Retail Management

UNIVERSITY OF MUMBAI

PROJECT ON

RETAIL MANAGEMENT

SUBMITTED BY

HITESH N. JAGASIA

PROJECT GUIDE

PROF. RAJWADE.

BACHELOR OF MANAGEMENT STUDIES

SEMESTER V(2009-10)

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE,SINDHI COLONY, CHEMBUR – 400071

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UNIVERSITY OF MUMBAI

PROJECT ON

RETAIL MANAGEMENT

SubmittedIn Partial Fulfillment of the requirements

For the Award of the Degree of Bachelor of Management

By

HITESH. N. JAGASIA

PROJECT GUIDE

PROF. RAJWADE.BACHELOR OF MANAGEMENT STUDIES

SEMESTER V(2009-10)

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE,SINDHI COLONY, CHEMBUR – 400071

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Declaration

I student of BMS – Semester V (2009-10)

hereby declare that I have completed this project on

.

.The information submitted is true & original to the best of my

knowledge.

Student’s Signature

Name of Student HITESH. N. JAGASIA

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C E R T I F I C A T E

This is to certify that Mr. Of

TYBMS has successfully completed the project on

___________________________ under the guidance of

___________________________.

Project Guide Principal Dr. (Mrs) J. K. PHADNIS

Course Co-ordinator Mrs. A. MARTINA

External Examiner

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PREFACE

Departmental stores may be a comparatively recent phenomenon in India, with a

specially created ambience making shopping an experimental affair. Indeed, we are even

beginning to demand places where we can avail the luxuries of spending the whole day in one

place, taking advantage of a bouquet of services in which shopping is only a part. So you can

browse, window shop, make purchases, break off for a meal, take in some entertainment, and

listen to music. This concept of organized retail marketing, which has caught on like lightning, is

really just the creation of a distribution network that cuts out various intermediary costs and

creates a much smoother interface between manufacturer and customer. This organized network

which bridges the distance between the manufacturer and the consumer has seen many of the

world's leading entrepreneurs successfully walk down a particularly profitable road. With total

sales going up to $6.6 trillion, the industry today is the world's largest private industry and

accounts for over 8 per cent of the GDP in western countries. And now, it's India's turn. Today,

we stand at the crossroads of a retail revolution. After 50 years of unorganized retailing and

fragmented kirana stores with very basic offerings, fixed prices, zero usage of technology and

little or no ambience the industry have finally begun to move towards modernization,

systematization and consolidation.

Retailing has now become a key growth area. There has been an attitude change in the

way the Indian consumer thinks about shopping. What, were and how they buy is now the big

question. Over the last decade, there has been a significant evolution in his psyche, a change that

has been carefully recorded and documented by behavioral pundits. Although it is most

noticeable in large metros, its impact is also seen in small towns. The change was kicked off by

the economic liberalization of the 1900's and accelerated by the media (cable) boom following

the Gulf War, when the radical explosion in media images exposed the Indian consumer to the

lifestyle enjoyed in more affluent countries. And even within his own country. Earlier, it was the

lack of consumer culture along with low incomes that prevented the development of such

formats. But economic growth has now triggered off a spending spree, with India's middle and

high-in-come population suddenly realizing that they have enough disposable income to go for

the good times. As the low-income base shrinks, there is an ever- increasing expansion of the

higher income groups, with a corresponding demand for consumer goods that allows the deeper

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penetration of high quality and higher priced products. The early indicators of this revolution are

the mushrooming of better quality retail outlets, a profusion of brands and various product

options. The Indian consumer who can discern a clear value propositions and unbeatable ranges

at unbeatable prices served to him on a platter. The retail industry is now beginning to evolve.

Traditionally, most retailers have very localized operations but this nature of the industry is fast

changing with the awareness that sources must be developed and a proper merchandising system

put in place. The pace of transformation has accelerated and today India has over 12 million

retail outlets. As a phenomenon, retail marketing has a radical impact and can bring in new

technologies, systems and mindsets. It can improve overall labour, productivity and employment,

all in the name of providing the consumer with a better range of products at better prices in a

better ambience.

Retail, India's largest industry is driven by the markets' ability to provide better products

in a comfortable ambience at affordable prices. The growth of large multi-brand apparel outlets

is one result. These outlets are usually 20,000-50,000 sq ft in size, have their own parking space,

and separate counters for perfumes, accessories, men's wear, women's clothing and children's

clothing. Some stores also have toys, books, home wear, footwear and music. Some of these

retailers have begun to develop a private label brand, to supplement their range and improve their

margins. These have become significant brands in their own right. Similar departmental

stores/multi brand outlets are likely to develop into a significant format in the Indian market over

the next decade. The players who can make organized retailing an integral part of India will be

the ones who reap the benefits at the end of the change process. The industry however will have

to work in tandem with the government and manufactures to build a more positive environment

for retail and cater to the demand for better products and retailing from India's first generation of

demanding cash rich consumer.

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Index

1. Introduction

6-17

Retail definition and scope

………………………………………………………………………………….7

List of retail institutions

…………………………………………………………………………………8

Retailers role in distribution channel, Benefits of retailing

…………………………………………………………………………………9

Benefits to customers

……………………………………………………………………………10-11

Benefits to manufacturers and wholesalers

……………………………………………………………………………….12

Benefits to economy

………………………………………………………………………………13

Evolution of retailing

………………………………………………………………………………13

Factors behind the change of Indian retailing industry

…………………………………………………………………………14-15

Retailing environment

…………………………………………………………………………16-18

2. Retail Institutions

19-

Theories of Institutional Change

Wheel of Retailing

……………………………………………………………….....................19-22

Dialectic Process

8

……………………………………………………………………………23-24

Retail Accordion

……………………………………………………………………………..25-26

Natural Selection

…………………………………………………………………………………27

3. Classification of Retailers

28-

Unorganized Retail

……………………………………………………………………………….28-32

Organized Retail

……………………………………………………………………………33-43

Formats Adopted by Domestic players in India

…………………………………………………………………………………42

Formats Adopted by international players in India

………………………………………………………………………………43

Leading retail chains in India

……………………………………………………………………………….44

Retail in small town

………………………………………………………………………………..46

Challenges for Organized Retail

………………………………………………………………………………48

Impact of organized Retail

………………………………………………………………………….49-51

4. Understanding the retail customer

52-

Understanding the retail customer

……………………………………………………………………………53

The Market

………………………………………………………………………..53-54

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Structure of the buying population

……………………………………………………………………………55

5. Why Retail Sector Booming

56-59

The Growth Drivers

……………………………………………………………………………56-57

Drivers of growth in organized retail

……………………………………………………………………………58

Investment opportunity

……………………………………………………………………………59

Growth in support industries

…………………………………………………………………………...60

6. PANTALOON RETAIL INDIA LIMITED (PRIL)

61-69

Penetration in key market

……………………………………………………………………65

Product Procurement

……………………………………………………………………66

Future Plans

………………………………………………………………............69

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Methodology

This project is a mixture of theoretical as well as practical knowledge. It also contains

ideas and information imparted by the guide. The secondary data required for the project was

collected from various websites and books of reputed authors.

This project started with sorting all the raw data and arraigning it in perfect order. To add

value to the project and understand the practicality of retailing business, I have done an

experimental training from TKWs institute Vashi branch, and have a job experience with

Flemingo Retail Pvt. Ltd in Turbhe for four months.

To further understand the consumer better, a field survey was also conducted to find out

the taste, preferences, purchasing habits, expectation of the consumers, etc.

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Retailing: definition and scope

Retailing is derived from the French word retailier, which means, “ to cut a piece of”.

Thus, retailing can be defined as a set of business activities that adds value to the products and

services sold to the final customers for their personal, family or household use. A retailer is the

key player in the marketing process as he regularly interacts with the end customer. From a

marketers point of view, retailing can be defined as a set of marketing activities designed to

provide satisfaction to the end customer and profitably maintain the customer base by continuous

quality improvements across all areas concerned with selling goods and services.

Retailing involves:

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.

A retailer is any business establishment that directs its marketing efforts towards the end

users for the purpose of selling goods and services. Retailers comprise street vendors, local

kirana stores, supermarkets, food joints, saloons, airlines, automobile showrooms, video kiosks,

direct marketers, vending machine operators, etc. an organization qualifies to be a retailer only

when it derives a major chunk of its revenues from its transactions with end users. Thus, a seller

is said to have conducted a retail transaction when he sells goods to the end consumer while a

wholesale transaction is conducted only when the seller sells goods to a business concern. The

table given below gives a list of retail institutions operating in the market.

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List of retail institutions:

Motor vehicle dealer Shoe store

Catalog and mail-order houses Florists

Motorcycle dealers Grocery stores

Food stores Liquor stores

Children’s and infants’ wear stores Hardware stores

Radio, television , and consumer electronics

stores

Retail bakeries

Book stores Camera and photographic supply stores

Fuel dealers Stationery stores

Lumber and other building material dealers Men’s and boys’ clothing and accessory

stores

Home furnishing stores Drapery, curtain and upholstery stores

Women’s accessory and specialty stores Women’s clothing stores

Used merchandise stores Sewing, needlework, and piece goods stores

Musical instrument stores Dairy products stores

Luggage and leather goods stores Variety stores

Department stores Eating places

Sporting goods stores and bicycle shops Tobacco stores and stalls

Gift, novelty, and souvenir shops Gasoline service stations

Family clothing stores CDs and VCD stores

Apparel and accessories stores Paint, glass and wallpaper stores

Hobby, toy, and game shops Candy, nut and confectionery stores

Optical goods stores Household appliance stores

Jewelry stores Floor covering stores

Furniture stores Fruits and vegetable markets

Retail nurseries, lawn and garden supply stores Drug stores and proprietary stores

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Retailer’s role in distribution channel:

A retailer is a last entity in the distribution channel. Retailers include all businesses and

individuals who actively participate in the transfer of ownership of goods and services to their

end users. The following figure 1.1 depicts a typical distribution channel

A retailer usually plays the role of an intermediary, which links the producers,

wholesalers, and the other suppliers with consumers. Companies generally prefer to specialize in

manufacturing the products, leaving the task of selling the products to an outside party i.e. few

wholesalers or retailers.

Benefits of retailing:

The first point under retailing benefits for customers, bulk breaking, refers to the act of

retailers of buying goods in large quantities and then breaking them into smaller sizes for their

individual customers. As a result purchases become convenient for customers - in terms of

quantity bought as well as expenditures made. The assorting function is nothing but evaluating

all the different products available and offering to the target the optimum array of products from

which to choose. The storing function performed by the retailers relieves customers of the task of

anticipating their desires too far in advance of their needs as the retailers keep goods in inventory

until customers are willing to buy and use them. Further, retailers help manufacturers smoothen

the production cycle by placing orders for peak demands well in advance and by managing

inventory even on behalf of the manufacturer. They create economic utility for consumers by

providing the products in the form and at the place and time desired by the consumer.

Benefits to consumers:

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Retailer act as buying agents for consumers. They perform various business activities that

increase the value of the goods and services they sell to the end consumer. If there were no

retailers in the distribution system, consumers would have to personally visit the manufacturers

to procure the goods and services required by them. As a buying agent, a retailer performs

various activities to satisfy the end consumer. These activities include:

Breaking bulk

Providing assortment

Holding inventory

Providing after sales services

Providing information

Breaking bulk

Breaking bulk refers to delivering single units from distribution centers to retail outlets

rather than the multiple units bundled together by manufacturers termed ‘case–packs’. The focus

is largely on the benefits to space management at the retail level, rather than the more obvious

reduction in inventory costs. Using data from the grocery industry, results indicate that retail unit

profitability can be increased substantially by breaking bulk - but only if current inventory

replenishment practices are changed. In essence, breaking bulk allows for either higher product

variety within a store or identical variety in smaller stores. This work seeks to quantify the order

of magnitude of that benefit.

Providing assortment

Retailers evaluate the products of various manufacturers and offer the best collection of

products from which the customers can select the product of his/her choice. Retailers select the

product assortment depending on the testes and needs of their target customers. The variety in

assortment offered makes the buying process easier.

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Holding inventory

Retailers carry inventory and make the products available to customers at a convenient

place and time. Retailers make it possible for consumers to make instant purchases. This reduces

the cost of storage and enables the consumer to invest his money profitable.

For example, a customers can walk into an electronic goods showroom and buy a music

system whenever he wants, or pick up music album from any music album from any music retail

outlet. Such spontaneous shopping would not be if retailers do not stock the goods.

Providing services

Apart from selling goods, retailers also provide a variety of value added services, which

make it easier for customers to buy and use products. These services include providing free home

delivery, accepting credit cards, accepting payments on installments basis, arranging loans, etc.

Providing information

Retailers play a major role in providing product related information to their consumers.

Retailers use advertising and in-store salespersons to provide product information, which helps

the consumer to simplify his purchasing process.

Benefits to manufacturers and wholesalers

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Manufacturers and wholesalers consider retailing as a channel for delivering their

products/ services to the end customer. By selling products and services (of a manufacturer on a

much larger scale), retailers provide the manufacturer with greater revenues, which could be

reinvested in production and sales of the manufacturer’s products.

Retailers function as the sensory organs of manufacturers. While designing new products

or upgrading an existing product, manufacturers depend on retailers to gather information

regarding the tastes and preferences of customers. Retailers provide feedback on the goods and

services offered by them. This helps them to make modifications to the existing products or

launch new products to satisfy the needs of customers.

Retailers also share some of the risks of the manufacturers by paying for the goods

before they are actually sold to the final customer. A retailer is exposed to three types of

obsolescence risks:

Physical obsolescence

Technological obsolescence

Fashion obsolescence

Physical obsolescence risk arises from the damage or wear out caused to the products

while they r stored in the retail outlet. This type of risk is common for stores dealing in

handicrafts, books, greeting cards, gift items etc. retailers dealing in high technology products

that are upgraded very frequently face risk of technology obsolescence. Retailers who deal in

personal computers and computer components face this risk quite often. In this industry

(computers), upgraded versions are introduced very frequently and these are available at a lesser

price than that of the lower versions, which may result in severe losses for the retailer. Fashion

obsolescence risk is very common for apparel retailers who deal in merchandise of varying style,

design or color.

Benefits to the economy

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the retailing business is the largest private industry in the world with a turnover of US

$6.6 trillion. Retailing plays a crucial role in the management of world economy and retailers

and retailers constitute a tenth of the Fortune 500 companies. In India, retailing accounts for over

10 per cent of the country’s GDP and around eight per cent of the employment, only next to the

agricultural industry. The value of the total retail trade in India was Rs. 400,000 crore in 1999

and analysts feel that this will increase at the rate of 20 per cent every year and touch Rs.

800,000 crore by the year 2005. in the year 2000 India’s per capita GDP was $ 468 and per

capita retail sales amounted to $ 220. The table below gives the per capita GDP and retail sales

of various countries across the world.

Evolution of retailing

The origins of retailing in India can be traced back to the emergence of Kirana stores and

mom-and-pop stores. These stores used to cater to the local people. Eventually the government

supported the rural retail and many indigenous franchise stores came up with the help of Khadi

& Village Industries Commission. The economy began to open up in the 1980s resulting in the

change of retailing. The first few companies to come up with retail chains were in textile sector,

for example, Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched retail showrooms

in the organized retail sector. With the passage of time new entrants moved on from

manufacturing to pure retailing.

Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in Music,

Crossword in books entered the market before 1995. Shopping malls emerged in the urban areas

giving a world-class experience to the customers. Eventually hypermarkets and supermarkets

emerged. The evolution of the sector includes the continuous improvement in the supply chain

management, distribution channels, technology, back-end operations, etc. this would finally lead

to more of consolidation, mergers and acquisitions and huge investments.

Factors behind the change of Indian retailing industry

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Some of the factors which have been responsible for the growth of retail industry in

India, have been discussed below:

1. Economic growth

India is one of the largest economies in the world. The gradual increase in the Gross

Domestic Product(GDP) and the purchasing power of Indians provided an excellent opportunity

for organized retailing. According to a international monetary fund report (1998), private

consumption in India accounts for 61.4% of the GDP. India was ranked a the fourth largest

economy in the world in terms of its Purchasing Power Parity (PPP).

2.Urbanization

The twentieth century witnessed a rapid growth of urban population in India. While the

total population of India grew by 3.5 times from 1901 to 1991, its urban population increased

nine fold from 25 million to 217 million in the same period. The share of urban population in

class I cities ( with population 100,000 and above) in the total urban population has increased

from 26 percent to 65 percent during this period.

These cities contribute nearly 55 percent of the GDP of India and this share is expected

to rise further in the coming years. The rising concerntration of urban population with higher

purchasing power has attracted big players to venture into organized retailing in these cities

3. Consumerism

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The increase influence of the western media has led to a considerable change in the

lifestyle of the Indian consumer. The economic wellbeing of the Indian middle class and their

growing aspirations for material comforts has also been responsible for consumerism slowly

gaining momentum in India. Today, the Indian consumer is more inclined towards buying

goods like cars, washing machines, audio systems, designer dresses, cosmetics and other

personal care products.

4. Brand profusion

Consumerism and increased brand consciousness of Indian consumers has led to

increased number of brands. Today every product is branded. Even products like salt , oil, flour

etc., which were sold as commodities a decade ago are now branded. Although there are no

international retail stores in India, almost every international brand is available to the Indian

consumer. India also has its share of strong domestic brands like Titan watches, Asian paints,

Thums Up (now owned by coke, McDowell’s whisky, kingfisher beer etc. thus, the launch of

more and more brands into the market increased demand for shelf space and hence the demand

for more retail outlets.

5. Availability of real estate

The cost of real estate forms a major part of the fixed investment for a retailer. In the last

few years, real estate prices have hit the lowest and encouraged many entrepreneurs to set up

retail stores in different parts of the country. Apart from the decrease in real estate costs,

availability of ample retail space also has led to the proliferation of retail stores in India.

Retailing environment

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Like any other industry, the retail industry is also affected by the external environment.

Some of the constituents of the external environment, which have an impact on a retail

organisation, are

Economic environment

Legal environment

Technological environment

Competitive environment

Economic Environment

The nature of the economic system (capitalism, socialism) in a country has a direct

impact on the retailer’s business. Therefore, a retailer should have a thorough a2understanding of

the various economic factors of a country that would influence their operations and profitability.

Some of the economic factors that affects the retailer are – Gross domestic product, rate of

inflation, purchasing power, interest rates, tax levels, employment growth etc. higher growth rate

of GDP (in real terms) implies that consumers have more income and hence, they spend more,

resulting in higher sales and more profits for retailers. On the other hand, increase in inflation

leads to a decrease in the purchasing power of the consumers. The economic reforms of the

1990’s have resulted in higher economic growth than that observed in the previous decade. The

GDP growth (in real terms) and the change in consumer price inflation from 1998 to 2002 have

provided in table below

Legal environment

Government use various laws and regulations to ensure that retailers do not indulge in

unfair practices. But most of the times, these regulations hamper the growth of the retail industry.

Some of the legal and regulatory problems that retailers face in India are ; (FDI), property

regulations, and complex taxations system. Each of these have been explained below:

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Foreign direct investment (FDI) restrictions

FDI in retailing had been permitted in India for a short period prior to 1997 and approvals

were granted to few MNCs like Nanz to set up retail chains. The government later retracted its

decision and banned further FDI in the retailing sector. It felt that huge foreign direct investment

in this sector would be a threat to existing kirana stores.in that short period when FDI was

permitted in the retail sector, many multinational companies have entered India through joint

ventures or franchisee agreements. For example FoodWorld is a 51: 49 joint venture between

RPG Group and the Hong Kong based Dairy Farm Intrenational(a $ 10 bn company).

The ban on foreign direct investment and the lack of industry status for retailing made it

difficult for foreign players to fund huge retail ventures in india. But, the Government of India

has permitted foreign players to forge franchising and technical alliance with Indian retailers.

Marks & Spencer used this opportunity to enter India through the licensee route.

Based on the recommendations of the N K Singh Committee the Government is planning

to again permit FDI in the retail sector would

Bring in valuable foreign exchange

Bring about organisation of the sector

Provide employment to thousands of Indians

Provide a wider choice of products at reduced prices to the customer

Improve the shopping experience

Apart from the above benefits, the entry of large, well-established foreign retail players

with considerable experience is expected to lead to an increase in consumer awareness and

prvide efficient and value added services to customers.

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Property regulations

Death of good quality retail space in prime location and sky rocketing rental and lease

amounts are some hurdles in the growth of the retail industry in India. Some of the problems

faced by organized retailers include high prices of rentail space, hefty stamp duties for property

transfer, rigid zonal laws, urban land ceiling acts etc.

Real estate

The government is the single largest owner of land in India. Hence it is very difficult for

orgainised retailers to find suitable sites for establishing retail outlets in metros and other large

cities. This mismatch between the demand and supply of retail estate in large cities had led to an

astronomical growth in the prices of real estate. This made it impossible for organized retailers to

enter big cities without the backing of large real estate companies. K. Raheja’s association with

Shopper’s Stop and Parimals with Crossroads are typical examples of the of the involvement/

interest of real estate players in organized retailing. The high real estate prices in north India has

led to most of the new players selecting South Indian cities like Hydrabad, Bangalore, and

Chennai to start their organized retail operations. According to Shopper’s Stop Managing

Director & CEO, B.S. Nagesh, the current lease rentals at Rs 70 per square foot per month

(PSFPM)

Amounts to to seven per cent to ten per cent of the topline (sales revenue). Ideally, it

should be in the range of Rs 25-40 PSFPM to work out in the region of three percent ot five per

cent of the topline.

Variation in sales tax rates across different Indian States is another problem faced by

organized retailers. Apart from this, multiple point octroi tax and other taxes levied by states

make it difficult for retailers to source merchandise from different parts of the country, this

situation is expected to ease with the introduction of value added taxation method.

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Labor laws

Unfriendly labor laws are another issue of concern for the retailers . Retailers require

additional workforce to meet the increase IN customer in-flow in the festival season. But Indian

labor laws do not allow the retailer to hire people as temporary workers for a few days.

Technological environment

Technology is one of the most important drivers of change in the retail industry. The

computerization of various retail stores operations like inventory management, billing, database

management and the wide spread use of bar code scanners, computers, point-of-sale terminals,

management information systems etc. have bought a sea change in the way retailing is conducted

in India.

Retailers are also using technology to improve the shopping environment and to provide

a pleasant shopping experience to customer. Quick response computer links with suppliers are

increasingly being used to reduce lead-time and overcome stock-out problems.

Competitive Environment

Though the retailing industry is in its nascent stage in India, there is severe competition

among the existing players. Moreover the huge untapped potential is encouraging many players

to venture into retailing. The growth of retail stores was in the categoris of speciality stores, the

24

category killers and one-stop super stores. Table 1.7 gives a list of leading retail organisations in

India.

Apart from the existing competition in the organized retail sector, organized retailers are

also being affected by the stiff competition posed by traditional players in the unorganized

sector. The competition among retailer varies depending on the way the retail operations are

carried out and which entity of the distribution channel carries out these retail operations.

RETAIL INSTITUTIONS

25

The store format selected by retail institutions plays a crucial role in attracting and

satisfying the target customers. The diversity and changing nature of the society has compelled

retailers to change their store formats to provide a complete shopping experience to customers.

The retail format influences the entire retail business model and plays a key role in formulating

retail strategies.

Retailing in India is undergoing a drastic transformation. The retailing industry is

entering a new phase, and retail formats built around different pricing and service strategies have

evolved. Department stores and cooperatives are giving way to new formats like hypermarkets,

warehouse clubs, category killers, discount stores and convenience stores in India.

In this chapter, we will look at various theories that attempt to explain the reasons for the

institutional changes taking place in the retail industry. We wil also examine the classification of

retailers.

THEORIES OF INSTITUTIONAL CHANGE

Retailing is a dynamic activity, which evolves from time to time to cope with

competition, changing consumer demand and other environmental factors. Various studies have

26

been carried out to understand the changes taking place in the retail industry. Some of the most

accepted and well known theories of the retail institutional changes are

Wheel of retailing

Dialectic process

Retail accordion

Natural selection

WHEEL OF RETAILING

Malcolm. P. McNair’s ‘Wheel of Retailing’ is one of the well accepted theories regarding

institutional changes in retailing. This theory states that in a retail institution changes take place

in a cyclical manner. The cycle is : the new retailer often enters the market with a low-status,

low-profit-margin, low-price store formats. Later, they move to up market locations and stock

premium products to differentiate themselves from imitators. Eventually, they mature as high-

cost, high-price retailers, vulnerable to new retailers who come up with other novel retailing

format/concept. This new retailer will, in turn, go through the same cycle of retail development.

A typical Wheel of retailing as shown in Figure 2.1.

According to this theory, the above cycle can be broadly classified into three phases:

Entry Phase

Trading-up phase

Vulnerability phase

Figure 2.1 : Wheel of Retailing

27

Elaborate facilities expected, essential and exotic

services, higher-rent locations, fashion orientation,

higher prices, extended product offerings.

Low Status

Low price

Minimal services Top heaviness

Minimal facilities Conservatism,

Limited product offering Declining ROI.

In the initial entry phase, the new, innovative retailer enters the market with a low-status

and low-price store format. The new retailer starts with a small that offers goods at lower prices

28

or goods that have high demand. As a result, the retailer would be able to attract customers from

more established competitors. The retailer tries to keep costs at minimum by offering only

minimal service to customers, maintaining a modest shopping atmosphere, locating the store in a

low rent area, and offering a limited product mix.

The success and market acceptance of the new retailer will force the established retailer

to imitate the changes in retailing made by the new entrant. Thus, in turn, would force the new

entrant to differentiate its products through the process of trading-up. During this period, the

retailer tries to make elaborate changes in the external structure of the store through upgradation.

The retailer will now reposition itself by offering maximum customer service, a posh shopping

atmosphere, and relocating to a high cost area (as per the convenience of the customer). Thus, in

the process of trading-up, the new entrant will mature to a higher status and higher price

operation. This change will increase the cost of the retailer. In other words, we can say that in the

trading-up phase, the innovative institution will metamorphose into a traditional retail institution.

Finally, this stage will lead to a vulnerability phase. In this phase, the innovative store will have

to deal with high cost, conservatism and fall in the return in investment. Thus, the innovative

retailer matures into an established firm and becomes vulnerable to the new innovator who enters

the market. The entry of the new innovator marks the end of one cycle and the beginning of

anew cycle in the industry.

In India, the ‘Wheel of Retailing’ can be seen with the changes taking place in the retail

formats. For example, kirana stores were replaced by chain stores like Apna Bazaar and

FoodWorld (new entrant), which, in turn, faced severe competition from supermarkets and

hypermarkets like BigBazaar and Giant.

DIALECTIC PROCESS

Another theory explaining the changes that take place in the retail institutions is the

Dialectic process or ‘melting pot’ theory. According to this theory, two institutional forms with

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different advantages modify their formats till they develop a format that combines the

advantages of both formats.

Thomas. J. Maronick and Bruce. J. Walker in ‘The Dialectic Evolution of Retailing’,

explain the dynamics of dialectic process as follows:

In terms of retail institutions, the dialectic model implies that the retailers mutually adapt

in the face of competition from ‘opposites’. Thus, when challenged by a competitor with a

differential advantage, an established institution will adopt strategies and tactics in the direction

of that advantage, thereby negating some of the innovators attraction. The innovator, meanwhile,

does not remain unchanged. Rather, as McNair noted, the innovator over time tends to upgrade

otherwise modify products and institutions. In doing so, he moves towards the ‘ negated’

institution. As a result of the mutual adaptation, the two retailers gradually move together in

terms of offerings, facilities, supplementary services and prices. They thus become

indistinguishable or at least quite similar and constitute a new retail institution, termed the

synthesis. This new institution is then vulnerable to ‘negation’ by new competitors as the

dialectic process begins anew.

Here the established firm is the one that earns profits as a result of its economies of scale.

The new firm enters the market with a new technology through which it can gain competitive

advantage. In this case, both the firms ultimately develop a format that combines the advantages

of their different formats. Figure 2.2 depicts the evolution of retail formats according to the

dialectical process.

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Figure 2.2 : The Dialectic Process

RETAIL ACCORDION

Department StoreHigh MarginLow TurnoverHigh PriceFull ServiceDowntown LocationPlush Facilities

Discount StoreLow MarginHigh TurnoverLow PriceSelf ServiceLow Rent LocationSpartan Facilities

Discount Department StoreAverage marginAverage TurnoverModest PriceSuburban LocationModel Facilities

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This theory of ‘retail institutional change’ states that institutions evolve over time from

outlets offering a wide variety of merchandise to stores offering specialized products, and the

eventually these stores begin to offer a wide variety of merchandise. According to this theory,

the merchandise mix strategies of retailers change, while the retail prices and margins remain the

same. Retail institutions can choose from a number of different strategies. These strategies range

from those that offer multiple merchandise categories with a shallow assortment of goods and

service to others that offer limited merchandise with a deep assortment of goods and services.

The fluctuations shown in figure 2.3 resemble an accordion. Firms can choose any strategy

between the two extremes. They can offer either a wide variety of goods with deep or shallow

assortment. For example, a retail institution may start as a small independent store, but as sales

increase, it may grow into a department store or even a supermarket.

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Figure 2.3: The Retail Accordion Theory

NATURAL SELECTION

Lim

ited V

ariety Retailers

(Few

merch

and

ise lines)

Wid

e Variety R

etailers(M

any m

erchan

dise lin

es)

Sh

oe Sp

ecialty Sp

ecialty Bak

ery Bou

tiqu

eS

tore Store S

tore Store S

tore

Gen

eral Dep

t. Gen

eral Su

perm

arket H

yperm

arket

Store S

tore Catalog

33

This theory is based on Darwin’s theory of evolution. According to this theory, a firm or

retail institution should be flexible enough to adapt to the changing environment and should

adapt its behaviour (to changes in the environment) to survive in the market. The retail institution

that is flexible enough to adapt to changes in the economy will be the most successful. If the

store or the retail institution is not wiling to change, it would stagnate and may even be forced to

exit the market. Thus, according to the natural selection theory, a retail institution will survive in

a competitive market only if it is willing to change its product line, price, location and

promotional strategies according to changes taking place in the retail environment. These

changes can be social, economic, political, legal or technological in nature.

UNORGANIZED RETAIL

Mom and pop stores

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The small local stores have dominated Indian retailing over the decades and are present in

every village and local community, addressing the needs of the population in the area and being

the point of contact with the consumer. The distribution networks of brands extend right up to

this point to stay in touch with customer needs and preferences.

India like most other countries has a very large network of local stores. The retail industry in

rural India has typically two forms: "Haats" and "Melas". You will find these in almost every

village and locality. A lot of them function as paan and cigarette outlets with tea and coffee

sometimes also offered. Besides this these stores stock and offer small eats and soft drinks

including biscuits, soft drinks, chocolate, sweets, bread and baked products. Many of them also

sell fruits like bananas and a range of toiletries and cosmetics like soaps, shampoos, toothpastes

and some creams. These small stores cater to the needs of their own local population and

travelers who stop by for a smoke or a snack. A little larger format is the neighborhood grocery

store that focuses on grains, foods, snacks and toiletries besides other home essentials. Fruits and

vegetables that are perishable are usually maintained and offered by exclusive vegetable stores

and not by the normal groceries. Every fair sized village is likely to have at least one grocery

store, a fruit and vegetable shop and a paan and cigarette shop. The new addition of the past

decade is to have a telephone booth that lets locals and travelers make national and international

telephone calls. This network is very large and spread all across India. It is not really a network

since each store is individual or family owned and has no connection with the other. It does

however represent a network since large consumer product companies like Unilever, Procter &

Gamble, Colgate-Palmolive, Cadbury, Coca Cola, Pepsi and ITC uses them as their final point

of retail to the consumer. While it is commonly believed that the new retail chains will drive

these small stores out of business, reality points the other way and it is likely that these stores

will continue even in the next two decades of growth. These small stores are very personal and

have strong relationships with the local population. They are points of news and connection.

They offer credit to the local population and help out in times of crisis. They also have a very

good understanding of requirements of the local population and have very low overheads

enabling them to offer the best price for their products.

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Categories of traditional retail segment

Fruit and Vegetable Sellers - Sells fruit and vegetables.

Food Store - Reseller of bakery products. Also sells dairy and processed food and beverages.

Non -Vegetable Store - Sells chicken and mutton (supplemented by fish), or predominantly

fish.

Kirana I - Sells bakery products, dairy and processed food, home and personal care, and

beverages.

Kirana II - Sells categories available at a Kirana I store plus cereals, pulses, spices, and

edible oils.

Modern Independent Stores - Sells categories available at a Kirana II store and has self-

service. Operates single or several stores (but not an organized chain of stores).

Apparel – Sells men’s wear, women’s wear, innerwear, kids’ and infant wear.

Footwear – Sells men’s wear, women’s wear, and kid’s wear.

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CDIT (Consumer Durables & IT) – Sells electronics, small appliances, durables, telecom,

and IT products.

Furnishing – Sells home linen and upholstery.

Hardware - Sells sanitary-ware, taps and faucets, door fittings, and tiles.

General Merchandize – Includes lightning, stationery, toys, gifts, utensils, and crockery

stores.

Conventional formats in unorganized retail sector

Kiranas

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These are food and non-food neighborhood counter stores, also called ‘mom and pop stores’ in

western countries. These are big chunks forming the segregated and unorganized retail segment.

These are family-owned and- run retail-outlets picking the goods from wholesalers totaling to

around 12 million stores across India.

Mandis

These are the largest chunk of unorganized retail catering to urban and rural masses. Mandis are

physically located at different regions to enhance convenient shopping. The sellers bring across

various products like eatables, vegetables and fruits, pulses, cereals, spices etc. The most

prominent of them are sabzi mandis found in most of the localities across India.

Village Haats

This form is operating in rural areas where buyers and sellers gather once in a week or month

from nearby villages and small towns to cater their livelihood and leisure needs. These haats are

a source of entertainment and socialization among rural masses.

Push Cart Vendors

The are categories of vendors roaming from door to door in various localities selling fruits,

vegetables, and other eatables, from which mostly housewives makes purchases that too on

credit.

Size of Unorganized Outlets

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Traditional stores are mostly small in size. The traditional retail outlets had an average size of

217 sq. ft. including the storage area, with textiles and clothing shops having a higher average

size of 256 sq. ft. and fixed fruit and vegetable shops an average size of 129 sq. ft. The grocery

and general stores have an average size of 216 sq. ft. including the storage area

Employment

The unorganized retail outlets employ more family labour than hired labour; on an average

they employ 1.5 persons per shop from the family, and hired employees’ of 1.1 persons. There is

a marginal increase in overall employment for these outlets over the period of existence of

organized retail outlets.

Response to competition

Unorganized retailers have indicated a number of steps taken in response to competition from

organized retail, such as adding new product lines and brands, better display, renovation of the store,

introduction of self service, enhanced home delivery, more credit sales, acceptance of credit cards,

etc.

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ORGANIZED RETAIL

Introduction

An important aspect of the current economic scenario in India is the emergence of organized

retail. There has been considerable growth in organized retailing business in recent years and it is

poised for much faster growth in the future. Major industrial houses have entered this area and

have announced very ambitious future expansion plans. Transnational corporations are also

seeking to come to India and set up retail chains in collaboration with big Indian companies.

However, opinions are divided on the impact of the growth of organized retail in the country.

Concerns have been raised that the growth of organized retailing may have an adverse impact on

retailers in the unorganized sector. It has also been argued that growth of organized retailing will

yield efficiencies in the supply chain, enabling better access to markets to producers (including

farmers and small producers) and enabling higher prices, on the one hand and, lower prices to

consumers, on the other. In the context of divergent views on the impact of organized retail, it is

essential that an in-depth analytical study on the possible effects of organized retailing in India is

conducted.

The Indian retail sector is highly fragmented, consisting predominantly of small, independent, owner-

managed shops. The domestic organized retail industry is at a

nascent stage. At the macro level factors such as rising

disposable income, dominance of the younger population in

spending, urbanization, shift of the traditional family

structure towards the nuclear family are buttressing the

organized retail growth in India. Being considered as a

sunrise sector of the economy, several large business houses are entering the retail industry under

multiple modern retail formats. On the one hand, the advancement of information technology is

improving end-to-end business processing by integrating the entire value chain, backward and

forward, for operational efficiencies. On the other hand, rising real estate prices, infrastructure

constraints, and expensive technology are making the retail industry capital intensive.

Malls: The new face of retail market

Robust GDP growth, stronger currency reserves and ever-improving market and operating

environments are propelling the Indian market through a period of stellar growth - and the retail

community is responding with newer formats and innovative products. The economy of India has

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shown a remarkable increase driven by overall political and social stability.

The decade-old economic reforms have engendered a new, shop-till-you-drop breed of middle

class Indians who, having tasted the shopping experience of big cities overseas, have fuelled a

demand that was inevitable - the rise of the shopping malls. Centrally air-conditioned malls with

piped music, high-speed lifts and escalators, underground parking space, a multiplex movie

theater, multi-cuisine restaurants and a host of national and international brands, these malls

generates approximately 25,000 footfalls each, per day, with figures doubling on weekend

Retail in organised sector of India (segment wise): 2006

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Retail SegmentsIndia Retail Value

(Rs.Crore)

Organised Retail

(Rs.Crore)

% Organised in

2006

Clothing, Textiles & Fashion

Accessories 113,500 21,400 18.9

Jewellery 60,200 1,680 2.8

Watches 3,950 1,800 45.6

Footwear 13,750 5,200 37.8

Health & Beauty care services 3,800 400 10.6

Pharmaceuticals 42,200 1,100 2.6

Consumer Durables, Home

Appliances/equipments 48,100 5,000 10.4

Mobile handsets. Accessories

& Services 21,650 1,740 8.0

Furnishings, Utensils,

Furniture-Home & Office 40,650 3,700 9.1

Food & Grocery 743,900 5,800 0.8

Catering Services (F & B) 57,000 3,940 6.9

Books, Music & Gifts 13,300 1,680 12.6

Entertainment 38,000 1,560 4.1

  Total US$ 270 Billion US$ 12.4 Billion  

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Categories of retail segments in organized sector

Food and Grocery

This is the largest vertical of 74.4 percent of retail size compromising fruits and vegetables, milk

and milk products, staples, cereals, grains, pulses, processed food, ready to cook and ready to eat

meals, spices and other eatables. This is least penetrated segment across all verticals of around

1percent, being the most untapped pie.

Apparels

Clothing and textile is a large organized vertical dominated by textile manufacturers Raymond,

Bombay Dyeing, Vimal, and by big retailers like Pantaloon, Pyramyd, Koutons having around

19 percent penetration level. Increasing disposable incomes and change in the lifestyle needs has

pushed the segment.

Consumer Durables

The electronics and consumer durable is the biggest organized segment penetrated to around 10

percent. There lies more unearthed growth in the verticals as the craze for electronic gadgets

have been picking up with the advent of nuclear families.

Home Décor and furnishing

The demand for furnishing is going to be spearheaded by a huge demand for the real-estate,

paving way to tap the unorganized segment. Presently only a few players like Gautier, Godrej, &

Durian function as organized entities.

Jewellery andWatches

Titan is the early entrant in the segment followed by MNCs Oyzterbay, Tanishq, Swaroski, Orra,

Gitanjali, & D’damas driven by demand for fashion accessories, and huge advertising and

promotion campaigns.

Beauty Care

The organized players in Beauty Care are HUL (Lakme Salons), Marico (Kaya), Health and

Glow are having a huge growth impetus.

Footwear

Leaving aside the Apparel, Footwear segment is forming a big pie in the organised retail sector,

expected to grow to greater heights with foreign payers like Crocs Inc.

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Books, Music and gifts

In addition to Tier-II and Tier-III cities, the habit of reading books and listening to music is

picking up among the Tier-I cities. The stores like Oxford Bookstore etc are experiencing this

upswing.

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Modern formats in Organised Retailing

The following are the major modern formats in organized retailing:

Hypermarket

Description: Larger than a supermarket, sometimes with a warehouse appearance, generally

located in quieter parts of the city

Value preposition: Low prices, vast choice available including services such as cafeterias.

Typically varying between 50,000 sq. ft. and 1, 00,000 sq. ft., hypermarkets offer a large basket

of products, ranging from grocery, fresh and processed food, beauty and household products,

clothing and appliances, etc. The key players in the segment are: the RPG Group's Giant

(Spencer’s) hypermarkets, and Pantaloon Retail's Big Bazaars.

Cash-and-carry

These are large B2B focused retail formats, buying and selling in bulk for various commodities.

At present, due to legal constraints, in most states they are not able to sell fresh produce or

liquor. Cash-and-carry (C&C) stores are large (more than 75,000 sq. ft.), carry several thousand

stock-keeping units (SKUs) and generally have bulk buying requirements. In India an example of

this is Metro, the Germany-based C&C, which has outlets in Bangalore and Hyderabad.

Department Store

Description: Large stores having a wide variety of products, organized into different departments

such as clothing, house wares, furniture, appliances, toys, etc. Value preposition: One

stop shop catering to varied/ consumer needs.

Department stores generally have a large layout with a wide range of merchandise mix, usually

in cohesive categories, such as fashion accessories, gifts and home furnishings, but skewed

towards garments. These stores are focused towards a wider consumer audience catchment, with

in-store services as a primary differentiator. The department stores usually have 10,000 - 60,000

sq. ft. of retail space. Various examples include:

(i) Shoppers' Stop, controlled by the K. Raheja Group, a pioneering chain in the

country's organized retail;

(ii) Pantaloons, a family chain store, which is another major player in the segment;

(iii) Westside, the department store chain from Tata Group's Trent Ltd;

(iv) Ebony, a department store chain from another real estate developer, the DS Group;

(v) Lifestyle, part of the Dubai-based retail chain,Landmark Group; and

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(vi) The Globus department and superstore chain.

Supermarket

Description: Extremely large self-service retail outlets

Value preposition: One stop shop catering to varied consumer needs

Supermarkets, generally large in size and typical in layouts, offer not only household products

but also food as an integral part of their services. The family is their target customer and typical

examples of this retailing format in India are Apna Bazaar,

Sabka Bazaar, Haiko, Nilgiri's, Spencer’s from the RPG Group, Food Bazaar from

Pantaloon Retail, etc

Shop-in-Shop

There is a proliferation of large shopping malls across major cities. Since they are becoming a

major shopping destination for customers, more and more retail brands are devising strategies to

scale their store size in order to gain presence within the large format, department or

supermarket, within these malls. For example, Infinity, a retail brand selling international

jewellery and crystal ware from Kolkata's Magma

Group, has already established presence in over 36 department chains and exclusive brand stores

in less than five years. Shop-in-shops have to rely heavily on a very

134 efficiently managed supply chain system so as to ensure that stock replenishment is done

fast, as there is limited space for buffer stocks.

Speciality Store

Description: Focus on a specific consumer need, carry most of the brands available

Value preposition: Greater choice to the consumer, comparison between brands is possible

Speciality stores are single-category, focusing on individuals and group clusters of the same

class, with high product loyalty. Typical examples of such retail format are: footwear stores,

music stores, electronic and household stores, gift stores, food and beverages retailers, and even

focused apparel chain or brand stores. Besides all these formats, the Indian market is flooded

with formats labeled as multi-brand outlets

(MBOs), exclusive brand outlets (EBOs), kiosks and corners and shop-in-shops.

Category Killers – Large Speciality Retailers

Category killers focus on a particular segment and are able to provide a wide range of choice to

the consumer, usually at affordable prices due to the scale they achieve.

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Examples of category killers in the West include Office Mart in the US. In the Indian context,

the experiment in the sector has been led by “The Loft”, a footwear store in

Powai, Mumbai measuring 18,000 sq. ft.

Discount Store

Description: Stores offering discounts on the retail price through selling high volumes and

reaping economies of scale

Value preposition: Low Prices

A discount store is a retail store offering a wide range of products, mostly branded, at discounted

prices. The average size of such stores is 1,000 sq.ft. Typical examples of such stores in India

are: food and grocery stores offering discounts, like Subhiksha,

Margin Free, etc. and the factory outlets of apparel and footwear brands, namely of,

Levi’s, Nike, Koutons, etc.

Convenience Store

Description: Small self-service formats located in crowded urban areas.

Value preposition: Convenient location and extended operating hours.

A convenience store is a relatively small retail store located near a residential area

(Closer to the consumer), open long hours, seven days a week, and carrying a limited range of

staples and groceries. Some Indian examples of convenience stores include:

In & Out, Safal. The average size of a convenience store is around800 sq.ft.

E-tailing

The increase in the PC and internet penetration along with the growing preference of Indian

consumers to shop online has given a tremendous boost to e-tailing-the online version of retail

shopping. An estimated 10 per cent of the total e-commerce market is accounted by e-tailing.

With todays, net-savvy Indians making online purchases like never before, both the number

and variety of products sold online have grown exponentially. According to the Indian Marketing

Research Bureau (IMRB) and Internet and Mobile Association of India (IAMAI), the e-tail

market is estimated to grow by 30 per cent to US$ 273.02 million in 2007-08, from US$ 210.01

million in 2006-07.

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In fact, there has been a continuous rise in the number of people accessing the internet.

According to online research and advisory firm JuxtConsult's 'India Online 2008', there are over

49 million internet users in India. Significantly, internet penetration (as a percentage of

population) has grown to 12 per cent, up 3 per cent from last year's 9 per cent.

In modern retailing, a key strategic choice is the format. Innovation in formats can provide an

edge to retailers. Organized retailers in India are trying a variety of formats, ranging from

discount stores to supermarkets to hypermarkets to specialty chains.

Formats Adopted by Domestic Players in India

RPG Retail

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Original format: Supermarket (Foodworld)

Later formats: Hypermarket (Spencer's)Specialty Store (Health and Glow)

India bulls (earlier Parimal)

Original format: Department Store (India bull stores formerly known as Piramyd Megastore)

Later formats: Discount Store (TruMart) Pantaloon

Retail

Original format: Small format outlets (Shoppe) Department Store (Pantaloon)

Later formats: Supermarket (Food Bazaar) Hypermarket (Big Bazaar) Mall (Central)

K Raheja Group

Original format: Department Store (shopper's stop)Specialty Store (Crossword)

Later formats: Supermarket (TBA) Hypermarket (TBA)

Tata/ Trent

Original format: Department Store (Westside)

Later formats: Hypermarket (Star India Bazaar)

Landmark Group

Original format: Department Store (Lifestyle)

Later formats: Hypermarket (TBA)

Others

Discount Store (Subhiksha, Margin Free, Apna Bazaar), Supermarket (Nilgiri's)

Formats adopted by international players in India

Franchise

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Franchise route involves granting of rights by one party, the franchiser to another, the franchisee

in return for a sum of money. The franchisee is allowed to conduct business using the

franchiser’s know-how and brand name. There are various levels of franchisee: Unit franchisee,

multiple franchises, master franchisee and regional franchisee. The foreign players which have

opened franchisee across various verticals of fast food, apparels, and entertainment are Nike,

Pizza Hut, Subway, Tommy Hilfiger, Marks and Spencer, Swarovski and Hugo Boss.

Cash and Carry Wholesale Trade

In Cash and Carry Wholesale Trading, 100 percent FDI has been allowed under the automatic

route by FIPB to encourage efficiency in back end supply chain management. The players like

Metro, Shoprite and Wal-mart have forayed to strengthen the supply-chain management as done

by the manufacturers and wholesalers till now.

Joint Venture

Multi National like McDonalds, Reebok, and Wal-mart has entered into joint venture with Indian

companies with share not exceeding 49 percent.

Manufacturing

The foreign manufactures sets up its Indian unit to manufacture and forward integrated to

retailing its products like Bata and Benetton.

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Leading Retail Chains

Food and grocery retail segment has highest retail value and is least explored by organized

retail sector. But now a day many big companies like Reliance (Reliance Fresh), Aditya Birla

Group (More), Godrej (Nature’s Basket) have entered in this segment. Following are some of the

food retail chains present in India

FoodWorld has become India’s largest and fastest growing supermarket chain. Today, over 89

stores offer customers a variety of brands at a very reasonable price. FoodWorld in India is an

alliance between the RPG Group in India with Dairy Farm International of the Jardine Matheson

Group. Food World aims at establishing 100 stores all over Tamil Nadu, Andhra Pradesh,

Karnataka and Maharashtra by mid-2004 with a turnover of Rs.500 crores.

Trinethra is a supermarket chain that has predominant presence in the southern state of Andhra

Pradesh with 66 stores spread over 8 districts of the state. Their turnover was Rs. 78.8 crores for

the year 2002-03. This figure is expected to touch the Rs.100 crores mark by 2003-04. The

Trinethra group came into being as a single store in the year 1986. They plan to saturate their

presence through out the state of Andhra Pradesh before venturing into two more southern states

of the country. The group plans to venture into the lower level regions like smaller towns and

mandals by using the franchisee-model. They are also very clear that they would be setting up

three hypermarkets in the state soon.

Apna Bazaar, the Rs 140-crore consumer cooperative society with a customer base of over 12

lakh, plans to cater to an upwardly mobile urban population – a first for the 55-year-old chain

that has mostly been identified with the ‘middle class’. The plans include trimming and training

the workforce, opening new outlets and focusing on the FMCG sector. Now, the cooperative has

80 outlets in Mumbai, Thane and the neighboring Konkan region. It has recently opened its first

shop outside the state in Goa. The revenue target for 2003-04 is Rs 150 crore. The chain plans to

remain open all days of the week and this itself is expected to fetch about Rs 10 crore a year.

Big Bazaar – Pantaloons (Food Bazar)

After Bangalore, Hyderabad and Kolkata, BIG Bazaar, a division of Pantaloon Retail (India) Ltd

has stretched its brand to Mumbai by opening hyper markets in the city. Offering discounts

ranging from 5 per cent to 60 per cent, discount stores are still a nascent concept in India. Big

Bazaar launched its stores in Bangalore, Hyderabad and Kolkata in 2001. Marking an investment

of Rs 10 crore into this new division, Pantaloon is expects to record the highest turnover from its

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Mumbai stores to the tune of almost Rs 80 crore from Mumbai alone within the first year of

operations. But the turnover from its other Big Bazaar stores in Bangalore, Hyderabad and

Kolkata is Rs 50 crore this year. Big Bazaar claims to be India's first chain of hypermarket

discount stores.

Margin Free

The Kerala-based Margin Free discount stores, the `pure retail' chain with arguably the largest

presence in the country. The retail store chain is uniformly spread across the 240-odd Margin

Free franchisees in Kerala, Tamil Nadu and Karnataka. Margin Free draws inspiration from the

undying loyalty of its customers who have wholeheartedly welcomed all its growth plans in the

past.

Subhiksha

The Chennai-based retail food and pharmacy chain Subhiksha supermarket sells household items

and medicines at significant discount to normal prices. The first Subhiksha store was opened in

Tiruvanmiyur in Chennai in March 1997. In 2003 it has grown to Rs 224 crores turnover and Rs

3 crores profit.

Nilgiris

Muthusamy Mudaliar opened a small bunk shop in Ooty. That was in 1905 and the beginning of

a long story in procurement and customer satisfaction. In 1936, the shop moved to Bangalore

with its registered office on Brigade Road, a small shop exactly where the huge mother store is

now located. The first expansion happened when Muthusamy Mudaliar's son Chenniappan, also

the chairman, established Nilgiris as a modest store carrying Nilgiris' own products, mostly dairy

and bakery. Eventually, it evolved into a supermarket when Mr Chenniappan visited the U.S. and

Europe and was influenced by the old supermarket concept in the west. This chain has now

blossomed to cover a vast region in South India

Retail in small towns

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Retailer inspired by the Wal-mart story of growth in small town America, are tempted to focus

on smaller towns and villages in India

It's raining malls in small-town India. Whether it's Kanpur, Ahmedabad, Indore, Agra, Baroda

or Surat, the mall and multiplex culture has caught on in the country's smaller cities, powered by

the burgeoning purchasing power of India's middle-class. From a handful of malls in the mid

'90s, India today has nearly 200 malls spread across large and small cities. And 700 new malls

are coming up all over India-40% of them concentrated in the smaller cities.

Small-town India is the next big thing in the retail business. Consider these numbers: in 2005, the

contribution of smaller cities to total organized retailing sales was 15%. By the end of this year,

that proportion is expected to grow to 25%. Organized retailing in small-town India is growing at

a staggering 50-60% a year compared to 35%-40% in the large cities. The striking point is that it

is the big names in the organized retail business that are eyeing these new opportunities.

The Kishore Biyani-owned Future Group, India's largest retailer, plans to invest Rs 3,600 crore

in 100 stores in 30 cities, increasing its retail space from 3.5 million square feet to 30 million sq

feet. The RPG group plans to open malls in all cities with a population of over 8 lakh.

Similarly, Wills Lifestyle, the garments and accessories retailing division of ITC Ltd, plans to

increase its footprint by doubling the number of stores from 50 to around 100 in the next two to

three years, mostly in smaller cities. Even Sunil Mittal's Bharti group has announced plans to get

into food and farm products retailing. All these plans, however, are dwarfed by Mukesh

Ambani's ambitions to do a Wal-Mart in India by investing $5.60 billion (Rs25, 000 crore) and

covering 1,500 cities and towns.

The small-town retail boom could be considered a show-case of India's free-market prosperity. It

is being powered by healthy economic growth that is making more Indians more prosperous.

Organised retailers have understood this and are hoping to ride the wave, exploit the first-mover

advantage and establish strong brand loyalties in these relatively under-served markets.

Indeed, this is probably the most compelling example of the trickle-down impact of liberalisation

in India. Looking ahead, retail analysts suggest that the sustained success of the IT and IT

industries in small towns is expected to create more jobs and enhance spending power.

Typically, small cities offer a 15% to 30% cost advantage over larger cities, not just in terms of

employee costs but real estate costs as well, not to speak of the gains that accrue from reduced

staff attrition rates. This gap is expected to widen over the next few years, creating a pull for

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smaller towns that will, in turn, power the small-town retail revolution.

At present, real estate costs present a major incentive for India's organized retailers. Average

rental values for ground-floor space are Rs 50-60 per square foot a month, against Rs 100-120

per sq foot a month in the bigger cities. However, a strong demand for retail space has more than

doubled rentals in cities like Jaipur, Chandigarh, Surat and Lucknow. While in the metros,

retailers are filling gaps by increasing more stores, in small towns, these malls are way beyond

the expectations of the consumers. These cities are untapped markets and retailers find it

important to establish their brands.

Most smaller cities are seeing plenty of action. For instance, Ludhiana can already boast

worldwide restaurant chains like KFC, McDonald's, Pizza Hut, Domino's Pizza, Ruby Tuesday

and Subway. A new world-class, 25-acre commercial centre and some seven new shopping

malls-cum-entertainment centres are under construction.

The Indian retail market is estimated at $350 billion. But organized retail is estimated at only $8

billion. However, the opportunity is huge—by 2010, organized retail is expected to grow to $22

billion. With the growth of organized retailing estimated at 40% (CAGR) over the next few

years, Indian retailing is clearly at a tipping point. India is currently the ninth largest retail

market in the world. It is names like Dehradun, Vijayawada, Lucknow and Nasik that will power

India up the rankings soon.

Challenges for organized retail:

Customer convenience

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Unorganized retailers provide convenience to customers as they are located near by

residential area. They also have good relationship with customers to allow them buy the goods

on credit which organized retailers cannot provide.

Surplus of labour / Shortage of Skilled manpower

Organized retailers, in India, worry about losing out to their micro, unorganized competitors.

In India, unlike in the industrialized countries, labor is typically not the critical cost factor in

establishing a business, and this may make a business model based on replacing labor with

technology vulnerable. India has surplus of manpower which will be left unutilised there by

leading to increase in unemployment. The manpower needed by this sector is mainly skilled

labour which is limited in our country.

High price of Retail Space

Real estate prices in India’s urban areas are skyrocketing. The efficiency gains of organized

retail may not be sufficient to counteract these costs.

Inadequate Infrastructure

In addition, large retail franchises depend on reliable and integrated infrastructure.

Telecommunications modernization has been a success story in India. The other critical sectors,

notably roads, ports, air cargo facilities, and electric power, are seeing increased investment but

are still well below international standards.

Government Policies – different priorities in different states

Organized retailers, like other businesses, face the constraints of red tape and intrusive

government regulations. A 2003 study estimated that new retail stores require an average of 15

different licenses from different national and state governing bodies. Also, environmental

regulations, generally not very stringent in India, have fallen more heavily on the retail sector.

Impact of organized retail

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Impact on Unorganized Retailers

Unorganized retailers in the vicinity of organized retailers experienced a decline in their

volume of business and profit in the initial years after the entry of large organized retailers.

The adverse impact on sales and profit weakens over time.

There was no evidence of a decline in overall employment in the unorganized sector as a

result of the entry of organized retailers.

There is some decline in employment in the North and West regions which, however, also

weakens over time.

The rate of closure of unorganized retail shops in gross terms is found to be 4.2 per cent per

annum which is much lower than the international rate of closure of small businesses.

The rate of closure on account of competition from organized retail is lower still at 1.7 per

cent per annum.

There is competitive response from traditional retailers through improved business practices

and technology up gradation.

A majority of unorganized retailers is keen to stay in the business and compete, while also

wanting the next generation to continue likewise.

Small retailers have been extending more credit to attract and retain customers.

However, only 12 per cent of unorganized retailers have access to institutional credit and 37

per cent felt the need for better access to commercial bank credit.

Most unorganized retailers are committed to remaining independent and barely 10 per cent

preferred to become franchisees of organized retailers.

Impact on Consumers

Consumers have definitely gained from organized retail on multiple counts.

Overall consumer spending has increased with the entry of the organized retail.

While all income groups saved through organized retail purchases, the survey revealed that

lower income consumers saved more. Thus, organized retail is relatively more beneficial to the

less well-off consumers.

Proximity is a major comparative advantage of unorganized outlets.

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Unorganized retailers have significant competitive strengths that include consumer goodwill,

credit sales, and amenability to bargaining, ability to sell loose items, convenient timings, and

home delivery.

Impact on Intermediaries

The study did not find any evidence so far of adverse impact of organized retail on

intermediaries.

There is, however, some adverse impact on turnover and profit of intermediaries dealing in

products such as, fruit, vegetables, and apparel.

Over two-thirds of the intermediaries plan to expand their businesses in response to increased

business opportunities opened by the expansion of retail.

Only 22 per cent do not want the next generation to enter the same business.

Impact on Farmers

Farmers benefit significantly from the option of direct sales to organized retailers.

Average price realization for cauliflower farmers selling directly to organized retail is about

25 per cent higher than their proceeds from sale to regulated government mandi.

Profit realization for farmers selling directly to organized retailers is about 60 per cent higher

than that received from selling in the mandi

The difference is even larger when the amount charged by the commission agent (usually 10

per cent of sale price) in the mandi is taken into account.

Impact on Manufacturers

Large manufacturers have started feeling the competitive impact of organized retail through

price and payment pressures.

Manufacturers have responded through building and reinforcing their brand strength,

increasing their own retail presence, ‘adopting’ small retailers, and setting up dedicated teams to

deal with modern retailers.

Entry of organized retail is transforming the logistics industry. This will create significant

positive externalities across the economy.

Small manufacturers did not report any significant impact of organized retail.

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Impact on India

The emergence of organized retail gives consumers a wider choice of goods, more

convenience, and a better shopping environment.

Traditional retailers (kirana stores, street hawkers, and wetmarket stall operators) occupy an

overwhelmingly large space in Indian food retail; almost 99 percent of food and grocery being

sold in this country is through traditional retailers. These traditional retailers are upgrading their

stores to compete with organised retailers.

Farmers are gaining because organised retailers are procuring directly from them thereby

eliminating middle men and cost. So retailers are in position to pay higher prices to farmers.

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UNDERSTANDING THE RETAIL CUSTOMER

To understand the purchasing patterns of customers, it is vital to understand the customer

nature and examine the external factors that influence their buying behavior. The increasing

value perception among customer is putting more pressure on the retailer to offer merchandise of

superior quality that is valuable to the consumer’s eye. Retailers explore investment

opportunities after analyzing the customer’s needs, aspirations, shopping preferences and buying

behavior.

In India, there are huge differences in the social practices and food habits of people in the

various regions. The cultural difference in India, when compared to the rest of the world, and

even other countries within Asia, is striking.

Before liberalization, the Indian market was a seller-driven market. But liberalization has

changed the face of the Indian retail market, especially in the Fast Moving Consumer Goods

(FMCG) and consumer durables sector. Liberalization also witnessed the entry of multinationals

resulting in the radical improvement in the models, features, technology and sizes of consumer

durables available in India. Since 1991, the FMCG sector in India has been trying to cater to the

consumers, according to the mindset of the Indian customer, and to deliver quality products at

low costs. In short, consumers have gained much significance in the market with a wide range of

products, a multitude of brands (Indian and foreign), various financing options, large onestop

shops, colorful stores and shopping malls.

Retailing includes the purchasing and selling of products and services to the consumer,

who buys them for individual and household consumption. The consumption of goods and

services depends on the individual’s preferences and choices. Thus, consumer behavior plays an

important role in the determining the success and growth of retail stores.

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THE MARKET

A market can be defined as a group of consumers or organizations that is interested in a

particular product, has the resources to purchase the products, and is permitted by the law to

acquire these products. A market definition begins with the total population and progressively

narrows down to the target market and then to the penetrated market.

A retail market is a place where all the retailers compete with each other for recognition

acceptance through various merchandise promotional activities. Thus, to understand the retail

market, one has to understand the structure of the buying population and their behavior.

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DIAGRAMATICAL REPRESENTATION OF MARKET

TOTAL POPULATION

POTENTIAL MARKET

AVAILABLE MARKET

QUALIFIED AVAILABLE MARKET

TARGET MARKET

POTENTIAL MARKET

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STRUCTURE OF THE BUYING POPULATION AND THEIR

BEHAVIOR

A retailer should understand the structure of the population and their buying behavior, so

that he can cater to the needs of the buyer in a better way. Buying behavior deals with the

process a consumer undergoes while deciding whether to purchase a product/ service or not.

Based on the customer’s nature and his intentions behind purchasing the merchandise, the buying

population can be divided in to two categories – the consumer market and the organizational

market.

CLASSIFICATION OF BUYING POPULATION

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WHY RETAIL SECTOR IS BOOMING?

The Growth Drivers

Much spoken about industry in India today is retail and every big foreign retail brand wants to

have a share of it. Why are they so eager to capture this market? Due to the following reasons

The economy is growing by 8% a year, its stock market rose by nearly 40% in 2005 and

foreign investors are flooding in. There are about nine million small grocery shops in India

whichever way you measure it, business in India is booming. And as the economy grows so does

India's middle class.

It is estimated that 70 million Indians in a population of about 1 billion now earn a salary of

$18,000 a year, a figure that is set to rise to 140 million by 2011. Many of these people are

BUYING POPULATION

CONSUMER MARKETORGANISATIONAL

MARKET

CORPORATES RESELLERS

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looking for more choice in where to spend their new-found wealth. This has led to increase in

purchasing power of Indians.

India's consumer market is riding the crest of the country's economic boom. A young

population with access to disposable income seems to have facilitated a growth in the retail

industry as global super marts make India their favoured destination.

Also, the rise in the working population which is young, pay- packets which are hefty, more

nuclear families in urban areas, rise in the number of women working, more disposable income

and customer aspiration, western influences and growth in expenditure for luxury items. All

these are the factors for the growth in Indian organized retail sector.

The Indian Retail growth can be attributed to the several factors including

Demography Dynamics: Approximately 60 per cent of Indian population below 30 years of

age.

Higher disposable income: The disposable income has been showing a rapid

increase from the last few years and is expected to grow steadily

Double Incomes : Increasing instances of Double Incomes in most families as both the

partners are working coupled with the rise in spending power.

Adoption of Nuclear Family culture: The increase in per capita income paved way to increase

the nuclear-family culture. The proportion of nuclear families as a percentage of total

household population has increased

Robust Outlook towards Branded products: Due to liberalization of manufacturing sector,

various organized branded products have entered into Indian markets, thereby developing and

widening the basket for branded finished goods.

Growth in Retail Malls and various other new Formats: Real Estate players like Raheja’s, Future

Group, DLF, Omaxe, Piramal Group, Parsvnath, Unitech are developing retail malls and leasing

out the retail spaces to various retailers of varied products making it a one-stop shopping

destinations in urban and semi-urban cities. These shopping-cum-entertainment malls are wooing

young buyers to increase their conversion rate backed by increasing foot-falls.

Plastic Revolution : Increasing use of credit cards for categories relating to Apparel,

Consumer Durable Goods, Food and Grocery etc.

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Urbanization: increased urbanization has led to higher customer density areas thus enabling

retailers to use lesser number of stores to target the same number of customers. Aggregation of

demand that occurs due to urbanization helps a retailer in reaping the economies of scale.

Drivers of growth in organised retail

India is currently in the second phase of the retail evolution, with domestic customers

becoming more demanding with their rising standard of living and changing lifestyles.

Change in customers' focus from just buying to broad shopping (buying, entertainment and

experience) has led to a pick-up in momentum in organised formats of retailing. The following

are the drivers for organised retail in India:

The spread between yield on property and its financing cost has turned positive with the fall

in interest rates. Attractive yields on investments have resulted in a sharp increase in property

development. It is estimated that India will have over 600 malls by 2010, with as much as 100

million sq ft retail space.

Pro-active steps taken by the government permitting use of land for commercial development

in various cities, including Mumbai and Delhi, have also contributed to increased availability of

retail space in the country.

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Availability of retail space is expected to increase further whenever property funds and

investment trusts are permitted, which will help create a secondary market for real estate in the

country.

Consumerism and brand proliferation also enhanced organised retailing in the country. Most

of the world's leading brands, including like L'Oreal, Espirit, Louis Vuitton, Marks & Spencer,

Tommy Hilfiger, Louis Phillipe, Levis, Pepe, Lee, Arrow, Dockers, Red Tape, Clairns, Hugo

Boss, Tiffany, Bulgari, Ecco, Chambor, Revlon, Philips, Corelle, Magppie, Nike, Reebok,

Parker, Ray Ban, Lego and Mattel, are now present in India.

Another factor that accelerated the growth of organised retailing is media proliferation.

Increased advertisements and brand promotions have led to a growing consumer spending across

a wide range of product categories.

Investment Opportunities

The total estimated Investment Opportunity in the retail sector is around US$ 5-6 Billion in

the Next five years. The following are the areas for investment:

In Location : with modern retail formats having made their foray into the top cities namely

Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Delhi, Nagpur there

exists tremendous potential in two tier towns over the next 5 years.

In Sectors with High Growth Potential: Certain segments that promise a high growth are

Food and Grocery (91 per cent), Clothing (55 per cent), Furniture and Fixtures (27 per cent),

Pharmacy (27 per cent), Durables, Footwear & Leather, Watch & Jewellery (18 per cent).

Fastest Growing Formats that offer good growth potential are: Specialty and Super Market (45

per cent) Hyper Market (36 per cent) Discount stores (27 per cent) Department Stores (18 per

cent) Convenience Stores and E-Retailing (9 per cent)

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In Supply Chain Infrastructure : Supply chain infrastructure in terms of cold chain and

Logistics.

In Rural Retail : Retail sector offers opportunities for exploration and investment in rural

areas, with Corporate and Entrepreneurs having made a foray in the past. India's largely rural

population has caught the eye of retailers looking for new areas of growth. ITC launched the

country's first rural mall 'Chaupal Sagar', offering a diverse product ranges from FMCG to

electronics appliance to automobiles, attempting to provide farmers a one-stop destination for all

of their needs. There has been yet another initiative by the DCM Sriram Group called the

'Hariyali Bazaar’ that has initially started off by providing farm related inputs and services but

plans to introduce the complete shopping basket in due course. Other corporate bodies include

Escorts and Tata Chemicals (with Tata Kisan Sansar) setting up agri-stores to provide

products/services targeted at the farmer in order to tap the vast rural market.

In Wholesale Trading: Wholesale trading also holds huge potential for growth. German giant

Metro AG and South African Shoprite Holdings have already made headway in this segment by

setting up stores selling merchandise on a wholesale basis in Bangalore and Mumbai

respectively. These new-format cash-and-carry stores attract large volumes from a sizeable

number of retailers who do not have to maintain relationships with multiple suppliers for all their

needs.

In Cheap Consumer Credit : it has great opportunity for retailers to provide credit to

consumers with low or no interest on it.

Growth in support industries

India’s retail boom has seen several beneficial spin-offs for a variety of allied industries such

as logistics and air-conditioning. Newer industries are seeing a boom arising from the rapid

growth of the retail industry in India. With an expected $412 billion investment projected to

come into the Indian retail industry by the year 2011, there are several sectors that will continue

to profit from this boom.

Both Indian and foreign companies in sectors such as airlines, commercial refrigeration and

air-conditioning, logistics, smart card makers are all tying up with retailers to be part of the

growth. One of the first industries to see this growth is the commercial refrigeration and air-

conditioning sector, due to the rise of organized food retailer.

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Logistic companies are also poised for significant growth and several foreign companies such

as Bax Global, Prologis and PWC Logistics are expanding operations in India. Indian operators

include The Tata Group which as tied up with DHL for its Croma Stores, Air Deccan which is in

talks with several retailers and Go Air which is soon launching its cargo division.

PANTALOON RETAIL INDIA LIMITED (PRIL)

Pantaloons Retail India Limited (PRIL) began its operations in 1996 in Kolkata in solo men’s-

wear, Pantaloon brand trousers, in a single-store format. Later, the firm sold its trouser brand

through franchising to traditional retailers. In 2001, the company changed its focus to family

retailing in the large mega-store format. Today, PRIL has expanded its business incorporating

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joint ventures and subsidiaries across six verticals under the Future Group umbrella: real estate,

asset management, logistics, brand management, home solutions, and retail which is the nucleus.

PRIL is the pioneer of the India’s first modern retail in the hypermarket format and is recognized

as an organized multi-format retailer. The firm’s business strategy is to capture a greater share of

the consumer wallet by covering all customer segments in all age-groups, in all product

categories through multiple retail formats nationwide.

The Pantaloon Retail business model also incorporates strategic tie-ups and joint ventures with

some of the leading foreign brands. In 2006, the company generated Rs. 19.3 million in business

sales and is directly accountable for employment of 14,500 people. Additionally, the company’s

array of private labels across several product categories, indirectly create supply demand for

small-scale domestic suppliers.

Pantaloon Retail (India) Limited, is India’s leading retailer that operates multiple retail

formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in

Mumbai (Bombay), the company operates over 10 million square feet of retail space, has over

1000 stores across 61 cities in India and employs over 30,000 people.

The company’s leading formats include Pantaloons, a chain of fashion outlets,  Big Bazaar, a

uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends the look, touch

and feel of Indian bazaars with aspects of modern retail like choice, convenience and quality and

Central, a chain of seamless destination malls. Some of its other formats include, Depot, Shoe

Factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Star and Sitara.

The company also operates an online portal, futurebazaar.com.

At present, the company operates nearly13428 stores in over 25 cities across the nation and

occupies an aggregate area of 3.2 million sq. ft. PRIL is penetrating the market through

aggressive store roll-out plan and projects nearly 2,422 stores occupying 30 million sq. ft. by

2010. One of PRIL’s vertical, “Future Capital Holding Limited”, with a corpus of nearly US$

850 million, manages the company’s real estate needs by investing in real estate properties. The

real estate vertical of PRIL supplements the company’s strategy to acquire front-end retail stores

in tier-two towns like Jaipur, Indore, Vishakhapatnam, and Pune.

In 2006, the company generated Rs. 19,336 million in business sales, of which value

retailing is nearly 67 per cent and lifestyle retailing around 30 per cent. Although, the net sales

increased from Rs. 1,764 million in 2000 to Rs. 19,336 million in 2006, sales per sq. ft. in 2006

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accounted for only Rs. 6,108 as opposed to Rs. 19,496 in 2000. The increase in the number of

new stores under multiple formats caused a decline in sales per sq. ft. between 2000 and 2006.

The company’s current market share is at 3 per cent.

This case study covers PRIL’s economic activities as on financial year ending March 2006. PRIL

Home Town stores were launched during 2007. The 80 per cent of the furniture in Home Town

stores is imported from East Asia, predominantly China and Malaysia. Additionally, this case

study does not cover a few new ventures which are in progress.

With a surge of interest in the one-stop shopping model, PRIL differentiates itself by keeping a

vast range of merchandize with over 2,50,000 SKUs across durables and non- durables under

one roof. The company’s six verticals formed through strategic partnerships, joint ventures, and

wholly-owned subsidiaries act as catalysts to the retail business in rolling out front-end retail

stores, managing the supply chain, offering shelf space to exclusive branded suppliers, and

developing in-house private labels. The company’s Big Bazaar (hypermarket chain) cuts across

entire customer segments.

PRIL has stores like Pantaloons, Fashion station, Blue sky, all, Navaras, Shoe factory and

Central. Some out of it are speciality stores were as some are large format stores with variety of

products. Big Bazaar, Pantaloon and Central are large format stores with wide range of products.

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The six verticals act as catalysts to the retail business in rolling out front-end retail stores,

managing supply chain, offering shelf space to exclusive branded suppliers, and developing in-

house private labels.

In a lifestyle store, the average customer footfalls are around 1,000 of which 350 convert into

sales transactions. In the value segment, the company attracts an average of approximately 3,000

customer footfalls, of which the sales conversion is between 220 and 250.

End-to-End Value Chain

PRIL has tried to incorporate the true pan India model in its expansion strategy beginning

from offering products for the entire family, laying out multiple small kirana -like shops inside

its value retail format, to directly reaching and contracting the source of supply. PRIL was the

early retailer who started to sell food grains loose inside its outlet and lease store space to

speciality food makers, thus attempting to replicate the traditional shopping experience as close

as possible.

Penetration in key markets

The company largely owes its success to being a multi-format retailer under two business

segments: lifestyle and value retailing. Lifestyle includes speciality stores and multiple external

brands. The multiple external brands could be stand-alone speciality stores or within the lifestyle

segment of stores and centre mall. The value retailing consists of two retail formats,

hypermarkets and discount stores, and other wallet concepts like home solution retail which also

act as a subsidiary company to PRIL.

By gaining the first-mover advantage, PRIL has already made its presence in the urban

markets in key cities like Mumbai, Bangalore, Kolkata, Hyderabad, Chennai,

Ahmedabad, Pune, and Delhi NCR. The company plans to open more stores within these cities in

every locality in order to achieve scalability and to leverage the common back-end resources at

the optimum level. Also, the company is moving to the tier-II and tier-III cities. At present, the

company is spending around Rs.1 billion annually in leasing property.

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Product Procurement

PRIL’s supply chain and logistics model involves vendor and warehousing management, and

relies on IT tools. Future Logistics, one of the vertical ventures of PRIL, is primarily in charge of

supply chain management for the value and lifestyle segments. The division’s major set of

activities involves end-to-end delivery from vendor to warehouses to front-end stores. Further,

the company optimizes by getting closer to the source of supply across all product categories.

PRIL’s sourcing works on a hybrid approach between large and small manufacturer suppliers.

With large manufacturers and food processors, the company works on direct contract terms with

manufacturers. A consolidator works between PRIL and very small- scale manufacturers. As

regards food and groceries, PRIL also procures from APMC markets, and other organized rural

retailers (ITC, DCM Hariyali, and Adani’s), while in the case of fresh food, however, a farmer’s

group also may be directly supplying to the outlet. Sourcing decisions are primarily centralized

at the corporate office in Mumbai. The distribution and the logistics centres are networked and

on line with the category management division and the merchandize sourcing division.

Supply chain: Hybrid approach

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At the consumer’s end, each store manager figures out the trends in daily sales based on the

consumer’s daily buying pattern, and informs the respective product category manager, a

specialist in a product category in the central office. The category manager in coordination with

the store managers analyzes inventory stock and gives stock orders to the sourcing division at the

central office. Next, the sourcing division releases the product requirement which goes to the

warehouse and the respective supplier in the form of stock transfer order. The central warehouse

at Tarapur stands as a hub to 21 regional warehouses across north, west, east, and south zones.

Inspections take place at the vendor level and at the regional warehouse level. Apart from the

inspection, certain amount of testing is carried out on the bags and feeds at the external

laboratories.

A consolidator plays a value-added intermediary role between all small-scale suppliers and

PRIL. The consolidator consolidates goods from small suppliers, fulfills bar coding, labeling,

documentation, packaging, and accounting requirements and then supplies back to the firm on a

commission basis. A typical consolidator owns warehouses, keeps inventories and stocks based

on projections provided by PRIL’s sourcing division. PRIL is also thinking of hooking its

consolidators to its IT system. The consolidator understands the company’s business

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requirements and enables small and fragmented manufacturers to scale up to PRIL’s demands.

PRIL has an active base of approximately 2,500-3,000 suppliers, including consolidators across

the country.

In the case of food products, fresh produce are sourced daily. Produces from a farmer’s group

in the surrounding region where the produce is grown, is picked, graded, sorted, and delivered

directly to the stores through a consolidator. In case of bulk produce like potatoes and onions, it

may be from APMC markets, rural organized retailer (ITC, DCM Hariyali, and Adani’s), or

distributors. In certain cases, for example, a speciality pickle has a concessionaire contract to sell

pickles at stores. In the case of staples, PRIL maintains a short-term contract of 3-6 months at a

price which is marked to the commodity market. Additionally, PRIL has signed a nonbinding

letter of intent with Ruchi Soya Industries to develop co-branded products and Ruchi will also

pack edible oils, soya food, and dairy products for PRIL private labels.

The Future Logistics Group provides warehousing, infrastructure, transport, and IT

networking to the retail vertical working on a hybrid model. Most of the goods are consumed at

the various locations where they are produced. In certain cases, when the goods are brought from

other regions, they move directly to the regional warehouses, and then from warehouses to

stores. Certain products, such as furniture and electronics move directly from warehouses to

customers. In the case of food and grocery, products directly move from surrounding

consolidators or farmers to the stores in order to avoid handling and freshness damages. For its

private labels in the clothing line, PRIL has its own design studio in Mumbai consisting of 38

designers who not only conceptualize clothing design, but also develop logos, labels, and tags.

The company has invested between Rs. 600-Rs.700 million in IT infrastructures in order to

gain efficiencies in the supply chain as well as reduce inventory cost. Pantaloon is in the early

stage of implementing radio frequency identification (RFID) for storing and remotely retrieving

data using RFID tags on the cartons – from vendors to the warehouse. The auto replenishment

inventory application works on real time demand and forecasted projections and enables

automatic ordering and purchase system. The distribution and logistics set-up are networked with

regional managers and merchandize managers to receive real time information in order to deliver

merchandize to the store within 24 hours of receipt of the auto replenishment order.

The supply chain division has tie-ups with 12 national-level transportation companies for long

distance transportation from warehouse to warehouse, or warehouse to stores. For certain

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products like furniture and e-Bazaar products; there is a dedicated fleet tie-up with six local

transport companies for home deliveries. These tie-ups provide employment for approximately

1,100 people in the third-party transportation fleets.

Further, the contractual employment at several warehouses hires another 1,800 people in areas,

such as material handling, picking, housekeeping, and security. Thus, PRIL indirectly supports

2,500 suppliers and 2,900 contractual jobs in supporting industries

Future Plans

PRIL plans to generate a business output of Rs. 320 million by 2010 with an investment between

Rs. 50 and Rs 60 billion.

Challenges

The company faces industry-specific challenges:

(i) Inter-state taxes and octroi taxes;

(ii) MRP law;

(iii) Rising real estate prices; and

(iv) Unavailability of land

Key Takeaways

By gaining first-mover advantage and building strategic partnerships and subsidiaries around

its retail vertical division, PRIL is able to develop multiple retail formats covering all product

categories across customer segments in all age groups.

Conclusion

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Kiranas and organized retail will co-exist. After analyzing the retail industry, it can conclude

that the organized retail has opportunities to grow in India in spite of the kirana stores because

these kirana shops will also get benefit of the growing economy. The argument that the kirana

shops will be affected by these malls is only myth. The organized retail is attracting more and

more Indian as well as foreign players of the retail industry. The boundaries between the

offerings by malls and one-shop vendors are gradually breaking. Single shop-owners are

becoming increasingly aware of customers needs, hygiene factors and varied requirements. At

the same time, retail chains are opening stores in residential areas and focusing on customer

relationship management, with a hub and spoke model where one large store supports various

smaller stores in the nearby residential areas. However, the key to success for organised retailers

will always be their large size, variety and ambience on offer, and thus, the scale.

As the study shows that a major portion of the organized retail will be developed in small cities

and towns, this opportunity has not been enchased by kirana stores and they are unable to meet

the requirements of the customers. Therefore both the malls and kirana stores can play

simultaneously in India so no need get afraid due to the malls.

Here even I would like to add my view point from whatever I have learnt from the experience

gained while making this project. Most of the kirana stores have survived. But growth has been

very slow for them and no new kirana stores are opening up in neighborhoods where big retailers

have opened shop. And secondly, big retail will have to wait a long time before they can ‘invade’

small towns in India. Towns with less than a million-half a million population will have to wait.

And no big retailers will venture there until they’ve gained some useful insights from the big

cities. And the countryside will be largely left untouched which will be served by local Kirana

Stores. “Big retail chains won’t kill small shops”

“Small is beautiful. Malls are all very good for one-day shopping, but the kirana store is for

the odd quantities in life. Like when you need one-fourth of a packet of rice.”

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