Nanz

BY:

Radhika T.S

Satish Patra

Varun Pratap Singh

Ashutosh Krishna

Jeeva Praveen

Nanz Food Products Ltd.(NFPL)

Nanz was originally set up by the three partners with the objective of retailing and also to engage in the food business.

A joint venture of Goetze (India) Ltd, NANZ (Germany) & Marsh (USA), the store was being run on international lines.

Nanz was also engaged in outsourcing, packaging and promoting its own brand of food products.

Nanz faced several problems during its eight-year stint, including skyrocketing real estate prices and its inability to build an efficient supply chain.

Besides, in the eight years of its existence, Nanz also saw close to six different CEOs in charge of the supermarket chain.

When Nanz hit the market in 1993, it was considered a bold step into what was then a sunrise industry.

In 1997, the chain had projected a turnover Rs100 crore by 1999.

But by the appointed date, turnover was less than a fifth of that level, and profits were nowhere visible on the horizon.

“The reason Nanz failed was because the stores were built on the lines of the promoters’ ego and not with consumer needs in mind,” says a former senior executive of Nanz Foods Products.

Thus at Nanz, rent accounted for as much as 4 to 5 per cent of gross margins. 

Apart from real estate “Three per cent of gross margins was used up in paying power bills.”

Manpower costs were also high. “If you take around 4 per cent of margins for paying manpower, that leaves very little,” 

“Real estate was the main killer,” admits BR Kapoor, executive director, Goetze (India) Ltd. - the Nanda group company that backs Nanz Food Products Ltd. 

In contrast, RPG group’s Food world opened in Bangalore, Hyderabad, Chennai and Pune, where real estate prices are almost a quarter of those in Delhi.

 VOLUME STAGNATION

Lack of a market.

Direct competition with the kirana shops, which have three distinctive advantages - proximity, service and high margins due to low infrastructure costs.

It failed to attract middle class and lower middle class consumers who would help generate volumes to partially neutralise the high overheads.

What Nanz Did ?

Tried to rectify by setting up ‘LoBill’ stores - no-frills stores of 1,000 to 2,000 square feet to increase its consumer base.

Opened in middle class “catchment areas” like Noida and Shahdara (1994).

Such measures only brought temporary relief.

What Nanz Didn’t ?

Nanz didn’t concentrate much to strengthen customer relationships in a durable manner.

Nanz stores didn’t offer sufficient price differentials from the neighbourhood shops.

COMPOUNDING PROBLEMS…

A basic lack of vigilance added to the management’s woes with a high degree of pilferage - as much as 6 % of total turnover.

No CCTV’s in the stores.

CHANGED PRIORITY

Part of the reason why Nanz went out of business is that it no longer fitted in with the promoters’ overall plans. Nanz of Germany was exiting the retail chain business.

The Nanda’s were going through tough times, So they sold their 24 cent stake in Two-Wheeler company Escorts Yamaha Motor Ltd to the Japanese partner in a Rs 230 crore deal.

The Doom….

In the end, however, Nanz failed on the most basic issues.

“The problem was not that it was ahead of its times. It simply did not have a proper plan and business model.”

Question - 1

What are the factors to be considered while setting up a Supermarket/Department retail chain Operation ?

Understanding the needs of the consumers.

Developing good assortment of merchandise.

Displaying the merchandise in an effective manner so that consumers find it easy and attractive to buy.

Stringent cost controls per square foot of management space.

Cost efficiencies in supply management and bulk sourcing.

RULES FOR THE SHOP FLOOR

1) Real Estate Constraints.2) Do Your Homework.3) Supermarkets Are A Mass

Concept.4) Partnerships Count.5) Basic Supervision Is Crucial.

(1) Real Estate Constraints

Nanz chose to open stores in the high priced retail zone of India - the north.

In 1993, it paid Rs 5 lakh a month in rent for its Greater Kailash outlet.

Hefty stamp duties for property transfer, rigid zonal laws, urban land ceiling acts etc.

(2) Do Your Homework

Two of Nanz’s outlets had to face the wrath of Delhi Municipal Corporation because the outlets violated building bylaws.

Nanz officials say they took the leases from the original owners in good faith.

(3) Supermarkets Are A Mass Concept

Nanz’s upscale ambience kept middle and lower class consumers at bay.

The original target audience, SEC A consumers with high purchasing power, constitute only 10-15 per cent of Delhi’s population.

(4) Partnerships Count

Nanz did not pay sufficient attention to building up partnerships with manufacturers and growers.

The chain was dependent on distributors instead of sourcing directly from manufacturers, and so could not offer meaningful discounts to consumers.

(5) Basic Supervision Is Crucial

The chain was also hit by a high degree of pilferage - around 6 per cent of total turnover. This considerably reduced the already tight margins.

Question - 2

What is the growth strategy to be adopted by a supermarket chain in a country like India?

To build its share by expanding its sales faster than the overall Market Growth Rate.

Develop a superior Product Technology.

Differentiating through Rapid Product Innovations.

Line Extensions/Customer Service.

Offering Lower Prices. Increasing Product Usage among

present users.

Question - 3

What Organization Structure do you recommend?

Question - 4

Nanz was said to be an idea before its time-how could Nanz have used the 1st mover advantage to its benefit?

Providing assortment. Holding inventory. Providing after sales services. Providing information. Open to all classes.

Scanning the External Environment

Economic environment Legal environment Technological environment Competitive environment

Porter’s 5 Competitive Forces

Bargaining Power of Suppliers

Threat of New Entrants

Bargaining Power of Buyers

Rivalry among Existing

Competitors

Threat of Substitute Products

Failed to do its Homework !!

THANK YOU !!