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RETAIL MARKETING IN INDIA
A
RESEARCH REPORT
Submitted in fulfillment of the requirements for the postGraduate Diploma in Management (PGDM)
By:Neha Upadhyay
PGDM- 2012-2014
Under The Guidance Of:
Bidisha Bhattacharya
Submitted To:
Department OF Thesis
IIPM
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SSYYNNOOPPSSIISS
Thesis Title: Retail Marketing in India
Introduction: The Indian retail industry is now beginning and growing day by
day.The concept of retail which includes the shopkeeper to customer interaction, has
taken many forms and dimensions, from the traditional retail outlet and street local
market shops to upscale multi brand outlets, especially stores or departmental stores.
In this thesis, I had focusing on two aspects of retail marketing i.e. Store Retailingand
Non store Retailing.
Store Retailing: Store Retailing includes departmental store, which is a store or multi
brand outlet, offering an Varity of products in various categories under one roof,
trying to cater to not one or two but many segments of the society
Non store Retailing. : Non store Retailing Includes direct selling, direct marketing,
automatic vending.
Therefore, this concept of retail marketing through departmental stores, which is coming
up in a big way in India was decided to be studied in detail, through an exploratory and
conclusive research.
Objective:-
The over all objective of the thesis is to study the concept of Retail Marketing in India
OBJECTIVE:
Retailing in IndiaPast, present and future
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Future growth potential of Retail Marketing in India.
How do Indian retailers sell their product?
Which International retailers eyeing Indian market..
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OBJECTIVE
The over all objective of the thesis is to throw light on Retail Marketing in India
SUB OBJECTIVE:
Retailing in IndiaPast, present and future
Future growth potential of Retail Marketing in India.
How do Indian retailers sell their product?
Which International retailers eyeing Indian market..
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RESEARCH METHODOLOGYT
Themethods adopted to fulfill the objective of the study that included collecting
primary and secondary data. I conducted the survey in order to gather the
informations from the knowledgeable person of retail stores on the isssue
reverent to my thesis topic.
The secondary data collected from :
Magazines The Franchising World.Journals Indian Management.
Web sited : www.franchiseindia.com
www.ksatechnopak.com
INTRODUCTION
Any business that directs its marketing efforts towards satisfying the final
consumer based upon the organization of selling goods and services as a means of
distribution
http://www.franchiseindia.com/http://www.franchiseindia.com/http://www.franchiseindia.com/ -
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A retailer or retail store is any business enterprise whose sales volume comes
primarily from retailing. Retail organizations exhibit great variety and new forms keep
emerging. There are store retailers, non store retailers, and retail organizations.
Consumers today can shop for goods and services in a wide variety of stores. The best-
known type of retailer is the department store. Japanese department stores such as
Takashimaya and Mitsukoshi attract millions of shoppers each year. These stores feature
art galleries, cooking classes, and childrens playgrounds.
A retailer is at the end of the distributive channel. He provides goods and service
to the ultimate consumers. This he does through his small organization, with the help of a
few personnel. In an individual retail store there is not much scope for organization
except in the sense that the shopkeeper has to organize o apportions his time and
resources. The need for organization becomes essential as soon as he hires people o
enters into partnership or takes the help of members of his family in running his store. A
retailer deals in an assortment of goods to cater to the needs of consumers. His objective
is to make maximum profit out of his enterprise. With that end in view he has to pursue a
policy to achieve his objective. This policy is called retailing mix. A retailing mix is the
package of goods and services that store offers to the customers for sale. It is the
combination of all efforts planned by the retailer and embodies the adjustment of the
retail store to the market environment. Retailing mix, a communication mix and a
distribution mix. The maximum satisfaction to the customers is achieved by a proper
blend of all three.
The success of the retail stores, therefore, depends on customers reaction to the
retailing mix which influences the profits of the store, its volume of turnover, its share of
the market, its image and status and finally its survival.
There are three main phases in the life of a retailing institution. These are: -
Innovation ( Entry )
Trading Up
Vulnerability.
In the entry stage, a new retailer enters with new price appeal, limiting
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1. The annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the
size of Indian retail industry (estimated at about $180 billion) and almost 100 times more
than the turnover of HLL (India's largest FMCG company).
2. The size of any Wal-Mart store is much higher than the size of any existing shopping
mall in India.
3. Wal-Mart has over 4,800 stores (over 47 million square meters) where as none of
India's large format store (Shoppers' Stop, Westside, Lifestyle) have more than 10 stores.
4. New stores opened annually by Wal-Mart are about 420, much higher than all
organized Indian retailers put together.
5. The sales per hour of $22 million are incomparable to any retailer in the world.
Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail
industry (one of the most fragmented in the world) employs about three million people.
6. Wal-Mart has around 30,000 suppliers throughout the world and more than 600,000
SKU's on its web site, a number that cannot be compared.
7. Daily customers are about 15.7 million (almost equivalent to Mumbai's entire
population).
8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at which
babies are produced in India!)
9. One-day sales record at Wal-Mart (11/23/01) $1.25 billion (roughly two third of HLL's
annual turnover).
10. None of the Indian organized retailer has ventured overseas where as Wal-Mart is
now in 10 countries and will expand to 21 countries in two years.
Retail: A strong pillar of Indian economy
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Retailing is the last mile infrastructure to access and deliver goods to consumers. Retail
forms the backbone of the nation's delivery system and its importance can be exemplified
by the network of 15,000 KVIC outlets which support 4 lakh plus small and medium
handicraft manufacturers across the country.
It also serves as the last mile infrastructure to the manufacturers as well as the
government for tax collection. For instance, the success of the VAT proposal depends on
its being able to be implemented at the retailer level, but nobody has consulted with them
as a body yet on this issue. Furthermore, retailing is also an important and large
contributor to the GDP and a major employment generator. In India, for the last four
years its contribution to the GDP was around 13%. The sector gainfully employs 6-7%
of the total workforce in India.
Changing Retail Landscape
Indian retail is fragmented with over 12 million outlets operating in the country and only
4% of them being larger than 500 square feet in size. This is in comparison to 0.9 million
outlets in USA, catering to more than 13 times of the total retail market size as compared
to India. Thus India has the highest number of outlets per capita in the world with a
widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per
person).
Recently, majority of store formats have hit India. Yet traditional format stores namely
the kirana shops, pan/bidi shop, hardware shops, weekly haats and bazaars form the bulk.
Formats like department stores, malls, speciality stores as well as discounters are shapingthe burgeoning organized sector in India.
Though still in its infancy with less than 2% share of the retail sector, organized retail has
definitely struck its roots in India. What we are looking now are more corporate backed
organised retail operations. Till seven years back organized retail was largely restricted to
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the southern India, barring the Bata chain. Organized retail has now shifted gears and is
moving ahead with accelerated speed throughout the country, without any direct
incentive provided by the government. Organised retail is growing at a rate of about 40%
per annum over the last three years.
With a size of Rs. 15,000 crore (USD 3 billion), organized retail is very much on track
according to KSA Technopak's projections made in 1999 based on in-house research.
The projections claimed that organized retail would grow to be a Rs. 35,000 crore (USD
7.1 billion) by 2005.
Retailing in IndiaPast, present and future
Executive summary
Retailing, considered a sunrise industry today after infotech, is the most happening
industry with almost all the big players vying for a share of the coveted pie. Buoyed by a
strong increase in private consumption (see raph), retailing is one industry that is waiting
to explode.
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Today however, organised retailing is less than 2 per cent of the retailing industry in
India, that is, about Rs 5,000 crore.(see table) Therefore, there is no real retail revolution
in India; the industry is still in the stages of infancy.
Share of Organised Retail
1999 2002 2005
Total Retail (US $ Billion) 150 180 225
Organised Retail (US $ Billion) 1.1 3.3 7
% Share of organised Retail. 0.7 1.8 3.2
Source: KSA Technopack
Organized retailing is bound to grow tremendously provided the right mark-eting
strategies are adopted. Retail businesses have broken rank and seem poised to surge
ahead with renewed vigour, optimism, confidence and cap-ability.
There is an incredible amount of activity in terms of creation of retail-riented space
across India. As per some estimates, there are over 200 retail mall projects under
construction or under active planning stage spanning over 25 cities. This may translate
into over 25 million sq. ft. of new retail space in the market within next 24 months.
Huge retail formats, with high quality ambience and very courteous and ambivalent sales
staff, are the regular features of retail formats in most Asian countries. However, in India
except for a few big towns where modern retailing formats abound, these features are
grossly missing. ETIG expects organised retailing to slowly penetrate the second rung
and smaller towns which will catapult the growth rate for the sector.
Even though the big retail chains are concentrating on the upper segment and selling
products at higher prices like Crossroads, Akbarally's and Shopper's Stop, retail stores are
sprouting that cater to the needs of middle class. With a huge middle class population, the
retailers like RPG's
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Foodworld are tapping this market. The market is flooded with products branded
and unbranded. The customers are in a dilemma as to pick which one. Simon Bell of AT
Kearney says "There is a close relation between the growth of brands and the growth of
the organized retailing.Companies selling branded products prefer to have big and
organized retail outlets such as supermarkets where they can be differentiated from
unbranded products"
Though doubts have been cast on the future of Indian retailing it is our belief that the
retail boom is yet to happen. While the industry is in the introduct-ion stage in most
geographies, it has just entered the growth region in the metro cities. Today, the right
product mix, right sourcing strategy, and the right communications are the mantras for
success.
This paper begins by analyzing the retail formats in the present Indian scenario and
proceeds to outline the key strategic factors in retailing. In the last part the paper shows
the challenges facing retail and our recomme-ndations for making organized retailing a
success.
Organized retail formats in India
Each of the retail stars has identified and settled into a feasible and sustainable
business model of its own.
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Shoppers' Stop - department store format
Westside - emulated the Marks & Spencer model of 100 per cent private label,
verygood value for money merchandise for the entire family
Giant and Big Bazaar - hypermarket/cash & carry store
Food World and Nilgirissupermarket format
Pantaloons and The Home Store - speciality retailing
Tanishq has very successfully pioneered a very high quality organized retail business
in fine jewellery
Structure of the retailing industry according to ownership patterns:
An unaffiliated or independent retailer
A chain retailer or corporate retail chain
A franchise system
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A Leased Department (LD)
Vertical Marketing System (VMS)
Consumer Co-operatives
A new entrant in the retail environment is the 'discounter' format. It is also is known as
cash-and-carry or hypermarket. These formats usually work on bulk buying and bulk
selling. Shopping experience in terms of ambience or the service is not the mainstay here.
RPG group has set up the first 'dis-counter' in Hyderabad called the Giant. Now
Pantaloon is following suit.
Two categories of customers visit these retail outlets.
1. The small retailer. For example, a customer of Giant could be a dhabawala who needs
to buy edible oil in bulk.
2. The regular consumer who spends on big volumes (large pack sizes) because of a
price advantage per unit.
Key Strategic Factors in Retailing
The key to success is identifying a superior value-promise and who is in a better
position to do it than retailers? Retailers are the closest to the point of purchase and have
access to a wealth of information on consumer shopping behaviour. Retailers have some
unique advantages for managing brands such as continuous and actionable dialogue with
consumers, control over brand
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presentation at point-of-sale, control over shopping environment, display
location/adjacencies, and signage. And they have used this advantage with tremendous
success.
The 3 stages of evolution of the trade channel are shown in the exhibit below:
EXTENDED LIMITED DIRECT
MANUFACTURER
DEPO/CNF
DISTRIBUTOR
RETAILER
SHOPPER
MANUFACTURER
DEPO/CNF
RETAILER
SHOPPER
MANUFACTURER
SHOPPER
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As seen, the role of the intermediary is being diminished gradually, which has
obvious implication of backlash of the trade channel upwards towards the suppliers. This
is more severe in countries such as India, where the channel economics in favour of the
middlemen is still strong enough given the fragmentation of the retail sector. Therefore
when FoodWorld, the
largest grocer in India has a direct supply contract with over 20% of its key suppliers, it
gives rise to conflict of interest with the distribution infrastructure that suppliers have
painstakingly built over the years. Thus companies like HLL have evolved a distinct
distribution channel altogether (called Modern Trade) to service the needs of such large
grocers. Even the mom and pop stores (known as kirana shops) are affected due to this
unfair back-end advantage extended by the supplier to its leading accounts (the
emerging supermarket chains).
The strategies adopted by the retailer to compete with branded goods are illustrated by
the following diagram. Branding the store and following a private label strategy is the
key strategy which helps the retailer to compete with branded roducts.
Leverage Brands
Brand the
Store
StrongPrivate
LevelStrater
Maximize customer
traffic &
Profitability.
Keep Formats
Constsnt.
DevelopNew
Formats.
ReinvigorateExisting
OptimizeAssortment
Loyalty Cards.
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Challenges Ahead For Retailing
The unorganised nature of retailing has stunted its growth over several years. "Lack of
industry status affects financing prospects and stunts growth of the industry", says
Kishore Biyani, managing director, Pantaloon Retail India. In the current scenario, only
players with deep pockets have been able to make it big. In addition to the advent of
Internet, there are many other challenges which retailers have to address.
Human Resources
Availability of trained personnel and retaining the human resources is a major challenge
for these big retailers. The bigwigs like Crossroads offer high compensation and create a
cohesive environment that makes an employee proud to be a part of such big retail
chains.
Space and Infrastructure
To establish a retail shop / mall, the real estate and the infrastructure are very vital. The
expenditure and availability on both the accounts do hinder the growth of the retail chain.
The lack of secondary infrastructure also affects the logistics and supply chain
management for retail companies.
Absence of retailer friendly laws
Pricing &Promotion
Strategry.
Online
shopping.
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India still does not have retail-friendly laws especially relating to the movement of
goods from one state to another. Retailers need to put in a whole lot of products from
different parts of the country - at times from outside the country - on the shelf. But
question of multiple tax levels is an issue. Then there are laws like shops cannot be open
for all seven days, shops have to be open after or close before a certain time which affects
operations.
Lack of technical know-how
The Indian government does not encourage any foreign direct investment (FDI) in the
retail industry. FDI is normally one of the ways of getting technical inputs. And because
of this dearth of FDI in this sector, develop-ment in terms of people, skills etc is
happening the hard way.
Future perspective
We should see fundamental shifts in the way Indians shop in the very near future. The
Year 2003 could well be a landmark year for organised Indian retailing. According to a
recent study done by ETIG the organized retail industry is expected to grow by 30 per
cent in the next five years and is expected to touch Rs. 45,000 crore. Thus, the growth
potential for the organised retailer is enormous. In the next 2-3 years, India will finally
see operations of a number of very serious international players- notwithstandi-ng the
current restrictions on FDI in retail. Metro from Germany is a very successful and
resourceful retailer and their cash & carry format should offer
a good run for money to others. Some others will also find perfectly legitim-ate ways to
operate in India, for example, Marks & Spencer, Mango and Shoprite.
Change Accelerators
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The following factors will be significant in driving growth in the retail sector:
Consumer factors
Increase in income
Working women
Changes in lifestyledemand for global trends
Supply side factors
Growing importance of retailing in political and economic agenda
Real estate reforms to be undertaken in the next 24 months
Major restructuring of the manufacturing sector easing product
supply constraints for efficient retailing
Reduction in import duties-offering more global sourcing options
Which categories will grow?
The single biggest opportunity in India in organised retailing is bound to be food and
groceries; it is in this sector that the largest amount of consumer spends is concentrated.
This sector has maximum opportunity for investm-ents and entrepreneurs to come in and
try to make the supply chain a little more efficient.
Consumer durables is another promising sector because, with increasing purchasing
power, consumers tend to spend the most on this category. Also, there is nothing to
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prevent a company from putting up shops outside the city limits, because consumer
durables are a premeditated purchase. Further-more, availability of finance options has
increased spending in this sector.
Third are home products - with increasing private ownership of homes by relatively
young couples, across most major cities in India, national retail chains offering home
furniture (and accessories) have great potential.
Finally, personal care products, pharmaceutical products, and healthcare services have
tremendous growth potential. Recently, we have seen some interest from organised
healthcare players like Max, Fortis, Birlas and the Reliance group
Where is this growth going to happen?
The top 15 cities in India cater to 33 per cent of total urban population, but as high as 38
per cent of Sec A and B (the top two socio-economic consumer strata) urban population.
The next 15 cities only add to another 7 per cent of Sec A and B population. So logically
the focus will be restricted only to the top 15 cities. Research conducted by KSA
Technopak, shows that today 96
per cent of total organised retail is in the top 10 cities, of which the top six cater to 82 per
cent. However, the rate of growth will be higher in the bottom four of the top 10, which
will have a 20 per cent share by 2005 against the present share of 15 per cent.
Which formats will grow?
KSA Technopak's research suggests the top four formats to emerge in the next five years
are:
* Shopping Malls
* Specialty Stores (in new categories such as office products, specialty food, optical and
travel)
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* Departmental Stores
* Supermarkets
Recipe for Success
Focus on the consumer: It is clear that consumers have changed and they are looking for
something different. Understanding their evolving needs, aspirations and lifestyles is the
underlying key to success for any retailer. The primary emphasis should be on access,
experience and service and the secondary emphasis on product and price. There should be
an effort to improve service by having better trained sales staff, better availability of
products, and minor but important conveniences, e.g. delivery of goods either to the car
or even home. Collaborative advertising and promotion can then round off this effort
Brand the store: branding the store will increase volume and enhance customerloyalty.Branding is critical to maintaining competitive diff-erentiation in an increasingly
challenging retail environment. However, the brand needs to be clearly communicated to
the customer.
Develop private label brand: Private labels act as margin generators, increasing sales
volume by positioning the label as providing higher perceived value to consumers. In the
long run, they also increase the retailers bargaining power with national brand suppliers.
Private labels generate customer loyalty by providing exclusive products, which works
towards differentiation strategy, much sought after by the retailers.
In terms of geography some entrepreneurs should put efforts in creating custom-
developed solutions for tapping the rural and semi-urban spending potential. Even in
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non-metro urban centres, there are very good oppo-rtunities in looking at starting or
expanding operations. Some cities that should see greater organised retail action in the
future would be Ludhiana, Chandigarh, Lucknow, Nagpur, Ahmedabad, Surat, Pune,
Kochi, Thiruvananthapuram, Guwahati and Bhubaneshwar.
In terms of format malls have a sustainable competitive advantage over other formats.
Consumer preferences are shifting towards malls from traditional markets. As a result of
consumer shifts, retailers also prefer to be located in malls in anticipation of higher
footfall. KSA Consumer Outlook 2000SM shows that increasingly consumers prefer "All
Under One Roof
destination for shopping as well as eating out and entertainment. These findings together
indicate an excellent potential for a mall with the following features:
a superior well-managed leisure experience
targeted at all members of the household
comprising of shopping, dining and entertainment, all under one roof
a wide range of products and services
proximity to homes
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THE STRIKING NEW FACE OF RETAIL IN INDIA.
Who says great retail is only for the metros? Check out Surat where
residents are shopping like never before.
This city in Gujarat has the state's largest textile market and is India's centre for the
diamond trade. It also holds the distinction of being one of India's cleanest cities. It is
Gujarat's second largest city with a population nudging 30 lakh as of 2001 and is home to
some of industry's giants -- Reliance being the most prominent among them. This is
Surat, which is now experiencing a retail revolution of sorts.
Surat belies the general feeling that the retail revolution as we know occurs only in the
metros. A walk along the main Ghoddod or Athwa Lines areas - akin to Mumbai's
Bandra or Colaba - is like walking through a large shopping mall. Here, you'll find every
brand, all kinds of products in every shape, shade and size and all types of food! You'll
also find four of Surat's supermarkets here -- from the cosy Mother's Inn to the 3-storied
Dhirajsons. All these are changing the way Surat shops.
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Two of the largest supermarkets in Surat are Dhirajsons, run by the Modi family and
Sahaj Superstore owned by the Patel family. Both offer valuable lessons in how
organised retail in smaller towns can succeed. Despite dramatic changes in the retail
scene, Surats retailers feel the need for a shift in mindset, habits, more modern
restaurants and theatres to drive lifestyle changes. And this is already happening. Here we
profile three leading retailers from Surat.
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Dhirajsons
Theirs is a rags to riches story. Started as a small 400 sq. ft. general store in Surat's
Chowpatty-Athwa Lines area, Dhiraj Modi and his sons built a retail chain of four stores,
a total of 56,000 square feet in Surat's prime retail area and are today considered the
pioneers of organised retail in Gujarat. The Dhirajsons Megastore is the flagship of the
chain. At 15,000 sq. ft. spread over three stories, it stocks 38,000 active SKUs and
employs 200 staff directly. Consumer spending has reduced slightly, agrees Rajnikant
Modi, but he says, "We still average Rs 400 a bill and around 800 bills a day." Going by
his figures, Dhirajsons sales are around Rs 20 crore a year, just from Dhirajsons
Megastore. This makes the store the largest in Surat in terms of sales. The Megastore has
around 3,000 footfalls a day, of which Modi estimates 50 per cent are buyers. There are 9
cash counters, each linked to a LAN and an automated inventory system which can be
tracked everyday. The whole system cost him Rs 5 lakh. Every SKU is bar coded with
the entire bar coding system costing Rs 2.5 lakh (each machine bought at Rs 50,000-
70,000 five years ago) but it has been worth it according to Modi. The Megastore has a
4,000 sq. ft. parking facility which accommodates 14-15 cars and 25-30 two-wheelers
free of cost. Modi estimates his investment in all this at around Rs 15 crore over the past
two years.
Expansion is on the cards. Says Modi, "We target a growth of at least 10-15 per cent a
year from now on." He understands very clearly that to finance expansions in Surat itself
he will need to maintain that rate. The Megastore yields gross margins of between 15-20
per cent and net of 4-5 per cent, which has to grow to aid expansion. Although there have
been several proposals from surrounding cities like Bharuch, Navsari and Billimora,
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Modi wants to consolidate in Surat first before stepping foot elsewhere. Acquisitions and
mergers are one way of consolidating which fulfils a part of their vision statement - that
of creating a chain of retail stores for total dominance in Surat.
From one store in 1992, Dhirajsons now has a conglomerate of outlets for all kinds of
products along with a supermarket of 10,000 sq. ft. - all totalling 10,800 sq. ft. all within
2 km of the Megastore. Excess stock is kept at a warehouse 4 km away. Earlier in 2002,
the Modis bought over Kutchhi's Supermarket in the upmarket Parle point area. Rajnikant
Modi intends to convert this into a successful supermarket, offering FMCG and kirana at
competitive prices.
Dhirajsons' latest expansion is into lifestyle retailing with the acquisition of Rita
Supermarket, located about 1 km from the Megastore, for a reported sum of around Rs 6
crore. With 26,000 sq. ft. carpet area, the new store, christened Dhirajsons Lifestyles, will
have 4 levels, stocking garments and accessories for men, women and children. Says
Modi, "We believe there's scope for such a store in Surat. With our brand name which
stands for trust and quality in Surat, we can make headway into this segment." The
lifestyle store is slated to open by Diwali 2002. Prices will be reasonable, says Modi.
According to him, "here, you may find some prices even lower than those in Mumbai.
This we can do by sourcing it right -- driving bargains with vendors and passing on the
difference to customers."
Certainly all the best sourcing practices and pricing policies will have to be used if
Dhirajsons is to gross the targeted break-even sales of Rs 35 crore from Dhiraj Lifestyles
in the first full year, 2003. Going one step further, Modi is in advanced talks with
Mumbai-based bookstore Crossword, to become part of Dhiraj Lifestyle. And there's an
added bonus -- Barista - which may slip in with Crossword. If he pulls it off, it'll be
another feather in his cap. In fact, he is confident of bringing in music chains like PlanetM to Surat. Talking like any other professional large-scale retailer, he says Dhirajsons is
all about providing the right retail experience and attractive environment to drive sales.
The Modis certainly do have a lot of retail experience to make it all work -- with 80 years
of retailing behind them and a name that stands for trust, quality and personal touch.
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"That's our strong point", smiles Modi. "My father and indeed almost every member of
the family even today know most of our regular customers by name. We maintain these
relations religiously and believe this touch will make us successful, more than any shop,
store or product." Travel adds to thinking and experience, continues Modi. The Modi
family has seen every supermarket and store in India and overseas. They have visited
Hong Kong, Dubai, Singapore, UK and USA over the past 8 years to understand retailing
better and develop vendors. Today, all the display equipment is imported from Italy.
UAE based vendors supply crockery and other goods via Mumbai to Surat. Regular
customers at Dhirajsons, however, feel that imported goods are priced very high. Does
this restrict his sales? Says Modi, "Far from it. Surat is not as price sensitive as Mumbai
is. Here people would pay even disproportionately for imported goods." This seems a
legacy of Surat's dominance in the gems and textiles industries, where more often than
not, generation of unaccounted money had to be balanced by spending it -- thereby
creating price insensitivity.
Education forms a continuous process for the Modis. They have sent people to the
Landmark course, Arun Virani's retail course and even checked out the retail courses at
Manipal and Nirma Institute in Ahmedabad. "It is a never ending course -- we have to
stay ahead of the others", affirms Modi.
This year Dhirajsons became a private limited company and as expansion and growth
targets become ambitious, Modi is not averse to listing his company on the Ahmedabad
stock exchange too. Currently, finance is from internal accruals and banks. Modi says
banks have been very visionary in their belief in retailing and Dhirajsons, backing him all
the way. Local government is a major issue. "Give me some government support and
retailers can do just as well as any overseas chain," he affirms.
Rajnibhai Modi takes a walk every half an hour around his Megastore. He meets oldfriends and regular customers, talking to them, addressing them personally. The Modis
have a vision statement, which they call the six steps to success -- prominent amongst
them is 'personalised public relations' which Modi does every day. Surveying his shop, he
says, without a hint of pretension and with a gleam in his eyes, "I want to be known as
the Dhirubhai of retailing in Gujarat."
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SahajSuperstore
Sahaj, just under 2 years old, is the youngest of the new format retailers in Surat. At
30,000 sq ft, it is the largest single store in Surat, possibly in Gujarat, says its young
Chairman Mahesh Patel. It certainly has the largest number of SKUs in Surat - 100,000
spread over 3 floors in the Adajan area of Surat, not exactly as upmarket as Athwa Lines
or Chowpatty, where its largest competitor Dhirajsons is located. In a way, Sahaj defies
the prime rule of retailing: location, location and location.
"When we started in 2000," remembers Patel, "this location was somewhere out of the
town. Every one said it's a risk and to be honest, I myself wasn't sure we would succeed.
But then, business is a risk, and we took it." He had some experience in retailing, having
spent 13 years in his chemist shop. "We visited all the shops and stores in India and
found that, unlike overseas, there existed no real departmental stores, at least in Gujarat. I
believe in a real departmental store, you should get 90-95 per cent of all your
requirements under one roof. That's exactly what Sahaj Superstore offers." Patel says in
spite of misgivings, Sahaj was constructed in 11 months flat with a Rs 2-3 crore
investment. He is very appreciative of banks, local financiers and his own family, all of
whom trusted his instinct. "We have met all the projections that we forecast when weapproached them for financing," he says proudly.
Today, Patel says his store has an average bill value of Rs 400 and more than 800-900
bills a day, from footfalls of around 2,000 a day. By these figures, that's Rs 3.2 lakh a
day, Rs 100 lakh a month and Rs 12 crore a year. He has an ambitious target to touch Rs
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100 crore by 2006 - 8 times current sales. He says high targets are a must to inspire his
staff which number 150 currently.
Sahaj is spread over 3 floors, with split levelling and no elevators. Says Patel, "Every
floor can be reached by walking not more than 10 steps before reaching a sales floor.
This ensures the customer doesn't get tired and goes through a larger array of goods than
in an elevator." It also keeps costs of electricity and maintenance low. Sahaj has sections
for white goods, garments, processed foods, toys and provisions. Credit cards are
accepted preferably for purchases above Rs 100 per bill. FMCG goods are priced below
MRP - a result of hard negotiations with 1,000 plus suppliers for discounts and passing
on the reduced prices to the customers. This puts margins under pressure but increases
turnover. Patel is clear, "Right now we are driving turnover. We have to develop a
clientele. Two years from the time we started, we are still in the investment mode."
Sahaj pays serious attention to consumer feedback. For example, customers were getting
tired of the same arrangement of a few counters. He got them rearranged last month.
Sahaj has parking for 75 cars, has 1 ATM of the Surat Textile Bank and runs privilege
schemes to retain customers.
Sahaj has its own LAN system with 20 computers which update stocks and sales every
day. Each section has its own CEO who handles day-to-day work and customer care. Its 8
cash counters and scanners update stock every day. Says Patel, "We have to computerise
keeping in mind today as well as the near future. When we bought bar code scanners,
they cost us Rs 30,000. Such changes will be helpful in our expansion plans." Patel has 3
bar code machines. He also has 50 cameras, which represent Rs 5-6 lakh of investment.
Nearly 90 per cent of his wares are branded in FMCG, RMG and processed foods. Just
over 5 per cent are private labels, mainly in pulses, grocery and rice. Grocery of all kinds
accounts for 40 per cent of total sales and 60 per cent of his goods are priced below MRP.
He has 3 chillers and a host of vending machines for ice cream and soft drinks where he
stocks dahi, milk and other chilled products. His staff handles all display, activity and
sales on its own. There is no vendor-managed inventory yet. "We can display and run
schemes and promos as per our requirement and feel, rather than be bound by companies
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requirements," explains Patel. Which is why he is not looking at food courts, food
services or events to drive growth.
There are 1,000 vendors with 10 per cent of them supplying 65 per cent of all goods. "But
if customers want even one product, then I have to get a vendor. I may not buy regularly,
but I need him on the rolls." All vendor data is online, with reports on outstanding and on
time delivery sent to Patel every morning. Local vendors deliver almost every hour, but
even the national ones deliver on fixed days. When he expands, then his bargaining
power will increase. Currently, he has no warehouse, what he can stock in the store limits
inventory.
What about the future? Patel says his catchment extends as far as Valsad and Vapi to the
south and Bharuch to the north. People have approached him to start off Sahaj in their
towns, but as of now, he has his hands full in Surat. "We will expand in Surat city, which
I believe has enough potential to take in many more stores. We will look at rentals or
ownership, as the case may be, but expansion within Surat will definitely be required to
meet our self set targets." Patel intends to expand directly into Athwa Lines area which is
where ownership rates can be as high as Rs 10, 000- 40,000 a yard depending on location
and space. Sahaj is a privately held company and Patel has no immediate plans to go
public.
Unlike Dhirajsons who have 85 years of retail experience, Patel is new to the field. But
the ideas are there already, the options being explored. His son is being groomed for
higher studies, possibly an MBA later on. "I myself am not even a graduate," muses Patel
in his third floor expansive office, "But I want my next generation to be up to date. They
will develop this shopkeeping into a full scale business - and lead the way in retailing in
Gujarat."
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A V Sons
Started in 1992, New AV Sons is managed by Raju Modi, and is located at Parle Point,the centre of Surat's happening retail scene. At 4,000 square feet, he stocks 15,000 SKUs
and is one of the larger supermarkets. Today, there are two AV Sons within 3 km of each
other. New AV Sons clocks up 250 bills a day from its 5 cash counters, each bill of Rs
250-400 - that's nearly Rs 60,000 a day - or Rs 18 lakh a month, which suggests annual
sales at Rs 3 crore or so. He delivers home free of cost with no minimum level of
purchases. Although he does not have credit card payment facility as yet, Rajubhai says
he is in discussions with HDFC Bank for the credit card machine linkup. New AV Sons
has 45 salesmen and encounters nearly 1-2 per cent shrinkage. Though his store had a
computer since 1992, he went in for the automated inventory management on computer
only in 1999-00. He also has a bar coding machine which cost him Rs 2.5 lakh and Rs
15,000 a year for AMC. All the 15,000 SKUs are now bar coded. All his 5 POS are
linked to the LAN and hence to the accounts, all of which cost him Rs 1.5 lakh.
What has been the effect of these stores on other kirana/grocery/general stores? Says
Patel, "We found that three kirana stores in our immediate neighbourhood have shut
down, but beyond our area, we find not much change. Sales have fallen, we hear, but
since these shops are still on, obviously, things aren't very bad." He has schemes, promos
and freebies and offers home delievery but does not have loyalty cards.
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Another interesting story is of Harisons departmental store located right next to
Dhirajsons Megastore on Athwa Gate. At less than 1,000 sq. ft., it is no match for the
15,000 sq. ft. megastore, but is definitely trying. His people accost you outside the steps
of Dhirajsons with a pamphlet extolling the virtues of Harisons. Innovation is the name of
the game. For example, Harisons delivers your purchases made between the 5th and 15th
of every month, of over Rs 1,500- 2,000 free of charge anywhere in Surat. He also lists
products which he sells 10-15 per cent lower than Dhirajsons, which is in any case lower
than the MRP.
Harisons realised that none of the major supermarkets want to deliver home and that's the
segment he's pitching for. However, not all have been so lucky. Some smaller kirana
stores have lost clientele.
Surat is a city that cares for its money differently. Its citizens don't mind paying for
quality, time and ambience. Retailers here are armed with selling acumen and a will to
experiment.
Already retailers are reaching out to companies and other institutions to allow employees
to buy at discounted prices at their stores. For example, Reliance gives employees Rs
1,300 as vouchers to spend in select retail stores. You could shop at a supermarket and
get discounted theatre tickets or vice-versa. None of this is out of bounds in a city that
can change its lifestyle, driven by increasing incomes, greater awareness and ability to
spend.
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Conclusion - How can it be done?
For a start, these retailers need to invest much more in capturing more specific marketintelligence as well as almost real-time customer purchase behaviour information. The
retailers also need to make substantial investments in understanding/acquiring some
advanced expertise in deve-loping more accurate and scientific demand forecasting
models. Reengin-eering of product-sourcing philosophies - aligned more towards
collabo-rative planning and replenishment should then be next on their agenda. The
message, therefore, for the existing small and medium independent retailers is to closely
examine what changes are taking place in their immediate
vicinity, and analyse whether their current market offers a potential redev-elopment of
the area into a more modern mult i-option destination. If it does, and most commercial
areas in India do have this potential, it would be very useful to form a consortium of other
such small retailers in that vicinity and take a pro-active approach to pool in resources
and improve the overall
infrastructure. The next effort should be to encourage retailers to make some investment
in improving the interiors of their respective establishments to make shopping an
enjoyable experience for the customer.
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Appendix : Present Indian Scenario
Retail Realities:
Unorganized market: Rs. 583,000 crores
Organized market: Rs.5,000 crores
5X growth in organised retailing between 2000-2005
Over 4,000 new modern retail outlets in the last 3 years
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Over 5,000,000 sq. ft. of mall space under development
The top 3 modern retailers control over 750,000 sq. ft. of retail space
Over 400,000 shoppers walk through their doors every week
Growth in organized retail on par with expectations and projections of the last 5
years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06
Major players:
FOOD AND GROCERY FASHION OTHERS
Foodworld Shoppers Stop Viveks
Subhiksha Westside Planet M
Nilgris Lifestyle Music World
Adani- Rajivs Piramyd Crossword
Nirma-Radhey Globus Lifespring
Ebony Gautier
Pantaloon
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Key Categories:
Source: KSA Technopack
12%9%
52%
3%
2%11%
4%7%
Transport Housing
Food beverage and tobacco Entertainment
Healthcare Clothing/Footwear
Miscl Furniture/Home
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FUTURE GROWTH POTENTIAL
OF
RETAIL MARKETING IN INDIA.
The overall retail market in India is likely to grow by 36% to touch Rs 8,00,000 crore by2008 from the current level of Rs 5,88,000 crore, according to an Associated Chambers
of Commerce and Industry of India (Assocham) study
The study points out that of the overall retail market, the organised sector in retail
marketing is expected to touch Rs 16,000 crore by 2008 from the present size of Rs 5,000
crore. The retail market at Rs 5,000 crore, includes the organised food and grocery (Rs
600 crore). Assocham president Mahendra K Sanghi said that initiatives from all the state
governments, and the Centre are prime factors that will encourage the entry of the
organised sector into retailing in the next few years.
These initiatives include allocation of land at concessional rates, grants of loans at
liberalised interest rates to promoters of shopping malls, and rationalisation of state
levies.
He pointed out that the expansion and diversification of the organised sector in retail
marketing is currently under way because of the demand factor.
The other reason which substantiates major foray of the organised sector into retail
marketing is the availability of real estate and infrastructure facilities in most of the states
for setting up retail stores.
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Such laws will no longer be there in the near future as liberalisation has already reached
its advanced stage and states are competing with one and another for attracting
investment. This will motivate and encourage the foray of organised sector into retailing,
particularly when the entry of FDIs into retailing is being strongly opposed by a section
of society and polity as well, according to the release.
According to Assocham estimates, the retail sector will create 50,000 jobs annually in the
coming five years.
The retail sector is the second largest source of employment and job market is receptive
to retailing experience, with business schools focussing on the sector and large retailers
setting up retail academies.
FOCUS ON GROWTH
Two years ago, in the context of changing markets, we outlined a strategy for HindustanLever to deliver sustainable profitable growth. This strategy builds on the past and resha-
pes for the future. I would like to update you on the progress made in executing this
strategy and also outline our future approach.
GROWTH POTENTIAL
Our published results for 2002 show a sales decline of 6.7% on account of Discontin-
uation of non value adding businesses and divestments. Our domestic FMCG business
was flat with the growth in Home & Personal Care being offset by a decline in Foods.
This may lead to a question on our growth potential. Indeed, there is a common misco-
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nception that our categories are mature with little scope for growth. In fact, the very
opposite is true. Several of our categories still have low usership levels. In addition,
the actual amount used per capita is far lower in India as compared to other countries, as
shown below:
Per Capital Consumpation (Kgs)
Fabric Wash Personal Wash Toothpaste Shampoo Tea
India 2.63 0.50 0.07 0.04 0.64
Thailand 4.71 0.87 0.40 0.38 -
Brazil 9.03 1.46 0.61 0.72 -
UK 13.90 1.31 0.23 0.40 2.28
Also, the GDP growth of about 5% is driving up discretionary income of ourconsumers by about 8% per annum. Literacy levels are rising, creating higher aspirations
further fuelled by the world they see on television. There is no doubt that today's
consumer wants a better quality of life which is what our brands help realise.
However, HLL is faced with the challenge that FMCG markets, after growing in strong
double-digits throughout the nineties are now declining in value for the last couple of
years. Why is this happening? In urban India, consumers are now being exposed to and
are trying several new categories, such as mobile phones, leisure, durables etc, and are,
therefore, down-trading their FMCG purchases. Rural demand has been dampened by
three unusually poor monsoons in the last four years. We believe that both these factors
are transitory in nature and FMCG markets will surely find a new growth equilibrium. Be
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that as it may, we are leaders in many FMCG categories, and are taking active steps to re-
attract consumer spending to our brands. We are doing this by providing exciting, new
and differentiated benefits as well as greater value, thereby leading growth. We have
every confidence in the validity of this approach given our experience in recent
years, whereby several of our biggest brands, supported by such innovation, have
grown strongly, even in this very challenging context.
FOCUSSING THE COMPANY
With increased competition for the consumers wallet in todays market environment,
driving growth requires a much higher level of resource in all areas, be it technology,
media spend or people talent. Consumer brands in everyday life is our area of core
competence both in India and globally with Unilever and thus our area of focus. Two
years ago, the FMCG business accounted for 85% of HLL. Today, 95% of HLL is its
FMCG business, of which 86% is domestic, with 9% being exports of consumer brands.
Over the years, we had entered several non-FMCG businesses in line with national
priorities. These businesses were successful and created good value. However, with theopening up of India, staying in these businesses would have required us to invest heavily
in accessing technology and achieving world-class competitiveness. In line with our
strategy, we have exited non-FMCG businesses like Animal Feeds, Seeds, Flavours &
Fragrances, Nickel Catalyst and Adhesives with total sales of over Rs.600 crores. In
doing so, we have secured good value realising in all Rs.430 crores with a profit on
disposal of over Rs.260 crores.
We also had a very broad export portfolio covering several areas which also has
been restructured and focussed. Going forward, the major thrust is on driving exports of
our consumer brands primarily to other Unilever companies from whom we receive
considerable support. This is an area where we see enormous potential for growth, given
our clear competitive advantage. Indeed we are already supplying Tea bags to Singapore,
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Australia, Japan and the USA, Personal Products to the Middle East, Far East and African
countries and are marketing Pears globally. In all, such exports already constitute over
40% of our total exports of US $ 300 million. We are also driving exports in other chosen
areas where India has a competitive advantage, like Rice, Castor and Marine products.
Marine products, for example, have huge potential given Indias long coastline and Sust-
ainable fishing capability. We are the largest exporters of Marine products from India and
have already built up a leading position in shrimp exports to the demanding markets of
the USA and Europe. We also acquired Amalgam, a leader in value-added Marine
products, to drive further growth in this area. At the same time, we have discontinued a
number of non value-adding exports. Our continuing exports are now growing by about
15%.
FOCUS ON POWER BRANDS
In the FMCG business, we had developed a portfolio of over 110 brands organically and
through acquisitions. Several of these had overlapping benefits and competed directly
with each other, while others were simply too small. Growing brands in today's market
requires scale. We, therefore, decided to focus all our resources on thirty Power Brands.These were identified for their size, brand strength, uniqueness and growth potential. In
addition, they span all the relevant benefit and price positions in our market. For
example, in Laundry, we chose three brands: Surf - providing the very best stain removal,
Rin - making clothes look very good, and Wheel-offering great cleaning and value. These
three brands also cover the entire price spectrum for every class of consumer.
We have migrated several of our other brands to converge with these Power Brands and
harvested others. Now, Power Brands account for over 93% of our domestic consumer
business. Indeed, through this approach, we are achieving big scale with several brands
being individually as big as our competitor companies. The top five brands together
account for sales of over Rs.3000 crores, and last year, grew by over 10%. We see each
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of these mega brands achieving a potential scale of Rs.1000 crores in the foreseeable
future.
GROWING THE POWER BRANDS
How will we grow the Power Brands? Firstly, by leveraging their scale -- this is
crucial in a crowded market where 3000 advertisements are seen on television every
month and where the number of SKUs stocked by retailers has gone up by about 40% in
last three years. Brand scale enables us to get a larger share of the consumer's mind as
well as a larger share of the retail shelf. For instance five of our Power Brands are among
the top ten most heavily advertised brands in India. We derive scale competitive
advantage from our combined media spends.
Redefining Categories
We are redefining the way we look at our categories. For example, we have
traditionally measured our presence in shampoos by our market share of more than 50%.
Our real opportunity, however, is to view this as the hair wash market -- indeed
consumers often use soap, natural products or just water to wash their hair, apart from
shampoos. Seen this way, our share of hair wash is only 7%, providing enormous space
for growth. Similarly, the launch of Lipton Ice Tea is attracting younger consumers and
also re- defining the role of tea in a consumers life. The thrust in placing Tea, Coffee and
Ice-cream vending machines in offices, factories and places of public congregation is
creating new opportunities to consume our brands out of home. Extension of the Lakme
brand beyond cosmetics to Salons is another example.
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Liberating Brands
In addition, we are liberating brands from their existing category mindset.
Historically,brands originated and stayed within a category product format. We, however,
see ourPower Brands as being able to occupy a unique osition in the consumers mind
andtherefore being able to stretch into other product formats or categories. The launch of
Fair & Lovely Soap, Lifebuoy Talc, taking the Max Ice-cream brand to Confectionery are
all examples of extending brands into new categories. All these extensions have had a
promising start and there are more to come.
Exciting Innovations
A key driver of growth is innovation that surprises and delights consumers with new,
differentiated and relevant benefits. We identify these benefits by placing the consumer at
the very heart of our business. Traditionally, the consumer has been brought into the
business through the lens of the arketing department, using market research tools and
techniques. This is valuable and necessary. However, much deeper insight is needed in
today's competit-ive environment. We need to go well beyond listening to what the
consumer tells us. Indeed we need to develop a degree of intimacy and understand what
is deep in her sub-conscious mind -- and seldom or never articulated. We are doing this
by having cross-functional teams interface continuously with the consumer at her home,
in the shops, sharing her life, thereby buildi-ng a deep and shared understanding. This
will help deepen our collective intuition and enable us to deliver better products as well
as superior dvertis-ing.
Leveraging Technology for Innovation
We continue to invest in technology, both to make our products better as well as
to secure cost advantage. Over the years, we have built several global technology centres
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in India with about 200 R&D people. This, coupled with access to over 5000 R&D
personnel in the global Unilever network, with a total budget of US$ 1.3 billion, gives us
enormous advantage. There is often a misconception that everyday products like ours do
not need high technolo-gy. This is totally untrue -- in fact, we need technology of a very
high order to offer superior benefits at an affordable price. For instance, the recently
relaunched Surf Excel is based on proprietary technology developed after extensive
research. It ensures that rinsing is much easier and quicker. This new Surf Excel reduces
the time taken for rinsing by as much as 50%, thereby providing huge convenience. Most
importantly, it reduces the amount of water used by 50%, which is a significant benefit,
given the acute scarcity of water in most of India. Given that laundry consumes upto 20%
of household water, this technology will indeed make a big impact. Similarly, we have
recently launched Knorr Annapurna Salt with the benefit of providing intact iodine to
the consumer. Iodine added to salt is lost in transport, storage as well as in the process of
cooking. We have developed a proprietary patented technology that encapsulates iodine,
protecting its bio-availability. This is a very key benefit, given the importance of iodine,
especially for the mental development of young children.
TACKLING COMPETITIVE CHALLENGES
In pursuit of growth, we are acutely conscious of the challenge posed by
competition, especially the low price players. This phenomenon is not new to us in India
or indeed to other developed markets where low price local players and trade brands co-
exist with large branded players like ourselves. We are quite clear that we will be able to
sustain growth in the face of such competition as we have done in the past. In the
Laundry market where there are over a thousand local players, our brand Wheel is now
the clear market leader and the largest brand in HLL. What is more, this has not come at a
cost to our bottomline as it is strongly profitable. In Personal Wash also, we grew our
business by double-digits last year in the face of very aggressive low price competition.
We will compete with low price competitors by playing to our strengths -- using our
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strongest brands backed by superior technology and the lowest cost supply chain. We will
succeed in this by leveraging our unique combination of local and global scale.
NEW GROWTH ACORNS
Three years ago, we had identified several new opportunities for growth as an
outcome of Project Millennium. We have made very good progress in nurturing these
growth acorns for the future. Specifically, we are driving nascent categories in our
current businesses such as Deodorants and Processed Foods. In addition, we have entered
new adjacent categories like Confectionery and Ayurvedic Health Care. We are also
pioneering a retaili-ng business called Sangam and building a direct-to-consumer
business called HLL Network. Taken together, all these new initiatives increase the size
of our market opportunity by about 40%.
LEVERAGING HLL SCALE FOR GROWTH
The power of HLLs scale is derived from its combined volume of about 4 million
tonnes, sales of Rs.10,000 crores and its presence across more than 20 distinct consumer
categories. HLL's brands are available in 3 million outlets and touch the lives of two out
of three Indians. We are leveraging this scale to derive competitive advantage and
sustainable growth.
Building Supply Chain Competitiveness
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We are making a quantum change in our supply chain, both in terms of enhanced
customer service as well as increased efficiency. Our supply chain is complex, with over
2000 suppliers, 100+ manufacturing locations, 7000 stockists and about one million retail
outlets. Significant investment in Information Technology has provided connectivity
across the supply chain, from the supplier to the stockist, thereby enhancing customer
service while bringing down working capital. Today, we know what our stockists have
sold every day, to almost a million outlets. This has brought us much closer to the market
place and significantly enhanced our speed of response.HLL's scale of operations gives a
distinct cost benefit. Buying raw and packing materials for HLL as a whole, rather than
separately for categories, gives us economies of scale. For example, inputs for packaging,
like paper, board and polymers, are bought centrally for all divisions generating big savings.
Similarly, in the areas of logistics and portation, scale enables greater efficiency. We are
also exploiting our scale in optimising sourcing of our products. All this gives us a
competitive advantage in our cost structure.
Deeper Commitment to Rural India
Our scale also gives us the opportunity to build the deepest possible direct distribution
reach into rural India, where over 70% of our population live. Interior villages are
difficult to access because of weak infrastructure. In addition, a large proportion is media
dark with no awareness of any brands. By consolidating our categories we are
establishing a single distribution channel for rural India. We have already appointed 6000
sub-stockists for rural markets, and are now covering approximately 50,000 villages,
reaching about 250 million consumers. In addition, we have also embarked upon an
ambitious direct distribution programme called Project Shakti to reach the smallest of
villages. Our vision is to reach over 100,000 villages, thereby touching about 100 million
rural consumers. We have already piloted
this initiative in 5000 villages and are now extending this rapidly. Project Shakti provides
a unique micro-enterprise opportunity for under-privileged rural women. Armed with
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micro-credit from banks, they become direct-to-home distributors in these small villages,
providing relevant products as well as improving the overall awareness of nutrition and
hygiene. In turn, they benefit through sustainable income, thereby creating a virtuous
cycle of growth. Project Shakti uniquely combines our business interest with our ongoing
commitment to the development of rural India and women.
Partnering Modern Trade
In addition to our ongoing commitment to the traditional grocery trade, we are
building a special relationship with the small but fast emerging modern trade. Our scale
enables us to provide superior customer service including daily servicing, improving their
range availability whilst reducing inventor-ies. We are using the opportunity of
interfacing more directly with our consumers in this retail environment through specially
designed commun-ication and promotions. This is building traffic into the stores while
yielding high growth for our business.
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BUILDING PROCESSED FOODS
There is a big opportunity to grow Processed Foods, which are still a very small
proportion of the overall largely commoditised foods market.
Foods Market Structure
Processed 6%
Semi Processed 16%
Unprocessed 78%
How-ever, developing this market will require relevant and differentiated products which
cater to Indian tastes and habits as well as sustained and considerable investment and
time for market development. Over the years, we had grown our Foods and Beverages
business, organically and through acquisition to significant scale. However, it was
necessary for us to increase the inherent profitability profile in several areas in order to
generate the capacity to invest in market development. Over the last couple of years, our
gross margins have improved by 9%, albeit at the cost of some topline, thereby providing
the fuel to invest in both innovation and differentiation. We have reduced our losses in
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Ice-cream significantly, and considerably improved the performance of the recently
acquired Modern Foods. Going forward, our priority is to lead growth of this market
through innovation. We have recently launched Kissan Bistix, Kissan Mr.Fruit, Lipton
Ice, Modern Atta Bread and the Knorr Annapurna Culinary range, all of which have met
with an encouraging response.
TALENT FOR GROWTH
Finally, the most important determinant of our growth is the quality of our people.
We are deeply privileged to continue to attract the very best talent as the number one
preferred employer at leading campuses. We are also encouraging diversity in our talent
skills, especially for our newer business-es, and are also bringing in a large number of
talented women. Our training programmes have been revamped to expose entrants to
local and global business -- they spend time in Indian villages and international cities --
all within a 12-month training programme. HLL's wide variety of categories and
Unilever's global operations provide enormous development opportunit-ies through
organised career planning. A lot of emphasis has always been placed on skilldevelopment -- today we are also concentrating on building
individual and leadership capabilities. We offer an energising and empower-ing
environment enabled by creating small teams focussed on key initiatives. We have found
this the best way of combining both scale and speed. Deeper in the company, in factories
and offices, we are unleashing the talent and creative potential of all employees through
initiatives such as TPM.
In conclusion, let me say that HLL's most valuable assets are its brands and people.
Today's market is very dynamic and increasingly competitive. We have confidence in our
strategy and are learning to grow even in declining markets. We are putting in place key
enablers to build our capability for sustained high performance. We have brands with rich
heritage and strong consumer equity. We have people who bring the power of their ideas
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and execution to exploit the full potential of our brands towards delivering continued
profitable growth for Hindustan Lever.
Contents
RETAIL SCENARIO IN INDIA
Unlimited Opportunity
The Global Retail Industry: An Overview
Retail Scene in India: Touching Meteoric Scales
Different Forms of Retailing
Malls in India
Challenges of Retailing in India
Retail as an Employment Generator
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Retail Industry in the East: Current Scenario, Growth Prospects and
Upcoming
Projects
Retail Education in the East
Factors needed to promote the Industry in West Bengal
Conclusion
The Global Retail Industry : An Overview
Retail has played a major role world over in increasing productivity across a wide range
of consumer goods and services .The impact can be best seen in ountries like U.S.A.,
U.K.,Mexico, Thailand and more recently China. Economies of countries like Singapore,
Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector.
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Retail is the second-largest industry in the United States both in number of
establishments and number of employees. It is also one of the largest world wide. The
retail industry employs more than 22 million Americans and generates more than $3
trillion in retail sale annually. Retailing is a U.S. $7 trillion sector.
Wal-Mart is the worlds largest retailer. Already the worlds largest employer with
over 1million associates, Wal-Mart displaced oil giant Exxon Mobil as the worlds
largest company when it posted $219 billion in sales for fiscal 2001. Wal-Mart has
become the most successful retail brand in the world due its ability to leverage size,
market clout, and efficiency to create market dominance. Wal-Mart heads Fortune
magazine list of top 500 companies in the world. Forbes Annual List of Billionaires has
the largest number (45/497) from the retail business.
GLOBAL RETAIL (Source : CSO ,MGI Study)
1999 2002 2005
Total Retail (US $
Billion)
150 180 225
Organised Retail(US $ Billion)
1.1 3.3 7
% Share of
organised Retail.
0.7 1.8 3.2
Top Retailers Worldwide
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Rank Retailer ountry1 Wal-Mart Stores, Inc. U.S.A.
2 Carrefour Group France3 The Kroger Co. U.S.A.
4 The Home Depot, Inc. U.S.A.
5 Metro Germany
(Source: STORES / Deloitte Touche Tomahatsu)
Retail Scenario in India : Touching Meteoric Scales
As the corporates the Piramals, the Tatas, the Rahejas, ITC, S.Kumars, RPG Enterprises,
and mega retailers- Crosswords, Shoppers Stop, and Pantaloons race to revolutionize the
retailing sector, retail as an industry in India is coming alive.
Retail sales in India amounted to about Rs.7400 billion in 2002, expanded at an average
annual rate of 7% during 1999-2002. With the upturn in economic growth during 2003,
retail sales are also expected to expand at a higher pace of nearly 10%. Across the
country, retail sales in real terms are predicted to rise more rapidly than consumer
expenditure during 2003-08. The forecast growth in real retail sales during 2003- 2008 is
8.3% per year, compared with 7.1% for consumer expenditure. Modernization of the
Indian retail sector will be reflected in rapid growth in sales of supermarkets,
departmental stores and hypermarts.
Sales from these large-format stores are to expand at growth rates ranging from 24% to
49% per year during 2003-2008, according to a latest report by Euromonitor
International, a leading provider of global consumer-market intelligence.
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A. T. Kearney Inc. places India 6th on a global retail development index. The country has
the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7%
of the population in India is engaged in retailing, as compared to 20% in the USA.
In a developing country like India, a large chunk of consumer expenditure is on basic
necessities, especially food-related items. Hence, it is not surprising that food, beverages
and tobacco accounted for as much as 71% of retail sales in 2002. The share of food-
related items had, however, declined over the review period, down from 73% in 1999.
This is not unexpected, because with income growth, Indians, like consumers elsewhere,
have started spending more on non-food items compared with food products. Sales
through supermarkets and department stores are small compared with overall retail sales.
Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about
30%per year during the review period). This high acceleration in sales through modern
retail formats is expected to continue during the next few years, with the rapid growth in
numbers of such outlets due to consumer demand and business potential.
The factors responsible for the development of the retail sector in India can be broadly
summarized as follows:
Rising incomes and improvements in infrastructure are enlarging consumer markets and
accelerating the convergence of consumer tastes. Looking at income classification, the
National Council of Applied Economic Research
(NCAER) classified approximately 50% of the Indian population as low income in 1994-
95; this is expected to decline to 17.8% by 2006-07.
Liberalization of the Indian economy which has ledto the opening up of the market for
consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to make
significant inroads into the vast consumer market by offering a wide range of choices to
the Indian consumers.
Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.
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The internet revolution is making the Indian consumer more accessible to the growing
influences of domestic and foreign retail chains. Reach of satellite T.V. channels is
helping in creating awareness about global products for local markets. About 47% of
Indias population is under the age of 20; and this will increase to 55% by 2015. This
young population, which is technology-savvy, watch more than 50 TV satellite channels,
and display the highest propensity to spend, will immensely contribute to the growth of
the retail sector in the country. As India continues to get strongly integrated with the
world economy riding the waves of globalization, the retail sector is bound to take big
leaps in the years to come.
The Indian retail sector is estimated to have a market size of about $ 180 billion; but the
organised sector represents only 2% share of this market. Most of the organised retailing
in the country has just started recently, and has been concentrated mainly in the metro
cities.India is the last large Asian economy to liberalize its retail sector. In Thailand,
more than 40% of all consumer goods are sold through the super markets and
departmental stores. A similar phenomenon has swept through all other Asian countries.
Organised retailing in India has a huge scope because of the vast market and the growing
consciousness of the consumer about product quality and services.
A study conducted by Fitch, expects the organized retail industry to continue to grow
rapidly, especially through increased levels of penetration in larger towns and metros and
also as it begins to spread to smaller cities and B class towns. Fuelling this growth is the
growth in development of the retail-specific properties and malls. According to the
estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and
will be available for occupation over the next 36-48 months. Fitch expects organized
retail to capture 15%-20% market share by 2010.
A McKinsey report on India says organised retailing would increase the efficiency and
productivity of entire gamut of economic activities, and would help in achieving higher
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GDP growth. At 6%, the share of employment of retail in India is low, even when
compared to Brazil (14%), and Poland (12%).
Different Forms of Retailing : Emergence of new formats of
retailing in India
Popular Formats
Hypermarts
Large supermarkets, typically (3,500 - 5,000 sq. ft)
Mini supermarkets, typically (1,000 - 2,000 sq. ft)
Convenience store, typically (7,50 - 1,000 sq. ft)
Discount/shopping list grocer
Traditional retailers trying to reinvent by introducing self-service formats as well
as value-added services such as credit, free home delivery etc.
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The Indian retail sector can be broadly classified into:
a) FOOD RETAILERS
There are large number and variety of retailers in the food-retailing sector.Traditional
types of retailers, who operate small single-outlet businesses mainly using family labour,
dominate this sector .In comparison, super markets account for a small proportion of food
sales in India. However the growth rate of super market sales has being significant in
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recent years because greater numbers of higher-income Indians prefer to shop at super
markets due to higher standards of hygiene and attractive ambience.
b) HEALTH & BEAUTY PRODUCTS
With growth in income levels, Indians have started spending more on health and beauty
products .Here also small, single-outlet retailers dominate the market .However in recent
years, a few retail chains specializing in these products have come into the market.
Although these retail chains account for only a small share of the total market , their
business is expected to grow significantly in the future due to the growing quality
consciousness of buyers for these products.
c) CLOTHING & FOOTWEAR
Numerous clothing and footwear shops in shopping centers and markets operate all
over India. Traditional outlets stock a limited range of cheap and popular items; in
contrast, modern clothing and footwear stores have modern products and attractive
displays to lure customers. However, with rapid urbanization, and changing patterns of
consumer tastes and preferences, it is unlikely that the traditional outlets will survive the
test of time.
d) HOME FURNITURE & HOUSEHOLD GOODS
Small retailers again dominate this sector. Despite the large size of this market, very few
large and modern retailers have established specialized stores for these products.
However there is considerable potential for the entry or expansion of specialized retail
chains in the country.
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e) DURABLE GOODS
The Indian durable goods sector has seen the entry of a large number of foreign
companies during the post liberalization period. A greater variety of consumer electronic
items and household appliances became available to the Indian customer. Intense
competition among companies to sell their brands provided a strong impetus to the
growth for retailers doing business in this sector.
f) LEISURE & PERSONAL GOODS
Increasing household incomes due to better economic opportunities have encouraged
consumer expenditure on leisure and personal goods in the country. There are specialized
retailers for each category of products (books, music products, etc.) in this sector.
Another prominent feature of this sector is popularity of franchising agreements between
established manufacturers and retailers.
Malls In India
Over the last 2-3 years, the Indian consumer market has seen a significant growth in the
number of modern-day shopping centers, popularly known as malls. There is an
increased demand for quality retail space from a varied segment of large-format retailers
and brands, which include food and apparel chains, consumer durables and multiplex
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operators. Shopping-centre development has attracted real-estate developers and
corporate houses
across cities in India. As a result, from just 3 malls in 2000, India is all set to have over
220 malls by 2005. Today, the expected demand for quality retail space in 2006 is
estimated to be around 40 million square feet. While previously it was the large,
organised retailerswith their modern, up-market outlets, and direct consumer interface-
who had been a key factor driving the growth of organised retail in the country, now it is
the malls which are playing the role.
Factors such as availability of physical space, population densities, city planning, and
socio-economic parameters have driven the Indian market to evolve, to a certain extent,
its own definition of a mall. For example, while a mall in USA is 400,000 to 1 million
sq.ft. in size, an Indian version can be anywhere between 80,000 sq.ft. and 500,000 sq.ft.
By 2005, total mall space in the 6 cities of Mumbai, Bangalore, Hyderabad, Chennai,
Kolkata, and National Capital Region (Delhi, Noida, Gurgaon) is expected to increase to
over 21.1 million sq. ft. Compared to other big cities, Kolkata and Hyderabad are
relatively new entrants in the mall segment, but are witnessing quick growth. Smaller
cities like Pune, Ahmedabad, Lucknow, Ludhiana, Jaipur, Chandigarh and Indore, are
also expected to see a formidable growth in the growth of malls in the near future. But
malls in India need to have a clear positioning through the development of differential
product assortment and differential pricing, in order to compete effectively in a growing
mall market. Segmentation in malls, like up-market malls, mid-market malls, etc. , proper
planning, correct identification of needs, quality products at lower prices, the right store
mix, and the right timing, would ensure the success of the mall revolution in India.
Challenges of Retailing in India
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Retailing as an industry in India has still a long way to go. To become a truly
flourishingindustry, retailing needs to cross the following hurdles:
Automatic approval is not allowed for foreign investmentin retail.
Regulations restricting real estate purchases, and cumbersome local laws.
Taxation, which favours small retail businesses.
Absence of developed supply chain and integrated IT management.
Lack of trained work force.
Low skill level forretailing management.
Intrinsic complexity of retailing rapid price changes, constant threat of product
obsolescence and low margins.
The retailers in India have to learn both the art and science of retailing by closely
following how retailers in other parts of the world are organizing, managing, and coping
up with new challenges in an ever-changing marketplace. Indian retailers must use
innovative retail formats to enhance shopping experience, and try to understand the
regional variations in consumer attitudes to retailing. Retail marketing efforts have to
improve in the country - advertising, promotions, and campaigns to attract customers;
building loyalty by identifying regular shoppers and offering benefits to them; efficiently
managing high-value customers; and monitoring customer needs constantly, are some of
the aspects which Indian retailers need to focus upon on a more pro-active basis.
Despite the presence of the basic ingredients required for growth of the retail industry in
India, it still faces substantial hurdles that will retard and inhibit its growth in the future.
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One of the key impediments is the lack of FDI status. This has largely limited capital
investments in supply chai