Marketing Management

Session 14: Place: Distribution and Retail(cont)

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Indian Retailing


Highest retail density in the world

40 shops/1000 people
Steep rise in the last two decades

Source of occupation for 10%  Dominated by small retailers



25-400 sq. feet

94 % Growing at 10% from 2005

Entry of large retailers

6%
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Big Bazaar: New Format in Search of Growth



New Segments
Class to Mass
Pantaloons and Big Bazaar

  

Increasing Distribution Coverage

Increase in numbers and Tier II cities

Lowering prices to achieve scales

Big Bazaar: New Format in Search of Growth



Accessing Capital
Public offering Private international equity investor
Future Logistics: 3PL

Expanding into diverse domains

Mobile, Fashion, Malls, Entertainment, Finance, Insurance, Furniture, Footwear, etailing, Logistics, IT, Beauty Salons
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Big Bazaar: New Format in Search of Growth



Expanding Retail
Centralized Procurement and better margins Leveraging on lower margin FMCG
Fashion General Merchandising Private labels
Staples, HH Consumables, Clothing, General merchandising, Electronics Higher Margins

SIS Model


Developing/buying brands
John Miller, Bare, Hidedesign, Lee Cooper
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Large Retailing
Hybrid flows  Increased margins  Increasing use of IT


Planograms, ARS, MBQ

Centralized purchasing  Increase in credit period  Emphasizing Fill Rates  Different service & Increasing conflicts

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Large Retailing


So if you dont give a shopper your brand at a modern trade outlet, he/she will leave your brand and go elsewhere. Whereas, in traditional trade, this is not the case. The retailer can say, come back next week Maam, ill get the stock for you. So if I dont supply the retailer for a week, she can get this from another retailer, whereas if I dont give stock to a Reliance, none of the Reliance outlets will have it and the product will be stocked out all across the state. The customer who is used to buying from the outlet will thus not be able to buy our product. So, its more important that I dont get stock-out on a modern trade outlet as compared to a small outlet because if this store has a one week stock, there will be another general store who has a two week or three week stock. So, my consumer can go there and buy the stock. Such an option does not exist in modern trade store. So, I prefer to have my service level higher for the modern trade store than a general store.

A Sr. J&J Manager

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Expanding Retailing: Subhikha?

First Generation Entrepreneur  1 store in 1999


Discount Grocery Store in Chennai

2000: 50 stores in TN  ICICI Ventures Invests  1000+ stores in 2007



TN, Guj, AP, Kar, Delhi, Mumbai Medicines, mobiles, electronics

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Expanding Retailing: Subhikha?

Risk in retailing and expansion? We are not mad risk takers. We are not producing movies. We do a lot of research before starting business in an area, and we have back-up plans in place. We work with very good people, and if something goes wrong, we try to take corrective steps.  The big advantage we have is, we are not creating products. So there are no worries about whether it would succeed or not. Consumers are smart and they are all price-conscious and they want to finish the work as fast as they can. They don't go to a provision store for fun. R. Subramanian
 
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Expanding Retailing: Subhikha?

  

Target 350 cr. IPO in 2007

Uncertain market and IPO shelved

600 Crores of Debt 2009

Defaulting on vendor payments/ Salary to staff Vendors cut-off supplies

Story of Mindless Expansion

Reliance laying off people; slowing down Premji: Retail equivalent of Satyam
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Large Retailing


In 2006 we used to write papers and articles and all on this and the target number was 4%. But magic number is still that number only. 4-6% whatever. At that time the forecast used to be by 2010 the retail business will be 10%. And by 2025 it will become 2530%. But this story was very optimistic some 5 years back which is not the case is right now.
ITC Manager

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Retailing


Share of large retailers

USA/West Europe: 80-90% Japan: 66% China: 20% Brazil: 36% (tax and subsidized credit) Russia: 33% South Korea: 15% Thailand : 40% Pakistan: 1%
Role of Wetmarket restrictions/modernization
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Small Retailing in India



Changing credit conditions

From two weeks to spot payments/one week

Limited SKUs  Target based incentives  Increased display earnings


E.g. Horlicks display of 2X2: 1200/month; earn 1015K

New product launches

Sharp increase: 5 varieties of Lifebuoy; 10 of Lux
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Small Retailing in India



Earlier, there were schemes product-wise if you buy lifebuoy one carton you will get 4 pieces free now they have consolidated all materials from a company under a single bill and all volume schemes are based on the total bill amount you have to buy everything SKUs that move, ones that do not move, that move only moderately and the scheme you get will be on the total bill say 1% or 2%.
A Small Retailer

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Small Retailing in India



Product return
Large timelines; e.g. Unilever once in 6 months

Increased gap of technology and monitoring tools

E.g. Information technology, fill rates

Consolidation of Distribution  Shifting Power Equations



Large retailers and increase in small retailers

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Small Retailing in India



Recently Olay has come up with Olay Men it is very costly if they want to give it you will have to swallow it companies now have only one distributor earlier there were small distributors with smaller territories so you could have the possibility of approaching other distributor points now they have one single distributor so that you cannot cut away from a distributor..there is no undercut in the case of P&G because of consolidation of distributors..the discount you get 4% every three months that gets deducted from your bill will not be available if I purchase from other places..you have to stick to the same distributor..
A Small Retailer

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Small Retailing in India



They give 70% delivery now few years back the delivery was 100% - take Amul butter earlier you used to get all that you ordered now if you order 10 packets they will give 7 and with it some lassi, ghol etc. that does not sell well you have to take it otherwise they will not give butter...earlier all these were not there.
A Small Retailer
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Small Retailing in India

 

Credit facility to customers

20-60%: A strong norm

Problems of capital
Increase in prices Increase in SKUs

Increase in emphasis on Food & grocery

40-60% of revenues; large scale: less than 1%

Cooperation and Competition  Organized resistance



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Small Retailing in India



This is a corporation market Reliance wanted to buy the market rooftop space owned by corporation so they get into a deal to sell it - pressure came from political leaders we did not want it when Spencers was being opposed at Gariahat then a few representatives from our samiti had gone there, our samiti is also a part of the federation of samitis that was opposing the move we said that you cannot have malls they have listened to some of our demands the reliance plan to take the fish market floor and the roof top space has been stopped.
A Small Retailer

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Small Retailing in India



Let us not allow the destruction of our rich and robust small scale retail at this important and decisive phase of our collective retail democracy. Let us not vote for monopolies, trade blocs, angel investors, venture funds, hedge fund investors, speculators, and invisible corporate boardroom investors, by playing illogically and against our collective self interest, with the diversity of our existing retail infrastructure. Let us protect our diversified, decentralized retail democracy. Save our livelihoods, save our farmers, save our traders, save our communities, save our citizens. Save India.
National Movement for Retail Democracy founded in 2007

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Indian Retailing: Small Retailers



Old problems
Problem of capital Low bargaining power Poor inventory management
ICT and Increasing gap

Problem of space and ambience

Shiny Store

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Indian Retailing: Small Retailers



New problems
Increased competition from other small retailers Large retailers
Better schemes, new launches, better support

Changing trade conditions

Credit period Schemes Pressure to stock SKUs

Municipal regulations
Shiny store
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Indian Retailing: Small Retailers

 

40% report decline in turnover

E:48%, W:59%, N: 48%, S: 23%

Highest by Textile/clothing: 46%  Lowest by Vegetable/fruits: 34%  Sharpest decline in the first year followed by slow recovery to an average decline of 2% in turnover after 5 yrs.  Closure rate of 1.7%/year due to large retail (US 50% closure in the first 4 yrs).
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Indian Retailing: Small Retailers



Future in the balance

Large market share Firms need to balance New forms of support
E.g. Space rental, political support

Customer relationships, credit, added services

Shiny store
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