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UNIVERSITY OF MUMBAI

PROJECT ON

RETAIL MANAGEMENT

SUBMITTED BY

HITESH N. JAGASIA

PROJECT GUIDE

PROF. RAJWADE.

BACHELOR OF MANAGEMENT STUDIES

SEMESTER V
(2009-10)

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE,


SINDHI COLONY, CHEMBUR – 400071

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UNIVERSITY OF MUMBAI

PROJECT ON

RETAIL MANAGEMENT

Submitted
In Partial Fulfillment of the requirements
For the Award of the Degree of
Bachelor of Management

By

HITESH. N. JAGASIA

PROJECT GUIDE

PROF. RAJWADE.
BACHELOR OF MANAGEMENT STUDIES

SEMESTER V
(2009-10)

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE,


SINDHI COLONY, CHEMBUR – 400071

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Declaration

I student of BMS – Semester V (2009-10)


hereby declare that I have completed this project on
.
.
The information submitted is true & original to the best of my
knowledge.

Student’s Signature

Name of Student
HITESH. N. JAGASIA

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C E R T I F I C A T E

This is to certify that Mr. Of


TYBMS has successfully completed the project on
___________________________ under the guidance of
___________________________.

Project Guide Principal


Dr. (Mrs) J. K. PHADNIS

Course Co-ordinator
Mrs. A. MARTINA

External Examiner

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PREFACE
Departmental stores may be a comparatively recent phenomenon in India, with a
specially created ambience making shopping an experimental affair. Indeed, we are even
beginning to demand places where we can avail the luxuries of spending the whole day in one
place, taking advantage of a bouquet of services in which shopping is only a part. So you can
browse, window shop, make purchases, break off for a meal, take in some entertainment, and
listen to music. This concept of organized retail marketing, which has caught on like lightning, is
really just the creation of a distribution network that cuts out various intermediary costs and
creates a much smoother interface between manufacturer and customer. This organized network
which bridges the distance between the manufacturer and the consumer has seen many of the
world's leading entrepreneurs successfully walk down a particularly profitable road. With total
sales going up to $6.6 trillion, the industry today is the world's largest private industry and
accounts for over 8 per cent of the GDP in western countries. And now, it's India's turn. Today,
we stand at the crossroads of a retail revolution. After 50 years of unorganized retailing and
fragmented kirana stores with very basic offerings, fixed prices, zero usage of technology and
little or no ambience the industry have finally begun to move towards modernization,
systematization and consolidation.

Retailing has now become a key growth area. There has been an attitude change in the
way the Indian consumer thinks about shopping. What, were and how they buy is now the big
question. Over the last decade, there has been a significant evolution in his psyche, a change that
has been carefully recorded and documented by behavioral pundits. Although it is most
noticeable in large metros, its impact is also seen in small towns. The change was kicked off by
the economic liberalization of the 1900's and accelerated by the media (cable) boom following
the Gulf War, when the radical explosion in media images exposed the Indian consumer to the
lifestyle enjoyed in more affluent countries. And even within his own country. Earlier, it was the
lack of consumer culture along with low incomes that prevented the development of such
formats. But economic growth has now triggered off a spending spree, with India's middle and
high-in-come population suddenly realizing that they have enough disposable income to go for
the good times. As the low-income base shrinks, there is an ever- increasing expansion of the
higher income groups, with a corresponding demand for consumer goods that allows the deeper

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penetration of high quality and higher priced products. The early indicators of this revolution are
the mushrooming of better quality retail outlets, a profusion of brands and various product
options. The Indian consumer who can discern a clear value propositions and unbeatable ranges
at unbeatable prices served to him on a platter. The retail industry is now beginning to evolve.
Traditionally, most retailers have very localized operations but this nature of the industry is fast
changing with the awareness that sources must be developed and a proper merchandising system
put in place. The pace of transformation has accelerated and today India has over 12 million
retail outlets. As a phenomenon, retail marketing has a radical impact and can bring in new
technologies, systems and mindsets. It can improve overall labour, productivity and employment,
all in the name of providing the consumer with a better range of products at better prices in a
better ambience.

Retail, India's largest industry is driven by the markets' ability to provide better products
in a comfortable ambience at affordable prices. The growth of large multi-brand apparel outlets
is one result. These outlets are usually 20,000-50,000 sq ft in size, have their own parking space,
and separate counters for perfumes, accessories, men's wear, women's clothing and children's
clothing. Some stores also have toys, books, home wear, footwear and music. Some of these
retailers have begun to develop a private label brand, to supplement their range and improve their
margins. These have become significant brands in their own right. Similar departmental
stores/multi brand outlets are likely to develop into a significant format in the Indian market over
the next decade. The players who can make organized retailing an integral part of India will be
the ones who reap the benefits at the end of the change process. The industry however will have
to work in tandem with the government and manufactures to build a more positive environment
for retail and cater to the demand for better products and retailing from India's first generation of
demanding cash rich consumer.

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Index
1. Introduction
6-17
Retail definition and scope
………………………………………………………………………………….7
List of retail institutions
…………………………………………………………………………………8
Retailers role in distribution channel, Benefits of retailing
…………………………………………………………………………………9
Benefits to customers
……………………………………………………………………………10-11
Benefits to manufacturers and wholesalers
……………………………………………………………………………….12
Benefits to economy
………………………………………………………………………………13
Evolution of retailing
………………………………………………………………………………13
Factors behind the change of Indian retailing industry
…………………………………………………………………………14-15
Retailing environment
…………………………………………………………………………16-18

2. Retail Institutions
19-
Theories of Institutional Change
Wheel of Retailing
……………………………………………………………….....................19-22
Dialectic Process
……………………………………………………………………………23-24
Retail Accordion

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……………………………………………………………………………..25-26
Natural Selection
…………………………………………………………………………………27

3. Classification of Retailers
28-
Unorganized Retail
……………………………………………………………………………….28-32
Organized Retail
……………………………………………………………………………33-43
Formats Adopted by Domestic players in India
…………………………………………………………………………………42

Formats Adopted by international players in India


………………………………………………………………………………43
Leading retail chains in India
……………………………………………………………………………….44
Retail in small town
………………………………………………………………………………..46
Challenges for Organized Retail
………………………………………………………………………………48
Impact of organized Retail
………………………………………………………………………….49-51

4. Understanding the retail customer


52-
Understanding the retail customer
……………………………………………………………………………53
The Market
………………………………………………………………………..53-54
Structure of the buying population
……………………………………………………………………………55

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5. Why Retail Sector Booming
56-59
The Growth Drivers
……………………………………………………………………………56-57
Drivers of growth in organized retail
……………………………………………………………………………58
Investment opportunity
……………………………………………………………………………59
Growth in support industries
…………………………………………………………………………...60

6. PANTALOON RETAIL INDIA LIMITED (PRIL)


61-69

Penetration in key market

……………………………………………………………………65

Product Procurement

……………………………………………………………………66

Future Plans

………………………………………………………………............69

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Methodology

This project is a mixture of theoretical as well as practical knowledge. It also contains


ideas and information imparted by the guide. The secondary data required for the project was
collected from various websites and books of reputed authors.

This project started with sorting all the raw data and arraigning it in perfect order. To add
value to the project and understand the practicality of retailing business, I have done an
experimental training from TKWs institute Vashi branch, and have a job experience with
Flemingo Retail Pvt. Ltd in Turbhe for four months.

To further understand the consumer better, a field survey was also conducted to find out
the taste, preferences, purchasing habits, expectation of the consumers, etc.

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Retailing: definition and scope

Retailing is derived from the French word retailier, which means, “ to cut a piece of”.
Thus, retailing can be defined as a set of business activities that adds value to the products and
services sold to the final customers for their personal, family or household use. A retailer is the
key player in the marketing process as he regularly interacts with the end customer. From a
marketers point of view, retailing can be defined as a set of marketing activities designed to
provide satisfaction to the end customer and profitably maintain the customer base by continuous
quality improvements across all areas concerned with selling goods and services.

Retailing involves:

• Understanding the needs of the consumers.


• Developing good assortment of merchandise.
• Displaying the merchandise in an effective manner so that
consumers find it easy and attractive to buy.

A retailer is any business establishment that directs its marketing efforts towards the end
users for the purpose of selling goods and services. Retailers comprise street vendors, local
kirana stores, supermarkets, food joints, saloons, airlines, automobile showrooms, video kiosks,
direct marketers, vending machine operators, etc. an organization qualifies to be a retailer only
when it derives a major chunk of its revenues from its transactions with end users. Thus, a seller
is said to have conducted a retail transaction when he sells goods to the end consumer while a
wholesale transaction is conducted only when the seller sells goods to a business concern. The
table given below gives a list of retail institutions operating in the market.

List of retail institutions:

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Motor vehicle dealer Shoe store
Catalog and mail-order houses Florists
Motorcycle dealers Grocery stores
Food stores Liquor stores
Children’s and infants’ wear stores Hardware stores
Radio, television , and consumer electronics Retail bakeries
stores
Book stores Camera and photographic supply stores
Fuel dealers Stationery stores
Lumber and other building material dealers Men’s and boys’ clothing and accessory
stores
Home furnishing stores Drapery, curtain and upholstery stores
Women’s accessory and specialty stores Women’s clothing stores
Used merchandise stores Sewing, needlework, and piece goods stores
Musical instrument stores Dairy products stores
Luggage and leather goods stores Variety stores
Department stores Eating places
Sporting goods stores and bicycle shops Tobacco stores and stalls
Gift, novelty, and souvenir shops Gasoline service stations
Family clothing stores CDs and VCD stores
Apparel and accessories stores Paint, glass and wallpaper stores
Hobby, toy, and game shops Candy, nut and confectionery stores
Optical goods stores Household appliance stores
Jewelry stores Floor covering stores
Furniture stores Fruits and vegetable markets
Retail nurseries, lawn and garden supply stores Drug stores and proprietary stores

Retailer’s role in distribution channel:

A retailer is a last entity in the distribution channel. Retailers include all businesses and
individuals who actively participate in the transfer of ownership of goods and services to their
end users. The following figure 1.1 depicts a typical distribution channel

A retailer usually plays the role of an intermediary, which links the producers,
wholesalers, and the other suppliers with consumers. Companies generally prefer to specialize in

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manufacturing the products, leaving the task of selling the products to an outside party i.e. few
wholesalers or retailers.

Benefits of retailing:

The first point under retailing benefits for customers, bulk breaking, refers to the act of
retailers of buying goods in large quantities and then breaking them into smaller sizes for their
individual customers. As a result purchases become convenient for customers - in terms of
quantity bought as well as expenditures made. The assorting function is nothing but evaluating
all the different products available and offering to the target the optimum array of products from
which to choose. The storing function performed by the retailers relieves customers of the task of
anticipating their desires too far in advance of their needs as the retailers keep goods in inventory
until customers are willing to buy and use them. Further, retailers help manufacturers smoothen
the production cycle by placing orders for peak demands well in advance and by managing
inventory even on behalf of the manufacturer. They create economic utility for consumers by
providing the products in the form and at the place and time desired by the consumer.

Benefits to consumers:
Retailer act as buying agents for consumers. They perform various business activities that
increase the value of the goods and services they sell to the end consumer. If there were no
retailers in the distribution system, consumers would have to personally visit the manufacturers
to procure the goods and services required by them. As a buying agent, a retailer performs
various activities to satisfy the end consumer. These activities include:
• Breaking bulk
• Providing assortment
• Holding inventory

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• Providing after sales services
• Providing information

Breaking bulk
Breaking bulk refers to delivering single units from distribution centers to retail outlets
rather than the multiple units bundled together by manufacturers termed ‘case–packs’. The focus
is largely on the benefits to space management at the retail level, rather than the more obvious
reduction in inventory costs. Using data from the grocery industry, results indicate that retail unit
profitability can be increased substantially by breaking bulk - but only if current inventory
replenishment practices are changed. In essence, breaking bulk allows for either higher product
variety within a store or identical variety in smaller stores. This work seeks to quantify the order
of magnitude of that benefit.

Providing assortment
Retailers evaluate the products of various manufacturers and offer the best collection of
products from which the customers can select the product of his/her choice. Retailers select the
product assortment depending on the testes and needs of their target customers. The variety in
assortment offered makes the buying process easier.

Holding inventory
Retailers carry inventory and make the products available to customers at a convenient
place and time. Retailers make it possible for consumers to make instant purchases. This reduces
the cost of storage and enables the consumer to invest his money profitable.

For example, a customers can walk into an electronic goods showroom and buy a music
system whenever he wants, or pick up music album from any music album from any music retail
outlet. Such spontaneous shopping would not be if retailers do not stock the goods.

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Providing services
Apart from selling goods, retailers also provide a variety of value added services, which
make it easier for customers to buy and use products. These services include providing free home
delivery, accepting credit cards, accepting payments on installments basis, arranging loans, etc.

Providing information
Retailers play a major role in providing product related information to their consumers.
Retailers use advertising and in-store salespersons to provide product information, which helps
the consumer to simplify his purchasing process.

Benefits to manufacturers and wholesalers

Manufacturers and wholesalers consider retailing as a channel for delivering their


products/ services to the end customer. By selling products and services (of a manufacturer on a
much larger scale), retailers provide the manufacturer with greater revenues, which could be
reinvested in production and sales of the manufacturer’s products.

Retailers function as the sensory organs of manufacturers. While designing new products
or upgrading an existing product, manufacturers depend on retailers to gather information
regarding the tastes and preferences of customers. Retailers provide feedback on the goods and

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services offered by them. This helps them to make modifications to the existing products or
launch new products to satisfy the needs of customers.

Retailers also share some of the risks of the manufacturers by paying for the goods
before they are actually sold to the final customer. A retailer is exposed to three types of
obsolescence risks:

• Physical obsolescence
• Technological obsolescence
• Fashion obsolescence

Physical obsolescence risk arises from the damage or wear out caused to the products
while they r stored in the retail outlet. This type of risk is common for stores dealing in
handicrafts, books, greeting cards, gift items etc. retailers dealing in high technology products
that are upgraded very frequently face risk of technology obsolescence. Retailers who deal in
personal computers and computer components face this risk quite often. In this industry
(computers), upgraded versions are introduced very frequently and these are available at a lesser
price than that of the lower versions, which may result in severe losses for the retailer. Fashion
obsolescence risk is very common for apparel retailers who deal in merchandise of varying style,
design or color.
Benefits to the economy

the retailing business is the largest private industry in the world with a turnover of US
$6.6 trillion. Retailing plays a crucial role in the management of world economy and retailers
and retailers constitute a tenth of the Fortune 500 companies. In India, retailing accounts for over
10 per cent of the country’s GDP and around eight per cent of the employment, only next to the
agricultural industry. The value of the total retail trade in India was Rs. 400,000 crore in 1999
and analysts feel that this will increase at the rate of 20 per cent every year and touch Rs.
800,000 crore by the year 2005. in the year 2000 India’s per capita GDP was $ 468 and per

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capita retail sales amounted to $ 220. The table below gives the per capita GDP and retail sales
of various countries across the world.

Evolution of retailing

The origins of retailing in India can be traced back to the emergence of Kirana stores and
mom-and-pop stores. These stores used to cater to the local people. Eventually the government
supported the rural retail and many indigenous franchise stores came up with the help of Khadi
& Village Industries Commission. The economy began to open up in the 1980s resulting in the
change of retailing. The first few companies to come up with retail chains were in textile sector,
for example, Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched retail showrooms
in the organized retail sector. With the passage of time new entrants moved on from
manufacturing to pure retailing.
Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in Music,
Crossword in books entered the market before 1995. Shopping malls emerged in the urban areas
giving a world-class experience to the customers. Eventually hypermarkets and supermarkets
emerged. The evolution of the sector includes the continuous improvement in the supply chain
management, distribution channels, technology, back-end operations, etc. this would finally lead
to more of consolidation, mergers and acquisitions and huge investments.

Factors behind the change of Indian retailing industry

Some of the factors which have been responsible for the growth of retail industry in
India, have been discussed below:

1. Economic growth

India is one of the largest economies in the world. The gradual increase in the Gross
Domestic Product(GDP) and the purchasing power of Indians provided an excellent opportunity

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for organized retailing. According to a international monetary fund report (1998), private
consumption in India accounts for 61.4% of the GDP. India was ranked a the fourth largest
economy in the world in terms of its Purchasing Power Parity (PPP).

2.Urbanization

The twentieth century witnessed a rapid growth of urban population in India. While the
total population of India grew by 3.5 times from 1901 to 1991, its urban population increased
nine fold from 25 million to 217 million in the same period. The share of urban population in
class I cities ( with population 100,000 and above) in the total urban population has increased
from 26 percent to 65 percent during this period.

These cities contribute nearly 55 percent of the GDP of India and this share is expected
to rise further in the coming years. The rising concerntration of urban population with higher
purchasing power has attracted big players to venture into organized retailing in these cities

3. Consumerism

The increase influence of the western media has led to a considerable change in the
lifestyle of the Indian consumer. The economic wellbeing of the Indian middle class and their
growing aspirations for material comforts has also been responsible for consumerism slowly
gaining momentum in India. Today, the Indian consumer is more inclined towards buying
goods like cars, washing machines, audio systems, designer dresses, cosmetics and other
personal care products.

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4. Brand profusion

Consumerism and increased brand consciousness of Indian consumers has led to


increased number of brands. Today every product is branded. Even products like salt , oil, flour
etc., which were sold as commodities a decade ago are now branded. Although there are no
international retail stores in India, almost every international brand is available to the Indian
consumer. India also has its share of strong domestic brands like Titan watches, Asian paints,
Thums Up (now owned by coke, McDowell’s whisky, kingfisher beer etc. thus, the launch of
more and more brands into the market increased demand for shelf space and hence the demand
for more retail outlets.

5. Availability of real estate

The cost of real estate forms a major part of the fixed investment for a retailer. In the last
few years, real estate prices have hit the lowest and encouraged many entrepreneurs to set up
retail stores in different parts of the country. Apart from the decrease in real estate costs,
availability of ample retail space also has led to the proliferation of retail stores in India.

Retailing environment

Like any other industry, the retail industry is also affected by the external environment.
Some of the constituents of the external environment, which have an impact on a retail
organisation, are
• Economic environment
• Legal environment
• Technological environment
• Competitive environment

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• Economic Environment

The nature of the economic system (capitalism, socialism) in a country has a direct
impact on the retailer’s business. Therefore, a retailer should have a thorough a2understanding of
the various economic factors of a country that would influence their operations and profitability.
Some of the economic factors that affects the retailer are – Gross domestic product, rate of
inflation, purchasing power, interest rates, tax levels, employment growth etc. higher growth rate
of GDP (in real terms) implies that consumers have more income and hence, they spend more,
resulting in higher sales and more profits for retailers. On the other hand, increase in inflation
leads to a decrease in the purchasing power of the consumers. The economic reforms of the
1990’s have resulted in higher economic growth than that observed in the previous decade. The
GDP growth (in real terms) and the change in consumer price inflation from 1998 to 2002 have
provided in table below

• Legal environment

Government use various laws and regulations to ensure that retailers do not indulge in
unfair practices. But most of the times, these regulations hamper the growth of the retail industry.
Some of the legal and regulatory problems that retailers face in India are ; (FDI), property
regulations, and complex taxations system. Each of these have been explained below:

Foreign direct investment (FDI) restrictions

FDI in retailing had been permitted in India for a short period prior to 1997 and approvals
were granted to few MNCs like Nanz to set up retail chains. The government later retracted its
decision and banned further FDI in the retailing sector. It felt that huge foreign direct investment
in this sector would be a threat to existing kirana stores.in that short period when FDI was
permitted in the retail sector, many multinational companies have entered India through joint

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ventures or franchisee agreements. For example FoodWorld is a 51: 49 joint venture between
RPG Group and the Hong Kong based Dairy Farm Intrenational(a $ 10 bn company).

The ban on foreign direct investment and the lack of industry status for retailing made it
difficult for foreign players to fund huge retail ventures in india. But, the Government of India
has permitted foreign players to forge franchising and technical alliance with Indian retailers.
Marks & Spencer used this opportunity to enter India through the licensee route.

Based on the recommendations of the N K Singh Committee the Government is planning


to again permit FDI in the retail sector would
• Bring in valuable foreign exchange
• Bring about organisation of the sector
• Provide employment to thousands of Indians
• Provide a wider choice of products at reduced prices to the customer
• Improve the shopping experience

Apart from the above benefits, the entry of large, well-established foreign retail players
with considerable experience is expected to lead to an increase in consumer awareness and
prvide efficient and value added services to customers.

Property regulations

Death of good quality retail space in prime location and sky rocketing rental and lease
amounts are some hurdles in the growth of the retail industry in India. Some of the problems

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faced by organized retailers include high prices of rentail space, hefty stamp duties for property
transfer, rigid zonal laws, urban land ceiling acts etc.

Real estate

The government is the single largest owner of land in India. Hence it is very difficult for
orgainised retailers to find suitable sites for establishing retail outlets in metros and other large
cities. This mismatch between the demand and supply of retail estate in large cities had led to an
astronomical growth in the prices of real estate. This made it impossible for organized retailers to
enter big cities without the backing of large real estate companies. K. Raheja’s association with
Shopper’s Stop and Parimals with Crossroads are typical examples of the of the involvement/
interest of real estate players in organized retailing. The high real estate prices in north India has
led to most of the new players selecting South Indian cities like Hydrabad, Bangalore, and
Chennai to start their organized retail operations. According to Shopper’s Stop Managing
Director & CEO, B.S. Nagesh, the current lease rentals at Rs 70 per square foot per month
(PSFPM)
Amounts to to seven per cent to ten per cent of the topline (sales revenue). Ideally, it
should be in the range of Rs 25-40 PSFPM to work out in the region of three percent ot five per
cent of the topline.

Variation in sales tax rates across different Indian States is another problem faced by
organized retailers. Apart from this, multiple point octroi tax and other taxes levied by states
make it difficult for retailers to source merchandise from different parts of the country, this
situation is expected to ease with the introduction of value added taxation method.

Labor laws

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Unfriendly labor laws are another issue of concern for the retailers . Retailers require
additional workforce to meet the increase IN customer in-flow in the festival season. But Indian
labor laws do not allow the retailer to hire people as temporary workers for a few days.

• Technological environment

Technology is one of the most important drivers of change in the retail industry. The
computerization of various retail stores operations like inventory management, billing, database
management and the wide spread use of bar code scanners, computers, point-of-sale terminals,
management information systems etc. have bought a sea change in the way retailing is conducted
in India.
Retailers are also using technology to improve the shopping environment and to provide
a pleasant shopping experience to customer. Quick response computer links with suppliers are
increasingly being used to reduce lead-time and overcome stock-out problems.

• Competitive Environment

Though the retailing industry is in its nascent stage in India, there is severe competition
among the existing players. Moreover the huge untapped potential is encouraging many players
to venture into retailing. The growth of retail stores was in the categoris of speciality stores, the
category killers and one-stop super stores. Table 1.7 gives a list of leading retail organisations in
India.

Apart from the existing competition in the organized retail sector, organized retailers are
also being affected by the stiff competition posed by traditional players in the unorganized

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sector. The competition among retailer varies depending on the way the retail operations are
carried out and which entity of the distribution channel carries out these retail operations.

RETAIL INSTITUTIONS

The store format selected by retail institutions plays a crucial role in attracting and
satisfying the target customers. The diversity and changing nature of the society has compelled
retailers to change their store formats to provide a complete shopping experience to customers.
The retail format influences the entire retail business model and plays a key role in formulating
retail strategies.

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Retailing in India is undergoing a drastic transformation. The retailing industry is
entering a new phase, and retail formats built around different pricing and service strategies have
evolved. Department stores and cooperatives are giving way to new formats like hypermarkets,
warehouse clubs, category killers, discount stores and convenience stores in India.

In this chapter, we will look at various theories that attempt to explain the reasons for the
institutional changes taking place in the retail industry. We wil also examine the classification of
retailers.

THEORIES OF INSTITUTIONAL CHANGE

Retailing is a dynamic activity, which evolves from time to time to cope with
competition, changing consumer demand and other environmental factors. Various studies have
been carried out to understand the changes taking place in the retail industry. Some of the most
accepted and well known theories of the retail institutional changes are
• Wheel of retailing
• Dialectic process
• Retail accordion

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• Natural selection

WHEEL OF RETAILING

Malcolm. P. McNair’s ‘Wheel of Retailing’ is one of the well accepted theories regarding
institutional changes in retailing. This theory states that in a retail institution changes take place
in a cyclical manner. The cycle is : the new retailer often enters the market with a low-status,
low-profit-margin, low-price store formats. Later, they move to up market locations and stock
premium products to differentiate themselves from imitators. Eventually, they mature as high-
cost, high-price retailers, vulnerable to new retailers who come up with other novel retailing
format/concept. This new retailer will, in turn, go through the same cycle of retail development.
A typical Wheel of retailing as shown in Figure 2.1.

According to this theory, the above cycle can be broadly classified into three phases:
• Entry Phase
• Trading-up phase
• Vulnerability phase

Figure 2.1 : Wheel of Retailing

Elaborate facilities expected, essential and exotic


services, higher-rent locations, fashion orientation,
higher prices, extended product offerings.

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Low Status
Low price
Minimal services Top heaviness
Minimal facilities Conservatism,
Limited product offering Declining ROI.

In the initial entry phase, the new, innovative retailer enters the market with a low-status
and low-price store format. The new retailer starts with a small that offers goods at lower prices
or goods that have high demand. As a result, the retailer would be able to attract customers from
more established competitors. The retailer tries to keep costs at minimum by offering only
minimal service to customers, maintaining a modest shopping atmosphere, locating the store in a
low rent area, and offering a limited product mix.

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The success and market acceptance of the new retailer will force the established retailer
to imitate the changes in retailing made by the new entrant. Thus, in turn, would force the new
entrant to differentiate its products through the process of trading-up. During this period, the
retailer tries to make elaborate changes in the external structure of the store through upgradation.
The retailer will now reposition itself by offering maximum customer service, a posh shopping
atmosphere, and relocating to a high cost area (as per the convenience of the customer). Thus, in
the process of trading-up, the new entrant will mature to a higher status and higher price
operation. This change will increase the cost of the retailer. In other words, we can say that in the
trading-up phase, the innovative institution will metamorphose into a traditional retail institution.
Finally, this stage will lead to a vulnerability phase. In this phase, the innovative store will have
to deal with high cost, conservatism and fall in the return in investment. Thus, the innovative
retailer matures into an established firm and becomes vulnerable to the new innovator who enters
the market. The entry of the new innovator marks the end of one cycle and the beginning of
anew cycle in the industry.

In India, the ‘Wheel of Retailing’ can be seen with the changes taking place in the retail
formats. For example, kirana stores were replaced by chain stores like Apna Bazaar and
FoodWorld (new entrant), which, in turn, faced severe competition from supermarkets and
hypermarkets like BigBazaar and Giant.

DIALECTIC PROCESS
Another theory explaining the changes that take place in the retail institutions is the
Dialectic process or ‘melting pot’ theory. According to this theory, two institutional forms with
different advantages modify their formats till they develop a format that combines the
advantages of both formats.

Thomas. J. Maronick and Bruce. J. Walker in ‘The Dialectic Evolution of Retailing’,


explain the dynamics of dialectic process as follows:

29
In terms of retail institutions, the dialectic model implies that the retailers mutually adapt
in the face of competition from ‘opposites’. Thus, when challenged by a competitor with a
differential advantage, an established institution will adopt strategies and tactics in the direction
of that advantage, thereby negating some of the innovators attraction. The innovator, meanwhile,
does not remain unchanged. Rather, as McNair noted, the innovator over time tends to upgrade
otherwise modify products and institutions. In doing so, he moves towards the ‘ negated’
institution. As a result of the mutual adaptation, the two retailers gradually move together in
terms of offerings, facilities, supplementary services and prices. They thus become
indistinguishable or at least quite similar and constitute a new retail institution, termed the
synthesis. This new institution is then vulnerable to ‘negation’ by new competitors as the
dialectic process begins anew.
Here the established firm is the one that earns profits as a result of its economies of scale.
The new firm enters the market with a new technology through which it can gain competitive
advantage. In this case, both the firms ultimately develop a format that combines the advantages
of their different formats. Figure 2.2 depicts the evolution of retail formats according to the
dialectical process.

Figure 2.2 : The Dialectic Process

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Department Store
High Margin
Low Turnover
High Price
Full Service
Downtown Location
Plush Facilities

Discount
Department Store
Average margin
Average Turnover
Modest Price
Suburban Location
Discount Store Model Facilities
Low Margin
High Turnover
Low Price
Self Service
Low Rent Location
Spartan Facilities

RETAIL ACCORDION

This theory of ‘retail institutional change’ states that institutions evolve over time from
outlets offering a wide variety of merchandise to stores offering specialized products, and the
eventually these stores begin to offer a wide variety of merchandise. According to this theory,

31
the merchandise mix strategies of retailers change, while the retail prices and margins remain the
same. Retail institutions can choose from a number of different strategies. These strategies range
from those that offer multiple merchandise categories with a shallow assortment of goods and
service to others that offer limited merchandise with a deep assortment of goods and services.
The fluctuations shown in figure 2.3 resemble an accordion. Firms can choose any strategy
between the two extremes. They can offer either a wide variety of goods with deep or shallow
assortment. For example, a retail institution may start as a small independent store, but as sales
increase, it may grow into a department store or even a supermarket.

32
Figure 2.3: The Retail Accordion Theory

Store
General Dept. General Supermarket Hypermarket
Store Store
Shoe Specialty Specialty Bakery Boutique

Store Catalog
(Few merchandise lines)
Limited Variety Retailers

(Many merchandise lines)


Wide Variety Retailers
Store Store Store

NATURAL SELECTION

This theory is based on Darwin’s theory of evolution. According to this theory, a firm or
retail institution should be flexible enough to adapt to the changing environment and should

33
adapt its behaviour (to changes in the environment) to survive in the market. The retail institution
that is flexible enough to adapt to changes in the economy will be the most successful. If the
store or the retail institution is not wiling to change, it would stagnate and may even be forced to
exit the market. Thus, according to the natural selection theory, a retail institution will survive in
a competitive market only if it is willing to change its product line, price, location and
promotional strategies according to changes taking place in the retail environment. These
changes can be social, economic, political, legal or technological in nature.

UNORGANIZED RETAIL
Mom and pop stores
The small local stores have dominated Indian retailing over the decades and are present in
every village and local community, addressing the needs of the population in the area and being

34
the point of contact with the consumer. The distribution networks of brands extend right up to
this point to stay in touch with customer needs and preferences.
India like most other countries has a very large network of local stores. The retail industry in
rural India has typically two forms: "Haats" and "Melas". You will find these in almost every
village and locality. A lot of them function as paan and cigarette outlets with tea and coffee
sometimes also offered. Besides this these stores stock and offer small eats and soft drinks
including biscuits, soft drinks, chocolate, sweets, bread and baked products. Many of them also
sell fruits like bananas and a range of toiletries and cosmetics like soaps, shampoos, toothpastes
and some creams. These small stores cater to the needs of their own local population and
travelers who stop by for a smoke or a snack. A little larger format is the neighborhood grocery
store that focuses on grains, foods, snacks and toiletries besides other home essentials. Fruits and
vegetables that are perishable are usually maintained and offered by exclusive vegetable stores
and not by the normal groceries. Every fair sized village is likely to have at least one grocery
store, a fruit and vegetable shop and a paan and cigarette shop. The new addition of the past
decade is to have a telephone booth that lets locals and travelers make national and international
telephone calls. This network is very large and spread all across India. It is not really a network
since each store is individual or family owned and has no connection with the other. It does
however represent a network since large consumer product companies like Unilever, Procter &
Gamble, Colgate-Palmolive, Cadbury, Coca Cola, Pepsi and ITC uses them as their final point
of retail to the consumer. While it is commonly believed that the new retail chains will drive
these small stores out of business, reality points the other way and it is likely that these stores
will continue even in the next two decades of growth. These small stores are very personal and
have strong relationships with the local population. They are points of news and connection.
They offer credit to the local population and help out in times of crisis. They also have a very
good understanding of requirements of the local population and have very low overheads
enabling them to offer the best price for their products.

35
Categories of traditional retail segment
• Fruit and Vegetable Sellers - Sells fruit and vegetables.
• Food Store - Reseller of bakery products. Also sells dairy and processed food and
beverages.
• Non -Vegetable Store - Sells chicken and mutton (supplemented by fish), or
predominantly fish.
• Kirana I - Sells bakery products, dairy and processed food, home and personal care, and
beverages.
• Kirana II - Sells categories available at a Kirana I store plus cereals, pulses, spices, and
edible oils.
• Modern Independent Stores - Sells categories available at a Kirana II store and has self-
service. Operates single or several stores (but not an organized chain of stores).

36
• Apparel – Sells men’s wear, women’s wear, innerwear, kids’ and infant wear.
• Footwear – Sells men’s wear, women’s wear, and kid’s wear.
• CDIT (Consumer Durables & IT) – Sells electronics, small appliances, durables, telecom,
and IT products.
• Furnishing – Sells home linen and upholstery.
• Hardware - Sells sanitary-ware, taps and faucets, door fittings, and tiles.
• General Merchandize – Includes lightning, stationery, toys, gifts, utensils, and crockery
stores.

37
Conventional formats in unorganized retail sector
• Kiranas
These are food and non-food neighborhood counter stores, also called ‘mom and pop stores’ in
western countries. These are big chunks forming the segregated and unorganized retail segment.
These are family-owned and- run retail-outlets picking the goods from wholesalers totaling to
around 12 million stores across India.
• Mandis
These are the largest chunk of unorganized retail catering to urban and rural masses. Mandis are
physically located at different regions to enhance convenient shopping. The sellers bring across
various products like eatables, vegetables and fruits, pulses, cereals, spices etc. The most
prominent of them are sabzi mandis found in most of the localities across India.
• Village Haats
This form is operating in rural areas where buyers and sellers gather once in a week or month
from nearby villages and small towns to cater their livelihood and leisure needs. These haats are
a source of entertainment and socialization among rural masses.
• Push Cart Vendors
The are categories of vendors roaming from door to door in various localities selling fruits,
vegetables, and other eatables, from which mostly housewives makes purchases that too on
credit.

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Size of Unorganized Outlets
Traditional stores are mostly small in size. The traditional retail outlets had an average size of
217 sq. ft. including the storage area, with textiles and clothing shops having a higher average
size of 256 sq. ft. and fixed fruit and vegetable shops an average size of 129 sq. ft. The grocery
and general stores have an average size of 216 sq. ft. including the storage area

Employment
The unorganized retail outlets employ more family labour than hired labour; on an average
they employ 1.5 persons per shop from the family, and hired employees’ of 1.1 persons. There is
a marginal increase in overall employment for these outlets over the period of existence of
organized retail outlets.

Response to competition
Unorganized retailers have indicated a number of steps taken in response to competition from
organized retail, such as adding new product lines and brands, better display, renovation of the store,
introduction of self service, enhanced home delivery, more credit sales, acceptance of credit cards,
etc.

39
ORGANIZED RETAIL
Introduction
An important aspect of the current economic scenario in India is the emergence of organized
retail. There has been considerable growth in organized retailing business in recent years and it is
poised for much faster growth in the future. Major industrial houses have entered this area and
have announced very ambitious future expansion plans. Transnational corporations are also
seeking to come to India and set up retail chains in collaboration with big Indian companies.
However, opinions are divided on the impact of the growth of organized retail in the country.
Concerns have been raised that the growth of organized retailing may have an adverse impact on
retailers in the unorganized sector. It has also been argued that growth of organized retailing will
yield efficiencies in the supply chain, enabling better access to markets to producers (including
farmers and small producers) and enabling higher prices, on the one hand and, lower prices to
consumers, on the other. In the context of divergent views on the impact of organized retail, it is
essential that an in-depth analytical study on the possible effects of organized retailing in India is
conducted.
The Indian retail sector is highly fragmented, consisting predominantly of small, independent, owner-
managed shops. The domestic organized retail industry is at a
nascent stage. At the macro level factors such as rising
disposable income, dominance of the younger population in
spending, urbanization, shift of the traditional family
structure towards the nuclear family are buttressing the
organized retail growth in India. Being considered as a
sunrise sector of the economy, several large business houses are entering the retail industry under
multiple modern retail formats. On the one hand, the advancement of information technology is
improving end-to-end business processing by integrating the entire value chain, backward and
forward, for operational efficiencies. On the other hand, rising real estate prices, infrastructure
constraints, and expensive technology are making the retail industry capital intensive.
Malls: The new face of retail market

40
Robust GDP growth, stronger currency reserves and ever-improving market and operating
environments are propelling the Indian market through a period of stellar growth - and the retail
community is responding with newer formats and innovative products. The economy of India has
shown a remarkable increase driven by overall political and social stability.
The decade-old economic reforms have engendered a new, shop-till-you-drop breed of middle
class Indians who, having tasted the shopping experience of big cities overseas, have fuelled a
demand that was inevitable - the rise of the shopping malls. Centrally air-conditioned malls with
piped music, high-speed lifts and escalators, underground parking space, a multiplex movie
theater, multi-cuisine restaurants and a host of national and international brands, these malls
generates approximately 25,000 footfalls each, per day, with figures doubling on weekend

41
Retail in organised sector of India (segment wise): 2006

India Retail Value Organised Retail % Organised in


Retail Segments
(Rs.Crore) (Rs.Crore) 2006
Clothing, Textiles & Fashion
113,500 21,400 18.9
Accessories
Jewellery 60,200 1,680 2.8
Watches 3,950 1,800 45.6
Footwear 13,750 5,200 37.8
Health & Beauty care services 3,800 400 10.6
Pharmaceuticals 42,200 1,100 2.6
Consumer Durables, Home
48,100 5,000 10.4
Appliances/equipments
Mobile handsets. Accessories &
21,650 1,740 8.0
Services
Furnishings, Utensils,
40,650 3,700 9.1
Furniture-Home & Office
Food & Grocery 743,900 5,800 0.8
Catering Services (F & B) 57,000 3,940 6.9
Books, Music & Gifts 13,300 1,680 12.6
Entertainment 38,000 1,560 4.1
Total US$ 270 Billion US$ 12.4 Billion

Categories of retail segments in organized sector

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• Food and Grocery
This is the largest vertical of 74.4 percent of retail size compromising fruits and vegetables, milk
and milk products, staples, cereals, grains, pulses, processed food, ready to cook and ready to eat
meals, spices and other eatables. This is least penetrated segment across all verticals of around
1percent, being the most untapped pie.
• Apparels
Clothing and textile is a large organized vertical dominated by textile manufacturers Raymond,
Bombay Dyeing, Vimal, and by big retailers like Pantaloon, Pyramyd, Koutons having around
19 percent penetration level. Increasing disposable incomes and change in the lifestyle needs has
pushed the segment.
• Consumer Durables
The electronics and consumer durable is the biggest organized segment penetrated to around 10
percent. There lies more unearthed growth in the verticals as the craze for electronic gadgets
have been picking up with the advent of nuclear families.
• Home Décor and furnishing
The demand for furnishing is going to be spearheaded by a huge demand for the real-estate,
paving way to tap the unorganized segment. Presently only a few players like Gautier, Godrej, &
Durian function as organized entities.
• Jewellery andWatches
Titan is the early entrant in the segment followed by MNCs Oyzterbay, Tanishq, Swaroski, Orra,
Gitanjali, & D’damas driven by demand for fashion accessories, and huge advertising and
promotion campaigns.
• Beauty Care
The organized players in Beauty Care are HUL (Lakme Salons), Marico (Kaya), Health and
Glow are having a huge growth impetus.
• Footwear
Leaving aside the Apparel, Footwear segment is forming a big pie in the organised retail sector,
expected to grow to greater heights with foreign payers like Crocs Inc.

• Books, Music and gifts

43
In addition to Tier-II and Tier-III cities, the habit of reading books and listening to music is
picking up among the Tier-I cities. The stores like Oxford Bookstore etc are experiencing this
upswing.

Modern formats in Organised Retailing


The following are the major modern formats in organized retailing:

44
• Hypermarket
Description: Larger than a supermarket, sometimes with a warehouse appearance, generally
located in quieter parts of the city
Value preposition: Low prices, vast choice available including services such as cafeterias.
Typically varying between 50,000 sq. ft. and 1, 00,000 sq. ft., hypermarkets offer a large basket
of products, ranging from grocery, fresh and processed food, beauty and household products,
clothing and appliances, etc. The key players in the segment are: the RPG Group's Giant
(Spencer’s) hypermarkets, and Pantaloon Retail's Big Bazaars.
• Cash-and-carry
These are large B2B focused retail formats, buying and selling in bulk for various commodities.
At present, due to legal constraints, in most states they are not able to sell fresh produce or
liquor. Cash-and-carry (C&C) stores are large (more than 75,000 sq. ft.), carry several thousand
stock-keeping units (SKUs) and generally have bulk buying requirements. In India an example of
this is Metro, the Germany-based C&C, which has outlets in Bangalore and Hyderabad.
• Department Store
Description: Large stores having a wide variety of products, organized into different departments
such as clothing, house wares, furniture, appliances, toys, etc. Value preposition: One
stop shop catering to varied/ consumer needs.
Department stores generally have a large layout with a wide range of merchandise mix, usually
in cohesive categories, such as fashion accessories, gifts and home furnishings, but skewed
towards garments. These stores are focused towards a wider consumer audience catchment, with
in-store services as a primary differentiator. The department stores usually have 10,000 - 60,000
sq. ft. of retail space. Various examples include:
(i) Shoppers' Stop, controlled by the K. Raheja Group, a pioneering chain in the
country's organized retail;
(ii) Pantaloons, a family chain store, which is another major player in the segment;
(iii) Westside, the department store chain from Tata Group's Trent Ltd;
(iv) Ebony, a department store chain from another real estate developer, the DS Group;
(v) Lifestyle, part of the Dubai-based retail chain,Landmark Group; and
(vi) The Globus department and superstore chain.
• Supermarket

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Description: Extremely large self-service retail outlets
Value preposition: One stop shop catering to varied consumer needs
Supermarkets, generally large in size and typical in layouts, offer not only household products
but also food as an integral part of their services. The family is their target customer and typical
examples of this retailing format in India are Apna Bazaar,
Sabka Bazaar, Haiko, Nilgiri's, Spencer’s from the RPG Group, Food Bazaar from
Pantaloon Retail, etc
• Shop-in-Shop
There is a proliferation of large shopping malls across major cities. Since they are becoming a
major shopping destination for customers, more and more retail brands are devising strategies to
scale their store size in order to gain presence within the large format, department or
supermarket, within these malls. For example, Infinity, a retail brand selling international
jewellery and crystal ware from Kolkata's Magma
Group, has already established presence in over 36 department chains and exclusive brand stores
in less than five years. Shop-in-shops have to rely heavily on a very
134 efficiently managed supply chain system so as to ensure that stock replenishment is done
fast, as there is limited space for buffer stocks.
• Speciality Store
Description: Focus on a specific consumer need, carry most of the brands available
Value preposition: Greater choice to the consumer, comparison between brands is possible
Speciality stores are single-category, focusing on individuals and group clusters of the same
class, with high product loyalty. Typical examples of such retail format are: footwear stores,
music stores, electronic and household stores, gift stores, food and beverages retailers, and even
focused apparel chain or brand stores. Besides all these formats, the Indian market is flooded
with formats labeled as multi-brand outlets
(MBOs), exclusive brand outlets (EBOs), kiosks and corners and shop-in-shops.
• Category Killers – Large Speciality Retailers
Category killers focus on a particular segment and are able to provide a wide range of choice to
the consumer, usually at affordable prices due to the scale they achieve.
Examples of category killers in the West include Office Mart in the US. In the Indian context,
the experiment in the sector has been led by “The Loft”, a footwear store in

46
Powai, Mumbai measuring 18,000 sq. ft.
• Discount Store
Description: Stores offering discounts on the retail price through selling high volumes and
reaping economies of scale
Value preposition: Low Prices
A discount store is a retail store offering a wide range of products, mostly branded, at discounted
prices. The average size of such stores is 1,000 sq.ft. Typical examples of such stores in India
are: food and grocery stores offering discounts, like Subhiksha,
Margin Free, etc. and the factory outlets of apparel and footwear brands, namely of,
Levi’s, Nike, Koutons, etc.
• Convenience Store
Description: Small self-service formats located in crowded urban areas.
Value preposition: Convenient location and extended operating hours.
A convenience store is a relatively small retail store located near a residential area
(Closer to the consumer), open long hours, seven days a week, and carrying a limited range of
staples and groceries. Some Indian examples of convenience stores include:
In & Out, Safal. The average size of a convenience store is around800 sq.ft.

• E-tailing
The increase in the PC and internet penetration along with the growing preference of Indian
consumers to shop online has given a tremendous boost to e-tailing-the online version of retail
shopping. An estimated 10 per cent of the total e-commerce market is accounted by e-tailing.
With todays, net-savvy Indians making online purchases like never before, both the number
and variety of products sold online have grown exponentially. According to the Indian Marketing
Research Bureau (IMRB) and Internet and Mobile Association of India (IAMAI), the e-tail
market is estimated to grow by 30 per cent to US$ 273.02 million in 2007-08, from US$ 210.01
million in 2006-07.
In fact, there has been a continuous rise in the number of people accessing the internet.
According to online research and advisory firm JuxtConsult's 'India Online 2008', there are over

47
49 million internet users in India. Significantly, internet penetration (as a percentage of
population) has grown to 12 per cent, up 3 per cent from last year's 9 per cent.

In modern retailing, a key strategic choice is the format. Innovation in formats can provide an
edge to retailers. Organized retailers in India are trying a variety of formats, ranging from
discount stores to supermarkets to hypermarkets to specialty chains.

Formats Adopted by Domestic Players in India


RPG Retail
Original format: Supermarket (Foodworld)
Later formats: Hypermarket (Spencer's)Specialty Store (Health and Glow)

48
India bulls (earlier Parimal)
Original format: Department Store (India bull stores formerly known as Piramyd Megastore)
Later formats: Discount Store (TruMart) Pantaloon
Retail
Original format: Small format outlets (Shoppe) Department Store (Pantaloon)
Later formats: Supermarket (Food Bazaar) Hypermarket (Big Bazaar) Mall (Central)
K Raheja Group
Original format: Department Store (shopper's stop)Specialty Store (Crossword)
Later formats: Supermarket (TBA) Hypermarket (TBA)
Tata/ Trent
Original format: Department Store (Westside)
Later formats: Hypermarket (Star India Bazaar)
Landmark Group
Original format: Department Store (Lifestyle)
Later formats: Hypermarket (TBA)
Others
Discount Store (Subhiksha, Margin Free, Apna Bazaar), Supermarket (Nilgiri's)

Formats adopted by international players in India


• Franchise
Franchise route involves granting of rights by one party, the franchiser to another, the franchisee
in return for a sum of money. The franchisee is allowed to conduct business using the

49
franchiser’s know-how and brand name. There are various levels of franchisee: Unit franchisee,
multiple franchises, master franchisee and regional franchisee. The foreign players which have
opened franchisee across various verticals of fast food, apparels, and entertainment are Nike,
Pizza Hut, Subway, Tommy Hilfiger, Marks and Spencer, Swarovski and Hugo Boss.
• Cash and Carry Wholesale Trade
In Cash and Carry Wholesale Trading, 100 percent FDI has been allowed under the automatic
route by FIPB to encourage efficiency in back end supply chain management. The players like
Metro, Shoprite and Wal-mart have forayed to strengthen the supply-chain management as done
by the manufacturers and wholesalers till now.
• Joint Venture
Multi National like McDonalds, Reebok, and Wal-mart has entered into joint venture with Indian
companies with share not exceeding 49 percent.

• Manufacturing
The foreign manufactures sets up its Indian unit to manufacture and forward integrated to
retailing its products like Bata and Benetton.

Leading Retail Chains

50
Food and grocery retail segment has highest retail value and is least explored by organized
retail sector. But now a day many big companies like Reliance (Reliance Fresh), Aditya Birla
Group (More), Godrej (Nature’s Basket) have entered in this segment. Following are some of the
food retail chains present in India
FoodWorld has become India’s largest and fastest growing supermarket chain. Today, over 89
stores offer customers a variety of brands at a very reasonable price. FoodWorld in India is an
alliance between the RPG Group in India with Dairy Farm International of the Jardine Matheson
Group. Food World aims at establishing 100 stores all over Tamil Nadu, Andhra Pradesh,
Karnataka and Maharashtra by mid-2004 with a turnover of Rs.500 crores.
Trinethra is a supermarket chain that has predominant presence in the southern state of Andhra
Pradesh with 66 stores spread over 8 districts of the state. Their turnover was Rs. 78.8 crores for
the year 2002-03. This figure is expected to touch the Rs.100 crores mark by 2003-04. The
Trinethra group came into being as a single store in the year 1986. They plan to saturate their
presence through out the state of Andhra Pradesh before venturing into two more southern states
of the country. The group plans to venture into the lower level regions like smaller towns and
mandals by using the franchisee-model. They are also very clear that they would be setting up
three hypermarkets in the state soon.
Apna Bazaar, the Rs 140-crore consumer cooperative society with a customer base of over 12
lakh, plans to cater to an upwardly mobile urban population – a first for the 55-year-old chain
that has mostly been identified with the ‘middle class’. The plans include trimming and training
the workforce, opening new outlets and focusing on the FMCG sector. Now, the cooperative has
80 outlets in Mumbai, Thane and the neighboring Konkan region. It has recently opened its first
shop outside the state in Goa. The revenue target for 2003-04 is Rs 150 crore. The chain plans to
remain open all days of the week and this itself is expected to fetch about Rs 10 crore a year.
Big Bazaar – Pantaloons (Food Bazar)
After Bangalore, Hyderabad and Kolkata, BIG Bazaar, a division of Pantaloon Retail (India) Ltd
has stretched its brand to Mumbai by opening hyper markets in the city. Offering discounts
ranging from 5 per cent to 60 per cent, discount stores are still a nascent concept in India. Big
Bazaar launched its stores in Bangalore, Hyderabad and Kolkata in 2001. Marking an investment
of Rs 10 crore into this new division, Pantaloon is expects to record the highest turnover from its
Mumbai stores to the tune of almost Rs 80 crore from Mumbai alone within the first year of

51
operations. But the turnover from its other Big Bazaar stores in Bangalore, Hyderabad and
Kolkata is Rs 50 crore this year. Big Bazaar claims to be India's first chain of hypermarket
discount stores.
Margin Free
The Kerala-based Margin Free discount stores, the `pure retail' chain with arguably the largest
presence in the country. The retail store chain is uniformly spread across the 240-odd Margin
Free franchisees in Kerala, Tamil Nadu and Karnataka. Margin Free draws inspiration from the
undying loyalty of its customers who have wholeheartedly welcomed all its growth plans in the
past.
Subhiksha
The Chennai-based retail food and pharmacy chain Subhiksha supermarket sells household items
and medicines at significant discount to normal prices. The first Subhiksha store was opened in
Tiruvanmiyur in Chennai in March 1997. In 2003 it has grown to Rs 224 crores turnover and Rs
3 crores profit.
Nilgiris
Muthusamy Mudaliar opened a small bunk shop in Ooty. That was in 1905 and the beginning of
a long story in procurement and customer satisfaction. In 1936, the shop moved to Bangalore
with its registered office on Brigade Road, a small shop exactly where the huge mother store is
now located. The first expansion happened when Muthusamy Mudaliar's son Chenniappan, also
the chairman, established Nilgiris as a modest store carrying Nilgiris' own products, mostly dairy
and bakery. Eventually, it evolved into a supermarket when Mr Chenniappan visited the U.S. and
Europe and was influenced by the old supermarket concept in the west. This chain has now
blossomed to cover a vast region in South India

Retail in small towns

52
Retailer inspired by the Wal-mart story of growth in small town America, are tempted to focus
on smaller towns and villages in India
It's raining malls in small-town India. Whether it's Kanpur, Ahmedabad, Indore, Agra, Baroda
or Surat, the mall and multiplex culture has caught on in the country's smaller cities, powered by
the burgeoning purchasing power of India's middle-class. From a handful of malls in the mid
'90s, India today has nearly 200 malls spread across large and small cities. And 700 new malls
are coming up all over India-40% of them concentrated in the smaller cities.
Small-town India is the next big thing in the retail business. Consider these numbers: in 2005, the
contribution of smaller cities to total organized retailing sales was 15%. By the end of this year,
that proportion is expected to grow to 25%. Organized retailing in small-town India is growing at
a staggering 50-60% a year compared to 35%-40% in the large cities. The striking point is that it
is the big names in the organized retail business that are eyeing these new opportunities.
The Kishore Biyani-owned Future Group, India's largest retailer, plans to invest Rs 3,600 crore
in 100 stores in 30 cities, increasing its retail space from 3.5 million square feet to 30 million sq
feet. The RPG group plans to open malls in all cities with a population of over 8 lakh.
Similarly, Wills Lifestyle, the garments and accessories retailing division of ITC Ltd, plans to
increase its footprint by doubling the number of stores from 50 to around 100 in the next two to
three years, mostly in smaller cities. Even Sunil Mittal's Bharti group has announced plans to get
into food and farm products retailing. All these plans, however, are dwarfed by Mukesh
Ambani's ambitions to do a Wal-Mart in India by investing $5.60 billion (Rs25, 000 crore) and
covering 1,500 cities and towns.
The small-town retail boom could be considered a show-case of India's free-market prosperity. It
is being powered by healthy economic growth that is making more Indians more prosperous.
Organised retailers have understood this and are hoping to ride the wave, exploit the first-mover
advantage and establish strong brand loyalties in these relatively under-served markets.
Indeed, this is probably the most compelling example of the trickle-down impact of liberalisation
in India. Looking ahead, retail analysts suggest that the sustained success of the IT and IT
industries in small towns is expected to create more jobs and enhance spending power.
Typically, small cities offer a 15% to 30% cost advantage over larger cities, not just in terms of
employee costs but real estate costs as well, not to speak of the gains that accrue from reduced
staff attrition rates. This gap is expected to widen over the next few years, creating a pull for

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smaller towns that will, in turn, power the small-town retail revolution.
At present, real estate costs present a major incentive for India's organized retailers. Average
rental values for ground-floor space are Rs 50-60 per square foot a month, against Rs 100-120
per sq foot a month in the bigger cities. However, a strong demand for retail space has more than
doubled rentals in cities like Jaipur, Chandigarh, Surat and Lucknow. While in the metros,
retailers are filling gaps by increasing more stores, in small towns, these malls are way beyond
the expectations of the consumers. These cities are untapped markets and retailers find it
important to establish their brands.
Most smaller cities are seeing plenty of action. For instance, Ludhiana can already boast
worldwide restaurant chains like KFC, McDonald's, Pizza Hut, Domino's Pizza, Ruby Tuesday
and Subway. A new world-class, 25-acre commercial centre and some seven new shopping
malls-cum-entertainment centres are under construction.
The Indian retail market is estimated at $350 billion. But organized retail is estimated at only $8
billion. However, the opportunity is huge—by 2010, organized retail is expected to grow to $22
billion. With the growth of organized retailing estimated at 40% (CAGR) over the next few
years, Indian retailing is clearly at a tipping point. India is currently the ninth largest retail
market in the world. It is names like Dehradun, Vijayawada, Lucknow and Nasik that will power
India up the rankings soon.

Challenges for organized retail:


• Customer convenience

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Unorganized retailers provide convenience to customers as they are located near by
residential area. They also have good relationship with customers to allow them buy the goods
on credit which organized retailers cannot provide.

• Surplus of labour / Shortage of Skilled manpower


Organized retailers, in India, worry about losing out to their micro, unorganized competitors.
In India, unlike in the industrialized countries, labor is typically not the critical cost factor in
establishing a business, and this may make a business model based on replacing labor with
technology vulnerable. India has surplus of manpower which will be left unutilised there by
leading to increase in unemployment. The manpower needed by this sector is mainly skilled
labour which is limited in our country.

• High price of Retail Space


Real estate prices in India’s urban areas are skyrocketing. The efficiency gains of organized
retail may not be sufficient to counteract these costs.
• Inadequate Infrastructure
In addition, large retail franchises depend on reliable and integrated infrastructure.
Telecommunications modernization has been a success story in India. The other critical sectors,
notably roads, ports, air cargo facilities, and electric power, are seeing increased investment but
are still well below international standards.
• Government Policies – different priorities in different states
Organized retailers, like other businesses, face the constraints of red tape and intrusive
government regulations. A 2003 study estimated that new retail stores require an average of 15
different licenses from different national and state governing bodies. Also, environmental
regulations, generally not very stringent in India, have fallen more heavily on the retail sector.

Impact of organized retail

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Impact on Unorganized Retailers
• Unorganized retailers in the vicinity of organized retailers experienced a decline in their
volume of business and profit in the initial years after the entry of large organized
retailers.
• The adverse impact on sales and profit weakens over time.
• There was no evidence of a decline in overall employment in the unorganized sector as a
result of the entry of organized retailers.
• There is some decline in employment in the North and West regions which, however,
also weakens over time.
• The rate of closure of unorganized retail shops in gross terms is found to be 4.2 per cent
per annum which is much lower than the international rate of closure of small businesses.
• The rate of closure on account of competition from organized retail is lower still at 1.7
per cent per annum.
• There is competitive response from traditional retailers through improved business
practices and technology up gradation.
• A majority of unorganized retailers is keen to stay in the business and compete, while
also wanting the next generation to continue likewise.
• Small retailers have been extending more credit to attract and retain customers.
• However, only 12 per cent of unorganized retailers have access to institutional credit and
37 per cent felt the need for better access to commercial bank credit.
• Most unorganized retailers are committed to remaining independent and barely 10 per
cent preferred to become franchisees of organized retailers.

Impact on Consumers
• Consumers have definitely gained from organized retail on multiple counts.
• Overall consumer spending has increased with the entry of the organized retail.
• While all income groups saved through organized retail purchases, the survey revealed
that lower income consumers saved more. Thus, organized retail is relatively more
beneficial to the less well-off consumers.
• Proximity is a major comparative advantage of unorganized outlets.

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• Unorganized retailers have significant competitive strengths that include consumer
goodwill, credit sales, and amenability to bargaining, ability to sell loose items,
convenient timings, and home delivery.

Impact on Intermediaries
• The study did not find any evidence so far of adverse impact of organized retail on
intermediaries.
• There is, however, some adverse impact on turnover and profit of intermediaries dealing
in products such as, fruit, vegetables, and apparel.
• Over two-thirds of the intermediaries plan to expand their businesses in response to
increased business opportunities opened by the expansion of retail.
• Only 22 per cent do not want the next generation to enter the same business.

Impact on Farmers
• Farmers benefit significantly from the option of direct sales to organized retailers.
• Average price realization for cauliflower farmers selling directly to organized retail is
about 25 per cent higher than their proceeds from sale to regulated government mandi.
• Profit realization for farmers selling directly to organized retailers is about 60 per cent
higher than that received from selling in the mandi
• The difference is even larger when the amount charged by the commission agent (usually
10 per cent of sale price) in the mandi is taken into account.

Impact on Manufacturers
• Large manufacturers have started feeling the competitive impact of organized retail
through price and payment pressures.
• Manufacturers have responded through building and reinforcing their brand strength,
increasing their own retail presence, ‘adopting’ small retailers, and setting up dedicated
teams to deal with modern retailers.
• Entry of organized retail is transforming the logistics industry. This will create significant
positive externalities across the economy.

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• Small manufacturers did not report any significant impact of organized retail.
• Impact on India
• The emergence of organized retail gives consumers a wider choice of goods, more
convenience, and a better shopping environment.
• Traditional retailers (kirana stores, street hawkers, and wetmarket stall operators) occupy
an overwhelmingly large space in Indian food retail; almost 99 percent of food and
grocery being sold in this country is through traditional retailers. These traditional
retailers are upgrading their stores to compete with organised retailers.
• Farmers are gaining because organised retailers are procuring directly from them thereby
eliminating middle men and cost. So retailers are in position to pay higher prices to
farmers.

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UNDERSTANDING THE RETAIL CUSTOMER

To understand the purchasing patterns of customers, it is vital to understand the customer


nature and examine the external factors that influence their buying behavior. The increasing
value perception among customer is putting more pressure on the retailer to offer merchandise of
superior quality that is valuable to the consumer’s eye. Retailers explore investment
opportunities after analyzing the customer’s needs, aspirations, shopping preferences and buying
behavior.

In India, there are huge differences in the social practices and food habits of people in the
various regions. The cultural difference in India, when compared to the rest of the world, and
even other countries within Asia, is striking.

Before liberalization, the Indian market was a seller-driven market. But liberalization has
changed the face of the Indian retail market, especially in the Fast Moving Consumer Goods
(FMCG) and consumer durables sector. Liberalization also witnessed the entry of multinationals
resulting in the radical improvement in the models, features, technology and sizes of consumer
durables available in India. Since 1991, the FMCG sector in India has been trying to cater to the
consumers, according to the mindset of the Indian customer, and to deliver quality products at
low costs. In short, consumers have gained much significance in the market with a wide range of
products, a multitude of brands (Indian and foreign), various financing options, large onestop
shops, colorful stores and shopping malls.

Retailing includes the purchasing and selling of products and services to the consumer,
who buys them for individual and household consumption. The consumption of goods and

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services depends on the individual’s preferences and choices. Thus, consumer behavior plays an
important role in the determining the success and growth of retail stores.

THE MARKET

A market can be defined as a group of consumers or organizations that is interested in a


particular product, has the resources to purchase the products, and is permitted by the law to
acquire these products. A market definition begins with the total population and progressively
narrows down to the target market and then to the penetrated market.
A retail market is a place where all the retailers compete with each other for recognition
acceptance through various merchandise promotional activities. Thus, to understand the retail
market, one has to understand the structure of the buying population and their behavior.

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61
DIAGRAMATICAL REPRESENTATION OF MARKET

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TOTAL POPULATION

POTENTIAL MARKET

AVAILABLE
MARKET

QUALIFIED
AVAILABLE MARKET

TARGET MARKET

POTENTIAL
MARKET

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STRUCTURE OF THE BUYING POPULATION AND THEIR
BEHAVIOR

A retailer should understand the structure of the population and their buying behavior, so
that he can cater to the needs of the buyer in a better way. Buying behavior deals with the
process a consumer undergoes while deciding whether to purchase a product/ service or not.
Based on the customer’s nature and his intentions behind purchasing the merchandise, the buying
population can be divided in to two categories – the consumer market and the organizational
market.

CLASSIFICATION OF BUYING POPULATION

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BUYING POPULATION

ORGANISATIONAL
CONSUMER MARKET MARKET

CORPORATES RESELLERS

WHY RETAIL SECTOR IS BOOMING?

The Growth Drivers


Much spoken about industry in India today is retail and every big foreign retail brand wants to
have a share of it. Why are they so eager to capture this market? Due to the following reasons
The economy is growing by 8% a year, its stock market rose by nearly 40% in 2005 and
foreign investors are flooding in. There are about nine million small grocery shops in India
whichever way you measure it, business in India is booming. And as the economy grows so does
India's middle class.
It is estimated that 70 million Indians in a population of about 1 billion now earn a salary of
$18,000 a year, a figure that is set to rise to 140 million by 2011. Many of these people are
looking for more choice in where to spend their new-found wealth. This has led to increase in
purchasing power of Indians.

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India's consumer market is riding the crest of the country's economic boom. A young
population with access to disposable income seems to have facilitated a growth in the retail
industry as global super marts make India their favoured destination.
Also, the rise in the working population which is young, pay- packets which are hefty, more
nuclear families in urban areas, rise in the number of women working, more disposable income
and customer aspiration, western influences and growth in expenditure for luxury items. All
these are the factors for the growth in Indian organized retail sector.

The Indian Retail growth can be attributed to the several factors including

• Demography Dynamics: Approximately 60 per cent of Indian population below 30 years of


age.
• Higher disposable income: The disposable income has been showing a rapid
increase from the last few years and is expected to grow steadily
• Double Incomes: Increasing instances of Double Incomes in most families as both the
partners are working coupled with the rise in spending power.
• Adoption of Nuclear Family culture: The increase in per capita income paved way to increase
the nuclear-family culture. The proportion of nuclear families as a percentage of total
household population has increased
• Robust Outlook towards Branded products: Due to liberalization of manufacturing sector,
various organized branded products have entered into Indian markets, thereby developing
and widening the basket for branded finished goods.
Growth in Retail Malls and various other new Formats: Real Estate players like Raheja’s, Future
Group, DLF, Omaxe, Piramal Group, Parsvnath, Unitech are developing retail malls and leasing
out the retail spaces to various retailers of varied products making it a one-stop shopping
destinations in urban and semi-urban cities. These shopping-cum-entertainment malls are wooing
young buyers to increase their conversion rate backed by increasing foot-falls.
• Plastic Revolution: Increasing use of credit cards for categories relating to Apparel,
Consumer Durable Goods, Food and Grocery etc.
• Urbanization: increased urbanization has led to higher customer density areas thus enabling
retailers to use lesser number of stores to target the same number of customers.

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Aggregation of demand that occurs due to urbanization helps a retailer in reaping the
economies of scale.

Drivers of growth in organised retail


India is currently in the second phase of the retail evolution, with domestic customers
becoming more demanding with their rising standard of living and changing lifestyles.
Change in customers' focus from just buying to broad shopping (buying, entertainment and
experience) has led to a pick-up in momentum in organised formats of retailing. The following
are the drivers for organised retail in India:
• The spread between yield on property and its financing cost has turned positive with
the fall in interest rates. Attractive yields on investments have resulted in a sharp
increase in property development. It is estimated that India will have over 600 malls by
2010, with as much as 100 million sq ft retail space.
• Pro-active steps taken by the government permitting use of land for commercial
development in various cities, including Mumbai and Delhi, have also contributed to
increased availability of retail space in the country.

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Availability of retail space is expected to increase further whenever property funds and
investment trusts are permitted, which will help create a secondary market for real estate in the
country.
• Consumerism and brand proliferation also enhanced organised retailing in the country.
Most of the world's leading brands, including like L'Oreal, Espirit, Louis Vuitton, Marks
& Spencer, Tommy Hilfiger, Louis Phillipe, Levis, Pepe, Lee, Arrow, Dockers, Red
Tape, Clairns, Hugo Boss, Tiffany, Bulgari, Ecco, Chambor, Revlon, Philips, Corelle,
Magppie, Nike, Reebok, Parker, Ray Ban, Lego and Mattel, are now present in India.
• Another factor that accelerated the growth of organised retailing is media proliferation.
Increased advertisements and brand promotions have led to a growing consumer
spending across a wide range of product categories.

Investment Opportunities
The total estimated Investment Opportunity in the retail sector is around US$ 5-6 Billion in
the Next five years. The following are the areas for investment:
• In Location: with modern retail formats having made their foray into the top cities
namely Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Delhi,
Nagpur there exists tremendous potential in two tier towns over the next 5 years.
• In Sectors with High Growth Potential: Certain segments that promise a high growth are
Food and Grocery (91 per cent), Clothing (55 per cent), Furniture and Fixtures (27 per
cent), Pharmacy (27 per cent), Durables, Footwear & Leather, Watch & Jewellery (18 per
cent).
Fastest Growing Formats that offer good growth potential are: Specialty and Super Market (45
per cent) Hyper Market (36 per cent) Discount stores (27 per cent) Department Stores (18 per
cent) Convenience Stores and E-Retailing (9 per cent)

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• In Supply Chain Infrastructure: Supply chain infrastructure in terms of cold chain and
Logistics.
• In Rural Retail: Retail sector offers opportunities for exploration and investment in rural
areas, with Corporate and Entrepreneurs having made a foray in the past. India's largely
rural population has caught the eye of retailers looking for new areas of growth. ITC
launched the country's first rural mall 'Chaupal Sagar', offering a diverse product ranges
from FMCG to electronics appliance to automobiles, attempting to provide farmers a
one-stop destination for all of their needs. There has been yet another initiative by the
DCM Sriram Group called the 'Hariyali Bazaar’ that has initially started off by providing
farm related inputs and services but plans to introduce the complete shopping basket in
due course. Other corporate bodies include Escorts and Tata Chemicals (with Tata Kisan
Sansar) setting up agri-stores to provide products/services targeted at the farmer in order
to tap the vast rural market.
• In Wholesale Trading: Wholesale trading also holds huge potential for growth. German
giant Metro AG and South African Shoprite Holdings have already made headway in this
segment by setting up stores selling merchandise on a wholesale basis in Bangalore and
Mumbai respectively. These new-format cash-and-carry stores attract large volumes from
a sizeable number of retailers who do not have to maintain relationships with multiple
suppliers for all their needs.
• In Cheap Consumer Credit: it has great opportunity for retailers to provide credit to
consumers with low or no interest on it.

Growth in support industries


India’s retail boom has seen several beneficial spin-offs for a variety of allied industries such
as logistics and air-conditioning. Newer industries are seeing a boom arising from the rapid
growth of the retail industry in India. With an expected $412 billion investment projected to
come into the Indian retail industry by the year 2011, there are several sectors that will continue
to profit from this boom.
Both Indian and foreign companies in sectors such as airlines, commercial refrigeration and
air-conditioning, logistics, smart card makers are all tying up with retailers to be part of the

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growth. One of the first industries to see this growth is the commercial refrigeration and air-
conditioning sector, due to the rise of organized food retailer.
Logistic companies are also poised for significant growth and several foreign companies such
as Bax Global, Prologis and PWC Logistics are expanding operations in India. Indian operators
include The Tata Group which as tied up with DHL for its Croma Stores, Air Deccan which is in
talks with several retailers and Go Air which is soon launching its cargo division.

PANTALOON RETAIL INDIA LIMITED (PRIL)

Pantaloons Retail India Limited (PRIL) began its operations in 1996 in Kolkata in solo men’s-
wear, Pantaloon brand trousers, in a single-store format. Later, the firm sold its trouser brand

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through franchising to traditional retailers. In 2001, the company changed its focus to family
retailing in the large mega-store format. Today, PRIL has expanded its business incorporating
joint ventures and subsidiaries across six verticals under the Future Group umbrella: real estate,
asset management, logistics, brand management, home solutions, and retail which is the nucleus.
PRIL is the pioneer of the India’s first modern retail in the hypermarket format and is recognized
as an organized multi-format retailer. The firm’s business strategy is to capture a greater share of
the consumer wallet by covering all customer segments in all age-groups, in all product
categories through multiple retail formats nationwide.
The Pantaloon Retail business model also incorporates strategic tie-ups and joint ventures with
some of the leading foreign brands. In 2006, the company generated Rs. 19.3 million in business
sales and is directly accountable for employment of 14,500 people. Additionally, the company’s
array of private labels across several product categories, indirectly create supply demand for
small-scale domestic suppliers.
Pantaloon Retail (India) Limited, is India’s leading retailer that operates multiple retail
formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in
Mumbai (Bombay), the company operates over 10 million square feet of retail space, has over
1000 stores across 61 cities in India and employs over 30,000 people.
The company’s leading formats include Pantaloons, a chain of fashion outlets, Big Bazaar, a
uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends the look, touch
and feel of Indian bazaars with aspects of modern retail like choice, convenience and quality and
Central, a chain of seamless destination malls. Some of its other formats include, Depot, Shoe
Factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Star and Sitara.
The company also operates an online portal, futurebazaar.com.
At present, the company operates nearly13428 stores in over 25 cities across the nation and
occupies an aggregate area of 3.2 million sq. ft. PRIL is penetrating the market through
aggressive store roll-out plan and projects nearly 2,422 stores occupying 30 million sq. ft. by
2010. One of PRIL’s vertical, “Future Capital Holding Limited”, with a corpus of nearly US$
850 million, manages the company’s real estate needs by investing in real estate properties. The
real estate vertical of PRIL supplements the company’s strategy to acquire front-end retail stores
in tier-two towns like Jaipur, Indore, Vishakhapatnam, and Pune.

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In 2006, the company generated Rs. 19,336 million in business sales, of which value
retailing is nearly 67 per cent and lifestyle retailing around 30 per cent. Although, the net sales
increased from Rs. 1,764 million in 2000 to Rs. 19,336 million in 2006, sales per sq. ft. in 2006
accounted for only Rs. 6,108 as opposed to Rs. 19,496 in 2000. The increase in the number of
new stores under multiple formats caused a decline in sales per sq. ft. between 2000 and 2006.
The company’s current market share is at 3 per cent.
This case study covers PRIL’s economic activities as on financial year ending March 2006. PRIL
Home Town stores were launched during 2007. The 80 per cent of the furniture in Home Town
stores is imported from East Asia, predominantly China and Malaysia. Additionally, this case
study does not cover a few new ventures which are in progress.
With a surge of interest in the one-stop shopping model, PRIL differentiates itself by keeping a
vast range of merchandize with over 2,50,000 SKUs across durables and non- durables under
one roof. The company’s six verticals formed through strategic partnerships, joint ventures, and
wholly-owned subsidiaries act as catalysts to the retail business in rolling out front-end retail
stores, managing the supply chain, offering shelf space to exclusive branded suppliers, and
developing in-house private labels. The company’s Big Bazaar (hypermarket chain) cuts across
entire customer segments.
PRIL has stores like Pantaloons, Fashion station, Blue sky, all, Navaras, Shoe factory and
Central. Some out of it are speciality stores were as some are large format stores with variety of
products. Big Bazaar, Pantaloon and Central are large format stores with wide range of products.

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The six verticals act as catalysts to the retail business in rolling out front-end retail stores,
managing supply chain, offering shelf space to exclusive branded suppliers, and developing in-
house private labels.
In a lifestyle store, the average customer footfalls are around 1,000 of which 350 convert into
sales transactions. In the value segment, the company attracts an average of approximately 3,000
customer footfalls, of which the sales conversion is between 220 and 250.
End-to-End Value Chain
PRIL has tried to incorporate the true pan India model in its expansion strategy beginning
from offering products for the entire family, laying out multiple small kirana -like shops inside
its value retail format, to directly reaching and contracting the source of supply. PRIL was the
early retailer who started to sell food grains loose inside its outlet and lease store space to
speciality food makers, thus attempting to replicate the traditional shopping experience as close
as possible.
Penetration in key markets
The company largely owes its success to being a multi-format retailer under two business
segments: lifestyle and value retailing. Lifestyle includes speciality stores and multiple external
brands. The multiple external brands could be stand-alone speciality stores or within the lifestyle
segment of stores and centre mall. The value retailing consists of two retail formats,
hypermarkets and discount stores, and other wallet concepts like home solution retail which also
act as a subsidiary company to PRIL.
By gaining the first-mover advantage, PRIL has already made its presence in the urban
markets in key cities like Mumbai, Bangalore, Kolkata, Hyderabad, Chennai,
Ahmedabad, Pune, and Delhi NCR. The company plans to open more stores within these cities in
every locality in order to achieve scalability and to leverage the common back-end resources at
the optimum level. Also, the company is moving to the tier-II and tier-III cities. At present, the
company is spending around Rs.1 billion annually in leasing property.

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Product Procurement
PRIL’s supply chain and logistics model involves vendor and warehousing management, and
relies on IT tools. Future Logistics, one of the vertical ventures of PRIL, is primarily in charge of
supply chain management for the value and lifestyle segments. The division’s major set of
activities involves end-to-end delivery from vendor to warehouses to front-end stores. Further,
the company optimizes by getting closer to the source of supply across all product categories.
PRIL’s sourcing works on a hybrid approach between large and small manufacturer suppliers.
With large manufacturers and food processors, the company works on direct contract terms with
manufacturers. A consolidator works between PRIL and very small- scale manufacturers. As
regards food and groceries, PRIL also procures from APMC markets, and other organized rural
retailers (ITC, DCM Hariyali, and Adani’s), while in the case of fresh food, however, a farmer’s
group also may be directly supplying to the outlet. Sourcing decisions are primarily centralized
at the corporate office in Mumbai. The distribution and the logistics centres are networked and
on line with the category management division and the merchandize sourcing division.

Supply chain: Hybrid approach

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At the consumer’s end, each store manager figures out the trends in daily sales based on the
consumer’s daily buying pattern, and informs the respective product category manager, a
specialist in a product category in the central office. The category manager in coordination with
the store managers analyzes inventory stock and gives stock orders to the sourcing division at the
central office. Next, the sourcing division releases the product requirement which goes to the
warehouse and the respective supplier in the form of stock transfer order. The central warehouse
at Tarapur stands as a hub to 21 regional warehouses across north, west, east, and south zones.
Inspections take place at the vendor level and at the regional warehouse level. Apart from the
inspection, certain amount of testing is carried out on the bags and feeds at the external
laboratories.
A consolidator plays a value-added intermediary role between all small-scale suppliers and
PRIL. The consolidator consolidates goods from small suppliers, fulfills bar coding, labeling,
documentation, packaging, and accounting requirements and then supplies back to the firm on a
commission basis. A typical consolidator owns warehouses, keeps inventories and stocks based
on projections provided by PRIL’s sourcing division. PRIL is also thinking of hooking its
consolidators to its IT system. The consolidator understands the company’s business

77
requirements and enables small and fragmented manufacturers to scale up to PRIL’s demands.
PRIL has an active base of approximately 2,500-3,000 suppliers, including consolidators across
the country.
In the case of food products, fresh produce are sourced daily. Produces from a farmer’s group
in the surrounding region where the produce is grown, is picked, graded, sorted, and delivered
directly to the stores through a consolidator. In case of bulk produce like potatoes and onions, it
may be from APMC markets, rural organized retailer (ITC, DCM Hariyali, and Adani’s), or
distributors. In certain cases, for example, a speciality pickle has a concessionaire contract to sell
pickles at stores. In the case of staples, PRIL maintains a short-term contract of 3-6 months at a
price which is marked to the commodity market. Additionally, PRIL has signed a nonbinding
letter of intent with Ruchi Soya Industries to develop co-branded products and Ruchi will also
pack edible oils, soya food, and dairy products for PRIL private labels.
The Future Logistics Group provides warehousing, infrastructure, transport, and IT
networking to the retail vertical working on a hybrid model. Most of the goods are consumed at
the various locations where they are produced. In certain cases, when the goods are brought from
other regions, they move directly to the regional warehouses, and then from warehouses to
stores. Certain products, such as furniture and electronics move directly from warehouses to
customers. In the case of food and grocery, products directly move from surrounding
consolidators or farmers to the stores in order to avoid handling and freshness damages. For its
private labels in the clothing line, PRIL has its own design studio in Mumbai consisting of 38
designers who not only conceptualize clothing design, but also develop logos, labels, and tags.
The company has invested between Rs. 600-Rs.700 million in IT infrastructures in order to
gain efficiencies in the supply chain as well as reduce inventory cost. Pantaloon is in the early
stage of implementing radio frequency identification (RFID) for storing and remotely retrieving
data using RFID tags on the cartons – from vendors to the warehouse. The auto replenishment
inventory application works on real time demand and forecasted projections and enables
automatic ordering and purchase system. The distribution and logistics set-up are networked with
regional managers and merchandize managers to receive real time information in order to deliver
merchandize to the store within 24 hours of receipt of the auto replenishment order.
The supply chain division has tie-ups with 12 national-level transportation companies for long
distance transportation from warehouse to warehouse, or warehouse to stores. For certain

78
products like furniture and e-Bazaar products; there is a dedicated fleet tie-up with six local
transport companies for home deliveries. These tie-ups provide employment for approximately
1,100 people in the third-party transportation fleets.
Further, the contractual employment at several warehouses hires another 1,800 people in areas,
such as material handling, picking, housekeeping, and security. Thus, PRIL indirectly supports
2,500 suppliers and 2,900 contractual jobs in supporting industries

Future Plans
PRIL plans to generate a business output of Rs. 320 million by 2010 with an investment between
Rs. 50 and Rs 60 billion.
Challenges
The company faces industry-specific challenges:
(i) Inter-state taxes and octroi taxes;
(ii) MRP law;
(iii) Rising real estate prices; and
(iv) Unavailability of land
Key Takeaways
By gaining first-mover advantage and building strategic partnerships and subsidiaries around
its retail vertical division, PRIL is able to develop multiple retail formats covering all product
categories across customer segments in all age groups.

Conclusion

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Kiranas and organized retail will co-exist. After analyzing the retail industry, it can conclude
that the organized retail has opportunities to grow in India in spite of the kirana stores because
these kirana shops will also get benefit of the growing economy. The argument that the kirana
shops will be affected by these malls is only myth. The organized retail is attracting more and
more Indian as well as foreign players of the retail industry. The boundaries between the
offerings by malls and one-shop vendors are gradually breaking. Single shop-owners are
becoming increasingly aware of customers needs, hygiene factors and varied requirements. At
the same time, retail chains are opening stores in residential areas and focusing on customer
relationship management, with a hub and spoke model where one large store supports various
smaller stores in the nearby residential areas. However, the key to success for organised retailers
will always be their large size, variety and ambience on offer, and thus, the scale.

As the study shows that a major portion of the organized retail will be developed in small cities
and towns, this opportunity has not been enchased by kirana stores and they are unable to meet
the requirements of the customers. Therefore both the malls and kirana stores can play
simultaneously in India so no need get afraid due to the malls.

Here even I would like to add my view point from whatever I have learnt from the experience
gained while making this project. Most of the kirana stores have survived. But growth has been
very slow for them and no new kirana stores are opening up in neighborhoods where big retailers
have opened shop. And secondly, big retail will have to wait a long time before they can ‘invade’
small towns in India. Towns with less than a million-half a million population will have to wait.
And no big retailers will venture there until they’ve gained some useful insights from the big
cities. And the countryside will be largely left untouched which will be served by local Kirana
Stores. “Big retail chains won’t kill small shops”

“Small is beautiful. Malls are all very good for one-day shopping, but the kirana store is for
the odd quantities in life. Like when you need one-fourth of a packet of rice.”

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