18 Managing Retailing - ~~_'Jf!$fil~Yl!!!t~ Case Study iIiiiififilili{
Food World (a) Market Entry Strategy
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18 Managing Retailing
- ~~_'Jf!$fil~Yl!!!t~ Case Study iIiiiififilili{
significantly, though the company somehowsurvived and continued to offer food, Clothing,cosmetics, and other highpriced speciality items,mainly to the expatriate community and to eco-nomically well-off Indians.
Because of deteriorating performance and poorsales, Spencer & Company was open for acquisi-tion. The ownership changed once in early 1970.In1989, RPG purchased Spencer's and established itas a separate division under the leadership of P.K.Mohapatra, a senior RPG executive. A major at-traction of the transaction was the undervalued realestate owned by Spencer & Company.
At the time of acquisition, Spencer's had nineretail stores-the largest retail chain in India at thattime. One of the options at the time of acquisitionwas to focus on the development ofthe real estate
. ownedby Spencer's.However,the RPG executiveswho were managing Spencer's felt that the poten-tial of retail business should not be given up easily.Therefore, it was decided to experiment with onestore to test the potential. If the experiment failed,then RPG would close down the retail operations.In line with this decision, the departmental store inBangalore was modernized in 1991, retaining itsproduct profile of hardware, food, kitchen appli-ances, and clothing. When the store opened, salesincreased to four times the previous levels and madea healthy contribution. This settled the issue infavour of continuing which the more importantactivities of Spencer's, which included retailing, air-line general sales agency, and pharmaceutical re-tailing. The total turnover of Spencer's increasedfrom Rs 250 million at the time of acquisition tonearly Rs 1000 million by 1994 through a carefulprocess of nurturing the three activities while elimi-nating over 20 other less vital activities. The air-line general sales agency contributed more than 80per cent of the turnover at that time.
During 1994-95, the RPG group, with the helpof a large multinational consulting firm, wentthrough a re-assessment of its portfolio of activities.A major recommendation was that the retail busi-ness development along with telecommunicationsand financial services should be one of the major
The Domain of Retailing 19
thrust areas of the company as these businessesoffered considerable growth potential. The emerg-ing middle class had barely got a glimpse of mod-em retailing as retailing had traditionally been inthe 'non-formal' sector and had remained unchangedfor over a century in India.
RPG's Retail Focus
Based on the decision to focus on the retail sector,senior executives studied various retail formats andretailers world over and discussed issues with ex-
perts in the field. These insights provided three di-rections: First, that the company should not get intoniche retailing; instead, they should focus on themass market. Second, that organized retailingwouldevolve faster in the country as retailing format wasclosely related to economic development of coun-tries. Third, that they should focus on daily neces-sities of households-food, clothing, and health.However, clothing was eliminated, since the com-pany had no prior experience in the fashion indus-try or in textile manufacturing, which wasconsidered essential for success in this product line,Therefore, food was decided as the entry productline followed by health care.
Yet another issue to be resolved was whether
the retail business should build on Spencer's imageor it should adopt a fresh approach. Leveraging onSpencer's image for retail business had its risks.While the brand name 'Spencer's' was widely asso-ciated with quality, it also had the connotation ofhigh prices. This sentiment was reflected in theex-pression, 'paying the Spencer price', which com-monly suggested payment of high prices. It wasdecided to resolve the issue of whether or not to
leverage Spencer's name after obtaining market ~research inputs. However, one important decision -was made at this juncture-to follow a supermarketformat for the retailing business.
Retail Market Scenario in India
As per the 1991population census, the total popu-lation of India was 846 million. About one fourth
of this population lived in 3768 towns and the
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20 Managing Retailing
remainingin 627,000villages.1 In order, to reachsuch a large population spread over a vast geo-,graphical area, India had evolved a complex retail-ing institutional structure that varied in size,economics, and scope of activities. Unlike devel-oped countries, distribution in India was highlyfragI11ented.Retail trade was largely in the handsof private independent owners and the distributionstructure for fast moving consumer goods consistedof multiple layers such as carrying and forwardingagents, distributors, stockists, wholesalers, andretailers.
The retailing system in India operated at threeparallel levels: the formal sector, informal sector,and the fair price shops under the government'spublic distribution system. The formal retail sectorconsisted of shops with ongoing businesses and fIxedpremises registered 'Nith the appropriate govern-ment agency under the Shops and EstablishmentAct. This included the traditional small retail shopsas well as the newer forms of retail establishments.The informal retail sector comprised essentially ofenterprises without any fIxed premises. The hawkeris the leading institution in this category and he/she represents an important link in the distributionsystem for merchandise such as fruits, vegetables,bread, and other low-value household goods. Thetotal number of hawkers in India was not known.However, as estimate in one city indicated that therewere almost 20,000 hawkers engaged in retail tradewhereas the number of formal retail establishments
in that city was about 36,800. The fair price shopsconstituted the third set of retail institutions in In-dia. These shops, mostly owned by private indi-viduals, sold a limited ?Ssortment of products suchas rice, wheat, sugar,~dible oil, and kerosene toconsumers whose entitlement quantities of differ-ent commodities were specifIed in 'ration cards' (oridentification cards). The government fIxed theprices of items sold through this system and usu-allythese prices were lower than open market prices.
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Lower prices were possible due to the fact that prod-ucts sold through th(s system carried subsidy.
The total number of retail outlets under the
formal system in the country in 1993 was estimatedto be about 8.06 million and, in 1998, it was about11.1million. It was estimated that, by the year 2001,the total number of retail outlets in the countrywould be about 13.6million. Approximately 30 percent of these outlets were located in urban areas.
About 27 per cent of urban retail outlets dealt withfood products, and an equal proportion dealt withnon-food items. The remaining outlets carried otherfast moving consumer products. Table 1.5 showsthe number of retail outlets in urban and rural ar-
eas and Table 1.6 shows the proportion of shopscarrying different products in 1996.
Smallretailshopswitha shoppingareaof300-400 sq. ft constituted about 64 per cent of the totalnumber of retail establishments in the country. Largeand very large retail shops (shopping area of over800 sq. ft) constituted only about 11per cent of thetotal number of retail outlets. The presence of su-permarkets in India was confIned to larger citiesand these retail institutions accounted for only about2 per cent of sales of fast moving consumer goods.Table 1.7 gives the distribution of shops accordingto the Shop ClassifIcation Index.
The total retail sales in India in 1997 was esti-mated to be about Rs 6630 billion, out of whichsales for food items was Rs 4837 billion. The total
retail sales represented around 53 per cent of thegross domestic product (GDP) and about 69 percent of consumer expenditure. Per capita retail salesin 1996 was estimated to be about Rs 6,297. It wasestimated that the total retail sales by the year 2002would be Rs 9236 billion and sale of food items
would be Rs 6657 billion. The complexity of retailtrade could also be understood by the proliferationof stock keeping units (SKU). In 1990 there were53 core categories of fast moving consumer goods
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1 Paper prepared on the Indian retail market by Mr Amit Roy, President, Tracking Division, ORG-MARG,India, and Mr Sujit Das, Director, Indian Research and Information services, India.
TabLe1.5 Numberof Retail Outlets
The Domain of Retailing
Source: Euromonitor, based on ORG and AIMS estimates
Table1.6 Urban Outlets Food/Non-Food 1996
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1YPes . of ProductsFood
Other FMCG
Non-food
Total
Number ('OOO)
824
1,430
820
Percentage (%)
26.8
46.5
26.7
1003,074
Source: Euromonitor
Note: Includes only outlets stocking basic food commodities, such as rice, wheat, pulses and spices and includesfair price shops. Liquor stores and other food stores are included in other FMCG.
I with 7,715SKUs. However, by 1996, the total num-ber of SKUs increased to 15,160. In addition, by1996, about 19new categories of core products withanother 2,579 SKUs entered the market. Competi-tion for shelf space and limitations of small retailshops to carry a large assortment of products char-acterized the retail scenario in the country.
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Design of the Retailing 'Offer'
In order to implement the decision to enter retail-ing, the company had to take four crucial decisions.These were: (1) which target segment should befocused on, (2) what value proposition should beoffered to the customers, (3) which merchandisingfacilities should be offered, given the value propo-sition identified, and (4) where the retail outletsshould be located. The company decided to con-duct detailed market research studies to obtain in-puts for these decisions.
TabLe1.7 DistributionofStores by ShopClassificationIndex
Small 64
25Medium
Large 8
3Very Large
Total 100
Source: AIMS 1996
The purpose of the first study was to under-stand the needs and values of customers while shop-ping for items of daily necessities. To achieve this
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Area 1996 1997 1998 200,0 2001,. . ". . ' ? .,
Urban 2693 3,074 3200 3400 3500 3700 3800
Rural 5364 6,633 7200 7200 8400 9000 9800
Total 8057 9,707 10,400 11,100 11,900 12,700 13,600
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22 Managing Retailing
purpose, a large-scale survey of consumers spreadacross selectedmetro cities, mini-metro cities, andsmall townswas conducted. Several useful and in-
terestinginsights emerged from this study.
Insights from Consumer Survey
The housewifewas the prime decision-maker onpurchase or provisions. She regarded provisionshopping as a chore due to the monotony and rou-tine natureof the purchases. Most of the consumerspurchased provisions on a monthly basis, usuallyin the beginning of the month. In addition, theyalso made two or three need-based purchases dur-ing the month. On an average, they spent Rs 1000-1500on monthly purchases and close to Rs 200 onadditional purchases. About a tenth of the market'consisted of ad hoc buyers for whom four or morepurchase occasions a month was the norm. Theirexpenditure on buying provision items was similarto that of the monthly buyers. They also patron-ized a higher number of shops than monthly buy-ers. Usually,their preferred outlets were clpser tohome. In fact, walking to the shop was observedmore among ad hoc buyers. More often than not,their purchases were less planned when comparedwith themonthly buyers.
A household member made the purchases.Usually, the housewife carried out this activity. Onmost occasions, consumers walked to the shop formakingpurchases.However, use of two-wheeler andautomobileswas also common. On most occasions,monthly purchases were a planned activity. In fact,most shoppers went for their purchases armed witha list of items.
The survey indicated that the purchase patternwas similar across different income segments.However, the upper income households spent moreon provisionitems, and visited supermarkets morefrequently.They also used personal transportationfor their shopping trips. The main sources of pro-visions were the grocery shops that carried a rathernarrow range of products. Supermarkets as a sourceof regular purchase featured only in mega metros.The dominant tendency was to patronize one shop.However, in mega-metros, this tendency was lessprominent. Generally, the shoppers were found to
be loyal to their retail outlet. For most of them, theassociation dated back to over three years. For many,the preferred retail outlet was located within 10min-utes of walking distance. This was especially so inthe metros. These retail shops offered basic ameni-ties such as credit facility, goods return facility,and door delivery. These shops also sold their prod-ucts at standard market prices.
It was found that those who patronized super-markets did so essentially due to the availability ofa much larger basket of products and, at times, bet-ter prices. However, no 'add-on' services were avail-able from these shops. It was also observed thatthese shoppers had shorter association with super-market outlets. In fact, the rating of these retailshops was a shade lower than that of the local gro-cery shops.
Buying ProvisWns-Customer Needs ,and Requirements
The consumer survey also indicated the relativeimportance of various attributes that a shopper waslooking for in a retail outlet. For this purpose, atrade-off analysis (conjoint analysis) of the sampleof respondents was made and insights obtained. Thesurvey indicat~d that, although there were somedifferences in the relative weights for different at-tributes of a shop across different survey locations,attributes such as location of the shop, extra facili-ties (like door delivery, credit facility), and pricewere found to be relatively more important. Otherattributes like quality of products and shop ambi-ence were important to some extent. The other fac-tors did not turn out to be important for theshoppers. It was also found that the relative weightsfor add-on facilities like door delivery and goodreturn facility were uniformly higher across differ-ent income categories as well. Results of the surveywere consistent across metro cities as well as largetowns.
For the shoppers, it was important to have theshop in their own locality and even a compromiseof locating the outlet in a shopping area was lesspreferable. Respondents preferred the prices to belower than the standard market prices. Even aparity price was acceptable;_}!owever, they were
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unwilling to pay any price premium for productsmade available through retail outlets, irrespectiveof the shop's format. The superior quality of prod-ucts compared to those available from the currentshops would add some value. The ambience of theshops was less important to the respondents. Theywere only looking for basic cleanliness and neatdisplay. Availability of additional product lines suchas ready-made garments, artificial jewellery, foot-wear, handbags, electronic items like television,refrigerator, toaster, furniture, and furnishing ma-terials, etc. did not add to the utility of the respon-dents much. What they were looking for was a shopthat supplied a variety and range of grocery prod-ucts, which was at least on par with the currentoutlet that they frequent.
The survey further obtained a comparison be-tween respondents' current outlets and the idealoutlet that they had in mind. ",1~'1alysisof data onconsumer utilities suggested that there was amplescope for buildingcompetitiveadvantage over cur~rent near-by-Iocation provision shops. The mostimportant parameters on which differentiation couldbe made were on prices (somewhat lower than mar-ket prices), better quality than the current outlet,and better shop ambience (air-conditioning).
The survey also sought inputs for deciding thetype of retail outlet to be established. For thispurpose, utility scores on three types of shops-discount store, value-for-money ~tore, and depart-mental store-were obtained and analysed. Thisanalysis indicated that the most preferred optionwould be a value-for-money stOre which waslocated close to the respondents' place of residenceand offered extra 'add on' facilities, with paritypricing policy, standard quality, air-conditionedshop ambience, selling standard, variety/range ofgrocery items, and not other ranges of productslike television, furniture, toasters, etc.
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Insights into Customer' Awarenessabout Competition
The study provided a glimpse into the respondents'awareness about and shopping relationship withother supermarkets-an assessment of competition.-
The Domain of Retailing
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Customers in Chennai and Bangalore knewSpencer's; but awareness levelsabout Spencer's werehigher in Chennai. However, most respondents hadnot tried buying provisions from the retail outlet.Nilgiris, another supermarket, enjoyed high aware-ness and exposure in Chennai and Bangalore, moreso in Bangalore. Availability of a wider productrange was perceived to be a major strength of theretailer. However, perception of higher prices, ab-sence of extra 'add on' facilities,and inconveniencesdue to location were mentioned as their vulner-
abilities when compared with their current localretailer. Almost half the respondents were aware ofNanz, another supermarket retail outlet.But less than10per cent of the respondents had tried this outlet.The perceptions of Chennai and Bangalore respon-dents about Nanz were similar to that of Nilgiris.
Customer Perception of Store Names
In addition to the first market research, a separateresearch was carried out to obtain inputs to decideon the appropriate name for the proposed retailchain stores. This research had three specific objec-tives. The first objective was to evaluate their per-ceptionsassociated with various brand name options,the second was to assess the value additions of the
'descriptor', if any, and the third was to understandthe habits, attitudes, and needs of the Indian house-wife related to her shopping experiences. For thisresearch, three brand name options, namely,FoodWorld,Spencer's FoodWorldand Spel1cer'sweretested. The descriptor line tested was 'the right price,right choice supermarket'. The target audience forthis research was housewives belonging to themonthly household income of Rs 4000 to 10,000belonging to the age group of 25 to 45 years, whomight or might not be currently 'shopping in a su-permarket. The qualitative research method of fo-cus groups was used to generate the needed data.
When the respondents were .exposed to thebrand name FoodWorld, there was a spontaneousassociation with fast food, beverages, vegetables,snack items like idli, dosa,etc., and processed fooditems like instant noodles. The brand name had a
positive impact on the consumer. The alphabet 'W'
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in the brand name was seen to connote 'two ticks'
indicating a connotation of being 'very good'. Thename 'FoodWorld' at a spontaneous level was per-ceivedto be similar to Vitan and Nilgiris, two othersupermarketsin Chennai, in terms of the range andquality of offer. This perception was evident notonlyat the organizational expectation level but alsoat the product/service levels. The brand name didnot evoke any spontaneous association with gov-ernment run retail outlets that were perceived toofferlimited product and brand ranges, low prices,and reasonable quality. The product categories ex-pected in a store with the name 'FoodWorld' waslargely on the lines of respondents' planned pur-chase-groceries, instant foods, bakery, products,confectionery items, snacks, vegetables, toiletries,and similar items.
Consumers were not keen on frozen meat and
othernon-vegetarian items. Also, items like clothes,medicines, electronics, and cosmetics were notpart of their product or service expectations.Service levels were expected to be similar to an-other supermarket in the town that was rated highby the respondents.
Respondents perceived a typical supermarketshopper to be one who was an extrovert with rela-tivelylower budgetary constraints and yet sought acertain amount of convenience in what she did or
boughtfor home. Projective techniques, showed thata 'FoodWorld' shopper was perceived to have thefollowing personality traits: a person who soughtvariety in her shopping; for whom it was importantto be up to date; one who probably w()uld have hadexperience in shopping in supermarkets like Vitanor Nilgiris and hence would not be overlyconcerned about price; one who had a small fam-ily; whose husband had a good job earning morethan Rs 10,000 per month; who was likely to havea TVS Scooty for herself while her husband drovea car.A non-shopper of 'FoodWorld' was perceivedto be a reserved type, frugal, independent person,not influenced by friends to spend money for shop-ping in a supermarket. She wou14:most pr<j>bablyhave monetary compulsions to take up a job, andlive a closed life. A significant proportion of thefocusgroup respondents identif~d themselves with
'FoodWorld' shoppers and felt that they could makefriends with her in order to improve their own out-look towards life.
The study also prooed the motivations and de-terrents of consumers for shopping at 'FoodWorld'.At a spontaneous level, proximity of locationemerged as a motivating factor. In addition, theprestige of having visited a new store motivatedshoppers to try out the shop. Price, distance fromhome, crowding in the store, poor quality of stock(quality assessed based on visual cleanliness andneat packaging of commodity items), and poor ser-vice emerged as the major deterrents. Pleasantbehaviour of store personnel was perceived to con-note good service.
When exposed to the second brand name un-der consideration, namely, Spencer's, respondentsindicated spontaneous familiarity with the name.They associated it with soft drinks (a soft drinkwith the brand Spencer's was available in the mar-ket), shopping complexes, books, and the good timeschildren had during a shopping trip to the shopwith the name 'Spencer's'. They also associated cer-tain traits such as modernity, quality, good loca-tion, and availability of a wide range of goods withSpencer's. Further probing indicated that Spencer'scould be the name of a shop that sold consumerdurables, kitchen appliances, groceries, packagedgoods, etc. Despite associations of good quality,neat surrounding, and fixed prices, respondents per-ceived Spencer's to be more expensive than otherstores by 10to 15per cent. They articulated appre-hensions that since 'Spencer's' was well known, itmight not try to provide good service and pleasecustomers. As the association of 'fun' with shop-ping in 'Spencer's' was strong, they did not per-ceive it to be a place for regular shopping. Withrespect to product expectations, they perceived'Spencer's' to carryall daily necessity items, giftarticles, and a far larger product range and vari-ety-they expected the shop to be much more thana supermarket.
Respondents had a different set of perceptionsand associations with a Spencer's shopper. A typi-cal Spencer's shopper was perceived to be showy,
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up-market in her tastes, and self-confident. An av-erage housewife would be in awe of her. She wouldhave two children and a servant to look after them.The family would own two vehicles; a car for thehusband and a Kinetic Honda for the lady. A non-shopper of 'Spencer's' was perceived to be one forwhom economy was important. Most probably, shewould be from a family with one earning member;would pride herself in being a neat and simple per-son; would live in ajoint family; was likely to havethree children, and would be apprehensive of visit-ing Spencer's for her regular shopping. Most of therespondents identified themselves with the non-shopper of Spencer's.
The thirdname thatwasexaminedwasSpencer'sFoodWorld.On exposing respondents to this name,the combined name seemed to suggest thatFoodWorld was a section that sold food in Spencer'sstore. On probing, respondents perceived a storewith this brand name to be a large department store\hat sold a wide range of products covering food,clothing, gift articles, toys, etc. The product expec-tations were not too different from 'Spencer's'. A'Spencer's FoodWorld' shopper too was perceivedto be upper middle class-a grade higher than
. 'FoodWorld' shopper, but a grade lower than'Spencer's' shopper. Not many of the respondentsidentified themselves with the 'Spencer's FoodWorld'shopper.
Shopping Habits and Benefits Sought
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The research also provided some insights into con-sumers' shopping habits and the benefits that theywere looking for from shopping. The shopper'smajor purchase period was the first week of themonth. Shopping from supermarkets stillaccountedfor only a small portion of all the shopping doneby ahousewife. Therefore, she considered going tothe supermarket as a pleasure trip and an outing.Usually, she visited the supermarket with one ortwo friends in the later morning hours after com-pleting her household chores. For vegetables, fruits,and meat, she preferred her traditional outlets be-cause she believed that supermarkets were yet tooffer the choice and price value she was lookingfor in these products. For groceries, she shopped
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around to check prices before she 'settled down'with the value (price, quality) that she was comfort-able with. For branded items, she knew that such
'checking around' really did not matter. Buyingfrom a popular store ensured freshness of stocks,but not necessarily low price. She preferred to buyemergency items from the friendly neighbourhoodgrocer.
Accuracy in the weights of the products soldwas one of the basic parts of the benefits that ahousewife was expecting from a supermarket. Lo-cation of the store within a certain distance, say,within a minimum auto-rickshaw fare distance, wasacceptable to her. Quality of products, price, avail-ability of a wide range of goods, and courteous ser-vice could be major differentiating benefits of asupermarket. Consumers looked for 'add on' facili-ties like home delivery. However, respondents hadnot used this service often. Respondents also men-tioned billing speed and display that facilitatedpurchase as other attributes that they expected.
Decisions on MarketingStrategy Elements
Based on various inputs obtained from formal mar-ket research studies and personal observations andstudies carried out by senior executives, it was de-cided to take a major initiative in organized retail-ing by opening a series of retail outlets with
standardized format, policy, and strategy in majorcities in India.
Thrget Segment
The target market for the shop was decided as
middle and upper middle class families. The shopswere to be positioned as residential 'full service'
supermarkets with limited fresh fruits and veg-etables. In line with the insights from the marketstudies, the shops were to be highly differentiatedin ambience and fitted with air-conditioning, ifneeded from a functional point of view. The corpo-rate fascia ofthe stores andsignage were to be verydominant and hence the name FoodWorldwas de-signed with the alphabet 'w' to appear as two tick-marks in red colour. Therefore, the shop name asthe logo appeared as Food././orld.
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26 Managing Retailing
Positioning Strategy
FoodWorld was positioned as a full service super-market with a limited assortment of fresh food. The ,main elements of differentiation were store ambi-
ence and fit-out, with a majority of shops being air-conditioned. The stores also followed a functional
racking system with no fancy accessories. It wasdecided to offer the top brands in the market acrosscategories, supported by the FoodWorld store brand.
Site Selection
For the site selection, it was decided to identify resi-dential high streets ~th a minimum of 6000house-holds in a 2/3 kilometer radius, preferably in theshopping area of the locality. Only ground floorsbetween ~~oooand 3500 square feet with minimum40 feet frontage would be selected. Appropriatepolicies for rental or lease agreements were alsoworked out.
Merchandising Strategy and SupplyCliiiin Management
The merchandising strategy was to offer everythingthat a typical target household would shop for on adaily, weekly, or a monthly basis. This list was de-cided on the basis of the typical shopping list ofcustomers as well as the budget. All the items wereclassified into four categories, namely, destinationcategory, strategic category, convenience category,and speciality category. Table 1.8 gives a partiallist of typical products in these different categories.
It was decided that the speciality category wouldhave medium to high range width whereas othercategories would have high range width. Except
Table 1.8 Categories of Products
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the destination category, other categorieswould havelow range width. Tactical usage of the destinationcategory to attract shqppers would be high; strate-gic and convenience categories, medium; and spe-cialty category, low. The company decided to offertop brands across different product categories, sup-ported by FoodWorld brands in 'commodity' prod-uct categories like pulses, some cereals, etc.Maximum stock keeping units were to be restrictedto 3000, consolidated by top best sellers by cat-egory, Withhigh width but limited or no depth. Inany category or sub-category, a minimum of twobrands would be offered. Table 1.9 gives a list ofthe major products, classified into different catego-ries; number of sub-categories and total number ofSKUs in each category; proportion of revenue ob-tained for a sample month; and the weighted aver-age margin for the category. The chilled and frozenrange of products (like soft drinks, butter, cheese,etc.) was also included in the offer. Wherever aliquor license was available, it was decided to offerthis range as well.
With respect to the distribution strategy, it wasdecided to follow the policy of minimizing suppli-ers. Since one of the key success factors in this busi-ness is effective supply chain management, carefulplanning and detailing of supply managementpolicywas carried out. (Fordetailsof supply chain\
management issues, refer to the FoodWorld(B) inChapter 8.) In order to manage supplies, it was de-cided to create regional hubs from where supplieswould be coordinated to different outlets. It wasdecided to maximize central distribution, but fol-Iowa policy of direct-to-store supply for perishables.
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Noodles, canned non-veg., canned fruit, canned veg., desserts,tinned milk, cigarettes, frozen foods, hardware
Cereals, pulses, flours, edible oils, diary products, vegetables
Paper goods, pet food, batteries, miscellaneous items
Convenience
..Destination
", Speciality
Strategic Spices, biscuits, jams, breakfast foods, baby foods, liquor, detergents,skin care, hair care, oral care, shaving needs, baby needs
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Table 1.9 Category-wise Description of Major Products
The Domain of Retailing
Typical Categories: Cereals, pulses, flours, spices, edible oils
ProcessedFoods I 16 I 70 16.22
Typical Categories: Biscuits, canned non-veg, canned veg, desserts, tinned milk, breakfast foods
Beverages I 4 I 26 I 319 I 13.39Typical Categories: Drinks, tea/coffee, health drinks, liquor
Nonfood 6 28 8.69
Typical Categories: Detergents, house cleaning agents, paper goods, cigarettes, pet food
Health and Beauty I 9 I 53 I 1069 I 12.1
Typical Categories: Skin care, hair care, oral care, OTe, baby needs, cosmetics, herbal products
Perishables I 4 I 19 I 310 I 15.79
Typical Categories: Dairy products, frozen foods, bakery, vegetables
H/Ware and Home App. I 3 I 33
Typical Categories: Batteries, hardware, mics.
Total 47
Source: Company Records, December 1998
Pridng Policy
Pricing was to be in line with that of the comergrocer. However, the key SKUs in the destinationor 'staples' category would be discounted to matchthe 'cheapest' in the city and the pricing for thebalance products in the destination category was tobe in line with the prevailing market prices. It wasalso decided to sell the top 15 branded SKUs at3 'per cent below the maximum retail price and thiswas highlighted in communications. For the strategiccategory, aggressive value added range price forprotecting margins was to be followed whereas forthe convenience and specialty categories, maximumretail price was to be followed. 'Mega price offers'on at least two SKUs every month would be
23.24 I~126.09 .1~
~announced. QIantity discount savings of food SKUs ':""-Iwas another scheme decided. It was aimed to build ':""-I
an image of the shop as a value-for-money srofe ~using this approach, supported by a 52-week con-10.tinuous 'promotion' programme. For fresh veg- -etables, the top five items would be cheaper than~the market price, and for the other vegetables the"-prices would be on par with the market prices. Fruits, -
howeve.r,would be sold at a premium quality price.
5.6
264 100
Promotion Policy
The essential focus of the marketing strategy wasto drive the traffic and to increase basket and billingsize. Direct mailers and shopping guides would bethe main communicators. Bright prominent in-store
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28 Managing Retailing
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display using posters, large shelf talkers, bulk mer-chandising, and floor displays would be used effec-tively to attract customers. Mass media would beused only to a limited extent and would be con-fined to announcements of store openings. Specialmedium-term campaigns would be undertaken asand when needed.
In line with the store image and ambience, thedisplay policy was decided. It waSdecided to mini-mize or eliminate signage facings, and the mini-mum display would be for seven days, except inthe case of perishables. Promotions, and specialoffers would be highlighted through 'gondola' ends(end space of the stockingrack). Cigarettes and otherpilferage prone items would be sold through a sepa-rate counter called the 'Little Shop'.
- Organization Structure and HumanResourceManagement
A team of experienced professional managers man-aged the company. The FoodWorld organizationstructure, regional organization structure, and theretail and entertainment organization structure ofthe RPG Group are given in Figures 1.3, 1.4, and1.5respectively. Each retail shop was managed bya store manager, assisted by an assistant manager(dutymanager). In order to manage operations at theshop floor, there were customer service supervisors.
~H~~q, liooqyvor@ !"'-c_u"~""''''~~ "",._~--,>-" ,j
...I Operations
Typically, the number of customer service supervi-sors varied between 4 and 6, depending on the sizeof the shop. One supervisol was in charge of cash.In addition, there were 14 to 20 customer servicerepresentatives in each shop, divided equally fortwo 8-hour shifts. These representatives were full-time employees of FoodWorld. Depending on re-quirements, part-time representatives were alsoemployed to attend to rush hours and such addi-tional work. Loading, cleaning, and other janitorialwork as well as security was entrusted to contractemployees.
The company recognized the supply of com-petent and trained personnel to manage differentshops professionally as a potential problem area.Anticipating this requirement, the company startedthe RPG Institute of Retail Management in Chennaiand Bangalore to train people for a career in retail-ing. As a first step, students who had passed XIIStandard and belonged to lower income strata wereencouraged to enroll for a three-month full timecourse conducted by the institute. In order toattract good and needy candidates, the company vis-ited nearby municipal schools and made presenta-tions to potential candidates about careers in retailingand solicited their enrollmenc in the course. This
course covered various aspects such as customerservice; product knowledge; personal effectiveness,
Human Resources Regional Head,Tamil Nadu
MerchandisingInformationTechnology
Regional Head,Andhra Pradesh
Projects Marketing Service
Finance
,., Figure1.3 FoodWorLdOrganization Structure
Source:Company Records, December, 1998
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SecurityRegional Head,
Karnataka
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The Domain of Retailing 29
Head; Regional Profit Gentre ,.
StoreManagers
StoreManagers
Figure1.4 RegionaL Organization Structure
Source: Company Records, December 1998
Retail and Entertainme'lt S6ftor '"'
Music WorldInternational
andElectronic
Commerce
Food World
Music World
Spencer's SuperStoresMount RoadKodaikanalMercaraThruvanathapurani
. Properties
Figure1.5 Retail and Entertainment Organization Structure
Source: Company Records, December 1998
Staples
I 'r Produce
Packaged Products--Hardware
I I
Y LiquourI
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30 Managing Retailing
including communication, personal grooming, andhygiene; and such other relevant topics. Those whocompleted the course successfully were absorbedas regular employees of the shops at the level ofcustomer service representatives. Usually, theintake for a batch was 30 participants and 6 to 7batches were trained each year. In addition to thisroute, people with some work experience as salespersons in retail outlets were also recruited and theywere given a two-week crash course. Once a personwasemployed as a custqmer service representative,he or she was required to complete an advancedlevel course called the STAR programme (theacronym STAR stood for Special Training forAccomplished Retailer). This course coveredtopics like an overview of organization, housekeep-ing, security systems, etc. Only those who com-pleted this programme were eligible for the higherpost of customer service supervisor. Similarly, for
becoming eligible for higher posts, a person had topass Level II and III ofthe STAR programme. Toa considerable degree, these initiatives eased theproblem of availability of trained manpower. More-over, detailed policies, procedures, and systemswereformulated to manage the day-to-day operations ofthe shops.
End Results and Performance
The first store was inaugurated on 9 May 1996 atR.A. Puram in Chennai. By now, the company hadopened 19 stores in the three major cities in SouthIndia. Table 1.10 presents descriptions of theseshops. At the time of planning, the store break-even was carefully calculated. Exhibit 1.1shows thebreak-even calculation for a typical store. On anoverall basis, the performance of the shops was sat-isfactory (see Table 1.11for a summary of perfor-mance of different shops). However, Mr Mohapatra
0-....,
Store Break-Even
SizeInvestment
Total
Costs
RentSalariesPower/FuelSelling Exp.Bank ChargesSecurity/OthersRepair/MaintenanceA~v./PromotionTotalDepreciationInterest on W/Cap
Total Operating Expenses
Source: Company Records, December 1998,~_._-
3500 Sq. FtRs 40 Lakh-Fitout
Rs 10 Lakh-Rent Deposit
Rs 50 Lakh
Rs
90,00080,00050,00015,00010,00010,00020,00015,000
3,00,000, 50,000
5,000
3,55,000
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Table 1.10 Store-wiseDescription
* Some of the data are estimated
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Chennai, ' W'0!f7;'.78 :;;j/'ii;!!'',,",71'), Wfi
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Store 1 Dec. 96 14065 7257 A A 9156 22.41 694 1358.09 1005
Store 2 09.05.96 3000 2404 C B 4415 19.43 351 506.66 428-Store 3 01.09.96 4494 3094 B B 4619 20.12 392 537.34 398
Store 4 01.09.96 4231 3177 B B 5431 20.39 399 708.33 538
Store 5 09.05.98 5000 3305 B B .4151 19.89 485 340.80 137
Store 6 23.10.98 3500 2700 C B I 1269 19.89 212 40.45 -60
Bangalore,",;;!,:'"'ifJlJi!I!' '!,
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Store 1 Dec. 96 9500 6492 A A 11487 19.04 754 1433.13 1265
Store 2 20.08.96 5720 3976 B B 4072 16.61 494 182.36 127
Store 3 05.06.98 2565 2472 C B 4910 17.18 420 423.54 285
Store 4* 29.12.96 4362 3729 B B 4242 17.40 480 258.11 61
Store 5 05.04.97 3650 3421 B C 2180 15.75 324 19.35 -44Store 6 04.05.97 2862 2437 C B 2910 16.84 342 148.04 95
Store 7 30.07.98 3024 2494 C B 4825 16.81 388 423.08 65
Store 8* 25.04.98 3000 2656 C C 2569 16.40 324 97.32 -4'if! 'f, Wr,F
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Store 1 26.09.97 4500 2971 C B 3117 16.78 349 174.033 150
Store 2 13.12.97 4000 3278 B A 4690 16.20 426 333.78 301Store 3* 17.04.98 3000 2168 C C 2520 16.71 264 157.09 137
Store 4 01.10.98 4084 3500 B B 3445 16.63 426 146.90 120Store 5* 31.10.98 3500 3000 B B 179 14.22 143 -117.55 -190
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Table1.11 Performance Trends w~
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g.
I.',%, Sales
New stores 96.,.-97
New stores 97-98
8 7
13 4:J
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New stores 98-913 I I I
New stores 96-97 2577 2088 3366 3654 2830 3148
New stores 97-98 1118 579 764 898
New stores 98-98 1241 1106
Subtotal 2577 2088 4484 4233 4835 5152
New stores 96-97 382 14.8% 349 16.7% 633 18.8% 671 18.4% 530 18.7% 587 18.6%
New stores 97-98 152 13.6% 107 18.5% 143 18.7% 147 16.4%,.
New stores 98-98 234 18.9% 212 I 19.2%
Subtotal 382 14.8% 349 16.7% 785 17:5% 778 18.4% 907 -18.7% 946
New stores 97-98 21.8%
18.6%
346 13.4% 266 12.7% 651 14.5% 570
286 10.1%
115 15.1%
284 22.9%
685 ' 14.2%
New stores 98-98
Subtotal 13.5%
- -'''''' --~ - .~Table7.77Contd
286 9.1%
112 12.5%
165 14.9%
563 10.9%J
Contd
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Year
Notes:
1. Figures exclude notional rent on owned properties2. pas Maintenance included under Maintenance
3. Warehouse & Corporate Opex apportioned to Existing and New Stores on the basis of sales
Source:Company Records, December 1998
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New stores 96-97 136 5.3% 134 6.4% 219 6.5% 2.68 7.3Ofo 143 5.1% 167 5.3%
New stores 97-98 73 6.5% 42 7.3Ofo 39 5.1% 48 5.3%
New stores 98-98 63 5.1% 58 5.2%
Subtotal 136 5.3% 134 6.4% 292 6.5% :no 7.3Ofo 245 5.1% 273 5.3%-.---L-
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"..I wasaware that the challenges had just started. needed to focus on. The learnings from an analysisImprovements in perfonnance and sustenance of of,the past, he recognized, held the key to a brightsuccesswere the essential issuesthat the company future. -,J
Questions
1. Draw the diagram of retailing decisions forFoodWorld as given as Figure 1.2. Enumeratethe key successfactors.
2. Using the data given in the tables and figures,find out the profitability drivers for FoodWorld.
What is the difference between the profitabilityof new and old stores? What are the reasons
for this? What is your suggestion with regardto the number of stores that FoodWorld should
open when it becomes a profitable store?
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