Business Model Innovation Big Bazaar Case Final Presentation

BIG BAZAARGroup B

Robert Field, Allan Ganness, Zhaodi Liu, Pei-Ping Mo, Keith Otto

Background: Kirana Stores

Small and Intimate

500 sq. ft Avg.

Family Owned

Personal Service

Easy Credit Terms

https://www.youtube.com/watch?v=HWxVP4DwZng

https://www.youtube.com/watch?v=HWxVP4DwZng

Background: Hypermarket Concept

Blended fusion of tradition Indian Bazaar & Organized Retail

50,000 sq. ft Average

Huge Selections

Parking, Air Conditioning

Bargain Prices

https://www.youtube.com/watch?v=n0bdD17mW5c

https://www.youtube.com/watch?v=n0bdD17mW5c

Question 1: Business Model

Canvases

Q1. Use the Template - Business Model Canvas to compare and contrast the

business models of:

(a) the highly fragmented traditional retailing industry

(b) Big Bazaar

What are the key differences? Which aspects of the traditional model represent barriers to entry

for modern “organized” retailers?

Key Partners• Distributors

• C&F agent

• Wholesalers

• Local farmers

•

Key Activities • Customer support

• Sell products

• Manage competitor pricing

• Negotiate terms with suppliers

• Manage relationship

w/suppliers and manufacturers

• Acquisitions and Mergers

• Price adjustments flow

rapidly

Value Proposition • Low price

• Choice of “loose” self

serve products

• Touch & Feel for the

quality of product

• Convenient proximity

• Long standing credit

Customer Segments • Mass market

• Shopper Centric

• No Distinction• Cost Oriented

Key Resources • Real estate

• Product

• Families

Customer Relationships • Personal assistance

• Long standing tradition of

offering credit

Channels • Traditional Retailers

• (Kirana stores);

• Stalls

• Push Carts

Cost Structure • SG&A

• Operation Costs

• product purchase

• Wages(large retailers)

Revenue Streams • Product sales

5

Business Model Canvas: Traditional Retailers

Business Model Canvas: Big BazaarKey Partners• Real estate team

• C&F Agents

• Distributors

• Government

• Local farmers

• Legal firms

• Engineering firms

• Construction firms

Key Activities • Product sales

• Customer Service

• Marketing & advertising

• Innovative promotions

• Operation management

• Real estate planning

(location strategy-urban)

• New Construction

Value Proposition • Low price (fixed price)

• Wide selection of product

under one roof

• Choice “loose” self serve

products and packaged

products for convenience

and preferences

• No hassle purchasing

experience

• Comparable quality

products

• Convenience (under 1

roof)

• Easy parking

• More comfortable

environment (A/C)

• Customer return

privileges

• Ability to recycle old

products for store credit

Customer Segments • Mass market(fashion,

food, general

merchandise, leisure and

entertainment)

• Middle and upper class

consumers (pantaloons-

formal trousers to family

fashions, private label

programs)

• Young working

generation

• Working women who

are primary the decision

maker in family

Key Resources • Real estate Planning

• Product

• Management/Sales/Mkt/

Operations

• Human resource

• IT infrastructure

• Legal teams

• Engineering teams

• Construction teams

Customer

Relationships • Personal assistance


offering credit

• Merchandise return

privileges

• Recycling Buyback store

credit program

Channels • Pantaloons

• Central Mall

• Big Bazaar

• Food Bazaar

• Fashion Station Stores

• All stores(plus sized

women’s clothing)


• Operation Costs

• product purchase

• Wages(large retailers)

Revenue Streams • Product Sales (traditional 8% gross margin)

• fixed rate(rent)and % of Concessionaire sales/Manufacturers

sales(private label sales)

• Additional discounts(1% display income, 4% manufacture discount,

3% distributor discount)

Key Differences: Value Proposition

Big Bazaar Traditional Retailer

Fixed Low pricing Everything Negotiable

Personal Assistance/ Self Serve Merchant recommended and selected – Kirana

stores

“Touch and Feel “ a must!!

Multiple Selections Limited selections

Hassle free return policy No return policy

• Conveniences (all under 1 roof) Fragmented stores

Comforts (AC); Pleasant Environment No AC (stores and open-air stalls/carts)

• Family Oriented

(activities for all ages)

Purchase only (no entertainment)

Recyling Credits No recycling

Dedicated Parking No dedicated parking

Key Differences: Customer Segments


• Middle and Upper Class • Mass market

• Family Oriented • Shopper Centric

• Young, Educated, Active

Lifestyle

• No Distinction

• Value Oriented • Cost Oriented

• Favor female shoppers for

Consumer goods (foods)

Key Differences: Customer Relationships


No Hassle Return Policy No Return Policy

Personal Assistance or Self-

Service

Personal Assistance

Merchant Choice

(Kirana – 100sq-ft stores)

Everything Under 1 Roof Fragmented Stores

•Credit card & Cash

•Merchandise return privileges

•Recycling Buyback store credit

program

•Cash only

•Credit offered – usually interest

free

Key Differences: Channels


•Pantaloons

•Central Mall

•Big Bazaar

•Food Bazaar

•Fashion Station Stores

•All stores(plus sized

women’s clothing)

•Local retailers

•Kirana (~ 100 sq-ft)

•Stalls

•Push Carts

Key Differences: Key Partnerships


•Real estate research team

•C&F Agents

•Distributors

•Government

•Local farmers

•Engineering firms

•Construction firms

•Legal team

•Distributors

•C&F agent

•Wholesalers

•Local farmers

Key Differences: Key Activities


•Product sales

•Marketing

•Advertising


•Operation management

•Real estate planning(location

strategy-urban)

•New Construction

•Customer support

•Sell products

•Manage competitor pricing

•Negotiate terms with suppliers

•Manage relationship w/suppliers

and manufacturers

Key Differences: Key Resources


•Real estate

•Product

•Management/Sales/Mkt/Operations

•Human resource


•Legal

•Engineering

•Construction

•Real estate

•Product

•Families

Key Differences: Key Partnerships


•Real estate

•C&F Agents

•Distributors

•Government

•Local farmers

•Legal

•Engineering

•Construction

•Distributors

•C&F agent

•Wholesalers

•Local farmers

Key Differences: Revenue Streams


• Product Sales (traditional 8% gross

margin)

• Fixed rate (rent) and % of concessionaire

sales & manufacturers’ sales (private

label sales)

• Additional discounts(1% display income,

4% manufacture discount, 3% distributor

discount)

Product sales

Key Differences: Cost Structure


•SG&A

•Operation Costs

•Product purchases

•Wages (large retailers)

Product sales

Modern “organized” retailers would need large real estates in proximities to existing traditional and

Big Bazaar outlets

difficult, expensive and acquiring could be a lengthy proposition.

Poor infrastructure in transportation, service sector, and supply chain to support large scale

“organized” operations.

Government favoring domestic retailers (traditional retailers and currently organized – 2005 to

2009 “window of opportunity”)

further limit the real-estate availability, commanding real estate higher prices, more competition on established

“organized”, and their brand creation and loyalty.

Customers tactile (touch and feel)

Require increased floor space (real-estate) to support open bins or product layout (e:g grains and apparel).

Require additional personnel to assist customers as well as in packaging product for quick, convenient purchasing.

Barriers to Entry for Modern Retailers

Q2. Analyze the environment of the Indian retail industry in late 2005. What

are the major trends and external forces that will impact Big Bazaar’s

business over the next decade? What are the key challenges to their

continued growth?

Question 2: Indian Retail Environment

Indian retail market has been growing at near double digit rate for years

Greater disposable incoming due to growing middle class makes for greater

expectations in the retail experience

i.e. Improved decor and ambience, more streamlined facilities, improved product packaging, etc.

Western cultures influenced greater consumption rates (20-49 year old demographics)

Indian retail market represents a huge portion of India’s GDP (~15%)

Major Retail Trends

Huge increase in home purchasing opens doors in new markets (i.e. home furnishings)

New retail experiences being offered

i.e. Supermarkets, hypermarkets, department stores

Major Retail Trends (cont.)

Severely limited real estate in India, particularly retail malls, restrict Big Bazaar’s ability

to expand its locations to keep up with its frenzied growth

Increased competition, not only by established foreign firms (i.e. Wal-Mart), but also by

increasingly developed domestic firms (i.e. Reliance)

Government easing of restrictions and tariffs on imported goods allow Big Bazaar to

explore new, foreign items to add to their product mix

External Forces

Lower gross margins due to increased competition with other organized retailers (i.e. Reliance)

Employee turnover in a rapidly growing economy (including key executives)

Supply chain burdens; distribution must keep up with inventory demands

Poor infrastructure i.e. Roads, transportation, retail locations

Government regulations on inter-state sales (i.e. Sales taxes not being reimbursed)

Challenges to Continued

Growth

Q3. The case suggests that there was “a window of opportunity from 2005-2009 for

domestic retailers to acquire real estate and roll out stores in a protected

environment”. Assuming that foreign retailers such as Marks & Spencer and Wal-

Mart were allowed to enter the Indian market by 2009, what challenges and barriers to

entry would they face in establishing a viable competitive position in the country?

Question 3: Barriers to Entry

Window of Opportunity 2005 - 2009

Q3. The case suggests that there was “a window of opportunity from 2005-

2009 for domestic retailers to acquire real estate and roll out stores in a

protected environment”.

Ans.

Yes – this time period will allow attententive retailers (Big Bazaar) to

work on their business model, scale their operations, become capital

efficient and further develop infrastructure and increase operational

efficiencies.

Window of Opportunity 2005 - 2009 Q. Assuming that foreign retailers such as Marks & Spencer and Wal-Mart were

allowed to enter the Indian market by 2009, what challenges and barriers to entry would they face in establishing a viable competitive position in the country?

Ans.

FDI limitations on how to enter market

Single Store Format, Franchise Model, JV or Partnership Model

Inadequate infrastructure to support scaling efficient operations

Home country disadvantage

Window of Opportunity 2005 - 2009

Q. What others did you identify?

Compare and Contrast FDI Strategy in China vs.

India

How was it different between the Gome and Big Bazaar Cases?

Why was the Strategy Different?

What were the Motivations?

Q4. The final section of the case ( Charting the Future ) raises a number of issues and

opportunities for Pantaloon. What would you recommend with respect to

(a) expansion and increased market penetration with existing concepts vs. the development of new

concepts;

(b) infrastructure development (supply chain and management systems);

(c) local vs. global sourcing;

(d) availability of qualified labor and management skills;

(e) real estate acquisition; and

(f) pace of growth? Which issues and constraints will be most critical?

Question 4: Charting the Future

Expansion and increased market

penetration with existing concepts:

Development of new concepts:

Introducing more value-add services :

○ Merchandise return privilege

○ Low price guarantee

○ Online opinion-sharing community

○ Customer Satisfaction Guarantee

○ Marketing and advertising campaign

Home furnishing - increasing new homes annually

Acquire real estate for new malls

Expand into Tier 2 or 3 cities

Embarking collaboration with different companies

“Republic Day”- lots of opportunity for growth.

• Develop a new supply chain system and IT

infrastructure

• Increasing the number of stores strategically

• Working with local polices

Existing Concepts vs. New

● Existing supply chain system may be inadequate and unable to keep up with

demand for these specific items with the current system.

○ Investing in a modern supply chain system

○ Integrating advanced IT system

○ Collaboration with supply partners

○ Choosing optimum merchandise mix and lower merchandise/overhead costs

○ Invest in a solid, robust Customer Relationship Management (CRM) system

Infrastructure Development

Local sourcing Gobal sourcing

● Local sourcing makes it convenient

and easier to access to products in

smaller volume.

● Work with manufacturers and C&F

agents to make souring of the product

more efficient and effective

● Internal State Tariff/tax is a problem for

global sourcing and would recommend

working with government.

● Central distribution center could limit

product availability in stores due to

erratic and unpredictable demand.

Local vs. Global Sourcing

● Cooperate with colleges/ universities in training next generation or

college students on retailing, IT, and supply chain management to

replenish human capital to fuel future growth

● Put in place an employee retention program to keep talents stay with the

company

● Performance and Reward System

● Employee Training Program

Qualified Labor & Management Skills

Lack of Malls is a major constraint for organized retail growths

Real estate acquisition is required to sustain the rapid growth of the retail

stores.

Raised funds with other investors other than PRIL

launch 55 new malls across the country

Cooperate with the government in establishing rules that would make it

easier to acquire real estate necessary for their growth/expansion.

Real Estate Acquisitions

• Increases their pace of growth to take advantage of protected period

between 2005-2009 to secure their market share and position.

• Align their growth pace with their need for building the infrastructure and

trained personnel necessary to sustain their growth.

• Significant investment must be made in the short term in order to enable

the company to grow to their full potential.

Pace of Growth

Which issues and constraints will be most critical? Why?

● Supply Chain management: Many of the potential problems and

limitations that the firm will run into in the future can be tied back to

weaknesses in the supply chain management system.

○ IT infrastructure need to support the supply chain management system are

not in place which may impact their expansion as mentioned earlier.

○ Constraints in global and Local sourcing problems ties to supply chain

management where they will affect their management of getting the products

to meet the demand of the consumers.

Critical Issues & Constraints

Supply Chain management:

Inter-state tax problems: If they were not able to resolve this issue, they will not

have enough margin to sustain their business as they only have 15% margin

and the sales tax for products going between 2 states will be 13% plus the

other expenses that associated with transporting the goods to other state as

mentioned in global and local sourcing.

Not able to go around the supply chain (C&F/Distributors) to reduce the cost of

obtaining the consumer goods are big inhibitors for their growth and need to

be addressed.

Implementation of their own supply chain management is very expensive and

they need to justify the benefits that it will bring to Pantaloon.


Increasing competition (both domestic and global):

The ability for multinationals like Wal-Mart and major Indian business house like

Reliance that were likely to enter the market investing in creating their own

supply chain system.

Reliance, India largest business house, planned to invest huge capital in 1,500-

1,800 hypermarkets and employing 400,000 - 500,000 employees with 60

supply centers, and even one of the senior PRIL executive had moved to

Reliance. Operating a similar growth strategy as Reliance, Big Bazaar need to

figure out the differentiated strategy to go to the huge potential retail market in

India.


Increasing competition (both domestic and global):

Foreign competitor like Walmart and Marks & Spencer had planned to enter the

India retail market once the government unleashed their FDI restriction.

Though the limit of understand the india culture, Walmart sophisticated supply

chain management system, warehouse management system and

comprehensive operation system would be a good threat for Big Bazaar retail

business.

To accomplish the target for obtaining high market share and premium gross

competing the domestic and global foreigners,Big Bazaar need to

differenciate their corporation strategy and position to better suit the need for

the comprehensive customers.


Charting the Future

What changes to the business model would be required?

(Business Model Canvas Whiteboard)

Key Partners• Real estate

• C&F Agents

• Distributors

• Government

• Local farmers

• Legal firms

• Engineering firms

• Construction firms

• University/Colleges

• Construction/Engineering

• Shop Owner

Key Activities • Product sales

• Marketing/Advertising


• Operation management

• Real estate planning(location

strategy-urban)

• New Construction

• Redesign Supply Chain

management System:

warehouse, inventory

management, SAP

Value Proposition • Low price (fixed price)

• Wide selection of product

under one roof

• Choice “loose” self serve

products and packaged

products for convenience and

preferences

• No hassle purchasing

experience

• Comparable quality products

• Convenience (familiarity ); 24

hour ; wider isles; financing)

• Easy parking

• More comfortable

environment(AC),

• Customer return privileges

• Ability to recycle old products

for store credit

• Extend product mix: provide

new furniture bazaar, fashion

bazaar etc

• Private labels products

Customer Segments • Mass market(fashion, food,

general merchandise, leisure

and entertainment)

• Middle and upper class

consumers (pantaloons-

formal trousers to family

fashions, private label

programs)

• Young working generation

• Working women who are

primary the decision maker

in family

Key Resources • Real estate Planning

• Product

• Management/Sales/Mkt/

Operations

• Human resource


• Legal teams

• Engineering teams

• Construction teams

• Supply Chain System

• Training employees

Customer Relationships • Personal assistance


offering credit

• Merchandise return privileges

• Recycling Buyback store

credit program

• Low price guarantee

• Customer satisfaction

guarantee

• Call center

Channels • Pantaloons

• Central Mall

• Big Bazaar

• Food Bazaar

• Fashion Station Stores

• All stores(plus sized women’s

clothing)

• Furniture department

• Different function department

• Online stores


• Operation Costs/ Wages(large retailers)

• Product purchase

• Real estates and Building Constructions

• Infrastructure

• Training Employees

• Building Supply Chain System

Revenue Streams • Product Sales (traditional 8% gross margin)

• fixed rate(rent)and % of Concessionaire sales/Manufacturers sales(private

label sales)

• Additional discounts(1% display income, 4% manufacture discount, 3%

distributor discount)

• Concessionaire revenue(ROI from Mall; interest from financing)

Kishore Biyani Speaks

https://www.youtube.com/watch?v=E9am3ySQoJ0

https://www.youtube.com/watch?v=E9am3ySQoJ0

Business Model Innovation Big Bazaar Case Final Presentation

Education

traditional model

business model canvasesq1

key differences

old products

packaged products

products touch

business models

roofchoice loose self