Indian Retail

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Indian Retailers and their StrategiesBy Sandeep ShahPraxis Business School, Kolkata

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Value Retailers

Store Name

Pantaloon Retail

Big Bazar

Shopper’s Stop

Hypercity

Trent Star India Bazar

Subhiksha Subhiksha

Pyramid Retail

Pyramid Megastore

RPG Retail Spencer’s Hyper

Vishal Retail Vishal Mega Mart

Shoprite Shoprite

Landmark Group

Max Retail

Reliance Retail

Reliance Mart

KEY PLAYERS IN FOOD, GROCERY AND GENERAL MERCHANDISE RETAILINGValue Retailers

Value Retailers

Store Name

Nilgiri’s Nilgiri’s

Spinach Spinach

Trinethra – AV Birla

More

Reliance Retail

Reliance Fresh

Convenience Stores / Supermarkets

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PLANS OF NEW ENTRANTS

Group Plans

Aditya Birla Group Acquired Trinethra chain of stores (food & grocery store operator with 170 stores in South)Launched ‘More’ Brand Ended FY 08 with about 400 stores across India Investment plan of Rs. 15,000 crore till 2011.

Reliance Retail Investment plans of US $ 6 bn 100 mn Sq. Ft of Retail space by 2010 Ended FY 08 with about 1000 Reliance Fresh Stores Also entered hypermarket format in FY 08

Bharti – Wal-Mart Investment plans of US $2-2.5 bn 10 mn Square feet by 2015 Wal-Mart to provide back-end expertise until FDI in Retail is permitted

Tecso, Carrefour Looking for an Indian partner

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Pantaloon Retail / Future Group

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PANTALOON / FUTURE GROUP : INTRODUCTION

• Pantaloon Retail is the poster child of Indian retailing.

• Over the last four to five years it has established itself as India.s leading

retailer.

•During this period it has straddled product categories and formats across the

retail chain and has moved steadily towards its aim of selling .everything, to

everyone, everywhere..

•Pantaloon Retail has been driven by the vision and dynamism of Kishore

Biyani, its founder and CEO.

• Pantaloon.s management spotted opportunities in organised retailing early

on and was visionary enough to employ a multi-pronged strategy to rapidly

scale up before large corporations and overseas majors entered.

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PANTALOON / FUTURE GROUP : FORMATS / OTHER BUSINESSES

Pantaloon Retail (Future Group)

Pantaloons

Central

Big Bazaar

Fashion Station

Brand Factory

All

Blue sky

Depot

Futurebazaar.com

Food Bazaar

Home Solutions Retail (I) Limited

Converge m Retail (I) Ltd.

Future Generali

Future LogisticsFuture Capital

Holdings Future Media

• E Zone• Electronics Bazaar• Collection (I)• Furniture Bazaar• Home Town

Future Group has positioned itself much better than any other retailer by establishing its presence in all segments and creating many formats.

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PANTALOON / FUTURE GROUP : JOINT VENTURES

JV Partner Stake Business Activity

Liberty 49% Footwear retailing

Talwalkar’s (Gyms) 50% Operating fitness centers and marketing health products

Manipal Cure & Care 50% Health & Wellness centers and marketing beauty products

Staples Inc 50% Cash & Carry model for office supplies and consumables

Lee Cooper 50% Marketing Lee Cooper’s denim apparel in India

Alpha Airports Group 50% Airport retailing

Blue Foods Pvt. Ltd 50% Food and Restaurant business

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PANTALOON / FUTURE GROUP : GROWTH OVER THE YEARS

1987 Started off as a garment manufacturer1997 Opened its first Pantaloon store in Kolkata2001 Opened the first Big Bazaar (hypermarket format)2002 Ventured into food retailing under Food Bazaar2004 Opened the first Central, seamless mall in Bangalore2005 Opened Fashion Station, its format for fast moving fashion clothing and accessories2005 Opened aLL, a lifestyle store for plus-size men and women2005 Ventured into the home furnishing business through a subsidiary company Home SolutionsRetail (I) Ltd2005 Formed JV with Liberty group, to enter into the footwear segment2006 Formed subsidiaries and JVs to venture into related businesses like - logistics, in-store andout-store media business, leisure and entertainment business, health and fitness product andservices2006 Entered into JV with Generali to form a general insurance company2006 Launched two real estate fund (Kshitij and Horizon) and one venture capital fund (Indivision)2006 Formed JV with Staples Inc, leading office supplies retailer in the US, to bring the format toIndia2006 Launched its e-tailing website, www.futurebazaar.com

Future Group has been expanding very fast after other large corporates announced their entry into retail (since 2004)

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PANTALOON / FUTURE GROUP : KEY STRATEGIC APPROACH

Front-End Focus

•Before the entry of the big boys, Pantaloon Retail has signed up sufficient

retail space for its planned growth to 30m sf by FY09/10 at an average rate of

about Rs45/sf.

• Future Group’s strategy is markedly different from other retailers in that it

focuses primarily on front-end investments to keep its capital costs low and to

rapidly establish a large foot print in the retail landscape.

• It has avoided setting up large supply-chain and distribution centres and in

many product categories it has adopted the concessionaire model.

For example, in fresh foods and vegetables, it has tied-up with

wholesalers at the mandis (local markets) who supply the products and it

is the wholesaler’s responsibility to manage the inventory and to staff the

counters.

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• Its general merchandise sourcing has depended on the traditional

wholesalers and efficiencies have been driven by the scale of sourcing,

instead of directly tying up with manufacturers. The wholesalers act as

category managers.

Apparel Focus

•Another differentiator for Pantaloon is its focus on apparel and fashion.

Pantaloon.s genesis is in textiles and apparel and its promoters probably

understand that segment the best.

•Its hypermarket strategy is apparel-driven with 40-45% of revenue targeted

from private labels.

• Apparel products have high gross margins and Pantaloon believes that with

its apparel-focussed strategy, it will be able to maintain higher margins than

its competitors.

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Understanding of Indian Consumer

• Pantaloon.s strength has been its ability to understand the Indian consumer.

• Its other strength has been its ability to correct rapidly. With a multitude of

available formats, if something has not worked, the company has taken

prompt corrective action.

• Its different formats have also continuously evolved to keep pace with

competitive dynamics and market realities. For example, the group.s

department stores have continuously evolved from predominantly men.s

stores, into family-fashion stores, stores for trendy higher-end clothing with a

sprinkling of designer labels, and now into stores where fashion merchandise

is changed every two months.

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In-house Focus

•Apart from the various formats, Pantaloon intends to manage almost every

activity in-house via different associates companies where it intends to offer

strategic stakes to financial investors or partners with domain expertise. For

example

it intends to handle the group’s logistics through a subsidiary company

(Future Logistics)

the outdoor and indoor media inventory is being handled by an in-house

company, Future Media, where Group M, the world’s leading full service

media investment management company belonging to the WPP group, has

reportedly taken a strategic stake.

The company has also launched Future Brands which will house all of the

in-house brands for the group, manage intellectual property, grow brands

and extract value. In-house brands will subsequently be franchised out to

other retailers as well.

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• As the businesses grow in scale, Pantaloon Retail will have a retailing

business and an equally large investment arm that has seeded multiple

businesses for forward and backward integration.

• In select product categories, Pantaloon Retail has entered into JVs with a

variety of other companies. The aim of the joint ventures is to gain salience in

product categories like children’s clothing, footwear or health and fitness

where it lacks both experience and expertise.

• Given the company.s aggressive growth plans, the key fears have been over

its ability to raise capital, its management bandwidth and its ability to

manage its growth. Pantaloon Retail in the last couple of years has been able

to attract experienced professionals to increase its management bandwidth.

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Shopper’s Stop

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• Shopper.s Stop is promoted by the K Raheja family with primary interests

in real estate.

•Shopper.s Stop was probably the first department store to open in Mumbai in

the early 1990s and has had steady but measured growth under B S Nagesh,

CEO since its inception.

• It has been a professionally run organisation with no day-to-day

management

participation from the Raheja family.

• Shopper.s Stop.s department store works on a mix of direct sales,

consignment sales and concession sales, with about 60% of revenue from

bought-out merchandise, 25% from consignment sales and 15%

concessionaire sales.

SHOPPER’S STOP : INTRODUCTION

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SHOPPER’S STOP : GROWTH OVER THE YEARS

1991 Launched the first Shopper.s Stop store in Mumbai.2000 Acquired 51% stake in Crosswords, leading books, music and gifts stores.2002 Launched four new Shopper.s Stop stores in a span of 15 months.2005 Acquires balance 49% stake in Crosswords.2006 Launches Mother Care- mother and baby products.2005 Launches MAC- luxury cosmetic stores with brands such as Clinique and EsteeLauder.2006 Promoter group launched Hypercity, their hypermarket format, where Shopper.sheld the right to acquire 51% stake by Dec 08.2006 Launched the food and beverage retailing with BRIO- the café bistro and Desi Café.2006 Launched Home Stop, its home store format.2006 Bid and won the rights to open Duty free stores at Mumbai and Bangaloreinternational airports in JV with Nuance Group AG. Also has rights to open stores atMumbai’s domestic terminal.

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• Shopper’s Stop has assiduously built a reputation as a multi-brand

departmental store.

• After some false starts in the mid 1990s, the company has once again

returned to a growth trajectory.

• It has clear positioning and is targeting well-heeled, upper-middle class and

above consumers.

• It has robust systems and processes and very high customer loyalty. Over

60% of its annual revenue comes from holders of its First Citizen loyalty card.

SHOPPER’S STOP : STRATEGIC APPROACH

Superior Brand Image

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• Shopper.s Stop sets great store in its systems and processes and has

attempted to adopt some of the best global practices.

• At the heart of the IT system is the JDA-MMS ERP system. For merchandise

planning, the company uses Arthur Planning and Business Objects, an

analytical and decision-support application.

•Shopper.s is implementing world class tools like the Intactix (space and

category-management application) and E3 (an advanced merchandise-

replenishment application). It is a member of the Intercontinental Group of

Department Stores (IGDS).


FOCUSSED ON SYSTEMS AND PROCESSES

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• Shopper.s Stop sets great store in its systems and processes and has

attempted to adopt some of the best global practices.

• At the heart of the IT system is the JDA-MMS ERP system. For merchandise

planning, the company uses Arthur Planning and Business Objects, an

analytical and decision-support application.

•Shopper.s is implementing world class tools like the Intactix (space and

category-management application) and E3 (an advanced merchandise-

replenishment application). It is a member of the Intercontinental Group of

Department Stores (IGDS).


FOCUSSED ON SYSTEMS AND PROCESSES

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• The group has slowly but steadily begun moving into different categories

and

formats to cater to a larger percentage of total customer spending.

• The group.s other major retailing foray has been into hypermarkets under

the Hypercity Retail name.

• The customer segment targeted is the same as Shopper.s Stop, and the

venture is managed by experienced professionals.

• Hypercity is focussed on building a robust supply chain.

•It has set up large distribution centres and intends to adopt a hub and spoke

model to extract maximum returns from its investments.


Expansion in different Categories and Formats

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• It does not intend to employ a farm-to-fork model and it will rely on third party

service providers for procurement of fresh food and grocery lines.

• Unlike Shopper.s Stop, the focus at Hypercity is on private labels.

• Unlike Big Bazaar of Pantaloon, Hypercity’s focus is on general merchandise to

drive revenue, rather than apparel.

• Shopper.s Stop also has a joint venture with Nuance group of Switzerland,

which has won the rights to operate the duty free stores in Bangalore and

Hyderabad international airports.


Expansion in different Categories and Formats

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Pantaloon Retail and Shoppers Comparison on Key Parameters

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LEASE RENTALS AS % OF SALES

3.50%

6.30%

3.50%

6.30%

4.20%

6.30%

4.40%

6.90%

5.40%

7.30%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2002 2003 2004 2005 2006

Pantaloon

Shoppers

Source: CLSA Asia Pacific Markets

Pantaloon has got about 2-3% cost advantage over Shopper’s in Lease Rentals

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LABOR COST AS % OF SALES

4.80%

6.50%

4.30%

6.10%

4.20%

5.80%

4.70%

6.00%5.70%

6.40%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2002 2003 2004 2005 2006

Pantaloon

Shoppers


Pantaloon has got about 1.5 - 2% cost advantage over Shopper’s in Labor Costs

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INVENTORY HOLDING PERIOD IN DAYS

92

39

92

40

92

37

90

37

90

33

0

10

20

30

40

50

60

70

80

90

100

2002 2003 2004 2005 2006

Pantaloon

Shoppers


Shoppers inventory management is significantly more efficient than Pantaloon Retail due to better systems and processes

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RETURN ON CAPITAL EMPLOYED

11%12%

10%

17%

12%

15%

13%

20%

14%

25%

15%

26%

15%

27%

0%

5%

10%

15%

20%

25%

30%

2006 2007 2008 2009E 2010E 2011E 2012 E

Pantaloon

Shoppers


Shoppers ROCE is expected to be significantly higher than that of Pantaloon Retail in the next 3-5 years.

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Reliance Retail

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RELIANCE RETAIL : INTRODUCTION

•Reliance Retail unveiled its organized retail foray in Nov 2006 with the launch

of convenience stores in the southern Indian city of Hyderabad.

•Reliance ramped up its presence primarily through Reliance Fresh and ended

FY 2007 with about 1000 stores.

•Investment plans of US $5 bn, revenue of US $ 25 bn, targeting 100 mn Sq.

feet of store space across 1500 cities.

•Reliance’s proven project-execution skills will be crucial to the success of this

venture.

• The company has already established a presence in the National Capital

Region (NCR), Jaipur, Ranchi, Chennai, Ahmedabad and Bangalore, since its

first launch in Hyderabad.

• The company has also launched its RelianceOne loyalty program, which

comes with free accident insurance and free home delivery.

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Footprint 1500 cities and towns across India.

Format Supermarket Speciality Stores SupermarketsHypermarkets

Verticals 14 verticals with an emphasis on food

Brands A mix of in-store and others

Investment Us $ 5.5 – 6 bn

Targeted Revenue About $25 bn by 2011-12

Employment 500,000

RELIANCE RETAIL PLANS : OVERALL

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Food “Farm to Fork” strategy. Building a partnership with farmers and strengthening agri-linkages

Electronics Lock Manufacturing capacity in China, Middle East and India for in store brands

Collaborations Several international brands like Marks & Spencer

FMCG and Durables

Looking to extract aggressive discounts from existing FMCG players Could set up a procurement hub in South East Asia

Health Care Tied up with Himalaya drugs

RELIANCE RETAIL PLANS : VERTICALS

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RELIANCE RETAIL : STORE GROWTH

700

109805745

28110

100

200

300

400

500

600

700

800

No. of Stores

2008

Reliance Retail has been expanding very fast since it’s exception.

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RELIANCE RETAIL : KEY STRATEGIC APPROACH

• Reliance initially launched stores in two formats . the 2,000-5,000 sf Reliance

Fresh convenience stores, and the wholesale cash-and-carry Ranger Farms to

supply small grocers and retailers.

• The Reliance Fresh stores are focussed on food (its private label brand being

Reliance Select for staples and groceries) but also launched larger stores that

stock both food and non-food items (Reliance Fresh Plus).

• The first hypermarket was launched in mid 2007.

• Organised retail is also likely to be Reliance.s most complex project yet.

• Meeting the reported US$20-25bn revenue target will be contingent upon

overcoming significant challenges in the supply chain (especially with

food),space (it would need 100m sf versus 3.1m sf for Pantaloon presently)

and trained manpower (especially middle/lower management).

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RELIANCE RETAIL : KEY STRATEGIC APPROACH

•It will be critically dependent upon Reliance.s ability to replicate its

unparalleled execution success in a direct B2C landscape.

• Reliance’s strategy is to put in place a strong supply chain, including a strong

sourcing base, and huge scale.

• It has recruited many CEOs from the retailing and related industries to

vertically manage various categories. However, early on it has lost Rajeev

Karwal, in-charge of consumer durables and electronics, Abhinandan Shukla,

in-charge of confectionary and S Ramesh, head of buying, underscoring the

challenges on the human-resources front.

•It has also recruited over 150 expat managers to ensure that local managers

pick up the requisite knowledge and skill sets

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Bharti-wal-mart

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BHARTI WAL-MART : STRATEGIC APPROACH

• Bharti group and Wal-Mart have announced the formation of a joint venturefor backend processing and sourcing.• The current rules allow 51% FDI in single-brand retailing, preventing Wal-Mart from doing business directly.•The business premise for the joint venture is reportedly similar growth plans shared by the two partners. • It remains to be seen whether Wal-Mart attempts to enter the market separately via Sam.s Club (its cash-and-carry format) where FDI is allowed.• The Bharti group intends to invest US$2.5bn over the next 5-10 years and plans to have ten million square feet of shelf space by 2015.•Bharti-Wal-Mart JV to target the hypermarket, supermarket and convenience store model. • Although the plans that it has announced are dwarfed by Reliance.s plans, Bharti group is likely to announce more aggressive plans at a later date. • Its announcement about the JV with Wal-Mart was met with protests from a section of the political spectrum and the group may be trying to play its cards close to its chest.

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• Bharti group proven adept at scaling up its telecom business and will look to

scale up the retail business rapidly as well.

• While the plans of formats, merchandise mix etc is not yet known, it is likely

that one of the key focus areas for Bharti group will be fresh food & grocery.

• Bharti group has a JV with the ELRo Holdings, an investment company of the

Rothschild family, called Field Fresh for growing and procuring fresh food and

groceries.

•The venture’s business model encompasses growing, procuring, processing

and selling to the domestic market (organised and unorganised retailers) and

overseas. In the domestic market, the group.s retail venture will be a large

customer and it also intends to sell to other retailers.


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• The Field Fresh venture is the first link in the Bharti group’s farm to

fork

strategy.

• It is also helping the group to get ahead in the learning curve and to

pick up the best practices in a supply chain while dealing with global

retailers

like Tesco.

• Thus, the Bharti group.s strategy will be supply-chain driven with a

focus on fresh food and grocery and private labels.


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Subhiksha

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• Subhiksha, India.s largest chain of supermarkets, started off in Chennai in

1997.

• Currently operates over 2.5 million square feet of retail space across the

states of Tamil Nadu, New Delhi, Karnataka, Maharashtra and Gujarat.

• Subhiksha operates in four verticals - fruit and vegetables, pharmaceuticals,

FMCG and telecoms.

• The company has been promoted by Mr R Subramanian, an IIT Madras and

IIM Ahmedabad

alumni member.

• ICICI Ventures holds 24% of the company.

SUBHIKSHA : INTRODUCTION

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• Subhiksha follows the .cluster approach. (a store within every two

kilometres) upon entering new markets, with proximity to residential areas the

key to success for convenience and super stores.

• An average store measures 2,000 sf and is not air-conditioned, unlike Big

Bazaar.

• Subhiksha is a hard discount store (at least 10% cheaper than regular retail

prices) and encourages phone orders and home deliveries.

• Subhiksha is also positioned between a glitzy modern format and a no-frills

convenient modern format that a large number of middle class consumers will

be very comfortable with.

SUBHIKSHA : STRATEGIC APPROACH

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SUBHIKSHA : STRENGTHS AND CHALLENGES

•Early mover advantage

•Strong presence in key retail

markets

•A decade of experience in

retailing

•Strong base of loyalty members

•Funding for expansion plan has

been tied-up

•Nation-wide presence will bring

greater bargaining power

•Prime candidate for acquisition

Strengths

•Primarily a front-end format

•Share of fresh grocery is low;

FMCG & pharmaceuticals form a

large chunk

•Entering in a big way into new

markets . Will have to manage

local authorities, retailers as well

as suppliers

• Competition is expected to

intensify

Challenges

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Rural Retailing

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• The rural market in India is worth an estimated US$120-150bn and accounts

for an estimated 55% of total retail spending.

• According to NCAER estimates, rural India is home to 720m consumers

spread across over 0.6m villages.

• Only 17% of these villages though, account for 50% of the rural population

and 60% of the rural wealth.

• While this means that an organised retailer can target 50% of the rural

population by reaching out to about 0.1m villages, the villages are widely

spread out across the length and breadth of the country and the target

population density may be small.

•For retailers, rural areas are not only a potential market, but also an integral

part of the farm-to-fork strategy. With greater engagement with farmers to

source farming goods and to introduce supply-chain efficiencies in the entire

chain, the retailers will have an opportunity to sell goods to the rural

community by using the same supply chain.

RURAL RETAILING : INTRODUCTION

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• Foremost among current players is ITC (the cigarette major) which also has a

presence in apparel retailing through its Wills Lifestyle outlets.

• ITCs engagement with rural India is established as it has a longstanding and

close association with tobacco farmers and later with sunflower growers.

• As it has entered the food and grocery segment by selling products like

branded oils and flour, it has increased its involvement with rural India.

• ITC is not alone. The Godrej group has launched two retail formats . Nature’s

Basket which sells fresh food and staples in urban areas, and Godrej Aadhar

which is a rural format much like ITCs e-choupal initiative.

• There are 24 Aadhar outlets in eight rural locations across the country.

•It has also joined with HPCL to open Aadhar Express outlets in rural Punjab,

Maharashtra and Gujarat.

RURAL RETAILING : ITC AND GODREJ

Indian Retail

Business

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