA Consumer Outlook 2000SM shows that increasingly consumers prefer "All

Under One Roof

destination for shopping as well as eating out and entertainment. These findings together

indicate an excellent potential for a mall with the following features:

a superior well-managed leisure experience

targeted at all members of the household

comprising of shopping, dining and entertainment, all under one roof

a wide range of products and services

proximity to homes


23/109

THE STRIKING NEW FACE OF RETAIL IN INDIA.

Who says great retail is only for the metros? Check out Surat where

residents are shopping like never before.

This city in Gujarat has the state's largest textile market and is India's centre for the

diamond trade. It also holds the distinction of being one of India's cleanest cities. It is

Gujarat's second largest city with a population nudging 30 lakh as of 2001 and is home to

some of industry's giants -- Reliance being the most prominent among them. This is

Surat, which is now experiencing a retail revolution of sorts.

Surat belies the general feeling that the retail revolution as we know occurs only in the

metros. A walk along the main Ghoddod or Athwa Lines areas - akin to Mumbai's

Bandra or Colaba - is like walking through a large shopping mall. Here, you'll find every

brand, all kinds of products in every shape, shade and size and all types of food! You'll

also find four of Surat's supermarkets here -- from the cosy Mother's Inn to the 3-storied

Dhirajsons. All these are changing the way Surat shops.


24/109

Two of the largest supermarkets in Surat are Dhirajsons, run by the Modi family and

Sahaj Superstore owned by the Patel family. Both offer valuable lessons in how

organised retail in smaller towns can succeed. Despite dramatic changes in the retail

scene, Surats retailers feel the need for a shift in mindset, habits, more modern

restaurants and theatres to drive lifestyle changes. And this is already happening. Here we

profile three leading retailers from Surat.


25/109

Dhirajsons

Theirs is a rags to riches story. Started as a small 400 sq. ft. general store in Surat's

Chowpatty-Athwa Lines area, Dhiraj Modi and his sons built a retail chain of four stores,

a total of 56,000 square feet in Surat's prime retail area and are today considered the

pioneers of organised retail in Gujarat. The Dhirajsons Megastore is the flagship of the

chain. At 15,000 sq. ft. spread over three stories, it stocks 38,000 active SKUs and

employs 200 staff directly. Consumer spending has reduced slightly, agrees Rajnikant

Modi, but he says, "We still average Rs 400 a bill and around 800 bills a day." Going by

his figures, Dhirajsons sales are around Rs 20 crore a year, just from Dhirajsons

Megastore. This makes the store the largest in Surat in terms of sales. The Megastore has

around 3,000 footfalls a day, of which Modi estimates 50 per cent are buyers. There are 9

cash counters, each linked to a LAN and an automated inventory system which can be

tracked everyday. The whole system cost him Rs 5 lakh. Every SKU is bar coded with

the entire bar coding system costing Rs 2.5 lakh (each machine bought at Rs 50,000-

70,000 five years ago) but it has been worth it according to Modi. The Megastore has a

4,000 sq. ft. parking facility which accommodates 14-15 cars and 25-30 two-wheelers

free of cost. Modi estimates his investment in all this at around Rs 15 crore over the past

two years.

Expansion is on the cards. Says Modi, "We target a growth of at least 10-15 per cent a

year from now on." He understands very clearly that to finance expansions in Surat itself

he will need to maintain that rate. The Megastore yields gross margins of between 15-20

per cent and net of 4-5 per cent, which has to grow to aid expansion. Although there have

been several proposals from surrounding cities like Bharuch, Navsari and Billimora,


26/109

Modi wants to consolidate in Surat first before stepping foot elsewhere. Acquisitions and

mergers are one way of consolidating which fulfils a part of their vision statement - that

of creating a chain of retail stores for total dominance in Surat.

From one store in 1992, Dhirajsons now has a conglomerate of outlets for all kinds of

products along with a supermarket of 10,000 sq. ft. - all totalling 10,800 sq. ft. all within

2 km of the Megastore. Excess stock is kept at a warehouse 4 km away. Earlier in 2002,

the Modis bought over Kutchhi's Supermarket in the upmarket Parle point area. Rajnikant

Modi intends to convert this into a successful supermarket, offering FMCG and kirana at

competitive prices.

Dhirajsons' latest expansion is into lifestyle retailing with the acquisition of Rita

Supermarket, located about 1 km from the Megastore, for a reported sum of around Rs 6

crore. With 26,000 sq. ft. carpet area, the new store, christened Dhirajsons Lifestyles, will

have 4 levels, stocking garments and accessories for men, women and children. Says

Modi, "We believe there's scope for such a store in Surat. With our brand name which

stands for trust and quality in Surat, we can make headway into this segment." The

lifestyle store is slated to open by Diwali 2002. Prices will be reasonable, says Modi.

According to him, "here, you may find some prices even lower than those in Mumbai.

This we can do by sourcing it right -- driving bargains with vendors and passing on the

difference to customers."

Certainly all the best sourcing practices and pricing policies will have to be used if

Dhirajsons is to gross the targeted break-even sales of Rs 35 crore from Dhiraj Lifestyles

in the first full year, 2003. Going one step further, Modi is in advanced talks with

Mumbai-based bookstore Crossword, to become part of Dhiraj Lifestyle. And there's an

added bonus -- Barista - which may slip in with Crossword. If he pulls it off, it'll be

another feather in his cap. In fact, he is confident of bringing in music chains like PlanetM to Surat. Talking like any other professional large-scale retailer, he says Dhirajsons is

all about providing the right retail experience and attractive environment to drive sales.

The Modis certainly do have a lot of retail experience to make it all work -- with 80 years

of retailing behind them and a name that stands for trust, quality and personal touch.


27/109

"That's our strong point", smiles Modi. "My father and indeed almost every member of

the family even today know most of our regular customers by name. We maintain these

relations religiously and believe this touch will make us successful, more than any shop,

store or product." Travel adds to thinking and experience, continues Modi. The Modi

family has seen every supermarket and store in India and overseas. They have visited

Hong Kong, Dubai, Singapore, UK and USA over the past 8 years to understand retailing

better and develop vendors. Today, all the display equipment is imported from Italy.

UAE based vendors supply crockery and other goods via Mumbai to Surat. Regular

customers at Dhirajsons, however, feel that imported goods are priced very high. Does

this restrict his sales? Says Modi, "Far from it. Surat is not as price sensitive as Mumbai

is. Here people would pay even disproportionately for imported goods." This seems a

legacy of Surat's dominance in the gems and textiles industries, where more often than

not, generation of unaccounted money had to be balanced by spending it -- thereby

creating price insensitivity.

Education forms a continuous process for the Modis. They have sent people to the

Landmark course, Arun Virani's retail course and even checked out the retail courses at

Manipal and Nirma Institute in Ahmedabad. "It is a never ending course -- we have to

stay ahead of the others", affirms Modi.

This year Dhirajsons became a private limited company and as expansion and growth

targets become ambitious, Modi is not averse to listing his company on the Ahmedabad

stock exchange too. Currently, finance is from internal accruals and banks. Modi says

banks have been very visionary in their belief in retailing and Dhirajsons, backing him all

the way. Local government is a major issue. "Give me some government support and

retailers can do just as well as any overseas chain," he affirms.

Rajnibhai Modi takes a walk every half an hour around his Megastore. He meets oldfriends and regular customers, talking to them, addressing them personally. The Modis

have a vision statement, which they call the six steps to success -- prominent amongst

them is 'personalised public relations' which Modi does every day. Surveying his shop, he

says, without a hint of pretension and with a gleam in his eyes, "I want to be known as

the Dhirubhai of retailing in Gujarat."


28/109

SahajSuperstore

Sahaj, just under 2 years old, is the youngest of the new format retailers in Surat. At

30,000 sq ft, it is the largest single store in Surat, possibly in Gujarat, says its young

Chairman Mahesh Patel. It certainly has the largest number of SKUs in Surat - 100,000

spread over 3 floors in the Adajan area of Surat, not exactly as upmarket as Athwa Lines

or Chowpatty, where its largest competitor Dhirajsons is located. In a way, Sahaj defies

the prime rule of retailing: location, location and location.

"When we started in 2000," remembers Patel, "this location was somewhere out of the

town. Every one said it's a risk and to be honest, I myself wasn't sure we would succeed.

But then, business is a risk, and we took it." He had some experience in retailing, having

spent 13 years in his chemist shop. "We visited all the shops and stores in India and

found that, unlike overseas, there existed no real departmental stores, at least in Gujarat. I

believe in a real departmental store, you should get 90-95 per cent of all your

requirements under one roof. That's exactly what Sahaj Superstore offers." Patel says in

spite of misgivings, Sahaj was constructed in 11 months flat with a Rs 2-3 crore

investment. He is very appreciative of banks, local financiers and his own family, all of

whom trusted his instinct. "We have met all the projections that we forecast when weapproached them for financing," he says proudly.

Today, Patel says his store has an average bill value of Rs 400 and more than 800-900

bills a day, from footfalls of around 2,000 a day. By these figures, that's Rs 3.2 lakh a

day, Rs 100 lakh a month and Rs 12 crore a year. He has an ambitious target to touch Rs


29/109

100 crore by 2006 - 8 times current sales. He says high targets are a must to inspire his

staff which number 150 currently.

Sahaj is spread over 3 floors, with split levelling and no elevators. Says Patel, "Every

floor can be reached by walking not more than 10 steps before reaching a sales floor.

This ensures the customer doesn't get tired and goes through a larger array of goods than

in an elevator." It also keeps costs of electricity and maintenance low. Sahaj has sections

for white goods, garments, processed foods, toys and provisions. Credit cards are

accepted preferably for purchases above Rs 100 per bill. FMCG goods are priced below

MRP - a result of hard negotiations with 1,000 plus suppliers for discounts and passing

on the reduced prices to the customers. This puts margins under pressure but increases

turnover. Patel is clear, "Right now we are driving turnover. We have to develop a

clientele. Two years from the time we started, we are still in the investment mode."

Sahaj pays serious attention to consumer feedback. For example, customers were getting

tired of the same arrangement of a few counters. He got them rearranged last month.

Sahaj has parking for 75 cars, has 1 ATM of the Surat Textile Bank and runs privilege

schemes to retain customers.

Sahaj has its own LAN system with 20 computers which update stocks and sales every

day. Each section has its own CEO who handles day-to-day work and customer care. Its 8

cash counters and scanners update stock every day. Says Patel, "We have to computerise

keeping in mind today as well as the near future. When we bought bar code scanners,

they cost us Rs 30,000. Such changes will be helpful in our expansion plans." Patel has 3

bar code machines. He also has 50 cameras, which represent Rs 5-6 lakh of investment.

Nearly 90 per cent of his wares are branded in FMCG, RMG and processed foods. Just

over 5 per cent are private labels, mainly in pulses, grocery and rice. Grocery of all kinds

accounts for 40 per cent of total sales and 60 per cent of his goods are priced below MRP.

He has 3 chillers and a host of vending machines for ice cream and soft drinks where he

stocks dahi, milk and other chilled products. His staff handles all display, activity and

sales on its own. There is no vendor-managed inventory yet. "We can display and run

schemes and promos as per our requirement and feel, rather than be bound by companies


30/109

requirements," explains Patel. Which is why he is not looking at food courts, food

services or events to drive growth.

There are 1,000 vendors with 10 per cent of them supplying 65 per cent of all goods. "But

if customers want even one product, then I have to get a vendor. I may not buy regularly,

but I need him on the rolls." All vendor data is online, with reports on outstanding and on

time delivery sent to Patel every morning. Local vendors deliver almost every hour, but

even the national ones deliver on fixed days. When he expands, then his bargaining

power will increase. Currently, he has no warehouse, what he can stock in the store limits

inventory.

What about the future? Patel says his catchment extends as far as Valsad and Vapi to the

south and Bharuch to the north. People have approached him to start off Sahaj in their

towns, but as of now, he has his hands full in Surat. "We will expand in Surat city, which

I believe has enough potential to take in many more stores. We will look at rentals or

ownership, as the case may be, but expansion within Surat will definitely be required to

meet our self set targets." Patel intends to expand directly into Athwa Lines area which is

where ownership rates can be as high as Rs 10, 000- 40,000 a yard depending on location

and space. Sahaj is a privately held company and Patel has no immediate plans to go

public.

Unlike Dhirajsons who have 85 years of retail experience, Patel is new to the field. But

the ideas are there already, the options being explored. His son is being groomed for

higher studies, possibly an MBA later on. "I myself am not even a graduate," muses Patel

in his third floor expansive office, "But I want my next generation to be up to date. They

will develop this shopkeeping into a full scale business - and lead the way in retailing in

Gujarat."


31/109

A V Sons

Started in 1992, New AV Sons is managed by Raju Modi, and is located at Parle Point,the centre of Surat's happening retail scene. At 4,000 square feet, he stocks 15,000 SKUs

and is one of the larger supermarkets. Today, there are two AV Sons within 3 km of each

other. New AV Sons clocks up 250 bills a day from its 5 cash counters, each bill of Rs

250-400 - that's nearly Rs 60,000 a day - or Rs 18 lakh a month, which suggests annual

sales at Rs 3 crore or so. He delivers home free of cost with no minimum level of

purchases. Although he does not have credit card payment facility as yet, Rajubhai says

he is in discussions with HDFC Bank for the credit card machine linkup. New AV Sons

has 45 salesmen and encounters nearly 1-2 per cent shrinkage. Though his store had a

computer since 1992, he went in for the automated inventory management on computer

only in 1999-00. He also has a bar coding machine which cost him Rs 2.5 lakh and Rs

15,000 a year for AMC. All the 15,000 SKUs are now bar coded. All his 5 POS are

linked to the LAN and hence to the accounts, all of which cost him Rs 1.5 lakh.

What has been the effect of these stores on other kirana/grocery/general stores? Says

Patel, "We found that three kirana stores in our immediate neighbourhood have shut

down, but beyond our area, we find not much change. Sales have fallen, we hear, but

since these shops are still on, obviously, things aren't very bad." He has schemes, promos

and freebies and offers home delievery but does not have loyalty cards.


32/109

Another interesting story is of Harisons departmental store located right next to

Dhirajsons Megastore on Athwa Gate. At less than 1,000 sq. ft., it is no match for the

15,000 sq. ft. megastore, but is definitely trying. His people accost you outside the steps

of Dhirajsons with a pamphlet extolling the virtues of Harisons. Innovation is the name of

the game. For example, Harisons delivers your purchases made between the 5th and 15th

of every month, of over Rs 1,500- 2,000 free of charge anywhere in Surat. He also lists

products which he sells 10-15 per cent lower than Dhirajsons, which is in any case lower

than the MRP.

Harisons realised that none of the major supermarkets want to deliver home and that's the

segment he's pitching for. However, not all have been so lucky. Some smaller kirana

stores have lost clientele.

Surat is a city that cares for its money differently. Its citizens don't mind paying for

quality, time and ambience. Retailers here are armed with selling acumen and a will to

experiment.

Already retailers are reaching out to companies and other institutions to allow employees

to buy at discounted prices at their stores. For example, Reliance gives employees Rs

1,300 as vouchers to spend in select retail stores. You could shop at a supermarket and

get discounted theatre tickets or vice-versa. None of this is out of bounds in a city that

can change its lifestyle, driven by increasing incomes, greater awareness and ability to

spend.


33/109

Conclusion - How can it be done?

For a start, these retailers need to invest much more in capturing more specific marketintelligence as well as almost real-time customer purchase behaviour information. The

retailers also need to make substantial investments in understanding/acquiring some

advanced expertise in deve-loping more accurate and scientific demand forecasting

models. Reengin-eering of product-sourcing philosophies - aligned more towards

collabo-rative planning and replenishment should then be next on their agenda. The

message, therefore, for the existing small and medium independent retailers is to closely

examine what changes are taking place in their immediate

vicinity, and analyse whether their current market offers a potential redev-elopment of

the area into a more modern mult i-option destination. If it does, and most commercial

areas in India do have this potential, it would be very useful to form a consortium of other

such small retailers in that vicinity and take a pro-active approach to pool in resources

and improve the overall

infrastructure. The next effort should be to encourage retailers to make some investment

in improving the interiors of their respective establishments to make shopping an

enjoyable experience for the customer.


34/109

Appendix : Present Indian Scenario

Retail Realities:

Unorganized market: Rs. 583,000 crores

Organized market: Rs.5,000 crores

5X growth in organised retailing between 2000-2005

Over 4,000 new modern retail outlets in the last 3 years


35/109

Over 5,000,000 sq. ft. of mall space under development

The top 3 modern retailers control over 750,000 sq. ft. of retail space

Over 400,000 shoppers walk through their doors every week

Growth in organized retail on par with expectations and projections of the last 5

years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06

Major players:

FOOD AND GROCERY FASHION OTHERS

Foodworld Shoppers Stop Viveks

Subhiksha Westside Planet M

Nilgris Lifestyle Music World

Adani- Rajivs Piramyd Crossword

Nirma-Radhey Globus Lifespring

Ebony Gautier

Pantaloon


36/109

Key Categories:

Source: KSA Technopack

12%9%

52%

3%

2%11%

4%7%

Transport Housing

Food beverage and tobacco Entertainment

Healthcare Clothing/Footwear

Miscl Furniture/Home


37/109

FUTURE GROWTH POTENTIAL

OF

RETAIL MARKETING IN INDIA.

The overall retail market in India is likely to grow by 36% to touch Rs 8,00,000 crore by2008 from the current level of Rs 5,88,000 crore, according to an Associated Chambers

of Commerce and Industry of India (Assocham) study

The study points out that of the overall retail market, the organised sector in retail

marketing is expected to touch Rs 16,000 crore by 2008 from the present size of Rs 5,000

crore. The retail market at Rs 5,000 crore, includes the organised food and grocery (Rs

600 crore). Assocham president Mahendra K Sanghi said that initiatives from all the state

governments, and the Centre are prime factors that will encourage the entry of the

organised sector into retailing in the next few years.

These initiatives include allocation of land at concessional rates, grants of loans at

liberalised interest rates to promoters of shopping malls, and rationalisation of state

levies.

He pointed out that the expansion and diversification of the organised sector in retail

marketing is currently under way because of the demand factor.

The other reason which substantiates major foray of the organised sector into retail

marketing is the availability of real estate and infrastructure facilities in most of the states

for setting up retail stores.


38/109

Such laws will no longer be there in the near future as liberalisation has already reached

its advanced stage and states are competing with one and another for attracting

investment. This will motivate and encourage the foray of organised sector into retailing,

particularly when the entry of FDIs into retailing is being strongly opposed by a section

of society and polity as well, according to the release.

According to Assocham estimates, the retail sector will create 50,000 jobs annually in the

coming five years.

The retail sector is the second largest source of employment and job market is receptive

to retailing experience, with business schools focussing on the sector and large retailers

setting up retail academies.

FOCUS ON GROWTH

Two years ago, in the context of changing markets, we outlined a strategy for HindustanLever to deliver sustainable profitable growth. This strategy builds on the past and resha-

pes for the future. I would like to update you on the progress made in executing this

strategy and also outline our future approach.

GROWTH POTENTIAL

Our published results for 2002 show a sales decline of 6.7% on account of Discontin-

uation of non value adding businesses and divestments. Our domestic FMCG business

was flat with the growth in Home & Personal Care being offset by a decline in Foods.

This may lead to a question on our growth potential. Indeed, there is a common misco-


39/109

nception that our categories are mature with little scope for growth. In fact, the very

opposite is true. Several of our categories still have low usership levels. In addition,

the actual amount used per capita is far lower in India as compared to other countries, as

shown below:

Per Capital Consumpation (Kgs)

Fabric Wash Personal Wash Toothpaste Shampoo Tea

India 2.63 0.50 0.07 0.04 0.64

Thailand 4.71 0.87 0.40 0.38 -

Brazil 9.03 1.46 0.61 0.72 -

UK 13.90 1.31 0.23 0.40 2.28

Also, the GDP growth of about 5% is driving up discretionary income of ourconsumers by about 8% per annum. Literacy levels are rising, creating higher aspirations

further fuelled by the world they see on television. There is no doubt that today's

consumer wants a better quality of life which is what our brands help realise.

However, HLL is faced with the challenge that FMCG markets, after growing in strong

double-digits throughout the nineties are now declining in value for the last couple of

years. Why is this happening? In urban India, consumers are now being exposed to and

are trying several new categories, such as mobile phones, leisure, durables etc, and are,

therefore, down-trading their FMCG purchases. Rural demand has been dampened by

three unusually poor monsoons in the last four years. We believe that both these factors

are transitory in nature and FMCG markets will surely find a new growth equilibrium. Be


40/109

that as it may, we are leaders in many FMCG categories, and are taking active steps to re-

attract consumer spending to our brands. We are doing this by providing exciting, new

and differentiated benefits as well as greater value, thereby leading growth. We have

every confidence in the validity of this approach given our experience in recent

years, whereby several of our biggest brands, supported by such innovation, have

grown strongly, even in this very challenging context.

FOCUSSING THE COMPANY

With increased competition for the consumers wallet in todays market environment,

driving growth requires a much higher level of resource in all areas, be it technology,

media spend or people talent. Consumer brands in everyday life is our area of core

competence both in India and globally with Unilever and thus our area of focus. Two

years ago, the FMCG business accounted for 85% of HLL. Today, 95% of HLL is its

FMCG business, of which 86% is domestic, with 9% being exports of consumer brands.

Over the years, we had entered several non-FMCG businesses in line with national

priorities. These businesses were successful and created good value. However, with theopening up of India, staying in these businesses would have required us to invest heavily

in accessing technology and achieving world-class competitiveness. In line with our

strategy, we have exited non-FMCG businesses like Animal Feeds, Seeds, Flavours &

Fragrances, Nickel Catalyst and Adhesives with total sales of over Rs.600 crores. In

doing so, we have secured good value realising in all Rs.430 crores with a profit on

disposal of over Rs.260 crores.

We also had a very broad export portfolio covering several areas which also has

been restructured and focussed. Going forward, the major thrust is on driving exports of

our consumer brands primarily to other Unilever companies from whom we receive

considerable support. This is an area where we see enormous potential for growth, given

our clear competitive advantage. Indeed we are already supplying Tea bags to Singapore,


41/109

Australia, Japan and the USA, Personal Products to the Middle East, Far East and African

countries and are marketing Pears globally. In all, such exports already constitute over

40% of our total exports of US $ 300 million. We are also driving exports in other chosen

areas where India has a competitive advantage, like Rice, Castor and Marine products.

Marine products, for example, have huge potential given Indias long coastline and Sust-

ainable fishing capability. We are the largest exporters of Marine products from India and

have already built up a leading position in shrimp exports to the demanding markets of

the USA and Europe. We also acquired Amalgam, a leader in value-added Marine

products, to drive further growth in this area. At the same time, we have discontinued a

number of non value-adding exports. Our continuing exports are now growing by about

15%.

FOCUS ON POWER BRANDS

In the FMCG business, we had developed a portfolio of over 110 brands organically and

through acquisitions. Several of these had overlapping benefits and competed directly

with each other, while others were simply too small. Growing brands in today's market

requires scale. We, therefore, decided to focus all our resources on thirty Power Brands.These were identified for their size, brand strength, uniqueness and growth potential. In

addition, they span all the relevant benefit and price positions in our market. For

example, in Laundry, we chose three brands: Surf - providing the very best stain removal,

Rin - making clothes look very good, and Wheel-offering great cleaning and value. These

three brands also cover the entire price spectrum for every class of consumer.

We have migrated several of our other brands to converge with these Power Brands and

harvested others. Now, Power Brands account for over 93% of our domestic consumer

business. Indeed, through this approach, we are achieving big scale with several brands

being individually as big as our competitor companies. The top five brands together

account for sales of over Rs.3000 crores, and last year, grew by over 10%. We see each


42/109

of these mega brands achieving a potential scale of Rs.1000 crores in the foreseeable

future.

GROWING THE POWER BRANDS

How will we grow the Power Brands? Firstly, by leveraging their scale -- this is

crucial in a crowded market where 3000 advertisements are seen on television every

month and where the number of SKUs stocked by retailers has gone up by about 40% in

last three years. Brand scale enables us to get a larger share of the consumer's mind as

well as a larger share of the retail shelf. For instance five of our Power Brands are among

the top ten most heavily advertised brands in India. We derive scale competitive

advantage from our combined media spends.

Redefining Categories

We are redefining the way we look at our categories. For example, we have

traditionally measured our presence in shampoos by our market share of more than 50%.

Our real opportunity, however, is to view this as the hair wash market -- indeed

consumers often use soap, natural products or just water to wash their hair, apart from

shampoos. Seen this way, our share of hair wash is only 7%, providing enormous space

for growth. Similarly, the launch of Lipton Ice Tea is attracting younger consumers and

also redefining the role of tea in a consumers life. The thrust in placing Tea, Coffee and

Ice-cream vending machines in offices, factories and places of public congregation is

creating new opportunities to consume our brands out of home. Extension of the Lakme

brand beyond cosmetics to Salons is another example.


43/109

Liberating Brands

In addition, we are liberating brands from their existing category mindset.

Historically,brands originated and stayed within a category product format. We, however,

see ourPower Brands as being able to occupy a unique osition in the consumers mind

andtherefore being able to stretch into other product formats or categories. The launch of

Fair & Lovely Soap, Lifebuoy Talc, taking the Max Ice-cream brand to Confectionery are

all examples of extending brands into new categories. All these extensions have had a

promising start and there are more to come.

Exciting Innovations

A key driver of growth is innovation that surprises and delights consumers with new,

differentiated and relevant benefits. We identify these benefits by placing the consumer at

the very heart of our business. Traditionally, the consumer has been brought into the

business through the lens of the arketing department, using market research tools and

techniques. This is valuable and necessary. However, much deeper insight is needed in

today's competit-ive environment. We need to go well beyond listening to what the

consumer tells us. Indeed we need to develop a degree of intimacy and understand what

is deep in her sub-conscious mind -- and seldom or never articulated. We are doing this

by having cross-functional teams interface continuously with the consumer at her home,

in the shops, sharing her life, thereby buildi-ng a deep and shared understanding. This

will help deepen our collective intuition and enable us to deliver better products as well

as superior dvertis-ing.

Leveraging Technology for Innovation

We continue to invest in technology, both to make our products better as well as

to secure cost advantage. Over the years, we have built several global technology centres


44/109

in India with about 200 R&D people. This, coupled with access to over 5000 R&D

personnel in the global Unilever network, with a total budget of US$ 1.3 billion, gives us

enormous advantage. There is often a misconception that everyday products like ours do

not need high technolo-gy. This is totally untrue -- in fact, we need technology of a very

high order to offer superior benefits at an affordable price. For instance, the recently

relaunched Surf Excel is based on proprietary technology developed after extensive

research. It ensures that rinsing is much easier and quicker. This new Surf Excel reduces

the time taken for rinsing by as much as 50%, thereby providing huge convenience. Most

importantly, it reduces the amount of water used by 50%, which is a significant benefit,

given the acute scarcity of water in most of India. Given that laundry consumes upto 20%

of household water, this technology will indeed make a big impact. Similarly, we have

recently launched Knorr Annapurna Salt with the benefit of providing intact iodine to

the consumer. Iodine added to salt is lost in transport, storage as well as in the process of

cooking. We have developed a proprietary patented technology that encapsulates iodine,

protecting its bio-availability. This is a very key benefit, given the importance of iodine,

especially for the mental development of young children.

TACKLING COMPETITIVE CHALLENGES

In pursuit of growth, we are acutely conscious of the challenge posed by

competition, especially the low price players. This phenomenon is not new to us in India

or indeed to other developed markets where low price local players and trade brands co-

exist with large branded players like ourselves. We are quite clear that we will be able to

sustain growth in the face of such competition as we have done in the past. In the

Laundry market where there are over a thousand local players, our brand Wheel is now

the clear market leader and the largest brand in HLL. What is more, this has not come at a

cost to our bottomline as it is strongly profitable. In Personal Wash also, we grew our

business by double-digits last year in the face of very aggressive low price competition.

We will compete with low price competitors by playing to our strengths -- using our


45/109

strongest brands backed by superior technology and the lowest cost supply chain. We will

succeed in this by leveraging our unique combination of local and global scale.

NEW GROWTH ACORNS

Three years ago, we had identified several new opportunities for growth as an

outcome of Project Millennium. We have made very good progress in nurturing these

growth acorns for the future. Specifically, we are driving nascent categories in our

current businesses such as Deodorants and Processed Foods. In addition, we have entered

new adjacent categories like Confectionery and Ayurvedic Health Care. We are also

pioneering a retaili-ng business called Sangam and building a direct-to-consumer

business called HLL Network. Taken together, all these new initiatives increase the size

of our market opportunity by about 40%.

LEVERAGING HLL SCALE FOR GROWTH

The power of HLLs scale is derived from its combined volume of about 4 million

tonnes, sales of Rs.10,000 crores and its presence across more than 20 distinct consumer

categories. HLL's brands are available in 3 million outlets and touch the lives of two out

of three Indians. We are leveraging this scale to derive competitive advantage and

sustainable growth.

Building Supply Chain Competitiveness


46/109

We are making a quantum change in our supply chain, both in terms of enhanced

customer service as well as increased efficiency. Our supply chain is complex, with over

2000 suppliers, 100+ manufacturing locations, 7000 stockists and about one million retail

outlets. Significant investment in Information Technology has provided connectivity

across the supply chain, from the supplier to the stockist, thereby enhancing customer

service while bringing down working capital. Today, we know what our stockists have

sold every day, to almost a million outlets. This has brought us much closer to the market

place and significantly enhanced our speed of response.HLL's scale of operations gives a

distinct cost benefit. Buying raw and packing materials for HLL as a whole, rather than

separately for categories, gives us economies of scale. For example, inputs for packaging,

like paper, board and polymers, are bought centrally for all divisions generating big savings.

Similarly, in the areas of logistics and portation, scale enables greater efficiency. We are

also exploiting our scale in optimising sourcing of our products. All this gives us a

competitive advantage in our cost structure.

Deeper Commitment to Rural India

Our scale also gives us the opportunity to build the deepest possible direct distribution

reach into rural India, where over 70% of our population live. Interior villages are

difficult to access because of weak infrastructure. In addition, a large proportion is media

dark with no awareness of any brands. By consolidating our categories we are

establishing a single distribution channel for rural India. We have already appointed 6000

sub-stockists for rural markets, and are now covering approximately 50,000 villages,

reaching about 250 million consumers. In addition, we have also embarked upon an

ambitious direct distribution programme called Project Shakti to reach the smallest of

villages. Our vision is to reach over 100,000 villages, thereby touching about 100 million

rural consumers. We have already piloted

this initiative in 5000 villages and are now extending this rapidly. Project Shakti provides

a unique micro-enterprise opportunity for under-privileged rural women. Armed with


47/109

micro-credit from banks, they become direct-to-home distributors in these small villages,

providing relevant products as well as improving the overall awareness of nutrition and

hygiene. In turn, they benefit through sustainable income, thereby creating a virtuous

cycle of growth. Project Shakti uniquely combines our business interest with our ongoing

commitment to the development of rural India and women.

Partnering Modern Trade

In addition to our ongoing commitment to the traditional grocery trade, we are

building a special relationship with the small but fast emerging modern trade. Our scale

enables us to provide superior customer service including daily servicing, improving their

range availability whilst reducing inventor-ies. We are using the opportunity of

interfacing more directly with our consumers in this retail environment through specially

designed commun-ication and promotions. This is building traffic into the stores while

yielding high growth for our business.


48/109

BUILDING PROCESSED FOODS

There is a big opportunity to grow Processed Foods, which are still a very small

proportion of the overall largely commoditised foods market.

Foods Market Structure

Processed 6%

Semi Processed 16%

Unprocessed 78%

How-ever, developing this market will require relevant and differentiated products which

cater to Indian tastes and habits as well as sustained and considerable investment and

time for market development. Over the years, we had grown our Foods and Beverages

business, organically and through acquisition to significant scale. However, it was

necessary for us to increase the inherent profitability profile in several areas in order to

generate the capacity to invest in market development. Over the last couple of years, our

gross margins have improved by 9%, albeit at the cost of some topline, thereby providing

the fuel to invest in both innovation and differentiation. We have reduced our losses in


49/109

Ice-cream significantly, and considerably improved the performance of the recently

acquired Modern Foods. Going forward, our priority is to lead growth of this market

through innovation. We have recently launched Kissan Bistix, Kissan Mr.Fruit, Lipton

Ice, Modern Atta Bread and the Knorr Annapurna Culinary range, all of which have met

with an encouraging response.

TALENT FOR GROWTH

Finally, the most important determinant of our growth is the quality of our people.

We are deeply privileged to continue to attract the very best talent as the number one

preferred employer at leading campuses. We are also encouraging diversity in our talent

skills, especially for our newer business-es, and are also bringing in a large number of

talented women. Our training programmes have been revamped to expose entrants to

local and global business -- they spend time in Indian villages and international cities --

all within a 12-month training programme. HLL's wide variety of categories and

Unilever's global operations provide enormous development opportunit-ies through

organised career planning. A lot of emphasis has always been placed on skilldevelopment -- today we are also concentrating on building

individual and leadership capabilities. We offer an energising and empower-ing

environment enabled by creating small teams focussed on key initiatives. We have found

this the best way of combining both scale and speed. Deeper in the company, in factories

and offices, we are unleashing the talent and creative potential of all employees through

initiatives such as TPM.

In conclusion, let me say that HLL's most valuable assets are its brands and people.

Today's market is very dynamic and increasingly competitive. We have confidence in our

strategy and are learning to grow even in declining markets. We are putting in place key

enablers to build our capability for sustained high performance. We have brands with rich

heritage and strong consumer equity. We have people who bring the power of their ideas


50/109

and execution to exploit the full potential of our brands towards delivering continued

profitable growth for Hindustan Lever.

Contents

RETAIL SCENARIO IN INDIA

Unlimited Opportunity

The Global Retail Industry: An Overview

Retail Scene in India: Touching Meteoric Scales

Different Forms of Retailing

Malls in India

Challenges of Retailing in India

Retail as an Employment Generator


51/109

Retail Industry in the East: Current Scenario, Growth Prospects and

Upcoming

Projects

Retail Education in the East

Factors needed to promote the Industry in West Bengal

Conclusion

The Global Retail Industry : An Overview

Retail has played a major role world over in increasing productivity across a wide range

of consumer goods and services .The impact can be best seen in ountries like U.S.A.,

U.K.,Mexico, Thailand and more recently China. Economies of countries like Singapore,

Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector.


52/109

Retail is the second-largest industry in the United States both in number of

establishments and number of employees. It is also one of the largest world wide. The

retail industry employs more than 22 million Americans and generates more than $3

trillion in retail sale annually. Retailing is a U.S. $7 trillion sector.

Wal-Mart is the worlds largest retailer. Already the worlds largest employer with

over 1million associates, Wal-Mart displaced oil giant Exxon Mobil as the worlds

largest company when it posted $219 billion in sales for fiscal 2001. Wal-Mart has

become the most successful retail brand in the world due its ability to leverage size,

market clout, and efficiency to create market dominance. Wal-Mart heads Fortune

magazine list of top 500 companies in the world. Forbes Annual List of Billionaires has

the largest number (45/497) from the retail business.

GLOBAL RETAIL (Source : CSO ,MGI Study)

1999 2002 2005

Total Retail (US $

Billion)

150 180 225

Organised Retail(US $ Billion)

1.1 3.3 7

% Share of

organised Retail.

0.7 1.8 3.2

Top Retailers Worldwide


53/109

Rank Retailer ountry1 Wal-Mart Stores, Inc. U.S.A.

2 Carrefour Group France3 The Kroger Co. U.S.A.

4 The Home Depot, Inc. U.S.A.

5 Metro Germany

(Source: STORES / Deloitte Touche Tomahatsu)

Retail Scenario in India : Touching Meteoric Scales

As the corporates the Piramals, the Tatas, the Rahejas, ITC, S.Kumars, RPG Enterprises,

and mega retailers- Crosswords, Shoppers Stop, and Pantaloons race to revolutionize the

retailing sector, retail as an industry in India is coming alive.

Retail sales in India amounted to about Rs.7400 billion in 2002, expanded at an average

annual rate of 7% during 1999-2002. With the upturn in economic growth during 2003,

retail sales are also expected to expand at a higher pace of nearly 10%. Across the

country, retail sales in real terms are predicted to rise more rapidly than consumer

expenditure during 2003-08. The forecast growth in real retail sales during 2003- 2008 is

8.3% per year, compared with 7.1% for consumer expenditure. Modernization of the

Indian retail sector will be reflected in rapid growth in sales of supermarkets,

departmental stores and hypermarts.

Sales from these large-format stores are to expand at growth rates ranging from 24% to

49% per year during 2003-2008, according to a latest report by Euromonitor

International, a leading provider of global consumer-market intelligence.


54/109

A. T. Kearney Inc. places India 6th on a global retail development index. The country has

the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7%

of the population in India is engaged in retailing, as compared to 20% in the USA.

In a developing country like India, a large chunk of consumer expenditure is on basic

necessities, especially food-related items. Hence, it is not surprising that food, beverages

and tobacco accounted for as much as 71% of retail sales in 2002. The share of food-

related items had, however, declined over the review period, down from 73% in 1999.

This is not unexpected, because with income growth, Indians, like consumers elsewhere,

have started spending more on non-food items compared with food products. Sales

through supermarkets and department stores are small compared with overall retail sales.

Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about

30%per year during the review period). This high acceleration in sales through modern

retail formats is expected to continue during the next few years, with the rapid growth in

numbers of such outlets due to consumer demand and business potential.

The factors responsible for the development of the retail sector in India can be broadly

summarized as follows:

Rising incomes and improvements in infrastructure are enlarging consumer markets and

accelerating the convergence of consumer tastes. Looking at income classification, the

National Council of Applied Economic Research

(NCAER) classified approximately 50% of the Indian population as low income in 1994-

95; this is expected to decline to 17.8% by 2006-07.

Liberalization of the Indian economy which has ledto the opening up of the market for

consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to make

significant inroads into the vast consumer market by offering a wide range of choices to

the Indian consumers.

Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.


55/109

The internet revolution is making the Indian consumer more accessible to the growing

influences of domestic and foreign retail chains. Reach of satellite T.V. channels is

helping in creating awareness about global products for local markets. About 47% of

Indias population is under the age of 20; and this will increase to 55% by 2015. This

young population, which is technology-savvy, watch more than 50 TV satellite channels,

and display the highest propensity to spend, will immensely contribute to the growth of

the retail sector in the country. As India continues to get strongly integrated with the

world economy riding the waves of globalization, the retail sector is bound to take big

leaps in the years to come.

The Indian retail sector is estimated to have a market size of about $ 180 billion; but the

organised sector represents only 2% share of this market. Most of the organised retailing

in the country has just started recently, and has been concentrated mainly in the metro

cities.India is the last large Asian economy to liberalize its retail sector. In Thailand,

more than 40% of all consumer goods are sold through the super markets and

departmental stores. A similar phenomenon has swept through all other Asian countries.

Organised retailing in India has a huge scope because of the vast market and the growing

consciousness of the consumer about product quality and services.

A study conducted by Fitch, expects the organized retail industry to continue to grow

rapidly, especially through increased levels of penetration in larger towns and metros and

also as it begins to spread to smaller cities and B class towns. Fuelling this growth is the

growth in development of the retail-specific properties and malls. According to the

estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and

will be available for occupation over the next 36-48 months. Fitch expects organized

retail to capture 15%-20% market share by 2010.

A McKinsey report on India says organised retailing would increase the efficiency and

productivity of entire gamut of economic activities, and would help in achieving higher


56/109

GDP growth. At 6%, the share of employment of retail in India is low, even when

compared to Brazil (14%), and Poland (12%).

Different Forms of Retailing : Emergence of new formats of

retailing in India

Popular Formats

Hypermarts

Large supermarkets, typically (3,500 - 5,000 sq. ft)

Mini supermarkets, typically (1,000 - 2,000 sq. ft)

Convenience store, typically (7,50 - 1,000 sq. ft)

Discount/shopping list grocer

Traditional retailers trying to reinvent by introducing self-service formats as well

as value-added services such as credit, free home delivery etc.


57/109

The Indian retail sector can be broadly classified into:

a) FOOD RETAILERS

There are large number and variety of retailers in the food-retailing sector.Traditional

types of retailers, who operate small single-outlet businesses mainly using family labour,

dominate this sector .In comparison, super markets account for a small proportion of food

sales in India. However the growth rate of super market sales has being significant in


58/109

recent years because greater numbers of higher-income Indians prefer to shop at super

markets due to higher standards of hygiene and attractive ambience.

b) HEALTH & BEAUTY PRODUCTS

With growth in income levels, Indians have started spending more on health and beauty

products .Here also small, single-outlet retailers dominate the market .However in recent

years, a few retail chains specializing in these products have come into the market.

Although these retail chains account for only a small share of the total market , their

business is expected to grow significantly in the future due to the growing quality

consciousness of buyers for these products.

c) CLOTHING & FOOTWEAR

Numerous clothing and footwear shops in shopping centers and markets operate all

over India. Traditional outlets stock a limited range of cheap and popular items; in

contrast, modern clothing and footwear stores have modern products and attractive

displays to lure customers. However, with rapid urbanization, and changing patterns of

consumer tastes and preferences, it is unlikely that the traditional outlets will survive the

test of time.

d) HOME FURNITURE & HOUSEHOLD GOODS

Small retailers again dominate this sector. Despite the large size of this market, very few

large and modern retailers have established specialized stores for these products.

However there is considerable potential for the entry or expansion of specialized retail

chains in the country.


59/109

e) DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign

companies during the post liberalization period. A greater variety of consumer electronic

items and household appliances became available to the Indian customer. Intense

competition among companies to sell their brands provided a strong impetus to the

growth for retailers doing business in this sector.

f) LEISURE & PERSONAL GOODS

Increasing household incomes due to better economic opportunities have encouraged

consumer expenditure on leisure and personal goods in the country. There are specialized

retailers for each category of products (books, music products, etc.) in this sector.

Another prominent feature of this sector is popularity of franchising agreements between

established manufacturers and retailers.

Malls In India

Over the last 2-3 years, the Indian consumer market has seen a significant growth in the

number of modern-day shopping centers, popularly known as malls. There is an

increased demand for quality retail space from a varied segment of large-format retailers

and brands, which include food and apparel chains, consumer durables and multiplex


60/109

operators. Shopping-centre development has attracted real-estate developers and

corporate houses

across cities in India. As a result, from just 3 malls in 2000, India is all set to have over

220 malls by 2005. Today, the expected demand for quality retail space in 2006 is

estimated to be around 40 million square feet. While previously it was the large,

organised retailerswith their modern, up-market outlets, and direct consumer interface-

who had been a key factor driving the growth of organised retail in the country, now it is

the malls which are playing the role.

Factors such as availability of physical space, population densities, city planning, and

socio-economic parameters have driven the Indian market to evolve, to a certain extent,

its own definition of a mall. For example, while a mall in USA is 400,000 to 1 million

sq.ft. in size, an Indian version can be anywhere between 80,000 sq.ft. and 500,000 sq.ft.

By 2005, total mall space in the 6 cities of Mumbai, Bangalore, Hyderabad, Chennai,

Kolkata, and National Capital Region (Delhi, Noida, Gurgaon) is expected to increase to

over 21.1 million sq. ft. Compared to other big cities, Kolkata and Hyderabad are

relatively new entrants in the mall segment, but are witnessing quick growth. Smaller

cities like Pune, Ahmedabad, Lucknow, Ludhiana, Jaipur, Chandigarh and Indore, are

also expected to see a formidable growth in the growth of malls in the near future. But

malls in India need to have a clear positioning through the development of differential

product assortment and differential pricing, in order to compete effectively in a growing

mall market. Segmentation in malls, like up-market malls, mid-market malls, etc. , proper

planning, correct identification of needs, quality products at lower prices, the right store

mix, and the right timing, would ensure the success of the mall revolution in India.

Challenges of Retailing in India


61/109

Retailing as an industry in India has still a long way to go. To become a truly

flourishingindustry, retailing needs to cross the following hurdles:

Automatic approval is not allowed for foreign investmentin retail.

Regulations restricting real estate purchases, and cumbersome local laws.

Taxation, which favours small retail businesses.

Absence of developed supply chain and integrated IT management.

Lack of trained work force.

Low skill level forretailing management.

Intrinsic complexity of retailing rapid price changes, constant threat of product

obsolescence and low margins.

The retailers in India have to learn both the art and science of retailing by closely

following how retailers in other parts of the world are organizing, managing, and coping

up with new challenges in an ever-changing marketplace. Indian retailers must use

innovative retail formats to enhance shopping experience, and try to understand the

regional variations in consumer attitudes to retailing. Retail marketing efforts have to

improve in the country - advertising, promotions, and campaigns to attract customers;

building loyalty by identifying regular shoppers and offering benefits to them; efficiently

managing high-value customers; and monitoring customer needs constantly, are some of

the aspects which Indian retailers need to focus upon on a more pro-active basis.

Despite the presence of the basic ingredients required for growth of the retail industry in

India, it still faces substantial hurdles that will retard and inhibit its growth in the future.


62/109

One of the key impediments is the lack of FDI status. This has largely limited capital

investments in supply chai

neha retailmarketing thesis

Documents