belts toewellery. Mehulxt three

1offer aits first

.isee forTightest

ali. Theunas. In

J

us, The Iely 1246outlets,

jd Surat,keepings will be (

lly. The II

in single Iwatches 1; such as ,

1sence III I

the next

layers into reach

CAS E 10

BIG BAZAAR-THE ROUTE TO THE INDIAN MASS MARKET

Big Bazaar. This hypermarket chain was introduced in India by Pantaloon Retail (India) Limited.The year was 2001. The first store opened in Kolkata and was followed by stores in Hyderabad andBangalore, in a short span of 22 days. These stores contributed over Rs. 43 crores to the company'sturnover and over Rs.2.89 crores to the PBDIT in the first year itself. In 2006-2007, more Indiansdiscovered the value of shopping in Big Bazaar. Big Bazaar launched 27 new stores in 22 cities,covering over 1.40 million square feet. While Big Bazaar continued to expand in the large cities, italso tapped consumption potential in smaller cities like Agra, Allahabad, Coimbatore, Surat,Panipat, Palakkad, Kanpur and Kolhapur, By May 2008, there were 89 Big Bazaars spread acrossvarious cities and towns across the country.

Jo bazaar mein milia hai, who sab yahan nulta hai', is how Rakesh Biyani, Director, Pantaloon Retail(India) Limited, describes Big Bazaar. The bazaar is a term commonly used for the market ormarketplace. Whenever any of us need anything, the simplest way to get it is to go to the bazaar. BigBazaar represents a location where a customer can shop for anything that he needs, for which hewould normally visit a bazaar or the market.

Retail in India is still at a nascent stage. This case study has been prepared as a basis fordiscussion, on evolving formats suitable for India.

COMPANY BACKGROUNDPantaloon Retail (India) Limited was incorporated as Manz Wear Private Limited in the year 1987.It became a public limited company in 1991 and was renamed Pantaloon Fashions (India) Limitedand then Pantaloon Retail (India) Limited in 1999. Over the years, the company has acceleratedgrowth through its ability to manage change. It integrated backwards into garment manufacturingand expanded its retail network at the same time. It launched three successfulbrands - Pantaloontrouser, Bare denims and John Miller shirts-between 1987 and 1993.

The company introduced the concept of The Pantaloon Shoppe, an exclusivemen's wear retailstore, which expanded across India from 1994-1998. In the year 1997, Pantaloon moved to largeformat lifestyle retailing with the launch of Pantaloons, India's Family Store. Pantaloons has grownto a 29-store network and occupies 263,000 sqft of retail space. They contributed Rs.174 crores tothe total turnover of the company. "I

The management was aware that in retail, size mattered. The business revolved aroundvolumes. Lifestyle retailing did not really provide these volumes; the volumes came from the largeIndian middle class market that was waiting to be tapped. Big Bazaar-the discount store-waslaunched in the year 2001, to meet the aspirations of the middle class. In a short span of twoyears,it had added a Food Bazaar and Gold Bazaar to its range of offerings.

o

pa

594 Retailing Management

MARKET ENVIRONMENT

At the time of the launch of Big Bazaar, there was no real precedent in the Indian market. Giants,the RPG hypermarket, had opened in Hyderabad only two months prior to the launch of BigBazaar. A western model had to be adapted to suit the needs of the Indian environment. Variouslocal markets and local market leaders were studied. This was done to understand the product mixand the prices offered. One of the key discount retailers studied was Sarvanna Stores in Chennai.

THE STRATEGY

Saving is key to the Indian middle class consumer. The store, which would be created, had to offer.value to the consumer. Keeping this in mind, the concept of Big Bazaar was created.

In India, when a customer needs something for the home, a typical thought is to seek it fromthe bazaar. A bazaar is a place where a complete range of products is always available to theconsumer. This is true across India. As the store would offer a large mix of products at a discountedprice, the name Big Bazaar was finalised. The idea was to recreate a complete bazaar, with a largeproduct offering (at times modified to suit local needs) and to offer a good depth and width interms of range. The mind to market for the first store was just six months.

Price was the basic value proposition at Big Bazaar. The Big Bazaar outlets sold a variety ofproducts at prices which were 5 to 60 per cent lower than the market price. The line 'Isse sasta aurachha kahin nahin/ emphasised thisl (Youwill not find anything cheaper or better anywhere else).

Selecting the Right locationThe key question faced by the management was whether the low margins on the products wouldallow the company to sustain growth. With the aim of answering this question and in order to helpthe company decide on the right location, it rolled out three stores in three different locations. InCalcutta, the store was opened in a suburban market, in Hyderabad, it was in the heart of the marketviz, Abid's and in Bangalore, the store was opened in an up-market residential area.

The key learning which came out of this exercise was that for a store like Big Bazaar, a largecatchment area was needed. The management decided to stick to the existing market places withinthe city. It realised that the western model of hypermarkets, where the store was located in largespaces on the outskirts of the city would not really work in India. The cost of time spent on traveland the cost of petrol in India would eat into the savings made. Property deals were negotiatedkeeping this factor in mind. The lease deeds negotiated were for a period of 12 - 20 years and therentals varied 'from Rs.30 per square foot to Rs. 50 per square foot, depending on the city andlocation.

I

f:I

!!,

The Merchandise MixThe key driver of the footfalls at Big Bazaar was the large product mix offered to the customer. BigBazaar stocked about 1,30,000 items in over 20 product categories. For the initial stores, theclassification was simply done in terms of apparel and non-apparel and shop in shops. In the firstyear, apparel accounted for 70% of the off-take and the price was largely responsible for the success.The prices ranged from Rs.99 to Rs.799.

Non apparel, which included plastic items, footwear, toys, luggage, appliances, white goods andstationery accounted for 30% of the off-take in the first year. The shop in shops, which were a part

of tIcorn)

objestratCuS«objedeci

the J

stooenteoutl

Foo

FOOl

5,O(feelsold

catimwhvel

;iants,of Big'ariousct mix.nnai.

) offer

t fromto the.untedl largedth in

etyofta aurlse).

would) helpns. In1arket

largevithinlargetraveltiatedrd theyand

r. BigI, thee firstccess.

sandl part

Case 10 Big Bazaar-The Route to the Indian Mass Market 595

Ii

j1I

of the store, added to the product mix being offered to the customer, without requiring thecompany to invest in the inventory.

The buying process for most of the categories at Big Bazaar was largely price driven. Theobjective was to deliver good products at the best possible prices. A key element of the pricingstrategy is to achieve 'Market-Breaking Price'. To achieve this, the price that will offer value to thecustomer is first determined. An appropriate sourcing strategy is then worked upon to achieve thisobjective. Value Pricing and maintenance of quality are the key factors influencing the pricingdecisions.

I The management was aware that the food retail sector was one of the fastest growing sectors inthe Indian retail market. The fact that food would never go out of fashion and the spending on foodstood at 53 per cent of personal income, was a very strong reason for the company to considerentering food retailing. Keeping this in mind and to enhance the footfalls at its existing Big Bazaaroutlets, the company launched Food Bazaar in the first year of operations.

Food Bazaar

Food Bazaar stocked on an average, 10,000 stock keeping units (SKUs) and occupied on an average,5,000 square feet of retail space. It was modeled on the Indian mandi, where customers could touch,feel and choose products, supplemented by packaged foods for western shoppers. The productssold were categorised as:

• Processed Food & Non Food (Hungry Kya)• Dry Staples (Golden Harvest)• Wet Staples (Chill Station)

The Processed Food and Non Food category contributes 60% of Food Bazaar sales. Thiscategory includes a mix of products from a large number of FMCG companies and a wide range ofimported products, health foods and specialty foods. Dry Staples includes dry groceries like rice,wheat, da!, spices, ete. This category contributes 30% of the sales. Wet Staples includes fruits andvegetables. This contributes 10% of the sales.

Retailing Management

Local flavours and vane ties are made available through the shop in shop model, byarrangements with leading vendors in each city.The company has launched Food Bazaar Masalas,Food Bazaar Tea and Premium Harvest Pulses.

While Big Bazaar today, includes Food Bazaar, the management has also rolled out Food Bazaarindependently in 3 locations and is considering rolling out Food Bazaar as a part of Pantaloons andas a part of Central - the integrated seamless mall being developed by Pantaloon.

While apparel still continues to be the largest selling category at Big Bazaar, contributing toover 40% of the sales, in a short span, the share of food sales has increased rapidly to 25. 74%.

Managing the Supply ChainThe management opted for the consolidator model for the new merchandise categories that itsought to introduce. This was largely done for thoseproducts that were manufactured or producedacross the country like steel utensils and food grains, but were sold in the unorganised sector.Consolidators were traders/proprietors in specific products. For most of the players in theunorganised market it is difficult to deal with an organised retailer. The consolidator was already aplayer in that sector and provided them with the ease and comfort of a face-to-face relationship. Atthe same time, because of his knowledge and access to the market, he was able to put together theproduct line with ease and at the best possible prices. This reduced the lead-time and also enabledthe company to go ahead with its expansion plans.

This model provided the consolidators an opportunity to expand their business withoutbecoming employees of the company. Due to the large scale of volume, the consolidator couldoperate at low margins, ranging from I to 3%.

Distribution is decentralised. There is a warehouse attached to each store, so that the ownershipof the merchandise is held by a particular centre. Initially, the stock turnover was three months,which is now down to two months in the new stores where you do not really have a precedent orbackground.

Organisation StructureThe organisation structure for Big Bazaar is flat in nature. For Big Bazaar, the divisions are Apparel,Non Apparel and the New Business Division,which includes Gold, Footwear ami the shop in shops.For Food Bazaar, a separate team has been created, which again works independently.

About 1,800 people work for Big Bazaar directly. Support and Ancillary services comprise ofanother 400 people. A new trainee is put through a basic three-day training programme beforegoing on the shop floor. Evaluation is done every six months.

Encouraging loyaltyIn the year 2003, the management launched the Big Bazaar ICICI Bank eo-branded credit card,aimed at promoting customer loyalty. On the purchase of Rs.l, 500 or more, the customer has theoption of making a payment by three EMIS, without any charges. For every Rs.IOO spent onshopping, four reward points are awarded. The company is looking at the possibility of providingfree home delivery to the cardholders.

I Case 10 Big Bazaar-The Route to the Indian Mass Market 597

el, byasalas, j

sazaar I1S and

ing to%.

that itducedsector.in theeadya.rip. Atrer the'ubled

-ithoutcould

.ership

.onths,lent or

oparel,shops.

'rise ofbefore

it card,has theent onividing

Information TechnologyPantaloon looks at Information Technology as the key enabler of decision-making. Day endoperations are done at all the retail stores, and the internet transfers the data to the head office.The data is processed overnight and an Auto Replenishment System is in operation. Forecasting isdone at the store level and week level.

Going forward, the management has decided to revisit the cities in which they actually have apresence and saturate those markets before looking at virgin markets.

In the year 2002-2003, the company aggressively launched private labels in five categories inmenswear, women's wear, and kidswear. The brands launched were:

• Knighthood - an exclusive line of executive wear in trousers and shirts• DJ & C - a line of denimwear and cool casual wear• Shatranj - ethnic wear for men• Pink & Blue - casual wear for kids• Studio NYX - party and lounge wear• .CTee - cotton t-shirts with funky printsIn 2003-2004, Food Bazaar reinvented itself, embarking upon providing customers an

experience. The strategy was to offer fresh value added products and services across stores. As aresult, some of the initiatives taken by the company were introducing a live chakki, dairy, masalagrinding facilities, a bakery, and a fresh juice corner among other things. Private labels were alsointroduced in various product categories like tea, daIs, pulses, shampoos, ete.

In 2004, 'Food Bazaar on Call' was offered, initially at one store in New Mumbai. This serviceallowed customers to place an order on the phone and avail the home delivery facility.

Over the years, Big Bazaar has introduced a whole new range of fashion products inspired bythe seasons' colours and textures. In the year 2008, it signed M S Dhoni, the Youth Icon ofIndia, asits brand ambassador.

Says Rajan Malhotra, CEO, Big Bazaar, 'Fashion has always been seen to be something for theelite. We disagree. Big Bazaar has managed to create the breakthrough by bringing the latestfashion to the masses at affordable price points. The new collection at Big Bazaar will appeal tocustomer~ from all walks of life, with its trendy designs.'

'Dhoni and Big Bazaar have a lot of synergies as the Indian ODr captain stands for theaspirations of youth in India, while Big Bazaar is looked up to, by millions ofIndians to fulfill theiraspirations.' Big Bazaar, the largest retail chain of Future Group, is eyeing a turnover of Rs 8,000crore by the year 2009.

The company hopes to achieve this mark by mutliplying the number of stores andimplementing cost-cutting measures. Other developments include a decision by Pantaloon Retail,the group's listed entity, to hive offfour business divisions, including Big Bazaar and Food Bazaar,into separate companies. The company is now looking at opening a total of 300 Big Bazaar storesand has introduced the neighbourhood. concept of retail, opening stores in residential areas. It willalso introduce new business segments such as health and wellness in its stores.

Big Bazaar would focus on the 'kanjussi culture', a term used to explain the company's focus onidentifying areas to cut costs. The concept focuses on cutting intermediate layers and passing thebenefit to customers. Big Bazaar is estimated to end the year 2008 with a turnover of Rs 4,000 croreand expects to double it over the next year.

598 Retailing Management

The company was also looking to create more buying occasions, he said. For example, onRepublic Day, Big Bazaar achieved a sales of Rs 240 crore compared with Rs 150 crore in theprevious year. Three years ago, Big Bazaar introduced discount sales on the Republic Day, whichwas well received by the country's youth. For instance, this year, Big Bazaar sold 1,38,000 pairs ofjeans and 38,000 cell phones during the Republic Day offer.

Time and again, the company has innovated with its offering to the customer. It has introducedto India a retail format that is essentially value and price driven. It is an early success, however,given the diversity within the Indian marketplace, how do you see this retail format evolving for apan Indian presence?

Exhibit 1

Financial

Cost of 9

.Manpow,

Advertisir

InteresUT

PBDIT/ln

Profilabili

PBDIT/Te

PBDTlTol

Net Profit

RONW (JROCE(A

Balance:

Debt-equ

Debtors t

Inventory

Current rQuick Ra

Asset tun

Key Fina/

Total Rev

Profit bsfProfit afte

Cash Pro

Per share

Basic Ear

Basic Ca:

Dividend

Book vali

ole, onin the

, whichiairs of

oducedrwever,.g for a

Case 10 Big Bazaar-The Route to the Indian Mass Market 599

Exhibit 1 Group Ratios

Financial Performance Jun-03 Jun-04 Jun-05 Jun-06 ..• Jun-07

Cost of goods/Net Sa.les 68.23% 66.54% 66.52% 66.53% 68.26% .Manpower costs/Total Income 4.29% 4.17% 4.80% 5.99% 6.19%Advertising and selling costITotal income. 2.65% 2.84% 3.09% 2.72% 2.80%InterestITotal income 3.97% 3.64% 2.60% 1.97% 2.70%PBDITllnterest (Debt-Service Ratio) 2.16 2.39 3.42 4.05 3.43

Profitability Jun-03 Jun-04 Jun-05 Jun.-06 Jun~07

PBDITlTotallncome 8.57% 8.66% 8.89% 7.99% 9.24%PBDTlTotallncome 4.60% 5.03% 6.29% 6.02% 6.54%NetPr6fitFr6tal Inc6me 2.56% 3.00% 3.65% 3.43% 3.60%

..RONW (Average networth) 18.92% 24.47% 24.42% 17.15% 14.82%~OCE (Average Capital employed) 20.31% 21.03% 22.41 % 18.03% 17.48%

Balance Sheet. Jun-03 Jun-04 Jun-05 Jun-06 ,J!f!1-n,Debt-equity ratio 1.53 1.29 0.89 0.50 0.79Debtors turnover (days) 18 10 4 3 7Inventory turnover (days) 93 86 94 98 99Current Ratio 1.51 1.65 1.73 1.44 2.19Quick Ratio 0.48 0.52 0.55 0.58 1.08Asset turnover (Total Income/total assets) 2.07 1.96 2.03 1.62 1.96

Key Financial Parameters (Rs in Crores) Jun-03 Jun-04 Jun-05 Jun-06 Jun-07

Total Revenue 445,62 659,64 1,055.85 1,871.98 3,328.76

~.r~fit before Interest Tax and Depreciation 38,18 57.14 93.91 149.64 307.62, PrbfitafterTax 11.41 19.78 38.55 64.16 119.99

,

Cash Profit .. 18.89 31.68 58.90 99.85 184.78

; Per share data . Jun-03 . Jun~O{

Basic Ea"rnhlgs (less extraordinary income)

.Basic Cash EarniHgs(Rs.)

Dividend (Rs.)

Book value (Rs.)

,1131.760.207.39

5.066.700.50

39.20

8.7111.390.50

74.42

1.842.660.309.87

3.314.45

0.5020.12

600 Retailing ManagementI

Exhibit 2 10-year Balance Sheet Exhibit 3(Rs. in Crore)

Profit & La;,

.Sa.less'01

EqU.i\Y St)1ir6 capit~JOther lncoi

8.09 9.26 12.52 13.32 17.32 18.18 19.14 22.00 26.88 29.35Total Incor

"Shareapplicatiorr 2.21 4.00 0.00

Reserves & surplus 7.52 10.48 13.07 22.75 36.68 49.50 75.75 196.53 500.03 1,062.82 Cost of goe

\!Varrant ApplicationMoney 3.00 Contract w

,Shareho.l(jer's Fund 17.82 23.75 25.59 36.07 54.00 67.68 94.89 221.53 526.91 1,092.17 Packing m;

1.79 2.92 6.03 13.04 27.92 55.84 Power25.99 26.93 31.61 68.22 109.53 141.32 214.76 256.17 428.10 951.93 Excise

0.36 1.84 2.73 1.42 0.30 4.23 21.36 30.04 173.29 347.65

26.35 28.77 34.34 69.64 109.83 145.55 236.12 286.21 601.39 1,299.58

44.17 52.52 59.93 105.71 165.62 216.15 337.04 520.78 1,156.21 2,447.60"Advertlserr

Transportay",:".<'

Sales TaxJ

Gross block Mise. Expe

Total Cost8.03 PBDIT4.32

12.35Interest

0.40 PBDT .,

Depreciatic

PBT

Extra-ordin

885.96 Profit after6.74 10.87 65.17 Current Ta:2.19 2.20 162.97

Deferred To3.35 3.27 633.85

1.50 Fringe Ber

44.74 55.53 82.78 132.46 166.21 229.98 1,749.45 PAT

13.12 12.41 13.75 17.64 13.58

7.15 9.66 12.04 44.44 52.91

0.39 19.6 0.98 4.40 6.95

20.66 2403 26.77 66.48 73.44

24.08 31.05 56.01 99.73 156.54

9.36 0.89 0.76 0.53 0.40

52.52 59.93 105.71 216.16 337.04 1,156.21 2,447.60

Case 10 Big Bazaar-The Route to the Indian Mass Market 601

Exhibit 3 1O-year financial summary - P&L account

's, in Crare)Jun-98 Jun-99 Jun~OO Jun-01 Jun-02 Jell1-03 Jun-04 J.un-05 Jun:06 . Junc07Profit &Loss Account

Sales & Operating Income

Other Income

Total Income

Cost of goods cons & sold,

90.10 105.24 137.28 180.58

1.62 073 0.66 0.44

91.72 105.97 137.94 I 181.02

57.52 73.32 97.16! 117.98

285.29

0.67

285.96

186.11

6.51

2.11

5.34

4.58

10.03

13.59

8.77

2.72

5.26

17.96

262.98

22.98

11.24

11.74

4.22

7.53

0.01

7.52

0.39

0.10

444.83 658.31 1,052.80 1,868.97 3,236.74

0.79 1.33 3.05 3.00 92.03

445.62 659.64 1,055.85 1,871.97 3,328.77

303.5 438.01 700.31 1,243.43 2,209.48

6.77 6.97 15.27 20.66 14.62

3.10 5.64 12.44 19.22 27.80

7.94 12.08 21.95 37.41 61.51

3.40 3.36 0.28

15.71 27.59 47.97 113.46

19.13 27.53 50.65

11.83 18.75 32.56

29.35

0.00

1,062.82Contract work expenses

;Packinl;i:matedals

. Power

Excise

9.42

0.87

0.38

6.35

0.69

0.58

5.17

0.76

1.03

8.28

1.24

2.02

0.43

6.18

6.81

6.05

1.73

3.55

12.00

166.27

14.74

6.22

8.52

1.63

6.89

0.04

6.85

0.45

1,092.17

55.84

951.93

347.65

1,299.58

2,447.60

0.65

1.91

2.83

0.91

1.18 3.08

2.57 4.18

3.15 2.98

0.73 1.08

1.47 1.85

7.16 9.22

97.21 126.53

8.76 11.41

5.51 5.07

3.26 6.33

0.83 1.07

2.43 5.27

(0.02) (0.00)

2.45 5.27

0.10 0.35

207.02

206.09112.07

50.96

19.08

-Advertisement expenses

Transportation expenses

•Sales Tax

Mise. Expenditure

Total Cost·

PBDIT

93.14

3.43

7.75

24.88

5.95

14.91

41.72

12.66 35.57

767.0792.47

574.60

131.13

805.73

252.01

8.91

83.40

8.32

5.29

3.03

0.85

2.18

67.84 106.03

961.94 1,722.34

93.91 149.64

27.46 36.92

66.46 112.72

13.33 20.82

165.90

3,021.14

307.63

89.76

217.88

36.86

181.01

0.06

180.95

30.71

27.93

2.32

119.99

407.44 602.50

38.18

17.67

20.51

6.35

14.16

0.78

57.14

23.94Interest

,PBDT *33.20

Depreciation

PBT8.79

24.41

0.07

53.12

0.03

53.09

7.28

7.01

0.24

38.55

91.90

0.07

91.82

11.07

14.87

1.75

64.16

Extra-ordinary Items

Profit after EOI885.96

65.17

162.97

633.85

1.50

1,749.45

2.18

(0.04)

13.38 24.35

0.85 1.45

1.13 3.11

o11.41 19.78

Fringe Benefit Tax

2.22 2.35 4.92 6.40 7.03

223.72'"

120.15 .15.71 ~

359.58

1,389.86

2,447.60