The retailerEY’s publication in consumer products and retail sector

January - March 2015

ForewordDear reader,

We are delighted to present to you the January–March 2015 edition of The retailer, our quarterly publication in the consumer products and retail sector.

The first article provides an overview of the integrated approach for developing a go-to-market strategy for the sales and distribution function of FMCG companies.

The second article gives an overview of the online food ordering business, covering its potential, prevailing market trends and challenges faced by key players. The third article highlights the IT related transformations in the Indian retail sector.

In our interview feature, Mr. Shailesh Chaturvedi, Managing Director & Chief Executive Officer of Tommy Hilfiger, shares his views on the Indian apparel market. He also talks about his learning and

mantras of success of operating in the Indian market.

Finally, in our featured section, the “Innovation board”, we attempt to present snapshots of recent innovations that have emerged in the retail & consumer supply chains.

We hope you enjoy reading this issue of The retailer and look forward to your valuable comments and feedback.

Pinakiranjan Mishra

Partner and National Leader, Retail and Consumer Products EY, India

Celebrating six years of The retailer

Contents

Involve yourself:

We look forward to hearing your feedback and suggestions.To contribute to editorial content, please contact Ashish KakwaniT: +91 22 6192 0423 E: ashish.kakwani@in.ey.com

Synergies through an integrated go-to-market strategy 04

Online food ordering — disrupting the food service sector in India 10

Transformation in the retail sector 16

Interview with Mr. Shailesh Chaturvedi 20

Innovation board 22

4 | The retailer

Synergies through an integrated go-to-market strategy

1

Players in the consumer products space today look to straddle multiple categories as they pursue the twin objectives of sustained topline growth and profitability. In this process, they often have to draw a fine balance between multiple priorities.

Sales and distribution (S&D) priorities

In a multi category business construct, companies can turn to an integrated go-to-market strategy to address all of their priorities in a holistic and effective manner.

Integrated go-to-market approach

An integrated Go-to-Market model is a singular platform constructed across all the categories that a player operates in. This model builds integration across the 2 key dimensions of the Go-to-Market construct –

1. Field sales force

2. Channel partners

The objective of this approach is to bring in collective strength across these dimensions to create a positive impact on all of the S&D priority areas.

Opportunity identification

Before creating an integrated approach, it is important to establish if integration is indeed relevant in the given context. Establishment of relevance has to be done through an understanding of the market construct and consumer buying behaviour in the categories in question. This involves having a clear view on which channels or store types demonstrate a large degree of overlap across the multiple categories. Overlap in channel salience is usually driven by similarity in factors such as:

• Frequency of purchase/replacement rate

• Average ticket size

• Level of information search required by the buyer

• Criticality of convenience in buying

For instance, for an FMCG player, personal care will have a high degree of overlap with household care, which might not be the case for a company dealing in food and beverages or OTC products. Likewise, in the consumer durables space, paints and hardware are typically retailed though a largely similar dealer network. This is not the case with paints and lighting fixtures or even sanitary ware. A high degree of commonality in channel salience is the ideal ground for an integrated model.

S&Dpriorities

Distribution cost Width of distribution

Manpower cost Quality of distribution

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The implementation journey

EY helps consumer product companies traverse the integration journey through a detailed planning and execution framework, as follows:

Integrated distribution – planning to implementation

A. Goal definition

Definition of reach and topline objectives forms the basic building blocks of a synergistic model. The aggregate-level aspirations are disseminated to the lowest unit of a town/market level by using reference points such as category size, targeted market share and targeted distribution intensity (outlets per lakh of population). The objective of this exercise is to have the:

• Category-wise volume and revenue plan (for each town)

• Outlet coverage objective at a category and organization level (for each town)

Sales force capabilityassessment

Channel partner profileassessment

Category-level top-line aspirationDirect coverage aspiration

Sales force sizing andredeployment plan

Channel partnerrequirement definition

Revision of sales force effectiveness targets for a multi-category operation

Sales team training Channel partnerexpectation setting

Phase-wise rollout and tracking to completion

Performance evaluation and course correction

Goal definition

Infrastructure assessment

Infrastructure planning

Redefining effectiveness benchmarks

Gearing up for transition

Program management

Ongoing review

6 | The retailer

B. Infrastructure assessment

Assessing salesforce capability and channel partner profile is a vital part of the integration journey. The objective is to identify relevant sales resources as well as channel partners from capability and performance standpoints. Sales resources are viewed at two levels –

• Sales force on rolls of channel partners who are responsible for secondary sales and retailer management

• Sales force on company rolls who supervise the channel partner sales force

The internal sales team is evaluated formally, as it needs to exhibit an evolved set of skills. In case of the extended sales team, the nature of work is not significantly different, apart from the management of additional categories. Hence, the process at that level is oriented around on-the-job performance review, feedback and corrective action.

The assessment is based on objective parameters and is translated into a score using assigned weightages. The results are then analyzed, and cut offs are defined to disaggregate the sample into actionable buckets.

For distributors, the actionable buckets are continuation for integration, extending the period of observation or removal/replacement. Similarly, for sales team members, the action areas are continuation, activation of a performance improvement plan or severance.

Infrastructure assessment parameters

Assessment parameters

Field salesforce Channel partners

Sales Metrics – target achievement, growth delivered, effective coverage, range selling, incentive achievement

Distributor profile/credentials

Sales planning skills Financial strength

Channel management capabilities Logistics infrastructure

Efficiency in sales tracking and reporting

Level of IT enablement in operations

Orientation towards business objectives

Sales and coverage performance trends

Customer feedback

Illustrative output – distributor evaluation

Fit for integration

Performance to be reassessedat the end of next quarter

Immediate replacement

Suggested action

25

50

100

200

250

200

100

40

0 100 200 300

21-30%

31-40%

41-50%

51-60%

61-70%

71-80%

81-90%

91-100%

Distributor evaluation results

Dis

trib

utor

Sco

re R

ange

No. of distributors

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C. Infrastructure planning

The coverage and business objective, and assessment results are used in tandem to define the requirement of manpower as well as channel partners at a town/market level. The desired benchmarks are customized at a town class level (usually categorized in terms of town population such as Metros and 10 Lakh plus) to create alignment with on-ground realities.

1. Sales force sizing – input

• Service requirement at a retailer level defined, keeping in mind the salience/priority of various channels; this is further translated into visit frequency.

• Time required for an effective sales call and number of sales calls per day per salesman level

• Days available for market work in a typical monthly cycle

• The principle of span of control is used to define manning requirement upward from the supervisory level

2. Distributor network definition – input

A detailed ROI construct is simulated to identify the threshold turnover level and cost structures basis which a healthy ROI delivery (20%–25% per annum) is possible. The ROI construct elements are:

• Average turnover levels

• Outlet span and the associated distribution costs

• Fixed overheads

• Working capital spanning paid-up stock, market credit and outstanding claims (trade loads operated at a retail level)

Infrastructure planning is capped through the formation of sales territories to give a consolidated view of the sales team and distributor deployment within each branch or area.

Illustrative output – territory design within a metro city

Existing DistributorNew Distributor

1

2

34

5

6

7

9

8

10

D. Redefinition of effectiveness benchmarks

Sales effectiveness objectives for the sales team as well as for distributors have to be reviewed and redefined from the perspective of an integrated operation. The central premise is that the relative strengths in certain categories need to be leveraged to drive the weaker ones. This translates into reconstructing all of the key sales objectives at a category level – effective coverage, productivity, range selling and secondary sales.

Sales effectiveness improvement initiatives need to be supported by investments in building traction with consumers. This is critical for ensuring a sustained uplift in top-line.

8 | The retailer

E. Gearing up for transition

Equipping the sales team with the requisite knowledge and skills for performing effectively in the market is central to ensuring a smooth transition, as well as for delivery against planned goals. Interventions focused on building category understanding, competitive landscape and trade dynamics enable the team to actively cope with market challenges, while ensuring a seamless experience for end customers. This is usually enabled through classroom training to build market knowledge, coupled with simulations and role plays prior to hitting the market. In-market training after the integration kick-off is equally critical for the team to perform effectively.

Another facet of the gearing up process is creating alignment with channel partners on the integrated model and its implications. Transparent expectation setting in terms of the growth roadmap, the planned support elements, and investments and resources required from distributors is the key to inspiring confidence in the trade.

As is the case with any new initiative, defining what success means within the boundaries of linked timelines minimizes possible dissonance in future. To ensure consistency in communication, a roll out deck is created centrally and is cascaded to all distributors in person by the sales team.

F. Program management

Given that integration is a large transformational exercise, a project management approach needs to be adopted to ensure efficient execution. EY plays the anchor role in this by setting up a Project Management Office (PMO) to track and report progress at a granular level, address executional challenges and ensure adherence to deadlines, as well as the recommended process. This is done through the deployment of proprietary tools and templates while working in close coordination with the team on the ground.

A phased approach to the task at hand is always advisable to pick up valuable learning and insights for further refinement. Usually, pilot models are run at the outset to validate/improve the design before a full-scale rollout.

G. Continuous review

A continuous process of review until the last mile is critical to ensure that an integrated model is stabilized. A close watch on critical success factors is essential for the delivery of results as per plan for:

• Ensuring that all key sales enablers such as route lists, historical sales data and key retailer relationships are handed over efficiently in the transition process with no loss in transmission

• Deploying technology to ensure that the sales team and distributors are able to handle the demands of a multi-category operation in an effective manner

• Driving top-line proactively through requisite investments to derive true value from the entire effort

The payoff

An integrated strategy, if well implemented, pays off at multiple levels for an organization, helping it address the core S&D priorities, as follows:

Priority area Impact

Width of distribution

• Reduction of duplicity in market coverage enables redeployment of free resources, allowing greater outlet coverage.

• Category level distribution is better in markets where certain categories have traditionally operated with a disadvantage.

Quality of distribution

• The incremental direct reach opportunity is capitalized through the following two routes that create an uplift in the quality of coverage –

• Improved deployment of resources in high potential markets with white spaces, or

• Tapping outlets with higher salience for categories in a given market

Distribution cost

• A good degree of retailer overlap across categories gives channel partners increased per store throughput, which drives down distribution cost as a percentage to sales

• As integration typically leads to consolidation of distributors, an additional impact is created in terms of lower secondary freight costs for the organization

Manpower cost

• Improvement in distribution metrics by leveraging existing sales force strength is a clear driver in top-line; it lowers manpower cost over time.

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Krishnaprasad M Senior Manager

Krishnaprasad is a Senior Manager in the Advisory practice and is based out of Mumbai. An MBA from SP Jain Institute of Management and Research, he has 9

years of work experience. He spent 7 years in the sales function in the consumer goods sector with Asian Paints and Glaxo Smithkline Consumer Healthcare. He has been with EY for the past 2 years leading diverse engagements spanning go-to-market restructuring, sales effectiveness improvement, large scale program management and strategy creation.

Email: Krishnaprasad.m@in.ey.com Tel: +9122 6192 3165

Ravi Kapoor Director

Ravi is a Director with the Performance Improvement practice of EY India. He has over 15 years of work experience, of which he has spent 8 years in the consumer

products and financial services sectors with organizations such as Colgate Palmolive, PepsiCo and ICICI Bank.

He has advised several local and MNC consumer product companies in the Indian market and has assisted in developing their growth strategies and transforming their supply chain, and sales and distribution functions.

Email: ravi.kapoor@in.ey.com Tel: +91 22 6192 1595

Any model is relevant only so long as it helps the organisation tap its potential in the market effectively. Sustained growth and proliferation of skus over the course of time can open up newer opportunities for a player with an integrated Go-to-Market structure. Hence, when to move from an integrated model to a category-centric model to drive incremental growth could turn into a pertinent question. The road to answer the question would always be an objective cost-benefit evaluation on the S&D priority areas.In

con

clus

ion

10 | The retailer

Online food ordering — disrupting the food service sector in India

2

The variety of food in India is a reflection of the country’s diversity. Cuisine and consumer preference differ across regions. People traditionally preferred eating at home; however, this has increasingly given way to the trend of eating out. It has become an integral part of changing lifestyles in metro and tier-I cities, and the trend is now gaining grounds in tier-II/III cities.

Growing appetite for eating out

In the backdrop of flourishing economies and rising disposable incomes, the aspirations of Indian consumers are on the rise. For the modern Indian consumer who is in constant search of finding options for recreation, eating out in a restaurant with family/friends has become a popular choice. The Indian food service sector was estimated at around US$53 billion in 2014, and the unorganized segment accounted for a 68% share. The sector has been growing at a steady pace, and it is expected to see a growth of 10% CAGR during 2014–19 to reach US$86 billion.1

Indian food service sector

Source: NRAI, EY Analysis

Being a service sector, providing the best quality and value-added offerings to customers is of utmost importance. In this direction, restaurants have started delivering food to customers’ door steps. The food delivery sector in India was estimated at US$7 billion in 20142, and it has been dominated by ordering food over phone. However, over the past couple of years, the trend of ordering food online has been gaining popularity.

Internet increasing proximity of your favorite restaurant

The online food delivery market, though it accounted for merely about 5%2 of the overall food delivery market, has seen huge traction over the recent past. The sector has been growing at around 40%2 CAGR and is likely to see similar growth trend going ahead. The online food delivery market is forecast to touch US$2 billion by 2019, up from the 2014 estimate of US$0.4 billion3.

Unorganized,68%

Licensed singlerestaurants, 23%

Chain restaurants,5%

Restaurantsin hotels, 3%

Estimated market size - US$53 billion in 2014

Unorganized,59%

Licensedsinglerestaurants,29%

Chainrestaurants,9%

Restaurants in hotels, 3%

Forecast market size - US$86 billion in 2019

1 National Restaurant Association of India (NRAI) press release on 23 April 2013, EY Analysis

2 “Online food delivery sees a boom” - http://www.restaurantindia.in/article/growth/expansion/Online-food-delivery-sees-a-boom-137/, accessed on 20 February 2015, EY Analysis

3 “Food portals see 150% jump in orders” - http://www.thehindubusinessline.com/features/smartbuy/food-portals-see-150-jump-in-orders/article5863750.ece, accessed on 20 February 2015, “Online food delivery sees a boom” - http://www.restaurantindia.in/article/growth/expansion/Online-food-delivery-sees-a-boom-137/, accessed on 20 February 2015, EY Analysis

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Source: EY Analysis

Why are consumers increasingly turning to online food service options?

Online food service portals offer convenience, a variety of options and affordable food choices. In addition, it allows customers to save a considerable amount of time vis-à-vis dining in a restaurant or ordering food over phone. Modern technology and the availability of various payment options support the shift toward online ordering.

What makes online ordering so popular?

Convenience

• For those who do not want to cook daily

• For those who work late hours and have limited food options

Affordability

• Online-only restaurants offer more affordable options

• Less expensive vis-à-vis dining in a restaurant due to lesser taxes paid on online delivery

Internet access

• Growing internet penetration

• Increasing use of smartphone

Variety

• Options in terms of restaurants and cuisines

Time Saving

• Saves time in reaching a restaurant, traffic, parking, waiting after order is being placed

Different payment options

• Credit/Debit cards

• Cash on Delivery (CoD)

Online food market size (US$ billion)4

0.4

14

70

India

China

USA

Rapid growth for online food services is not limited to metro and tier-I cities, though they do account for the lion’s share of about 65% of demand; nevertheless, tier-II/III cities are also increasingly driving growth. Computers/Laptops are preferred to smartphones for ordering food online, but the trend is changing fast. With the rising number of device users and growing mobile internet penetration, smartphones are expected to make up for about 50%5 of the orders over the next 2 to 3 years, up from their share of 20%–30% in 2014.5

4 “Yelp expands into online food ordering with Eat24 purchase” - http://in.reuters.com/article/2015/02/10/yelp-outlook-idINKBN0LE2Q920150210, accessed on 20 February 2015, “China Online Food Ordering Market in 2014” – China Internet Watch - http://www.chinainternetwatch.com/8849/online-food-ordering-market-2014/, accessed on 20 February 2015

5 “Food portals see 150% jump in orders” - http://www.thehindubusinessline.com/features/smartbuy/food-portals-see-150-jump-in-orders/article5863750.ece, accessed on 20 February 2015

12 | The retailer

Online food ordering

• Variety of restaurants

• More payment options

• Time efficient in case of repeat orders (pre-recorded delivery address)

• Minimal margin of error (order vs actual delivery)

• Better feedback mechanism (complaints visible on portal)

• More informed choices based on online reviews and comparisons

• Advance/pre-order facility

Over-the-phone food ordering

• Limited choice of restaurants

• Only CoD payment option

• Time consuming and error prone (delivery address, order details)

• Inadequate feedback mechanism

• Limited pre-ordering options

Why customers prefer online to over-phone orders?

How does the online food delivery system work?The online food ordering mechanism is mostly common for customers; however, the business model of service providers varies depending on their service offerings.

Online food delivery – market place model

Restaurant delivers food to customer

User places an order

Order is routed to the selected restaurant

Pays commission

User browses through restaurants and menus Restaurant

User payment

User makes payment Cash payment

Food service portal

Online payment

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While placing an order, a consumer has the option to pick-up/take-away. In addition, consumers can place orders as guests without registering on the portal. Although, registered users enjoy two-fold benefits: a) they can avail of various discounts, freebies and other offers; b) a significant amount of time is saved in case of repeat orders, as customer details are already recorded.

Service portals follow various business models, depending on their service offerings, as follows:

Various business models followed in the online food service industry

The majority of portals earn revenues from commissions charged from restaurants on receiving orders. Some of the portals have now started earning additional revenues from advertisements. For instance, portals such as Foodpanda allow large-scale restaurants to advertise on the home page of the portal.

Online food service industry

QSR online delivery model Travel deliveriesMarket place mode

Leading QSRs receive orders, prepare food in house and deliver on their own.

Portals deliver food from restaurants to train/bus stations based on travelers’ advance orders.

Only details of train name, PNR number and stations where food needs to be delivered are required.

This model brings customers and restaurants on the same platform. Service is free to customers of the portal; restaurants pay commission based on orders received.

The customer chooses a restaurant and places an order on the portal, which is routed to the restaurant. The restaurant delivers food.

The portal shortlists restaurants based on area, cuisine, delivery coverage, minimum order value, popularity of a restaurant, etc. Once shortlisted, the portal approaches restaurants to get listed.

Once a restaurant agrees to come on board, a contract specifying commission and other terms is signed.

For contracted restaurants, details such as address, menu and minimum amount of order are uploaded.

14 | The retailer

Huge growth potential attracting investors

The rapid growth of online ordering in the country has attracted a number of local entrepreneurs, as well as international online food service chains such as Foodpanda and JustEat. On one hand, international majors such as Foodpanda and JustEat focus on pan-India presence; on the other hand, players including Yummybay, TastyKhana, TinyOwl, cater to regional demand.

The scope of the online food service sector is not limited to food delivery. Zomato is engaged in services ranging from rating restaurants to displaying online reviews by customers. The portal is planning to venture into online food ordering service.6 For instance, portals such as DineOut book a table at the customer’s favorite restaurant.

Players are getting innovative with their service delivery. For instance, TravelKhana, Merafoodchoice and Idlyvada deliver food to train/bus stations. Portals such as HolaChef and HoppingChef deliver food cooked by celebrity chefs, while portals including Yumist (a Gurgaon-based service) offer affordable meals to office goers. Cookfresh and Halfteaspoon deliver recipes, along with the required ingredients. FreshMenu and its peers operate on an online ordering-only model. Traditional home delivery QSRs have also launched their online portals to cash in on the popularity of the online channel.

The influx of new players in the sector has resulted in major developments in the funding space. During 2010–2013, 64 PE and VC deals worth US$714 million were reported in the Indian food sector, and Foodpanda and Zomato have respectively raised US$100 million and US$113 million.7

Fierce competition in the market

Considering the huge untapped market and the consequent growth potential, a number of players are entering the market. The existence of very low entry barriers is facilitating the move. A number of me-too service portals have started mushrooming, resulting in limited service differentiation. More than 60 online food service companies were founded in 20147, indicating the intensity of competition.

Additionally, online food service portals will continue to face competition from QSRs that have launched their own online service portals but continue to rely on traditional delivery, as well as from horizontal online service providers such as JustDial entering the market.8 Competition is already stiff and is set to intensify further. Hence, for long-term sustenance, it is essential for businesses to gain volume and offer differentiated value-added services. Players will need to focus on:

• Expanding service network to newer cities/regions to gain larger volumes – While expanding into newer regions, it is important to consider factors such as consumer preferences, restaurant order delivery area range and preferred mode of commutation for order delivery. These vary across regions and cities. Players need to tweak their business model/offerings to ensure city/region profitability. E.g., Yummybay, a Kochi-based portal, is expanding to other Kerala cities such as Kozhikode and Thiruvananthapuram, while Foodpanda is expanding in tier-II/III cities.9

• Gaining economies of scale for larger volumes and higher operational efficiencies – Large players are acquiring local/regional players, while international chains are entering the Indian market by acquiring local service providers. In addition, mergers and acquisitions are taking place in the sector. E.g., in February 2015, Foodpanda acquired JustEat’s India business, after taking over TastyKhana in November 2014. In addition, Titbit acquired Foodkamood, a smaller local portal, in October 2012 to expand its delivery network to cover South Mumbai.

6 “Zomato to start taking online food orders; invests Rs 300 crore” - http://articles.economictimes.indiatimes.com/2015-02-12/news/59083738_1_pankaj-chaddah-deepinder-goyal-zomato, accessed on 20 February2015

7 “Inspiration from Zomato, Foodpanda’s frenetic growth: How out-of-the-box food startups are flourishing” - http://articles.economictimes.indiatimes.com/2015-02-15/news/59166640_1_zomato-pankaj-chaddah-anand-lunia, accessed on 20 February2015

8 “Just Dial enters online food ordering space across 14 cities” - http://yourstory.com/2013/08/just-dial-enters-online-food-ordering-space-across-14-cities-existing-online-food-ordering-players-will-feel-the-heat/, accessed on 20 February2015

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• Differentiated service offerings – It is important to have niche, value-added offering for long-term survival. Portals that are limiting scope to only food delivery will increasingly face stiff competition from similar service providers. Hence, it is essential to differentiate offerings. Some examples of this are:

• Travel delivery portal TravelKhana has tied up with MakeMyTrip.com to enable travelers to place an order while booking tickets. The portal has also ventured into a franchisee model to maintain the quality of food delivered in small stations/towns. The portal offers franchisee to local restaurants, especially in smaller towns, and lists them as TravelKhana certified restaurants to ensure the quality of food. “We are in talks with the Indian Railways to have our presence inside the train and make the delivery process easier”, said Mr. Singh, CEO and Co-founder of TravelKhana.10 Another travel delivery portal Merafoodchoice delivers food through its own network to ensure quality of packaging.

• TimesCity, a part of Time Internet, acquired DineOut in April 2014 to add to its bouquet of services. In June 2014, it offered another feature that allows users to book a table using Twitter.

• Brand building: Being in the nascent stage of development, huge investments are needed to build a strong brand. Acquiring a new customer and retaining an old one is an expensive proposition, especially for entrants. Developing a strong brand would allow high brand recall, which, in turn, would result in repeat orders.

The online food service business is characterized by small ticket size. The average ticket size for meals ordered online is smaller than the average money spent in dine-in restaurants. Ticket sizes are even smaller in the case of train/bus station delivery. Hence, maintaining profitability becomes a big challenge for

many service providers without achieving sustainably high volumes, considering the high costs involved. New players struggle with huge operational costs for setting up the portal, establishing a network of restaurants, recruiting and retaining employees and acquiring customers (entails expenditure on advertisements, promotions, discounts). Existing players need to make investments to increase their volumes and stay ahead of competition. Consequently, most of the portals are yet to break-even. Amid rising competition, players are likely to get into price wars to gain a larger market share. This will squeeze their margins and could force less competitive players to shut shops or get acquired by larger players.

Being in a nascent stage and on a rapid growth trajectory, the sector is bound to attract entrepreneurs and investments. Although it is likely to see a churn, online food delivery will be one of the sectors to watch out for in coming years.

Input from Nivedita Ukidwe, Strategic Market Intelligence, EY Knowledge

Ankoor Das Manager

Ankoor is a Manager with the Advisory practice, with focus on the retail and consumer products sectors in Mumbai. He attended the Dual Degree (B.Tech

+ M.Tech) program in Electrical Engineering from IIT Bombay and completed his PGDM (MBA) from IIM Bangalore. Prior to joining EY, he has worked with one of the leading online retailers in India, with focus on new category additions, compliance, category management, sales and marketing, etc.

Email: Ankoor.das@in.ey.com Tel: +91 22 6192 3645

9 “Online Food Industry Whets Appetites in City” - http://www.newindianexpress.com/cities/kochi/Online-Food-Industry-Whets-Appetites-in-City/2014/02/05/article2038130.ece, “FoodPanda to focus on tier-2 cities, increase coverage to 5000+ restaurants - See more at: http://www.digit.in/internet/foodpanda-to-focus-on-tier-2-cities-increase-coverage-to-5000-restaurants-interview-19305.html#sthash.DKkcEnbL.dpuf” - http://www.digit.in/internet/foodpanda-to-focus-on-tier-2-cities-increase-coverage-to-5000-restaurants-interview-19305.html, accessed on 20 February2015

10 “Food delivery portals cook up new strategies” - http://timesofindia.indiatimes.com/business/india-business/Food-delivery-portals-cook-up-new-strategies/articleshow/29583662.cms, accessed on 20 February2015

16 | The retailer

Transformation in the retail sector3

In 2014, a greater number of merchants ventured into omni channel retailing and adopted in-store marketing solutions such as beacons to enrich the shopping experience. In 2015, we anticipate stores to double down on these strategies and continue to find ways to bridge the gap between offline and digital channels. In addition, we expect Social, Mobile, Analytics and Cloud (SMAC) to play an even bigger role in the overall shopping experience.

Many retailers will leverage social channels to engage with users and influence their merchandising decisions. The role of social channels will also evolve, as they will not just be used to showcase products, but to actually sell them. This will be true for mobile as well. Companies will not just use the small screen to “get in front” of customers (i.e., through geo-fencing and mobile-enabled sites). Instead, in 2015, retailers will step up their efforts by incorporating mobile into other parts of the customer journey, including order fulfilment, payments, and loyalty.

These trends—among many others— have been discussed in detail below. Read through the following predictions and see how you can use them to make decisions in 2015, stay ahead of your competitors, and provide a better shopping experience for your customers.

Trend 1: Social networks will serve as shopping platforms

Over the last several years, brands have used social media to market their products, talk to customers, and even make merchandising decisions. In the near future, we anticipate merchants to add “selling” to the list of things they can do on social sites. The recent launches of shopping functionalities in the social empire (i.e., Facebook’s and Twitter’s “buy” buttons) indicate that social channels would exert significant influence over consumer behavior and preference.

Retailers that are already on this path include Nordstrom and Target, which are using the Like2Buy platform on Instagram, as well as Home Depot and Burberry, which are testing Twitter’s buy button.

Shoppers Stop celebrated having 1 million fans on Facebook by giving INR200 (US$ 3.3) discount to all of its Facebook fans after some loyalty analysis. This activity earned the brand INR2 crore business from 10,000 customers.1

Users will be able to enjoy a seamless shopping experience if social shopping is able to realize its potential.

Trend 2: Mobile will continue to grow in all directions

Mobile will show no signs of slowing down this year, and we anticipate smartphones and tablets to play a bigger role in the shopping journey. Mobile devices have brought retail stores to the fingertips of shoppers, who can now access retail stores from their offices, homes or while they are travelling. Shoppers can shop, track shipments, share feedback and locate stores from their mobiles. The key areas where mobile will prove most useful to retailers are –

• Loyalty applications: Shoppers will no longer have to carry physical cards; instead, they can track and redeem their rewards using their smartphones through mobile applications.

• Mobile services: Shoppers will be able to enjoy convenient mobile ordering services.

• ►Mobile payment solutions: Consumers will increasingly prefer mobile wallets to card swiping or cash handling.

In line with this, 65% of Snapdeal’s2 orders were received from mobile phones in 2014–15. Key ecommerce apparel retailers (e.g., Myntra, Jabong, Amazon) have mobile apps that allow customers to purchase products, track orders, receive personalized offers, provide feedback and monitor loyalty points.

1 “Social media Campaign Review: Shoppers Stop”-http://www.socialsamosa.com/2013/08/social-media-campaign-review-shoppers-stop-perfect-for-me-app/, accessed on 20 March 2015

2 “Snapdeal gets 65% of orders through mobiles: Kunal Bahl” - http://www.business-standard.com/article/pti-stories/snapdeal-gets-65-pc-of-orders-through-mobiles-kunal-bahl-115010100324_1.html, accessed on 20 March 2015

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Trend 3: The secret weapon of retail: predictive analytics

Retailers are monitoring all sorts of information about their shoppers in terms of how they use their phones, shop in-store, buy online, withdraw cash from the bank and post on social media. This is because they need to know and understand their customers and provide a customized shopping experience accordingly. In 2015, we anticipate data to be more accessible and powerful to help streamline retail operations.

Retailers are using predictive analytics/ business intelligence (BI) tools to –

• Provide a proactive solution to implementing retention strategies by identifying customers whose loyalty is at risk and then providing them special offers or services to mitigate that risk

• Design programs that will allow you to appreciate and reward valuable customers

• Plan marketing strategies that target specific groups of customers or prospects

• Use unstructured text-based sources such as call center records, blogs, social media, customer surveys and emails to understand voice of customer (VoC), predict behavior and address customer complaint in a timely manner

• Optimize product bundles as per market segmentation to increase product recognition, market share and revenue

• Acquire new customers and increase market share by developing campaigns and offers for specific segments and convert prospects to customers

• Provide existing customers with add-on or high-value products to increase their loyalty and reduce churn

• Prevent fraud and manage risk by identifying unusual patterns in their data

• Determine appropriate pricing levels and fulfil customer demands to meet sales goals

• Forecast demand, track inventory history and organize supplier information such as pricing, delivery time and overall reliability to create an efficient supply chain

Macy’s is a case in point of the benefits of predictive analytics. It has deployed a solution that results in better targeting of registered users of the website. Within 3 months, Macy’s saw an 8% to 12% increase in online sales by combining browsing behavior within product categories and sending targeted emails for each customer segment.3 In addition, Amazon uses predictive analytics to better understand customer behavior and develop a solution that helps sales professionals better qualify their leads.

Trend 4: Back-end technology is essential to deliver better shopping experience for customers

Using the various cloud solutions, retailers will be able to improve business outcomes in terms of channel operations (e.g., store task management, scale ecommerce), merchandising and marketing (e.g., product catalogue, allocation, loyalty programs), supply chain management (e.g., warehouse, transportation, fulfilment), and sales, service and support (e.g., ecommerce, reduced total cost of ownership).

Retailers will move toward retail-as-a-service (RaaS) solution for operational processes such as sales associate management, task management and restocking to improve delivery efficiency.

Retailers will be using various cloud-based solutions to:

• Engage with customers

• Create a seamless retailing experience

• Allow customers to shop on their own terms

• Automate inventory and document management processes

• Get visibility across the supply chain to identify the desired product in the most cost-effective location and move it to a customer

An american retailer implemented the virtualized servers run in remote server farms. As a result, it has been able to reduce the number of servers in each store from seven to just two. In total, the retailer has retired 8,650 in-store servers, saving millions of dollars in hardware, and electrical and maintenance costs. It now rolls out software upgrades to its stores in 45 days.

Walmart launched its Get on the Shelf contest, allowing customers to submit online video pitches for an invention or a request to carry a new product. The winners, selected by the public, were to be invited to sell their products on Walmart.com.3 “Customer Retention: Macy’s Uses Predictive Analytics to Grow Customer

Spend” - http://www.retailonlineintegration.com/article/macys-uses-predictive-analytics-grow-customer-spend/1, accessed 20 March 2015

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Trend 5: Companies will find better ways to manage risk and protect customers

Retailers place extremely high priority on data security and are investing tremendous resources to prevent attacks; however, cyber criminals are persistent and their methods of attacks are getting increasingly sophisticated.

Companies are finding ways to better manage risk and protect customers. For e.g., they are working on the following:

• Securing network points, including POS terminals, e-commerce websites, third-party vendor links and employee access points, to avoid any attack

• Using analytics-based security tools that scan incoming data and resource requests to identify anomalous behavior and report it to IT admin for further analysis

• Deploying stringent operational processes to help ensure that security does not gets compromised

• Developing a broader security plan, detailing elements of how to effectively contain a breach, assess damage and then remove the vulnerability

• Building up situational awareness among employees and customers against cybersecurity

Flipkart, for example, chose to conduct vulnerability assessment and penetration testing (VAPT) services to secure any loopholes in its website that may make it vulnerable to hacking and breach of security. Also, it has a 24x7x365 network monitoring and support management system.

Retailers and financial institutions, for example, have made PIN the primary form of card payment authorization because it has proven to be more secure than signatures. PINs keep customers safe from fraud in the event that they lose their cards. Unlike signatures, which can be forged, PIN codes cannot be easily cracked. Along with having a unique and convenient shopping experience, customers want their purchasing to be safe and secure.

Trend 6: Internet of things (IoT) is affecting the retail industry

IoT has become a ground reality. While it may seem tricky to grasp as an idea, IoT in its simplest form stands for a concept where devices, objects and systems connected to the web can share information.

While most of the areas of impact are under speculation, the effect of IoT in retail is becoming evident. The emergence of ecommerce is one of the major disruptions in the retail sector. We are of the opinion that IoT has the potential to cause an even bigger disruption to the retail and ecommerce space.

Retailers are using IoT to:

• Employ location-based marketing techniques to drive in-store traffic by connecting with their customers at the right time, in the right place

• ►Link more of their operations to the internet, thus aggregating information that will help them serve their customers better

• Connect customer data collected through loyalty programs to data from point-of-sale devices, in-store customer tracking and social media to gain a 360-degree view of their customer; this will help provide more personalized service and promotions

• Predict customers’ buying requirements and even send special offers on items that they are more likely to buy through beacons by using information on their browsing history and social presence

• Enable various assets in the company to talk to each other, to their employees, and to their customers; use this data, along with business intelligence tools, to provide deeper insight into what their customers and employees want and need

• Deploy smart identification tags to track inventory adequately to avoid any stock-out situations

• Reduce pilferage or leakage of inventory

19The retailer |

Starbucks recently deployed more than 500 clover coffee brewers – a connected coffee machine. These smart coffee machines are connected to the cloud through a system called CloverNet. By integrating it with the MyStarbucks loyalty program, the coffee giant is able to track customer preferences down to the individual level. Furthermore, these machines help update recipes digitally, track customer and store consumption patterns, and self-monitor.

Walmart adopted IoT for inventory management to optimize its warehouse and supply chain operations; others are now following suit to manage their inventory in a better way.

Bottom line: It’s all about the customer experience.

This article contains some diverse predictions, but every single one of them boils down to one thing:

improving customer experience

Sneha Gandhi Senior Manager

Sneha is a Senior Manager with the IT Risk and Assurance (ITRA) service line within the Advisory Practice of EY. She has diversified experience across industries

such as industrial products, chemicals, life sciences, automotive, financial services, FMCG, consumer product and technology.

She has more than eight years of experience in the IT industry, including hybrid experience in information risk consulting, security audits, designing and implementing security and network solutions and internal audits. As part of EY, she has led multiples engagements including ISO27001 framework development, data migration review, internal audits, IT roadmap development, PCI-DSS reviews, IT due diligence, software development life cycle review, ISAE3402/ SSAE16 engagements, business continuity management review and Sarbanes Oxley readiness assistance.

Email: sneha.gandhi@in.ey.com Tel: +91 22 6192 1905

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With expertise in developing premium apparel brands, Shailesh is a business leader with 23 years of experience in the apparel industry. He holds a bachelor’s degree in engineering and a master’s degree in management studies (MBA from NMIMS) from University of Mumbai. For the last nine years, he has been working as the Managing Director and Chief Executive Officer of Tommy Hilfiger business in India. In a pioneering effort, he has demonstrated methods of rapidly scaling up premium, imported business of high standards in India.

Along with Tommy Hilfiger, he has led some of the biggest brands, including German brand Esprit, Italian brand Benetton in Asia and brands of Madura Garments, such as Louis Philippe, Van Heusen and Allen Solly.

Before his assignment with Tommy Hilfiger, he had briefly worked in Hong Kong with Benetton Plc of Italy as the Head of its wholesale business in the Asia Pacific region.

4

20 | The retailer

21The retailer |

Interview with

3. What is Tommy Hilfiger’s view/understanding of the India consumer? How is the Indian consumer different from those in other developed or emerging markets? How has Tommy Hilfiger aligned itself to cater to the Indian consumer?

The fashion industry is experiencing convergence of trends and preferences. What sells well in Tokyo and New York is also very likely to do well in India. Hence, there is strong emphasis on providing a unified global experience. Access to global media aides such as internet/TV channels/strength of international fashion magazines, including GQ, in India, coupled with a rapid increase in international travel, has supported this convergence of trends.

Of course, the country’s offering needs to be locally aligned in terms of sizing, silhouettes and color preference. However, all of these offerings are from the global product offering.

One key focus area in the India business has been emphasis on providing the same international standard as anywhere else in the world.

4. What are the major operating challenges faced by apparel brands in India?

Shortage of quality retail space, high rentals and delays in opening of malls remain the key challenges.

High import duty is a major deterrent compared to the development of business in some of the other Asian countries. The sudden and sharp currency depreciation in recent years also posed challenge to the import model.

5. What is your mantra of success in the Indian branded apparel retail market?

One observation is that if any international brand wants to be as successful as we are here, it will have to provide an international offer to Indian consumers who are very discerning, i.e., the same collection as in other parts of the world at the same time, same price and same world class service.

1. What is your view on the growth prospects in the Indian apparel and accessories market in the next 3-5 years? In your opinion, is the branded segment getting too crowded?

With a new and very committed government to economic growth in place since 14 May, India is in a very fortunate stage compared to its peers. FM shared his plans of > 8% GDP growth for this year, which is a very encouraging benchmark. In this back ground and context, I am very optimistic about the growth of the apparel and accessories market in India, which is basically a discretionary market fueled by optimism in the air.

2. Tommy Hilfiger is a leading foreign brand in India; please share your learnings from operating in the Indian market?

We always knew that Indians love Tommy Hilfiger products. Even before the brand’s launch in India in 2004, this affinity was known to us through a study of purchases made by Indians in foreign markets. This business success in India confirms the affinity of Indian consumers for this lovely brand.

Learning has been the need of providing the same international shopping experience as anywhere else in the world. Indian consumers are very discerning; they travel internationally and know a lot about our brand.

They expect the same international offer as they can get in NY, London, Singapore or Dubai. Therefore, we have always made it a point to offer the latest imported line of products that is available in any global center.

Besides the wholly imported product line, we have ensured international standards for shop interiors, staff training and communication.

Mr. Shailesh Chaturvedi

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Innovation board

Metro Cash & Carry has launched a new smartphone application, fTRACE, to empower shoppers to track the origin of fish and meat products. Shoppers can search for detailed information about their purchases, including animal species, origin, quality, processing method and sustainability.

The tool is available online as well. Metro plans to expand its traceability to fresh produce and non-food items, as well as roll out the scheme internationally.

Metro has worked on the system for a number of months and believes that it has produced an innovative solution. Companies across the chain enter data into their own systems; the information is then consolidated online. By using a search engine or unique product identification code, detailed information about each product can be found.

http://supplychainanalysis.igd.com/Hub.aspx?id=13&tid=1&rid=49&nid=3148

24th Feb 2015

Unilever has developed a global collaborative program to work with its customers to tackle the problem of stock availability. It has worked with many retailers and has delivered significant success. The program’s focus was initially limited to Unilever’s top 20 retail markets, but it has now been expanded to emerging markets and other channels.

The program is run by a dedicated global team that focuses on working with local operating companies and their retailers. The team advises colleagues and customers around the world to help them analyze issues and implement solutions.

Using experience from Total Productive Maintenance (TPM) and lean manufacturing, Unilever developed a simple five-step process - 1) carry out strategic alignment 2) agree on a definition 3) establish loss tree (stores are physically audited, and the reasons for poor availability are established by analyzing processes backing up the chain. Individual store performance is compared to benchmarks from a database developed by Unilever. Each out-of-stock incident is then analyzed using loss trees to determine the point in the process where the issue arose), 4) undertake root cause analysis and 5) implement a solution.

http://supplychainanalysis.igd.com/Hub.aspx?id=27&tid=4 24th Feb 2015

Nestlé and Walmart were trading in China with a complicated business model. A centralized distribution system had not established. As a result, Nestlé had a complicated route to market that involved operating from 9 sales regions that interacted with 29 Walmart offices. In addition, 81 distributors were distributing products to 400 Walmart stores. It was lagging behind on operational parameters such as case fill rate, availability in-store and freshness. To resolve all of these issues, the company developed a collaborative project to simplify the way in which the two companies worked together in China. The companies wanted to improve customer satisfaction, on-shelf availability and product quality.

They implemented Go Direct, a project to transform their distribution and communication models. Switching from direct to store deliveries to a centralized model significantly simplified Nestlé’s operation. The company now delivers to six of Walmart’s DCs before delivering to the store. The change in models required the contact points between the two companies to be realigned. This eliminated duplication of workload, reduced errors and improved efficiency.

As part of the program, they also ensured that joint business plans were drawn up and strategies were aligned; cross-functional roles and responsibilities were established, orders were aligned to cash process; end-to-end value stream mapping workshop, including DC visits, were undertaken to ensure all practical and logistical implications were considered; and a process was set up to regularly review performance after implementation. As a result of this, the case fill rate for both of the companies was up by 17%, in stock was up by 4% and sales by 9%.

http://supplychainanalysis.igd.com/Hub.aspx?id=14&tid=1&rid=51&pid=1020024th Feb 2015

Metro increases supply chain transparency with a new mobile application

Unilever’s five-step program to increase availability

Walmart and Nestle collaborate in China1

2

3

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