STRATEGIC ISSUES IN
RETAILING
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STRATEGIC ISSUES IN
RETAILING
At the end of this module, the learning
outcomes are
• Understand the history of Indian retailing
sector
• Emerging trends
• Understand the strategic drivers of this
industry
• Understand the challenges the organized
retailer faces
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STRATEGIC ISSUES IN
RETAILING
Background
• Organized retailing
• New to India
• Excess of 5 million retail outlets
• Comprises of both organized and
unorganized sector
• Organized sector market share is less
than 10%
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STRATEGIC ISSUES IN
RETAILING
• Large market
• Fragmented
• Only 7% of the 5 million retail outlets have
annual sales in excess of 10 lacs per
annum.
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STRATEGIC ISSUES IN
RETAILING
Barriers to entry for organized sector
• The unorganized sector
• Retail margin
• Supply chain management
• Sourcing economies
• Automobile ownership
• Infrastructure
• Middle class psyche
• Large-scale diversity
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STRATEGIC ISSUES IN
RETAILING
The unorganized sector
• Unorganized retailing
• Long history
• Many centuries
• Local kirana/grocer dominant
• Low-cost structure
• Saves on real-estate/labor costs
• Little or no taxes to pay
• Consumer familiarity
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STRATEGIC ISSUES IN
RETAILING
Organized sector
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Large overheads
Compete with grocer on prices
Facilities
Airconditioning
Power backup
Home delivery
High inventory costs
taxes
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STRATEGIC ISSUES IN
RETAILING
Retail margin
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10 to 12% average for grocers in India
25-35% in developed countries
Grocer can survive
How organized retailer will survive with 1012% margin?
• High overheads
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STRATEGIC ISSUES IN
RETAILING
Supply chain management
• Product availability
• Inefficient transportation systems
• Makes modern retailing difficult
• Absence of economies of scale
• Impacts cost
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STRATEGIC ISSUES IN
RETAILING
Sourcing economies
• Absence of large scale retailers
• Diseconomies of scale
• Unable to negotiate large discounts with
suppliers
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STRATEGIC ISSUES IN
RETAILING
Automobile ownership
• Limited to 4% of the population
• Makes out-of-town shopping difficult
• Limits large scale purchases difficult for
customers
• Large scale shopping is the essence of
shopping in organized retail stores.
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STRATEGIC ISSUES IN
RETAILING
Infrastructure
• Parking limitations
• High local government taxes
• Frequent power failures
• Efficient logistics difficult
• Adds to costs
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STRATEGIC ISSUES IN
RETAILING
Middle class psyche
• Consumer psychology
• Larger stores are expensive
• Partially a myth
• Local grocer still cheaper
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STRATEGIC ISSUES IN
RETAILING
Large scale diversity
• India, a culture of diversity
• Diversity leads to dependence on local
suppliers
• Match local tastes
• Discourages economies of scale
• Unfavorable to organized sector
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STRATEGIC ISSUES IN
RETAILING
Early entrants in organized sector
• Bata
• Raymonds
• Vimal
– Mostly franchisee route
– Overcome high real estate costs
• Later new breed of players
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STRATEGIC ISSUES IN
RETAILING
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Shoppers Stop
Future group
Entry of large houses
Deeper pockets
Success of cooperative chains
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STRATEGIC ISSUES IN
RETAILING
The Changing scenario
• Changing lifestyles
• Increasing disposable incomes
• Lesser and lesser time to devote to numerous
shopping trips
• Lesser trips
• Larger size of purchase per trip
• Concentration of middle class
• Moving away from city to suburbs
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STRATEGIC ISSUES IN
RETAILING
• Mall culture setting in
• New players
• Restrictions on foreign retailers
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STRATEGIC ISSUES IN
RETAILING
FUTURE SUCCESS IMPERATIVES
Clear value proposition
• Big Bazaar
• Clear value propositions
• ‘Is se sasta koi nahin’
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STRATEGIC ISSUES IN
RETAILING
Plain imitations of western models
• Tendency to imitate western models
• Will not always work
• Different environmental conditions
• Failure of Nanz
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STRATEGIC ISSUES IN
RETAILING
Strong cost focus
• Higher costs for organized sector
• Low-margin business
• Cost control critical
• Longer gestation period
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STRATEGIC ISSUES IN
RETAILING
Private labels
• Popular in western countries
• Why retailers promote
• Higher margins than national brands
• Threat to national brands
• Source of additional revenue to retailers
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STRATEGIC ISSUES IN
RETAILING
Building royalty/CRM
• Building loyalty
• Identifying profitable customers
• Use of CRM techniques
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STRATEGIC ISSUES IN
RETAILING
Price
• As market matures
• Price a key differentiating factor
• Higher value for money
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STRATEGIC ISSUES IN
RETAILING
Value cost leveraging
• Create greater customer value at higher
costs
• Leverage that value proposition to
generate volumes
• Repeat purchases
• Greater volumes means greater
contribution
• Leads to higher profits
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STRATEGIC ISSUES IN
RETAILING
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Local suppliers
Diversity of customers
More suppliers
Local suppliers have advantage over
traditional suppliers
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STRATEGIC ISSUES IN
RETAILING
Trends
• International trends
• Food and grocery
• Largest segment
• More than 40% of the market
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STRATEGIC ISSUES IN
RETAILING
FAILURE OF SUPERMARKETS
• Why Nanz failed
• Poor understanding of consumer behavior
• What went wrong
• three factors
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STRATEGIC ISSUES IN
RETAILING
Three factors
• Lack of clear value proposition
• Falling prey to sourcing diseconomies
• Ignoring the merchandizing mix
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STRATEGIC ISSUES IN
RETAILING
Lack of clear value proposition
• Nanz a late entrant
• Large unorganized retail players
• High real estate costs and other
overheads
• Low efficiency
• No clear positioning to customers
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STRATEGIC ISSUES IN
RETAILING
Consumer insights
• Staples and perishables
• Major part of the budget
• Decides whether outlet is cheap/expensive
• 70% of the consumers do their daily
shopping at one place
• If staples are not bought, consumers are
unlikely to buy other products
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STRATEGIC ISSUES IN
RETAILING
Falling prey to sourcing diseconomies
• Imitating western models
• Centralized warehouse
• Use of technology
• High overheads
• High volume required
• Difficult in single stores
• Major reason of failure
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STRATEGIC ISSUES IN
RETAILING
Ignoring the merchandizing mix
• Profitable products
• Working on average gross margin
• Cannot be same on every product
• Sourcing from farmers
• Eliminating middleman
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