successful_innovations_indian_retail_2013.pdf

8/20/2019 Successful_Innovations_Indian_Retail_2013.pdf

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Executive Summary

Retail Context for Innovation

Study Objectives & Approach

Key Learnings from the Innovation Study

Implications for Retailers

About RAI and Booz & Company


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2 | Successful Innovations in Indian Retail

The Indian Retail industry is today at cross-roads – many challengesthreaten the true potential for “profitable growth”

116

33

422

2011

615

731

2016 (With FDI)

455Unorganized Retail

Organized Retail

Projected Organized Retail in IndiaUS$ Billion

Increasing consumerism on the back of continued

economic growth Improved back-end infrastructure

Expected investments in the form of FDI

Key Challenges faced by Indian Retailers% responses, RAI – Booz Retailers Survey 2013¹

74%

Poor consumer sentiment

25%

MRP* constraints 25%

Low supplier fill rates 21%

Strengths of kiranas 24%

Relative strengthof suppliers

16%

Slowing consumerism

52%Real estate quality

Competition f romforeign retailers

14%

26%

Real estate rental

Key Drivers of Growth

* Maximum Retail Price

1) RAI-Booz survey was conducted in January 2013; total no. of respondents was 410

Source: IBEF, Centrum Research, Literature Survey, RAI – Booz Retailers Survey, Booz & Company analysis


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A balanced approach to innovation can help retailers transformchallenges into opportunities for “profitable growth”

“An Adapt Model

works as well as newand path breaking ideas”

“Efforts focused on

the Supply-side canalso deliver consumer and

business impact”

“Execute well on

small ideas whileevaluating the big bets”

Small and simple ideas can be implemented much more easily

and can have real impact on consumers and economics

This needs to be balanced and pursued in parallel with moreresource and investment intensive big bets

Success is not linked only to the ingenuity of innovation… … but in being able to tailor an existing practice to address time

and situation specific consumer/ market need

Adapting and adopting these practices can deliver benefits

Retailers face significant supply side challenges which directly

impact the consumer value proposition

Focused innovation efforts on the supply side can bring paradigmchange and also result in sustainable competitive advantage

Consumer needs and market dynamics are evolving at a rapid rate

As a result there is a need to evaluate the consumer value

proposition and business model on an on-going basis

And make changes to sustain / strengthen market position

“Continuous and

evolving innovationis key to sustain value”

Key Learnings: “What” Innovations Work

1

2

4

3

Innovation Cases

Source: Booz & Company analysis


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Retailers will need to embed five key “hows” to make innovationsuccessful within their organizations

Leadership and

Resourcing

Demonstrate visible commitment and explicit support from senior leaders

Ensure adequate and tailored resourcing – both in terms of numbers and also

capability – by leveraging cross functional teams

Key Learnings: “How” Innovations Work

Culture

Align organization culture and innovation s trategy to deliver superior results

Invest in building supporting attributes (e.g. pride in the company’s products and

services; openness to ideas, experimentation and ability to take risks)

Capabilities

Build a set of capabilities which are coherent to the business strategy

This includes ideation (e.g. customer insights, application of technologies) as well as

development related (e.g. controlled roll-outs, supplier engagement)

Direct CustomerInteraction

Ensure adequate listening to customers which helps develop innovations that have

maximum impact and sustainability Utilize multiple sources (e.g. observation, research, feedback, sales organization)

Process Discipline

Roll-out a structured and phased process that extends from innovation strategy to

implementation

Develop and utilize supporting metrics to ensure compliance and decision making

1

2

4

3

5

Our research has shown

higher spending does notensure better innovation



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Executive Summary







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Indian retail industry grew at 8% between 2007-11, with organizedretail growing at more than three times the pace of unorganized

455

422

+8%

2011

33

2010

422

394

27

2009

391

368

22

2008

363

344

19

2007

337

322

15

Unorganized RetailOrganized Retail

Growth of Indian Retail Industry2007-11; US$ Bn

CAGR (2007-11)

22%

7%

5%

% S

h a r e o f

O r g .

R e t a i l

5% 6% 6% 7%

Source: IBEF, Centrum Research, Booz & Company analysis


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Going forward, this trend is expected to continue, with OrganizedRetail penetration set to increase to 14% by 2016

Estimated Growth in Organized Retail in IndiaIn US$ Bn

97

712+9%

2015 2016

615

455

496

41

2012

491

51542

20142013

592

63

529

648

78

570

Organized Retail Unorganized Retail

8%

% S

h a r e o f

O r g .

R e t a i l

9% 11% 12% 14%

85%USA

Taiwan 81%

Malaysia 55%

Thailand 40%

Indonesia 30%

China 20%

India 7%

Organized Retail Penetration As % of Total Retail, 2011

24%

8%

CAGR (2011-16)

Source: IBEF, Centrum Research, Literature Survey, Booz & Company analysis


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In light of the recent opening up of FDI in Retail, the growth inOrganized Retail is anticipated to accelerate further

615

97

2011

455

422

33

2016(As Is)

712

2016(With FDI)

731

615

116

Unorganized RetailOrganized Retail

Potential FDI of US$ 5-6 Bn in foreign

investments over the next 5-6 years ~1.5 million direct and indirect

employment opportunities

Investments in back-end inf rastructure

Benefits to consumers through lowerprice points and better shoppingexperience

Access to new technology and capital

from international players for existingretailers

Potential Impact of FDI in Retail

Projected Organized Retail in IndiaUS$ Bn

CAGR (2011-16)

24%

8%

29%

8%

Note Scenario “with FDI” is based on most current status on FDI regulation in India – 100% in single brand, 51% in multi-brand (with riders) and 100% in cash & carry

Source: IBEF, Centrum Research, Literature Survey, Booz & Company Analysis


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Evolution of Organized Retail in India has been led by Apparel andFootwear, with investments in Food & Grocery picking up recently

J e w e l l e r y

& W a t c h e s

Fashi on Li festyl e F&G

Growth Wave I

(Pre-1991)

Growth Wave II

(1991-2004)

Growth Wave III

(2005-2012)

S i z e o f O r g a n i z e d

R e t a i l

Early Entrants in

Apparel & Footwear

Expansion mainly in

Fashion & Lifestyle

Large Investments

in F&G led Retail

A p p a r e l

Trends in Organized Retail

Growth in organized retail has been

led by non -Food & Grocerysegments in India e.g. apparel,

footwear

Liberalization led to an exponential

increase in organized retail across

categories

However, it is on ly in the past 6-7

years that Food & Grocery has

witnessed the entry of large

domestic and foreign players

A p p a r e l

F o

o t w e a r

F o o d

s e r v i c e s

A p p a r e l

F o o t -

w e a r

F & G

R e t a i l

F o o d

S e r v i c e s

F o o t -

w e a r

F & G

R e t a i l

Note: List of players/categories is not exhaustive – a representative list of major players (with at least 4-5 retail outlets) in key retail categories has been depicted

Source: Secondary research, Booz & Company analysis


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As a result, penetration of super/ hypermarkets is low, contrary totrends seen in developed and other developing markets

USAIndia

0

20

40

60

80

100

0 20 40 60 80 100

Years Since Inception

O r g a n i z e d

R e t a i l S h a r e ( % )

Pharmacy & Wellness

Footwear

Books, Music & Entertainment

Home

Jewellery & Watches

Consumer Electronics

Apparel

Super/Hypermarkets

0

20

40

60

80

100

0 20 40 60 80 100


O r g a n i z e d R

e t a i l S h a r e ( % )

0

20

40

60

80

100

0 20 40 60 80 100

O r g a n i z e d

R e t a i l S h a r e ( % )


China

Super/Hypermarkets is a young category in India with high potential for format evolution, as is evident from trends in USA and China Apparel & Footwear, categories with the highest penetration of organized retail in India, will witness slower growth compared to F&G

Retail market in India, 2012 ~ $ 500 Bn% Share of Org. Retail : 8%

Retail market in USA, 2012 ~ $ 4,500 Bn% Share of Org. Retail : 85%

Retail Market in China, 2012 ~ $ 1,200 Bn% Share of Org. Retail : 20%

Note: Apparel includes departmental stores; List of retail categories is not exhaustive

Source: Secondary research, Euromonitor, IRF, Booz & Company analysis


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Organized Retailers in India face multiple economic and regulatorychallenges that threaten “profitable growth”

Key Challenges faced by Indian Retailers% responses, RAI – Booz Retailers Survey 2013¹

Relative strength

of suppliers

Competition fromforeign retailers

Real estate quality

Low supplier fill rates

Strengths of kiranas

Poor consumer sentiment

MRP* constraints

Slowing consumerism

Real estate rental 74%

52%

26%

25%

25%

24%

21%

16%

14%

Key Takeaways

The Indian market presents major structuralchallenges…

– Rising real estate costs are posing a key

challenge for retailers across all sectors – MRP constraints compel retailers to operate on

thin margins

– Competition from kiranas as well as anincreasing number of foreign retailers has

intensified over the past decade

– Poor supply chain (including cold chain) due toinadequate infrastructure leads to high wastageand impacts timely availabili ty of products

… as well as addressable short term concerns(e.g., poor consumer sentiment)

* Maximum Retail Price

1) RAI-Booz survey was conducted in January 2013; total no. of respondents = 410.

Source: RAI – Booz Retailers Survey, Booz & Company analysis


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Indian Retailers acknowledge that innovation can help overcomethese challenges and be a key driver for success

Feedback from Retailers through Primary Interviews

and the 2013 RAI – Booz Retailers Survey

“Innovation will play a pivotal role in near

future especially with the marketbecoming so competitive”

“Most important industry that need to

pursue innovation is Retail, sincetomorrow belongs to consumers”

“Innovation is a game-changer and not

just a value –add; it must be embraced”

“Innovation is going to be a key driver of

retail in India”

93% of survey respondents that feel Innovation

can address challenges faced in the retail sector

Relevance of Innovation to address challenges in retail% respondents

67% respondents feel Innovation plays a key role in the

retail sector

Importance of Innovation in Indian Retail% respondents

7%

93%

Very Relevan t Not Relevant

67%

Extremely

Important

Somewhat

Important

25%

Not Important

8%

“ Innovation in Indian retail will allow it to

reach global standards”

“Innovation is important for the growth of

modern retail”

Source: RAI-Booz Retailers Survey 2013 (410 respondents), Booz & Company Analysis


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Executive Summary







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The objective of the joint RAI – Booz Study was to identify howinnovation in Indian Retail can create value

Study Objectives

Collate examples of innovation in retailing in India (across all retail segments

and covering the end-to-end value chain)

Understand the role of innovation in Indian Retail with a focus on mapping themost common avenues and levers as well as challenges and impediments

Study how the innovations have created value (for both company as well the

consumer) and driven leadership

Identify key learnings based on the innovations to date

Detail out implications for Indian Retailers moving forward

Source: Booz & Company Analysis


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Views of the Indian Retail community were captured through focusedinterviews and the 2013 RAI-Booz Innovation survey

Focused InterviewsBetween Oct ’12 to Jan ‘13

Metro Shoes

Future Group

Creative Garments

Jalan Group

Titan Industries

Shoppers Stop

Reliance Jewels

McDonald’s

Faasos

Fabindia

Spencer’s

Tata Trent

Philips Lighting

Marks & Spencer's

Reliance TimeOut

Dominos

HyperCity

Jones Lang LaSalle

Home Shop 18

Raymond

TRRAIN

RLC

RAI Leadership

….

2013 RAI –Booz Innovation SurveyConducted in January 2013

SurveyObjectives

SurveyStatistics

Capture Indian Retailer’s views oninn ovation in the industry

Identify challenges faced and the roleinnovation can play in addressing these

Participation from 410 retailers in Indiaacross ten retail sectors

Responses from both national and

regional players

35 interviews

conducted across

22 companies



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40 innovations across retail sectors and the end to end value chainwere identified through primary and secondary research

Pharmacy &Wellness

Books &

Music

FoodServices

OnlineRetailing

Food &Groceries

Apparel

Footwear

Electronics &Durables

Home

Jewellery &Watches

Strategy

Development

Commercial

Management Operations

Support

Functions

40 cases of

innovationsidentified

Areas of Innovation Sources of Research

Public

Sources

Literature

Review

PrimaryResearch

Industry Reports

Press reviews

Company Reports and

website

Interviews with Indian

Retailers

Online survey of ~400+retailers in India

Source: Booz & Company AnalysisSource: Booz & Company Analysis


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These innovations spanned sectors such as Food & Grocery,Apparel, Department Stores …

Developed market fo r mainly ethnic / handloom / rural

products via a co-ownership business model with

artisans / suppliers and social capitalism

Pioneered a very successful retail loyalty program;

developed in-house training (Baby Kangaroo program)

to provide career growth to staff across levels

Established large format departmental stores with

90% plus Private Label sales

Introduced a one-stop-shop for maternity and child

care at competitive prices in India

Product innovation with features suitable to India

(fresh feet socks, dry guard shirts, light and sof t

thermals, etc.)

Pioneered the branded apparel retail space; launched

“made-to-measure” and successfully challenged the

paradigm that customization is expensive

Diff erentiated p roduct offering and retail stores f or

men, women and kids in India as opposed to global

focus on womenswear

Commercial model in apparel retail built on extensive

product mix (driven by fashion trends) and

complemented by strong in-store customer service

Commercial model in apparel retail built on extensive

product mix and value pricing through strong sourcing

and low business co sts

M&S

Developed ‘bazaar’ centric format to attract mid-

market consumers; created mega promotion days to

drive consumption occasions

Business model in F&G around wide assortment, high

fill rate and discount pricing through strong buying

capabilities and lean cost structure

Business model focused on PL (dairy, bakery,

packaged food, etc.), franchisee retail outlets and

direct-to-store cost efficient supply chain

Curated categories of beauty, gourmet food and liquor

in a hyper-market fo rmat to capture higher market

share

Created shopping occasions to drive consumption and

revenue (e.g. “Health Week” in f ood catego ry)

Created ‘Mera K irana’ model shop at cash & carry

stores to educate kirana owners in best practices and

drive customer stickiness

Business model in a challenging space (fruit & veg)

scaled up through product sourcing, product /p ricing

architecture and store staff ing model

D-

Mart

Spe

ncer

’s

Apparel & Departmental StoresFood & Grocery

8

9

11

10

12

13

14

15

16

1

2

3

4

5

6

7

Source: Retailer Interviews; Secondary Research; Booz & Company Analysis


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… Footwear, Jewellery & Watches, Wellness, Entertainment,Consumer Durables …

Enabled sto ck visibility at store level for suppliers so

as to optimize shipment planning

Strong private label in OTC prod ucts and

nutraceuticals in a segment dominated by prescription

drugs

Standardized customer service in retail showrooms

pan India selling multi-brand eyewear

General p harmacy provid ing in-house medical

counseling

Strong cash back campaign, targeted at increasing

sales d uring of f-seasonM&S

Product service and repair by Reliance ResQ; cash

back campaign targeted at driving sales during slow

periods

Refurbish factory seconds from major OEMS and

retailers to make large ticket products affordable for

the mass market

Multi-brand mobile store extending after sales

services beyond that promised by mobile-brands to

increase loyalty to the store

Developed o rganized retail in watches and upgraded

the retail experience through ‘World of Titan’;

pioneered exchange programs in India

Developed organized retail in jewellery through gold

purity checking machines in retail s tores, to educate

customers and build trust around b randed jewellery

Hedging f or customers – protect gold rate so that

customers enjoy benefit of lowest gold rate prevailing

on date of booking or on date of purchase

Acquires customers via direct and micro marketing

through churches and marriage halls; of fers them a

personalized and differentiated shopping experience

D-

Mart

Spe

ncer

’s

Footwear

Pharmacy & Wellness

Books, Music & Entertainment

Consumer Durables & Electronics

Jewellery & Watches

Leveraging Shop-In-Shop Concept to create a “Brand”

fo r private label and leverage it in MBO market

Apparel & Departmental Stores17

18

19

20

21

22

23

24

25

26

27

28

29



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… Food Services, Rural, Home and Online Retail

Rural shop ping mall where farmers can sell their

produce and buy almost everything (cosmetics,

garments, electronics, appliances and even tractors)

Amongs t the retailers to introduce Cash on Delivery,

propelling online product sales in India

Introduced the Virtual Mirror concept in eyewear to

assist decision making online

Led development of home shopping channel in India

and now cover 3,000 cities and towns; amongst the

retailers to introduce Cash on Delivery

Ownership of entire supply chain (coffee, coffee

machines, furniture, etc.) to drive economies of scale

Developed localized food offerings at attractive price

points, communicated through innovative campaigns

Product innovatio n, 30-minute delivery guarantee andemployee engagement and empowerment

Streamlined in-store consumer experience through

technology in a typical chaotic ‘mithai’ shop

Leverages social media for orders; delivery points

include bus stops and train stations

Pioneered large format, multi-cuisine, 24x7 food

outlets at railway stations; offers on-seat delivery in

trains

D-Mart

Spencer’s

Rural Retail

Online Retail

Food Services30

31

32

33

34

35

36

39

40

Pioneered Philips Light Lounges - an experience zone

which gives customers a 'see, touch and feel'

experience of lighting c oncepts and caters to evolving

lifestyles

Home37

38



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Identified innovations were evaluated using four criteria to synthesizekey learnings and implications for retailers

Approach and Criteria for Evaluation

Helps meet challenges which

are even applicable today

Tangible benefit to consumer

in terms of price, service and

experience

en e

Innovations

A

B Relevance

Consumer

ImpactKey

Learnin s

D

E

F

..

~40

“ ”

Economic

Impact ScalabilityImplications

for Retailers

Has been implemented

across a sizable businessDelivered results

to the company



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Executive Summary







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Truly innovative retailers are able to leverage their capabilities todevelop innovations that deliver significant impact…

Business Challenge/Opportunity

(Market share loss, low profits/growth, market whitespace… )

Unique Consumer Value

Proposition

(Value, Experience, Trust …)

Culture and Capabilities

Context – the “Why?” Impact

Innovation Levers –The “What?”

Enablers – the “How?”

C o n v e n i e n c e

P r i c e



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… and thereby bring about a paradigm shift in the minds of consumers

Paradigm – What consumers

thought

Paradigm Breaker – What innovation

delivered

Examples

Value

Experience

Trust

“Air conditioning, big & clean stores,

English speaking staff...modern retail

is more expensive and not for me”

“I buy jewellery only from my family

jeweller because we know him”

“Ethnic and handloom apparel is not

trendy and incon sistent on quality andfit/size”

Non-in timidating bazaar type format

drove penetration and acceptance in

mid-market consumers

The karat meter and differentiated retail

experience delivered trust and a strongvalue proposition to jewellery buyers

Ethnic and handloom apparel is trendy

and consistent in quality and size,

through reliable supply base of artisans

“An international restaurant is

expensive and products are not formy Indian tastes “

Product innovation, pricing and

marketing drove high acceptanceacross consumer segments

“Buyin g online is not for me; I like totouch and feel the product and pay

cash after delivery”

Cash on delivery offers options to see

the product and pay in cash on del ivery

“Shopping at a busy mithai shop is a

chaotic experience”

A mithai shop can deliver streamlined /smooth store experience through

technology

Paradigm Shift



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There are four key lessons that these innovators offer us, bringing forthfresh perspectives on innovation in Indian Retail

Successful innovations need not only be ‘new and path breaking ideas’

but can be an adopted model tailored to meet specific market needs2

A simple, well executed idea can lead to successful innovation; large

investments are not always necessary 1

Supply-side innovation can lead to as high a consumer

impact as Demand-side innovations3

Innovations need to evolve and keep themselves relevant to

continuously deliver value; it is not a ‘one-time’ effort 4

Key Lessons that India’s Retail Innovations Offer



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Lesson 1: A simple, well executed idea can lead to successful innovation;large investments are not always necessary

Small Ideas Big Idea Comments

Retail innovations in India show that many

small and simple ideas have had real

impact

These ideas usually do not require largeinvestments from the company or time

commitment from the senior leadership

Retailers need to adopted a balanced

approach towards innovation

– While pursu ing select ‘big’ game-changing ideas…

– …development and implementation ofsmall ideas should n ot be sacrificed

Single big idea

High investments Longer lead-times

Probability of success difficult to

predict

Impact will take time but can be

significant

Many ideas

Low investments Shorter lead-times

Some successes and a few failures

Immediate impact

idea gen eration

Evaluate/Approve

Implement

Track

idea generation Charter R&D

Piloting

EvaluateInvestmentsImplement

Track

1 2 3 4



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Tanishq realized they would need an innovative concept to break intothe fragmented Jewellery market dominated by local jewellers

Low Prices

Long Standing

CustomerRelationships

Unreliable Quality

Checks

Personalized

CustomerServices

Prices were kept low to

entice customers despite

poor quality

Due to familial associations

tracing back generations,

local jewellers were preferredover organized retail outlets

Customizations and

modifications to jewellerywere made at the customer’s

convenience

An inexpensive, unreliable

and slightly destructivetechnique was used to

determine the purity of gold

Quality related Customer related

Key Challenges Posed by Local jewellers

1 2 3 4

Source: ICMR India; Primary interviews; Booz & Company analysis

Key Challenged Posed by Local Jewellers


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It therefore introduced the ‘Karat Meter’ – a simple innovation thathelped build consumer trust and credibility in the market

Provided an easy and reliable way

for customers to check gold purity

Non-destructive technique

Accurate and quick results

Checking was & still is free of charge

Customers felt cheated by local

jewellers

Purity checking was not limited to

Tanishq jewellery

Customers discovered under caratquoting of their local jewellers

Customers were given access to

hallmark certified quality jewellery

The ‘Impure to Pure’ scheme allowed

customers to exchange any lowquality jewellery with Tanishq’s 22

carat pieces on paying the price

differential

Implications for Tanishq

Increased adoption among existingcustomers

Transitioned from being a place for one-off purchases to the jeweler of choice

Ability to charge a premium

Transparent pricing and perception ofhigher quality enables premium pricing

New Customer Acquisition

Developed a trusted brand, with customers

willing to switch from local jewellers

Impact of Consumer Buying Behavior

1995

Launch of the Tanishq brand

with predominately diamond jewellery

Low customer acceptance andpoor performance

1999

Launch of the ‘Karat Meter’

with a wider gold jewellerycollection

Previously used in Europe bybanks/financial institutions

2012 Market leader with 150 stores

across India

Trust Building Innovation –

The ‘Karat Meter’

‘Karat Meter’

1 2 3 4

Source: ICMR India, Primary interviews, Booz & Company analysis


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The innovation brought about key developments in Indian jewelleryretail and led to over 35% growth for Tanishq each year

Tanishq – 5 Year Revenue TrendINR Cr

7,045

5,014

3,4972,7612,027

FY 2011

+37%

FY 2012FY 2010FY 2009FY 2008

Key Success Factors

Built trust around “branded” jewellery

in India – created a new market andfacilitated entry for other players

Growth of

Organized Retail

Increased transparency in quality

leading to the accepted standard ofgold jewellery moving from14 karat

to 20 karat

Increased

Transparency

Gold pricing was standardized for

the first time in India

Price

Standardization

Tanishq salesconstitute > 70%of Titan’s topline

Impact on Industry

RetailExperience ofTitan

Over 14 years of retail experiencethrough world of Titan

Extensivereach across India

Focus on consumer satisfaction throughdeep understanding of consumer needs

Tata Group’sImage

One of the most trusted conglomeratesin India

Over 100 years of legacy

Focus onContinuousImprovement

Continued consumer engagement (e.g.,

innovative promotions, factory tours) Lean management of stores through

ISO certified practices

1 2 3 4

Source: ICMR India, Primary interviews, Booz & Company analysis


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Chitale Bandhu’s innovation to reduce billing time is an example ofhow even smaller retailers implement simple innovations

Finding the right technology actually required for the

business

Willingness to experiment with n ew technology

Opportunity

Issues faced by

sweet/mithai shops

– Crowded and highwaiting times

– Poor quali ty ofservice

– Customerdissatisfaction

Billing is the major

bottleneck

– Manual account of allpurchases

– Increased need formanpower

Impact

Customer Impact

– Reduced billing

time

– Customersatisfaction

– Increasedcustomer curiosity

Retailer Impact

– Increased footfall

– Reducedturnaround time

– Low manpower – Limited training

costs

Innovation in Billing Process – Usage of RFID Technology

Customer

RFIDCard given at

entrance

Counter I

Customer uses

RFID card ateach counter

Billing Counter

Counter II

Customer gives RFID

at billing counter and bill is generated

Significant

reduction in

time

12345

Enablers

1 2 3 4

Source: Primary interviews, Booz & Company analysis


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Such examples of simple ‘game-changing’ innovations arevisible across sectors

Leveraged Social Media Effectively

Virtual Mirror Driving Consumption through

Purchase Occasions

Jewellers in Kerala –

Micro Marketing

Successful Examples of Simple ‘Game-Changing’ Innovations

Leveraged Twitter to generate orders and to

spread awareness about their products

Regular status updates about new offerings and

prizes for regular customers on Facebook

Continuous customer engagement has helpedthem develop their nascent brand

Organized Health Week where health products

along with their benefits were showcased inorder to raise consumer awareness.

Focus on connecting with local communities Strategy is divided into 3 phases:

- Scouting Phase: Stores determine fu tureweddings in region via. chu rches, halls etc.,

- Pitch Phase: Stores assess family potential

and develop a tailored sales pitch

- Purchase Phase: Invites extended family tostore to showcase product line

Use of an augmented reality phone app to

attract customers

Provides a “virtual mirror” on the websitewhere users were asked to upload their

photographs and the glasses could bevirtually worn to see how they would look

Introduced “Smart Packs” con taining commonly

bought items at slightly discounted prices

1 2 3 4

Source: Primary Interviews; Secondary research; Booz & Company analysis


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Lesson 2: Successful innovations need not only be new and pathbreaking but can be an adopted model tailored to specific needs

Types of Innovation in Indian Retail

Adopt

Adapt

New

Adoption of already existingglobal retail innovations …

…OR adoption of successfu lmodels from other sectors

Adoption of existing conceptswith important adaptations

tailored to meet local

customer needs

Development and continuousinn ovation of new concepts

Targeted to specific local

consumer segments

Comments

While retailers should explore ways to develop newinn ovations, the potential of existing innovations should

not be ignored

Retail innovations in India have shown that success isnot linked to the ingenuity of innovation …

… but in being able to develop or tailor an in novation to

address consumer/ market needs

There are several tried and tested in novations from

global retailers, other industries and peer companies

Retailers should not shy away from exploring how someof these innovations can be adapted to their business

Type Description

D e g r e e o f I n n o v a t i o n

_

+

1 2 3 4



34/68


McDonald’s has been able to develop localized products at attractiveprice points for India

Introduced local produ cts at ~Rs.18-20/-

– Prices comparable to local QSR option s

– Attractive for studen t commu nity

Dropped prices of ice creams to cost - Rs.7

Children play areas and baby seats in

restaurants

Large booths to accommodate college students

and extended Indian families

Several products like the McAloo Tikki and the

Pizza McPuff developed only for local market

Ensured no beef and pork products across

outlets to prevent hurting cultural sentiments

McDonalds India – Innovation

Localized

Products…

… at Attractive

Price Points…

… with better

Dining

Experience

McDonald’s Local Products for IndiaInnovation

Price (Rs) - McDonalds vs. Local Restaurant

65

80

40

2015

25

Veg

Puff

Veg

Combo

Mcaloo

Tikki

Pizza

McPuff

Vada

Pav

McVeggie

Meal

1 2 3 4

Notes: All prices are ex-Mumbai, Veg Puff & Veg. Combo are from Taj Sats; Vada Pav is from Jumbo King

Source: McDonalds Interview, Secondary Research, Booz & Company analysis


35/68


They adapted their global innovation model based on the “ThinkGlobal and Act Local” mantra

McDonalds Global Innovation Model in Action in India

Local Enabler

AdvertisingSupply Chain

Best Practices

Vendor

Relationships

Think

Global;Act

Local

Management

Menu

Development

VendorDevelopment

Coating system procured from

Kerry - global McDonalds’ supplier

Equipment procured from

Netherlands based CFS

Invested in developing robust back

end in frastucture

Introduced global suppliers to India

for knowledge transfer

• Outcome of local management

initiated menu development

exercise

Not an existing product in

McDonalds’ global network

Large slice of Paneer for McSpicy

Paneer based on consumerfeedback

Established emotional connect e.g.

“McDonalds mein hai kuch baat”

Recognized as affordable, family

friendly and caters to Indian tastes

Closely worked with Good Day

Foods

Devised incentives for milk farmers

Global Enabler

EXAMPLE: McSpicy Paneer

1 2 3 4

1) Supply chain best practices and Advertisements apply across products with McDonalds

Source: McDonalds Interview, Business Today, Booz & Company analysis


36/68


This adapted model has helped McDonald’s establish a leadershipposition and transform consumer perception of international QSRs

Skeptical about the suitability of western

taste for the Indian palate

Indians felt entry of international playerswas detrimental to Indian economy as

they would eat into local player shares

Hesitancy whether focus will be on beef

and/or pork based products, which arebest sellers in other countries

Prevalent Customer Perceptions

about International QSRs

McDonalds India Growth StoryRevenue in INR Cr.

1,032

610

361

130

+26%

2012201020082003

Indian customers felt that they would becharged extra for the in ternational brand

name

Expensive

Products

Not suited to

Indian Taste

Exploitative

Relationship

CulturallyInsensitive

47 136 210 391# of

Outlets

Positive EBITDA and

India leadsMcDonald’s APAC

benchmarks

1 2 3 4

Source: McDonalds Interview, Secondary Research, Booz & Company analysis


37/68


GreenDust adapted an innovation in reverse logistics to offer highquality branded refurbished products at 25-30% lower cost

Extensive knowledge of global reverse logistics market

Propriety reverse logistics technology platform

Reduced franchisee set up cost and pan-India service

Opportunity

4-6% of returned stocks

from CDIT OEMs

Not a priority area forOEMs, Retailers or Online

Retailers

Stock currently sold toscrap yard dealers

Opportunity of ~Rs.75k Cr

GreenDust’s Innovation on Reverse Logistics

Enablers

Impact

~25%-30% discount on

products to consumerswith warranty

~50% sales from

un tapped Tier 2/3 cities

60% repeat customerbase

GreenDust grew ~9X in

last 2 years to revenuesof over 500 Crores

Consumer

Value Added

Center

Warehouse

Online Sales

Franchisee

Customer

Returned Product

Refurbished Product

OEM sells to GreenDust through Revenue Sharing and Outright Purchase

Models at 40%-80% discounts

Equal amount of sales through franchisee stores as well as online store

OEM

Retailer

1 2 3 4

Source: Retailer Interviews; Online Research, Booz & Company analysis


38/68


Several cases of innovations exist where retailers have successfullyadapted an idea and tailored them to the market context

Successful Customer Loyalty

Program in Retail

Cash Back Offers

One Stop Shop for Child Care Products

Successful Examples of Adapted Innovations

Adapted a globally popular loyalty program to

provide loyalty points on every rupee spent

Helped retain customers and enhancepurchase value per customer

Became one of the most successful loyalty

programs of the retail industry

Offered customers a cash back offer valid for

further purchase during the redemption period

Average sale increase varies between 20 – 40%

during cash back offer period. Redemption of

30-35% during cash back redemption period.

Introduced a one-stop -store combin ing a

Mother Care and a Toys R Us model dealing

with products for pre-pregnancy to age nine

Provides value added services such as play

areas for kids, feeding area, reading loun ge,

nappy change-cum-wash area, parenting

forums and web kiosks

Focus on Over The Counter Products

and Nutraceuticals

Guardian (like Boots, UK) focuses on h igher

margin OTC / nutraceuticals and FMCG

categories unlike other pharmacy chains

Within OTC/nu traceuticals and FMCG

categories, Guardian has higher private label

penetration giving them better margins

1 2 3 4

Source: Retailer Interviews; Secondary research; Booz & Company analysis


39/68


Lesson 3: Supply-side innovation can lead to as high a consumer impactas Demand-side innovations do

Comments

Conventional belief 1 is that demand-side innovations

have maximum consumer impact

– 70% of retailers feel that innovations should be

focused on demand-side levers – Retailers feel that inn ovations should be on aspects

visible to consumers (e.g., product, price, format)

However, there are also chal lenges in the supply-side

that directly impact consumers. For e.g.,

– Supply Chain: Inefficiencies translate into productstock-outs, lower product variety

– People: Attrition and declinin g quality of store staff

impact consumer experience

Many Indian retailers have been able to transform

these challenges into delivering value to consumers

through in novations in the supply-side Achieving sustainable, competitive edge through

inn ovations necessitates focus on innovating not justin demand-side but also in supply-side

Demand and Supply Side Innovation Levers

Product

Price People

Experience …

People

Vendors Back-end processes

Supply Chain

…

1 2 3 4

1) Based on responses from 410 retailers in India on the 2013 RAI-Booz Retail Innovation Survey



40/68


Fabindia’s supplier co-ownership model, though focused on back-endhelped generate mass appeal for rural, ethnic and handloom products

• Fabindia’s co-ownership model enables self-suffic iency and

financial independence of artisans• There are a total of 80,000 artisans as part of 17 SRC’s and this

number is likely to grow to 100,000

• Fabindia limited its stake to 49% in SRC with suppliers holding atleast 26%*

SupplyRegion

Company

(SRC)

Artisans Craftsmen WeaversWeaversWeaversCraftsmenCraftsmenArtisansArtisans

BusinessExperts

Designers

Fab India Product Selection Committee

Employed by Fabindia Self-employed

Fabindia’s Innovation: Co-ownership Model

Creation of

EthnicSegment

Premium

RetailExperience

Pioneered branded, “ready-

to-wear”, contemporaryproducts made from

traditional techniques, skills

and hand-based processes

Encouraged consumers to

view defects as theuniqueness of handmade

products

First Indian brand to offer

premium experience in textilemade from traditional

techniques with a wideproduct mix

Pioneered the “mix & match”

style of buying traditionalgarments

Impact on Retail of Textile made from

Traditional Techniques

1 2 3 4

*Fabindia is moving to a model where suppliers will be given ownership in the Fabindia Company rather than SRCs

Source: Secondary Research, Company sources, Booz & Company analysis


41/68


The innovation was apt given that supply-side challenges affectedconsumer adoption of products in this segment

…Leading to Low Consumer AdoptionLimited Supplier Capabilities…

Picture

Limited Access to Resources

Reliance on moneylenders for workingcapital funding due to low bankability

Poor infrastructure for dyeing, washing,

sewing etc. – leading to quality defects

Picture

Inconsistent Product Quality

High variation in product quality, colorand size across individual vendors

Fabrics often prone to color bleeding

Picture

Market Access Limitations

Absence of transportation andwarehousing capabilities

Low price realization due to multiple

middlemen required to reach the market

Picture

Limited Product Availability

Limited availability of Handloom products at popular fashion stores

Khadi sold mainly through traditional

outlets and handloom shops

Picture Picture

Low Visibility of Market Trends

Producers not attuned to prevailingfashion trends - fabrics and designs

Limited designing expertise and talent

Lack of “Trendy” designs

Garments made from traditional/handmade techniques preferred by a

small customer base Rising influence of western wear

1 2 3 4

Source: Fabindia Website, Literature Review, Secondary Research, Booz & Company analysis


42/68


Success of the co-ownership model is attributed to Fabindia’s support &execution capabilities and social capitalism philosophy

Fabindia’s retail expansion in India,

provided insights into streamlining a

highly fragmented supply chain

Financial and infrastructural facilities as

well as adequate training were provided

to encourage self-sufficiency

Customers were encouraged to view

product defects, inherent to handloom,

as its uniqueness rather than a rejection

criteria

Fabindia worked in the best interest of

the artisan and not just that of the

customer

Strong

Relationships

with Artisans

Business

Support to

Suppliers

World Class

Retail Execution

Active

Consumer

Education

Fabindia’s Support & Execution Capabilities

Back End Capabilities Front End Capabilities

Supplier-Oriented Mindset

Suppliers were viewed as independent

business partners

Suppliers were given ownership in the SRCs¹

enabling financial independence

Suppliers were given the f reedom to

distribute their own products

Adequate support and training provided to

artisans to manage all upstream activities

Fabindia accommodated artisans’ constraintseven at the expense of busin ess loss

1 2 3 4

1) Supply Region Companies

Source: Harvard Business School, Booz & Company analysis


43/68


Kovai Pazhamudir has achieved success in the challenging fresh foodsegment through strong sourcing and lean store operations

Opportunity

Profitability in the Fruits

& Vegetables segmentis challenging for

organized retailers:

– Preference for localsellers

– Organized Retailstores used mainlyas a top-up

– Freshness,assortment and priceare key to consumer

– Loss leader at mostmajor retailers butdrives footfalls

Impact

Customer Impact

– Wide selection offresh fruits andvegetables

Retailer Impact

– 38+ stores andgrowing*

– Higher net grossmargin of ~20% ascompared with otherplayers (11-15%)

– High averagemonthly sales of Rs.2500 per sq. foot

Innovation in Sourcing and Store Operations

Sourcing: Source from local Mandis in Coimbatore, nearby regions rich inFruits & Vegetables and also import exotic varieties

Distribution: Fruits & Vegetables moved from central collection centre in

Coimbatore to Kovai Pazhamudir Nilayam stores all over Tamil Nadu

Store Operations: Stand alone stores of avg. size : 2500 sq. feet

– Staff lives at the store site in dormitories leading to lower attrition

– A portion of staff salaries sent directly to their family members

– Experienced in handling F&V leading to efficien t handling

Product: Wide assortment: of ~125 SKUs of premium quality F&V

– Serve fresh fruit chat and juices in the store leadin g to utilization of

unsellable inventory reducing wastage

Local Mandi

+

Clear understanding of target consumers

Expertise in the food and grocery segment with a

strong sourcing and distribution network

Capabilities andEnablers

Kovai StoresExotic F&V Collection Centre

1 2 3 4

*A total of 80+ stores can be found in Tamil Nadu modeled on the Kovai Pazhamudir Nilayam format managed by different groups



44/68


Supply-side innovations around vendor management, logistics andpeople management have delivered value to many Indian retailers

Effective Management of Store Costs

In their ini tial years, followed a strategy of buying real estatefor stores in prime locations rather than leasing stores

Supply direct to store; first DC recently opened in Mumbai Manage costs by paying employee salaries in the last quartile

of the industry; employees offered stock options to enable this

Operate 80+ stores with 30%+ growth in turnover each year

Cash on Delivery

Cultural inhibitions and low access to non -cash payments weremajor hurdles faced by online retailers until Cash on Delivery

COD innovation has helped overcome this –Retailer ships product to customer through logistics partner

–Logistics partner releases product to customer on receipt ofcash on delivery and passes on the cash to Retailer

Has transformed online-retailing in India with significant

increase in eye-balls

Back-end Supply Chain Visibility

with Suppliers

Developed in-house software to enable visibility right fromsupplier to customer

Suppliers can view sales based on differentiators (size, colouretc.) at store level and can accordingly plan shipments

Monthly calls to align goals, feedback from suppliers and

buyers, dedicated team to analyze fu ture trends in shoes

“Grow with Us” model promoted among suppliers

Baby Kangaroo People

Development Program

Shoppers Stop operated the Baby Kangaroo program toidentify potential associates within the firm

The program assigns a ju nior staff member to a sen iorassociate who advises and provides guidance to the jun ior

Over 50% of Shoppers Stop’s store an d category managers

have worked their way up through this program

Several store managers across other retailers have been part

of the program

Successful Examples of Supply-Side Innovations

1 2 3 4

Source: Interviews; Secondary research; Booz & Company analysis


45/68


Lesson 4: Innovations need to evolve and keep themselves relevant tocontinuously deliver value; it is not a ‘one time’ effort

Innovation Approaches

Consumer/ Market

Insight IdeaGeneration

Piloting

Fine-Tuning

Execution

Review

Consumer/ Market

Insight

IdeaGeneration

Piloting

Fine-Tuning

Execution

Review and

Modifications

Cyclical ModelLinear Model

Comments

Several companies view innovations as a

one-time opportunity

– Once implemented and seen to deliverresults, focus shifts to other priorities

– Hence, i t loses touch with ground

realities over a period of time

– Consequently, the innovation becomes

stale

To deliver sustainable impact, innovation

needs to be a continuous process

– It needs to keep pace with evolving

consumer and market needs

– Necessary to evaluate the innovationand make alterations as required

One-time

strategy with

limited lifecycle

Continuous process

keeping pace with

market evolution

1 2 3 4



46/68


Big Bazaar’s format innovation in late 90’s played a key role intransforming mass-consumer perception about modern retail

Big Bazaar’s Innovation

Consumer Perception in the mid-90’s

I am payingfor theirfancy lights

andsalespeople

These

Englishspeaking

salespeople

areintimidating

It is a bigstore; itmust be

exclusive

Airconditioningmeans it is

expensive

Smaller

Aisles

Creates atmosphere of a crowded market

place enabl ing Indian consumers to feel at

home

Deals

Special schemes and bundled goods

provided good deals to consumers – at par

with Kiranas

Products

in Bins

Allows consumers to handle products from

different sides

Simple flooring allowed new consumers to

be at ease and not be intimidated by large

store format

GraniteFloors

Loose

Products

Allows consumers to touch wheat, rice and

other products and check for quality

themselves

How were Big Bazaar Stores Different

1 2 3 4

Source: Primary interviews, IBEF, Centrum Research, Literature Survey, Booz & Company analysis


47/68


The innovation did not end there: Big Bazaar continued to innovate itsformat and offerings to meet evolving consumer needs

Big Bazaar Express

Big Bazaar Family Center

Fashion at Big Bazaar

Food Bazaar

Original Big Bazaar Store

Original Big Bazaar Store

Smaller format (18,000-20,000 sq. feet) with a selected

product assortment Focus on consumer convenience and qu ick activation of

products

FBB positioned as an affordable fashion store serving the

fashion aspiration of tier 2 and 3 cities. Focus on presentation of merchandise, staff experience

and communication

Typical format of 40,000 sq. feet based on the original BigBazaar stores

Targeted at the mid-level consumer segment for overall

household needs

Positioned as the neighborhood food & grocery store.

The store serves as a construct to bui ld catchment.

Aim is to assist consumers in food and grocery buying.

Large stores of ~80,000 sq. feet serving as regionalconsumptions hubs

Wider product assortment covering good, better and best interms of product variety and quality.

Evolution of Big Bazaar Store Formats

1 2 3 4

Source: Primary Interviews, Booz & Company analysis


48/68


Leadership, a company-wide culture that fosters innovation and deepconsumer understanding are some of the key enablers

Big Bazaar’s Key Enablers for Success

Leadership

Commitment

Culture that

Fosters Innovation

Focus on

understanding

consumer needs

Store Structure

Effective use of

Technology

The visionary leadership of Mr. Kishore Biyani to push the boundaries, reinvent the wheel and take risks

is prevalent in the entire organization

Employees encouraged to experimen t and take risks (e.g., BPA free plastics - a new category

developed by store staff )

Focus is on implementing ideas rather than spending time on h istorical analysis

Creation of rituals to institu tional ize best practices: – Ceremony to appoin t store kartas by inviting h is/her parents has increased the sense of ownership

– Mrs. Iyer Audit created after a busy sales period where store man agers where led to believe that a

fictional character ‘Mrs. Iyer’ wou ld visit stores anonymously to check orderly appearance

Understanding consumer trends via. kitchen audits, market visits, etc. rather than formal market research

Mapping consumer usage patterns to tailor product offering e.g. a bu ndled tea time offering was created

including a tea cup/saucer, tea and sugar

Product assortment based on local preferences e.g., Private label ‘Ektaa’ was launched to cater to varied

rice preferences of each state (e.g., Ambemohar in Maharashtra, Govind Bhog in West Bengal)

Assortment tool for fast and efficient customization of assortment based on local consumer needs

Store management tool to break large amount of store level tasks into manageable smaller tasks

WebEx enabled in every store to commu nicate and share information

Store walk techn ology to view stores from head/zonal office(recently implemented)

220 stores spli t into clusters of 80-90 zones to allow autonomy and better serve individual store needs

Product strategy of stores managed by head office while store level innovation drafted by the ‘store karta’

1 2 3 4



49/68


These have helped Big Bazaar become one of India’s leading retailers

Performance Summary

Future Group Performance*INR Crore

Sales

PAT

11,029

9,011

5,049

3,237

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

0

20

40

60

80

100

120

140

160

180

200

220

240

Sales

2009

6,342

20082007

PAT

20112010

2012

157

2011

144

2010

143

2009

116

2008

90

2007

56

Growth in No. of Big Bazaar Stores

Long List of Awards and Recognition

Big Bazaar and its team are conferred with a long list of

awards and recognitions each year such as:

– Golden Spoon Awards 2012 - Most Admired Foodand Grocery Retailer of the Year for its Private

Labels in Big Bazaar – FedEx 2012 Most Trusted Retailer of the Year

Award

– CNBC AWAAZ Consumer Awards 2011 - MostRecommended Modern Retail Brand of the Year inthe Popular Choice category.

1 2 3 4

*Note: 70% of Future Group sales are attributed to Big Bazaar and Food Bazaar; 2010, 2011 number take into account PRIL and FVRL business.

Sources: Annual Report, Analyst Coverage, Company Website, Religare Institutional Research, Literature Survey, Booz & Company analysis


50/68


Jalan Group is also one such innovator that has been able tocontinuously reinvigorate its innovations with time

Jalan Group

Strong cu lture of challenging existing norms

Openness to learn from competitors

Early adoption of technology as a lever for inn ovation

Excellen t suppl ierand inventory management process (e.g., stock

rotation of 12 days)

Opportunity

Customers in UP felt thathigh quality garmentswould not be available at

low prices

In Benaras a single storethat sold all apparels

was absent

Enablers

Impact

4X top line growth during2009-12

Increased footfall andcustomer retention

~25% sales from non

textile categories

Wholesale

StoreTextile & ApparelRetail Store

Multi Brand

Retail Store

1974 1999 2005-10

CustomerEvolution

Market

Evolution

Peer Group

Evolution

Fixed pricewholesale store

Outlet with high qualityapparel at low cost

One Stop shop forwedding needs

Format development based on market growth and customer evolvement

Clear philosophy to offer best value and variety to consu mer

Key lessons from large regional players (e.g., Jayalakshmis in Kerala) aswell as global players (e.g., Primark in UK)

F o r m a t

I n n o v a t i o n

1 2 3 4



51/68


xxxxxx

Executive Summary







52/68


Though there are many innovations that stand out in Indian retail,there is significant scope to do more

Online Retailing 17%

Retail Services 31%

Home 33%

Footwear 33%

Food Services 38%

Apparel 45%

Electronics & Durables 50%

Food & Groceries 54%

Pharmacy & Wellness 80%

Self Assessment of Indian Retailers on Innovation

in their Own Business


and the RAI – Booz Retailers Survey 2013

“Indian innovation still has a long way togo”

“Indian retail need to explore ways to

engage customers”

“Indian Innovation is piecemeal and

reactive.”

“Continued improvement in quality and

innovation is necessary”

“Retailers have been trying different new

ways without sticking to the plan for longenough period with full commitment”.

“We should learn from China in

Innovations and be more clear on whatcustomers want.”

% responses who rated innovation in their companybelow 6 on a scale of 1-10*

1) 1 is the lowest score and 10 is highest

Source: RAI-Booz Retailers Survey 2013 (410 respondents), Booz & Company analysis


53/68


Existing barriers to innovation must be addressed to drive impactacross more sectors and companies

“Innovation is not only restricted to

products and IT software. It extends tothe whole organization from the top to

bottom level”

“Employees needs to push their risk

taking ability. Top management shouldbe open to Ideas specifically flowing

from lower management.”

“CEO/COOs are handling day to day

activities. Absolutely lacking in strategicmanagement and innovation.”

Sector

Weighted

Avg. Score(out of 3)*

Rank

Lack of leadersh ip commitment 2.38 1

Lack of employee buy-in 2.15 2

Lack of clarity on what needs to be

done2.12 3

Inadequate resources 2.08 4

Inadequate organizational capabilities

to innovate

2.05 5

Poor execution 1.58 6

Key Barriers to Innovation in BusinessesRAI – Booz Retailers Survey 2013


and the RAI – Booz Retailers Survey 2013

“Strong system and process should be

put in place for continuous innovation”

1)*Weighted average scores were calculated by assigning weights to ranks (1,2 or 3) indicated by survey respondents. The weighted average score is calculated out

of a total of 3, 3 being the highest.

Source: RAI-Booz Retailers Survey 2013 (410 respondents), Booz & Company analysis


54/68


Booz & Co’s research covering top global 1000 innovation spenders hasshown higher spending does not ensure better performance

y = 0.032x + 1.2914

R2 = 0.0114

-5

0

5

0 1 2 3 4 5 6 7

IndexedSales Growth

Indexed R&D / Sales

~10,000 analyses found no statistical relationship betweenR&D spend and:

Sales growth

Gross profit growth

Operating profit growth

Operating Margin

Net profit growth

Net Margin

Market cap growth

Total shareholder return

Booz & Company Global

Innovation Study

The report first released in 2005 is an annu al study whichquan tifies total innovation (R&D) spend across top 1000global companies ($603 Billion in 2011)

Identified companies called “High Leverage Innovators”who produced better resul ts per R&D dollar than industry

peers by focusing on:

– Align ing R&D effort with company’s business strategy

– Having direct customer interaction

– Having a (global) dispersed footprint

– Investing in a coherent set of capabilities

– Creating the right culture across the R&D organization

Example analysis showing link

between R&D and financial performance

More details on Booz & Company’s Innovation Studies can be found at: http://www.booz.com/global/home/what_we_think/global-innovation-1000

Source: Booz & Company Global Innovation 1000, 2006


55/68


Our research and discussions with leading Indian retailers havehighlighted five key “hows” to make innovation successful

“ WHAT”

“Execute well on small ideas while

evaluating the big bets”

“An Adapt Model works as well as

new and path breaking ideas”

“Supply focused efforts can also

deliver consumer and business

impact”

“Continuous and evolving innovation

is key to sustain value”

“HOW”

• Leadership and Resourcing

•

Culture

• Capabilities

• Direct Consumer Insights

• Process Discipline

1

2

3

4

5



56/68


Predictability of Outcome

Level of

Disruptiveness

Innovation Matrix

LowHigh

Low

High

Incremental

Innovation

Break away

Innovation

Leadership and Resourcing

In all cases of successful innovations, visible

commitment and explicit support from seniorleadership / CXOs is essential:

– Sets the right context and vision

– Ensures tight l inkage to overall business strategy

– Removes barriers to implementation

In addition, adequate and tailored resourcing – both

in terms of numbers and also capability – plays a

key role in driving success:

– Breakaway Innovations: More radical changes needto be further away from the “green” operation to limitdisruption of regular operations. These requirededicated (internal and external) resourcing

– Incremental Innovations: These are best developed

within the green business for speed and directapplicability as well as easy integration into day-to-day business upon completion. These can begenerated by part-time cross functional resources(with some external catalysts)

Substantial

Innovation

1 Leadership and Resourcing: Innovation needs to be a C-Level agendato ensure adequate sponsorship and resourcing

Source: Oxford Institute of Retail Management, Booz & Company


57/68


49

44

42

Low Alignment

50

45

40

35

30

45

High AlignmentModerate Alignment

Cultural Alignment to Innovation

Cultural Attributes

Strong identification with customers

Passion for and pride in the products andservices offered

Culture of collaboration across

geography/functions

Openness to ideas from external sources

Culture that fosters experimenting and risk

taking

Gross Profit (5 year CAGR ) by Cultural AlignmentA

2 Culture: Aligning organization culture and innovation strategycan help deliver superior results

(A) Normalized 5 year CAGR for gross prot and enterprise value were considered for analysis

Source: strategy + business 2011: Why Culture is Key; Booz & Company analysis


58/68


Capabilities

Ideation:

– Application of technologies and trends to newproducts – Translation of consumer and customer needs

to product development – Directly generated deep customer insights

and analytics

Development / Commercialization – Pilot selection/controlled roll-outs – Supplier/partner engagement in the

development process

– Rigorous and data based decision making

41%54%

46%

59%

5-Year EBITDAas % of Revenue

5-Year Market

CAP CAGR

Highly Coherent

Companies

Low to

Moderately

Coherent Companies

Highly Coherent

Companies

Low to

Moderately

Coherent Companies

Performance Comparison of Companies with

Low-High Alignment of Capabilities

3 Capabilities: Building a set of priority capabilities aligned to theinnovation strategy is critical

Note: Industry-normalized scores reect the average percentile against peers

Source: Bloomberg data; 2010 Booz & Company Innovation 1000 survey


59/68


15%

18%

19%

22%

31%

42%

20%10%0%

All other

categories

(3x higher

OI growth and 2x ROA

Direct Customer Engagement vs.

Indirect Customer Insight ApproachMedian Index Values of OI Growth, Total Sh areholder Return and ROA

4 Direct Consumer Interaction: Listening to customers helps developinnovations that have maximum impact

1) Based on survey responses from ~ 700 global companies in the 2007 Booz & Company Global Innovation Study

Source: 2007 Booz & Company Global 1000 Innovation Study: The Customer Connection Booz & Company analysis


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Innovation

Strategy

Innovation

PortfolioManagement

Innovation

ProjectExecution

Integrate in

Operations

Align innovation directly

with business vision

– Speed : first mover /follower

– Scope: commercialinnovation / valuechain innovation

– Stretch: incremental /radical innovation

Manage portfolio

– Idea generation – Selection process – Innovation timing

Achieve executing

excellence Manage hand over to

operations

Implement innovation

Manage incrementalinnovation

Results in a clear

innovation strategy

Results in a strongand balanced

portfolio of projects

Results in flawlessexecution and

handover

Results in

capturing value

Defining tomorrow Winning tomorrow Winning today

5 Process Discipline: A structured and phased process that leadsfrom innovation strategy to implementation is essential



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Executive Summary







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RAI Focus

Advocacy Talent DevelopmentIndustry Creation

Activities

Government and SemiGovernment Bodies

Development of learningprograms across the li fecycle of

retail employeesEvents

Media: Internal (STOrai +replenish) and external

Sector Skill Counci l throughRASCI under NSDC

MembersNetworking Meetings

Collaboration with

communities and

international organizations

Research and advisory servicesinclu ding probing recruitment help

Service provider

Database and related

services

Retailers Association of India (RAI) is the unified voice of Indian retailers. RAI is a not for profit organization (registered under section

25 of Companies Act, 1956), works with all the stakeholders for creating the right environment for the growth of the modern retail

industry in India.

RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that willdelight customers. RAI has a three charter aim of Retail Development, Facilitation and Propagation.

Retailers Association of India (RAI) always strives to bring best practices to the retail industry and it's stakeholders. RAI's efforts centre

around advocacy and government representations, bringing best practices to the industry, fostering retail learning and training, creating

a reservoir of information through retail research, disseminating communication through magazines, newsletter, website etc. for the

benefit of it's members and the industry.


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Oldest management consulting firm

founded in 1914

Top-tier provider of consulting services inboth the public and private sectors around

the world

60 offices on all six continents

Worldwide staff of more than 3,000 people

Private corporation, wholly owned by its

200+ off icers; an ownership structure that

ensures our independence Client list: 400 of the Fortune Top 500

companies

Buenos Aires Rio de Janeiro Santiago

São Paulo

Atlanta

Boston Chicago

Cleveland Dallas

DC

Detroit Abu Dhabi Beirut Cairo

Doha Dubai

Riyadh

Beijing Delhi Hong Kong

Mumbai Seoul

Shanghai

Taipei Tokyo

Florham Park

Houston Los Angeles

Mexico City New York City

Parsippany San Francisco

Amsterdam Berlin Copenhagen

Dublin Düsseldorf

Frankfurt Helsinki

Rome Stockholm Stuttgart

Vienna Warsaw

Zurich

Istanbul London Madrid

Milan Moscow

Munich Paris

Auckland

Bangkok Brisbane

Canberra

Jakarta Kuala Lumpur Melbourne

Sydney

Europe

North America

Middle East

South America

Australia, New Zealand,& Southeast Asia

Asia

Booz & Company Offices Worldwide

Booz & Company is a leading global management consulting firm


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Sample of Retail Clients

Value chainimprovement

Category management

Private labeldevelopment

Loyalty programs

Pricing and promotio n

optimisation

Business positioning

Store footprint

Format

Multi-channel strategy

Mall management

Financial servicesstrategy

Store op erations

Collaborative valuechain

Supply c hainmanagement

Logistic strategy andnetwork desig n

Customer care

CommercialManagement

Booz & Company’s Service Offering in Retail

StrategyDevelopment

Operations

Core Business

M&A

Due Diligence

M&A / Due Diligence

Organization and Support Services

100-Day Plans

Large-scaleturnarounds

Lean organisation Capability building Operating Mo del

Our global Retail Practice covers the spectrum of activities acrossvarious retail formats and we work with leading retailers


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2009:Profits Down,

Spending Steady

2005:Money Isn'tEverything

2006:Smart Spenders

2007:The Customer

Connection

2008:Innovation Beyond

Borders

2010:How Top Innovators

Keep Winning

2011:Why Culture

is Key

Global Innovation 1000 Studies

2012:Making Ideas

Work

Comments

Quantified total innovation (R&D) spend acrosstop 1000 global companies ($603 Billion in2011)

Data over last 10+ years has found nostatistical relationship between R&D spendingand key measures of corporate success(revenues, market share) and other indicators(e.g. number of patents)

The study – over the years – has examinedbest practices for leading innovators:

– Aligning the R&D effort with thecompany’s business strategy

– Ensuring direct customer interaction

– Having a (global) dispersed footprint

– Investing in a coherent set of

capabilities – Creating the right culture

Our annual global study on Innovation has been conductedfor the last 8 years

More details on Booz & Company’s Innovation Studies can be found at: http://www.booz.com/global/home/what_we_think/global-innovation-1000



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Marco Kesteloo

Senior Partner

Head – Global Retail Practice,Netherlands

Abhishek Malhotra

Partner

Head – Consumer & RetailPractice, India

Raghav Gupta

Principal

Consumer & Retail Practice,India

Ravi Ramachandran

Senior Associate

Consumer & Retail Practice,India

Marco has 22 years of

consul ting experience withBooz & Company. He has deepexperience in Retail &

Consumer Goods across a

variety of retail sectors (food,consumer electronics, specialtyand ecommerce retail). His

functional experience is in corecommercial, store and supply

chain processes.

Marco received his BBA from

Nijenrode Business School inNetherlands and his MBA

from University of Georgia,USA

[email protected]

Abhishek has 15 years ofconsul ting experience with Booz &Company. His main focus has

been business transformation andoperations strategy with

experience in consumer, media,retail and industrials products. Hehas participated in engagements

in Asia, Australia, Europe andNorth America.

Abhishek received his MBA fromthe Indian Institute of

Management, Ahmedabad and hisBE in Electronics Engineering

from Pun jab Engineering College,Chandigarh

[email protected]

Raghav has 15 years ofconsul ting experience with Bo

successful_innovations_indian_retail_2013.pdf

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