A REPORT ON

In-depth analysis and replenishment of supply chain activities in retail grocery industry.

Submitted by: Nishant 10bsp0030

A Report on

In-depth analysis and replenishment of supply chain activities in retail grocery industry.

The Report is submitted as a partial fulfilment of the requirement of PGPM program of IBS AHMEDABAD

Submitted to:
Prof: Dhwanika Ahya (Faculty Guide) ICFAI Business School, Ahmedabad

Acknowledgment
These works being the imprints of many persons whose valuable assistance and insightful suggestions have made this project a success. If words are considered to be signs of gratitude then let these words convey the very same. I take this opportunity to thank our faculty guide, Prof. Dhwanika Ahya for encouraging with her kind words of knowledge & wisdom and also co-operating with me. I shall remain grateful to her hope her best wishes will guide me to come out with flying colours on the path of honesty and harmony.

Table of Contents
Cover Title Page Acknowledgment 1. Introduction 1.1. Retail In India 1.1.1. Major developments and investments 1.1.2. Present Scenario 1.2. SWOT Analysis 1 2 3 5-17 5 5-6 6-9 9-11

2. Main Text 2.1.Retail Models in India:Current and Emerging 2.2. Analysis of Food Retail Sector 2.3. Challenges and Constraints 3. Recommendations: 4. Conclusion

12-28 12-17 17-27 27 28-29 29

Introduction: Retail in India: Brief Overview

Indian retail business values at around US$ 550 billion as of now and about four per cent of it accounts for the organised sector. A report by Boston Consulting Group (BCG) has revealed that the country's organised retail is estimated at US$ 28 billion with around 7 per cent penetration. It is projected to become a US$ 260 billion business over the next decade with around 21 per cent penetration.
Another report by Business Monitor International (BMI) suggests that enhancing middle and upper class consumer base has set vast opportunities in India's tier-II & tier-III cities. The greater availability of personal credit, improved mobility, better tourism et al, are all small, but significant contributors to the growth of Indian retail industry. Also, more and more companies are willing to invest in India due to significant growth forecasts on gross domestic product (GDP) (BMI predicts average annual GDP growth of 7.6 per cent through 2015).

Luxury Retail Soars High Without wasting any time to react on the Indian Government's decision of allowing 100 per cent foreign direct investment (FDI) in single-brand retail, luxury brand retailers have announced their expansion plans in Indian markets. Brands like Vertu, Christian Loubotin, Armani Junior, among others, will open their exclusive stores at DLF Emporio in early 2012, while brands like Van Laack and Diesel Black Gold will commence their operations by January 2012 itself. A report by CII-AT Kearney revealed that Luxury brands market in India grew at a healthy 20 per cent during 2010 reaching a size of US$ 5.8 billion. It further stated that the Indian luxury market stood at a value of US$ 4.76 billion in 2009 and is anticipated to be worth US$ 14.7 billion by 2015.
Where on one hand the luxury electronics and car segments registered a growth of over 35 per cent, fine dining grew by almost 40 per cent in 2010. Apparel and accessories, watches and personal care witnessed a substantial growth rate, between 24-30 per cent.

Similarly, India has surpassed the US to become the third largest men's luxury jewellery market in the world in 2011, stated the researcher Euromonitor International. The researcher's study projected Indian men's jewellery market at Rs 954 crore (US$ 183.76 million) in terms of sales and made an anticipation for it to grow 36.4 per cent in 2012

Retail: Major Developments and Investments

After the US, Germany has also come up in full support of FDI in retail in India. Metro AG, one of the prominent German retail chains, has shown intentions to venture in Indian markets along with US' Wal-Mart and France's Carrefour. Cumulative FDI inflows in single-brand retail trading during April 2000 to September 2011 stood at US$ 44.45 million, according to the Department of Industrial Policy and Promotion (DIPP). Certain developments and investments that took place on the Indian retail canvas recently are discussed below

Real estate major DLF's subsidiary DLF Brands has struck a deal with Chicagobased Claire's Stores Inc to bring the latter to India and open its 75 stores over 2011-16. Claire's is a specialty retailer which targets young girls through over 3,000 stores globally. French retail chain, Carrefour is on an expansion spree in India wherein it is about to finalize lease deals across 10 to 12 sites in the country to open cashand-carry (wholesale) outlets.
The world's largest retailer Wal-Mart will open an innovation lab in Bengaluru by the end of 2011. The lab would be tasked to drive the US$ 422-billion company's next generation innovations that impact shopping behavior among the customers.

US fast moving consumer good (FMCG) giant McCormick, that has recently formed a joint venture (JV) with Indian basmati rice brand Kohinoor Foods, intends to tap Indian packaged food industry and achieve sales of US$ 85 million in the first year of operations in the country.
FMCG firm GSK Consumer Healthcare (GSKCH) has made a debut into Indian breakfast cereal market by launching oats cereal under its flagship brand Horlicks'. The breakfast cereal market in India is currently dominated by PepsiCo and Kellogg's.

Oral and dental hygiene products manufacturer Colgate Palmolive has decided to invest Rs 200 crore (US$ 38.52 million) to establish a greenfield facility at an upcoming industrial estate in Sanand which is being developed by state-run Gujarat Industrial Development Corporation (GIDC).

Retailing over Internet

Indian retailers and consumer durables companies are joining the web bandwagon with India's online shopping industry registering phenomenal growth of almost 100 per cent annually. India has more than 100 million internet users, out of which around half of them are up for online purchases and the statistics is growing every year, says Google. Furthermore, the Indian online retail industry would register annual growth rate of 35 per cent to increase from current size of Rs 2, 000 crore (US$ 385 million) to Rs 7,000 crore (US$ 1.35 billion) by 2015, according to a leading industry body.
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The US$ 10 billion Indian e-commerce market is expanding exponentially (it grew 47 per cent in 2011 to reach the present size) as rising internet penetration is making customers buy more and more stuff online. Investors are also betting high in the industry; they poured around US$ 200 million into Indian e-commerce start-ups in last couple of years.

Retail brands are expected to bring a great transformation in online space. Women's apparel retail brand Biba and tyre brand Bridgestone have become available online recently. Internet and Mobile Association of India (IAMAI) expects online advertising to increase by 30-40 per cent in 2011-12 on back of increased internet usage by retailers

PRESENT SCENARIO
FDI in Multi-Brand retailing is prohibited in India. FDI in Single-Brand Retailing was, however, permitted in 2006, to the extent of 51%. Since then, a total of 94 proposals have been received till May, 2010. Of this, 57 proposals were approved. An FDI inflow of US $ 194.69 million (Rs. 901.64 crore) was received between April, 2006 and March, 2010, comprising 0.21% of the total FDI inflows during the period, under the category of single brand retailing. The proposals received and approved related to retail trading of sportswear, luxury goods, apparel, fashion clothing, jewellery, hand bags, life-style products etc., covering high-end items. Single brand retail outlets with FDI generally pertain to high-end products and cater to the needs of a brand conscious segment of the population, mainly attracting a brand loyal clientele, which often has a pre-set positive disposition towards the specific brand. This segment of customers is distinctly different from one that is catered by the small retailers/ kirana shops.

FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the Government approval route, in 1997. It was brought under the automatic route in 2006. Between April, 2000 to March, 2010, FDI inflows of US $ 1.779 billion (Rs. 7799 crore) were received in the sector. This comprised 1.54 % of the total FDI inflows received during the period. Though the data on volume of turnover by retail is not separately maintained, commodity composition of private consumption expenditure provides reasonable estimates of the size of the retail sector

Table A: Private Final Consumption Expenditure- Commodity Composition (Rs. in crore)

item Food and Beverages Clothing & Footwear Rent, Fuel and Power Furniture and Appliances Medical Care Transport and Communication 2004-05 763,345 127,608 250,986 64,944 95,560 378,217 2005-06 852,798 150,633 277,310 76,458 105,244 418,363 73,348 204,195 2006-07 947,856 188,276 311,915 93,401 115,900 477,521 82,778 259,562 2007-08 1,070,794 202,797 356,197 111,536 127,648 521,858 97,962 336,564 2008-09 1,182,211 213,344 415,436 121,984 140,584 608,048 110,954 434,265

Recreation, Education and 65,327 Culture Miscellaneous Services Goods and 180,871

FDI IN RETAIL- A POLICY PERSPECTIVE, PREPARED BY FICCI AND ICICI PROPERTY

SERVICES IN FEBRUARY, 2005

i. ii. Competition within the host country sector is a critical driver of improvements in sector performance as a result of FDI. However, FDI's potential for impact can be greater because of the combination of scale, capital, and global capabilities which allow MNCs to close existing large productivity gaps more aggressively.
FDI can be a powerful catalyst to spur competition in industries characterized by low competition and poor productivity. Examples include the cases of consumer electronics in Brazil and India, food retail in Mexico, and auto in China, India, and Brazil.

iii.

iv.

Competition is also key to diffusing FDI-introduced innovation across an industry. In Brazilian food retail, high competitive intensity caused by informal players forced all modern retailers to rapidly increase productivity; in Mexican and Brazilian auto cases, increasing competition from imports induced foreign players themselves to increase their productivity.
Increasingly, foreign direct investment is integrating developing countries into the global economy, creating large economic benefits to both the global economy and to the developing countries themselves. Industry restructuring enables global growth as companies reduce production costs and create new markets. For the large developing countries, integrating into the global economy through foreign direct investments improves standards of living by improving productivity and creating output growth. The biggest beneficiaries from this transition are consumers - both global consumers that 8

v.

reap the benefits from global industry restructuring, and consumers in the host countries that see their purchasing power and standards of living improve. vi. FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario of low competition and poor productivity. It can bring about: Supply Chain Improvement Investment in Technology Manpower and Skill development Tourism Development Greater Sourcing From India Up gradation in Agriculture Efficient Small and Medium Scale Industries Growth in market size Greater Productivity Benefits to government: through greater GDP, tax income and employment generation

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The report inter alia made the following recommendations: Permit FDI in retail Remove Bottlenecks in the supply chain Relax SSI Reservation Remove distribution constraints Organize market for real estate Increase land supply

Road Ahead
The BMI India Retail Report for the first quarter of 2012 released forecasts that the total retail sales will grow from US$ 422.09 billion in 2011 to US$ 825.46 billion by 2015. The report highlights strong underlying economic growth, population expansion, increasing disposable income and rapid emergence of organised retail infrastructure as major factors behind the forecast growth.
The report further predicts that sales through mass grocery retail (MGR) outlets will increase by 219 per cent to reach US$ 28.14 billion by 2015 while automotive sales would swell by almost 44.8 per cent from 3.6 million units in 2011 to 5.21 million units in 2015. Consumer electronic

sales are estimated at US$ 29.44 billion in 2011, with over-the-counter (OTC) pharmaceutical sales at US$ 3.03 billion. On the similar lines, global consultancy firm PricewaterhouseCoopers expects Indian retail sector to be worth US$ 900 by 2014 in its report Strong and Steady 2011.

SWOT ANALYSIS Strength:

1) Retailing is a technology-intensive" industry. It is technology that will help the organised retailers to score over the unorganized retailers. Successful organised retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and ultimately save cost. Example: Wal-Mart pioneered the concept of building competitive advantage through distribution & information systems in the retailing industry. They introduced two innovative logistics techniques cross-docking and EDI (electronic data interchange).

2) On an average a super market stocks up to5000 SKU's (Stock keeping Units) against a few hundreds stocked with an average unorganized-retailer.

Weakness:
1) Less Conversion level: Despite high footfalls, the conversion ratio has been very low in the retail outlets in a mall as compared to the standalone counter parts. It is seen that actual conversions of footfall into sales for a mall outlet is approximately 20-25 percent. On the other hand, a high street store of retail chain has an average conversion of about 50-60percent. As a result, a stand-alone store has a ROI (return on investment) of 25-30 percent; in contrast the retail majors are experiencing a ROI of 8-10 percent.

2) Customer Loyalty: Retail chains are yet to settle down with the proper merchandise mix for the mall outlets. Since the stand-alone outlets were established long time back, sot hey have stabilized in terms of footfalls &merchandise mix and thus have a higher customer loyalty base. 3) The Indian middle class is already 30 crore &is projected to grow to over 60 crore by 2010, making India one of the largest consumer markets of the world. The IMAGES-KSA projections indicate that by 2015 India will have over 55 crore people under the age of 20 reflecting the enormous opportunities possible in the kids and teens retailing segment.

Opportunity:
1) Percolating down: In India it has been found out that the top 6 cities contribute 66 percent of the total organised retailing. While the metros have already been exploited, the focus has now been shifted towards the tier-II cities. The 'retail boom' of which 85 percent has so far been concentrated in the metros, is beginning to percolate down to
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these smaller cities and towns. The contribution of these tier-II cities to total organised retailing sales is expected to grow to 20-25 percent. 2) Rural Retailing: India's huge rural population has caught the eye of the retailers looking for new areas of growth. ITC launched India's first rural mall "Chaupal Saga" offering a diverse range of products from FMCG to electronic goods to automobiles, attempting to provide farmers a one-stop destination for all their needs. "Hariyali Bazar", started by DCM Sriram group, provides farm-related inputs & services. The Godrej group has launched the concept of 'agri-stores' named "Aadhaar" which offers agricultural products such as fertilizers & animal feed along with the required knowledge for effective use of the same to the farmers. Pepsi on the other hand is experimenting with the farmers of Punjab for growing the right quality of tomato for its tomato purees, pastes

Threats:
1) If the unorganised retailers are put together, they are parallel to a large supermarket with little or no over-heads, a high degree of flexibility in merchandise, display, prices and turnover.
2) Shopping Culture has not developed in India as yet. Even now malls are just a place to

hang around, largely confined to window-shopping. Due time limitation and being a large are, the scope will be limited to Ahmedabad city only.

Objective:
1) Tactical level inventory control decisions of the retail grocer seeking to improve the replenishment process and reduce total inventory cost. 2) Strategic implications of supply chain activities that contribute and enable sustained firm performance.

Methodology: The data for the research project would be mainly secondary data.
Various sources of secondary data like, newspapers, magazines, internet, budget reports, and government sites will be used for the successful fulfillment of the project.

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Scope: The scope of the project will be limited mainly to Ahmedabad city.
One the reason for limiting the research to Ahmedabad is because the city itself is big market for the secondary data. The other reason for the area confinement is due to the lack of time.

Retail Models in India: Current & Emerging

The Indian food retail market is characterized by several co-existing types and formats. These are: 1. The road side hawkers and the mobile (pushcart variety) retailers. 2. The kirana stores (the Indian equivalent of the mom-and-pop stores of the US), within which: a. Open format more organized outlets b. Small to medium food retail outlets. Modern trade the organized retailers Within modern trade, we have: 1. The discounter (Subhiksha, Apna Bazaar, Margin Free) 2. The value-for-money store (Nilgiris) 3. The experience shop (Foodworld, Trinethra) 4. The home delivery (Fabmart) While the focus of this note is on modern organized retail trade, we hereunder present insights into the smaller, semi and unorganized retailers. Hawkers mobile supermarkets
The unorganized sector is characterized by the cart vendors (also known as mobile supermarket) seen in every Indian town and city is, therefore, difficult to track, measure and analyze. But they do know their business these lowest cost retailers can be found wherever more than 10 Indians collect a rural post office, a dusty roadside bus stop or a village square As far as location is concerned, these retailers have succeeded beyond all doubt. They have neither village nor city-wide ambitions or plans their aim is simply a
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long walk down the end of the next lane. This mode of mobile retailers is neither scalable nor viable over the longer term, but is certainly replicable all over India. Most retailing of fresh foods in India occurs in Mandis and roadside hawker parks, which are usually illegal and entrenched. These are highly organized in their own way. Hawking of food products, cooked food and FMCG products is a very interesting model of retailing. Much has been written about these roadside malls from social security issues to their nuisance value. However if you put these hawkers together, they are akin to a large supermarket with little or no overheads and high degree of flexibility in merchandise, display, prices and turnover. While shopping ambience and the trust factor maybe missing, these hawkers sure have a system that works.

Kirana/Mom-and-Pop Stores
Semi-organized retailers like kirana (mom-and-pop stores), grocers and provision stores are characterized by the more systematic buying from the mandis or the farmers and selling from fixed structures. Economies of scale are not yet realized in this format, but the front end is already visible changing with the times. These stores have presented Indian companies with the challenge of servicing them, giving rise to distribution and cash flow cycles as never seen elsewhere in Asia. The model is very antithesis of modern retail in terms of the buyer (retailer) - seller (FMCG) equations. It is not unknown for MNC leaders to link the supply of one line of products to another slower moving line of products. These retailers are not organized in the manner that they could challenge the power of the sellers, most protests have been in the form of boycotts, which really have not hit any company permanently.

Evolution of organized retailing

Retailing, one of the largest sectors in the global economy, is going through a transition phase in India. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing. The traditional food and grocery segment has seen the emergence of supermarkets/grocery chains, convenience stores and fast-food chains.

The traditional grocers, by introducing self-service formats as well as valueadded services such as credit and home delivery, have tried to redefine themselves.
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However, the boom in retailing has been confined primarily to the urban markets in the country. Even there, large chunks are yet to feel the impact of organized retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has, therefore, probably not looked at the other markets as seriously. Second, the modern retailing trend, despite its costeffectiveness, has come to be identified with lifestyles. Retail stores necessarily have to identify with different lifestyles. This trend is already visible with the new stores with an essentially `value for money' image. The attractiveness of the other stores actually appeals to the existing affluent class as well as those who aspire to be part of this class. Hence, one can assume that the retailing revolution is emerging along the lines of the economic evolution of society.
In 2000, the economists put a figure to it: Rs. 400,000 crore, which was expected to develop to around Rs. 800,000 crore by the year 2005 an annual increase of 20 per cent. Retailing in India is unorganized with poor supply chain management perspective. According to a recent survey by some of the retail consulting bodies, an overwhelming proportion of the Rs. 400,000 crore retail markets is unorganized. In fact, only a Rs. 20,000 crore segment of the market is organized. As much as 96 per cent of the 5 millionplus outlets are smaller than 500 square feet area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world.

Impact of Organized Retail

Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiris as early as 1905, the retail revolution happened with the RPG group starting the Foodworld chain of food retail outlets in South India with focus on

Chennai, Hyderabad and Bangalore markets, preliminarily. The experiment has reaped rich dividends and the group is now foraying into other territories as well. Owing to the success of Foodworld model of RPG group, several new models such as Trinethra, Subhiksha, Margin Free and others have made their foray into this sector albeit at regional levels. Today the food retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the organised food retail segment is about 1 per cent and increasing at a pace of over 20% year-to-years.
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To be successful in food retailing in India essentially means to draw away shoppers from, the roadside hawkers and kirana stores to supermarkets. This transition can be achieved to some extent through pricing, so the success of a food retailer depends on how best he understands and squeezes his supply chain. The other major factor is that of convenience shopping which the supermarket has the edge over the traditional kinara stores. On an average a supermarket stocks up to 5000 SKUs against few hundred stocked at an average kirana stores. Though with excellent potential, India poses a complex situation for a retailer, as this is a Country where each State is a mini Country by itself. The demographys of a region vary quite distinctly from others. In order to appeal to all classes of the society, retail stores would have to Identify with different lifestyles. Hence we may find more of regional players and it would take enormously long time before nationwide successful retail chains emerge. This is the main reason as to why the successful retail chains in the country today operate at regional segments only and are not aiming at nationwide presence, at least for the time being.
In the organized retail industry, the gestation periods are long, institutional funding is difficult, and there is none or little Government support. But the belief among top retailer chains in the country is that the industry will see large investments coming once the current ban on foreign direct investment is lifted. But that could be two-three years away. Food and grocery retailing is a tough business in India with margins being very low, and consumers not dissatisfied with existing shops where they buy. For example, the nextdoor grocery shopkeeper is smart and delivers good customer service, though not value. As of now, while Chennai has about five organized food and grocery retail chains, other big cities such as Delhi, Bangalore, and Mumbai average only two-three such chains. Almost all food retail players have been region-specific as far as geographical presence is concerned in the country. To illustrate with examples, the RPG Group's Food World, Nilgiris, Margin Free, Giant, Varkey's and Subhiksha, all of which are more or less spread in the Southern region; Sabka Bazaar has a presence only in and around Delhi; names such as Haiko and Radhakrishna Foodland are Mumbai-centric; while Adani is Ahmedabad-centric. Industry topography in India is such that spreading presence across cities is a tough call. As pointed out by many experts, organized food and grocery retailing chains going national requires significant investments Retailing within this sector is not just about the front end, but involves complex supply chain and logistics issues as well.
The trend and mindset of the present retailer chains in India can be best understood by studying Food World as an example, which came in first in the food and grocery retailing sector. The chain has no plans to venture beyond the Southern region just yet. Current plans
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are to focus on the Southern markets and achieve saturation. The intention is that by 2005, they could look at the other regions. Subhiksha, a Chennai based discount chain, too wants to be the principal store of purchase for at least 40 per cent of all consumers living within 500750 meters of the store, that is, within walking distance. This makes the point very clear that the strategy among most existing retail chains of various formats is to completely saturate the markets where they are already established players and then move on to virtually untouched areas where the challenge of sourcing resources and extending their supply chain model to best suit the size and expanse of the market would be a challenging task. Meanwhile, the RPG group plans to take its new formats such as Giant Hypermarkets national over the next three years. Grocery is a large component of this format, but not the only one. To elaborate on the hurdles of going pan-Indian, fundamentally, the way a basic grocery retailing model works is that the high set-up costs in terms of setting up buying/ distribution infrastructure is gradually amortized over a large number of stores. The back-end costs without distribution centre costs, or what in retail jargon is called retail administration costs, should stabilize at around 2.5 per cent to 3 per cent of sales.

It can be explained that the obstacles of looking at a pan-India model for grocery are several. Given the federal nature of the country, the weak infrastructure and the major variances in eating habits in different parts of the country, one will have to replicate the retail administration costs for at least each region and therefore the gestation period of the project becomes huge. However, if a model is in place where the upfront store revenues scale very rapidly, then it is possible. Therefore, if one is to attempt a pan-Indian grocery foray, it will have to be in the hypermarket format with its attendant investment numbers and risk profile. If a close look is taken at the nature of the Indian Retail Markets, it can be seen that there is so much potential to extract from individual regions, that players are in no tearing hurry to spread out. Based on a recent study by a renowned government institution in India, in the six major metros, Delhi has the highest per capita consumption of food and grocery, among supermarkets. Chennai, the Mecca of retailing, comes at fourth place. This shows the high potential the sector presents. Chennai has some five supermarket chains, and each of these are doing well for themselves. So there is enough scope to expand even in one single city in India.
It can be observed that the most popular retail format in India is the supermarket, beside the corner shop/grocery store mom and pop store . Hypermarkets have very recently come into being and are negligible in number though most retail chains do intend to expand their presence through this format as well very soon. Discount chains are also substantial in number and are growing at a fast pace through the country, predominantly, in the southern
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region. Given that organized retail has been registering growth rates of approximately 40 per cent over the last three years, it is expected to grow to about Rs 35,000 crore in 2005, and close to Rs 70,000 crore in 2010. If projections were to be made considering the current trends in food retailing in India, some years down the line, food and grocery stores will become dominating trade partners for the food industry, which, in turn, will be forced to offer special discounts and trade terms for them to get the shelf space in such stores. Also, once established, in-store label brands will become a real threat to the industry as manufacturers will have to compete with the store label brands that are generally very price-competitive. As for the spread geographically, strong chances stand that the major chains would spread to the next grade of cities in the country over the next 5 years or so and then progressively start covering every corner of the country. Most chains have already started developing their own unique supply chains that would suit their needs precisely. Replicating the success stories of the big names of the Western nations may still be a distant dream for Indian food and grocery retailers, but at least the winds are blowing in the direction of growth.

Analysis of food retail sector

Retailing is a sunrise industry in India with many challenges like exclusion of small farms, management of processing and distribution chains. Evolution of super markets and fast food chains is a recent phenomenon in India. Various demand and supply side factors have contributed towards this growth.

Supply Side
The liberalization of the economy in the 1990s led to a boom in the Consumer Goods

Industry with reductions in custom duties and shift from quota to tariff based system. Entry barriers on multinationals were largely removed after which Food Industry majors like Kelloggs, Heinz, Tropicana, etc., entered the Indian food industry. This gave rise to tremendous development of sophisticated supply chain and logistics which eventually and gradually has led to the growth in the food processing & packaging industry.

Demand
The increase in the income levels of middle & higher income groups in the 1990s coupled with the reduction in poverty levels was major factor in contributing to the increase in demand for
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high quality food retailing services. Changing consumer lifestyles with the steep increase in time value, wide spread change in the Indian family structure from vast Joint Hindu families to more manageable nuclear families and increasing level of quality awareness has also helped the cause of the Food Retailing industry considerably. Another major factor that has accelerated the growth of the Indian Food Retailing Sector has been the advent of cable television and the increasing Instances of overseas travel by Indians for various reasons. Retailing is subject to a plethora of laws and regulations at central, state and

Municipal/local levels, some of which have been listed below: - Restrictive zoning legislation limits availability of land for retail/ commercial purposes - Restrictions on intense movement of food grains deprive farmers from getting remunerative Prices. - Restrictive Labor laws - Urban land ceiling regulations, restrictions on shop opening timings, requirements for shops to Close once a week - There is no uniform tax structure - multiple layers of taxes.
Food & Grocery from big and better portion of organized retailing these days. Indias retail sales now account for 44 per cent of its GDP. Food retail sales make up for close to 63 per cent of total retail sales. In absolute terms, food retail sales have grown from Rs 3,81,000 crore in 1996, to Rs 7,03,900 crore in 2001. And, just for the record, non-food retail sales have grown from Rs 2,22,400 crore in 1996, to Rs 4,19,000 crore in 2001. Besides, the food and grocery sector now accounts for 14 % of total organized retail, after clothing and textiles (36 %) and watches and jeweler (17 %).

Modern, or organized retail, accounts for just about 1.6 per cent of the total retail sales in the country, estimated at Rs 18,000 crore. The study further analyses that last year, for the first time in five years, retail shares of grocery dropped, even though in terms of absolute value, the shares remained stable.

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According to Mr. .R Subramanian, Director of the Chennai-based discount retail chain, Subhiksha: "Food and grocery retailing is a tough business. Margins are low, and consumers are not dissatisfied with existing shops where they buy. For example, the next door grocery shopkeeper is smart and delivers good customer service, though not value." As of now, while Chennai has some five organized food and grocery retail chains, other big cities such as Delhi, Bangalore and Mumbai average only two-three such chains. Also, most food retail players have been region-specific as far as geographical presence is concerned. RPG Group's FoodWorld, Nilgiris, Margin Free, Giant, Varkey's and Subhiksha, all of which are more or less spread in the
Southern region; Sabka Bazaar has a presence only in and around Delhi; names such as Haiko and Radhakrishna Foodland are Mumbai-centric; while Adani is Ahmedabad-centric. "Organised food and grocery retailing chains going national requires significant investments. Retailing within this sector is not just about the front-end, but involves complex supply chain and logistics issues as well." Says Mr. Arvind Singhal, Chairman KSA Technopak. FoodWorld, which came in first in the food and grocery retailing sector. The chain has no Plans to venture beyond the Southern region just yet. Food World has a current sales figure of Rs 350 crore. Subhiksha too is gung-ho about the future of the discount chain. Given that organised retail has been registering growth rates of approximately 40 per cent over the last three years, it is expected to grow to about Rs 35,000 crore in 2005, and close to Rs 70,000 crore in 2010.

And as an industry analyst elaborates, "Some years down the line, food and grocery stores will become dominating trade partners for the food industry, which, in turn, will be forced to offer special discounts and trade terms for them to get the shelf space in such
stores. Also, once established, in-store label brands will become a real threat to the industry as manufactures will have to compete with the store label brands which are generally very price-competitive." In the retail format, hypermarkets are expected to be the most successful format. Food and grocery and hypermarkets are likely to generate the best returns in 5 years.. Most of the growth will come from hypermarkets and, coincidentally, all announcements of expansions by leading players are in this format. In terms of returns, food and grocery format scores over the apparel one. Although apparel stores have higher margins, food and grocery stores earn higher returns once the stores stabilise; this is driven by lower fixed costs and significantly higher stock turnover ratios. Private labels have yielded higher margins for most large players.

The comprehensive list of Food & Grocery retail in India are :

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PARENT GROUP

RETAIL STORE NAME

Heritage foods

Fresh

Big Bazaar Bharti Enterprises Group Nilgiris+Actis Viswapriya Reliance Industries Ltd. Dairy farm International Supplyco(KSCSCO) RPG Group AB Group AB Group Sankalp retail value stores(AHMBD) Hiranandani Group Trent Ltd Shoprite Hypermarket Cooperative (Kerala) Ahmed (Bangalore) Margin Free Markets Godrej Wadhawan group Piramyd holdings Zakaria Shahid Group Apna Bazaar(Cooperative Retail chain) Adani group Radhakrishna Group Varkey's(Kerala)

Food Bazaar FieldFresh RPG FoodWorld Nilgiris Subhiksha Reliance Fresh Giant Maveli stores Spencers Fab Mall Trinetra Sankalp Haiko Star India Bazaar Shoprite Triveni Stores(Kerala) M K M K Retail(Bangalore) Margin Free Stores(Kerala) Nature's Basket Spinach Trumart Sabka Bazaar Apna Bazaar Adani Radhakrishna Foodland Varkey
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Example: Big Bazaar Organization overview

Big Bazaar is a chain of hypermarket in India. Currently there are 210 stores across 80 cities and towns in India. Big Bazaar is designed as an agglomeration of bazaars or Indian markets with clusters offering a wide range of merchandise including fashion and apparels, food products, general merchandise, furniture, electronics, books, fast food and leisure and entertainment sections.

Store format

There are 93 outlets today across Southern and Western India. Self service oriented merchandising strategy is followed. Big Bazaar display format follows
functional racking with no fancy accessories. The stores have a very dominant corporate fascia/signage, with the logo written in yellow on bold red. Typical store carries about 5000 items. The average ticket size ranges around Rs280-300. Site strategy is residential high street with minimum 6000 households in two to three km radius and the Core customer target between one-and-a-half and two kilometers of the store .Big Bazaar stores consider ground floor properties only- between 3000 to 3500 sq ft with minimum 40 ft frontage. Additional space of approximately 400 sq ft for back office and standby generator is used.

Positing

A self service neighborhood Grocery" store catering largely to the "monthly" consumables requirement of households in the immediate vicinity. It offers a complete range of fresh foods, including Fruits, Vegetables, Bakery etc .Primarily it is a shopping destination for people staying within one-and-a-half kilometer radius of
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the store. It provides customers with a wide range of quality products reasonable prices under one roof, in a convenient location, in a clean, bright and functional ambience.

Product Mix

It consists of seven major groups, namely, staples, processed foods, beverages, non-food, health & beauty, perishables and hardware and home appliances. Further divided into 49 categories, such as destination, strategic (routine), convenience and specialty (occasional) depending upon the importance in the customers purchase basket and frequency of purchase.28 per cent of Big Bazaar's foods and groceries are private labels -launched more than 150 items under Big Bazaar Brand Big Bazaar Brands are backed by a 100% No Questions Asked Replacement Guarantee- a first of its kind in the market. Marketing Strategy

Big Bazaar marketing strategys focus is to maximize traffic in the store. Merchandising and display strategy geared toward increasing the size of the bill value and purchase basket for each customer. Direct mailers and in-store shopping guides main communicators for the customers for the strategy. In-store shopping ambience built using bright and prominent displays like posters, large shelf talkers and bulk merchandising or floor displays. Distribution Strategy

It follows a strategy of minimum suppliers to take advantage of economies of scale (in purchasing and supply logistics), reduced overheads and control requirements, and easier vendor development. Big Bazaar works on the hub-and-spoke model. A hub is typically of 50,000-60,000 sq ft in area and serves about 30-40 stores in a radius of 30 km .Creation of Regional Hubs facilitates over 90% central distribution .The remaining 10% (mostly perishable items like fruits and vegetables, bakery etc) supplied direct to store. It consolidates the harvests from Ooty, Kodaikanal, Hosekote, Venkatagirikota, Bangalore and Hyderabad. It participates in early morning auctions at
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the major wholesale markets. It has a set of suppliers who grade, clean, pack and label the fresh products in time for early morning dispatch to the stores.. On an average, 250 tones of fruits and vegetables a month are supplied from here to all Big Bazaar stores. Big Bazaar has close to 8,000 SKUs at any given point in time in the stores. Revenue as of year 2005 was Rs 382 crore. CAGR, in terms of turnover has been at 30% over the years. Customized Distribution and Logistics Supply Chain
Big Bazaar provides Customized Distribution & Logistics services encompassing the entire supply chain, such as storage, handling and distribution solutions to various clients. The services are tailor made to suit each clients requirements, which include organizations such as McDonalds and Radhakrishna Hospitality Services Pvt. Ltd. (RKHS)

Platter of Services Logistics-Temperature Control Customer Order Fulfillment Warehouse Management Inventory Planning and Replenishment Management Supply Chain activities

Third Party Logistics Key Features: Dedicated to movement cold chain

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The only logistics solution provider with expertise in handling agri produce Total kilometer run per month is 6,00,000 km Perishable tonnage handled per month 6,000tons Robust quality systems & processes First in the country to use multi temperature vehicles Use of innovative methods to ensure temperature integrity during transit Experienced staff The BEST in the industry.

Fresh Rush

Aimed at movement of small volumes of perishable items. Companies loose out revenue due to non catering few markets due to the inexperience in movement of perishable items.

Fresh Rush is a temperature controlled transportation service addressing the needs of small volume cargo.

Features: Multi temperature products, such as Frozen(below 18C) and Chilled (1C to 4C) can be transported.

Flexibility of load movement - A minimum of 500 kgs to maximum of 5000 kgs can be transported
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In transit temperature tracking Fixed schedule of pickup and delivery Well trained and experienced manpower Adherence to strict hygiene standards Consignment can be tracked through GPS system

Advantage Big Bazaar

Big Bazaars domain expertise and experience helps customers derive optimum efficiency and profitability Waste reduction, shelf life extension and cost reduction of agri-produce from hinterlands and upcountry sources supplying to the countrys main markets

Freedom from managing the day-to-day affairs of supply chain management

Major cost saving, coupled with timely management of schedules and deliveries

Dependable and trustworthy services matching global standards of companies like McDonalds McDonalds: Full Supply Chain responsibility Multi Temp. Products - Over 65 % temperature controlled Stores as far as 500 1000 kms
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Drops per month Over 700 Movement mainly by road Regular movement of perishables by air Routing Challenges No margin for error Operations critical client No Stock Outs at store On time delivery record above 97 % Clean delivery record above 99 % Unfailing inbound supply chain

Private Labels

Big Bazaar offers its own private labels, under the Big Bazaar brand.

Products

Fruits & Vegetables Staples Bakery Items Non Veg

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 Delicatessen (premium ready-to-eat veg, chicken and pork products)

Features:

Sourcing from reliable vendors who follow stringent Quality Assurance and Food Safety standards
Distribution Centers equipped with multi-temperature zones to store and process different types of products depending upon their specific requirements.

Extensive training imparted to food-handlers and others involved in the whole chain to ensure superior output Hygienic Packaging
Delivery vehicles capable of carrying products across temperature dispositions Strict Quality Assurance and Food Safety programs to ensure product integrity

Challenges and Constraints

It faces competition from emerging value-based formats and from independent modern stores providing a better value proposition. No investments made in areas like IT, Back end administration, and customer relationship management, where returns are not immediate. Unorganized sector is getting organized -Bombay Bazaar and E-food mart have also been formed which are aggregations of Kiranas. Challenges in the area of infrastructure, supply chain, warehousing, and local legislation still lie ahead.

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The Road Ahead:

Big Bazaar has good retail penetration, good real estate space and strong brand recall in areas of presence. It intends to be a dominant retailer of Food products in the states of Tamil Nadu, Karnataka & Andhra Pradesh and Maharashtra, with an estimated 225 Stores in the major cities in these states. Expand own label categories in products like jams, ketchups, detergents and make product basket bigger.

Recommendations:

Infrastructure Development -State of art warehouses -Material handling equipments -Labeling, stacking mechanisms

Technology Influx -IT led security -Warehouse management systems -Material handling technologies (fork lifts,

-Sharing of Infrastructure Transport, IT etc pallets , racking etc) -IT led demand forecasting Intervention Areas

Skill Up gradation

Regulations & Policies

-Govt help through subsidies to develop model warehouses & training schools

-Manpower Skill development

-Training on transportation Training on loading, unloading Product handling

-Integrated facilities that can be used as common infrastructure

The above 4 mentioned intervention areas are a key to overcome supply chain challenges in
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retail industry. The key to success will be to use these methods in a holistic approach.
A very good example can be of the Future groups Mega Food Park concept. The company has started to build a cold storage in Tumkur, Karnataka. The cold storage will be used by many farmers who can store their seasonal vegetables in them, keeping the fresh and available on request at all times. The rent would be paid by the farmers. The government has allotted Future Group with 40% of the amount required to build the infrastructure. This type of initiative will help the retail industry in India to shine n future.

Conclusion: Ideally retail supply chains need to be designed to be lean & defect free prior to
implementation of the processes. However, this is rarely possible in real life given the pace at which the industry is expanding. Even if this is done & processes designed optimally the rapidly changing market dynamics soon make them ineffective. Hence there is a need to continuously review & revive the standard operating practices (SOPs) that are used to document & audit process implementation. A well designed lean six sigma initiative helps in continuous process redesign in order to ensure efficiency & accuracy despite changing operating conditions.

References:
1) 2) 3) 4) Indiaretailing.com A.C Nielsen report Future Group employees National Seminar on Logistics &Supply Chain Management, IASMS, BANGALORE, INDIA