Retail Business Plan
Submitted to:
Prof. Srinivas Govindrajan
Prof. K Dasaratharaman
Submitted by:
Amit Mitra
Biswadeep Sarkar
Priyankar Chakraborty
Zeno Zozzimos
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CONTENTS
TOPIC
PAGE
Environment Scan: Retail Scenario India, Key drivers, Key Challenges
3
Choice of retail business
9
Environment scan of chosen retail business: Global and India
10
Market Size in India and Future CAGR
12
Key Drivers and key challenges of the chosen business
17
Positioning map of Competitors
20
Positioning
21
4P’s
25
Pentagon Triangle
28
EBITDA
31
Capex assumptions and Inventory Policy
32
Roll out strategy, People Strategy
34
Own vs Franchise stores stratagy
35
RO/DC + Corporate costs
36
Store Layout
37
Project P&L, Balance Sheet, Funds Flow
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Attached Excel
etail comes from the Old French word tailler which means “to cut off/clip/divide”. It was
first recorded as a noun with the meaning of a “sale in small quantities”. Thus ‘Retail’ refers to
the sales of goods and services in small quantities to the end customer or consumer; it is the last
leg in the channel or supply chain through which goods travel from producer to the consumer.
Retailers, generally does not bring any significant changes in the product characteristics, they
delivers value proposition to the end consumer by delivering the goods and services
at the desired place, at a desired time and at a desired price.
Environment Scan
Evolution of retail in India:
While barter is considered to be the oldest form of retail trade, retail in India has evolved to
support the unique needs of our country given its size and complexity. Haats, Mandis, Bazaars
and Melas have always been a part of the Indian landscape. They still continue to be present in
most parts of the country and form an essential part of life and trade in various areas.
The PDS or the Public Distribution System emerged as the single largest retail chain existing in
the country. The evolution of the public distribution of grains in India has its origin in the
‘rationing’ system introduced by the British during the World War II. The system was started in
1939 in Bombay and subsequently extended to other cities and towns. By the year 1946, as many
as 771 cities/towns were covered. The system was abolished post war on attaining Independence,
India was forced to reintroduce it in 1950 in the face of renewed inflationary pressures in the
economy.
The oldest retail brand in India is BATA which was set up initially as a small operation in
Konnagar (near Kolkata) in 1932. Retail is now the second biggest industry in India contributing
16% - 17 % to its GDP. The Indian retail market is estimated to be US$ 450 billion and it is one
of the top five retail market in the world. The overall Indian retail Industry, which includes the
traditional retail and the modern retail, is set to grow at a CAGR of 18.8% from 2012 to 2015,
while the modern retail will grow at 29.7% over the same period.
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Key Drivers
Demand Side Drivers:

Personal consumption as a percentage of GDP
i) Second to Vietnam in Asia.
ii) Fourth in the world
iii) China (35%), Singapore (45%), Hong Kong (50%) in 2007.
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Demand Side of GDP Shares (1999-2000 prices) (As percentage of GDP @ market price)
Indicators
2006-07
200708
200809
200910
201011
201112
201213
Total Final Consumption
Private Final Consumption Exp.
71.5
57.07
69.80
57.02
67.06
55.05
69.94
58.16
68.01
57.61
67.83
56.98
67.87
56.95
Govt. Final Consumption Exp.
10.3
9.9
9.8
11.1
10.3
10.2
10.2
Source: Central statistical Organization
Indicators
2010
2011
2012
2013
2014
GDP, purchasing Power Parity ($ per capita)
3453
3777
4103
4434
4819
GDP, purchasing Power Parity ($ per capita %)
Gross Disposable Income per household $
12
5295
9.3
6151
8.6
6867
8
7627
8.6
8447
Gross Disposable Income per household %
Rural Population %
Urban Population %
Source: Datamonitor country Insight, 2011
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16.3
70.21
29.79
26.1
69.98
30.02
11.6
69.75
30.25
11.07
69.53
30.47
10.75
69.3
30.7

Population as a growth driver
Increase of working women population:
Population of working women is increasing at a steady rate. We believe that it is an important
growth driver because working women can spend 1.3 times more than housewives. Population of
working women in 1991 was 21% as compared to 26% in year 2001.
Increase of disposable income: The Indian consumers spending is on a rise, this growth implies a
rise in market opportunity for retailers.
Increased spending in sub urban consumers: The sub-urban market accounts for over one-third of
the durables and non durables category, and is growing at a faster pace than urban India.
Increase in nuclear Families:
 Average Household size in 1991: 5.57
 Average Household size in 2001: 5.36
 Average Household size in 2011: 5.02
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Supply Side Drivers:
Increased investment retail
 The Indian retail is expected to increase to US$750-850 by 2015.
 The overall Indian retail sector is expected to grow 9 per cent in 2012-16, with organized
retail growing at 24 per cent or three times the pace of traditional retail (which is
expected to expand at 8 per cent), according to the report by Booz & Co and RAI.
 Deloitte also seconds this forecast and expects that organized retail, which constitutes
eight per cent of the total retail market, will gain a higher share in the growing pie of the
retail market in India. Various estimates put the share of organized retail as 20 per cent
by 2020.
Tier II & Tier III cities to fuel growth in modern retail




The top 784 cities in India constitute about 26% of population.
They contribute to 35% of total retail space.
Tier II and Tier III cities accounts for 18% of overall population.
They contribute 22% of the total retail sales.
Shortened supply chain
 A traditional supply chain in India comprises 5-6 thus the cost of product increases
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Traditional v/s Modern Supply Chain
Key Challenges:
Retailing has seen such a transformation over the past decade that its very definition has
undergone a sea change. No longer can a manufacturer rely on sales to take place by ensuring
mere availability of his product. Today, retailing is about so much more than mere
merchandising. It is about casting customers in a story, reflecting their desires and aspirations,
and forging long-lasting relationships. As the Indian consumer evolves they expects more and
more at each and every time when they steps into a store. Retail today has changed from selling a
product or a service to selling a hope, an aspiration and above all an experience that a consumer
would like to repeat.
The data on key chalenges are collected
from Enterprise Survey on retailing
conduced by International Financial Corp.
This survey was conduced on 1948
retailers across India.
Inadequate power supply is an important
obstacle to retailing: In the above
mentioned survey, the retailers were given
a list of 20 obstacles and were asked to
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identify the most important ones for their business. Most stores (33 percent) identified electricity
as the most important obstacle. Power supply becomes a very important component because
most of the modern grocery outlets makes huge investment on cold storage facility and without
proper power supply it will get very difficult for them to operate.
Retained earning is the most common source of finance: The bulk of investment in working
capital is financed by the retained earnings of the stores (78 percent). The use of external
financing is low because Indian retailers are credit constrained. If a retail store wanted to borrow
but did not because it thought the loan would not be approved, collateral requirements were
unattainable, or the application procedures were complex. Small stores are more likely to be
credit constrained than the rest.
Retailing in smaller towns: The metropolitan cities of Bangalore, Chennai, Delhi, Hyderabad,
Kolkata, and Mumbai have traditionally been the retailing hub of India and also the main
contributors to the ongoing retailing boom. Arguably, a similar expansion of retailing activity in
the relatively small non-metropolitan cities would be required if the retail sector is to make a
significant impact at the macro level.
Real estate: The rent for the space to be used for the retail business will be on the higher side.
Given the amount of space required to begin operations, rent would form a major chunk of
operational expenditure.
Choice of retail business:
We have chosen grocery store as our retail business as we intend to expose the people in the
catchment with a different shopping experience. We aim at opening the stores in the sub urban
areas around Kolkata. A shopping format where shoppers are exposed to a range of choices for
their daily supply of grocery products. The first set of target customers would be the people in
the age group of 30 – 40. These are people who value time and mostly do not share the exact
level of rapport with the age old ‘kirana’ shop owners. The current ‘Kirana’ stores have been
operating in the area for decades and the volume of customers visiting them have been on a
steady rise forever as there are no other options available. Keeping in mind the value for money
sensitive customers in the area we intend to cash in on the format they are yet to be exposed to.
In the current ‘Kirana’ store arrangement, people wait for a time frame of 15 – 90 minutes
depending on the number of products they purchase, the time of the day, and time of the month
they visit. With our modern format we expect to bring the wait time down by 50%, at the same
time provide a wide range of choices where they can compare and pick items for their basket.
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The other options that we had considered but did not proceed with;
Apparel Store – There are already plenty of apparel stores operating in the area, which are
doing quite well. Quite a few outlets are of the modern format with big carpet areas.
Electronics Store – Same is the case with electronics store. We have opted this out as there are
quite a few stores already present which provide a wide range of choices.
Opening any of the above would mean taking the competition head on with no strategic
advantage to beat the competition with.
Environmental Scan of food and Grocery retail:
GLOBAL
Retail has played a major role world over in increasing productivity across a wide range of
consumer goods and services .The impact can be best seen in countries like U.S.A., U.K.,
Mexico, Thailand and more recently China. Economies of countries like Singapore, Malaysia,
Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector. Retail is the
second-largest industry in the United States both in number of establishments and number of
employees. Retail industry is one of the world’s largest industries and still growing. It employs
more than 22 million Americans and generates more than $3 trillion in retail sale annually. Retail
is a significant contributor to the overall economic activity the world over: the total Retail share
in the World GDP is 27% while in the USA it accounts for 22% of the GDP. The share of
organized Retail in the developing markets ranges from 20% to 55%. Even as the developing
countries are making rapid strides in this industry, organized Retail is currently dominated by the
developed countries with the USA, EU & Japan contributing 80 per cent.
CURRENT PLAYERS IN THE BUSINESS
Wal-Mart Stores
Wal-Mart Stores, Inc., branded as Wal-Mart, is an American multinational retail corporation that
runs chains of large discount department stores and warehouse stores. The company is the
world's third largest public corporation, according to the Fortune Global 500 list in 2012, the
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biggest private employer in the world with over two million employees, and is the largest retailer
in the world.
Walmart has 8,500 stores in 15 countries, under 55 different names. The company operates under
the Walmart name in the United States, including the 50 states and Puerto Rico. It operates in
Mexico as Walmex, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best
Price. It has wholly owned operations in Argentina, Brazil, and Canada. Walmart's investments
outside North America have had mixed results: its operations in the United Kingdom, South
America, and China are highly successful, whereas ventures in Germany and South Korea were
unsuccessful.
Carrefour
Carrefour S.A. is a French multinational retailer headquartered in Boulogne Billancourt, France,
in Greater Paris.[2] It is one of the largest hypermarket chains in the world (with 1,452
hypermarkets at the end of 2011[1]), the second largest retail group in the world in terms of
revenue, and the second in profit (after Wal-Mart). Carrefour operates mainly in Europe,
Argentina, Brazil, China, Dominican Republic, United Arab Emirates, Qatar and Saudi Arabia,
but also has shops in North Africa and other parts of Asia, with most stores being of smaller size
than hypermarket or even supermarket. Carrefour means "crossroads" and "public square" in
French.
Tesco
Tesco PLC (LSE: TSCO) is a British multinational grocery and general merchandise retailer
headquartered in Cheshunt, Hertfordshire, England, United Kingdom. It is the second-largest
retailer in the world measured by profits (after Wal-Mart) and third-largest retailer in the world
measured by revenues (after Walmart and Carrefour). It has stores in 14 countries across Asia,
Europe and North America and is the grocery market leader in the UK (where it has a market
share of around 30%), Malaysia, the Republic of Ireland and Thailand.Tesco is listed on the
London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market
capitalisation of approximately £24.4 billion as of 15 January 2012, the 15th-largest of any
company with a primary listing on the London Stock Exchange.
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CURRENT SCENARIO OF INDIAN FOOD AND GROCERY RETAIL
INDUSTRY: INDIA
The private consumption is currently at 64% of India’s GDP - higher than that of countries like
Europe (58%), Japan (55%) and China (42%). Retail in India currently provides employment to
15% of the population. The total population is expected to grow by around 1.2% annually with
the youth population expected to grow at the same rate. India will have one of the youngest
populations in the world by 2020. India’s urban population is fast-growing at 2.3% per year and
is projected to increase from 28% to 40% of the total population by 2020. Gen X-consumers are
increasingly attaching importance to quality and are much more brand conscious than ever
before. The Indian retailing industry is becoming intensely competitive, as more and more
players are competing for the same set of customers. The increase in the number of retail chains
across the country is an indication that organized retailing is emerging as an industry and will
boom in a big way in the near future. Retailing is one of the biggest sectors and it is witnessing a
revolution in India. The new entrant in retailing in India signifies the beginning of retail
revolution.
According to Economic census of 2005, the number of establishments in India under retail trade
was around 15 million. While 52% of these were in rural areas, the rest 48% were in urban areas.
During the earlier census of 1998, the total number of establishments engaged in retail trade was
10.6 million (with 49% in rural and 51% in urban areas). The period has seen an average growth
of about 6% . per year in the number of retail establishments.
India has emerged as the most attractive retail market three years in a row. The Indian Retail
industry is a US$ 450 billion industry and is growing at over 13% per annum. Only about 7 per
cent of the industry is organised. If this share increases to 11% by 2012, the size of organised
retailing could touch US$ 55 billion. At the centre of India’s booming economy are the top six
cities of Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad representing 6% of the
population yet contributing 14% of the GDP. Also notable is the fact that 85% of India’s urban
Retail market is concentrated in the country’s eight large cities. The local Indian Retail scenario
includes approximately 12 million ‘Mom and Pop’ outlets of which only 4% are larger than 500
sq. ft. in size. The per capita Retail space in India is among the lowest in the world: 2 sq. ft. per
person as compared to 16 sq. ft. per person in the USA.
The least organised segments in Indian Retail are Food & grocery (1%), Jewellery (2%) and
Health & beauty (2%). Most of the organised retail is prevalent in categories like Apparel,
Footwear, Watches, etc. India has the largest middle-class population at 300 million and 85% of
the total population is below the age of 45 (high spending community). With the rise in the per
capita income, higher purchasing power and greater access to finance has come higher
aspirations for branded products.
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Retailers who sell food products to the consumers, which can be consumed, readily or after
cooking are referred as food retailers. In the organised scenario, very few ‘pure’ food retailers
exist in India and they are mostly combinations of variety of merchandise including food.
Current leading Retailers in India
Big Bazaar
Big Bazaar is the largest hypermarket chain in India. As of June 2, 2012 there are 214 stores
across 90 cities and towns in India covering around 16 million sq.ft. of retail space. Big Bazaar is
designed as an agglomeration of bazaars or Indian markets with clusters offering a wide range of
merchandise including fashion and apparels, food products, general merchandise, furniture,
electronics, books, fast food and leisure and entertainment sections.
Big Bazaar stores are aimed at providing a local marketplace feel to the shoppers. They offer a
wide variety of household items including retail apparels, food products, general merchandise,
furniture, electronics, books, fast food, etc. Several stores also have leisure and entertainment
sections. The hypermarket chain crossed the 100 store mark in 2008.
Future Group also owns Central Hypermarket, Brand Factory, Pantaloons, eZONE, HomeTown,
futurebazaar.com, and KB's Fair Price, apart from Big Bazaar.
Reliance Fresh
Reliance Fresh is the convenience store format which forms part of the retail business of
Reliance Industries of India which is headed by Mukesh Ambani. Reliance plans to invest in
excess of INR250 billion in the next 4 years in their retail division. The company already has 453
Reliance Fresh outlets across the country. These stores sell fresh fruits and vegetables, staples,
groceries, fresh juice, bars and dairy products.
A typical Reliance Fresh store is approximately 3000–4000 square feet and caters to a catchment
area of 2–3 km
More (store)
More is a pan-India retail chain operated by the Aditya Birla Group company, Aditya Birla
Retail Ltd. Currently it has 509 supermarkets and 15 hypermarkets across the country. It plans to
increase it to 1,300 supermarkets and 65 hypermarkets respectively by 2016.
Aditya Birla Retail Limited provides customers products under its own labels. Private label Food
Brands include Feasters, Kitchen's Promise, and Best of India. Home & Personal care brands
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include Enriche, 110%, Pestex, Paradise and Germex.As per a report in Economic Times, Aditya
Birla Retail Ltd ( ABRL) with its 500 + 'More' branded supermarkets and 14 hypermarkets
reported sales of Rs 1,966 crore and a net loss of Rs 650 crore in the year ended March 2012.
The company has accumulated losses of Rs 2,984 crore since it entered the segment over six
years ago.
The third largest supermarket chain in the country after Future Group and Reliance Retail has
decided to increase its borrowing limit to Rs 7,500 crore from Rs 5,000 crore. The firm plans to
open 100 supermarkets and 6-8 hypermarkets this fiscal year.
Spencer's
Spencer's Retail is a chain of retail stores based in Kolkata, West Bengal. Spencer's is based on
the 'Food First' Format (it mainly offers fresh and packaged food). Many outlets though sport
multiple formats for retailing food, apparel, fashion, electronics, lifestyle products, music and
books. It is owned by the RPG Group, a major business house.
Ebitda, Square footage and store size,
Global
EBITDA (in million)
Company
2009-10
2010-11
2011-12
Carrefour
6.46
5.13
4.87
Tesco
7.08
7.67
8.42
Costco
2.88
3.29
3.71
Company
2009-10
2010-11
2011-12
Carrefour
90099
81271
76789
Tesco
56910
60455
63916
REVENUE (in million)
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Costco
77946
88915
99137
AVERAGE STORE SIZE (Sq. feet)
Company
Store Size
Carrefour
1,10,000
Tesco
38.600
Costco
1,60,000
NUMBER OF STORES (worldwide)
Company
Stores
Carrefour
1452
Tesco
6351
Costco
626
INDIA
EBITDA (in crores)
Company
2009-10
2010-11
2011-12
Reliance Fresh
177
247
274
More(Aditya Birla)
541
423
535
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Spencer’s
220
130
120
Company
2009-10
2010-11
2011-12
Reliance Fresh
2599
3132
3860
More(Aditya Birla)
1411
1637
1029
Spencer’s
920
1039
1257
REVENUE (in crores)
AVERAGE STORE SIZE (Sq. feet)
Company
Store Size
Reliance Fresh
3000
More
2500
Spencer’s
10000
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NUMBER OF STORES (India)
Company
Store
Reliance Fresh
453
More
513
Spencer’s
200
Industry Size (India)
Year
CAGR
Industry Size (crores)
2012
13%
16,25,000
2017
13%
29,90,000
2022
13%
55,25,000
2027
13%
93,11,250
Key Drivers of the Business:
Indian Mentality: The Indian mentality as mentioned above is characterized by the ‘kirana’
stores. The ‘kirana’ store is a culture that has developed over the years and culture cannot be
changed easily. The ‘kirana’ store represents convenience and familiarity – both factors that
make the ‘kirana’ store something that one cannot do without. The relationship between the
‘kirana’ store owner and the customer is very deep – they are like an extended family where
each of them would know what’s going on in each other lives. Thus, going with the saying, “If
you can’t beat them, join them.”
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Reach: The problem one faces with a large retail format is that the consumers have to travel to
the retailers. This is something they do not want to do. Thus, key here is convenience. Therefore
with our stores we take the store to them by placing it at locations populated with households, we
become the store around the corner.
Market Size: As of today the Indian consumer prefers going to the traditional ‘kirana’ store for
their daily needs. Today, this market is still much bigger than that of the new and bigger
organized retail outlets like ‘Food World’. This will not change rapidly in the near future as it
requires changing the basic mentality of people. The average Indian has always been going to the
‘kirana’ store in the corner all his life. This is something we cannot change that easily. Thus,
there is huge potential in investing in the ‘kirana’ store model.
Financial Muscle: The ‘kirana’ store market is huge but the ‘kirana’ store owner does not have
the ability or the financial backing to scale up operations. By scaling up operations we mean that
a ‘kirana’ store owner does not find it profitable to open a chain of stores. But that’s not the case
with us, we not only have the financial capability, but also the ability to scale up operations. We
plan to serve customers throughout the suburbs of Kolkata.
Up selling: Up selling is a method of moving the consumer from a lower end product to a higher
end product. In this case the ‘kirana’ store is on the lower end while the supermarket and
hypermarket are on the higher end. Currently the major chunk of customers prefer going to the
‘kirana’ store rather than a supermarket for various reasons. Thus, we’re starting from the bottom
of the pyramid. We’re offering customers what they want – a ‘kirana’ store.
Key Challenges for the Business:
Established System: We would be cutting into an already established system where people
already have an excellent rapport with the existing ‘kirana’ stores. The challenge here would be
to get people out of their comfort zone with their local ‘kirana’ and move them to ours. The
challenge here is to differentiate from these ‘kirana’, but this in itself poses a challenge as they
offer a host of services ranging from home delivery to credit facilities and most important they
have a rapport with the customer which has been formed over years.
Returns on Investment: One of the biggest challenges to running such a business would be to
get a good ROI. Traditional ‘kirana’ have a high ROI as their operating costs are low. In our
case, being an organized player our operating costs would be slightly higher. Operating costs
pose a challenge in the following areas.
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Real Estate: Traditional ‘kirana’ are based either out of homes, illegal properties, a property
which has been rented by the owner over a long period of time (leading to a very low rent) or a
small place say 300 sq. ft. (leading to lower rent). The rentals would be on the higher side for us,
given the amount of space required to begin operations. Thus apart from fighting the higher
rentals we have to make sure that space is utilized optimally.
People: Traditional ‘kirana’ are owned and run by the same person. The owner employs one or
two people to help in the daily running of the store but he is in control of the store. We on the
other hand employ someone to run the store. This person has to be trustworthy and competent
enough to run the store and interact with the customers. An employee with such characteristics
will be available at a higher cost.
Technology: Unlike the traditional ‘kirana’ stores our stores would have some presence of
technology. This would range from billing machines to internet access. Thus, adding to our
capital and maintenance costs.
Facilities: The biggest challenge is to provide the customers with the same facilities that are
provided by the traditional ‘kirana’ stores. The problem is not to provide the facility but to do it
in a cost effective manner while also differentiating from what they provide. Following are some
of the challenges faced when providing facilities.
Rapport: The biggest challenge is that of rapport. As mentioned before, the average ‘kirana’
store owner is like an extended family to most of his customers. Both parties would know what is
happening in each other’s lives. This is a major barrier which we would have to break when we
enter the market.
Familiarity: The ‘kirana’ store owner normally knows what his customer wants, thus he is able
to stock accordingly. Being the owner and the person who runs the store, he is able to make
decisions quickly and adapt almost immediately to consumer tastes and preferences.
Discounts: The ‘kirana’ store owner also gives discounts to his customers on almost every
product. This he does according to the customer and his transactions or rapport. He can give high
discounts as his operating costs are low.
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Positioning Map of Competitors
Price (+)
Harrods
Wal-Mart
Tesco
Hyper-city
Spencer’s
ITC Choupal
More (store)
Shopping exp (–)
Reliance Fresh
Kirana Stores
Shopping exp (+)
Bargains@ _ _ _ _ _
Price (–)
Reduced
wait time
SEGMENT
Age: 30 - 40
Sex: Male, Female
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Wide range
of options
Value for
Money
Occupation: Working Professionals,
Businesspersons
SEC: B, C+, C
Positioning – Retail Business Plan
“Bargains@_ _ _ _ _ _” will be positioned as the convenient grocery store of the locality.
Convenience in terms of range of options, reduced waits time, splendid deals, delivery TAT of 2
hours. It is going to be a level beyond the local kirana, at the same time will not have the glitters
of the existing organized outlets (e.g. Reliance Fresh, More etc). There would be staff members
with knowledge of assortments who would assist customers in making better purchasing
decisions. Below are the key attributes with which we wish to differentiate ourselves from the
local kirana stores.
Similarities with the “Kirana”
Differences
Store at convenient locality
Better Ambiance
Home Delivery
Reduced wait time
Credit Facility for “Loyal” customers
Wide Range of options to choose from
Competitors- Organized Retailers (Global)
Harrods: Harrods is an up-market department store located in Brompton Road in Knights
bridge, in the Royal Borough of Kensington and Chelsea, London. The Harrods brand also
applies to other enterprises undertaken by the Harrods group of companies including Harrods
Bank, Harrods Estates, Harrods Aviation and Air Harrods, and to Harrods Buenos Aires. Harrods
London primarily caters to the upmarket segment of the society. Its target group of customers are
usually high profilers and the aspirers of upper segments. The product lines constitute the more
expensive of brands.
Wal-Mart: Wal-Mart the world's largest retailer, next to only Exxon Mobil, with an 8.9% retail
store market share in the US and a global turnover of $312 billion is the most famous example of
a successful retail strategy. However, Wal-Mart's international operations spread across 14
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markets outside US, has been a mixed bag of experiences for the company. Despite Wal-Mart's
impressive track record and strength, the question is, "How can it stay ahead?" given the rapidly
changing retail landscape, newly emerging markets and aggressive global competitors.
Tesco: Tesco is a UK based international grocery and general merchandising retail chain. It was
founded in 1919 in London. It is the largest British retailer and the 3rd largest global retailer
based on revenue (2nd based on profit). Tesco group sales were ₤59.4 billion ($95.1 billion) in
2008 which was an 11.1% increase on the previous year. They employ 287,000 people in the
UK.
Tesco has been a market leader in the UK grocery market for the last 25 years. One important
reason for Tesco’s success is that it has been leading the industry change. It’s Tesco which first
introduced the club card; it’s also Tesco which first started online-selling;it’s still Tesco who first
tried non-food stores. Tesco has 2282 stores in 6 different store formats which are Extra stores,
Superstores, Metro stores, Express stores, Home Plus stores, and One-stop stores. This multiformats store strategy has also greatly contributed to Tesco today’s success, as they let customers
assess Tesco as easy and convenient as possible.
Around 900 Tesco stores are Express stores. Over 500 One-stop stores and nearly 450
Superstores make them the 2ndand the 3rd largest store formats for Tesco. Tesco also has around
180 Extra stores and Metro stores. Home Plus store is Tesco newest store format. The difference
between Home Plus store and other store formats is that there is no food sold in Home Plus
stores. Tesco has opened 10 Home Plus store on a trial basis.
Unlike the “one size fits all” strategy of Tesco’s main competitor Wal-Mart, Tesco appeals to
upper, lower, and middle income consumers, calling it, “an inclusive offer”. Tesco offers five
different store formats, each tailored to fit their various consumer needs and complement their
lifestyles. These include Extra, Superstore, Metro, Express, and Homeplus. Extra Stores. These
stores are 60,000 square feet in size. They aim to be a one stop destination store and so they sell
food and other items such as electronics, clothing, beauty products, seasonal products, and
hardware. · Superstores. These traditional-sized supermarkets (20-50,000 square feet) emphasize
on food, but also sell various products. The store’s product line is extended on a regular basis.·
Metro Stores. These small sized supermarkets (7-15,000 square feet in size) sell ready-made
meals. They are located at the center of the city and cater to busy customers. · Express Stores.
These convenience stores (3,000 square feet in size) emphasize on produce, alcohol, and freshbaked goods. The stores are located near residential places and corporate offices, aimed to offer
convenience to nearby residents and employees home. These stores are 35-50,000 square feet in
size and emphasize on non-food products, including clothing.
By positioning itself to lower prices and to keep a competitive agenda, Tesco successfully
markets itself to all segments of the UK population, although its main customers are still middle
income.
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Competitors- Organized Retailers (Indian)
Spencer retail:
Spencer’s Retail Limited, part of the Rs 13,500 crores RPG group, is one of India’s largest and
fastest growing multi-format retailer with 350 stores, including 35 large format stores across 60
cities in India. Spencer’s focuses on verticals like food and grocery, fruit and vegetables,
electrical and electronics, home and office essentials, garments and fashion accessories, toys,
food and personal care, music and books. Established in 1996, Spencer’s has become a popular
destination for shoppers in India with hypermarkets and convenient stores catering to various
shopping needs of its large consumer base. Spencer’s is one of the earliest entrants into the retail
space and literally introduced the Indian consumer to the concept of organized retailing. In fact,
the first ever hyper store in India was launched by Spencer’s at Hyderabad in the year 2001. The
journey onwards has been one of the most aggressive of all the retail players in India. The
company started its operations way back in the early 90’s in the south and over the last one yearand-a-half, it has ramped up operations to about 350 stores across 60 cities in India. They have
positioned themselves as the most innovative consumer goods and delectable taste experience.
Unsurpassed customer service. Made Fine Living Affordable.
Reliance fresh:
It positioned as a pure play super market focusing on categories like food, FMCG, Home,
Consumer durables, with food accounting for the bulk of the business. They have generally made
them in place where there is small commercial complexes close to 3-4 big residential areas
which enjoy clear view from the road.
There low priced private labels; discount on bulk buying helped them to perform better.
More:
Aditya Birla’s retail limited is the retail arm of adityabirla group, a USD 28 billion corporation.
The
Company ventured into food and grocery retail sector in 2007 with the acquisition of a south
based
Supermarket chain. More supermarkets cater to the daily, weekly and monthly shopping needs of
Consumer. Currently they have national presence. The store is named as more. As it promises to
Change the everyday shopping experience for consumers.
They are located in areas of high foot falls like movie theatres, shopping malls, restaurants, etc.
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UNORGANIZED FORMAT – “Kirana Stores”
These stores are the retail establishment which satisfies a wide range of durable goods and
products to the consumer's personal and residential needs; and at the same time offering the
consumer a choice of multiple merchandise lines, at variable price points, in all product
categories. The kirana stores or the mom-n-pop stores operate on a low-cost model with familyowned properties (an extension of the house), with most of the family working in the store itself.
They cater to impulse needs at short notice, and early opening and late closing times which suit
many families. The kirana will have a low cost structure, convenient location and customer
intimacy.
The importance of kirana stores is emphasized in the fact that consumers need convenience in
retail. The neighborhood kirana store will forever maintain a favorable factor of convenience.
Unlike a developed market where consumers travel some distance for shopping, Indian
consumers have the kirana stores to service them on all days, all through the year.
The Indian Retail market has around 1.5 crore outlets and has the largest outlet density in the
world. Most of these outlets have very basic offerings and offer over-the-counter service. These
are highly competitive stores due to cheap land prices and labour. In common parlance they are
known as mom-n-pop stores or the kirana stores.
Informal Retailing Sector, consists of typically small retailers who most of times organize the
things through sole proprietorship type of organizations. Due to their small size and lack of
capital investment they were mainly suffering from inefficient supply chain management and
approximately no monitoring of labor laws. Even from the government's point of view, there was
enough tax evasion as the tax enforcing mechanism could never be applied over then due to their
complex structure.
Kirana stores" the traditional retail outlets work with an age old set up of a shop in the front &
house at the back. More than 99% retailers function in less than 500Sq.Ft of area. The producers
distribute goods through C & F agents to Distributors & Wholesalers. Retailers happen to source
the merchandise from Wholesalers & reach to end-users. The merchandise price gets inflated to a
great extent till it reaches from Manufacturer to End-user. Selling prices are largely not
controlled by Manufacturers.
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The mom-n-pop stores look for smaller consumer segments rather than the big tickets and choose
a location so that they can serve the customers with a targeted merchandise mix, price, and other
services. A large number of them tend to specialize in a particular product or service category.
These stores are labour intensive with a very low level of technology. Most of the work related to
buying, merchandising and fund management are carried out by the owner. Independents tend to
allocate limited time and resources to long-term planning.
Independents have limited bargaining power with suppliers as they often buy in small quantities.
They are largely influenced by the other channel members. Due to low economies in buying and
maintaining inventory, the transportation, ordering, and handling costs are higher.
“Independents account for more than 80 per cent of the total retail establishments. However,
their share is based on the development of economies. While in the US these firms account for
just 3 percent of the total US store sales, in developing countries such as India, their share is
almost 95 percent”.
4P’s
Product:
Merchandising Strategy: The store will be laid out in an area of 1800 square feet (trading area of
1600 square feet), stocking all the major grocery brands. Our focus will be to store a lot of
private label products alongside the popular brands, given the segment of customers (price
sensitive) that we are targeting. The store will be open six days a week (Tuesday to Sunday)
from 9:00 AM to 10:00 PM.
Retail Space Management
Area
Trading Area
Store Room
Bill Counter 1
Bill Counter 2
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Square Feet
1400
300
50
50
The layout of the store is as below;
Store Room (300sq ft): This area will be used primarily to store merchandise items. The same
will also be used as refreshment and resting zone for the staff.
Billing Counter (50 sq ft each): We plan to have two billing counters, each one strategically
placed to meet rush hour demands.
Trading Area (1400 sq ft): This area will be used for displaying items for sale. There will be 5ft
high gondolas for stocking items. Gondolas will be placed at a distance of 3.5 ft between each
other to create aisles. Racks of height 6 ft will be placed on the extreme walls of the store.
Value Proposition Offered: A customer who steps into the store for shopping will find an array of
choices to pick from. There would be skilled male and female staff to assist customers with their
purchase. The skilled staff (localites) will be the ones who would lay the first step in building
rapport with the customers. This will help us in customer segmentation in terms of loyalty levels.
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Price:
“Bargains@_ _ _ _ _ _” will have the most competitive pricing strategy. If a ‘Kirana’ outlet in
the vicinity is offering a discount on the listed price we will ensure to match standards. We will
tightly control our operating expenditures to minimum levels such that we can be competitive in
our pricing. We will provide cereals and other daily needs on private label which will be of good
quality and at right price, in other way value for money. As we will be planning to sell our
products in bulk on the discount days which will give us high turn-over and also higher
bargaining power with the suppliers.
We will also be offering bulk discounts that is higher the customer purchases higher the
discounts we will provide. This will help us in inducing higher purchases. We want the customer
to do all of his or her household shopping from our stores.
Place;
Location Strategy: “Bargains@_ _ _ _ _ _” will be opened at Sodepur (a suburban area of
Kolkata city). The area is bustling with activity all through the day, evenings and weekends draw
bigger crowd. Afternoons, only during summer months are a little dull. Barring which there is
always activity in the area.
The reasons for choosing the location are:



Easily accessible by public/private transport.
The catchment area spans to areas covering entire Panihati & Sukchar (3 – 4 sq km).
Vicinity has many prominent schools and a college. There is constant activity in the area.
The shop should be on the ground floor and in a visible location which is easily accessible to
customers. This may translate to a slightly higher rent but for us most of our advertising is on the
basis of visibility. The density of customers around our catchment area will help us on that front.
The higher the density, the larger is our customer base.
Promotion;
Our primary competition, the traditional kirana store do not have any marketing or promotional
strategy as such, they basically leverage their rapport with their customers to market and promote
their goods. Apart from this they offer discounts as mentioned before to keep their customers
coming back and satisfied.
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They use the services they offer such as home delivery as a marketing tool.
As for us, our marketing and promotional strategy will be in the following manner:
This initial market pull can be created through billboards, flyers, mailers and advertising in the
local cable network. Apart from this, since the store will be in the midst of the business zone and
will be in a visible spot, the store itself would be a form of an advertisement attracting customers
to it. Since polythene bags has been banned, we will provide paper bags and jute bags which
people can use even on their daily basis through which we will create awareness among the
residential areas.
Sales promotion is other form of advertising which we will adopt. As mentioned before, we will
have a higher bargaining power with the suppliers due to the numbers we will churn. Thus, like
the bigger format stores we will run promotions offered by the suppliers from time to time.
Based on the response at Sodepur we have future plans of opening up in other such similar areas
around the city.
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Pentagon triangle Model
Pentagon Triangle Element:
Within the pentagon we have the triangle elements which are all internal to the organization and
include the systems, the logistics and the suppliers. We will look at each one of
these elements individually.
System: Systems refer to the IT infrastructure in place. The IT infrastructure will include
computers in the billing counters, CCTV cameras, and Bar code readers, swipe machines (for
debit/credit cards), and printers.
Logistics: Since we will operate on an organized grocery store model, our stores
will be located in the business zone of Sodepur. For us to procure directly from the company
and supply to our stores would not include huge transportation costs. Since we will not deal with
perishable products there will be no additional storage costs involved.
Suppliers: Even though most of our goods will be procured from the respective suppliers of the
area we are present in, it is important for us to have a tie up with the respective companies in
order to get discounts, sales promotions. Being organized we have data about
customer profiles and customer
preferences. Over a period of time we will have data
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which can be used by these companies.
Companies
invest large amounts of money
in order to get this data. Thus, the relationship can be mutual.
The pentagon elements:
The pentagon elements comprise of people, value, product, place and
communication. These are elements which are customer facing. These aspects are external
facing for the retailer. The aspect of the pentagon elements gets compared by the consumers.
These are the differentiating factors that different.
People: The stores will be completely managed by us and all the decisions are taken by us. Thus
utilization of our training becomes very crucial here. Our focus will be on developing and also
maintaining a good rapport with the customers providing them credit facility and thus increasing
the loyalty of the consumers. Building good rapport with the consumers will help us push various
products and also keep a track of our customer’s wants and preferences. Also the well trained
sales persons will help the customers locate their choice of goods and also help them make their
choices if necessary.
Value: We not only provide the customers with household products for their daily needs but also
give them value for the money they spend by way of a friendly environment but also by way of
the services that they receive from our stores. Apart from this there is also the
assured quality of the products we provide.
Product: The products we offer to our customers will have to carefully chosen so we do not leave
out anything that they may desire. Being a kind of a daily needs store we will have
a wide variety of assortments varying from daily need products to household that are available
at the kirana store.
Place: It is important for us to choose the right place to place our store in. Not only should it be in
an area where there is a large density of customers but it should be in a place which is easily
accessible.
Communication: Communication is very important as it is for any business. In our case it is
important for the sales persons to communicate to the consumers what offers are available and
what products are available and the sales people must also be able to get information from the
customers about their needs and their preferences.
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EBITDA
Sales – The monthly sale of our store will be around 15-20 lakh for a total of trading area which
is 1400 sq. feet .
Gross margin percentage – Our research showed that the local kirana stores who sells food and
groceries operate on a margin of approximately 15 % . So we have taken 15 % as our margin.
Operating Expenses –
Rent – The rentals for our 1800 sq. feet plot would be approximately Rs. 1- 1.5 lakh per month .
We are following the lease model which will affect our profitability.
Electricity – The store would be approximately 1400 sq. feet . The store would have 2 refrigerator
for soft drinks, IT infrastructure, fans (10), door coolers, light points (20), ice cream refrigerator .
The average electricity bill per month is assumed to be around Rs. 25,000.
Salaries& Employees’ profiles – This is a fixed cost.
No.
Responsibility
Salary per
employee
Total Salary
expenses
2
Responsible for transactions, holder
of liquid cash and accountable for all
dealings , also responsible for stock
keeping
Rs. 8000
Rs. 16,000
Sales person
2
Responsible for helping consumers
in selecting the products and also in
assortment of stock
Rs. 5000
Rs. 10,000
Helper
2
Responsible for helping the sales
persons, cleaning the shop floor, etc.
Rs 3000
Rs. 6000
Rs. 5000
Rs. 10,000
Rs. 2000
Rs. 2000
Employee
Cashier
Delivery boy
2
Gateman
1
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Responsible for delivery of goods to
the consumers’ houses, stack goods
on shelves whenever goods are
procured
Responsible for managing the gate
and overall security of the store , also
checking customers’ bills while
exiting the shop
Others - There will be some other expenses as well like maintenance cost, telephone expenses,
fuel , stationery etc. that we need to take into account. This may lead to around Rs. 65,000
expenses per month. Most of these are variable expenses.
So the working capital required will be around Rs. 2, 88,000. So working capital per q. feet will
be Rs. 160. We can strike a deal with the distributors and work on a negotiation where we can
procure as per our requirement where and when felt necessary. Fixed monthly procurement is
avoided.
Bargains@Sodepur
Capital Expenditure Outlay
Amount
Size ( sq. feet )
1800
Number of bills/day
134
Average bill value
Rs.498
Sales per day
Rs.66667
Sales per month
Rs.2000000
Sales/month/sq. feet
Rs.1111(approx.)
Gross margin
15 %
Rupee gross margin/month/sq. feet (A)
Rs.166.65
Operating expenditure
Rent/sq. feet/month (B)
Rs. 84
Others/sq. feet (C)
Rs. 75
EBITDA/sq. feet
[A – (B + C) ]
Rs. 7.65
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Model Store EBIITDA (based on the chosen positioning):
The catchment area of a store is about 3 – 4 sq kilometers.
The Gross Margin on sales is approximately 15%.
Pilferage is about 1.5 – 2% of sales.
There is high level of customisation according to the location and consumers’ tastes and
Preferences.
The average bill value of a SEC B and C customer is about Rs. 498 per month.
Capital Expenditure Decisions:
The capital expenditure of our store will be similar as compared to the bigger formats of
organized retail. The property would be on leased basis which will keep our expenditure in
check. The other items of capital expenditure would be building up the shelves and racks. The
layout of the store would account for a significant portion of the capital expenses. The layout has
to look a little better than an unorganized retail store and will be a similar model to organized
supermarket. Our store, as said earlier, will also provide home delivery facility within the
catchment area within 2 hours. For this purpose, we are keeping one cycle van. This will also add
to the capital expenses. Interior decoration and decor will also be part of the Capex decision. The
decor will not be as fancy as a large format store but at the same time, it will be better and more
beautiful than a kirana store. This will call for some amount of capital expenditure.
Inventory Decisions:
The inventory decisions will be taken mostly by the owners. This is because we want to leverage
the inherent strength of unorganized retail. In a kirana store, the shopkeeper exactly knows what
his customers want. Similarly, we will also customize our inventory. The SKUs that will
bestored along with their turnaround time is given below:
Baby care – 45 days
Food &Beverage – 20 days
Biscuit and Bakery – 15 days
Cereals – 15 days
Confectionary – 30 days
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Personal care – 45 days
Edible oil – 15 days
Health and Wellness – 45 days
Home and Office stationary – 20 days
Roll Out Strategy
Marketing Communications:
Newspaper Insertions: Insertions will be placed inside newspapers in the catchment area. The
insertion will let the consumers know about the store opening date, the exact location of the store
and the assortment range.
Advertisements on local cable channels: We will have a tie up with the local cable television
service provider for advertising on the local cable channel with respect to the areas where the
stores will be launched. The communication will be to make the customer aware of the date of
opening and the location of the store.
People Strategy: It is important for us to select the right people. The staff will maintain a rapport
with the customer, gain their trust, bring them into a comfort zone, push products and find out
what the preferences of the customers are. The way the staff behaves and serves a customer is a
service in itself which apart from other things would require a huge amount of knowledge about
the products.
Employee Training: The training program for the employees will cover the following areas:
Product Training: This will train the employees on the various SKUs that are there in the store. It
will also train the employees on the margins that is there on the various product categories.
Technology Training: Our store will deploy technology to a considerable extent.Also for the
credit facility we will be using prepaid cards which will again call for technology deployment.
Hence it becomes important for the employees to be conversant with technology in order to be
able to put it to optimum level.
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Soft Skills Training: This is a very important part of employee grooming. The people on the shop
floor need to have good soft skills to deal with the customers. This service differentiation will
also be a core competence and a USP of our store.
Franchisee Vs. Own Store Strategy
In a franchising model the safety, security and support features are quite taken care of; when you
buy a franchise, you are buying a model that has been proven successful in dozens, sometimes
hundreds, of other places.
Salient features of a franchising model;



Extensive training provided to the staff,
Round the clock support,
Failure chances are far lower than the stand alone counterparts.
Building Own Brand;




There must be sufficient capital covering staff salary for half a year and providing cash
flow for the first year.
Basic office equipment and supplies must be available.
A certain budget for advertising is required. Furthermore, advertising through the media
often helps, the spending on which depends on the situation of individual companies.
Product leaflets and catalogues are also important publicity tools for a new brand.
As a company with a brand, it is necessary to register first, and the registration fee.

Rational behind choosing own store strategy;
Company-owned stores give franchisors invaluable and ongoing insight into the market, which
in turn benefits the franchisee system. Also, having company owned stores work to an advantage
as they can be a cash cow, and thus our income is looked after. These stores can also be used to
train franchisees and for the trial purposes of new products, so poor product isn’t inflicted onto
the chain of franchisors.
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One of the well-known benefits of franchising is having motivated owner operators on the job.
For this reason, company owned stores are rarely as profitable as franchises but as mentioned
before they're really useful as a testing ground and to understand the dynamics of running a store.
Also this is a very useful tool to train new joiners.
One of the ways to avoid conflict would be to make sure that company stores are not in direct
competition with franchisees. The other challenge in running both models is creating different
management structures. Despite the challenges, many retailers continue to dabble in both
models. Recently there has been a trend towards large corporate retailers turning to franchising.
For these companies, the challenge of setting up a second management structure to incorporate a
franchising arm is even more onerous than usual. Finally, when it comes to brand reputation, one
bad apple can spoil the whole basket. This holds true for both models but in the case of company
owned stores, the control still lies with us.
Keeping in mind what we have mentioned above and the fact that we are a new brand entering
the market, we would initially like to start only with company owned stores. It would help us to
understand the market dynamics and the entire scenario with regards to competition, supply
chain, logistics, and customer relationship management.
This way we can learn the business, identify glitches and more importantly ways to solve these
problems. Apart from this we will also be able to establish our brand name and reputation in the
market not only with customers but also with parties interested in associating with us in the form
of franchises.
Once we have settled down with our business, say in 3 – 4 years’ time, we will move towards a
franchisee model. Even then we will not move to a wholly franchisee based model; we will
maintain a certain number of company owned stores.
Distribution Costs;
Since, we are opening up a single store at the moment; there would be no distribution costs
associated at the moment. In the future when we expand to other areas this cost might set in.
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STORE LAYOUT:
Free flow layout,
Allowance for browsing freely
Increased impulse purchases
Visual appeal
Flexibility
Feature Areas,
The areas within a store designed to get the customer’s attention which includes,
End caps – displays located at the end of the aisles
Promotional aisle/area
Freestanding fixtures
Point-of-sale (POS) displays/areas
Fixture Types,
Gondola – large base with a vertical spine or wall fitted with sockets or notches into which a
variety of shelves, peg hooks, bins and baskets.
Merchandise Display Planning,
Shelving – flexible, easy to maintain
Store Front Design,
Clearly identify the name and general nature of the store
Includes store windows – an advertising medium for the store – window
Ambience,
The design of the environment considering the following factors to stimulate customers’
perceptual and emotional responses and ultimately influence their purchase behavior,
Visual communications
Lighting
Color
Odor
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*** THANK YOU ***
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