ON Change in Consumer Buying Behavior due to change in Indian Retail Industry

A report submitted to UP Technical University for the partial fulfillment the degree of Master Business Administration

A RESEARCH PROJECT REPORT

Submitted to:
Ishan Kaushik Faculty (HIMT)

Submitted by:
Dharmendra kumar MBA 4th semester Roll no. 0809970030

ACKNOWLEDGMENT
Any work of this magnitude requires input, effort and encouragement of people from all sides. I am quite fortunate to have had active co-operation of many people at different stages of the project. Without their invaluable cooperation, I would have not been able to do justice to this report. Although it would be difficult to thank all those who contributed towards successful completion of report yet, it would be unfair on my part if I dont thank a selected few. First of all I am thankful to God, for all the blessings he has bestowed upon me, without which it would have been impossible to complete this project. The Faculty members at HIMT continue to have an impact on my thinking, which helped me to complete this project.
2

I would like to extend my thanks to all my friends for their co -operation airing data collection. Respondents equally deserve thanks as their sincere co-operation led to worthy results. Lastly, I would like to thank my parents for being the guiding force through all the phases of my life. Doing my project on this topic was a wonderful opportunity for me, for it instilled in me a great deal of confidence and ability to work hard and thereby face challenges.

(Dharmendra kumar)

DECLARATION

I, Dharmendra Kumar do declare that the Research Project Report entitled Change in Consumer Buying Behavior due to change in Indian Retail Industry being submitted to the U.P. Technical University for the partial fulfillment of the requirement for thedegree of Master of Business Administration is my own endeavors and it has not been submitted earlier to any institute for any degree

Place: Greater Noida Date:

(Dharmendra Kumar)

CONTENTS
Certificate Acknowledgement Declaration

ExecutivSummary Chapter 1: Indian Retail Industry

Change in Consumer buying behavior FDI in Retail Segment analysis Industry analysis Business analysis Employment opportunities IT& latest Development Rural Retailing Challenges faced by Retail sector Chapter 2: Consumer Buying Behavior (CBB) What is CBB? Stages in CBB Types of CBB Factors that affects CBB

6 12
15 ....18 20 25 30 34 38 39 42 ....44 44 45 47 49

Chapter 3: Research Methodology

Research Objectives Data collection Methodology Scope of Research Limitations of this study

63
64 67 67 68

Chapter 4: Data Analysis

Personal Informations Purchase Informations Marketing Strategy for Retailers

.....69
69 72 .90

Chapter 5: Conclusions
Recommendations Reference Glossary

93
.....95 ...97 101

EXECUTIVE SUMMARY
Just like a lengthy soap opera, it has been unfolding for almost a year. Each episode brings a new development. The Indian public has been lapping it up in right earnest. And a quiet revolution is brewing in the Indian retail space. Every industry major worth its salt is putting money into retail ventures tempted by the thickening pay packets of the spending public. Why not? For, statistics show that retail industry accounts for 10 per cent of the GDP of India, which is projected to grow at 8 per cent. The appearance of the $20 billion Reliance Industries Ltd, India's largest private sector player, in the retail space, everyone thought, was the ultimate. But telecom heavyweight Bharti Enterprises has struck a deal with world's largest retailer Wal-Mart to go one up. Will it herald a flow of leading foreign retailer chains to India? Well, one has to wait and watch. The share of organized retailing is about 3 per cent of the total retail industry in the country estimated to be around $300 billion. It is still dominated by the unorganized sector. But organized retail sector is predicted to grow at over 20 per cent

annually and touch $23 billion by 2010 indicating that there is room for more players. It is this massive scope of the retail industry that is prompting leading brands like Reliance, Tatas and Birlas to take the plunge and try their luck. The existing retail kings Pantaloon and Shoppers' Stop are unfazed by the development for they feel the huge domestic market with rising consumer spending is hardly even-stretched now and hence is capable of absorbing much more. The entry of Wal-Mart had been in the air for some time. So it comes as no surprise. The French retail giant Carrefour and the UKbased Tesco are already in talks with Indian companies to set foot in the country. The Gulf-based Emke Group with its popular Lulu hypermarkets has targeted Kerala to open its account. Of all the factors, none has energized the organized retail sector than the entry of Reliance Industries Ltd., one of the leading private sector players in the country. The RIL Chairman Mukesh Ambani announced investment of more than $2 billion into its retail venture called Reliance Retail Ltd. At the company's annual general meeting (AGM) on June 27, 2006. He also promised to spend over $5 billion in the coming years in RRL, the wholly owned subsidiary of Reliance to cover 1500 cities. The company began its foray into retailing by opening Reliance Fresh, dealing in dairy products and grocery, in Hyderabad in October. Unlike other retailers, Reliance has gone for non-metros because of low rentals. After Hyderabad it

is planning to move to Chennai. It has zeroed in on Ahmedabad to start the hypermarket chain. Perhaps drawing inspiration from Reliance's arrival in the retail scene, Birlas and Tatas have also declared their plans. The Aditya Birla Group comes with next biggest investment after Reliance. It will shell out over $1.3 billion in the next three years. Starting from 2007, it will have 6000 stores during the period with major focus on food, grocery and garments. Tata Sons director R.K. Krishna Kumar had recently made it clear that the company's debut in consumer durables product retailing through its arm Infiniti Retail will cement Tata's presence in the ongoing retail revolution. Tata will pump in $80 million in the retail venture to set up 100 stores in the next few years selling a range of electronic products and brands. It has already begun the retail voyage from Mumbai. It has technical support of Australia-based Woolworths Ltd. in the venture. Lording over the retail scene in the country currently is Kishore Biyani-led Future Group. The group, started as a garment manufacturing company almost 20 years ago, entered modern retail with Pantaloon Retail outlet in Kolkata in 1997. It has now grown into a retail giant with 140 stores across 32 cities in the country, which includes hypermarket chain Big Bazaar, supermarket chain Food Bazaar and malls called Central. In a recent interview, Kishore Biyani said Pantaloon may sell stakes in some of its units to partly

fund 4000 stores it aims to open by 2010. He plans to spend $1 billion to stave off challenge from the new entrants, particularly Reliance. Biyani reckons that the cushion of substantial acquired retail space in the backdrop of rising rentals will give him a head start over others. Pantaloon Retail (I) Ltd, which clocked gross sales of $410 million for the financial year ended June 2006, operates through close to 4 million sq ft. of retail space. Keeping pace with Pantaloon is the Raheja Group retail firm Shoppers' Stop. This member of the global entity of the Intercontinental Group of Department Stores has 20 lifestyle and 33 Crossword outlets. It has also introduced value retailing business with Hypercity. The group plans to extend its retail space six times to over 6 million sq ft. in three years. Managing director and CEO B.S. Nagesh has also announced his intention of expanding footprint to tier 2 and 3 cities in the country. The galloping retail bandwagon is expected to have significant impact on the employment scene in India. Our new business will generate one million jobs, said Mukesh Ambani at the time of the company's AGM. Pantaloon currently employs over 14,000. Now with Birlas and Tatas in the fray, it is good news for job seekers. There are several big and medium retail players, who are doing brisk business, be it in consumer products or in fashion apparels. They include Trent, Titan, Wills Lifestyle, Raymond, Caf Coffee Day,

Provogue, Trinethra etc. As for foreign retail majors, Wal-Mart's arrival has come even as they have been waiting for a clear-cut foreign direct investment (FDI) policy. At present 51 per cent FDI is allowed in single brand retailing and they are hoping that it would be extended to multi-brand outlets. The global players have been entering India through licensee or franchisee route. Wal-Mart is no different. Bharti Enterprises will be the franchisee of Wal-Mart in India and will own the retail shops in the country. Bharti Enterprises chairman and group managing director Sunil Mittal has described the union as a joint venture of equals. The rollout of retail shops is slated to begin from August 15, 2007. In the Asian region, Wal-Mart has presence in China and Japan. It was only a matter of time it came to India, the second fastest growing economy after China. Most of the globally famous brands like Nike, Levis, McDonald's, Domino, Benetton, Swarovski, Tommy Hilfiger, Revlon, Marks & Spencer, etc. have been operating from big cities, mainly from shopping malls, through franchisee route. The Dubai-based Landmark Group and Abu-Dhabi-based Emke Group could be other big ticket foreign investors in the country. The $65 million Emke Group has its Lulu hypermarket chain spread over all the Gulf countries. Chairman M.A.Yusufali, a Keralite, has preferred to start his retail foray from his home state. He has identified Kochi for starting the first Lulu hypermarket in India. One factor which can be

10

a stumbling block before the organized retailers, could be quality retail space. In the face of surging rentals in metros, this is definitely something the players have to grapple with. This may not be a problem for established retailers like Pantaloon, who have been in the scene for several years. Pantaloon is learnt to have blocked 10 million sq ft. of space at reasonable rental for its future expansion. It is aiming for 30 million sq ft. by 2010 while Reliance is targeting something like 100 million sq ft. in three years. But even established players cannot remain complacent and have to be constantly on the lookout for retail space or they will be left behind in the retail juggernaut. No wonder many new comers are looking to start with smaller cities and towns and gradually work their way to the big cities.

11

1.1. An Overview of the Retail sector:

The Indian retail sector is highly fragmented with 97% of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10% by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10% of India's GDP.

12

Source: Ernst &Young, The Great Indian Retail Story, 2009. A look at the statistics shows that the retail sector in India is worth USD 394 billion and is growing at the rate of 30% annually. An ICRIER study has found that retailing ($180 billion) contributes to 10 per cent of GDP and employs 7 per cent (21 million) of the workforce. According to AT Kearney, India is given the top ranking as the next foreign investment destination, as markets like China become increasingly saturated. India is the 4th largest economy as regards GDP (in PPP terms) and is expected to rank 3 rd by 2010 just behind US and China. Over the past few years, the retail sales in India are showering around 33-35% of GDP as compared to around 20% in the US. The table gives the picture of India's retail trade as compared to the US and China.

Source: Economist, Let gradualism guide FDI in retail, 2009. The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market,
13

economic implications of the government increasing urbanization, credit availability, and improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers. In order to keep pace with the increasing demand, there has been a hectic activity in terms of entry of international labels, expansion plans, and focus on technology, operations and processes. This has lead to more complex relationships involving suppliers, third party distributors and retailers, which can be dealt with the help of an efficient supply chain. A proper supply chain will help meet the competition headon, manage stock availability; supplier relations, new value-added services, cost cutting and most importantly reduce the wastage levels in fresh produce. Large Indian players like Reliance, Ambanis, K Rahejas, Bharti AirTel, ITC and many others are making significant investments in this sector leading to emergence of big retailers who can bargain with suppliers to reap economies of scale. Hence, discounting is becoming an accepted practice. Proper infrastructure is a prerequisite in retailing, which would help to modernize India and facilitate rapid economic growth. This would help in efficient delivery of goods and value-added services to the consumer making a higher contribution to the GDP.

14

International retailers see India as the last retailing frontier left as the China's retail sector is becoming saturated. However, the Indian Government restrictions on the FDI are creating ripples among the international players like Walmart, Tesco and many other retail giants struggling to enter Indian markets. As of now the government has allowed only 51% FDI in the sector to `one-brand' shops like Nike, Reebok etc. However, other international players are taking alternative routes to enter the Indian retail market indirectly via strategic licensing agreement, franchisee agreement and cash and carry wholesale trading (since 100% FDI is allowed in wholesale trading).

1.2. How has the Indian consumer changed over the years?
In the past few years the whole concept of shopping has been altered in terms of format and consumer buying behavior. With the increasing urbanization, the Indian consumer is emerging as more trend-conscious. There has also been a shift from price considerations to designs and quality as there is a greater focus on looking and feeling good (apparel as well as fitness). At the same time, the Indian consumer is not beguiled by retail products which are high on price but commensurately low on value or functionality. However, it can be said that the Indian consumer is a paradox,

15

where the discount shopper loyalty takes a backseat over price discounts. Indians have grown richer and thus spending more on vehicles, phones and eating out in restaurants. The spending is focused more outside the homes, unlike in other Asian countries where consumers have tended to spend more on personal items as they grow richer. Spending on luxury goods have increased twice as fast with 2/3 of India's population is under 35years of age, consumer demand is clearly growing. The mall mania has bought in a whole new breed of modern retail formats across the country catering to every need of the value-seeking Indian consumer. An average Indian would see a mall as a perfect weekend getaway with family offering them entertainment, leisure, food, shopping all under one roof.

16

Source: Ernst & Young, The Great Indian Retail Story, 2006. Indian consumer is also witnessing some changes in its demographics with a large working population being under the age group of 24-35, there has been an increasing number of nuclear families, increase in working women population and emerging opportunities in the service sector during the past few years which has been the key growth driver of the organized retail sector in India. The emergence of a larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing
17

consumption of productivity goods, especially mobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, resulting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables. Indians spend over USD 30,000 a year (in PPP terms) on conspicuous consumption that represents 2.8% of the entire population (which is approx 30 million people) making it the 4 th largest economy in PPP terms next only to USA, Japan and China. With reference to the map of India's income class, it can be noticed that the real driver of the Indian retail sector is the bottom 80% of the first layer and the upper half of the second layer of the income map. This segment of about 40 million households earns USD 4,000-10,000 per household and comprises salaried employees and self-employed professionals and is expected to grow to 65 million households by 2010 1. In addition to this, facilities like credit friendliness, availability of cheap finance and a drop in interest rates have changed consumer markets. Capital expenditure (jewelry, homes, and cars) has shifted to becoming redefined as consumer revenue expenditure, in addition to consumer durables and loan credit purchases.

1.3. FDI in retail:

18

Global retailers have already been sourcing from India; the opening up of the retail sector to the FDI has been fraught with political challenges. With politicians arguing that the global retailers will put thousands of small local players and fledging domestic chains out of business. The only opening in the retail sector so far has been to allow 51% foreign stakes in single brand consumer stores, private labels, high tech items/ items requiring specialized after sales service, medical and diagnostic items and items sourced from Indian small sector (manufactured with technology provided by the foreign collaborations). Parties supporting the FDI suggest that the FDI in retail should be opened in a gradual/ phased manner, such that it can promote competition and contribute to the growth of the Indian economy. The impact of the FDI would benefit the end user of the consumer to a great extent and will help to generate a decent amount of employment as more and more entrepreneurs would be coming forward to invest and taste the new generation in retail marketing. The opening of FDI should be designed in such a way that many sectors - including agriculture, food processing, manufacturing, packaging and logistics would reap benefits. The table below lists the pros and cons of allowing FDI into retail.

19

Benefits of FDI in retail Inflow of investment and funds. Improvement employment. Generating more employment. Increased local sourcing. Provide better value to end consumers. Investments and improvement in the supply chains and warehousing. Franchising opportunities for local entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of IT in retail. Stimulate infant industries and other supporting industries. in the quality of

Drawbacks of FDI in retail Would give rise to cutthroat competition rather than promoting incremental business. Promoting cartels and creating monopoly. Increase in the real estate prices. Marginalize entrepreneurs. The financial strength of foreign players would displace the unorganized players. Absence of proper regulatory guidelines would induce unfair trade practices like Predatory pricing. domestic

Thus it can be said that this investment boom could change the face of Indian retail by offering quality goods at lower prices to the consumers. In addition to this, the presence of global retailers will
20

further enhance exports from India as they would also source Indian goods for their international outlets in a big way leading to a remarkable increase in Indian exports.

1.4. Segment analysis:

The structure of Indian retail is developing rapidly with shopping malls becoming increasingly common in the large cities and development plans being projected at 150 new shopping malls by 2008. However, the traditional formats like hawkers, grocers and tobacconist shops continue to co-exist with the modern formats of retailing. Modern retailing has helped the companies to increase the consumption of their products for example: Indian consumers would normally consume the rice sold at the nearby kiranas viz. Kolam for daily use. With the introduction of organized retail, it has been noticed that the sale of Basmati rice has gone up by four times than it was a few years back; as a superior quality rice (Basmati) is now available at almost the same price as the normal rice at a local kirana. Thus, the way a product is displayed and promoted influences its sales. If the consumption continues to grow this way it can be said that the local market would go through a metamorphoses of a change and the local stores would soon become the things of the past or restricted to last minute unplanned buying.

21

1.4.1 Food and grocery retail:

The food business in India is largely unorganized adding up to barely Rs. 40,000 crore, with other large players adding another 50% to that. The All India food consumption is close to Rs. 900,000 crore, with the total urban consumption being around Rs.330,000 crore. This means that aggregate revenues of large food players is currently only 5% of the total Indian market, and around 15-20% of total urban food consumption. Most food is sold in the local `wet' market, vendors, roadside push cart sellers or tiny kirana stores. According to McKinsey report, the share of an Indian household's spending on food is one of the highest in the world, with 48% of income being spent on food and beverages.

1.4.2 Apparel retail:

The ready-mades and western outfits are growing at 40-45% annually, as the market teems up with international brands and new entrants entering this segment creating an Rs.500 crore market for the premium grooming segment. The past few years has seen the sector aligning itself with global trends with retailing companies like Shoppers' stop and Crossroads entering the fray to entice the middle class. However, it is estimated that this segment would grow to Rs. 300 crore in the next three years.

22

1.4.3 Gems and Jewellery retail:

The gems and jewellery market is the key emerging area, accounting for a high proportion of retail spends. India is the largest consumer of gold in the world with an estimated annual consumption of 1000 tonnes, considering actual imports and recycled gold. The market for jewellery is estimated as upwards of Rs. 65,000 crores.

1.4.4 Pharma retail:

The Pharma retailing is estimated at about Rs. 30,000 crore, with 15% of the 51 lakh retail stores in India being chemists. According to Vikas Bali, Principal, A.T. Kearney (India) Ltd, "Pharma retailing will follow the trend of becoming more organized and corporatised as is seen in other retailing formats (food, apparel etc)". A few corporates who have already forayed into this segment include Dr Morepen (with Lifespring and soon to be launched Tango), Medicine Shoppe, Apollo pharmacies, 98.4 from Global Healthline Pvt Ltd, and the recently launched CRS Health from SAK Industries. In the south, RPG group's Health & Glow is already in this category, though it is not a pure play Pharma retailer but more in the health and beauty care business.

1.4.5 Music Retail:

23

Rs.1100 crore of which about 36 percent is consumed by the pirated market and organized The size of the Indian music industry, as per this Images-KSA Study, is estimated at music retailing constitutes about 14 percent, equivalent to Rs.150 crore.

1.4.6 Book retail:

The book industry is estimated at over Rs. 3,000 crore out of which organized retail accounts for only 7% (at Rs.210 crore). This segment is seen to be emerging with text and curriculum books accounting to about 50% of the total sales. The gifting habit in India is catching on fast with books enjoying a significant share, thus expecting this sector to grow by 15% annually.

1.4.7 Consumer durables retail:

The consumer durables market can be stratified into consumer electronics comprising of TV sets, audio systems, VCD players and others; and appliances like washing machines, microwave ovens, air conditioners (A/Cs). The existing size of this sector stands at an estimated USD 4.5 Billion with organized retailing being at 5%.

24

Source: E&Y, The Great Indian Retail Story, 2009. As noticed in the figure above, the organized retail penetration (ORP) is the highest in footwear with 22% followed by clothing. Though food and grocery account for largest share of retail spend by the consumer at about 76%, only 1% of this market is in the organized sector. However, it has been estimated that this segment would multiply five times taking the share of the organized market to 30 percent in the coming years.

1.5. Industry analysis of the Indian retail sector:

Modern retailing has entered India in form of sprawling malls and huge complexes offering shopping, entertainment, leisure to the consumer as the retailers experiment with a variety of formats, from

25

discount stores to supermarkets to hypermarkets to specialty chains. However, kiranas still continue to score over modern formats primarily due to the convenience factor.

Source: IT Retailing: Are You In The Loop? July 16, 2009. The organized segment typically comprises of a large number of retailers, greater enforcement of taxation mechanisms and better labour law monitoring system. It's no longer about just stocking and selling but about efficient supply chain management, developing vendor relationship quality customer service, efficient merchandising and timely promotional campaigns. The modern retail formats are encouraging development of well-established and efficient supply chains in each segment ensuring efficient movement

26

of goods from farms to kitchens, which will result in huge savings for the farmers as well as for the nation. The government also stands to gain through more efficient collection of tax revenues. Along with the modern retail formats, the non-store retailing channels are also witnessing action with HLL initiating Sangam Direct, a direct to home service. Network marketing has been growing quite fast and has a few large players today. Gas stations are seeing action in the form of convenience stores, ATMs, food courts and pharmacies appearing in many outlets. In the coming years it can be said that the hypermarket route will emerge as the most preferred format for international retailers stepping into the country. At present, there are 50 hypermarkets operated by four to five large retailers spread across 67 cities catering to a population of half-a-million or more. Estimates indicate that this sector will have the potential to absorb many more hypermarkets in the next four to five years 1. List of retailers that have come with new formats: Retailer Shoppers' Stop Ebony Current New Formats Experimenting Format With Department Quasi-mall Store Department Quasi-mall, Store smaller outlets,

adding food retail

27

Crossword Large Piramyd Pantaloon Subhiksha

Corner shops

bookstore Department Quasi-mall, food retail Store Own brand Hypermarket

store Supermarket Considering moving to self

service Vitan Supermarket Suburban discount store Foodworld Food Hypermarket, Foodworld Globus Bombay Bazaar Efoodmart Metro S Kumar's supermarket express Department Small fashion stores Store Aggregation of Kiranas Aggregation of Kiranas Cash and carry Discount store

Traditionally, the small store (kirana) retailing has been one of the easiest ways to generate self-employment, as it requires minimum investments in terms of land, labour and capital. These stores are not affected by the modern retailing as it is still considered very convenient to shop. In order to keep pace with the modern formats, kiranas have now started providing more value-added services like

28

stocking ready to cook vegetables and other fresh produce. They also provide services like credit, phone service, home delivery etc. The organized retailing has helped in promoting several niche categories such as packaged fruit juices, hair creams, fabric bleaches, shower gels, depilatory products and convenience and health foods, which are generally not found in the local kirana stores. Looking at the vast opportunity in this sector, big players like Reliance and K Rahejas has announced its plans to become the country's largest modern retainers by establishing a chain of stores across all major cities.

Apart from metro cities, several small towns like Nagpur, Nasik, Ahmedabad, Aurangabad, Sholapur, Kolhapur and Amravati as witnessing the expansion of modern retails. Small towns in Maharashtra are emerging as retail hubs for large chain stores like Pantaloon Retail because many small cities like Nagpur have a student population, lower real estate costs, fewer power cuts and lower levels of attrition. However, retailers need to adjust their

29

product mix for smaller cities, as they tend to be more conservative than the metros. In order for the market to grow in modern retail, it is necessary that steps are taken for rewriting laws, restructuring the tax regime, accessing and developing new skills and investing significantly in India.

1.6. Business analysis of the Indian retail sector:

The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last five years. (KSA Technopak, June 2009). In modern retailing, a key strategic choice is the format; retailers are coming up with various innovative formats to provide an edge to retailers.Most attractive developing markets for retail by region according to AT Kearney Study:Percentage of markets that are `on the radar' and `to consider':

30

Source: AT Kearney, GRDI 2009. A look at the graph above shows that the Asian markets are considered attractive for retail as per the AT Kearney's report; India is being placed on the radar by the USA and UK. Global giants like Tesco and Wal-Mart are experimenting with various options to enter India. One possibility for Wal-Mart would be to open Sam's club wholesale business through a joint venture and sell strictly to other retailers. This strategy skirts the issue of not being able to sell directly to customers and establish a strong presence in the local market. On the other hand, Tesco is planning to get into a partnership with Home Care Retail Mart Pvt. Ltd expecting to open 50 stores by 2010. The government is taking gradual steps in allowing the FDI into Indian retail, when it takes the final steps the

31

peak time will quickly pass giving the existing players a distinct edge.

1.6.1 Merger and acquisition activity:

India witnessed a record number of M&A deals in the first half of 2009, which were collectively worth USD 25.6 billion. A significant number of deals have being carried out in the Indian retail sector in the past few months in order to acquire a larger share in the growing domestic market and to compete against the prospective global and domestic players. The table below shows some recent deals that have taken place in the Indian retail sector: Acquired/ JV Year Company/ Target 2007 Liberty Shoes Future group Indus 2008 League Clothing Deccan 2008 Odyssey India Chronicle Holdings 2008 Landmark Tata Trent Future group Acquirer Nature Business Retail (Footwear) Retail clothing Leisure retail chain (books, 100% 14 of Stake Consideration (US$ million)

51% 3

68% 5

music, toys) Books, 74% 24

32

music, accessories TGI Friday's 2009 Bistro Hospitality (a subsidiary of Carlson Restaurant World-wide) Indus League 2009 clothing company) Etam group, (Future group France Lingerie and women's wear 50% (JV) 8 Restaurant (Food retail) 25% N/A

retailing Source: PricewaterhouseCoppers, Asia-Pacific M&A bulletin, Mid year 2009.

1.6.2 Business models for entry in Indian markets:

Due to the FDI restrictions the international players are looking for alternative avenues to enter the Indian markets. The chart below shows the current formats permitted by the Government of India for the international players.

33

1.7. Employment opportunities in this sector:

The Indian retail sector offers an economic opportunity on a massive scale both as a global base and a domestic market. This sector yields many positive results like generating more jobs and bringing numerous goods to the consumers at reasonable prices. According to

34

Ernst &Young's report `The Great Indian Retail Story' this sector is expected to create 2 million jobs by 2010. About 4 crore people are employed in retail trade, assuming each person supports a family of 5, this, implies that about 20 crore people are dependent on this sector. For a vast majority of the households, retailing is a euphemism for a marginal existence. Modern retail formats have generated huge employment for the young and even senior citizens and women wanting to work parttime (even in small towns). People have greater exposure to the technical aspects, training and also earn higher salaries along with bonuses and incentives. With foreign companies opening expanding in India, employees are being re-trained according to international standards and practices that are being bought in. There is also an increase in the number of retail management programmes and institutes. This will bridge the gap in availability of talented professionals at the middle and lower levels. Successful Indian retailers are creating a robust second and third level of management by hiring aggressively for these key roles. Talented professionals will put increased pressure on wage costs. Therefore operating margins, especially for mid-sized retailers, are becoming a poaching ground for international retailers once they enter India. With private companies getting into retail, there are people employed from diverse cultures (no room for reservations unlike

35

government owned stores) where there is a sense of unity in diversity. The companies are also employing people who are physically handicapped. The next few years are expected will see the sector offering new jobs to 50,000 young graduates and diploma holders. What makes foreign firms come to India? A host of traditional `brick and mortar' companies such a Tatas have entered the retail business. With demographic changes like rising disposable incomes and rapidly expanding middle class, the Indian retail sector is at an inflexion point where the growth in consumption and growth of organized retailing are taking it towards higher growth. Market liberalization and an increasingly assertive consumer population have attracted bigger Indian and multinational operations to make investments, but are yet to achieve success or reach break even. The Indian consumption pattern and preference have undergone vast changes over the years allowing the foreign retailers to play with the psyche of the brand conscious modern Indian, who has no qualms spending a fortune on overhauling his wardrobe. This led to the entry of up-market brands like Nautica and New Balance into the country to cash in on this opportunity. India has the youngest population in the world, with large population between 20-34 age groups in the urban regions boosting

36

the demand. All these factors have tempted the foreign firms such as Wal-Mart, Tesco and Carrefour to enter India. India is now firmly placed on the US and UK radars as US retailers are gradually realizing the potential of the retail and consumer goods sector. The timing is the most important source of competitive advantage for global and regional retailers in the globalization race. Knowing when to enter emerging retail markets is the key to success. AT Kearney's study on global retailing trends found that India is the least competitive as well as least saturated of all major global markets. This implies that there are significantly low entry barriers for players trying to setup base here, in terms of the competitive landscape. The report further stated that global retailers such as Wal-Mart, Carrefour, Tesco and Casino would take advantage of the more favorable FDI rules that are likely in India and enter the country through partnerships with local retailers. Other retailers such as Marks & Spencer and the Benetton Group, who operate through a franchisee model, would most likely switch to a hybrid ownership structure. However, in order to achieve breakthrough growth the global retailers might have to face some glitches in India. High taxes, poor infrastructure, bureaucratic hurdles and high cost of real estate are some of the challenges that overseas retailers may have to tackle in the country.

37

1.8. IT and latest development:

Technology has played a key role in retailers' efforts to compete in this volatile market. With e-tailing channels making its presence felt in India companies are using either their own web portal or are tying up with horizontal players like Rediff.com and Indiatimes.com to offer their products on the web (www.alexa.com). IT has been used by retailers ranging from Amazon.com to eBay, in order to radically change the buying behavior across the globe. Retailers worldwide are looking forward to increase their IT spending by almost 15% in 2006, allocating almost half of this increase to application software with a particular focus on tools that facilitate multi-channel customer relationships, point of sale systems, strategic merchandising and supply chain management. The last 2-3 years have seen several retailers ranging from F&B operations to discount clothing implementing supply chain management (SCM) solutions to improve core business processes such as global sourcing, distribution, logistics, innovations, transparency and visibility in financials and inventory, compliance and management of point of sale (POS) data. However, organized retailers have not taken well to the concept of 3PL (third party logistics) due to their apprehensions of losing control over the supply chain. Currently, the transportation is carried out partly by

38

organized service providers and partly by truckers and local transporters. In conclusion, it can be said that in order to deliver the levels of quality and service that consumers are demanding; the organized retailers are in a pressing need for a single enterprise wide IT platform to manage operations, which will become increasingly complex once the market expands.

1.9. A look at the rural retailing:

More than half of retail market in India is in the rural areas (55%); although share of urban market is increasing by almost 5% every 810 years. Accommodating almost two-third of the country's consumers and generating almost half of the national income, the rural India offers tremendous opportunities for organized retailers which many companies have failed to access. According to the study conducted by NCEAR, the number of lower middle income group in rural areas is almost double as compared to the urban areas, having a large consuming class with 41% of the Indian middle class and 58% of the total disposable income.

39

Source: Census; National Council of Applied Economic Research (NCAER). A look at the demographics reveals that the highest income levels households in the rural areas are 1.6 million as compared to 2.3 million in urban areas. It has also been forecasted that the middle and the higher income households are expected to grow to 111 million by 2007 from the current levels of 80 million. Thus, it can be said that with 128 million households, the rural population is nearly three times the urban. This vast demand base and size offers a huge opportunity that MNCs cannot afford to ignore.

40

In order to meet with this rapid growth in demand the government has shown its concern by providing an induction of Rs.140 billion and Rs. 300 billion in the rural sector through its development schemes in the Seventh and the Eight plan respectively. The large players like ITC, HLL, BPCL are realizing the potential of this sector and are seen experimenting with new ways to tap this segment. ITC spent 3 years and Rs. 80 crore on R&D to come up with the concept of E-Choupal and Choupal Sagar-rural hypermarkets. Through this, the farmers can access latest local and global information on weather and market prices, scientific farming techniques at the village itself through a web-portal - all in Hindi. EChoupal also facilitates supply of high quality inputs as well as purchase of commodities at their doorstep. The hypermarket (Choupal Sagar) provides them with another platform to sell their produce and purchase necessary farm and household goods under one roof. Next in line, HLL came up with Project Shakti in late 2000 to sell its products through women self-help groups who operate like a directto-home team of sales women in inaccessible areas where HLL's conventional sales system does not reach. Another step to tap the rural market was `Operation Bharat' wherein low-priced sample

41

packets of toothpastes, fairness creams, Clinic Plus shampoos and Ponds face creams to 20mn households. As a part of their rural strategy, BPCL introduced Rural Marketing Vehicles (RMVs) that move from village and village and filling cylinders on the spot for rural consumers keeping in mind the lowincome of the rural population. The Company also introduced a smaller size cylinder to reduce both the initial deposit cost as well as the recurring refill cost.

1.10 Challenges faced by this sector:

The industry is facing a severe shortage of talented professionals, especially at the middle-management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15%. Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase.
42

Further, retailing is yet to become a preferred career option for most of India's educated class that has chosen sectors like IT, BPO and financial services. Even though the government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country. The retail sector does not have 'industry' status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices. Non- availability of government land and zonal restrictions has made it difficult to find a good real estate in terms of location

43

and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions.

2.1 What is Consumer Buying Behavior?

Definition of Buying Behavior: Buying Behavior is the decision processes and acts of people involved in buying and using products. Need to understand: Why consumers make the purchases that they make? What factors influence consumer purchases? The changing factors in our society. Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying behavior for: Buyers reactions to a firms marketing strategy has a great impact on the firms success. The marketing concept stresses that a firm should create a Market Mix(MM) that satisfies (gives utility to) customers, therefore need to analyze the what, where, when and how consumers buy.
Marketers can better predict how consumers will respond to marketing strategies.

44

2.2 Stages of the Consumer Buying Process

Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage of the process. Not all decision processes lead to a purchase. All consumer decisions do not always include all 6 stages, determined by the degree of complexity...discussed next. The 6 stages are: 1. Problem Recognition (awareness of need)--difference

between the desired state and the actual condition. Deficit in assortment of products. Hunger--Food. Hunger stimulates your need to eat. Can be stimulated by the marketer through product information--did not know you were deficient? I.E., see a commercial for a new pair of shoes, stimulates your recognition that you need a new pair of shoes.

2. Information search-o o

Internal search, memory. External search if you need more information. Friends and relatives (word of mouth). Marketer dominated sources; comparison shopping; public sources etc.

45

A successful information search leaves a buyer with possible alternatives, the evoked set. Hungry, want to go out and eat, evoked set is
o o o o

Chinese food Indian food burger king Klondike kates etc

3. Evaluation of Alternatives--need to establish criteria for evaluation, features the buyer wants or does not want. Rank/weight alternatives or resume search. May decide that you want to eat something spicy, Indian gets highest rank etc. If not satisfied with your choice then returns to the search phase. Can you think of another restaurant? Look in the yellow pages etc. Information from different sources may be treated differently. alternatives. 4. Purchase decision--Choose buying alternative, includes product, package, store, method of purchase etc. 5. Purchase--May differ from decision, time lapse between 4 & 5, product availability. 6. Post-Purchase Evaluation--outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance, have you made the Marketers try to influence by "framing"

46

right decision. This can be reduced by warranties, after sales communication etc. After eating an Indian meal, may think that really you wanted a Chinese meal instead.

2.3 Types of Consumer Buying Behavior

Types of consumer buying behavior are determined by:

Level of Involvement in purchase decision. Importance and intensity of interest in a product in a particular situation. Buyers level of involvement determines why he/she is motivated to seek information about a certain products and brands but virtually ignores others.

High involvement purchases--Honda Motorbike, high priced goods, products visible to others, and the higher the risk the higher the involvement. Types of risk:

Personal risk Social risk Economic risk

The four type of consumer buying behavior are:

47

Routine little etc.

Response/Programmed and decision

Behavior--buying purchased

low almost

involvement frequently purchased low cost items; need very search effort; automatically. Examples include soft drinks, snack foods, milk Limited Decision Making--buying product occasionally. When you need to obtain information about unfamiliar brand in a familiar product category, perhaps. Requires a moderate amount of time for information gathering. Examples include Clothes--know product class but not the brand.

Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or infrequently bought products. High degree of economic/performance/psychological risk. Examples include cars, homes, computers, education. Spend alot of time seeking information and deciding. Information from the companies MM; friends and relatives, store personnel etc. Go through all six stages of the buying process. Impulse buying, no conscious planning.

The purchase of the same product does not always elicit the same Buying Behavior. Product can shift from one category to the next. For example: Going out for dinner for one person may be extensive decision making (for someone that does not go out often at all), but limited decision making for someone else. The reason for the dinner,
48

whether it is an anniversary celebration, or a meal with a couple of friends will also determine the extent of the decision making.

2.4 Categories that Effect the Consumer Buying Decision Process

A consumer, making a purchase decision will be affected by the following three factors: 1. Personal 2. Psychological 3. Social The marketer must be aware of these factors in order to develop an appropriate MM for its target market.

2.4.1 Personal
Unique to a particular person. Demographic Factors. Sex, Race, Age etc. Who in the family is responsible for the decision making? Young people purchase things for different reasons than older people.

2.4.2 Psychological factors

Psychological factors include:
49

Motives-A motive is an internal energizing force that orients a person's activities toward satisfying a need or achieving a goal. Actions are effected by a set of motives, not just one. If marketers can identify motives then they can better develop a marketing mix. MASLOW hierarchy of needs!!
o o o o o

Physiological Safety Love and Belonging Esteem Self Actualization

Need to determine what level of the hierarchy the consumers are at to determine what motivates their purchases. Nutrament, a product marketed by Bristol-Myers Squibb originally was targeted at consumers that needed to receive additional energy from their drinks after exercise etc., a fitness drink. It was therefore targeted at consumers whose needs were for either love and Belonging or esteem. The product was not selling well, and was almost terminated. Upon extensive research it was determined that the product did sell well in inner-city convenience stores. It was determined that the
50

consumers for the product were actually drug addicts who couldn't not digest a regular meal. They would purchase Nutrament as a substitute for a meal. Their motivation to purchase was completely different to the motivation that B-MS had originally thought. These consumers were at the Physiological level of the hierarchy. BM-S therefore had to redesign its MM to better meet the needs of this target market. Motives often operate at a subconscious level therefore are difficult to measure.

Perception-What do you see?? Perception is the process of selecting, organizing and interpreting information inputs to produce meaning. IE we chose what info we pay attention to, organize it and interpret it. Information inputs are the sensations received through sight, taste, hearing, smell and touch. Selective Exposure-select inputs to be exposed to our awareness. More likely if it is linked to an event, satisfies current needs, intensity of input changes (sharp price drop). Selective Distortion-Changing/twisting current

received information, inconsistent with beliefs.

51

Advertisers that use comparative advertisements (pitching one product against another), have to be very careful that consumers do not distort the facts and perceive that the advertisement was for the competitor. A current example...MCI and AT&T...do you ever get confused? Selective support Retention-Remember beliefs, forgets those inputs that that don't.

Average supermarket shopper is exposed to 17,000 products in a shopping visit lasting 30 minutes-60% of purchases are unplanned. Exposed to 1,500 advertisements per day. Can't be expected to be aware of all these inputs, and certainly will not retain many. Interpreting information is based on what is already familiar, on knowledge that is stored in the memory.

52

Ability and Knowledge-Need to understand individuals capacity to learn. Learning, changes in a person's behavior caused by information and experience. Therefore to change consumers' behavior about your product, need to give them new information re: product...free sample etc. South Africa...open bottle of wine and pour it!! Also educate American consumers about changes in SA. Need to sell a whole new country. When making buying decisions, buyers must process expertise. Inexperience buyers often use prices as an indicator of quality more than those who have knowledge of a product. Non-alcoholic Beer example: consumers chose the most expensive six-pack, because they assume that the greater price indicates greater quality. information. Knowledge is the familiarity with the product and

53

Learning is the process through which a relatively permanent change in behavior results from the consequences of past behavior.

Attitudes-Knowledge and positive and negative feelings about an object or activity-maybe tangible or intangible, living or nonliving.....Drive perceptions Individual learns attitudes through experience and interaction with other people. Consumer attitudes toward a firm and its products greatly influence the success or failure of the firm's marketing strategy. Attitudes and attitude change are influenced by consumers personality and lifestyle. Consumers screen information that conflicts with their attitudes. Distort information to make it consistent and selectively retain information that reinforces our attitudes. IE brand loyalty.

54

There is a difference between attitude and intention to buy (ability to buy).

Personality-All the internal traits and behaviors that make a person unique, uniqueness arrives from a person's heredity and personal experience. Examples include:
o o o o o o o o o o o o

Workaholism Compulsiveness Self confidence Friendliness Adaptability Ambitiousness Dogmatism Authoritarianism Introversion Extroversion Aggressiveness Competitiveness.

Traits affect the way people behave. Marketers try to match the store image to the perceived image of their customers.

55

There is a weak association between personality and Buying Behavior; this may be due to unreliable measures. Nike ads. Consumers buy products that are consistent with their self concept.

Lifestyles-Recent US trends in lifestyles are a shift towards personal independence and individualism and a preference for a healthy, natural lifestyle. Lifestyles are the consistent patterns people follow in their lives. EXAMPLE:- healthy foods for a healthy lifestyle. Sun tan not considered fashionable in US until 1920's. Now an assault by the American Academy of Dermatology.

2.4.3 Social Factors

Consumer wants, learning, motives etc. are influenced by opinion leaders, person's family, reference groups, social class and culture.

56

Opinion leaders-Spokespeople etc. Marketers try to attract opinion

leaders...they actually use (pay) spokespeople to market their products. Michael Jordon (Nike, McDonalds, Gatorade etc.)

Roles and Family Influences-Role...things you should do based on the expectations of you from your position within a group. People have many roles. Husband, father, employer/ee. Individuals role are continuing to change therefore marketers must continue to update information. Family is the most basic group a person belongs to. Marketers must understand:
o o o

That many family decisions are made by the family unit Consumer behavior starts in the family unit Family roles and preferences are the model for children's future family (can reject/alter/etc)
57

Family buying decisions are a mixture of family interactions and individual decision making Family acts an interpreter of social and cultural values for the individual.

The Family life cycle: families go through stages; each stage creates different consumer demands:
o o o o o

Bachelor stage Newly married, young, no children Full nest I, youngest child under 6 Full nest II, youngest child 6 or over Full nest III, older married couples with dependant children Empty nest I, older married couples with no children living with them, head in labor force Empty nest II, older married couples, no children living at home, head retired Solitary survivor, in labor force Solitary survivor, retired Modernized life cycle includes divorced and no children.

o o o

58

Reference Groups-Individual identifies with the group to the extent that he takes on many of the values, attitudes or behaviors of the group members. Families, friends, sororities, civic and professional organizations. Any group that has a positive or negative influence on a persons attitude and behavior. Membership groups (belong to) Affinity marketing is focused on the desires of consumers that belong to reference groups. Marketers get the groups to approve the product and communicate that approval to its members. Credit Cards etc.!! Aspiration groups (want to belong to)

Disassociate groups (do not want to belong to) Honda, tries to disassociate from the "biker" group. The degree to which a reference group will affect a purchase decision depends on an individuals susceptibility to reference group influence and
59

the strength of his/her involvement with the group.

Social Class-An open group of individuals who have similar social rank. US are not a classless society. US criteria; occupation, education, income, wealth, race, ethnic groups and possessions. Social class influences many aspects of our lives. IE upper middle class Americans prefer luxury cars Mercedes.
o

Upper Americans-upper-upper class, .3%, inherited wealth, aristocratic names. Lower-upper class, 1.2%, newer social elite, from current professionals and corporate elite Upper-middle class, 12.5%, college graduates, managers and professionals Middle Americans-middle class, 32%, average pay white collar workers and blue collar friends Working class, 38%, average pay blue collar workers Lower Americans-lower class, 9%, working, not on welfare
60

o o

Lower-lower class, 7%, on welfare

Social class determines to some extent, the types, quality, and quantity of products that a person buys or uses. Lower class people tend to stay close to home when shopping; do not engage in much prepurchase information gathering. Stores project definite class images. Family, reference groups and social classes are all social influences on consumer behavior. All operate within a larger culture.

Culture and Sub-culture-Culture refers to the set of values, ideas, and attitudes that are accepted by a homogenous group of people and transmitted to the next generation. Culture also determines what is acceptable with product advertising. Culture determines what people wear, eat, reside and travel. Cultural values in the US are good health, education, individualism and freedom. In American culture

61

time scarcity is a growing problem. IE change in meals. Big impact on international. Culture can be divided into subcultures:
o o

Geographic regions Human characteristics such as age and ethnic background.

Culture affects what people buy, how they buy and when they buy. Understanding Consumer Buying Behavior offers consumers greater satisfaction (Utility). We must assume that the every company has adopted the Marketing Concept and are consumer oriented.

62

3. RESEARCH METHODOLOGY:

3.1 THE PROJECT:

The project deals with the change in consumer buying behavior due to change in Indian Retail Industry. Moreover this project is undertaken with a view to understand the changing retail industry and its impact on consumer buying behavior .

3.2 SCOPE OF THE STUDY

The study would encompass various aspects like: The consumer buying behavior with regard to the change in Indian Retail Industry. The prevailing trends in Indian Retail Industry. To find out what parameters, a consumer takes into consideration for selecting a Retail Outlet.
63

3.3RESEARCH OBJECTIVES

3.3.1 MAIN OBJECTIVES:

To study the change in consumer buying behavior due to change in Indian Retail Industry.

3.3.2 SUB OBJECTIVE:

To study the Retailing scenarios and futuristic scenarios. To know the factors affecting the Retailing chains in India. To know the factors which are considered by the consumer while shopping in a retail outlet.

The research is divided into two parts:

64

1. Collection of Secondary Data - providing the following: Information on the current situation and trends of the Retail Industry. Information on the current situation and trends of consumer buying behavior. The various sources from where the data has been collected are as follows: Ernst & Young, The Great Indian Retail Story, 2009. FICCI - ICICI Property Services Study. Let gradualism guide FDI in retail, Economist, 2009. KPMG analysis, Consumer markets in India - the next big thing, September 2009. India's changing household, Deutche Bank, November 2009. CII, Manufacturing Bulletin, June 2009. Pharma's retail push, Business Line, 2009.

65

 Price Water Coppers, Asia-Pacific M&A bulletin, Mid year 2009. KSA Technopak, June 2009. Retail Management, by Bajaj, Tuli & Srivastava. Retail Management, by Levi. In the beginning the data has been collected randomly from all the sources. This data has been collected from Newspaper, Magazines, ICFAI journal of Management Research and various other journals, books and from Internet. Then data has been compiled, studied and analyzed. The authenticity of the data collected has been crosschecked by collecting the same data from the various sources. Moreover, most of the data has been collected from the reliable sources. A detailed analyses of the data collected has been done with the help of Microsoft excel and result of analysis is shown in the form of tables, charts & graphs At the end findings and result of the analysis has been discussed.

66

2. Primary Data Collection:

Primary data has been collected by using questionnaire. The methodology used is given below:

3.4 Data Collection Methodology:

Sampling Frame: Customers visiting retail stores. Sampling Unit: Respondents visiting retail stores. Sampling Size: 100 customers. Sampling Type: Convenience sampling.

3.5 Scope of Research:

This study is bound to the following services in retailing: Conventional stores Super market Hypermarkets

67

3.5 LIMITATIONS: In the entire course of the project, data was collected and interpreted with outmost reliability and consistency. But due to subjectivity and prejudice of a few respondents, certain limitations were faced, which are: Answers of the questionnaire depend upon the belief of customers, which may differ from reality. The survey is conducted considering the time constraints. The sample size during this time period may not be adequate. A chance of wrong answer may not be ruled out. Some respondents were reluctant to give answers. Small sample size chosen can not represent the whole population.

68

DATA ANALYSIS:
1. Personal Information: a) Gender:
Motive: To know the gender statistics of the targeted respondents.

Gender

33% Male Female 67%

Interpretation: As we have seen from the above pie chart that the respondents has a mix of 67% Male and 33% are Female.

b) Age:
69

AGE

18%

12%

Motive: To know the Age mix of respondents.

17% 53%

Below 20 yrs 20 to 30 yrs 30 to 40 yrs Above 40 yrs

Interpretation: As we have seen from the above pie chart that the respondents are dominantly in between 20 to 30 years of Age. Also inferred that the targeted respondents are mostly youths.

c) Profession:
Motive: To know the professional background of the targeted respondents.

70

Profession

23% 9% 19%

3% 46%

Student Self Employed Govt. Employee Private Employee Others

Interpretation: As we have seen from the above pie chart that the respondents are mostly students or youth (46%).

d) Income Group:
Motive: To know the Income dynamics of the targeted respondent.

Income Group

10% 19%

8%

Upto 1 Lack 1-3 Lack 3-6 Lack 63% Above 6 Lack

Interpretation: As we have seen from the above pie chart that the respondents are mostly having their income in between 1-3 lacks (63%).
71

e) Education Level:
Motive: To know the Educational background of the targeted respondents.

Education Level

9% 44% 47% Under Graduate Graduate Post Graduate

Interpretation: As we have seen from the above pie chart that the respondents are mostly graduate (47%) and post graduate (44%).

ll.Purchase Information:
Question 1: How often do you make your purchase for households? Motive: To know the frequency of shopping

72

Once a day 12% 14% 8% 22% More than twice a week More than twice a month Once a month Twice a week

44%

Interpretation: As many as 44 percent respondents purchase for their households more than twice a week, or more ;which accounts for the maximum amount that shows that the customers mostly prefer weekends for their weekly purchase and some other days. But this purchase also includes perishable products like vegetables, and with the increase of small sachets of products available in the market visits of the stores have increased. Question 3: Where do you make your regular domestic purchase from? Motive: To know preferred Domestic Purchase point.

73

Organized retail store 22% 50% 28% Wholesale distributor Small kirana store

Interpretation: About 50 percent of the people purchase their domestic products from organized retail stores, 28 percent still buy from wholesale distributors who sell in bulk, at cheaper market rates. Others (22 percent) buy from small kirana stores around their households. This analysis shows that though the customers visited these stores to make purchases, still 50 percent of them still buy from the unorganized sector which shows that this sector is a major contributor of domestic household purchase for the customers. It can also be inferred that these customers have only come for purchasing apparels, or lifestyle products from retail stores, they still buy products of their daily needs from unorganized sector. Question 4: what factors influence your decision in buying domestic needs?

74

Motive: To know what actually customer look from their buying place.

16% 12%

0%

12% 22%

Convenience Location Price Credit options Product availability Others

38%

Interpretation: As seen from the above graph it is clear that the consumers are mostly influenced by Price, Location and Product availability. So price play an important role in buying domestic needs. It can also be inferred that Indian consumers are price switchers or price sensitive.

Question 5: What do you like the most about the organized retail stores? Motive: To know what are the driving factors of organized retail store customer. which attracts the

75

Service Quality Ambience

Price preposition All under one roof

Offers and schemes others

20%

0% 6% 26%

16% 32%

Interpretation: Offers and schemes, are the first attribute that customers like about the organized retailing stores which was found to be 32 percent, than comes price prepositions with 26 percent which shows that good value for money is what customers like about the organized retailing stores. Availability of a large array of products at one place is another factor scoring 20 percent of the respondents liking for organized retailing stores, while ambience and service quality scored only 16 and 6 percent, respectively. Question 6: The following questions evaluate the views of the customers about the store they are visited: 6.1 Stores should be conveniently located

76

STORE CONVENIENCE
50 40 30 20 10 0 SA A DA SDA DA SDA
Series1

SA A

Interpretation: The graph clearly states that Consumers want Retail store to be located at places convenient to them. They would prefer Retails outlets in the vicinity to their Homes. Convenience goods usually means low unit price, purchased frequently, little selling effort, bought by habit, and sold in numerous outlets. Convenience goods are often purchased on impulse in easily accessible stores. Consumers makes a special trip to purchase such convenience staple goods as food and drug items also Clothes, they want the store to be close to home. Therefore it is very important parameter as afar as Location of Store is considered. 6.2 Store hours are convenient for my shopping needs.

77

STORE HOURS CONVENIENCE

4% 47% SA A DA 36% SDA

13%

Interpretation: As we have seen from the graph that most of the respondent thinks that store shopping hours is the important factor. As now a days every one is busy in his own work so they want flexi hours for shopping their needs, than this factor plays an important role in selecting the store for shopping. 6.3 Store atmosphere and dcor are appealing.
Store Atmosphere and Decor
7% 20% 39% SA A DA SDA 34%

Interpretation: Ambiance plays a vital role in selection of a Retail Outlet for shopping/enjoying. The graph clearly indicates that people from all Age groups take Ambiance in to consideration for selecting an Outlet. The Comfort, Surrounding of an Air-

78

conditioned outlets is attracting numerous no. of consumers to shopping hyper marts. The Reason is simple one stop shop which beats heat and humid weather of India. The Graph very well supports the above Fact. 6.4 A good selection of products was present.
Good Selection of Products
8% SA A 29% 53% DA SDA

10%

Interpretation: Todays Consumer is looking for options. The graph very well indicates that a consumer wants to exercise his Choice, which is only possible by having wide variety of Goods. The college going Students strongly feel that they should have a different options to select from. 6.5 Store has lowest price in the Area.

79

Lowest price criteria

4% 41% SA A DA 33% SDA

22%

Interpretation: The Indian Market is Price dependent. Price plays a very important role in deciding whether to go for a product or not. The college going students are least bothered about the price. But on the other hand as you go up in age, responsibilities increases and with that priority comes in to place. Therefore for age group above 25yrs price plays a vital role in selection of any outlet. Price drives the Indian Market. 6.6 Is Merchandise sold good value for money a criteria?
Value for Money
7% SA A 51% 29% DA SDA

13%

80

Interpretation: As we have seen from the above graph that many respondents (51%) think that the merchandise they are getting is of good value for money is the main criteria while selecting a store for shopping. 6.7 Advertised Merchandise should be available their in Stock.
Merchandise in Stock
7% 21% 38% SA A DA SDA 34%

Interpretation: As you go up in the ladder in age group, the Advertised Merchandise whether available or not does not makes a much difference. Whereas on the other hand college going students want wear or have things in trend or advertised. They want to come in limelight by having things which have been associated to Stars through an Ad Campaign. Therefore if a Retail store/outlet does not stores the thing, then it would have to face lots of consumer moving out the retail outlet very soon. 6.8 Are All Brands Availability Criteria?

81

All Brands available

6% 3% SA 49% 42% A DA SDA

Interpretation: People have become Brand Conscious. They want to get associated with the Brand. A consumer in his old age does not bother which brand he is wearing. College Students, office goers, business men everyone in the age bracket of 18 to 55 wants look good and be associated with a Brand. Therefore having Branded goods in the store is a must.

Question7: Products & their Purchase Points: Motive: To know the various products purchase point.
Dealers store Small Kirana stores 90 80 70 60 50 40 30 20 10 0 76 62 35 15 Electrical & electronics Apparels 3 9 5 products Food 43 52 29 9 14 Toiletries 5 Grocery 77 66 Organized retail stores

82

Interpretation: It can be inferred from the above graph that for Electrical & Electronics, people prefer dealer stores like LG, SAMSUNG, VIDEOCON, etc. stores to make their purchases. While for Apparels, organized retail stores are a clear winner, which shows that a majority of the customers like to buy their requirements from retailing chains. For food products such as vegetables, the consumers prefer more of kirana stores to organized retail stores. Thus, the rest can be seen clearly from the graph Question 8: How did the products prices compare to your expectations? Motive: To know the perception of the customer about the prices of the products.

6% 34% Poor Average 60% Satisfactory

Interpretation: People generally seemed to be averagely satisfied with the price compared to their expectations, which seems to be a very diplomatic answer. As many as 60 percent say that the price preposition was average and other 34 percent seemed to be satisfied,
83

only 6 percent were not. Hence, it can be inferred that the customers know what they will be charged and set their expectations accordingly. Question 9: Why was the product purchased? Motive: To know the influential factor for shopping.
Purchased for self Bought by someone else at my request Gift from someone else 62% Family purchase Business purchase others

8% 19% 3% 3%

5%

Interpretation: In the survey it was found that 62 percent of the sample purchased goods for self-use, 19 percent purchased for the family, 8 percent for business use and 3 percent for someone on request and another 3 percent for others. Hence, it is clear that most of the people buy products for their own use Question 10: In thinking about your most recent experience with the store, what was the quality of customer service you received? Motive: To know the Quality of service received by the customers.

84

Very poor 12% 20% 6% Somewhat unsatisfactory About average 46% Very satisfactory Superior

16%

Interpretation: The services to the provided by the support staff, like the customer relationship executives, managers, etc. in the stores show their service quality and product sorting, grievance handling, information giving, etc. for customers, improving satisfactory experience. As many as 12 percent believe it to be delightful, 66 percent to be satisfactory and above their expectations and satisfied about its quality. The other 22 percent believe that improvements should be made for their better working. Question 11: The process for getting your concerns resolved Motive: To know the Grievances handling process.

85

Very poor 18% 2% 32% Somewhat unsatisfactory About average 48% Very satisfactory

Interpretation: As many as 34 percent respondents believe that their concerns were not solved in the stores they just visited. This could also have resulted due to word of mouth publicity done by other customers who visited previously. As many as 48 percent were very satisfied showing the excellent concern resolving procedures employed by retail stores. Based on above graphs, we can come to a conclusion that there are three fundamental patterns, which a consumer can follow, and they could be: (I) Brand first, retail outlet second (ii) Retail outlet first, brand second (iii) Brand and retail outlet simultaneously. A consumer wanting to buy a car may collect information on brands and purchase it from a retail outlet based on his perception of price offered or after-sales service provided by the outlet (typically,

86

search for information on brands is followed by retail outlet selection in durables). In certain product categories, especially where `category killers' exist, consumers may think of the retail outlet initially and then the brands (television, refrigerator and audio products retailed through outlets). One more dimension may be to compare brands in the evoked set at retail outlets which also exist in an evoked set of their own. This is highly possible, especially in the Indian context where dealers develop a social relationship with consumers, especially in semiurban and rural areas. Primary research could be used to discover the specific sequence involved in a situation of this kind. A `brand first' dimension may need feature-based advertising and a `retail outlet first' dimension may require a set of point-of-purchase (POP) materials and special training to sales personnel to recognize the needs of consumers. Further, if it is known that a number of consumers may be oriented to visit their favorite retailer (before obtaining information on brands) in a geographical area, there would have to be more emphasis on regional/local advertising which highlights the retail shop rather than regular brand-based national advertising.

87

Retail outlet first and brand second: When a number of consumers follow this sequence of decisionmaking, display of point-of-purchase material and building the image of the outlet becomes important. The manufacturer of the brand may have to ensure that the brand (and the variants demanded) will be available at the key outlets in a locality. Point-ofpurchase materials, which are to be used at the retail outlet, may require primary research - should visuals be used, should product features be used, should the POP material be in the regional language. There may also be a need to monitor competition from other retail outlets to ensure that consumers are kept satisfied in terms of service, price, promotional deals and ambience. This is especially applicable to durables retailing in India (in cities). Retailers attempt to increase consumer traffic by providing a number of `add-ons'. Brand first and outlet second: The consumers probably thought of the brand because (I) The consumers may not have developed a relationship with any retailer, which is strong enough to get into the evoked retail set. (II) The brand has got into the evoked set because of advertising or positive word of mouth. Local advertising with the

88

mention of brand names, which have already got into the evoked set would enable consumers to be pulled to the outlet. Primary research may be required to identify the brands in the evoked set. This feedback may have to be provided by the manufacturers of a brand to retailers in various regions (especially if it is a brand with a major chunk of the market and one which is nationally advertised). Even multinational outlets could make use of this approach and mention the brands in the evoked set (in a given geographical area). This is likely to improve traffic to the outlet. Besides, the evoked set could also change from time to time depending on the strategies of brands. About two decades ago, brands like Solidaire, Dyanora and Crown may have been top-of-the-mind (in a specific geographical area) but slowly gave way to other brands - these changes should be captured (how often this happens, why, and the differences between markets) to formulate retail strategies. The local advertising could be different from the national advertising for the brand. A brand may be advertised on features nationally but the retail outlet in may prefer to highlight the effective after-sales service associated with the brand as this may be a priority of consumers. The combination of `pushpull' strategy is shown in the table. The interest generated in the brand would have to be backed by good pre-sale services at the outlet.

89

Brand and retail outlet simultaneously: When consumers think of the brand and retail outlet together, it means that they have a certain preference for the outlet and would like to check the evoked set of brands there. The marketer would have to carry out primary research to find out specific markets where consumers have a very positive relationship with retailers. This is important because of the influence of retailers over the purchase behaviour of consumers in the Indian context. It may also be worthwhile to check if the retailers who have a positive relationship with the target segments carry the evoked brands. This is to ensure that the retailers who have a favourable perception among the target segment carry the desired brands. Failing this, consumers may turn to a different retailer, which would be to the disadvantage of a retailer who has already won the confidence of consumers. Retail sales personnel also become important in this situation. The prospective consumers are "carried over" to the purchase stage by the store personnel and hence there should be incentive programmes for the store personnel. If a company such as BPL or Videocon is dealing with a number of brands/sub-brands, it has to ensure the availability of specific brands, which may interest the consumers. If the retail outlet is a large one dealing with a number of brands, a shop-in-shop arrangement may be preferable. This model puts the brand in focus

90

and reinforces the positive association a consumer may have about it. A considerable amount of pre-sale service would have to back up the shop-in-shop concept. The shop-in-shop concept creates an aura of exclusivity. Consumers tend to have higher expectations about the pre-sale service and the attention given to them. A large store also is likely to stock several brands and hence all brands in the evoked set would have to compete with each other to progress from the evoked set to choice set. Large outlets may also have a built-in provision for a lower price (because of volumes) and hence may be in a better position to clinch the deal with consumers who may simultaneously consider both the brand and the retail outlet

MARKETING STRATEGY FOR RETAILER

Identification of customers and prospects makes effective targeting possible. Small business owners pride themselves on knowing their customers

personally. In the industrial field, understanding of each major customer and buying influence is

essential. When dealing with a large number of customers, however, individual familiarity is not

feasible. Hence mass merchandisers and others in this

91

situation group their customers, whose reactions to offerings are similar, into segments. Then they design a separate appropriate marketing program for each segment. Based on the study, here is an very effective Matrix depicting generalized marketing strategies one should go for after segmentation of consumers is done Marketing strategy based on the consumer decision sequence Level in the channel Decision sequence Retailer Manufacturer Distribution in key outlets Point-of purchase, shelf space, position programs to strengthen existing outlets More exclusive distribution Brand availability advertising
92

Image advertising Outlet first, brand Margin management second on shelf space, displays location analysis Appropriate pricing Many brands and/or Brand first, key brands outlet cooperative second advertisements featuring brands

Price specials on brands, yellow pages listings under brands Margin training for Simultaneo sales personnel us Multiple brands/key brands High service or low price structure

(yellow pages) Brand image management Programs targeted tat retail sales personnel Distribution in key outlets Co-operative advertising

93

5. Conclusion:
The Study reveals that the four major variables that retailers can play with when trying to create a USP include:

Product
This refers to the category mix, and within each category the width and depth of merchandise on offer, and its quality related selection. It can also refer to the choice of merchandise if it is on the leading edge or trailing edge of innovation or fashion.

Service
This refers not only to the commonly assumed parameter of how many sales people are there to serve or if tea or a cola is served to customers but to operational parameters such as availability of the promised merchandise at all times in expected sizes, shapes, colors, assortment et al. Service can also refer to policies such as returns or exchanges, warranties and guarantees, availability of qualified personnel to assist customer queries or request for information.

Experience
This is a crucial intangible and can be a function of several factors e.g. overall store ambience; ease of shopping in terms of layout of merchandise, labeling, check-out convenience and speed, access to
94

the store itself including parking, customer relationship effort from the store management etc.

Price
Finally, this is the fourth major variable for creating the USP. Low price itself can be the most important parameter in some instances, but more importantly, it can also imply the appropriate price as perceived by the consumer after subjectively assessing the impact of the other three variables mentioned above. The emerging organized retail sector offers unparalleled opportunities to entrepreneurs and existing businesses seeking an entry in Retailing. The consumers are open to change, and several USP platforms can be occupied since at present, the canvas is more or less blank. However, the new entrants should carefully strike a balance between what the perceived need of the consumer is and what is financially prudent and operationally feasible from the business perspective. Having taken a decision for a particular format and its USP, the business managers must periodically review the external developments to assess if the original USP is still relevant and in case the external environment has changed, then reinvent the format and its USP so as to continue to have relevance in the Indian context.

95

Recommendations
Poor quality of infrastructure, coupled with poor quality of the distribution sector, results in logistics costs that are very high as a proportion of GDP, and inventories, which have to be maintained at an unusually high level. Distribution and marketing is a huge cost in Indian consumer markets. It's a lot easier to cut manufacturing costs than it is to cut distribution and marketing costs. To compete in this sector one needs to have up-to-date market information for planing and decision making. The second most important requirement is to manage costs widely in order to earn at least normal profits in face of stiff competition. Indian companies know Indian markets better, but foreign players will come in and challenge the locals by sheer cash power, the power to drive down prices. That will be the coming struggle.Strategic course of action for the coming years is required to be taken by the major players to sustain and grow in this ever growing market The Indian retailing sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption.It provides ample opportunities to the market players to capitalize on the same and take the first mover advantage. IT is a tool that has been used by retailers which has improved and eased thw way with which modern opeartions are carried on efficiently and still with foreing players coming up the opportunities for IT implementation in Retailing sector is very high . The increase in FDI flow has strengthened the foreign political relations and now foreign companies are trying to persuade the
96

Indian Parliament to increase FDI capital depending on the sector. There are some chief bodies and boards that have been set up for the purpose of Foreign Direct Investment, such as: Project Approval Board (PAB) Licensing Committee (LC) District Industries Centers Investment Promotion and Infrastructure Development Cell Foreign Investment Promotion Board (1991) Foreign Investment Promotion Council (1996) Foreign Investment Implementation Authority (1999) Investment Commission (2004) With ample opportunities in this industry government restricition are bound to be removed or reduced to certain extent With the 30-40 per cent drop in retail rentals, Indian retailers are a happy lot. In fact, retailers are also foreseeing further drops in rentals in 2009 and they are optimistic about their expansion plans for this year. References http://rbi.gov.in http://www.indiaretailbiz.com/blog/ http://www.inrnews.com/realestateproperty/indias_retail_revoluti on_begin.html http://www.scribd.com/doc/4204883/Productivity-in-retailindustry-in-India http://business.mapsofindia.com/india-retail-industry/

97

REPORT from Angel Broking Segments in retail industry 2008 IBEF REPORT from Ernst & Young on Retail market & Opportunities . Retail Scene in India by DEEPA GUPTA & MUKUL GUPTA from department of management studies . INDIAN RETAIL INDUSTRY opportunities ,challenges and strategies by Prakash Chandra Dash, senior lecturer from Bhubaneswar Institute of Management & information Technology , Bhubaneswar

http://Mospi.in Economic political weekly McKinsey Global Institute, 2008 http://www.ibef.org http://www.in.kpmg.com http://www.equitymaster.com http://www.capitaline.com www.financialexpress.com www.franchisebusiness.in

98

www.shoppersstop.com www.nse-india.com www.wikipedia.com www.myiris.com www.moneycontrol.com www.geojit.com www.bseindia.com www.investopedia.com 1. Ernst & Young, The Great Indian Retail Story, 2. FICCI - ICICI Property Services Study. 3. Let gradualism guide FDI in retail, Economist, 4. AT Kearney, GRDI 5. CII, Logistics and Freight News, 6. KPMG analysis, Consumer markets in India - the next big thing, 7. India's changing household, Deutche Bank,
99

8. CII, Manufacturing Bulletin, 9. Pharma's retail push, Business Line, 10. Northbridge Journal, Industry Outlook - Retail, 11. Express Press release, Consumer durables sector sees pick-up sales in India, 12. Price Water Coppers, Asia-Pacific M&A bulletin, 13. KSA Technopak, 14. Retail Management, by Bajaj, Tuli & Srivastava. 15. Retail Management, by Levi. 16. www.economictimes.com, 17. CRISIL Report 18. CII Retail India Report.

100

Glossary Compound annual growth rate (CAGR): The rate of return, usually expressed as a percentage that represents the cumulative effect that a series of gains or losses have on an original amount of capital over a period of time. Compound returns are usually expressed in annual terms, meaning that the percentage number that is reported represents the annualized rate at which capital has compounded over time. FDI (Foreign Direct Investment): The liberal investment regime, rapid growth of the economy, strong macroeconomic fundamentals, progressive delicensing of sectors and the ease in doing business has attracted global corporations to invest in India. Foreign Direct Investment (FDI) inflows to developing countries are estimated to have gone up to U.S.$ 149 billion in 1997 from U.S.$ 130 billion in 1996. Indias share of global FDI flows raised from 1.8 per cent in 1996 to 2.2 per cent in 1997. On the other hand, Indias share in net portfolio investment flows to the developing countries declined to 5.1 per cent in 1997 after increasing to 8.7 per cent in 1996.

101

 Turnover: For a company, the ratio of annual sales to inventory; or equivalently, the fraction of a year that an average item remains in inventory. Profit Margin ratio: A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Bargaining power: In negotiating, capacity of one party to dominate the other due to its influence, power, size, or status, or through a combination of different persuasion tactics. Economies of scale: Reduction in cost per unit resulting from increased production, realized through operational efficiencies. Economies of scale can be accomplished because as production increases, the cost of producing each additional unit falls. Product differentiation: Developing unique product differences with the intent to influence demand. Brand loyalty: Degree to which a consumer repeatedly purchases a brand. Patents: Grants made by a government that confers upon the creator of an invention the sole right to make, use, and sell that invention for a set period of time.
102

 Fragmentation: It means organization of production in which different stages of production are divided among different suppliers that are located in different countries. Now products traded between firms in different countries are components instead of final products. Final products may be sold to outside the region in which fragmentation happens (East Asian countries often sell their final products to Europe and the USA for example). Producers in less developed countries get positions of production chain that add less value to final product. Their challenge is to "climb upwards" on transnational production chain. Vertical integration: The term vertical integration describes a style of control. Vertically integrated companies are united through a hierarchy and share a common owner. Usually each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need GDP: GDP is defined as the total market value of all final goods and services produced within a given country in a given period of time (usually a calendar year) Supply chain: A supply chain, logistics network, or supply network is the system of organizations, people, technology, activities, information and

103

resources involved in moving a product or service from supplier to customer. Trend Analysis: An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.

104