Page 47 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes The trend and mindset of the present retailer chains in India can be best understood by studying
FoodWorld 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 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 500-750 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 amortised over a larger number of stores. The back-end costs without distribution
centre costs, or what in retail jargon is called retail administration costs, should stabilise 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.

Sabka Bazaar, a supermarket chain restricted to Delhi alone, is now generating sales of about
` 11 crore from its 19 stores which best illustrates the potential of each individual city. This
explains the reason for delay in intentions of retailers to spread far and wide.
Pantaloon Retail (India) Ltd., which operates two types of retail formats, made its maiden foray
in food and grocery retailing in North India in mid-2003. Big Bazaar, Pantaloon group’s discount
store chain, has taken off to a roaring start in Delhi. The Pantaloon Big Bazaar in Delhi is the sixth
for the group, and the first in North India. It has been found that existing Big Bazaar stores in
cities such as Hyderabad, Bangalore and Mumbai attract average footfalls of 20,000 to 25,000 per
day, more so during weekends. While Big Bazaar is essentially a discount store retailing product
categories ranging from food and grocery to apparel to footwear to home and interior products,
food and grocery retailing forms a significant part of the chain’s business. Typically, while food
and grocery retailing does well at the beginning of the month, the apparel sector sees maximum
off take during festivals.

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 region.

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