Food World

Introduction, Company Background & Foodworld

Analyst - Shikha Gupta

Introduction

• Over 6000 stock keeping units ( 80% from organized sector)

• And remaining unorganized sector includes perishables and non-perishables.

”The key to our success given where we are, is effective supply chain management”

- Mr. Shiv Murti, Vice President.

Company Background

• Food World was a division of Spencer’s ,the retailing company under RPG

Enterprises

• RPG was one of the top 5 business houses in India ,with a sales turnover of

Rs. 65 Billion in 96-97 & an asset base of Rs. 75 billion as of 1997

• RPG’s business interests spanned several sectors including power,

automobile, tyre , agri-business, telecommunications, retailing ,&financial

services

• RPG’s entry into retailing was through the acquisition of Spencer & Company in 1989 & established it as a separate division

• At the time of acquisition ,Spencer’s had nine retail chain in India at that time

• One of the options at the time of acquisition was to focus on the development of the real estate owned by Spencer’s

• However, the RPG executives who were managing Spencer’s felt that the potential of retail business should not be given up easily.

• Therefore, it was decided to experiment with one store to test the potential. If failed, then RPG would close down the retail operations.

• In line with this decision, the departmental store in Bangalore was modernized in 1991,retaining its product profile of hardware, food, kitchen appliances,& clothing.

• When the store opened ,sales increased to four times the previous levels & made a healthy contribution.

• This settled the issue in favour of continuing the more important activities of Spencer’s ,which included retailing, airline general sales agency,& pharmaceutical retailing.

• The total turnover of Spencer’s increased from Rs. 250 million at the time of acquisition to nearly Rs.1000 million by 1994 through a careful process of nurturing the 3 activities while eliminating over 20 other less vital activities.

Foodworld• Super market format was prefered for three reasons. 1. value based on price and quality. 2. choice through self service from a spread of merchandise. 3. a better shopping environment.• Residing High Street concept of location was preferred over Commercial

High Street and Out of the Town.• A minimum of 3000sq.ft store was required and 4500 sq.ft preferred for a

self service formatted merchandising store. Also pleasant ambience, Fast Food joint and a bakery was proposed to be there in the store along with the merchandises.

• First store in Chennai then in Bengaluru and then two more in Chennai in a span of four months only which rose to 19 in all by the End of the year.

• Investment of Rs.64 crores. • Turnover Rs. 21 crore in 1996-97, Rs. 42 crores in 1997-98 and Rs. 87

crores expected in 1998-99.

Foodworld• Gross Margin – 16.7% in 1996-97, 18.4% in 1997-98 and projected 20.5%

in 1998-99.

• Break even within few months of start and contribution towards regional expenses.

• M.G Road Store in Bengaluru has gross margin of 13.0% and operating expenses as 7.2% as a percent of sales in 1996-97.

• Store Operating Expenses comprises of salaries and wages accounted for about 2.5% of sales, rent about 2.2% and shrinkage about 1.6% and depreciation about 0.7%.

Merchandising Function

Analyst - Nakul Parmar

FOODWORLD ORGANIZATION STRUCTURE

HEAD , FOODWORLD

Operation

Merchandising

Projects

Finance Security

Marketing Service

IT

HR

Regional Head Karnataka

Regional Head Andhra Pradesh

Regional Head Tamil Nadu

ORGANIZATIONAL STRUCTURE OF A REGIONAL SETUP

HEAD, REGIONAL PROFIT CENTER

Operation Merchandising warehouse marketing commercial

HR

Area manager

Area manager

Category Managers

Staples

Produce

Packaged products

Hard ware

Liquor

Inward Picking Dispatch

RETAIL AND ENTERTAINMENT ORGANIZATION STRUCTURE

RETAIL AND ENTERTAINMENT SECTOR

Retail 1 Entertainment Sector HR

Sector IT

Future ProjectsRetail 2

Food world

Music World

Spencer’s Super Store

Travel GSA

Health & Glow

Properties

GCIL(HMV)

RMIL

GRAMCO films

GRAMCO publishing

Cash and

Carry

Music world international

and electronics commerce

CUSTOMER EXPECTATION AS PER RESEARCH STUDY

• Product Range

• Variety for choice in a given Product

• Freshness

• Availability

• Reasonable Price (not more than neighborhood store )

• Core range of product consist of everything that a household shop for daily/weekly/monthly basis

MERCHANDISHING OFFER

It Consists Seven major group :I. Staples

II. Processed Foods

III.Beverages

IV. Non-food

V. Health & Beauty

VI.Perishables & Hardware

VII.Home Appliances

Various categories, depending on their attributes

Destination Strategic Convenience Specialty

Width(Brand Choice) High High High High/Med

Depth(no. of

Variants)High Low Low Low

PriceAggressive

"key SKU’s” best in city

Aggressive Value Added

Price Range for Margin

MRP/KVI MRP

Tactical Usage High Medium Medium Low

For drawing customer to the store

The revenue share and margin spread of a main items were as given below

Item Revenue Margin Spread

Perishables 15%

Branded

> Frozen 10-20%

> Dairy 4-10%

Unbranded

> Bakery 30%

> Fruits & Vegetables 25%

Repack 10% 5-20%

All Others 75% 15%

Distribution Strategy – Food Distribution Strategy – Food WorldWorld

Analyst - Harsh Jani

Key Elements - Distribution

• Minimum Suppliers: - Economies of Scale - Reduced Overheads & Control Requirements - Easier vendor development• Creation of Regional Hubs: - 90% through Central Distribution. - 10% directly to the store.• Replenishment Frequency: - Daily from warehouse to store, specific SKU twice a week. - Weekly from suppliers to warehouse, As Per Order hardware and general merchandise.• Sourcing with minimum intermediaries:

- To source from as “upstream” as possible in the supply chain.

Indenting Process

• Request for stocks by stores to warehouse for supply is indenting.• Minimum Base Quantity (MBQ) and Supply Unit Factor (SUF) are the two

specific attributes that helps indenting. MBQ= 30% of largest sales achieved/month. - The stock should be enough if there is surge in demand and short/no supply from the warehouse until the next indent.• Indenting quantity was determined after a physical verification of store

stock on nominated indent days. Indent Quantity = (MBQ – Physical Stock) in multiples of SUF.• Multiples of SUF to enable convenient repacking of supplier’s stocks at the

warehouse.• For most SKU, the shelf space volume was less than the MBQ.• To enable frequent replenishment and to provide a sense of fullness in the

shelves.

Indenting Process• Automated indent quantity generation process.

• Total 10% stock out in figures.

• The other 10% accounted for the discontinued items but yet not deleted from the records.

• The Indent Fill (number of SKUs) rates from the warehouse – 60%.

• The Case Fill (SKU quantity) rates were – 85%.

• If case fill rate was less than 75% , it was considered, it is considered indent not having been serviced.

Ordering Process• Category manager places order with suppliers after checking out the stocks.• Example of cadbury.• Supplies from nearest vendors, who were the dealers appointed by supplier

having 10% margin.• Dealers ready to supply weekly basis to warehouse by consolidating all

SKUs.• Average SKU per vendor was 20.• Order filling rate was in the range of 60% - 75%.• More than one category manager can deal with top few vendors for raising

orders.• LCVs ( 1-3 tonnes) used for transport. At arrival, Quality and Quantity check

was done at warehouse and a bar code was pasted as per FoodWorld’s code for easy processing at point of sale.

• Indents received from a store on a given day was processed on 2 nd day and despatched to the stores on day 3. Repacking, Computerisation, Good staff.

Vendor Development

Analyst – Pratik Patel

The key elements of the vendor development process

I. Identification of the supplying company’s one point contract.

II. Driving towards standardized trading terms across all three regions on the following dimensions.

a) Credit b) Promotion c) Simple point sources of supply across SKU’s/categories, preferably

direct from the company’s depot/CFAd) Margins (over and above product retails margins) for turn over,

distributors allowance, new store opening, bar coding (for data) and trade schemes

Different supply chain structures in operation

Suppliers ---- CFA ---- Distributors ---- W/H ---- Store

Suppliers ---- CFA ------------------------- W/H ---- Store

Suppliers ----- Repack Section --------- W/H ---- Store

Suppliers -------- Consolidation Point ------------ Store

Suppliers ------------------------------------------ Store

Branded products from consumer goods company

experimental

Non-branded staples

Some fruits & vegetables

Bakery, Dairy, Some Fruit and Vegetables

Current scenario

• RPG Retail was a joint venture between the Rs8,500-crore RPG Enterprises and the Hong Kong-based $5.5 million Dairy Farm International (DFI). In Jun 2005, RPG Enterprises and DFI decided to end the joint venture. After the split, RPG got 49 of the 94 FoodWorld stores. The remaining FoodWorld stores and 30 Health and Glow stores went to DFI. RPGE then decided to rebrand its hypermarkets as Spencer's to differentiate itself from FoodWorld.

learnings The Case gives us an insight on the working of the Supply Chain Process at

a Supermarket. Following are the points which emphasize on that and helps us understanding supply chain better.

• Strategic Location• Capacity Planning and Implementation• Providing a variety of products, range of brands, availability of products at

an appropriate pricing.• Distribution strategies which help us in better supply chain process.• Ordering, SKUs and Vendor development.• Thus we learned that SUPPLY CHAIN IS INDEED THE BACKBONE

OF ANY RETAIL INDUSTRY.