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Transcript of The Retailer April12
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The retailerApril 2012
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Foreword
Dear reader,
It gives us great pleasure to present to you the April 2012 edition of The retailer, our quarterly publication
on the retail and consumer products sector.
In this edition, we have focused on themes for operational improvement, covering the major issues faced by
retail and consumer product companies in their store operations and distribution functions, respectively.
We have showcased how consumer product companies can maximize their prots through customer pricing.
In the last few years, the protability of leading retailers has been under pressure. In this edition, we have
focused on ways to improve the efciency and productivity of stores with the objective of conserving
precious capital.
In the hot Indian summer, ice-cream is popular among consumers. We have focused on opportunities, trends and success factors in
the Indian ice-cream and frozen dessert market.
In our interview feature, Mr. Krishna Shete, Vice President, Business Development of Radhakrishna Foodland Pvt. Ltd., shares his
views on evolving supply chains in the Indian retail and consumer products sector.
We also feature our Retail innovation board section, in which we present to you snapshots of recent innovations that have emerged
in the Indian and global retail industries.
We hope you enjoy reading this issue of The Retailer and we look forward to your comments and feedback.
Pinakiranjan Mishra
Partner and National Leader, Retail and Consumer ProductsErnst & Young, India
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Contents
Involve yourself:
We look forward to hearing your feedback and suggestions.
To contribute to editorial content, please contact Ashish Kakwani
T: +91 22 6192 0423
Customer pricing for prot value leakage 04
Performance improvement themes for Indian retailers 11
Ice-creams in India the inside scoop 17
Interview with Mr. Krishna Shete, Vice President, Business Development,Radhakrishna Foodland Pvt. Ltd. 25
Special feature: Innovation board 29
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4 The retailer
Customer pricing for prot value leakage
1
How consumer product companiescan maximize their prots through
customer pricing
While a consumer product company (CPC) can maximize its
prots by implementing initiatives including the right marketing
mix, segmentation, improved distribution system, optimization
of costs, etc., the fastest and most effective means of
maximizing prot is optimized pricing.
The payoffs of improved pricing far outweigh the benets
of other levers of prot. For example, CPCs operate at an
operating (EBITDA) margin of ~12-18%, and a 1% reduction in
its operating expenses will at best be reected in a 0.5%0.8%
improvement in its operating margin, while a 1% increase on its
overall sales through pricing can result in a ~5-8% improvement
in its operating margin! However, pricing decisions are often
fraught with risk, since incorrect pricing can drastically affect
volumes. Therefore, a systematic approach to pricing is critical
for the success of any company.
In the Indian scenario, customer refers to channel
intermediaries that cater to the end consumer. In this context,
optimal pricing relates to customer pricing or transaction price
management, i.e., the actual price realized by the company in its
transactions with its channel intermediaries. This is also known
as its pocket price.
While a company has a target list price for each transaction,
there are many on-invoice and off-invoice discounts and rebates
that exist under the guise of volume discounts, consumer
promotions, incentives to the sales force incentives, etc., which
can drive down the list price to a net realized price the pocket
price. In addition to this, a differential product mix and servicingarrangements across customers impacts this price further,
leading to differential marginal contributions (MCs) across
different customers.
Apart from these economic considerations, these measures
enable customers to extract an enhanced price from the
company due to factors such as tenure of relationship with
the latter and the perceived importance of a customer. These
considerations result in variations in the MC accrued to the
organization from individual customers. An analysis of these
variations demonstrates that the MCs are often part of a broad
range that is known as the Marginal Contribution Band (depicted
below).
Individual elements (off-invoice discounts, consumer
promotions, etc.) serve as input provided by the company to
generate sales. In a utopian world, each input and its outcome
should be evaluated at the customer level. However, while
invoice or gross sales is tracked at the micro level (customer-
wise), companies are unable to track and put into action the
individual spend elements of each customer and instead club
these at a gross level. Therefore, similar input may result in
differential output at the customer level this customer level
granularity is lost in the overall spend prole, making it difcultto assess individual customers contribution to the organization.
This lack of visibility of granular details results in value leakage
across the chain.
2% 2% 3%
6%
10%
15%18%
23%
20%
13%
8%6%
0%
5%
10%
15%
20%
25%
0-10%
10-12%
12-14%
14-16%
16-18%
18-20%
20-22%
22-24%
24-26%
26-28%
28-30%
>30%
%ofcustomers
Marginal contribution - as a percentage of gross sales
Marginal Contribution Band
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5The retailer
The sheer volume of transactions, of varying degrees of
complexity, tends to create a smoke screen, which makes it
difcult for companies to manage and understand opportunities
for margin leakage (as illustrated below).
Most organizations do not effectively manage true
customer pricing.
This leads to missed opportunities.
Absence of product-level protability Exploitation of price change to maximize protability
Historical precedent-based pricing/spend decisions Large number of low prot or unprotable customers
Limited visibility of true customer costs and protability Inconsistent discounting and investment across customers, markets and product types
No clear strategy to optimize mix of products by
customer, channel and market
Introducing the margin leakagewaterfall
The margin leakage waterfall is the basis on which the true
protability of a customer is analyzed. It assigns key spends
to customer segments (or markets or products) to identify
potential areas where prot can be optimized.
Margin leakage waterfall: Provides a framework for generating
hypotheses and identifying the highest value opportunities
In essence, the Value Leakage Waterfall achieves two main
objectives:
1. Allocates all costs to deliver a fully loaded view of current
protability by market, customer segment and product
2. Provides a common baseline to enable meaningful
comparisons within and across customer segments
Up-sell highmarginproductsand services
Margin leakage waterfall
Provides framework for generating hypotheses and identifying highest value opportunities
Simplify discounts, align to customer value, andcease heavy period-end discounts
Improve ROI onadvertisingspend deploymarketing mixanalytics
Drive up customerprofitability, eliminateunprofitable tail andincentivise the salesforce based on
CustomerContributionStandardisepayment termsand incentivisepromptpayments
Build cost-to-serve inpricing terms
Promotion spendoptimization institute payfor performance withincustomers/channels
Cost-to-serve COGS
Grosssales
Excise
Ne
tSales
On-invoicedis
counts
Invoic
esales
Off-invoicedis
counts
Nonmonetary
promo
Consumerprom
otions
Netsale
svalue
OtherBTL
spends
Costo
fcredit
Baddebts
Costofdistr
ibution
Pocketprice
Costofgoo
dssold
MarginalContr
ibution
Marketin
gcosts
fixedove
rheads
Pocket
margin
Sales Inputs
Enhanceprofitabilitythrough pricevolume trade offsusing elasticityanalytics
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6 The retailer
Opportunity identication through
Value Leakage Waterfall
The Value Leakage Waterfall can be used to leverage the
following opportunities:
Our experience indicates that addressing these opportunitiestypically enable improved margin opportunities worth around
2%5% of net revenue.
Identify protability distinctions across customer
segments and remodels negotiations to enhance
protability
Deploy differentiated input across segments
Develop pay for performance standards, aligning
input with objective delivery across similar customers
Dene service delivery across segments in line with
needs and delivery of protability
Align credit alignment with discounting
Leverage cross-selling and up-selling opportunities
to guide product improvement mix within customer
segment
Customers
protability
Sales
input
Cost to
serve
Improved
product mix
Ernst & Youngs point of view usingValue Leakage Framework to enhanceprotability
In our experience, the margin leakage approach is centered
around effective segmentation and objective-linked assessment
of customer-level spends.
Margin Leakage
Reduction
Implementation frameworks to transition spends
Customer segmentation and spend mapping
How should the spend s be transitioned to
overcome legacy effects ans ensure customer
segments?
How can the customer base be segmented
to identify respresentative and manageable
number of customer segments?
What is the true profitability delivered by
customer segments?
Objective linked assessment of spends for target segments
How should spend elements be redeployed to the needs of
segments?
Are spends for similar customers aligned to objective delivery?
Are cross-sell and up-sell opportunities adequately utilized to
drive margin improvements?
3
1
2
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7The retailer
1: Effective segmentation and mapping of spend thestarting point of margin-improvement initiatives
Segment customer base
Creation of representative and manageable segments
Key questions
What are the key criteria according to which the customerbase can be segregated?
What is the best methodology that can be used to create
actionable segments?
Can the segmentation be easily revamped as new
customers are added and market dynamics change?
Identication of true segment protability
Assignment of customer level spends
Key questions
Which spends are variable for a customer? How should individual spends be apportioned to the
customer base?
What is the true protability delivered by segments? Which
segments should be selected for margin improvement
initiatives?
Segmentation involves using one or both the behavioral and
attitudinal dimensions as variables:
Behavioral attributes:
Segment characteristics such as size and geography
Buying behavior such as frequency of purchase, average
ticket size and recentness of purchase
Business economics including contribution of turnover,
number of deliveries and customers ROI
Attitudinal attributes:
Needs and preferences including service needs, reputation
and responsiveness
Attitude to product or service including attitude to new
technology
Internal and external sources can be both used to collect data
on selected variables. If statistical techniques such as factor
and cluster analysis are required, multiple iterations may be
needed to generate the nal segment.
These nal segments must then be proled for analysis. Pilot
segmenatation solutions are developed accordingly.
Proling
Denition of segments that are identiable, attributable,
responsive and actionable
Process of assigning a character to the segment to make iteasily identiable, based on similar customer characteristics
Attribution
Segmentation is usually carried out using a sample of
customers; attribution required to ensure that all customers
can be attributed to one of the segments
Identication of manageable number of characteristics that
dene the membership of a customer in a segment
Marginal contributions across segments are identied to assess
inter-segmental variability, which can then be addressed.
0%
5%
10%
15%
20%
25%
30%
35%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Marginal contribution delivered as % of MRP acrossCustomer Groups/Accounts
Marginal contribution delivered
Largevolume
Mediumvolume
Lowvolume
Targetgroupstoimprove
profitability
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8 The retailer
2: Objective-linked assessment of spend heads is carried outto determine margin-improvement opportunities to feed into
pilot and implementation plans.
Redeploy over-lapped inputs
Map spends to objective delivery for identied segments and
redeployment of low value adding spends
Key questions
What are the main objectives to be delivered by spend
heads?
How important are these spends across the segments in
delivering the central objectives?
In light of multiple spends serving similar objectives, what are
the opportunities for redeploying spends?
This exercise helps to prioritize spends that can be redeployed
or reduced for the identied segments (identied in the previous
step), based on the relative importance of spends for the
segment.
For example, an analysis of marginal contribution revealed the
need for improvement in the high-volume customer function of
an Indian semi-durables player. On analyzing input overlaps, its
blanket goodwill scheme, which aimed to share the companysincremental prots with all its channel partners, was found to
have low import with its high-volume customers while it was
important for its low-volume ones. Redeployment of the input
as a loyalty program component was identied as a priority
intervention to help the company grow its top line, and thereby,
improve the marginal contribution of similar spend levels.
(Level of importance (H,M,L or NA) for each objective-dealer type combination) HMS LMS
Central objective Objective Input type Segment A Segment FOverall retailer share
(increase)
Block competition asset entry to drive future
growth
Loyalty input M H
Overall retailer share
(increase)
Encourage retailers to upgrade to higher /
more prestigious segment
Top-tier portfolio program H NA
Overall retailer share
(increase)
Increase retailer share by limiting competition
visibility
Visual Merchandising H L
Overall retailer share
(increase)
Reward retailer growth Goodwill schemes L H
Overall retailer share
(maintain)
Block competition entry Visual Merchandising H M
Overall retailer share(maintain)
Block competition entry (only top companies) Loyalty input L H
Overall retailer share
(maintain)
Customer meets to generate goodwill Field team tactical spends H M
Overall retailer share
(maintain)
Maintain retailer goodwill Goodwill schemes L L
Overall retailer share
(maintain)
Maintain retailer goodwill Top-tier portfolio program H NA
Overall retailer share
(maintain)
Subsidize institutional orders from retail Product-level ToT deals M L
Re-deploy into top-tier loyalty for Segment A
HMS - High Margin Segment
LMS - Low Margin Segment
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9The retailer
Identication of input-level overspend
Comparision of value delivered by segments of similarcustomers (same segment)
This exercise helps to identify intra-segment variations that can
be addressed to plug value leakage within a segment.
Since customers within a segment are similar, their spend levels
as a percent of sale should also be similar. However, large
variations are typically observed on their deep-diving in the
case of similar customers. While some of these can be explained
as tactical interventions, the majority are typically the result of
legacy effects.
The difference in spend levels across similar customers need
not be a cause for concern as long as the difference deliversproportionate returns from the customers. The gure below
depicts this as an example of an Indian CPG company. Large
variations were found in the case of customers belonging to the
same segment for critical spend heads linked to their product-
level growth. Furthermore, a customer-level growth analysis
revealed that 40% of overall spends were not delivering growth
that was commensurate with the overspend level. A transition
plan to address these overspends was devised and implemented
to improve the effectiveness of the spends of identied
customers.
0
1
2
3
4
5
6
7
8
0.3% 0.8% 1.3% 1.8%
No.
ofdealers
Input spends higher
than segment average
Higher spends
acceptable if
commensurate growth
is achieved
SegmentAvg
Input spend effectiveness within a customer group
Instances of overspend identified if extra spend as % of sales does not
generate higher growth redeploy spends with higher linkage to
growth
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10 The retailer
In a scenario with a limited number of customers, pricing should
be driven by the cost-to-serve across the customers. This
includes credit arrangements and delivery terms. For example,
two similar customers, one demanding 90 days of credit and the
other working on the basis of a 30-day credit window, should
work on different discounting levels. Marginal contribution
should also factor in the product mix so that companies can
derive benets through a basket mix analysis across their
customer segments with the aim of up-selling high gross marginproducts to targeted customer segments.
3: Implementation frameworks for transitioning spends
The greatest challenge is to effectively draw up a transition
plan that overcomes the legacy effect and ensures a customers
alignment with the redened business model. In most cases, this
is a gradual process that ensures customer stickiness and helps
to address their resistance effectively.
In the overspend example discussed in the previous section,
this problem was addressed by a segmentation solution,
which grouped large customers together to deploy a segment-
specic transition methodology. A three-year conversion
plan, which involved transition to the base + high incentive
methodology, was adopted in annual negotiations. At the end
of the transition plan, the spend head could be optimized due to
customers willingness to accept a pure pay for performance
methodology,.
In conclusion
Customer management is a critical function in any organization.
Complete visibility into customer transactions, although
challenging, given their sheer number and complexity, can
enable an organization to maximize prot through customer
pricing. Analysis of value leakage can also be a powerful tool
for managing this complexity, delivering margin-improvement
opportunities amounting to 2%5% of net revenues.
Value leakage principles require consistent and rigorous
implementation by organizations to capture consumer-level
transactional spends. Moreover, getting the segmentation
process right is an important element in managing complexity by
enabling segment-level decisions, instead of dealing with a large
number of customers.
Implementation of the opportunities identied through value
leakage brings with it challenges relating to alignment of
customers with the acceptable level of return for sales input.
Transition planning for important customers is therefore a key
element for realizing the benets derived through this approach.
Karan Bhatia
Manager
Ernst & Young Private Limited
Karan is a Manager in Ernst & Youngs
Performance Improvement practice, which is
focused on the consumer products sector. He
is has PGDM qualication from IIM, Kozhikode and has six
years experience with consumer product companies in the
elds of strategy, process consulting, sales and distribution,marketing operations, research and development, and
execution of entry and market expansion strategies.
T: +91 22 6192 0937
Inputs by Richa Tiwari
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11The retailer
2Performance improvement themes for Indian
retailers
IntroductionIn India, leading retailers are struggling to enhance or
maintain their margins, given the astronomical increase
in rental, manpower and supply chain costs. Retailers
are increasingly focusing on improving efciency and
productivity in their stores to conserve capital and fund
their next phase of expansion. Historically, there havebeen only a few retailers in India who have managed and
implemented initiatives on improving their store operations
successfully. Approach adopted for stores by such retailers
is one of the key reasons for low success rate. There
approach was transactional in nature rather than aimed
at building an organizational culture that was tuned to
continuous improvement. Moreover, most retailers only
utilized a few improvement levers rather than opting for a
comprehensive and rigorous improvement initiative.
For comprehensive operational improvement, retailers
need to look at levers that have linkages with the external
(catchment) and internal (retailing space, supply chain,manpower, etc.) environment of retail stores.
Improvement levers for operation ofstores
Retailers can use the following framework to ensure that theyhave explored all the relevant improvement levers to improve
their retail stores:
Figure 1: Framework for improving the performance of stores
Network EBITDA
Improvement
Efficiency and asset utilization
Improvement levers
Improve the utilization andproductivity of assets used for
store operations
Cost reduction levers
Develop operational
capabilities to optimize costs
in various operating areas and
improve margins
Improve support elements
Usually ignored support
elements can prove to be agame changer if used
effectively and efficiently
Top-line drivers
Identify levers that could
increase the sales at store level
Bottom-linefocus
Catchment activation
Improving operating
parameters related to
footfalls, conversion,
bill size, repeat
purchase
Customer relationship
management and loyaltyRange rationalization
Category management
Right MIS and
performance boards for
decision making
Visual merchandise
improvement
Customer service
improvementConvenient and
attractive store layout
Cost reduction in the
area of manpower,
power, supply chain,
rentals, administrative,
sales and marketing
spends, promotion
spends
Shrinkage reductionSupply chain cost
reduction
Space productivity
improvement
Fixture efficiency
improvement
Manpower productivity
improvement
Marketing and sales
spend effectiveness
Effective markdownsClosure of financially
non-viable stores
Top-line
focus
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12 The retailer
However, at the same time, it is imperative for retailers to
prioritize these improvement levers so that maximum value
can be extracted in the shortest possible time. Prioritization
is primarily driven by the nature of the gaps that exist in the
current retail operations of retailers and an effort made to plug
these. Nevertheless, retailers could focus on the following key
levers as their primary initiatives, and the rest of the levers can
be taken up during the next phase of improvement.
Top line focus
Catchment activation and improvement in operating
parameters
Almost every retailer measures and monitors operating
parameters including footfalls, conversion, average ticket size
and repeat purchase percentage. But most of them either fail to
understand or are not able to take corrective action in the event
of a plunge in the values of these parameters. These parameters
could help retailers determine the extent of catchment
awareness and activation in their businesses, as well as thesuccess of their brand-building activities and the selling skills of
their sales staff.
A simplistic customer funnel using these operating parameters
can track the progress of potential customers moving from the
awareness to the loyal customer stage, and in turn, help the
retailer determine the stage at which most potential customers
are being dropped. To evaluate the possible reasons for this, the
retailer can establish one-to-one mapping at various stages of
the customer funnel.
For example, awareness of a catchment store is directly linked
to the effectiveness of marketing initiatives, whereas thenumber of customers who buy from the store can be linked
to product pricing and assortment as well as to customer
service and loyalty. Similarly, the number of repeat purchases
can be mapped to the loyalty card scheme, product quality or
assortment.
Figure 2: Illustrative customer activation funnel
Detailed customer data captured at the time of sales can help
retailers to further analyze operating parameters. For example,
based on loyalty cards or delivery address data, retailers can
determine the catchment penetration of each of their stores.
This may help them to design catchment-specic marketing
and sales activities, which will result in effective and efcient
marketing initiatives.
Awareness80%
Interest40%
50%conversion
Visit30%
Buy20%
Loyal15%
66%conversion
75%conversion
75%conversion
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13The retailer
Figure 3: Illustrative catchment penetration
Category management and range rationalization
Category management and range rationalization are other areas
that can drive the top line for retailers. It has been observed
that effective and efcient category management can result in
incremental top line growth and better space utilization (to the
extent of 10%15%). This would require selection of the right
assortment and merchandize, assignment and activation of
the right category roles (e.g., prot enhancers, trafc builders,
image creators, impulse drivers, etc.), pruning or rationalizing
the range, appropriate pricing and in-season mark-down
management.
Retailers can use pareto analysis in conjunction with cluster
analysis to determine their store-specic assortment plans.
Parameters like category characteristics and their tment with
customer needs, consumer behavior and catchment analysis in
terms of demographics and socio-economic understanding can
be used for custering the stores.
Bopodi
Camp
Khed
Residential
Industrial belt
Wholesale markets
and malls
Player 1
Player 2
Retailers
Player 3
Player 4
Player 5
Key areas
Addressed Catchment
Households: 76,438
Player 2: 1%
Player 3: 3%
Player 5: 10%
High density catchment
Households: 106,438
Player 1: 5%
Player 2: 3%
Player 3: 7%
Untapped Catchment
Visual merchandize
Visual merchandize is an effective tool to entice customers, results
in higher footfalls, and eventually, top line growth. In general,
retailers can focus on the following areas to improve visual
merchandize:
Enhancing ease of shopping
Easily available store maps in stores and on shopping carts
Appropriate and consistent xtures to improve ease of selection
and their right placement within stores so that customer
movement is not obstructed and there are minimal dead spots
Right ambience and appropriate visual elements (xtures,
displays and signages)
Standardized, clear and specic visual merchandizing elements,
but at the same time, maintaining the distinctiveness of eachdepartment
Interactive visual merchandizing to incorporate entertainment
in shopping
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14 The retailer
Bottom-line focus
Cost optimization across cost elements
In a low-margin and volume driven retail business, managing
operating costs is the most essential and vital lever to improve
EBITDA. In addition to the cost of merchandize, the key
operating cost elements for a retailer include rentals, utilities,
manpower, selling and marketing, and the interest cost.
Rental is one of the key cost elements that can make or
break a retail business. It has been frequently observed that
renegotiation of issues relating to the actual area and the area
mentioned in historic or old lease agreements with a developer
may reduce rentals. Such discrepancies have been observed
frequently. If this can be renegotiated with the developer,
rental outgo can be reduced. In some cases, retailers have
re-negotiated the percentage of super built-up area and CAM
charges with developers to reduce the overall rental, based on
a benchmarking exercise. Retailers are increasingly looking at
changing the rental model from a xed to variable rental mode,
so that the risk of a high xed cost can be mitigated.
In the case of power, the benchmarking exercise within a store
network can spur a large number of surprises. The cost of
electricity is crucial for some retailers or formats because of
their high usage of power due to high lux requirements. The
following gure presents some levers that could be considered
by retailers to reduce their power consumption:
Figure 4: Illustrative power consumption across a chain of stores
2.2
1.8
1.5
1.2
0 0.5 1 1.5 2 2.5
Store 4
Store 3
Store 2
Store 1
Units/Sqft/Month Levers for reducing power usage
Submeters installed for each department
with department managers responsibility
to control power consumption
Lowering height of light fixtures to
increase lux levels
SOPs are put in place for controlling
power costs such as lighting, cooling and
computers
Increasing set-point for shop
temperature to 24 degrees Celsius to 24
+/- 1
Norms set for weekdays and weekends
power usage
Installing a lighting transformer
Reducing voltage for lighting in certain
stores
Installation of air curtains at exits
Regular cleaning of AC filters
Power saving investments: Capacitor
funnel, energy savers etc
Apart from rental and power costs, one of the major issues
retailers face is to optimize staff costs. Measuring or
benchmarking staff cost as a percentage of sales and store area
(in sq. ft.) can throw up various challenges. One would imagine
that large stores require a sizeable number of employees to
maintain appropriate service levels and touch points with their
customers. However, if sales are low despite a large store area,
a high staff count may be counter-productive. That is why
some retailers benchmark their mature and immature (openedrecently) stores differently. In the case of mature stores, staff
costs as a percentage of sales may work, whereas, in the case
of newly opened stores, it can be benchmarked against the
cost per unit of store area. The staff count can be increased or
reduced, based on this benchmarking exercise. Additionally,
this cost can be optimized by employing part-time employees
and brand promoters. Enhancing the cross-selling and up-selling
prociency of existing employees and inculcating multi-tasking
skills in selected existing employees can also enhance the staff
productivity.
Lastly, improving the effectiveness of sales and marketing
initiatives may result in improvement of the top line as well
as the bottom line. Retailers need to put in place a robust
monitoring mechanism to determine the effectiveness of sales
and marketing initiatives. A healthy mix of various initiatives can
be determined on the basis of an available budget, diminishing
returns on marketing spend and an index, which could reect
effectiveness in terms of cost, quality and reach.
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15The retailer
Figure 5: Illustrative comparison of space allocation
Space efciency
Space is a scarce resource in any retail store and its utilization
needs to be optimal to derive the maximum benet from the
rental outgo.
One of the means of enhancing space efciency is to allocate
optimal space to every category. This may not be as simple as it
sounds, but retailers can try to allocate category-specic spaces
using the following concepts:
Category-specic gross margin return on investment
(GMROI): GMROI analysis can be utilized in conjunction with
inverted U curves, which can be drawn between category
sales per unit area and areas allocated to different categories
(based on historic or network data), to assign optimal space
to specic categories of products within stores.
Design of experiments (DOE): Retailers can plan sets
of experiments in their network stores by allocating
different areas to specic categories. They can monitor
the performance of a category over a period of time todetermine optimal space allocation. In addition, to take into
account catchment characteristics, they can perform similar
experiments after forming catchment-specic store clusters.
Heuristics and linear programming-based models: These
models would typically use the gross margin or top line
as a maximization function after taking into account various
constraints (e.g., the minimum and maximum space that
can be allocated to a particular category, the effect of
adjacencies of categories, the impact of shelf placement,
etc.)
0.81 0.75 0.700.68 0.65
0.72
0.00
0.10
0.200.30
0.40
0.50
0.60
0.70
0.80
0.90
Store A Store B Store C Store D Store EAverage
Retail to carpet area
100%
30%
70%
10%5% 2% 5%
48%
Chargeable Carpet Aisle Trial
room
Cash Back/Office
Retail
area
Illustrative breakup of the area for a store
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Another alternative to enhance efciency of space is to use
appropriate xtures. This may not be very relevant for some
categories including food, vegetables or staples, but can add
immense value to space utilization in the case of most other
categories. For instance, a leading apparel retailer has increased
its sales and display productivity by 15% by replacing its existing
xtures with more exible ones. This has resulted in higher
density product display.
Inventory costs
In any retail operation, optimizing inventory costs is of the
utmost importance. Inventory mismanagement may result in
stock-outs of some categories and an excess of others. Low
inventory turns will have a negative impact on GMROI, and
especially, in the case of categories for which gross margin is
fairly low, e.g., fruits, vegetables, milk, staples, mobiles, etc.
In addition, large inventories result in obsolete stock, leakage
of margins, damages, and high returns and carrying costs
(including interest, space, handling costs, etc.). Therefore,
retailers need to have clear-cut category- and product-
specic inventory policies, which can be either forecasting- orreplenishment-based.
Shrinkage
Shrinkage is another key concern area that retailers need to
be aware of and should be able to contain. It has a serious and
negative impact on the revenues and margins of stores, as well
as on their customer satisfaction and an organizations image.
Shrinkage is generally caused by internal and external theft,
failure of processes, fraud or vendor-related issues. Retailers
should focus on the following to reduce shrinkage:
Robust and reliable process for stock count and reconciliation
at various stages of the supply chain
Appropriate metrics for measurement of shrinkage across
various stages of the supply chain
Maintenance of data integrity (including stock data)
Advanced IT systems to check, capture and measure
shrinkage
Deepesh Jain
Senior ManagerErnst & Young Private Limited
Deepesh is a Senior Manager in
Ernst & Youngs Performance Improvement
practice and has over nine years work
experience, largely in the areas of strategy development,
operations and performance improvement, business process
re-engineering, benchmarking, gap analysis and sales force
effectiveness. Deepesh has an MBA from IIMA and has
worked in sectors including retail and consumer products
and oil and gas.
T: +91 22 6192 1835
Rigorous process for identifying root causes of shrinkage
and eliminating these (Some of the causes would be failure of
the information process, products being stored in the wrong
locations, mis-pick or over-delivery due to rain, damage
caused by material-handling equipment, faulty packaging,
load movement in transit, crushing of carton corners or
theft, eating, planned and opportunist shoplifting and theft
by employees.)
Conclusion
Retailers can explore multiple levers at their stores to
improve their EBITDA, but prioritization of these levers is
the key. Secondly, benchmarking a stores performance
within a retailers network and comparing this with that of
its competitors might throw up numerous opportunities for
improvement and can be a good starting point.
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Ice-creams in India the inside scoop
3
Introduction
The ice-cream industry in India has traditionally been heavily
fragmented and dominated by local players selling unbranded
ice-creams. Over the years, organized players have tried
to counter them by focusing on promotional campaigns
and aggressive brand-building exercises. However, for an
organized player to capture a signicant market share inthis extremely fragmented and competitive industry, the
other three Ps product, price and place of its strategy
are perhaps equally or even more important than promotion
alone. While aggressive promotion can help to create a mind
share, especially in the urban market, it is the availability
of the right mix of products at the right price that can
help players secure a signicant share of customer spend,
particularly impulse spend on products such as ice-creams.
On the ip side, as competition intensies in the ice-cream
industry, players that do not focus on these three Ps risk
losing even their well-established mind share with their
customers.
The key elements that need to be addressed while evaluating
and dening a companys strategy include the following:
Product
portfolio
Identify the focus SKU types/avors, aligned
with target customer segments and markets
Distribution
structure
Deploy the correct network structure to tap the
target customer segments and markets
Cost
control
Estimate and control the key cost heads
in order to manage competitive pricing of
products while ensuring overall protability of
the rm
Organizations currently tend to address these elements
separately, since they come under the purview of separate
functional structures (e.g., marketing, sales and nance).
However, these inter-related elements need to be addressed
comprehensively for a company to compete effectively and
achieve protable growth.
Market overview
The ice-cream industry in India is currently estimated at around
INR2530 billion, growing at 15%20%, with only 45%50%
comprising of organized players, i.e., the branded segment.
*Note: This includes manufacturers of ice-creams and frozen desserts.
Regional players differ by region, but on an average constitute betweena fourth and third of the overall market.
In spite of largely favorable climatic conditions, per capita
consumption of ice-cream in India is signicantly lower than the
world average as well as that of smaller neighboring countries
such as Pakistan.
However, per capita consumption of ice-cream is expected
to grow at least two-fold in the next decade due to improving
hygiene and rising disposable income levels in the country.
Amul35-40%
Kwality Walls
15-20%
Vadilal
15-18%
Regional
players25-35%
Organized players - Market share
(Total market ~1200-1500 cr.)
23 L
18 L
14 L
2.3 L 2 L750 ml 350 ml
US Australia Sweden World Avg. China Pakistan India
Ice-cream per capita consumption
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Therefore, it is evident that India presents a signicant growth
opportunity for organized players offering branded ice-
creams. However, the stiff competition between organized andunorganized players makes it difcult for the former to achieve
protable growth. We will now look at each of the three key
elements in detail, in context of the complexities associated with
the Indian marketplace.
0
300
600
900
1200
1500
1800
0
50
100
150
200
250
300
1990 1995 2000 2005 2010 2015 2020 2025 2030
Urban -Disposable income All India -Disposable incomeRural -Disposable income Per capita Ice-cream consumption
India Disposable income vs. Ice-cream consumption
Dispo
sableincome
percap
ita
(inRs.
000) Ice
-creamconsumption
percapita
(
inml)
Enablers for
growing ice-cream
consumption
Growing
urbanization
Improving
availability of
power
Improving
disposable
income levels
Increasing
freezer
penetration
Growth of
modern trade
channels
Improving
cold chain
infrastructure
SKU mix
While buying ice-creams, most customers like to choose froma range of options. Moreover, preferences and spending
patterns vary signicantly across age groups and locations. For
instance, young people in cities are more likely to experiment
with different avors or premium Stock Keeping Units (SKUs),
as compared to the youth in semi-urban or rural areas; visitors
at tourist spots such as beaches and amusement parks are more
likely to buy cones and sticks.
Therefore, for ice-cream manufacturers, designing their product
portfolios is a fairly complex task, and requires them to t in a
broad range of SKUs at competitive price points for their target
customer segments and markets. Intensifying competition in the
organized space further accentuates the need to have the rightmix of SKUs. Hence, the rst step in developing a companys
strategy should be to dene its product portfolio along the three
dimensions of SKU types, avors and fat content. Decisions
should be taken keeping these dimensions in view as well as the
companys desired pricing structure.
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SKU Type
All organized players are offering range of SKU variants targeted
at different customer segments
Kids Cups & Candy sticks, Youth Cones, Premium sticks& Specialty Items (e.g. Casatta slices), Family Tubs, Family
Packs, Institutions Bulk packs, Cups (small)
Cups, cones & sticks make up approx.70% of total ice-cream sales
Some players are focusing on specic SKUs to capture the markete.g. Amul is aggressively focusing on Tubs & Bulk Packs, which
contribute over 35-40% of its total sales
Flavors
Four standard avors Vanilla, Strawberry, Butterscotch andChocolate constitute around 80% of the total market
Companies are trying to differentiate their product portfolio byoffering other variants too
Natural fruits & dry fruit avors (e.g. Mango, Orange, Pista,Badam, Raisins)
Local avors (e.g. Rose milk for South India)
Festive avors (e.g. Dates, Anjeer for Ramazan period)
Fat Content
Varying the Fat content helps manage raw material costs & offercompetitive pricing
Typical Fat options available : Premium 16%, Regular 12%,Medium 9%, Low 6%
Most organized players vary Fat content in certain SKU types or
for specic customer segments Medium fat ice-cream is used in combination SKUs like
Chocobar
Low fat ice-creams (cups & bulk packs) offered for institutionalsales (hotels, banquets)
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This is the critical rst step because decisions relating to product
portfolios eventually become the starting point that dene
companies marketing, sales and distribution strategies.
Distribution structure
Climatic conditions in India lead to extreme seasonal swings
in ice-cream sales in most regions. For example, the summer
season (MarchJuly) accounts for over 60% of the total sales of
most players. On the other hand, utilization of manufacturingcapacity can fall as low as 30% during the off-peak season.
This makes the option of building large-scale and/or multiple
manufacturing bases inherently unviable. As a result, most
organized players currently have a single manufacturing
location (except for large national players such as Amul and
Kwality Walls) and a limited regional footprint around it.
Therefore, it is evident that ice-cream manufacturers, by the
very nature of the product they sell, require a very well-designed
distribution network and cold chain logistics support to ensure
that their products reach their target markets and customers.
The two main objectives of such networks include:
Providing an adequate number of depots and distributors
that can store the products and ensure that these reach
dealer points in good condition
Providing an adequate number of dealer points that offer
easy access to customers
Dealers
Factory Depots Distributors
In-storeKiosks
Supermarkets
Push Carts
Hotels /Banquets
Ice-creamParlors
Consumers
Decisions on the design of distribution networks need to take
into consideration these two aspects (mentioned above) from
the perspective of availability of options and their viability.
Unavailability of a robust back-end infrastructure, including
road networks, power supply, cold stores and cold chain
transportation, makes the task of building a large customer
and geographical footprint across the country extremely
challenging. Most companies use the hub and spoke model withthird party managed depots, each feeding more than 2530
exclusive distributors. Each distributor supplies dealers within
a radius of around 10 kilometers. However, it is difcult to set
up third-party depots or distributors in semi-urban and rural
markets, and so companies often set up their own depots or
appoint super distributors that supply dealers and other small
distributors.
In such a complex environment with multiple operating model
options, companies need to effectively manage tradeoffs
between the following:
Setting up of optimal number of depots (company-run or
third party-managed) and their running cost
Optimal number of distributors vs their market coverage
the number of dealers one distributor can effectively serve
Stock levels at various nodes vs the cost of trips made by
refrigerator-mounted vehicles to feed the entire network
On the front end, there are
multiple options now available to
reach consumers. In-store deep
freezers in neighborhood grocery
stores or sweet shops have been
the most used format over the
years. However, with growing
urbanization and increasing
purchasing power, standalone
parlors, which were earlier only
used by premium or super-
premium players such as Naturals
and Baskin Robbins, are also fast
gaining traction. For instance,
Arun (Hatsun Agro) has been very
aggressive in setting up standalone scooping parlors across
south India.
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In-store
Kiosks /
Freezers
Companies place deep freezers (approx. 200-400 l) capacity in existing stores, typically in residential neighborhoods grocerystores, supermarkets, sweet shops, juice bars
Most companies like Kwality Walls provide the freezers free of cost while some charge a nominal dealership fee (around Rs.15-25000) to recover the cost of the freezers
Key suppliers of deep freezers Voltas, Bluestar, Carrier, Haier, Western
Vending
Carts
Vending carts (approx. 200 l) are extensively used around places like beach, tourist spots (like India Gate), fairs, exhibitions Orsemi urban/rural areas with limited presence
Area of operation of vending carts is xed by the manufacturers In many cases, vending carts are owned by depots / distributors and run on commission basis by the actual cart vendors
Standalone
Parlors /
Stores
Companies are now opening standalone scooping parlors (300-500 sq. ft.) in up-market residential areas and shopping districtsto increase their sales as well as Brand Equity
Stores are usually franchisee outlets, with manufacturers charging a one time brand royalty fee / refundable brand deposit ofRs.50000-100000.
Equipment purchase is usually subsidized or facilitated by from preferred suppliers
Institutional
Sales
Earlier a preserve of local players, most manufacturers are now aggressively focusing on tapping institutional segment hotels,restaurants, banquets
Quick Service Restaurants (e.g. McDonalds, Dominos Pizza) / Coffee chains (e.g. Caf Coffee Day, Barista) have emerged asother key targets for institutional sales
Most rms now have a sales team focused on this segment
As mentioned earlier, there are extreme swings in ice-cream
sales in India due to climatic conditions in the country.
Companies need to factor in this aspect while developing their
sales networks, since their sales swing will have a varying impact
across dealer formats. They should also ensure the viability of
these formats through focused sales support during the off-
peak season. For instance, most companies launch Buy 1 Get
1 Free offers on certain SKUs to boost sales of in-store kiosks
and parlors during these months, especially on special occasions
such as Diwali, Christmas and Valentines Day.
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Format Investment
(Approx. in Rs.)
Avg. Monthly Sale (in Rs.) Typical Margin
(%)
Breakeven
PeriodOff-peak Peak (Summer)
Vending Cart 35,000 10,000 30,000 25% - 35% 5 7 months
In-store Freezer / Kiosk 25,000 25,000 60,000 20% - 25% 3 5 months
Standalone Parlor 3,50,000 80,000 1,50,000 40% - 50% 4 - 8 months
Therefore, it is clear that given the broad range of available
options, companies need to develop the right networks of
various formats, which are best supported by their product
mix and helps them tap their target markets and customer
segments.
10000
3000025000
60000
80000
150000
0
20000
40000
60000
80000
100000
120000
140000
160000
Off-peak Peak (Summer)
Avg.
MonthlySale(inRs.)
Season
Sales format - Seasonal variations
Vending cart In-store freezer/Kiosk Standalone parlor
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Kids/Pre-teens Youth Adults/Families
SKU: Bulk Packs, Cups
Format: Direct sales Standard flavors (Vanilla,
Strawberry) most popular
Profile of customers
< Rs.100
Rs.100 -300
> Rs.500
Averagespend
Institutions
Rs.300 -500
SKU: Scoops, Tubs, Family Packs
Format: Scooping Parlors, Freezersin Supermarkets
Best segment to target premium /
innovative flavors
SKU: Cones, Premium Sticks, Specialty
Items (Casatta slices, Sundaes etc.) Format:Kiosks (Malls/Office food
courts), Scooping Parlors, Vending carts
(Beach, Cinema Halls)
SKUs: Candy Sticks, Cones,
Cups Target format: Vending Carts,
Freezers in stores near schools
/colleges
Mapping of Target Segment, SKUs and Formats
Cost control
Apart from taking decisions on their
product portfolios and distribution
structures, ice-cream manufacturers also
need to focus on keeping their overall
cost of manufacturing and operations
under control. For instance, giventhe seasonal nature of sales, capacity
utilization of manufacturing facilities
and the overall distribution network falls
dramatically (as low as 30%) during the
off-peak season. On the other hand,
availability becoming a major issue during
the peak season, with raw materials and
the prices of packing material uctuating.
A high xed cost structure in such an
operating scenario can severely impact
protability. Based on our experience, we
present below the typical cost structureof a manufacturer:
Typical cost structure (as a % of sales) and key focus areas
EBITDA
10-20%
Sales and
marketing
15-20%
Distribution
8-10%
Factory
overheads
10-15%
Material
cost
40-45%
Sales and marketing efforts are focused on :
Increasing market coverage through dealer network expansion
Dealer performance monitoring ensure optimum stock levels at existingdealers and closure of non-performing ones
Ensure sale of right product mix to achieve the targeted realization per unit/
litre of ice-cream sold
Logistics team fixes the stock norms for all key nodes in the network and
minimum order quantities
Focus is to ensure higher vehicle capacity utilization per trip
Overall firm focus is on achieving high sales throughput to ensure better
capacity utilization esp. during off-peak season
Power and fuel costs can be as high 6-7%, hence firms focus on optimal
utilization of cold storage facilities in factory and depots
Most firms do not have captive dairies and rely on local farmers and dairies
for key raw materials like Milk, Cream, Skimmed Milk Powder
High focus packing material items from both availability and cost perspective
are: Cups, Cones, Tubs
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These cost heads need to be managed through a mix of strategic
and tactical initiatives including the following:
Strategic sourcing of raw and packing material through long-
term contracts with selected suppliers (especially for critical
items such as milk, cream, sugar, cups, cones and sticks)
Optimal inventory management of nished goods since this
also impacts the power consumption of cold storage facilities in
company-managed factories and depots
Stock norm denition of depots and enhanced route planning to
keep logistic costs under control
Limitation of xed workforce to only management staff and
skilled employees in factories for quality control, production
control, plant maintenance, etc.
Strong tie-ups with HR companies to provide adequate unskilled
labor during the peak season (typically for three-shift operations
six days a week) and only a limited labor force during the off-
peak season on a need basis (for single-shift operation on only
two or three days a week)
Conclusion
Organized players that are focusing on Indias ice-cream
industry need to concentrate on their product portfolios,
distribution structures and cost control measures, irrespective
of the markets in which they operate. Their ability to take
specic strategic and tactical decisions on these elements
will eventually help them capture a market share and achieve
protable growth in this extremely competitive industry space.Anant Sood
Senior Manager
Ernst & Young Private Limited
Anant is a Senior Manager in Ernst & Youngs
Performance Improvement practice and has
over 11 years of consulting experience in India, China, the
Middle East and the US. He has an MBA in systems and
marketing and worked in sectors including oil and gas, travel
and leisure, fertilizers and automotives.
T: +91 44 6632 8551
Inputs by Ramswaroop Sharma
Fast facts: Ice-cream vs. frozen dessert
Ice-cream has actually become a generic term, but technically
not every cup, cone or tub of frozen delicacy one indulges in
is an ice-cream. Prevention of Food Adulteration (PFA) Rules
provide clear guidelines on differentiating ice-creams from other
frozen desserts.
Ice-cream Frozen Desserts
As per The Prevention ofFood Adulteration (PFA)
Rules, ice-cream is dened
as a product obtained by
freezing a pasteurized mix
prepared from milk and / or
other products derived from
milk
Made from 100% Milk orderived ingredients like
cream, skimmed milk powder,
they are rich in nutrients like
protein, calcium & vitamins
For a litre of ice-cream, costof milk fat mix is around
Rs.60/litre
Indian players : Amul, MotherDairy, Arun, Jamaai, Baskin
Robbins
Products obtained by freezinga pasteurized mix prepared
with milk fat and / or edible
vegetable oils and fats in
combination with milk protein
and / or vegetable protein
products
Typically made with oils likePalm Oil or Coconut Oil, they
have low nutritional value
compared to ice-creams
For a litre of ice-cream, costof vegetable fat based mix isaround Rs.30 / litre
Indian players : Kwality Walls,Vadilal
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Interview with Mr. Krishna Shete,
Vice President, Business Development,Radhakrishna Foodland Pvt. Ltd.
4
1. Could you take us through the evolution of Radhakrishna
Foodland, highlighting the key milestones achieved?
Radhakrishna Foodland Pvt. Ltd. (RFPL) started as a ship-
chandling company. It gradually evolved to become an
integrated provider of supply chain solutions to the Food
and Near Food industries. We thrived and grew our food-
distribution business in an era when knowledge of food
safety was limited and cold chain infrastructure inadequate.
Presently, our business is aligned to ve sectors that
we service. These include Processed Agri, Retail, quick
service restaurants (QSRs), Food Service and Retail. We
have developed a category-led approach for 32 categories
of our services across these ve sectors. Our customers
patronage, as well as our ideology and commitment to their
businesses has helped to create a differentiated position for
us in the marketplace.
1. Could you take us through the evolution of Radhakrishna
Foodland, highlighting the key milestones achieved?
Radhakrishna Foodland Pvt. Ltd. (RFPL) started as a ship-
chandling company. It gradually evolved to become an
integrated provider of supply chain solutions to the Food
and Near Food industries. We thrived and grew our food-
distribution business in an era when knowledge of food
safety was limited and cold chain infrastructure inadequate.
Presently, our business is aligned to ve sectors that
we service. These include Processed Agri, Retail, quick
service restaurants (QSRs), Food Service and Retail. We
have developed a category-led approach for 32 categories
of our services across these ve sectors. Our customers
patronage, as well as our ideology and commitment to their
businesses has helped to create a differentiated position for
us in the marketplace.
2. How do you differentiate yourself from other logistics and
supply chain solution providers?
Logistics and supply chain solutions are perceived as
generic and differentiation is a challenge. We believe in
differentiating our offerings and operations through our suit
of end-to-end services and our team of domain experts.
RFPL is geared to offer end-to-end supply chain solutions
from the factory stage to our customers, and in certaincases, even consumers. Our suit of services, along with
our proven track record, singles us out as a differentiated
provider of the services mentioned above.
We have aligned our people and organization with the
ve sectors we serve. This is reected in the professional
backgrounds and ground experience of our key executives.
This enables us to understand our clients needs better and
deliver solutions that focus on areas that are critical for
them.
3. What are the major challenges in the supply chain of the
Indian retail and consumer products sector? How doesRadhakrishna Foodland assist its clients in overcoming
these challenges?
Leading Indian consumer brands are witnessing
unprecedented growth in terms of geographic reach and
volume. Given this rapid growth, it is critical for them to
focus on each players core capabilities. However, during
their evolutionary phase, players such as RFPL are required
to their build capacities around people, processes and
infrastructure for the future, since servicing this pace of
growth is challenging.
Consumer markets are dynamic and require the industry
to focus on compliance, product integrity and business
continuity to ensure smooth operations. Apart from
capability-building, there is also an increasing need to focus
on soft aspects such as hidden costs. We at RFPL are doing
all of this and have developed an in-house model Service
Quality Value Management (SQVM) function to ensure
minimum wastage, error and theft (WET).
Furthermore, a major challenge facing the industry is
seamless sharing of information. The information shared
between clients and supply partners is not optimal and
transparent, which gives rise to inefciencies in the supply
chain. Therefore, it is critical to dene specications, scope,
SLAs and metrics to track performance, and accordingly
decide on information-sharing plans and tools.
Krishna Shete
Krishna is the promoter of
Radhakrishna Foodland and
leads the Sales & Marketing
function in the companys
Executive Management team.
Radhakrishna Foodlands
business development
strategy, a key aspect of its
client activation function, is
driven by Krishna. With his
fresh approach and dynamism,
he manages and addresses
business challenges in keeping with the long-term goals of
the organization.
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4. How different are the logistics and supply chain
operations of food and non-food categories?
In the supply chain, the critical activities of movement,
handling and storage are directly dependent on the category
of goods being handled. For example, we service categories
with a shelf life of 3 days to 18 months with each having the
following:
Specic requirements relating to temperature, foodsafety, etc.
Challenges pertaining to cross-contamination, hazards,
etc.
As a provider of supply chain solutions, we have to handle
the variety of foods products coming from the same
company in a different manner. For example, confectionery
and beverages need to be moved, stored and handled in
different ways.
In a nutshell, the supply chain is category specic and the
challenge is to group categories that are similar in such a
way that it does not impact the other categories.
5. How will the changes in the Food Safety and Security
Act of India (FSSAI) impact the logistics and supply chain
operations of FMCG categories?
Historically, adherence to and enforcement of food safety
and security norms has been low. However, with recent
developments in the area, the industry is gradually moving
toward a healthy and FSSAI-compliant supply chain.
We at RFPL comply with global best practices relatingto food safety and security. Furthermore, leading food
companies and supply chain providers (including us) have
been investing in building the required infrastructure to
comply with and even exceed FSSAI requirements.
However, the bigger challenge facing us is that our eco-
system (supporting infrastructure) is not ready for FSSAI.
For example, leading commercial complexes and malls do
not have the required back-end infrastructure (for loading
and unloading), resulting in manual intervention, which may
not be compliant with FSSAI requirements.
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6. What will be the impact on the supply chain of Indian retail
and consumer products companies after implementation
of GST?
Implementation of GST is expected to result in consolidation
or reduction in the number of distribution centers. In this
event, the emergence of larger distribution centers is
inevitable.
In view of this scenario, players will be required to gear up tomanage the complexities of these large distribution centers.
Furthermore, they will also have to redesign processes and
train people to manage this change.
In addition, leading players may have to focus on investing in
shared infrastructure at strategic locations to drive time and
cost efciencies.
However, in the overall scheme, implementation of GST will
give a further impetus to the growth of the organized sector
and drive consolidation among industry players.
7. How do you foresee the supply chain models of retail and
consumer product companies evolving over the next 5
to10 years?
Supply chain models are continuously evolving in India. In
the next three to ve years, the three key changes I foresee
in common practices include:
Increased focus on category-specic requirements
Enhanced focus of supply chain providers on their core
capabilities
FMCG companies and supply chain solution providers
co-investing in and building their capability to service their
customers effectively
In a nutshell, supply chain models are expected to lay
increased emphasis on the depth of their offering rather
than its width.
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1Marks & Spencerstores go digital 2Walmart trying to bridge gap betweenbrick and mortar and online stores
Special feature: Innovation board
5
Marks & Spencer (M&S) is working with
NCR Corporation to pilot new multimedia
zones in its stores. These will combine
digital discovery touch screens, video
walls and displays of actual outts.
The retailers Style Online touch screens
help shoppers keep up-to-date with the
latest fashions and provide a digital
stylist tool that enables them to combine
different garments and accessories to
create their own personalized look.
This enables shoppers to achieve the
tailored look they want without retailers
having to hold excessive stock on-site.
It unlocks the pressure on margins and
enhances the value proposition to the
customer.
Consumers like being able to touch, feel
and see products in-store, but also want
the benet of endless choices, and one-
touch ordering enables them to shop in
the easiest and quickest possible manner.
These screens complement mobile
commerce by offering fast, high-
denition and widescreen digital access
to information, and thereby, offers
consumers a novel experience.
M&S has set up multimedia touch screensin several stores in the UK as well as in its
agship store in Paris. These converged
retailing solutions enable retailers to
differentiate themselves, reduce their
operating costs and attract todays
empowered and frequently elusive
consumers.
Growing competition from online retailers
is driving brick- and- mortar retailers
to innovate continuously. Walmart, the
worlds largest retailer, is developing
applications and offerings that will impact
shopping behavior widely. This includes
development of applications to provide
customers with the exact location of
products in stores as well as detailed
product comparisons a feature that
typically only found on online shopping
websites.
(http://www.ncr.com/newsroom/resources/marks-and-spencer, accessed 2nd April, 2012)
(http://www.innovationmanagement.se/2011/11/11/walmart-setting-up-rd-centre-in-india-for-e-commerce-innovations/, accessed 2nd April, 2012)
Furthermore, this technology could enable
customers to check (from anywhere in
the store) the availability of a product in a
store. For example, customers could read
product codes in the window to check
whether a dress is available in specic
sizes. The biggest advantage of this is that
it can also be done when the stores are
closed. It will also help customers create
a route through the shopping area, based
on their shopping lists. This helps to make
shopping an enhanced experience for
customers by cutting down on their time
and effort.
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29The retailer
3 4Tescos onlinetrial option Kivas new and improved warehousemanagement systemsOnline shoppers face the problem of
products not matching expectations
in terms of size, look and feel. Tescos
Augmented Reality platform is set to
solve this issue by enabling consumers to
visualize products at home.
Updated reality technology enables
customers to visualize televisions, toys
and other products at home and helps
them make better purchase decisions.
This is a signicant step forward in the
online shopping experience. Customers
are able to see the actual sizes and
proportions of products from the comfort
of their homes before ordering, and as a
result, reducing the number of returned
products.
In addition, Tesco is currently piloting
augmented reality in its stores and online,
which enables shoppers to view 3D
images of products on computer screens.
Customers can access a virtual 3D view
of items in their homes by using their
webcams and markers.
The pilot, which is being conducted
with Total Immersions partner and UK
software company Kishino, is aimed at
saving shelf space in Tesco retail stores.
Augmented reality will enable customers
to get a close view of products and
interact in ways that has never been
possible before.
The progression of technology is a
boon for the retail industry. Kiva uses
mobile robots for automation and order
fulllment in warehouses. Its material-
handling systems are currently being
used by some of the worlds leading retail
companies.
Products are kept on portable storage
units. When an order for an item arrives,
battery-powered robots are guided by a
computerized control system to fetch the
order. These follow a grid system of 2D
bar codes on the oor to navigate their
way to mobile shelves containing the
desired inventory. The robots navigate
around the warehouse using an onboard
(http://econsultancy.com/us/awards/winners,accessed 2nd April, 2012)
(http://www.fastcompany.com/most-innovative-companies/2012/kiva-systems- accessed 2nd
April 2012)
camera to read barcode stickers on the
warehouse oor. They communicate
wirelessly to computer servers that run
order-processing software and deliver
directions.
The system is much more efcient and
accurate than the traditional method of
having human workers traveling around
a warehouse, and locating and collecting
items.
Kivas relatively new automated material-
handling systems for order fulllment
are gaining traction in e-commerce, retail
restocking, distribution of parts and
other major distribution operations in
warehouses.
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