Indian Retailers and their Strategies

By Sandeep Shah
Praxis Business School, Kolkata

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KEY PLAYERS IN FOOD, GROCERY AND GENERAL MERCHANDISE
RETAILING
Value Retailers Convenience Stores / Supermarkets

Value Retailers Store Name Value Retailers Store Name

Pantaloon Big Bazar Nilgiri’s Nilgiri’s
Retail
Spinach Spinach
Shopper’s Stop Hypercity
Trinethra – AV More
Trent Star India Bazar Birla
Subhiksha Subhiksha Reliance Retail Reliance Fresh
Pyramid Retail Pyramid Megastore
RPG Retail Spencer’s Hyper
Vishal Retail Vishal Mega Mart
Shoprite Shoprite
Landmark Max Retail
Group
Reliance Retail Reliance Mart

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

PANTALOON / FUTURE GROUP : FORMATS / OTHER BUSINESSES

Pantaloon Retail
(Future Group)

All Pantaloons

Blue sky Central

Depot Big Bazaar

Futurebazaar.com Fashion Station

Food Bazaar Brand Factory

Home Solutions Converge m Future Future Capital

Future Logistics Future Media
Retail (I) Limited Retail (I) Ltd. Generali Holdings

• E Zone
• Electronics Bazaar
• Collection (I)
• Furniture Bazaar
• Home Town
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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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 Future Group has been expanding very fast after other large corporates
announced their entry into retail (since 2004)

PANTALOON / FUTURE GROUP : GROWTH OVER THE YEARS

1987 Started off as a garment manufacturer
1997 Opened its first Pantaloon store in Kolkata
2001 Opened the first Big Bazaar (hypermarket format)
2002 Ventured into food retailing under Food Bazaar
2004 Opened the first Central, seamless mall in Bangalore
2005 Opened Fashion Station, its format for fast moving fashion clothing and accessories
2005 Opened aLL, a lifestyle store for plus-size men and women
2005 Ventured into the home furnishing business through a subsidiary company Home Solutions
Retail (I) Ltd
2005 Formed JV with Liberty group, to enter into the footwear segment
2006 Formed subsidiaries and JVs to venture into related businesses like - logistics, in-store and
out-store media business, leisure and entertainment business, health and fitness product and
services
2006 Entered into JV with Generali to form a general insurance company
2006 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 to
India
2006 Launched its e-tailing website, www.futurebazaar.com

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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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PANTALOON / FUTURE GROUP : KEY STRATEGIC APPROACH

• 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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PANTALOON / FUTURE GROUP : KEY STRATEGIC APPROACH

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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PANTALOON / FUTURE GROUP : KEY STRATEGIC APPROACH
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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PANTALOON / FUTURE GROUP : KEY STRATEGIC APPROACH

• 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 : INTRODUCTION

• 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.

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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 Estee
Lauder.
2006 Promoter group launched Hypercity, their hypermarket format, where Shopper.s
held 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 Bangalore
international airports in JV with Nuance Group AG. Also has rights to open stores at
Mumbai’s domestic terminal.
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SHOPPER’S STOP : STRATEGIC APPROACH
Superior Brand Image

• 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.

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SHOPPER’S STOP : STRATEGIC APPROACH
FOCUSSED ON SYSTEMS AND PROCESSES

• 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).

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SHOPPER’S STOP : STRATEGIC APPROACH
FOCUSSED ON SYSTEMS AND PROCESSES

• 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).

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SHOPPER’S STOP : STRATEGIC APPROACH
Expansion in different Categories and Formats

• 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.

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SHOPPER’S STOP : STRATEGIC APPROACH
Expansion in different Categories and Formats

• 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.

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 Pantaloon Retail and Shoppers
Comparison on Key Parameters

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

LEASE RENTALS AS % OF SALES

8.00%
7.30%
7.00% 6.90%
6.30% 6.30% 6.30%
6.00%
5.40%
5.00%
4.40%
4.20%
4.00% Pantaloon
3.50% 3.50% Shoppers
3.00%

2.00%

1.00%

0.00%
2002 2003 2004 2005 2006

Source: CLSA Asia Pacific Markets

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

LABOR COST AS % OF SALES

7.00%
6.50% 6.40%
6.10% 6.00%
6.00% 5.80% 5.70%

5.00% 4.80% 4.70%

4.30% 4.20%
4.00%
Pantaloon
3.00% Shoppers

2.00%

1.00%

0.00%
2002 2003 2004 2005 2006

Source: CLSA Asia Pacific Markets

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

INVENTORY HOLDING PERIOD IN DAYS

100
92 92 92 90 90
90

80

70

60

50 Pantaloon
Shoppers
40 39 40
37 37
33
30

20

10

0
2002 2003 2004 2005 2006

Source: CLSA Asia Pacific Markets

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

RETURN ON CAPITAL EMPLOYED

30%

27%
26%
25% 25%

20% 20%

17%
15% 15% 15% 15% Pantaloon
14%
13% Shoppers
12% 12%
11%
10% 10%

5%

0%
2006 2007 2008 2009E 2010E 2011E 2012 E

Source: CLSA Asia Pacific Markets

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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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RELIANCE RETAIL PLANS : OVERALL

Footprint 1500 cities and towns across India.

Format  Supermarket
 Speciality Stores
 Supermarkets
Hypermarkets

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

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RELIANCE RETAIL PLANS : VERTICALS

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

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

RELIANCE RETAIL : STORE GROWTH

800
700
700
600
500
400 No. of Stores
300
200
109
100 45 57 80
11 28
0

2008

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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

33
 Bharti-wal-mart

34
BHARTI WAL-MART : STRATEGIC APPROACH
• Bharti group and Wal-Mart have announced the formation of a joint venture
for 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.
35
BHARTI WAL-MART : STRATEGIC APPROACH

• 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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BHARTI WAL-MART : STRATEGIC APPROACH

• 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

38
SUBHIKSHA : INTRODUCTION

• 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.

39
SUBHIKSHA : STRATEGIC APPROACH

• 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.

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SUBHIKSHA : STRENGTHS AND CHALLENGES
Strengths Challenges

•Early mover advantage •Primarily a front-end format

•Strong presence in key retail markets •Share of fresh grocery is low; FMCG
•A decade of experience in retailing & pharmaceuticals form a large chunk
•Strong base of loyalty members •Entering in a big way into new
•Funding for expansion plan has markets . Will have to manage local
been tied-up authorities, retailers as well as
•Nation-wide presence will bring suppliers
greater bargaining power • Competition is expected to intensify
•Prime candidate for acquisition

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 Rural Retailing

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RURAL RETAILING : INTRODUCTION

• 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.

43
RURAL RETAILING : ITC AND GODREJ

• 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.
44