Agri & food retailing

Agri & Food Retailing


Retailing encompasses the business activities involved in selling goods & services to consumers for their personal, family, or household use.It includes every sale to the final consumer – ranging from cars to apparel to meals at restaurants to movie tickets.

What is Retail Management?

Key issues that retailer must resolve:How can we best serve our customer while earning a fair profit?How can we stand out in a highly competitive environment where customers have so many choices?How can we grow our business while retailing a core of loyal customers?

Retail Functions in Distribution

A Typical Channel of Distribution

Manufacturer WholesalerRetailer

Final consumer

Manufacturer Brand A

Manufacturer Brand B

Manufacturer Brand C

Manufacturer Brand D

Wholesaler

Wholesaler

Retailer

Brand A customers

Brand B customers

Brand C customers

Brand D customers

Retailers role in sorting process

Major type of retail stores

There is no universally accepted method of classifying retailer. Various schemes have been proposed to categories retailers based on Number of outlets Margin vs. turnover Location Size.

Because of overlap of classification criteria, some stores may qualify as under two different categories.

1. General merchandise retailer: general merchandise

retailer carry a variety of product lines, with considerable depth. Some major types of these stores include supermarkets and hypermarkets , discount stores and department stores.

o Super market: A supermarket is a large self service retail store that carries a wide variety of consumer products under one roof , such as complete line of food products , laundry requirement, household maintenance items. In India cooperative have managed some supermarkets for quite sometime like super bazaar in Delhi, apna bazaar shakari bhandar etc.

o Discount store: these stores are self service, standard general merchandise retailers regularly offering brand name and private brand items at low price, earn lower margins and push for high sales turnover. The characteristics of true discount stores include

Selling products at discounted price Carry standard international , national, or store

brand toi build image Self service stores to minimize operational costs Preferred store location are low rent areas.

Like best known discount store is Wal-Mart. In India almost all retail stores offer discounts, Big Bazaar, More,. etc..

o Department store: a department store is larger retail store organized into several departments, offering a broad verity and depth of product lines. The product mix may include food products, appliances, clothing, furnishing and other household goods. Like Pantaloons, shoppers’ stop, department store only for kids is Kids Kemp. Fashion related department stores in India are Ebony,

Globus, pantaloons, lifestyles.

2. Specialty Stores: specialty stores carry a narrow product mix with depth of assortment within the line.

The emphasis is on a limited number of complimentary products and high level of customer service

Specialty store often sell shopping goods such as Jewelry, apparel, computers, music systems, sporting goods.

Like; Tanishq, Titan watches, Van Heusen, Raymond's.

3. Shopping Malls: shopping malls typically deal with several bases and product categories and provide a large variety of merchandise abs service. There are 96 operational malls in India and expected to grow 158 by this current year.

Ansal plaza (Delhi), Garuda mall (Bangalore) Sahara plaza Gurgaon Spenser Plaza Chennai

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4. Retail chains: a retail chain operates multiple retail outlets under common ownership in different cities and towns.

To some extent the purchasing function and decision making are coordinated or centralized.

Like Westside, Globus, Food world, McDonald's retail petrol outlets. Etc.

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The Evolution of Retail in India

Retail in India has evolved to support the unique needs of our country, given its size and complexity Haats, Mandis 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 (Public Distribution System) would easily as the single largest retail chain existing in the country. the evolution of the PDS of Grains in India has its origin in the “rationing system” introduced by the British during world war II

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The system was started in 1939 in Bombay and subsequently extended to other cities and towns. the system was abolished post war but however attaining independence India was forced to reintroduce it in 1950.

There was rapid increase in the ration shops ( being increasingly called the Fair Price Shop or FPSs)

The Canteen Stores Department and the Post Offices in India are also among the largest network of outlets in the country reaching population across the country.

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The Khadi & Village industries (KVIC) was also set up post independence. The cooperative movement was again championed by the government.

India's Largest retail Chains:

1. PDS: 463,000

2. Post offices: 160,000

3. KVIC: 7,000

4. CSD Stores:3,400(source business world marketing White book 2005)

In the past decade, the Indian marketplace has transformed dramatically. However from the 1950,s to the 80,s, investment in various industries was limited due to low purchasing power in the hands of the consumer and the government’s policies favoring the small scale sector.

The first attempts at organized retailing were noticed in the textiles sector. One of the pioneers in this field was Raymond’s which set up stores to retail fabric.

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Raymond’s distribution network today comprises 20,000 retailers and over 256 exclusive showrooms in over 120 cities of the country

Other textile manufacturing who set up their own retail chains wee Reliance- which set up Vimal showrooms and Garden Silk Mills, which set up Garden Vareli showrooms.

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The Evolution of retail in India

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Traditional Formats

Itinerant SalesmanHaatsMelas

Mandis etc.

Established formats

Kirana shopsConvenience/

department storesPDS/

fair price shopsPan/ Beedi shops

Emerging Formats

Exclusive retail outletsHypermarketInternal retail

Malls / Specialty MallsMultiplexes

Fast food outletsService galleries

Drivers of Retail change in India

major drivers :1. Changing Income Profiles: Steady economic

growth fuelled the increase in disposable income in India. The average middle class family's disposable income rose by more than 20% between 1999-2003.

2. Diminishing difference between Rural and urban India: Rural India accounts for over 75% of India population and this in itself offers a tremendous opportunity for generating volume driven growth. Tax benefit. In year 2002-03 LIC sold 50% of its policies in rural India. Same BSNL also sold its 50% connection in small towns . 16

3. Changes in Consumption patterns: Occupational changes and expansion of media have caused a significant change in the way the consumer lives and spends his money.

o The changes in income brought about changes in the aspirations and the spending patterns of the consumers. the buying basket of the consumer changed

4. The emergence of a young Earning India : Nearly 70% of the Indian population is below the age of 34. taking advantages of employment opportunity in the booming service sector these young Indians are redefining service and consumption patterns

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Prominent sector in Indian retail

1. Clothing, textiles and fashion Accessories:2. Food & food Services:3. Consumer Durables:4. Books & Music:Other emerging sectors5. Jewellery retail 6. Footwear retail7. Time Wear Retail8. Fuel Retail/ petro retail

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SWOT Analysis of Indian Retail Industry

Strengths………….

• Demographic favor• Rising disposable income• Increase in number of people in earner category.• Urbanization• Shopping convenience• Low labor cost of skilled ones.• Changing consumer habits and lifestyles.• Plastic card revolution.• Greater availability of quality retail space.

SWOT Analysis

Weakness……..• Policy related issues

• - lack of industry status for retail.• - numerous licence,permits and registration

requirement.• -farmer and retailer unfriendly APMC act.

• Limited consumer insight• -lack of detailed region specific customer data.• -less data on spending pattern.

• inadequate human resources• -lack of trained personnel at all level.• -stringent employment and industry laws.• -fragment approach to human resources.

SWOT Analysis

Weakness cont……….. Taxation hurdle

-inconsistent octori and entry tax structure. -vat and multiple taxation issues. -large grey market presence.

Underdeveloped supply chain -underdeveloped logistics infrastructure. -absence of national cold chain networks. -lack of national distribution networks and hubs

Lack of adequate utilities - lack of basic infrastructure like power, transport and

communication creates difficulty in sustaining retail operations across the large geographical spread of country.

SWOT Analysis

Opportunities……..• Potential for investment.• Locational advantage.• Sectors with high growth potential.• Fastest growing formats.• Rural retail.• Wholesale trading.• Falling real estate cost• E-retailing• Retail franchising

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SWOT Analysis

Threats…………..

• Political issues.• Social issues.• Lack of differentiation among the

malls that are coming.• Poor inventory turns and stock

availability measures.

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Size of the organized retail market (Rs Cr)

2001-02 2007 CAGR (%)(compound Annual growth rate)

TOTAL 16,000 37,216 18

Food 1,800 7,473 33

Clothing 4,950 10,423 16

Cons.Durables

1,650 3,787 18

Books & Music

450 1,426 26

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Share of organized & unorganized retail with comparison

source: Ernst &Young, The Great Indian Retail Story, 2006

85 15

81 19

55 45

40 60

36 64

30 70

20 80

3 97

1 99

0% 20% 40% 60% 80% 100%

USA

TAIWAN

MALASIA

THAILAND

BRAZIL

INDONESIA

CHINA

INDIA

PAKISTAN

ORGANISEDUNORGANISED

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Retail Trade- India, US and China

Trade ($ bn)

Employment (%)

Shops (million)

Organized Sector share (%)

India 180-394 7 12 2-3 China 360 12 2.7 20

US 3800 12.6-16 15.3 80

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Retailers often act as the contact between manufacturers, wholesalers, & customers.Retailers collect an assortment (variety) from various sources, buy in large quantity, & sell in small amount. This is sorting process.Retailers communicate with customers, wholesalers & manufacturers.Shoppers learn about the availability & characteristics of goods & services, store hours, sales etc., from retailers advt., sales people & displays.Manufacturers & wholesalers are informed by their retailers with regard to sales forecast, delivery delays, customer complaints, defective items, inventory turnover and so on..Many goods & services have been modified due to retailer feedback.For small suppliers, retailers provide assistance by transporting, sorting, marketing, advertising, & pre-paying for the products.Retailers also complete transactions with customers i.e., having convenient locations, filling order promptly & accurately, & processing credit purchase.Some retailers also provide customer services such as gifts wrapping, delivery, & installation.To be more appealing, many firms engage in multi-channel retailing i.e., multiple point of contact like physical stores, websites, mail-order catalogs etc.


BenefitsReach more customersReduce costsImprove cash flowIncrease sales more rapidlyFocus on area of expertise


Manufacturers also do operate retail facilities (besides selling at conventional retailers). In running their stores, these firms compete the full range of retailing functions & compete with conventional retailers.

Retailers are part of distribution channel, so manufacturers (wholesalers) are concerned about:

Caliber of displaysCustomer serviceStore hoursRetailer’s reliability as business partnersRetailers are also major customers of goods & services for resale, store fixtures, computers, management consulting ,& insurance.

Retailer-Supplier Relationship

Retailers and supplier have different priorities on:Control over distribution channelProfit allocationNo. of competing retailers handling supplier’s productsProduct displayPromotion supportPayment termsOperating flexibility

Channel RelationsExclusive DistributionSuppliers make agreements with one or a few retailers that designates them the only one to carry certain brands/products in a specific geographic region.Both parties work together to maintain an image, assign self space, allot profits & costs, & advertise.This is the smoothest channel relationship.

Retailer-Supplier Relationship

Intensive DistributionSuppliers sell through as many retailers as possible.This maximizes suppliers’ sales & lets retailers offer many brands & product versions.Retailers may assign little self space to specific brands, set high price on them, & not advertise them.This is most volatile channel relationship.Selective DistributionSuppliers sell through a moderate no. of retailers carrying some competing brands.This combines aspects of Exclusive & Intensive Distribution

The average amount of a sales transaction for retailers is much less than manufacturers.

This low amount creates the need to tightly control the cost associated with each transaction like sales personnel, credit verification, & bagging.To maximize the no. of customer the retailer has to emphasize more on ads & special promotions.Increase impulse sales by more aggressive selling.

The Special Characteristics of Retailing

Final consumers make many unplanned or impulse purchases.Large %age of consumers do not look at ads before shopping.They do not prepare shopping list.Make fully unplanned purchases.This indicates the value of in-store displays, attractive store layouts, & well organized stores, catalogs, & website.Retailer’s ability to forecast, budget, order merchandise, & sufficient personnel on the selling floor becomes difficult.

Retail customers usually visit a store, even though mail, phone, & web sales has increased.

Most retail transactions happen in stores & will continue in future.Many people like to shop in person, want to touch, smell, and/or try on products.Many people to browse for unplanned purchases.They feel more comfortable talking a purchase home with them than waiting for a delivery.Desire privacy while at home.Retailers must work to attract shoppers to stores & consider such factors such as store location, transportation, store hours, proximity (nearness) of competitors, product selection, parking & ads.

The Special Characteristics of Retailing

Retail strategy is the overall plan guiding a retail firm. It influences the firm’s business activities & its response to market forces, such as competition & economy.Six steps in strategic planning

Define the type of business in terms of the goods or services & company’s specific orientation.Set long-run & short-run objectives for sales & profit, market share, image etc.Determine the customer market to target on the basis of its characteristics (like gender & income level) & needs (like product & brand preferences).Devise an overall, long-run plan that gives general direction to the firms & its employees.Implement an integrated strategy that combines factors like store location, transportation, product variety, pricing, and advertising & display to achieve objectives.Regularly evaluate performance & correct weaknesses or problems when observed.

Importance of Retail Strategy

Growth-oriented objectivesAppeal to prime marketDistinctive company imageFocusStrong customer service for its retail categoryMultiple points of contactEmployee relationsInnovationCommitment to technologyCommunity involvementConstantly monitoring performance

Key to success

Customer orientation - The retailer determines the attributes & needs of its customers & endeavors (take action) to satisfy these needs.Coordinated effort - The retailers integrates all plans & activities to maximize efficiency.Value-driven - The retailer offers good value to the customers, whether it be upscale (expensive) or discount i.e., “appropriate pricing” for goods & customer service.Goal oriented - The retailer sets goal & uses its strategy to attain them.

The Retailing Concept

Customer orientation

Coordinated effort

Value- driven

Goal orientation

Retailing concept Retail Strategy

Classification of Retail Institutions

Ownership Store-based retail strategy mix

Nonstore-based retail strategy mix & nontraditional

retailing

• Independent• Chain• Franchise• Leased department• Vertical marketing system• Consumer cooperative

• Convenience store• Conventional supermarket• Food-based supermarket• Combination store• Box (limited line) store• Warehouse store• Specialty store• Variety store• Traditional department store• Full-line department store• Off-price chain• Factory outlet• Membership club• Flea (louse) market

• Direct marketing• Direct selling• Vending machine• World wide web (WWW)

Ownership format serves a marketplace niche. Independent retailers capitalize on a very small targeted customer base & please shoppers in a friendly, folksy (simple) way. Word-of mouth communication is important. These retailers should not try to serve too many customer & enter into price wars.Chain retailers benefit from widely known image, economies of scales (i.e. cost advantages that a business obtains due to expansion), & mass promotion possibilities. They should maintain their image chain wide & not be inflexible in adapting changes in the marketplace. Franchisors have strong geographic coverage & motivation of the franchisees as owner-operators. They should not get bogged down in policy disputes with franchisees or charge excessive royalty fees.Leased departments enable store operators & outside parties to join forces & enhance the shopping experience, while sharing expertise & expenses. They should not hurt the image of the store or place too much pressure on the lessee to bring in store traffic.A vertically integrated channel gives a firm greater control over sources of supply, but it should not provide consumers with too little choice of products or too few outlets.Cooperatives provide members with price savings. They should not expect too much involvement by members or add facilities that raise costs too much.

Retail Institution by Ownership

An independent retailer owns one retail unit.

Independent Retailer

AdvantagesThere is flexibility in choosing retail formats, location, assortment (variety), prices, hours etc., & devising strategy based on the target customers.Investment costs for leases, fixtures, workers, & merchandise can be brought down. There is no duplication of stock or personnel function. Responsibilities are clearly delineated (defined) within the store.Independents frequently act as specialist in a niche of the particular goods/services category. They are then more efficient & can lure (attract) shoppers interested in specialized retailers.Independents exert strong control over their strategies, & the owner-operator is typically on the premises. Decision making is centralized & layers of management personnel are minimized.There are certain image attached to independents, particularly small ones, that chains cannot readily capture.Independents can easily sustain consistency in their efforts because only one store is operated.Independents have “Independence”. No meetings, union, stockholders & labor unrest etc.Entrepreneurial drive.

Independent Retailer

DisadvantagesLess bargaining power with the suppliers as they buy less quantity.Cannot gain economies of scale (i.e. cost advantages that a business obtains due to expansion) in buying & maintaining inventory. Transportation, ordering, & handling costs are high.Operations are labor intensive.They are limited to certain media for advt. because of financial constraints.Family-run independents is overdependence on the owner. It is difficult to keep it up & running.Limited time allotted to long-run planning, since owner is intimately involved in day-to day operations.

Chain retailer operates multiple outlets (store units) under common ownership. It usually involves in some level of centralized purchasing & decision making.

Chain Retailer

AdvantagesMany chains have bargaining power due to their purchase volume. They receive new items when introduced, have orders promptly filled, get sales support, & obtain volume discounts.Chains achieve cost efficiencies when they buy directly from the manufacturers & in large volumes, ship and store goods, & attend trade shows sponsored by the suppliers to learn about new offerings. They can sometimes bypass wholesalers.Efficiency is gained by sharing warehouse facilities; purchasing standardized store fixtures; centralized buying & decision making etc. Headquarters have broad authority for personnel policies & for buying, pricing, & advt. decisions.Computerized ordering merchandise, inventory, forecasting, sales, & bookkeeping. This reduces overall costs.Take advantage of variety of media from print to electronic.Detailed & clear responsibility for employees with available substitute incase any employee is retiring or quitting.Spend considerable time in strategic planning. Opportunity & threat are closely monitored.

Chain Retailer

DisadvantagesFlexibility may be limited. Consistent strategies on pricing, promotions, & product variety must be followed throughout all units which may be difficult to adapt to local diverse market.Investment is high due to infrastructure & store as multiple store has to be stocked.Managerial control is complex due to geographically dispersed branches.Limited independence to the personnel.

Franchising involves a contractual arrangement between a franchisor (a manufacturer, wholesaler, or service sponsor) & a retail franchisee, which allows the franchisee to conduct business under a established name & according to a given pattern of business.The franchisee pays an initial fees & a monthly %age of the gross sales in exchange for the rights to sell goods & services in an area.A franchisee operates autonomously in setting store hours, chooses a location, & determines facilities & displays.

Franchising

Three structural arrangements dominate retail franchisingManufacturer-retailer – A manufacturer gives independent franchisees the right to sell goods & related services through licensing agreement. (Eg., Auto/truck dealers like GM, Petroleum products dealers like IOC).Wholesaler-retailer

Voluntary - A wholesaler sets up a franchise system & grants franchises to individual retailer. (Eg., Auto accessories stores, Consumer electronics stores).Cooperative – A group of retailers sets up a franchise system & shares the ownership & operations of a wholesaling organization. (Eg., Food stores).

Service sponsor-retailer – A service firm licenses individual retailers so they can offer specific service packages to customers. (Eg., McDoland’s).

Advantages of FranchiseesThey own a retail enterprise with a relatively small capital.They acquire well-known names & goods/services lines.Standard operating procedures & management skills may be taught to them.Cooperative marketing efforts (like national advt.) are facilitated.They obtain exclusive selling rights for specified geographical territories.Their purchases may be less costly per unit due to the volume of the overall franchise.

Franchising contd..

Disadvantages of FranchiseesOversaturation could occur if too many franchisees are there in one geographical area.Due to overzealous selling by some franchisors, franchisees’ income potential, required managerial ability, & investment may be incorrectly stated.They may be locked into contracts requiring purchases from franchisors or certain vendors.Cancellation clauses may give franchisors the right to void agreement if provisions are not satisfied.In some industries, franchise agreements are of short duration.Royalties are often a %age of gross sales, regardless of franchisee profits.

Advantages of FranchisorsA national & global presence is developed more quickly & with less franchisor investment.Franchisee qualification for ownership are set & enforced.Agreement require franchisees to abide by stringent operating rules set by franchisors.Money is obtained when goods are delivered rather than when goods are sold.Because franchisees are owners & not employees, they have greater initiative to work hard.Even after franchisees have paid for their outlets, franchisors receive royalties & may sell products to the individual proprietors.

Franchising contd..

Disadvantages of FranchisorsFranchisees harm the overall reputation if they do not adhere to company standards.Lack of uniformity among outlets adversely affects customer loyalty.Intra-franchise competition is not desirable.The resale value of individual units is injured if franchisees perform poorly.Ineffective franchised units directly injure franchisors’ profitability.Franchisees, in greater number, are seeking to limit franchisors’ rules & regulations.

A leased department is a department in a retail store – usually a department, discount, or specialty store – that is rented to outside party.The leased department proprietor is responsible for all aspects of its business & normally pays a %age of sales as rent.The store sets operating restrictions for the leased department to ensure overall consistency & coordination.

Leased Department

Advantages (from the stores’ prespective)The market is enlarged by providing one-stop customer shopping.Personnel management, merchandise displays, & reordering items are undertaken by lessees.Regular store personnel do not have to be involved.Leased department operators pay for some expenses, thus reducing store costs.A %age of revenue is received regularly.

Disadvantages (from the stores’ prespective)Leased department operating procedures may conflict with store procedures.Lessees may adversely affect the stores’ image.Customers may blame problems on the store rather than on the lessees.

Leased DepartmentAdvantages for Leased department operators

Stores are known, have steady customers, & generate immediate sales for leased departments.Some costs are reduced through shared facilities like security equipment & display windows.Their image is enhanced by the relationships with popular stores.Disadvantages for Leased department operatorsThere may be inflexibility as to the store hours they must be open & the operating style.The goods / services lines are usually restricted.If they are successful, the store may raise rent or not renew leases when they expire.In-store locations may not generate the sales expected.

A vertical marketing system consists of all the levels of independently owned businesses along a channel of distribution.

Vertical Marketing System

Type of channel Channel Functions OwnershipIndependent system• Manufacturers or retailers are small• Intensive distribution is sought• Customers are widely dispersed• Unit sales are high• Company resources are low• Channel members share costs & risk• Task specialization is desirable

Manufacturing

Wholesaling

Retailing

Independent manufacturer

Independent wholesaler

Independent retailer

Partially integrated system• Manufacturers & retailers are large• Selective or exclusive distribution• Unit sales are moderate• Company resources are high• Greater channel control is desired• Existing wholesalers are too expensive or

unavailable

Manufacturing

Wholesaling

Retailing

Two channel members own all facilities & perform all functions.

Fully integrated system• Firm has total control over its strategy• Direct customer contact• Exclusive offerings• System is costly & requires lot of

expertise

Manufacturing

Wholesaling

Retailing

All production & distribution functions are performed by one channel member.

A consumer cooperative is a retail firm owned by its customer members.A group of customers invests, elects officers, manages operations & share profits.They account for tiny piece of retail sales.Cooperatives are formed because they think they can do retailing function, traditional retailers are inadequate & prices are high.They have not grown because consumer initiative is required, expertise may be lacking, expectations have frequently not been met, & boredom occurs.

Consumer Cooperative


Retail Location Strategies & Decisions

There are three most important aspects in Retailing – location, location & location.Locating the retail store in the right place was considered to be adequate for success.It is a important part of the retail strategy as it conveys a fair amount of image.It influences the merchandise mix & interior layout of the store.It is difficult to change the location once the store comes into existence.Change of location may result in loss of customer & employees.

Why Location is Important?

The choice of the location of the store depends on the target audience & kind of merchandise to be sold.

Types of Retail Location

Types:Freestanding/Isolated store

Store located along major traffic arteryNo competitive retailers aroundRents are usually lowAdvertising cost are highCustomers may not prefer to travel long distance to visit only one store

Part of a business districtA business district (primary, secondary or neighborhood) is a place of commerce in the cityRent is high; parking is cumbersomeIt has good accessibility in terms of transportCustomers are more

Types of Retail Location contd..Types:

Part of a shopping centreShopping centre - A group of retail & other commercial establishments that is planned, developed, owned & managed as single property Parking is availableBasic configuration – mall or strip centre with walkwayIdeally enclosed & climate control

Steps involved in choosing a retail location

1. Identify the market in which to locate the store2. Evaluate the demand & supply within that market i.e., determine the market

potential1. Demographic features of the population2. The characteristics of the households in the area3. Competition & compatibility4. Laws & regulations5. Trade area analysis

3. Identify the most attractive sites1. Traffic2. Accessibility of the market3. The no. & types of stores in the area4. Amenities available5. To buy or to lease6. The product mix offered

4. Select the best site available

The Spread of Organized Retail in India

Mumbai

Delhi

Kolkata

Pune

Chandigarh

Hyderabad

Indore

GurgaonNoida

Jaipur

Bhopal

Bhubaneshwar

Nagpur

Udaipur

BangaloreChennai


Retail Merchandising

What is Merchandising?

Merchandising is planning, buying & selling of merchandise (product).The American Marketing Association defined merchandising as “the planning involved in marketing the right merchandise at the right place at the right time in the right quantity at the right price”.Merchandising can be termed as the analysis, planning, acquisition, handling & control of the merchandise investments of a retail operation.

Factors affecting the merchandising function

Merchandising function

Size of organization

Types of stores

Org

aniz

atio

n st

ruct

ure

Merchandising

to be carried

Merchandise Planning

Merchandise planning can be defined as the planning & control of the merchandise inventory of the retail firm, in a manner which balances between the expectations of the target customers & the strategy of the firm.

Implication of Merchandise Planning

Merchandise Planning

FinancePayments to suppliers

Profitability measurements

Store OperationsSpace planning

Communication about new products & their features

Marketing

New

product introductionsD

eveloping advertisementsW

areh

ouse

& L

ogis

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Det

ails

of P

urch

ase

Ord

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etai

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Merchandise Planning Process

Stage I: Developing the Sales Forecast1. Reviewing past sales2. Analyzing the changes in the economic conditions3. Analyzing the changes in the sales potential4. Analyzing the changes in the marketing strategies & the competition5. Create the sales forecast

Stage II: Determining the Merchandise RequirementsPlanning in merchandising is at two levels:

6. The creation of the Merchandise Budget (5 parts)7. The Assortment Plan

Merchandise Budget

Sales Plan Stock support plan Planned reduction Planned Purchase Gross Margins

Merchandise Planning ProcessStage II: Determining the Merchandise Requirements

Planning in merchandising is at two levels:1. The creation of the Merchandise Budget (5 parts)2. The Assortment Plan

Company

Department

Merchandise

Classification

Merchandise

Category

Merchandise Sub Category

Style Price point

SKU (Stock

Keeping Unit)

The Merchandise Hierarchy

Merchandise Planning ProcessSome key merchandising termsStaple/basic merchandising – products always in demand (basic necessities)Fashion merchandising – products has high demand for a relatively short period

of timeSeasonal merchandising – seasonal productsFad merchandising – enjoy popularity for a limited period of time; generated high

sales for a short timeStyle – unique shape or form of any product (taste in music)Assortment – variety of merchandise mix

The width/breadth of assortment – refers to the number of brandsThe depth of assortment – variety in one goods/services category

Points to be kept in mind while creating a plan - The merchandise budget should be prepared in advance of selling season.The language of the budget should be easy to understand.Merchandise budget must be planned for a short period – 6 months is the normal norm.Budget should be flexible.

Key Components of Merchandise Planning

Planned sales – Planned sales are projected sales for a period that is planned.

Month %age increase Planned sales (Rs)

Feb 12% 35,000 X 12% + 35,000 = 39,200

April 25% 43,750

June 21% 42,350

Example:Last year’s sale for the same period = 35,000

Planned purchase – Planned purchases represent the merchandise that is to be purchased during any given period.

Planned Purchase = Planned Sales + Planned Reductions + Planned EOM – Planned BOM


Planned reduction – Markdowns (deductions in prices), employee discounts & inventory shrinkage due to theft or pilferage come under planned reduction.Planned markup – After calculating the level of inventory that needs to be

purchased, the retailer needs to determine the initial markup for the products.Markup in Rs. = Selling Price – Cost PriceMarkup % = Markup in Rs.

Retail PriceGross Margin – Gross margin is the difference between the selling price & the

cost of the product, less reductions from markdowns, shrinkage & employee discounts.Profit = Gross margin – operating expenses

B.O.M (Beginning-of-month) & E.O.M (End-of-month) planned inventory levels –

Four Methods of Inventory Planning:a. Stock-to-Sales Method

S/S Ratio = Stock in hand E.O.M (at retail value) = Value of inventory

Sales for the same monthActual sales

Planned BOM Inventory = Stock-sales ratio x Planned sales


The Basic Stock Method – In this method, the buyer believes that he needs to carry a certain amount of inventory in the store at all times.Basic Stock = Average stock for the season – Average monthly sales for the seasonAverage monthly sales for the season = Total planned sales for the season

No. of months in the seasonAverage stock for the season = Total planned sales for the season

Estimated inventory turnover rate for the seasonBeginning of the month (BOM) stock = Planned monthly sales + Basic StockThe Percentage Variation Method – This method of inventory calculation is used in case the stock turnover typically exceeds six times a year.BOM Stock = Avg. stock for season * 1/2 * [1 + (Planned sales for the month / Avg. monthly sales)]The Week’s Supply Method – Retailers who need to maintain a control over the inventories on a weekly basis, may use this method.BOM Stock = Average weekly sales x No. of weeks to be stocked


Stage III: Merchandise Control – The Open to BuyThe concept of Open to buy has two folds:1. depending on sales of the month & the reduction, the merchandise

buying can be adjusted.2. the planned relation between the stock & sales can be maintained.Open to buy ensures that the buyer –

Limits overbuying & under buyingPrevents loss of sales due to unavailability of the required stockMaintain purchases within the budgeted limitsReduce markdowns i.e., reduction in price which may arise due to excess buying

Open-to-Buy = Planned EOM Stock – Projected EOM StockProjected EOM Stock = Actual BOM Stock + Actual Additions to stock +

Actual on order – Planned monthly sale – Planned reductions for the month

Merchandise Planning ProcessStage IV: Assortment Planning

Assortment Planning involves determining the quantities of each product that will be purchased to fit into the overall merchandise plan.Details of color, size, brand, materials etc. have to be specified.To create a balanced assortment merchandise for the customer.

Menswear

Shirts

Zodiac

Styles

Color

……

Van

Heusen

Louis Philippe

Arrow

Trousers Accessories

Department

Product Line

Breadth

Depth


Stage IV: Assortment PlanningThe Range Plan:The aim of the range plan is to create a balanced range for each category of

products that the retailer choose to offer.Range planning should take care of -

The no. of items/options available to the customer should be sufficient at all times & should be such that it helps the customer make a choice.The overbuying & under buying is limited.Sufficient quantities of the product are available, so that all the stores can be serviced & the product is available at all the stores across various locations.

The lower limit of the range width is often called aesthetic minimum


Stage IV: Assortment PlanningThe Model Stock Plan:After determining the money available for buying, a decision needs to be taken on

what to buy? & in what quantity?Steps -1. Identify the attributes that the customer would consider while buying the

product.2. Identify the number of levels under each attribute.3. Allocate the total units to the respective item category.

The process of merchandise planning may be top down or bottom up.Top down planning occurs when the corporate objectives dictate the company’s financial objectives in terms of sales, profit & working capital. In Bottom up planning, individual department managers work on the estimated sales projections

The Model Stock Plan

Men’s shirt 100% (1000)

Casual40% (400)

Small25% (100)

Medium40% (160)

Full Sleeve30% (48)

Half Sleeve70% (112)

Button

Down40% (45)

White40% (18)

Cotton25% (4)

Cotton Blend75% (14)

Blue30% (14)

Cream20% (9)

Grey10% (4)

Other60% (67)

Large25% (100)

Extra large10% (100)

Dress10% (100)

Formal20% (200)

Sport30% (300)


Branding & Private Labels

Branding

BrandThe American Marketing Association defined a brand as “a name, term,

design, symbol or a combination of them, intended to identify the goods or services of one seller or group of sellers & to differentiate them from those of the competitors”.

Branding existed from the time man felt the need to differentiate his products from that being offered by others.Branding gradually became a guarantee of the source of the product & ultimately its use as a form of legal protection against copying grew.With the development of shops, shopkeepers hung pictures above their shops indicating the types of goods they sold.With industrial revolution mass production came into existence but the distance between the manufacturers & customers increased.This eventually led to the evolution of the role of the brands as tools by which consumers identified the products.

Building a Retail BrandKey questions for retail brands –

Can the brand be identified with the lifestyles of its target customers?Is there a perceptible difference between the brand & the products offering by the retailer & other retailers?Can a story be woven around the brand?

A retail brand is a combination of the company’s heritage, the merchandise mix, the store environment, the service strategy, the advertising & promotion.Successful retail branding starts with a clear definition of what retailers stand for – an identification of what the customers associate it with, leading customers to think: “This brand is a reflection of me.. This brand is meaningful to me..”The retailer needs to determine the specific value proposition for the end customers.Playing on emotional benefits can also be a branding exercise of the retailer.Retail branding does not sell a specific product. It is about customer service.

The Retail Value Chain

Suppliers Third Party Logistics

Retail Operations

Customer Mgmt.

Customers

Support Functions

Systems

Private Label

When the retailer decides to sell products or a line of merchandise which is owned, controlled, merchandised & sold by the retailer in his own store/chain of stores, he is said to be Selling Own Label / Brand or Private Label merchandise.

A private label can be classified as:Store Brand – which carries the retailer’s name, such as Westside, Food World, Big Bazaar etc.An Umbrella Brand – where a common brand name is used across multiple categories – example Splash (Lifestyle), Bare (Pantaloon) etc.Individual Brands – where specific brand names are created for specific market segments and/or categories.

The Private Label Marketing Association defines store products as “all merchandise sold under a retail store’s private label. That label can be stores name or a name created exclusively by that store. In some cases, a store may belong to a wholesale buying group that owns labels, which are available to the members of the group. These whole-sale owned labels are referred to as controlled labels”

Private Labels

Private Label - Evolution

Private labels were traditionally defined as generic product offerings that competed with national brands on the basis of value proposition.They were often seen as the lower priced alternative to the “real” thing.Private label carried the stigma of inferior quality & therefore inspired less confidence.Generics, which were products distinguishable by their plain & basic packaging were the first type of private labels.With the increase in retail stores, the need to earn higher profit & the desire to service the gaps in consumer requirements gave rise to private labels, both in apparel & the food & grocery sector.Today, most of the large department stores have their own private labels which cater to a specific audience.Private labels rely on in-store advertisements.In order to compete with national brands, private labels need to focus on quality.

The average quality of one product compared to otherConsistency in quality over a period of time

Private label goods become more successful where the no. of competing products is lower.

Why Private Label?

Retailer can fill in the need gaps that may exist in the market place.Private label gives the retailer an advantage of offering the customer another option.A private label allows the retailer to offer a unique product in the marketplace.Private label allows a retailer to earn a higher margin than other brands he chooses to retail because designing, merchandising, sourcing & distribution is done by the retailer. Also, advertisement is in-store.

Make or Buy

Placing the order

& Allocating the goods

MarketingIdentification of the need

Performance Measurement

Private Label Creation Process

Merchandise Procurement / Sourcing

The term sourcing means finding or seeking out products from different places, manufacturers or suppliers.Method of Procuring Merchandise

1. Identifying the sources of supplyCosts associated with global sourcing:

Country of origin effects – Many a times, where the merchandise has been manufactured makes a difference in the final sale of the product.

Foreign currency fluctuations – Effects the buying price of the products.Tariffs – Taxes placed by the govt. on imports.Foreign trade zones – These are special areas within the country that can be used for warehousing, packaging, inspection, labeling, exhibition, assembly, fabrication etc., of imports, without becoming subject to the country’s tariffs.Cost of carrying inventoryTransportation cost


2. Contacting & Evaluating the sources of supplyContacting can be vendor initiated contact or retailer initiated contactPoints to be kept in mind

The target market for whom the merchandise is being purchased.The image of the retail organization & the fit between the product & the image of the retail organization.The merchandise & the prices offered.Terms & service offered by the vendor.The vendor’s reputation & reliability.

3. Negotiating with the sources of supplyThe types of discounts that could be made available to the buyer

Trade discountsChain discountsQuantity discountsSeasonal discountsCash discounts


4. Establishing Vendor RelationsTo build & maintain strategic partnership with vendors, the buyer needs to build on:

Mutual trustOpen communicationCommon goalsCredible commitments

5. Analyzing Vendor PerformanceThe total orders placed on the vendor in a yearThe total returns to the vendor, the quality of the merchandiseThe initial markup on the productsThe markdowns (if any)Vendor’s participation in various schemes & promotionsTransportation expenses if borne by the retailerCash discounts offered by the vendorThe sales performance of the merchandise


Category Management - A Method of Merchandise Management

Category Management

Category Management can be defined as “the distributor/supplier process of managing categories as SBUs, producing enhanced business results by focusing on delivering customer value”.

A category is an assortment of items that a customer sees as reasonable substitutes of each other.A category management concept is a focus on a better understanding of consumer needs as the basis for retailers’ & suppliers’ strategies, goal, & work processes.The need to reduce costs, control inventory levels & replenish (refill) stock efficiently led to the concept of Efficient Consumer Response (ECR).Category management provides renewed opportunities for meeting consumer needs & at the same time, for achieving competitive advantage as well as lower costs through greater work process efficiencies.

Category Management contd..

Category Management is now considered as the “new science of retailing” because -

1. It involves a systematic process.2. It emphasizes decision-making based on complex analysis of

consumer data & market level syndicate data.3. It replaces the brand bias that stems from suppliers’ interest &

encourages objective view based on consumers’ desires.

Why Category Management?Consumer changesCompetitive pressuresEconomic & efficiency considerationsAdvances in IT

Components Category Management

Strategy

Business Process

Performance Measurement

Organizational Capabilities

Information Technology

Trading Partner

Relationships

The Category Management Business Process

Step 1: Category DefinitionA distinct, manageable group of products/services that consumers perceive to be interrelated/substitutable in meeting a consumer need.The category definition should be based on how the customer buys, & not on how the retailer buy.This step decides the products that represent a category, sub-category & major segmentation.At this step, the retailer assigns products to the various categories based on factors such as consumer usage & packaging.


Step 2: Category RoleIt determines the priority & importance of each category in the overall business.It serves the basis of resource allocation.Consumer-based category roles:

Destination categories – Why you as a retailer?Preferred/routine categoryOccasional/seasonal categoryConvenience category – one-stop shop

Step 3: Category Assessment – Brain Harris’s Quadrant Analysis


Opportunities- Harmonise product mix with market trends- Improve price image via low prices for key

products- Maximise shelf space at category level- Give promotional support to key items

Questionable- Limit product mix to core assortment & delist

marginal products- Look for price raises- Minimise self space at category level- Transfer logistical & operational work to third

parties

Winners- Continue current policies- Be alert to adaptation of new products- Minimise operational problems like “out of

stock”- Optimise margin mix

Sleepers- Identify key products within category- Delist slow movers & marginal products- Give quick movers more self space- Optimize margin mix

Mar

ket S

hare

Market Growth

Step 4: Category Performance MeasuresSalesProfitsMarket ShareInventory TurnoverChanges in the AssortmentConsumer Transaction


Step 5: Category StrategiesTypical category marketing strategies are:

Traffic buildingTransaction buildingTurf defendingProfit generatingCash generatingExcitement creatingImage enhancing (Areas: Price, Service, Quality & Varity)

Step 6: Category TacticsCategory tactics work towards the determination of optimal category pricing, promotion, assortment & shelf management/presentation of the merchandise.


Step 7: Category Plan ImplementationWhat specific tasks needs to be done?When each task needs to be completed?Who will accomplish each task?

Step 8: Category Review

Retail Marketing Mix

PricePlace

Promotion

Presentation

Customer Service

People

ProductThe Retail Marketing

Mix

Cus

tom

er

Ser

vice

People

Brand

Associations

Shopping Experience

Pricing

Promotion

Place / Location

Product / Merchandise

features

Presentation

The Retail Image Factors

Retail Store Image

The Retail Communication Mix

Retail Communication

Mix

Sales Promotion

Public Relations

Direct Marketing

Personal Selling

Advertising

Retail Selling Process

Acquiring Product/Merchandise Knowledge

Studying the Customer

Approaching the Customer

Presenting the Merchandise

Overcoming Resistance

Suggestive Selling

Closing the Sale


Retail Management Information System

Effect of a Single Customer Transaction

Customer Transaction

Marketing & Promotions

Inventory Manageme

nt

Sales Analysis

Credit Card Payments

Customer Database

Warehouse

Recording Merchandis

e

Efficient Stocking of MerchandiseCollection of DataEfficiency in OperationsHelps Communication

Why IT in Retail?

Factors affecting

the use of IT

Scale & scope of

operations

The financial

resources available

The nature of business

HR availabil

ity

Electronic Data Interchange (EDI)

Database Management, Data Warehousing, Data Mining

Radio Frequency Identification (RFID)

Transaction Processing System (TPS)

Decision Support System (DSS)

Enterprise Resource Planning (ERP)

Intranet & Internet

E-Commerce or E-Trailing

……

Application of IT


SCM in Retail

The Basic Supply Chain

Finance Flow

SupplierRaw material packaging warehouse Manufacturer

Manufacturer warehouse

Retailer warehouseRetailer

Physical Flow

Framework for Analyzing Issues in SCM

Customer Service

Channel Design

Network Strategy

Policies & Procedures

Organization & Change

Management

Information Systems

Facilities & Equipment

Warehouse Design &

Operations

Materials Management

Transportation Management

STRATEGIC

STRUCTURAL

FUNCTIONAL

IMPLEMENTATION


Servicing the Retail Customer

Customer Service“Customer service is a task, other than proactive selling, that involves interactions with customers in person or by telecommunication, mail or automated process. It is designed, performed & communicated with two goals in mind –

Operational ProductionCustomer Satisfaction

Kill a Brand, Keep a Customer!

Customer Service focuses on measurement of how well a firm meets the established performance standards that are viewed as important for meeting customer needs.

Customer Satisfaction is how the customers measure externally the service performance of a firm.

Customer Service – A USP

Retail mix like Product, Price, Place, Promotion can be duplicated or copied by competitors – the total experience (image of the store, ambience, music,& level of service offered) that the customer gets in the store stay unique.

Identify the key customers & listen & respond to them

Define superior service & establish a service strategy

Set standards & measure performance

Recognize & reward accomplishments

Measuring Gaps in Service

Customer Relationship Management (CRM)

How CRM Benefits Retailer?

Customer needs Retailer traditionally provides

CRM benefits customer by enabling

Product choice Range selection Tailored rangeAccess Channel choice Consistent experienceSupport Information Enhanced serviceIndividual treatment Customer service Customer defined

“value”Value Scale efficiencies

Customer Segmentation in Retail

Lower Value SegmentGrow able SegmentMost Valued Segment

In-store PoS

Advertisement

Merchandising

Targeted Direct Mail

Added value services

Tailored, cross-learning based relationship

No. of customers

Value per customer

Lower value segment

Grow able Segment

Most Valuable Segment


Retail Store Design & Visual Merchandising

Retail stores needs to be designed to be more competitive, the retailer first needs to catch the customer’s eye & then, to draw his attention away from other stores.The basic principles of store design require that the image being created in tune with the merchandise, the advertising & the service offered by the store.Retail design is primarily a specialized practice of architecture and interior design, however it also incorporates elements of interior decoration, graphic design, ergonomics, and advertising.

Retail Store Design

StoreImage

Store Atmosphere

Store Them

e

Elements of the Store Environment

Why Retail Store Design is Important?

The store design & layout tells a customer what the store is all about.

The creates the image of the retail store in the minds of the customer.

This image is the starting point of all marketing efforts.

It make the store simple to navigate.

It creates the sense to belongingness, responsibility, security, & pleasure in shopping.

Elements of Retail Design

Store Design

Location

Parking

Access

Building Arch.

Frontage & Entrance

Safety

Store Theme

Target Customer

Merchandise Mix

Interior Store Design

Space Planning

Layout

Atmosphere &

Aesthetics

Space Planning helps determining:The location of various departments.The location of various products within the department i.e., creating planograms.The pros/cons of specific location for impulse products, destination areas, seasonal products, products with specific merchandising needs, adjacent departments etc.The relationship of space to profitability.

Atmosphere & AestheticsFixturesFlooring & CeilingLightingGraphics & Signage

Theme graphicsCampaign graphicsPromotional graphics

Free-flow Layout

Fixtures and merchandise are grouped into free-flowing patterns on the sales floor.

Grid Layout

The counters and fixtures are placed in long rows or ‘‘runs,’’ usually at right angles, throughout the store.

Racetrack/Loop Layout

A major customer aisle begins at the entrance, loops through the store—usually in the shape of a circle, square, or rectangle—and then returns the customer to the front of the store.

Spine Layout

A single main aisle runs from the front to the back of the store, transporting customers in both directions, and where on either side of this spine, merchandise departments using either a free-flow or grid pattern branch off toward the back side walls.

Visual Merchandising

An orderly, systematic, logical, & intelligent way of putting stock on the floor.

It has several aspects & involves SKU planning, store windows & floor displays, signs, space design, fixtures & hardware, props & mannequins.Creating the right atmosphere in the store & presenting the merchandise in the right manner is very important.Good visual merchandise means a selling space that is neat, easy-to-see, follow & shop.

Visual Merchandising contd..

Methods of

Display

Color domina

nce

Presentation by

price

Coordinated

presentation

The supply chain umbrella

• Purchasing• Quality control• Demand and supply planning• Material or inventory control

Buying process of organised food retailers

• Buy locally from the traders in the retailing destination• Buy in bulk from the traders in the production/processing

destination and distribute to the retailing destination• Buy in bulk from the processors in the

production/processing destination and distribute to the retailing destination

• Buy raw materials from farmers or local traders in production destination; carry processing and packaging activities by self or by job work followed by distribution to the retailing destinations.

Channel of Procurement by retailers

Credit Period by retailers

Supply chain innovations under organised retail

• Backward integration/ dis-intermediated model– Spencer’s retail, Smart (WRPL), More (ABRL) and Reliance Fresh follow

this kind of model, in which they procure directly fresh produce from farmers either through own personnel or appointed agents

Supply Chain Efficiency in Direct Model

Effect on farmer and consumer prices due to direct procurement

Corporate farming model (Namadhari fresh)

Precision farming model

• Promoting hi-tech horticulture through the use of precision technology

• Promoting market-led horticulture by encouraging farmer’s forums and associations and increas-ing the overall value accruing to the farmers

Horticulture Producers Co-operative Marketing and Processing Society limited (HOPCOMS)

• To provide a fair price to the producers of fruits and vegetables through direct procurement and make them available to consumers

• The District HOPCOMS get the produce from their farmer members and sell it to both the household and institutional customers.

• The societies have a large network of farmer members, decentralized procurement centers at district levels and retail network

Franchisee model (Suguna poultry)• It has come up with the concept of ‘Suguna Daily Fresh’,

which is a chain of high-quality, modern air-conditioned futuristic retail stores.

• Operating on a dealership model, Suguna Daily Fresh retails, fresh, hygienic, nutritious and tender chicken in eight forms including whole dressed chicken, portioned plain and marinated items

• The outlet also stocks Suguna value added eggs in four variants, frozen fish, sea food, sausages, salami and Suguna Home Bites, a range of ready to cook and ready to heat-and-eat items.

Agri & food retailing

Retail

Transcript of Agri & food retailing