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Do you have an ‘R – Biz’ Strategy for your Company?
‘R – Biz’ or a retail business strategy should be considered as a growth lever by small and
medium sized companies for their existing lines of business through creating winning retail
models based on superior insights into consumption trends, buying habits, formats and a
thorough value chain analysis of their businesses say Pankaj Gupta (Practice Head – Consumer
and Retail) and Roopa Tarkhad of Tata Strategic Management Group.
While large Indian business houses like
Reliance, Tatas, AV Birla, Bharti, Pantaloons,
K. Raheja, RPG with access to funding and
large risk appetite are announcing mega retail
plans, there also exist opportunities for small to
medium sized companies to capitalize on the
exponential retail growth story. Companies can
take advantage of ‘R – Biz’ in two ways,
identifying niche opportunities through a
physical presence or through an online asset
light model yielding higher returns on capital
invested.
successful coffee chain in India. Forward
integration has enabled Café Coffee Day to
charge around Rs 40 per cup of cappuccino vs
~Rs 4 worth of the coffee bean ingredients.
Entry into retail has resulted in a faster growth
of ABCTCL vis-à-vis CCL Products Limited
who is a pure play exporter of coffee.
(See Fig. 1)
Figure 1
ABCTCL’s Net Revenue (Rs. Cr.) & PBT (%)
Forward integration through a physical
presence:
Forward integration gives access to customer
touch points of product sales or after sales
service. Successful retail operations strengthen
the company brand and enhance customer
loyalty. In the Indian context, there have been
examples of small to medium sized companies
who sensed the retail opportunity and came up
with innovative business models to emerge
successful.
The ‘Amalgamated Bean Coffee Trading
Company Limited’ (ABCTCL) synonymous
with the brand ‘Café Coffee Day’ is an
integrated coffee company in India present
across the entire value chain from plantations to
retailing. The company with its own plantations
spread over 5000 acres in Chickmagalur started
off as an exporter of coffee beans and forayed
into retail operations in the form of the highly
successful Café Coffee Day outlets. The
company has about 552 stores today spread
across 90 cities sourcing coffee from its own
plantations and other local suppliers. A lower
pricing strategy than their competitors while
offering an equivalent quality product and
excellent service has made it the most
CAGR 56 %
4%
1%
348
144
2005
2007
CCL Products Ltd’s Net Revenue (Rs. Cr.) & PBT (%)
CAGR 40 %
28%
19%
216
110
2005
2007
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Kitchen appliances maker, TTK Prestige
operates ‘Smart Kitchen’ showrooms across
India. The company has expanded from having
50 outlets in 27 cities in 2004-05 to about 200
outlets in 100 cities in 2006-07. The `Smart
Kitchen' is a one-stop shop for the entire range
of `Prestige' kitchenware. Besides bringing all
the innovative/latest products from the
`Prestige' staple to the consumers, these
showrooms presenting the ambience of a live
kitchen with plush interiors also help in
channelising TTK's new customer care tools
such as `Prestige Privilege Club' (a loyalty
programme) and `Prestige Kitchen Care' (the
service-at-customers' door-step programme).
‘Namdhari Fresh’ is the retail venture from
the Namdhari Group, which is the largest
indigenous manufacturer of hybrid seeds. The
unique value proposition of ‘Namdhari Fresh’
is the supply of quality produce majority of
which is grown organically by them. The
freshness is achieved through use of superior
cold storage systems and maintaining
temperatures of about 10 degrees in the room
and the rack where the vegetables are placed for
sale. A superior quality value proposition has
helped Namdhari Fresh in commanding a price
premium for its fruits and vegetables than the
regular markets.
Koutons is a leading apparel manufacturing
company which forward integrated into retail
under the ‘Koutons’ and ‘Charlie Outlaw’
brands through a network of 1147 exclusive
brand outlets. The company started as an
apparel manufacturing unit in 1993 and started
retailing through their exclusive stores only in
2002. While, the majority of the apparel
manufacturers cum retailers in India operate
through a combination of retailing through
exclusive outlets, national chain stores and
multi brand outlets, Koutons operates only
through exclusive branded outlets. This has
enabled them to focus their strategies and
efforts towards quality maintenance and
customer satisfaction without any channel
conflict.
Koutons has grown faster than Zodiac Clothing
Company which retails mainly through Multi
Branded Outlets. (See Fig. 2)
Figure 2
Koutons’ Net Revenue (Rs. Cr.) & PBT (%)
13%
CAGR 91 %
2%
402
16
2005
2007
Zodiac Clothing Co.’s Net Revenue (Rs. Cr.) & PBT (%)
CAGR 25%
12%
9%
203
66
2005
2007
Internationally, one of the best examples of
forward integration into retail is the Apple store.
Apple has built stores that offer a unique
customer experience through an innovative use
of store design. The layout simulates the usage
environment at a customer’s home and office
with fewer than 20 products on sale. Apple has
done away with checkout counters and replaced
them with payments made through wireless
credit–card readers carried by mobile
salespeople. There is a strong service element
within the store as well. Every store has a
‘Genius Bar’ where trained and highly qualified
personnel share insights, technical advice and
technical support on different products. All
these activities have resulted in the Apple
Stores grossing maximum annual sales per
square feet in comparison to other retail stores
like Best Buy, Circuit City etc.
‘Forward integration into retail through a
physical store presence helps companies in
commanding higher value for their products and
faster growth. A strong service orientation
through the physical store format helps in
building customer loyalty and brand value.’
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Innovative use of the online retail model:
Global Examples
In the US, online retailing has been adopted by
an entire spectrum of categories involving low
to medium customer involvement like travel,
books, event tickets and even high involvement
categories like jewellery, accessories etc.
Through this format, companies can lower costs
on real estate rentals, inventory as well as
overheads to offer a price sensitive value
proposition to customers seeking alternate
points of purchases. To achieve this requires a
thorough understanding of customer needs,
their relative importance and an in-depth
knowledge of the value chain to bring in supply
chain efficiencies.
This format also brings in the added advantage
of convenience at points of purchase and
delivery.
Expedia is the leading online travel agent in the
US having ~5% share of the overall $247 Bn
US travel market in 2007. Expedia has
developed a niche for itself in the leisure
segment of the market by offering customized
vacations to price sensitive customers at
cheaper rates than traditional travel agents. This
is on account of strategic tie – ups with
suppliers and leveraging economies of scale.
Little or no ownership of inventory (reliance on
strategic alliances/networks) and minimal
physical presence have resulted in the
achievement of EBIDTA margins of ~ 25%
which are way above the industry average of ~
10-15%.
Online models have also been successful in
categories like jewellery requiring high
customer involvement and where a physical
store model would have seemed indispensable.
Blue Nile with revenue of $319 Mn in 2007 is a
leading online seller of jewellery in the US.
Blue Nile has adopted a virtual model in which
it does not put any of its capital at risk by
carrying little inventory. It provides a shop
window for suppliers and simply takes a cut
when a transaction occurs. This model enables
it to sell at 30-40% below the price of a
traditional jewellery store and 50% below the
high – ends shops.
The key features of Blue Nile are its focus on
consumer education via online tools like guides
to diamond grading on its site. Most of the
diamonds sold on the site come with
Gemological Institute of America (GIA) or the
American Gem Society Laboratories (AGSL)
certifications and a 30 day return policy. An
innovative business model has enabled Blue
Nile to be among the top ten specialty jewellery
retailers in the US confounding predictions that
luxury and e-commerce would never mix.
‘An online format being asset light helps in
generating higher returns on capital employed.
Significant savings in cost on real estate rentals and
inventory have helped online companies in adopting
a low cost value proposition. Also offering the
advantage of convenience at points of purchase and
sale has resulted in the growth of market share of
online companies.’
The use of technology would be a key driver in
online retailing for certain product categories.
For example Amazon, a leading online retailer
of books has launched a new service that allows
customers to buy products and compare prices
through their mobile phones in addition to the
internet.
Opportunities for Indian companies
Going forward, in India, a seamless play of a
physical retail store and an online format aided
by technology drivers like mobile phones etc
could help companies in creating unique retail
models which could help in reaching out to a
wider customer base in a shorter time and at
lower costs.
Companies in India should consider ‘R – Biz’
as a growth lever to their existing lines of
business through either a physical store or an
online format. Ample niche organized retailing
opportunities will exist for companies to target.
Developing unique ‘R – Biz’ value propositions
in the retailing model is imperative to capture
the opportunity gaps in organized retailing.
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