Competition & Pricing

In Food Retailing

Surjeet Singh Dhaka

PhD Scholar

WHAT IS RETAILING?

Retailing – a set of business activities that adds value to the

products and services sold to consumers for their personal or

family use.

A retailer is a person that sells products and/or services to

consumers for personal or family use.

RETAILING IN INDIA

Emergence of modern retail formats

Increased pressure on opening up FDI in retail sector

Rapid Evolution of New-age Young Indian Consumers

Rapidly increasing middle class

Rising Incomes levels

Increased Awareness Level among Consumers

Exposure to International Brands

INDIAN RETAIL SCENARIO

Total Private Consumption Expenditure in India – 375 Billion USD

Retail Sale – 205 Billion USD (55%)

Organized Retail – 6.2 Billion USD (3%)

Retailing – 35% of GDP

Outlet Estimates – Over 12 Million

Format – Only 4% larger than 500 sq.ft.

Second Largest Employer after Agriculture

CLASSIFICATION OF RETAIL STORES

Classification of Retail Stores

Store Based Retailing Non-Store

Retailing

Form of OwnershipIndependent retailer

Chain retailer

Franchise

Leased departments

Consumer co-operatives

Merchandise offeredConvenience stores

Supermarkets

Hypermarkets

Speciality stores

Departmental stores

Off price retailers

Factory outlets

Catalogue showrooms

Direct selling

Mail order

Tele marketing

Automated Vending

Overview

6

ORGANIZED RETAIL

The Indian organized retail industry is valued at about $300

billion and is expected to grow to $427 billion in 2010 and $637

billion in 2015.

Retail Market India today is the second fastest growing economy

of the world after China.

In organised retail the front liners like shop floor executives, sales

executives etc are in great demand.

Organised trade in India is highly under-developed as compared

with other emerging markets in Asia, Latin America and Eastern

Europe and developed markets like the US.

FOOD RETAILING

Food retailing has come of age –

Food items were sold in small road side grocer shops & mandis,

now being sold through supermarket stores.

Shopping for groceries is no longer a strenuous and

uncomfortable affair.

Food & beverages is the major segment, in organized Retail of

India, worth Rs 8,97,000 crore.

Food retail has surpassed the dominating apparel and

accessories sector.

From simple trading activity, food retailing is now heading to

the status of an industry.

SOME FACTS ABOUT FOOD

RETAILING IN INDIA

• Food Retailing is growing at 30% rate which makes it a major

driving force of the economy.

• At US$ 175 billion today the food industry is likely to grow to

US$ 400 billion by 2025.

• Modern state of the food retailing is not a demand led but the

supply led one.

• Food has the largest consumption in the Indian economy and will

remain the single largest category.

• There are 10 million street vendors in India, of which 6 million

only sell food.

• Indian consumers are happy with store goods than branded goods.

FACTORS PAVING THE WAY TO

REVOLUTIONIZING FOOD RETAILING IN

INDIAChanging life styles and tastes

Growing need for convenience

Increasing disposable income

Increasing numbers of working women

Change in consumption patterns

Higher aspirations among youth

Impact of western lifestyle

Plastic Revolution – Increased use of credit cards and

debit cards

ORGANIZED FOOD RETAIL CHAIN

Focus on General Merchandise Retailers –

Department Stores

Competition from:

Discount Stores on Price

Category Killers on Assortment and Service

Possible Competitive Responses

Lower Costs By Reducing Services

More Sales (by Expansion, Acquisition)

Focus on Strong Categories (e.g., Apparel, Home,

Jewelry)

Improve Services

Develop Private Labels, Exclusive Brands

Adapted from Levy and Weitz

Focus on General Merchandise Retailers –

Discount Stores

Big Three – Wal-mart, Target, Kmart

Competition from Category Killers – Toys ‘R Us, Best Buy,

PetSmart

Possible Competitive Responses:

Continue to Reduce Costs

More Focus on Apparel Because It Offers Higher Margins

… Except Wal-Mart, Which is Focusing on Food!

Adapted from Levy and Weitz

UP-AND-COMING FOOD RETAIL

FORMATS

Neighbourhood Stores

In India about 90% of food purchases are made within a distance

of 1.5 km from the customer's home. The outlets closest to a

neighbourhood store in India are 'Safal' outlets operated by

Mother Dairy in Delhi, Margin Free in Kerala and Subhiksha.

Supermarkets:

This format caters to the consumers' need for choice and variety.

These stores cater to the consumers in a catchment area with a

radius of 3 to 4 km. Examples of supermarkets already in India

are Food World, Trinetra and Nilgiris.

UP-AND-COMING FOOD RETAIL

FORMATS

Hypermarkets: Hypermarkets are essentially destination stores

catering to the consumers' bulk shopping needs in both food and

non-food categories. Spencer’s (RPG), Big Bazaar (Pantaloons),

Star India Bazaar.

Cash & Carry (C & C) Stores: These stores sell their products

to their members only. The members are typically retailers and

institutions. The key added value is a wide range of products under

one roof, available at wholesale prices. Metro has started the first

C & C store in India in Bangalore. The typical area of a C & C

store is 70,000 to 100,000 sq. ft.

FOOD RETAIL FORMATS

“Food Retail Format” as a retail offering that can be

segmented based on the different value that it offers to the

consumer along three key dimensions – Choice, Service and

Price.

THREE MODERN FOOD

RETAIL FORMATS • Hypermarkets:

- Self service stores, mix of food & non food.

- Essentially low price

- 40,000– 75,000 Size (sq.ft)

• Supermarkets:

- Food, laundry and household maintenance products.

- Self service

- low cost

• Convenience stores:

- Mix of products

- 500-1,000 (sq.ft)

OPPORTUNITIES FOR NEW FOOD

RETAIL FORMATS

1. Limited-Range Discount Stores

2. Mini-Marts

3. Compact Hypermarkets

4. Specialty Food Stores

5. Convenience Plus

LIMITED-RANGE

DISCOUNT STORES

Small

Easy-to-shop

Easy-to-access configurations

Low-priced

MINI-MARTS

low-priced neighborhood stores

Limited range of fresh food

Dry groceries and household products

COMPACT HYPERMARKETS

Small in size than hypermarkets

Reduced range and assortment

Brings together the strengths of both

hypermarkets and supermarkets

SPECIALTY FOOD STORES

Large produce sections

Area between 200 and 500 square metres

CONVENIENCE PLUS

Neighborhood shops

Stand to do well in markets with busier lifestyles and an

ageing population

THE BUSINESS ENVIRONMENT AND ITS

INFLUENCE ON FORMATS

1. The cost and availability of real estate

2. Regulatory environment

3. Development of distribution in infrastructure

4..State of technology

KEY PLAYERS IN INDIAN FOOD

RETAIL

SECTOR Reliance fresh

Subhiksha

Food bazaar

More retail

International player

Wall mart- Super center

RELIANCE FRESH

Type Supermarket

Founded 30 October 2006

Headquarters Mumbai, India

Key people Mukesh Ambani, CEO

Reliance Fresh is the convenience store format

Headed by MUKESH AMBANI.

Reliance plans to invest in excess of Rs 25000

crores in the next 4 years in their retail division.

The company already has in excess of 560

reliance fresh outlets across the country.

Reliance Fresh store is approximately 3000-4000

square. feet and caters to a catchment area of 1-2

km.

VISION

To create a blend of a typical Indian Bazaar

andInternational Supermarket atmosphere with

theobjective of giving the customer, all the

advantages ofQuality, Range and Price associated

with large format stores and also the comfort of

being able to touch andfeel the products.

SUBHIKSHA

Type Discount department

store

Founded Chennai, India

(1997)

No. of locations 1000 stores

Key people R. Subramanian

Industry Retail

Employees 25,000

Subhiksha is an Indian retail chain with more than 1400 outlets

selling groceries, fruits, vegetables, medicines and mobile phones.

It was started and is managed by

R. Subramanian

Subhiksha plans to open 1000 outlets by December 2008.

plans to invest Rs.500 crore to increase the number of outlets to 2000 across the country by 2009

FOOD BAZAAR

Food Bazaar, the supermarket variant of

future group.

Has adopted the 'negotiated and predetermined' model to source vegetables and fruit from farmers across states.

The company will use the model to procure potatoes from farmers in Uttar Pradesh where the quantity and quality of the produce is predetermined. The company decides the price after the harvest to give maximum benefit to the farmer.

• 35+ stores; pan Indian format Bhubaneshwar, Nagpur, Nashik, Durgapur….Sangli

• Simple, Indian model

• Minimum habit change for the customers

• Use small entrepreneurs to the hilt, for category management

• Largest Food Retailer – But just a small spec in the market

• Shooting for Rs 1000 Cr this year; Rs 2000 Cr next year

MORE RETAIL STORE

Type Department store

Founded 2007

No. of locations 40-50(Mumbai)

Industry Retail

The more. chain of supermarkets, are bright and

clean stores, at convenient locations with layouts

that allow ease of navigation. The product display

is well organised and facilitates ease of choice.

The stores have been designed by Fitch, the

leading international retail design firm.

WAL-MART SUPERCENTER• The number of non-traditional retail outlets,such as warehouse

clubs and discount mass merchandisers,has increased substantially in the pastdecade.

• Traditional supermarkets are facing seriouscompetition from these retail outlets because nontraditionalretailers with low-operating margins areable to provide low-price appeal to consumers.

• supercenters,ranging in size from 100,000-200,000 square feet.

COMPETITIVE ANALYSIS

(FOOD RETAIL)

SUBHIKSHA

Subhiksha is an Indian retail chain with more than 1400 outlets selling groceries, fruits, vegetables, medicines and mobile phones.

Subhiksha plans to open 1000 outlets by December 2008.

Plans to invest Rs.500 crore to increase the number of outlets to 2000 across the country by 2009.

Subhiksha has seen a considerable growth by offering goods at

cheaper rates and there by increasing its customer base.

It is also dubbed as India's largest retail chain.vision to deliver

consistently better value to Indian consumers.

Subhiksha now has the pan Indian presence with

stores across Delhi, UP, Punjab, Hariyana,

Gujarat, Maharashtra, AP, Karnataka and TN. It

has recently commenced operation in Kerala also.

Thinking:-

Bringing in a model that is Indian, capable of supporting the

middle class of India.

A business model from India is superior to a business model

imported from the West.

We genuinely believe that through efficiency, we are helping the

consumers save more.

RELIANCE FRESH

Reliance Fresh is the convenience store format which

forms part of the retail business of Reliance industries of

india.

Mukesh Ambani Reliance plans to invest in excess of Rs

25000 crores in the next 4 years in their retail division.

Stores would provide direct employment to 5 lakh young

Indians and indirect job opportunities to a million people,

according to the company.

The company also has plans to train students and housewives in

customer care and quality services for part-time jobs.

Company-owned stores currently totals just $8 billion in India.

The MORE chain of supermarkets, are bright and clean stores, at

convenient locations with layouts that allow ease of navigation.

MORE is the answer to the shopping needs of the Indian housewife

who wants a modern and convenient option in her neighbourhood.

MORE also has a range of products from its own

stable available across value, premium and select

ranges.

The Rs 9,000-crore pan-Indian plan would have

neighbourhood supermarkets catering to daily and

weekly household shopping needs of customers.

Food Bazaar supermarket variant of Pantaloon Retail Ltd, has

adopted the predetermined' model to source vegetables and fruit

from farmers.

Almost 20% of the cost is saved if the produce is procured

directly from the farmers.

Kishore Biyani-run retail major, Pantaloon, is awaiting

amendments in the Agriculture Produce Marketing Committee

(APMC) Act in different states to source its produce directly

from the farmers.

The floor area for the stores will range from 5,000 sqft to

20,000 sqft.

Of the 8,000 stock keeping units available across

the stores, 10% constitute the farm fresh segment,

while the international standard is around 12%.

The company wants to push the former to 15% in

the next three years.

KEY SUCCESS FACTORS FOR FOOD

RETAILING

Increasing need for convenience

Eight to ten outlets to purchase various food

products

Time-consuming and inefficient way of shopping

for food

Changing lifestyle

‘Value for time' and ‘Value for money'

Availability of quality retail space

In late 1990s cost of real estate was high and hence food retail

business models were not financially viable in metropolitan

areas

In the last few years, various factors have led to increased

availability of real estate for organized retail formats

300 malls are at various stages of construction across metros and

mini metros in the country

The average size of a mall is about 100000 sq ft

Additional retail space of 30 to 40 million sq. ft. over the next

three to five years

Taxation: Implementation of VAT helping organised

retailers

The Indian government has launched value added tax (VAT)

nationwide April 2005

Aim was to: boost state revenues, reduce inter-state barriers to

trade and make accounting more transparent

This was in favour of organized retailers given their multi-

location presence

Increasing share of private labels

• Share of private labels in the basket of key food retailers is

increasing

• Fierce competition with the well-established brands of the

leading FMCG companies

• Trent (A Tata Group Company) has now launched a

hypermarket with focus on Star India Bazaar and aim to

achieve a significant share of sale through private labels.

Retailers' eye on the unbranded food space

• Modern food formats like Food Bazaar and Spencer's have their

eye on the unbranded part of the consumer's shopping basket

• Retailers are offering a package of convenience and freshness

• Food retailers are also offering 'live kitchen' formats

• Examples: Grinding coffee fresh at store, idli batter, paneer, curd

and cut vegetables

KEY CHALLENGES IN FOOD

RETAILING Penchant for fresh/home-made and value consciousness

• Dietary patterns, poor electricity supply, low penetration of

refrigerators and a family structure

• Value conscious

• A TSMG study indicates that packaged food players need to

drive down prices by almost 35-40% to be comparable on cost

with home made food

Diversity of tastes and preferences

Multiple cultures, languages and religions

Preferences of the Indian consumer.

A challenge for players aspiring to develop a pan Indian

presence.

Willingness to travel

Sourcing base and efficiency

Real estate availability and cost

• Rentals account for 7-7.5%

• Real estate availability and costs

• Factors like adequate parking, ambience and proximity the key

drivers of footfalls

Manpower availability

EMERGING TRENDS IN FOOD

RETAILING

Big becoming bigger

Size drives profitability, not just through

economies of scale in operations but also through

higher bargaining power

The growth stage will be characterized by rapid

expansion and consolidation among these players.

Rise of organic foods and health and wellness segment

Consumer attitudes and preferences are undergoing a shift

Factors like increased disposable incomes, changes in lifestyle

patterns, shift in age structure, increased number of working

women and multi cultural exposure

Increasing health consciousness in the future

Organic foods and wellness products

Increasing focus on private labels

Competition in the organized retail market

Discounts and promotions are expected to play a critical part

in generating footfalls

More attractive to promote private labels or store brands given

their higher margins.

Consumer would benefit from lower prices.

FUTURE OF FOOD RETAILING

Innovation on Retail format

• by targeting specific customer segments and serving their

needs better e.g. working women, single office goers, etc

• by changing the product mix e.g. entirely private label stores,

exclusively fresh produce stores

• by offering new forms of convenience and wider range to the

customer e.g. tele retail and internet retail

Technological Innovations

Self-scan checkouts

Using RFID tags

Web-enabled POS systems, e-SCM systems, e-Procurement

systems and warehouse management systems

Use of cutting edge analytics

THANK YOU..