Third Eyesight - Articles and whitepapers - Durables Retailing :: Chain Gains

This article on Durables Retailing is based on an article by Aarti Kapoor that appeared in the Business World and has been reproduced from Third Eyesight. The link is given below.

Third Eyesight - Articles and whitepapers - Durables Retailing :: Chain Gains

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DURABLES RETAILING
Chain gains

Durables retailers are dreaming bigger than ever before. Will they go the American way or the European? AARTI KOTHARI explores.

Large showrooms like Viveks allow for a proper display of high-end products

Modernism dismissed mythology. Environment and health hazards pulled the plug on firecrackers. Double-income families dumped diyas and rangolis. Only one thing remained constant. Diwali shopping. And this in itself has become a ritual.

First scout around the city and find the dealers. Then compare different models across different dealerships. Finally, locate the best deals. But if you live in Chennai, Bangalore or Mumbai, things are a lot easier.

Traditionally, the South has been the vanguard of organised retail in the country, now being matched by the West, namely Mumbai. Not surprisingly, in the Rs 20,000-crore consumer durables industry, these three cities represent most of the 5 per cent share of organised retail. The large players within these regions are expanding, experimenting and imagining the future. Watching from the sidelines are some 40,000 durables dealers - a majority of whom operate single outlet dealerships - across the country waiting for signs of success.

The top nine retailers in the country are set to expand their number of outlets from 148 today to over 500 by 2006-07, and revenues from Rs 850 crore to over Rs 2,600 crore in the same period. Ironically, the industry is still at a crossroads; it needs to decide the way ahead. In the US, the all-products-under-one-roof stores like Wal-Mart are more favoured, while in Europe exclusive durables-only chains like Dixons are the norm.

While nowhere close to Dixons in size, Chennai-based Vasanth & Company; Sony Mony Electronics, PlugIn Sales and Sumaria Appliances in Mumbai; and Bangalore's Pai International and Girias have adopted the durables-only chain format. Then there are Vijay Sales and Kohinoor Televideos in Mumbai and Chennai's Viveks- all gung-ho about their shop-in-mall forays.
But there are no strict loyalties. Nor is that possible at the moment. Being leaders, these players need to consolidate first for organised retail to take off in durables. The next five years will see mergers and acquisitions, expansion in geographical coverage, and eventually pan-India players. Only after that has happened will different formats like malls and hypermarkets become a serious consideration. Those who have set shop in malls are looking at those stores on a four to five year perspective and not as significant contributors to their sales immediately.

Why the rush? Largely because the current retail revolution in FMCGs and fashion has whet their appetite for scale and experimentation. Take a look at the newest entrant, PlugIn Sales. Though it started operations only in July 2003, it already has 23 multi-brand outlets in Maharashtra. Says Nitish Tipnis, CEO, PlugIn: "We want to give our customer the same hospitality hotels render. That 35 per cent of our customers have come back to us is proof that we have arrived." The business model is similar (though smaller) to Hong Kong's biggest player, Fortress, which has 40 showrooms of a maximum of 2,500 sq ft each, with the exception of a single 50,000 sq ft anchor store. With its Pune operations doing better than Mumbai and several established players in Mumbai already, the company has decided to keep a foothold in Mumbai while focusing on the rest of Maharashtra.

Higher scale, higher costs

With size comes power. And higher costs. Durables companies are finding this out as they negotiate with the new durables retail chains.
Cost rides on scale, as the cost structure of retail chains goes up with advertisements, air conditioning, staff and high-end real estate. All these could add up to 8-9 per cent of the selling price for bigger dealers - and they expect the companies to share a bit of it.
"There's a far greater amount of price negotiations that takes place," says a marketing head with a durables company.
However, all this investment also means more power. The bigger players are growing faster. "Earlier, if 80 per cent of my sales came from smaller dealers, and 20 per cent from bigger dealers, today 40 per cent of my sales is coming from bigger dealers. So, on a higher proportion of sales we are incurring a higher cost,'' says a marketing head of Mumbai-based company. But companies also don't mind spending more on bigger dealers, as the extra spends are made up by higher volumes. "The absolute cost could be higher, but the per unit cost might not be higher, as the expenses are spread over larger volumes," says Salil Kapoor, head of marketing, LG Electronics.
Smaller shops are typically owner-run, have lower real estate costs, don't do much advertising and keep a smaller product range. Companies have to support bigger dealers by giving a higher margin, or through merchandising support, which can be 1-2 per cent of the sales value. Yet there is no sudden change: costs have been going up for awhile and marketers have built this cost into their sales structure.
Corporates are also getting into it. Eureka Forbes is creating a chain of Home Stores, while Raymond has promoted PlugIn. Experts feel all this would lead to consolidation of retail in the next two to three years.

To keep pace with the market, a traditional retailer like Viveks has reinvented itself. After corporatising its operations in 1995, Viveks acquired Jainsons, the third largest chain in Chennai in 1999, and subsquently, another small chain called Premier. Today it is the largest durables dealer in the country and the only chain with three brands in its kitty. It has 46 outlets across Karnataka and Tamil Nadu, and plans to reach 100 showrooms by 2008. Together with its closest competitor, Vasanth, it accounts for Rs 400 crore out of the total durables market of Rs 1,500 crore in Chennai, while the remaining Rs 1,100 crore is split between 400 small retailers.

Vijay Sales has been around as long as Viveks, but has a slightly different tack. It has a turnover of Rs 150 crore from just nine showrooms in Mumbai. This is because - unlike Viveks' average showroom size of 2,500 sq ft - three of its nine outlets span over 20,000 sq ft each, while the others are between 5,000-12,000 sq ft. "In most cases, around 10-30 per cent of a manufacturer's sales in Mumbai comes through us. In four years we'll expand to Pune, Nasik and Nagpur, among other cities, and then maybe outside Maharashtra," says Nilesh Gupta, managing partner, Vijay Sales. It accounts for half of the city's high-end products sales.

There is another rung of players (turnover less than Rs 100 crore) like Kohinoor, Sony Mony and Sumaria in Mumbai and Girias and Pai International in Bangalore which are nowhere near the top three in size, yet enjoy strong customer loyalty. What makes them noteworthy are their ambitious plans for expansion. Sumaria has scaled up from one to six showrooms in the last three years and will open another four in the next six months. Sales have been growing 25 per cent year-on-year. Says owner Prem Shah: "It's a no go but to expand. Unless you buy in bulk you can't survive today. My purchases have increased four times in the last three years." At Sony Mony, growth has been sporadic. Having started with a 1,000- sq ft showroom in 1986, it took 14 years till the second branch in Borivali (5,000 sq ft) came up. However, in May this year, it leap-frogged to a 22,000 sq ft showroom spanning three floors in Ville Parle. Says Ramesh Shah, managing director: "We'll open five more showrooms (5,000-10,000 sq ft) in Mumbai by 2007, then move on to other metros. Delhi is definitely our first choice."

In Bangalore, Girias is the third largest player operating in both Karnataka and Tamil Nadu. It plans to add eight more outlets to its existing nine by 2009. Says Navin Giria, director of Girias: "This might seem slow, but all our properties are self-owned." Its close competitor, Pai International, differentiates itself through customer service and relationship building. "The products are all the same. We may even charge Rs 100-200 more than competition, but our customers keep coming back to us because we offer them superior service," remarks Pai's general manager Suraj Nayak. With seven showrooms across the city spanning 2,500-25,000 sq ft, he has plans to enter a mall to boost Pai's brand image. But not immediately. He'd rather wait and watch how his competitor Viveks fares.
Strangely, unlike in FMCG and lifestyle products, malls have been ignored by durables. Retail consultant Devangshu Dutta says: "Real estate is the single biggest stumbling block. Margins in the industry don't lend themselves to being in malls. While in other markets like the US and Europe, rental costs could comprise 1-6 per cent of sales, in India the figure can be as high as 12 per cent. However, malls will be the biggest push for organised retail in the next 4-5 years. Rentals will have to come down."

Those who've ventured into malls have had mixed experiences. PlugIn's 1,000 sq ft. shop-in-a-shop with Arcus in Phoenix Mills is going to break-even much after its earlier timeline of one-year. Says Tipnis: "Our customer feedback shows that durable purchases are still a neighbourhood activity for ease of repairs and servicing. But Arcus is a home store, so it makes sense to have durables there too. We're looking at it on a three to five year perspective, and since our investment is low, we're going to keep this space." Prem Shah tried it with Sumaria, but says it wasn't a success because mall shopping means impulsive decisions for lower-cost goods.
But Viveks believes malls are here to stay. Says B.K. Vijay, associate V-P (CRM), Viveks: "Malls are promising if you don't go overboard on investments. The products moving out of there are from select high-end categories, so no point stocking up like any other outlet. Customers want a known brand. A new one would not really take off immediately." Viveks is in two malls in Bangalore - Forum and Central - and at the Spencer Superstore in Spencer Plaza, Chennai, each spreading over 1,000-3,000 sq ft.

But these are all small scale attempts. Competitors are holding their breath for the verdict on Vijay Sales' 23,000 sq ft one-floor space at 'The Hub' in Goregaon, Mumbai. Says Ramesh Shah: "We didn't want to miss the bus, so we took a gamble. The choice was: small or big? We decided to go the whole hog since there's no market on the expressway between Bandra and Borivali. So, if it works, we get the first-mover advantage." The weekends see 70,000-80,000 footfalls. The strategy is to offer 'best deals' in the lower-end products, as malls are about impulsive buying. Shah is hoping to break-even on all investments in three years and on operating costs in 1.5 yrs. The goal is to get 15 per cent of Vijay Sales' total turnover from this showroom in the next six months.
It will still be some time before we can gauge the success of malls in this industry. For now, B.A. Kodandaraman, chairman, Viveks, says: "Studying the West shows us only one way ahead.... All these companies (Dixons in the UK, Wal-Mart in the US and Kingfisher in Europe) had a humble start of one brand, one store, but today they have a minimum of a dozen brand names under which they operate their 100 to 4,000 stores in multiple countries and multiple continents."

- Aarti Kothari, BusinessWorld

100 Croma Stores by 2011

Infinity Retail plans Expansion

The Tata owned Croma Stores plan to have over 100 outlets by 2011. Expansion will be mainly in tier 2 and tier 3 towns. There are currently 32 Croma stores spread over Delhi, Mumbai, Pune, Hydrabad and other cities, The company plans to invest Rs 50 crores on its expansion plans. On an average , the company invests Rs 1.80 crores in a small format store and Rs 3.00 crores on a large format store. This is a 100% subsidiary of Tata Sons. Croma stores sell electronic goods and have over 200 brands.

Rural India Prospects

This informative article on rural India appeared in Knowledge@wharton ( Link given below). This is of interest to everyone involved in rural India

Why Companies See Bright Prospects in Rural India
Published: June 18, 2009 in India Knowledge@Wharton

In late May, when India's GDP numbers were released, many were happily surprised. In the fourth quarter of the fiscal year (January-March 2009), the economy grew 5.8% against expectations of less than 5%. For the year, growth was 6.7%, less than the 9% recorded in 2007-2008, but still very respectable during a global downturn. Multinational banks and brokerage houses rushed back to their spreadsheets to raise their growth forecasts for 2009-2010.

But why were the estimates so pessimistic in the first place? A possible explanation is that most analysts work in cities, and their views are colored by what is happening around them and in the corporate world. That picture has been bleak: During the last quarter of 2008-2009, manufacturing shrank 1.4%. In contrast, agriculture grew 2.7%. The feel-good factor in urban India is returning only now with a new, stable government and a sharp jump in the Bombay Stock Exchange Sensitive Index (Sensex).

In the villages and small towns, it has been a very different picture. "The rural market is insulated from the global meltdown," says Harish Bijoor, CEO of brand and business strategy consultants Harish Bijoor Consults. "The rural part of our economy has been untouched by credit cards and mortgages as known in the West."

"The slowdown experienced by India on account of the IT (information technology), real estate, financial services and automobile sectors was an urban phenomenon," says Ajay Gupta, founder and CEO of ruralnaukri.com, which focuses on jobs in the rural sector. (See "ruralnaukri.com's Ajay Gupta: 'Rural Jobs Can Provide Momentum to the Wheel of the Economy'"). "However, the negative impact of all this on urban India has been more than offset by encouraging performance in rural areas. The rural economy has provided a cushion. Overall sentiment in the country was different from other parts of the world where each household had at least one person with a pink slip."

"Several factors have led to an increase in rural purchasing power," says Pankaj Gupta, practice head, consumer & retail, Tata Strategic Management Group. "The increase in procurement prices [the government sets the minimum support price -- MSP -- for many farm products] has contributed to a rise in rural demand. A series of good harvests on the back of several good monsoons boosted rural employment in agricultural and allied activities. Government schemes like NREGS [National Rural Employment Guarantee Scheme, which guarantees 100 days of employment to one member of every rural household] reduced rural underemployment and raised wages. Also, farmers benefited from loan waivers [introduced in the last Union Budget]. The increase in rural purchasing power is reflected in rural growth across a number of categories. For example, in the financial year 2009 [April-March], FMCG [fast moving consumer goods] rural volume growth is estimated to be 5% to 12% higher than urban growth across a number of categories."

A Short-lived Renaissance?

Some academics agree with these upbeat views of a rural resurgence. "Policy measures like the waiver of agricultural loans to the tune of US$13.9 billion and the NREGS have really put cheer into the rural economy," says Devi Singh, director of the Indian institute of Management Lucknow (IIML). "The Bharat Nirman program with an outlay of US$34.84 billion for improving rural infrastructure is another step that has helped the rural economy. To some extent, the growth of organized retail can also be held responsible for the rural economy's growth, as this has ensured that farmers get a better price for agricultural produce. The MSP set by the government has been rising further, fuelling rural growth by putting more money into the hands of the rural population."

Singh adds a caveat, however. "While the statement that the Indian economy has been saved from the slowdown due to rural growth is true to a certain extent, this is not the only factor," he says. "India's growth has been fuelled more by domestic demand than exports. Also Indian spending and saving habits differ from other parts of the world. Indians by their very nature always save for their future and this holds them in good stead during times of crisis. The Indian buyer is more finance conscious than his global peer. The Indian banking system, due to the so-called non-reforms, is actually more resilient and the level of delinquencies is far lower than in other parts of the world."

Some observers are skeptical about the durability of rural demand. "There is a worrying groundswell of optimism that rural consumers will come to the rescue of an Indian economy which is in the midst of a sharp slowdown. This optimism may be misplaced," suggest consumer behavior expert Rama Bijapurkar and Rajesh Shukla, a senior fellow at the National Council for Applied Economic Research. Writing in business daily Mint, they continue: "Hearing phrases such as 'rural renaissance' or 'rural India to the rescue' makes us nervous. Such talk bears overtones of the 'Great Indian Middle Class' story of the 1990s, where we declared victory at least a decade before we should have." Their question: How sustainable, stable and volatility-free is the growth in income and consumption?

Bijapurkar and Shukla note that "periodically, India has seen a consumption spurt because of a one-time burst of a combination of events. This recent spurt seems no different. Over the past four years, the monsoon has been good; the support prices for crops have grown at 10% to 15% CAGR [compounded annual growth rate] in 2005-2008 compared with 2.5% to 4% in 2002-2005. In addition to a healthy flow of farm credit, there has been a one-time loan write-off of US$13.9 billion as well as a sizeable cash outlay from the NREGS. This doesn't show intrinsic growth in rural India: This growth is, instead, owing to a combination of acts of God and acts of government. What we must never do is make the same mistake with rural India that Western multinationals make with India as a whole -- assume that it will evolve the same way with a 10-year lag. The rural Indian market and consumer call for sophisticated new marketing strategies and paradigms, not a transplant of old ideas."

What Rural Means

Even as this debate continues, the term "rural" is being re-defined. "'Rural' is difficult to define any more," says Bijoor of Bijoor Consults. "Typically, from an Indian census point of view, rural has been defined with a 'deprivation' orientation, rural being a landmass without access to continuous electricity, water, the stock market. There has been a correction in this view, however. Marketers today define rural as people living a different lifestyle as opposed to that of those who have settled in the bigger cities and towns. Rural is defined as pastoral in nature and as a mass of people who relate their income closely to the lands they till or use to raise their cattle and livestock. I, personally, define rural differently. I believe rural is a mindset. Those who possess it are rural and those who do not are urban. To that extent, in Bangalore city, just off the old airport road, are a whole set of people who live by farming on their lands. If you visit their homes, their lifestyles are totally rural. Similarly, there are people who live in villages, who have access to the best of it all. These are urban folk. Rural is not a geography; it is a mindset."

"Definitions for rural India abound while the most convenient remains, 'anything that is not urban'," says Gupta of ruralnaukri.com. Singh of IIML adds: "Rural India comprises all places that are not urban." This definition by exclusion for what is the much larger part of the country has its roots in the government's own approach. "The Census of India defines urban India," says Gupta of TSMG. "Urban India constitutes places with a population of more than 5,000, a population density above 400 per square kilometer, all statutory towns, that is, all places with a municipal corporation, municipal board, cantonment board, notified area council, etc. and with 75% of the male working population engaged in non-agricultural employment. All non-urban is rural."

Such definitions leave marketers cold. "The traditional definition of rural may be of little use to marketers in terms of providing consumer insights," says S. Ramesh Kumar, professor of marketing at the Indian Institute of Management, Bangalore (IIMB). "Given the diversity of culture and lifestyle/aspirational changes that are taking place across non-metro consumers, the non-metro areas need to be segmented into tiers of varying urban orientation using psychographic and lifestyle analysis along with demographics. The digital 1 or 0 type of urban and rural definitions is unlikely to yield consumer behavior nuances. For example, district headquarters [towns] in Tamil Nadu are likely to be significantly different from those in Karnataka or Maharashtra."

Many others agree that census-style definitions are no longer enough. "My understanding of rural India is a less developed countryside where the infrastructure is primitive, houses are of mud or brick but rarely painted well, the primary source of livelihood is agriculture, employment opportunities in the organized sector are negligible, eating choices are restricted to home-cooked, simple food, schools are far away, health facilities are rudimentary and -- importantly -- the youth, while energetic and ambitious, are to be seen playing cards the whole day," says Gupta of ruralnaukri.com.

"We recognize rural India by certain characteristics," says B.N. Garudachar, general manager, corporate communication and investor relations at Voltas, a Tata group company in air-conditioning and engineering services. "These are: low population numbers, low median income, poor infrastructure [roads, electricity, communications], and agrarian rather than industrial activity. Such rural areas are within the sphere of influence of neighboring cities and metros. This influence determines their aspiration levels and their viability as markets."

Massive Market

View it as you may, few people dispute that the rural market is massive. According to Singh, 12.2% of the world's consumers live in India. "Rural households form 72% of the total households. This puts the rural market at roughly 720 million customers." Gupta of TSMG extrapolates the Census 2001 numbers and comes up with an estimate of 790 million. "Total income in rural India (about 43% of total national income) is expected to increase from around US$220 billion in 2004-2005 to US$425 billion by 2010-2011, a CAGR of 12%," he says.

Bijoor explains that this is entirely disposable income unlike what it would be in urban India. "If a farmer in rural Holenarsipura earns US$1, all of it is his to dispose off as he pleases. The same income in the hands of an urban person, who is possibly a tech worker, is actually not US$1 of disposable income. It is most likely 67 cents; the rest goes as tax. The farm economy, with zero-tax on farm income, creates far more disposable income. Buying power in the hands of the rural rich is higher than the buying power of the urban rich."

Gupta of ruralnaukri.com provides some telling statistics. "The purchasing power of rural India is more than half for fast moving consumer goods [US$17 billion]," he says. "The durables and automobile sectors contribute US$2.5 billion each, and agri-inputs (including tractors) about US$1 billion. Some 42 million rural households [use] banking services against 27 million urban households. There are 41 million Kisan credit cardholders [credit cards issued to farmers for purchase of agricultural goods] against some 22 million card users in urban markets. Be it automobile, telecom, insurance, retail, real estate or banking, the future drivers of growth are rural. No marketer can afford to ignore the possibilities of rural India."

Bijoor adds some growth numbers. "Our rural folk have bought a lot more of FMCG; this part of the market has grown at a robust rate of 23% [last year]," he says. "As durables shrink in urban India, the rural market is witnessing a 15% growth rate. Some 60% of the durables market lies in rural India. Telecom in rural India is growing at 31%." It depends on the product, of course. "Just the sheer population numbers don't mean very much from a marketing point of view," says Garudachar of Voltas.

Across product categories, however, there seems to be a lot of action. Media -- particularly TV -- has been a great leveler. Even in small villages, people who have seen the urban lifestyle on television seem to want similar goods and services. Companies have realized this and are going all out to tap this latent demand.

Consider some examples:

The State Bank of India (SBI) has started a zero-balance bank account program for villagers. Called the SBI Tiny account, there are no physical branches or officials, just a paid volunteer who is equipped with a small box and a cellphone. The box enables biometric measurements (fingerprints), at the time of opening the account to confirm the account holder's identity. The cellphone enables communication with the zonal office to check on available balance. Payments under programs such as the NREGS and pensions are made directly to these accounts. The advantage for the villagers is that they can withdraw money from their accounts at any time of the day or night. (Withdrawals are never more than a few dollars.) SBI hopes to cover 100,000 villages by 2012. The bank has tied up with India Post for some services.

India Post, the public sector postal network, has its own plans. It has been hard hit in urban areas because of the more efficient (though more expensive) private sector courier services. Now it is looking at consolidating its hold on the rural areas. Project Arrow has been launched to IT-enable post offices in the hinterland. A pilot project involving 500 post offices -- the country has more than 150,000 -- has been kicked off. It will focus on banking, money remittance, and transmission and delivery of information.

Products for Rural Markets

Maruti Suzuki, India's leading automobile manufacturer, today sells 5% of its vehicles in the rural markets. The company expects this number to rise to 15% in the next two years. "This is not just our wish, but reflects market demand," says director (marketing & sales) Shuji Oishi.

In telecom, service providers are making a beeline for the villages. That's where the growth in what is now the world's fastest growing mobile market lies. According to industry estimates, 70% of all new subscribers will come from rural areas. (See NTT DoCoMo's Tata Deal: Why Global Telecom Firms Want to Dial India.)

Mobile device manufacturers are also tailoring their products to this market. Nokia had earlier launched a basic handset with a torch (large parts of rural India don't have electricity) and an alarm clock. (see How Did Nokia Succeed in the Indian Mobile Market, While Its Rivals Got Hung Up?) In December 2008, it went one step further with the launch of Nokia Life Tools. "Nokia Life Tools is a range of agriculture, education and entertainment services designed especially for the consumers in small towns and rural areas of emerging markets," says the company. "Aimed at providing timely and relevant information customized to the user's location and personal preferences directly on their mobile devices, Nokia Life Tools is the first step towards bridging the digital divide."

The mobile phone is a new-age product; gold jewelry is as old as the hills. Here, too, there has been a rural move. According to World Gold Council figures, 60% of India's US$15 billion annual consumption of gold and gold jewelry is from rural and semi-urban areas. The Tatas have launched a mass-market jewelry brand -- GoldPlus. The Tatas train unemployed youth and send them to the villages as brand ambassadors. The problem with gold in India is that it is often adulterated. In rural areas, gold jewelry is not for ornamentation; it is a safety net for emergency situations. Thus, the Tata seal of good housekeeping is taking the brand places. "GoldPlus is an interesting example of the brand addressing the non-metro jewelry culture with its ethnic touch with regard to its designs and retailing," says Ramesh Kumar of IIMB.

"There is substantial scope to create products that are oriented towards non-urban sectors," notes Kumar. "These can be in terms of functional appeal or cultural aspects or both. Chik shampoo created the jasmine variant [in tune with the culture of women using jasmine flowers to style their hair in a few parts of the country]. TVS mopeds created functional value in tune with the 'all purpose' vehicle culture existing in several parts of the non-metro areas. Philips is moving forward with the creation of gas stoves and lanterns that will be useful to such markets."

Singh of IIML talks about pricing successes: The Chik shampoo sachets sells for 2 cents, the Parle G Tikki biscuit packs at 4 cents and the Coca-Cola 200 ml glass bottle for 10 cents. Singh notes that successes in rural areas can be transplanted to urban areas also. "The shampoo in sachets created a new product segment," he says. "All shampoo manufacturers today retail in sachets, and the demand from urban India for this category is very strong."

The sachet is as much a packaging (product) strategy as a price strategy. But, asks Garudachar of Voltas, have companies done enough about the core product? The shampoo sachet is a case in point. "Villages in India have hard water," he says. "But the shampoo that you get in sachets sold in villages is the same that you get in towns. Manufacturers should have tailored the products to suit the environment."

It doesn't apply across the board, of course, particularly as manufacturers have moved away from the mindset that along with cutting price, you can cut quality. "Product re-engineering was an issue five years ago," says Bijoor. "I do not believe this is an issue at all today. The quality on offer needs to be the same all over. One company tried to pass off inferior quality tea leaves in rural markets and superior quality grades for urban markets under the same brandname. This fell flat."

But re-engineering is necessary in a different sense. According to Bijoor, "Companies are realizing that the urban and rural want is largely the same. However, the rural person is savvier and demands real value for money. To offer this, marketers are re-engineering products. Look at the auto segment. The urban man wants a car as does the rural man. Both have the same amount of money. The rural person, however, believes spending US$12,000 on a car is a sin. He wants it at US$3,000. The Nano is a solution. Every category needs to operate on the Nano paradigm. The needs are all the same, across rural and urban. The solutions have to be different."

Distribution and promotional channels also need to be different for rural markets. Companies are getting their act together here, too. Private sector companies like ITC have set up the IT-enabled eChoupal network, and Hindustan Unilever has project Shakti, under which women's self-help groups act as the last link of the retail chain. (See Marketing to Rural India: Making the Ends Meet.) As mentioned earlier, India Post wants to convert itself into a retail chain for a variety of products. Even fair-price shops, which form part of the government's rationing system, are trying to expand beyond supplying just basic foods like rice and wheat.

In the area of promotion, television has invaded rural India. TV reaches even very small villages through community sets. But advertising on national channels is wasteful if you are trying to target rural areas. Garudachar of Voltas says his company is trying to sell air conditioners to the rural rich. "Difficulties in penetration are due to the widespread and scattered nature of the territory," he says. "At one time, basic conservatism and diehard thrift would also have been factors, but exposure to TV has changed all that, and created aspirations where once there was resistance to change."

From Four P's to Four A's

Gupta of TSMG notes that the traditional four P's of marketing -- product, price, place and promotion, as outlined above -- have been replaced by a different framework for analysis. "A number of companies have worked on various elements of the marketing mix to improve the four A's -- affordability, awareness, availability and acceptability -- for rural markets," he says. "FMCG companies innovated on package sizes to introduce low price points. They have customized promotional strategies for rural markets using local language and talent. Some FMCG players continue to expand rural penetration [HUL's Project Shakti, Tata Tea's Gaon Chalo]. Coca-Cola's Parivartan program has trained more than 6,000 retailers to display and stock products. Dabur has created a training module ASTRA [advanced sales training for retail ascendance] in several regional languages. A number of auto companies have launched rural-specific campaigns."

Gupta of ruralnaukri.com offers more examples:

•Affordability -- Godrej introduced three brands of Cinthol, Fair Glow and Godrej (soap) in 50-gram packs, priced at 10 cents; Adidas and Reebok increased their sales by 50% in rural markets by reducing prices.

• Size and design changes -- Videocon introduced a washing machine without a drier for US$60; Philips launched a low-cost smokeless chulha (stove); DCM Shriram developed a low-cost water purifier especially for rural areas.

•Improving product acceptance -- LG Electronics developed a customized TV (cheap and capable of picking up low-intensity signals) for the rural markets and christened it Sampoorna. It sold 100,000 sets in the first year; Coca-Cola provided low-cost iceboxes as regular power outages meant families could not depend on refrigerators.

Perhaps the ultimate sign that rural India has arrived is in the allocation of talent. "In the old days, the weakest people in organizations, the ones without a star career path, held the reins of the rural marketing divisions," says Bijoor. "Today, things have changed. Sharper and sharper brains from within the organization are being diverted to rural strategy formulation." When the whiz kids go to villages, you know the cows have come home

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4386

Range Planning for the Season

Range Planning
Before the onset of a season – winter or summer an essential component of buying is preparing a range plan.. Whereas the overall budgetary planning as well as the buying strategy would already have been defined at the senior management level . The range plan would be a combination of the elements of buying strategy and budgetary plans.
Range Plan Structure
The first step in the process of making a range plan should be the structure wherein the following components would needed to be addressed

a) Range Profile
b) Range Width
c) Average Selling Price
d) Margin Mix
e) Sales Value ( in terms of value and quantity

Range Profile
The range profile should be based on the following
GBB price assortment. The good better and best principle . Depending on the profile of the retailer outlet , the GBB split would vary. For instance in the case of an up market retailer like Lifestyle , the GBB split would probably be in the ratio of 10:20:70 whereas in the case of Haryali Kisaan Bazaar the ration would be 60:30:10. It is important to remember that the GBB split is a price assortment.
Product Assortment ; This would be based on the consumer preferences of the retailer target consumer. Decisions that need to be taken by the buyer would be styles in the case of lifestyle, tastes in the case of food and features and needs in the case of home products
Customer Appeal : While developing the range plan, the buyer would also need to address customer appeal of the products in terms of socio economic , age, gender etc.



Will take up the other elements in following days

Management Champions

An interesting and very relevant writeup

Getting Senior Management on Board
by Randy Street

Here are some ways to get senior leaders to act as talent-management champions.

The biggest problems in business are not "what" problems, but "who" problems. "What" problems have to do with execution and tactics. These are important, but no business, no matter how well positioned, can succeed if it doesn't have the right people in the right roles doing the right things.

These are "who" problems.

Senior leaders want to create value for their businesses, and they want to have career and financial success. The No. 1 thing they can do to help both their companies and themselves is to solve their biggest people problems. Get the "who" right, and great things will happen.

Why should senior leaders act as talent-management champions? Here are the top five reasons:

1. "Who" mistakes are extremely costly.
One company we know hired five vice presidents of sales in the span of three years. The CEO believes his repeated hiring errors cost the company more than $100 million in top-line growth. Another company we know promoted the wrong person to lead their real-estate investment group. The gentlemen they put in charge promptly lost $80 million.

No matter how you slice it, people mistakes will cost your business. In fact, management guru Peter Drucker once estimated that 50 percent of all hiring decisions were mistakes. Half! To make matters worse, the average cost of a mis-hire is 15 times that person's base salary. Just think: Make a mistake on a single, $100,000-a-year employee and you will cost your business $1.5 million in opportunity costs, fire drills and wasted budget.

2. The "who" drives your business more than any other factor.
We conducted a survey of more than 80 successful business leaders, including more than 20 billionaires and 60 CEOs of companies ranging from entrepreneurial ventures to Global 100 companies. We asked them what drove the success of their businesses. They told us that management talent was more than half the equation (52 percent). Execution only drove 20 percent of success; strategy, 17 percent; and other factors, 11 percent. If it is important to them, we suspect it should be important to you.

3. The right "who" people are more productive.
Someone once asked George Buckley, CEO of 3M, how he felt about people.. He replied, "I want you to pause for a moment and think about the very best person you have working for you. Now I want you to think about the second-best person you have working for you. Now I would like you to think about where your organization would be without them.

"You would be terrified if you lost them. And you would love to have 10 more like them. That is how I feel about the importance of hiring the right people."

In fact, studies show that so-called "A players" are three-to-five times more productive than everybody else. Who wouldn't want to stack his or her team with people like this?

4. Enjoy your career more with the right "who."
Jack Welch used to say, "The hardest I ever worked was when I had the weakest team." We see this truth playing out all the time. Consider one COO we know who was completely burned out when we first met him. He was frustrated that the people who reported to him didn't seem to "get it."

It turned out, he was the one who didn't get it. After some coaching, he rebuilt his team and helped the CEO increase the stock price by more than 60 percent. Even better, when we asked how he was doing nine months later, he said, "You know what? I feel great! I have a fantastic team working with me now. For the first time in my career, I don't have to be the first person to arrive in the morning and the last one out at night. I'm sleeping better. I'm working out. I'm spending time with my wife. And it's all because I have a team of A players."

5. It's fun to have the right "who."
Let's face it. Who enjoys dealing with the problems and mistakes caused by weaker talent? We've evaluated and trained tens of thousands of executive and have never met an executive who enjoyed dealing with C players. Not a single one. But they universally love having A players on their team. We bet you do, too.

The single most important role of a senior leader is to ensure a team has the right "who" on board. That's what Pat Ryan, chairman and founder of Aon Insurance, believed. "I am not really smarter than the next guy," he told us. "There are lots of smart people in business. I guess the one thing that I have done over the years that is different from most people is that I am constantly on the hunt for talented people to bring into my company."

We hope you will do the same. As a result, you will have more career, financial, and personal success.

[About the Author: Randy Street is the co-author of the New York Times best-selling book Who: The A Method for Hiring. He is a partner with ghSMART, a leadership advisory firm specializing in management assessment, executive learning and coaching for CEOs and boards.]

Reail Ads - The Week that was

MOM & ME with its headline of ' One - of - a - kind store for moms and kids' is aggressively promoting its stores through large 3/4 page ads in the national dailies. Focus is on its range of national and international brands for the to be mom and kids. 'Mom & Me' stores have been introduced by Mahindra Retail and currently also have a presence in the towns of Ahmedabad, Pune, Mumbai and Ludhiana . In Delhi they are present at 2 locations. (HT-13/06)

RELIANCE DIGITAL has a half page ad celebrating its 2nd anniversary offering free gifts with all its products. Their headline ' You don't have to be lucky to win a prize' (HT-13/06 Half Page)

E ZONE of HomeTown has special discounts this week. Their headline 'Save more than just the price'. The offering - TVs, Fridges, Washing Machines, Laptops and Mobile phones. Savings from Rs 800 to Rs 9000. (HT-13/06 Half Page)

BIG BAZAAR has very aggressively launched it's 'Buy 1 Get 1 Free' campaign. The catch however is that the product offered free is not the same product that has been brought. Products offered range from food items to luggage, washing machines and wardrobes. The offer is open for a week - 13th to 21st June. ( TOI - 13/6 Full Page and HT-13/06 1/4 page)

HOME TOWN is offering a straight 40% discount on everything. They call it the ' Dream Home Week 6th -14th June'. ( HT-13/06)

CROMA has a 'Back to School' campaign on laptops and cameras. Does this campaign make sense ??? Would be interesting to know the impact of this ad. ( HT-13/06)

WESTSIDE has a 'Menswear Bonanza' this week and is offering Rs 200 off on men's formal wear. ( TOI - 13/6 Half Page)

This week has LIFESTYLE launching its 'Lifestyle Style Fest' and the offering is a Toyota car. The offering - a range of men's and women's wear ( TOI-13/06)

VISHAL MEGA MART has a full page ad with its ' Beat the heat' campaign. Aggressive pricing on a range of products ranging from food, apparel and consumer durables. ( TOI-13/06 Full Page)

Wal-Mart India lauches Cash and Carrry

'Best Price ' launched in Amritsar

Wal-Mart India finally launched its first Cash & Carry format named ‘BEST PRICE MODERN WHOLESALE ' in Amritsar on Saturday. In an interview on NDTV Profit, a bullish Raj Jain, President of Wal-Mart India outlined future plans and expects to open 10-15 such outlets in the next 3 years instead of the 7 years originally planned. The company had so far been focusing on the back end and is now ready to look at the front end.

The 'Best Price' outlet carries an assortment of over 6000 SKU's displayed over 50,000 sq ft. The store carries basic commodities, food and FMCG products to electronics and shoppers can shop and choose in air conditioned comfort. These products are sourced from over 750 suppliers consisting of MNC corporations, large manufacturers as well as numerous small manufacturers who were assisted by the company to come up to international levels. The company has also started sourcing directly from farmers to an extent of 15-20%.

The company has already registered 30,000 members who can shop at the outlet. Only authorised retailers and Kirana stores with a valid registration can register to become members and buy in bulk at attractive prices that the outlet offers. It is not open to retail customers Only bonafide businesses can become members. The company has also enrolled 70,000 secondary members - add on to the primary members.

Mr Raj Jain emphasised that retailing is a marathon race and there is a big opportunity in retail. He also talked of the importance of a robust back end for a successful retail operation. In the case of Wal-mart India, it has taken over 18 months to put the back end in place.
The company , along with the Government of Punjab has started a training institute for Retail where scholarships are also offered. 600 students have already graduated from this institute of which 60 have been employed by the company.

The next 3 years will see similar stores coming up in Punjab, Haryana, Delhi and Uttar Pradesh. Lots of action on the Cash and Carry front to watch !!

Annual Budgets

Financial Budgets of any retail organisation are prepared at the beginning of a financial year and cover the full financial year. This financial budget defines the following for the coming year

• Sales Planned for the year
• Gross and Net Margins ( Profits)
• Stock Levels
• Costs (HR costs, travelling etc)

While planning the annual budget, several factors are taken into account , some of which are

• Market Growth
• Initiatives planned in merchandise
• Increase in outlets
• Planned growth in Like to Like store sales
• Planned increase in footfalls
• Marketing Activities
• Improvement in Supply Chain
• Private Label Initiatives

Once the annual budget is finalised and approved by the Top Management, it cannot be changed. What follows from the Annual Budget is the Buying Plan and the Range Plan. These plans are normally seasonal and prepared at the beginning of the season. The winter season in India starts from October and it is now time to prepare the Winter Range Plan. Will take this up in the next post.

Retail Ads - The Week that was

The most active retailer this week has again been Big Bazaar
Wednesday saw a half page ad ' WEDNESDAY BAZAAR - Hafte ka sabsa Sasta Din' . Special prices on food and clothing is the offering.
WESTSIDE has the 'Summer Shopping Blast' campaign till the end of May. Offers include Buy 2 get 1 free on girl's wear, special discounts on towels, tops and trousers, footwear and Luggage.
VISHAL Mega Mart - Ads in the Delhi Times with the headling ' Iss Garmi mein kuch Thanda hai to sirf Vishal ka Price ' ( if there is anything cool this summer, it is Vishal's price) Focus on food items and Buy 2 get 1 Free schemes
MARKS & SPENCERS - Mid Season sale on with upto 60% off. Ads in the Delhi Times
HOME TOWN - Flat 40% off on a wide range of kitchen items. Special kitchen week from 16th to 24th May. Half page ad in Delhi Times
E ZONE - Focus on price and energy saving . Mixed message of price, space, service, energy and time. Tries to break away from the regular advertising with the headline ' Save more than just the Price'. Ads in the Delhi Times
EVOK - Celebrates its first anniversary with 'Lowest Prices of the Year' Their products include furniture, modular kitchens, furnishings and decorative lighting. This is an initiative of Hindware.
BIG BAZAAR - 2 Campaigns . Weekend savers on electronics - AC for Rs 13990, Digital Cameras and DVD players with special prices for 2 days.
A focused campaign on steel almirahs - prices ranging from Rs 5199 to 13,999.
To reverse the trend of falling footfalls in malls, the DLF Grand Mall has initiated a flyer campaign highlighting the various brands and products available at the mall along with complementary parking.

Subhiksha Bailout

Subhiksha's Travails
Subhiksha is nowhere near resolving its financial problems and getting back into operation.
The Chennai based Subhikhsa with 1600 stores till last year has still not been able to put a bailout plan into place with it's 13 major creditors. Whereas the company had expected to put the corporate debt restructuring plan ( through its main lenders) by April of this year, lack of clarity on the exact financial position of the company has prevented this from happening.
The major lenders of Subhiksha include HSBC, ICICI Bank, ABN AMRO, HDFC Bank & Bank of Baroda. ICICI owns 25% of the company and Premji Investments own 10%.
Subhiksha's operations currently have come to total halt with most stores either having been taken over by the landlords or without any supplies. Most major suppliers like HUL and P&G and others have stopped supplies to the retailer.

Retail Ads - The week that was

Big Bazaar - Full Page Ad Campaign

Big Bazaar continues its advertising campaign into this week with large size full page ads in the national dailies in Delhi with focus on consumer durables and luggage

Focus is once again on the huge buying in appliances to give customers better prices. I wonder if this really convinces customers about the price ?? A comparison of prices of most products highlighted in the ad show that these are currently available in the market at similar prices . So what is the benefit to consumers ?

With summer holidays around, the focus on this ad is travel and travel goods. Goodies thrown in include a free travel bag and a chance to win a trip to Malaysia. Overall aggressive discounts should get the retailer good volumes.

Spencers Retail - 'Kool Mela' offer through newspaper inserts. Focus on food, appliances and the major brands available at their outlets.

'MORE' plans more

Aditya Birla Group to have 2200 stores

The Aditya Birla Group promoted 'More' chain of supermarkets and 'More Mega' hypermarkets has plans to have 2200 stores by 2015 There are currently 640 supermarket stores in operation which is expected to rise to 720 by end of 2010. The hypermarket count too will go up to 8 to 10 during this time.

The group had rapidly expanded to 710 since the last 3 years of operation but shut down 70 enviable stores recently. In 2006, the group had acquired 'Trinethra' with its 176 stores and is now present in 12 states and around 75 cities.

The group has also been aggressive on its private label policy and over 350 SKU's in food and home products. Some of the store's own brands are 'Kitchen's Promise' and 'Best of India' in food and contribute to 4 - 5 % of revenue.

The retail venture is expected to turn profitable in 5 to 6 years

Products for rural India

New Products for retailers in Rural India
Envirofit India Pvt Ltd has introduced a new fuel efficient stove in the Indian market. These stoves allow fuller combustion , use 65% less fuel and cut cooking time by half and are currently available in the Southern States of India – Tamil Nadu, Karnataka and Andhra Pradesh. Prices range from Rs 700 to Rs 2700. These stoves use biomass ( wood, crop waste and animal dung) as the fuel. Biomass being the traditional fuel for cooking in rural India makes these stoves a highly acceptable product to the rural female population . The aggressive pricing is a major plus. 50,000 pcs have already been sold in these states and the company plans to launch the stoves Pan India.
More information on these products and the company can be had at
http://www.envirofitcookstoves.org/
An excellent product for Indian rural retailers to market

This Weeks Promotions

The aggressive advertising campaign that Big Bazaar launched last week continues with double spread ads in national dailies. The message - ' LOWEST PRICES ON 1600 PRODUCTS ' . Pricing certainly seems aggressive - Pressure Cookers at Rs 499, TV's at Rs 4750 and discounts on a huge range of products.

Reliance too has launched their ' SABSE OFFER HOT, SHOPPING SABSE COOL' campaign in mainline dailies. TV ( 21" ) at Rs 4990.00 is their main offering.

Mauling of Malls

Glitzy and fashionable malls have been a highy visibile and inviting sight in India since the last 10 years . In the NCR area of Delhi, malls were being constructed at a hectic space where ever land was available. Gurgaon's famous MG Road , also known as Mall Road has 18 malls coming up of which 6 are already functional. However, with the downturn of the economy, there has been a reversal of fortunes of mall owners. Footfalls have fallen and the rush of customers of a year back is now missing.
Lack of demand for space has forced malls to drastically reduce rentals. Malls today are facing problems of empty spaces. Ambi Mall - the huge over 1 KM of shopping space mall has an occupancy of only 30 percent while the upmarket MGF Saket has a 40% occupancy.
Rentals in almost all malls across the country have come down by 10 -30 percent . In Noida, Great India Place has seen rentals down by 15 to 20 percent.
Major retailers are taking advantage of this fall in rentals and are renegotiating terms of lease with the developers. Many retailers are also now looking at a revenue sharing model with mall owners. The Economic Times has quoted Vikas Gupta, CEO and MD, Lacoste India - " Best practices are coming out now. Revenue share model, zoning, clarity on super carpet and nature of contracts with both sides being equal partners are now gaining popularity."
At this point, all major development in mall space has come to a halt. Of the 400 malls that were to be operational by this year, only 150 have come up. The rest have either halted work or deferred plans and the result is that over 25 million sq ft of retail space across cities is currently on hold under various stages of construction .
Retail in India and malls in particular are going through a tough learning phase. Hopefully, in time success stories will again be the flavour of the day.

Carrefour's search for Partners

Carrefour's Plans in India
According to news reports, Carrefour , the 2nd largest(by revenue) retailer in the world is holding discussions with other retailers in India namely , Reliance Retail, Spencers Retail and Aditya Birla Retail for possible alignments and partnerships. So far Carrefour has been talking to Future Group , India's largest retailer though no deal could mature in spite of months of negotiations. It is rumoured that the most likely partner for Carrefour in India would be Reliance Retail as discussions are in an advanced stage..
It is however also believed that Carrefour plans to open its first whole sale store by 2010 in the NCR areas irrespective of any local partner emerging.

This Weeks Promotions

Big Bazaar has decided to get aggessive this summer on durables. In a hardhitting full page ad in the Times of India, the focus is on huge buying - 3 lac DVD players, 77,000 Televisions, 70,000 Digital Cameras, 23,000 laptops with the headline talking of 33,000 ACs - the implication - huge quantity buying translates to drastic drop in consumer prices. The ad goes on to highlight some very competetive and aggressive prices of the offering - 21" TV at Rs 4790, 190 ltr Fridge at Rs 6990, 5.1 channel DVD player at Rs 1299.

Home Town has a 40% off on Living Room items. They call it the 'Living Room Week'

Big Bazaar has a 20 pe 20 offer too going - buy 20 items worth 1499 and get a gift hamper of 20 items ( items and price not mentioned)

Vishal Mega Mart has launched its " 1000 ki shopping karo, 1000 Muft Pao" . Excellent offer as this means a discount of 50%. Should get a good response unless there are riders attached.

Not to be left behind, Reliance Digital have launched the AC Chill bill on airconditioners. Offers range from a lucky draw of an A Star Car, refund on electricity bill and additional cash backs.

Hariyali Kisaan Bazaar has launched an aggressive promotional campaign consisting of 85 offers spread over merchandise categories of food, lifestyle ( apparel, footwear and home linen) and household. Two important offers are - 'Buy 2 get 3rd item free Offer' in the household category and 'Cash Voucher of Rs 40 on purchase of Rs 500'.

Trade Fairs

Visiting trade fairs on a regular basis should be a an essential part of functioning for anyone involved in buying and sourcing. Trade fairs enable a buyer to have access to a very large pool of manufacturer's and suppliers. They also give one an opportunity to do benchmarking exercises in terms of price, quality, designs, specs etc of the products that one carries or propose to carry in outlets. I am giving below a link to a site that gives information on all trade fairs around the world. Can be very useful to plan visits.

http://www.biztradeshows.com/

Store Negatives

A big store negative is having empty shelves. This is a sure way to turn customers back. The picture below is shouting out that there is no merchandise in this store. Remember, a customer that returns because of empty shelves will never come back. The pictures below are actual shots of a chain of stores.

Never mix product categories when planning displays and planograms. The display in the picture above is totally wrong. You cannot have sports goods , cleaning aids and plastic products on the same plinth. The only exception is when a mixture of products are being offered as a combo. These 2 pictures represent all that is wrong and should not be done.

The backend store where excess stocks are maintained is equally important. Goods should be properly stacked and labelled. On no condition should the backend store be maintained as the picture above shows.

The Pull of Rural Markets

"RURAL MARKET ATTRACTIVE FOR MANUFACTURERS: THE ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF INDIA
The rural market is becoming increasingly attractive for manufacturers of consumer products and automobiles, as well as organised retail businesses, according to a report by the Associated Chambers of Commerce and Industry of India. In the report titled ‘The Rise of Rural India’, Assocham said companies in the fast moving consumer goods (FMCG) sector have recorded higher growth in rural market, which has contributed substantially to their bottomlines. India’s FMCG industry is currently estimated at Rs2 lakh crore. Of this, domestic consumption accounts for Rs17,189 crore.
Traditionally, for the auto industry, the rural market has been largely restricted to tractors and two-wheelers, though the penetration of scooters and motorcycles in villages is only 10 per cent, as compared to 25 per cent in urban areas. he reasons for low penetration in the countryside: the high investment involved, poor conditions of rural roads, lack of finance facility and the shortage of service network.
The report said the growing liquidity in rural areas was on account of subsidies to farmers and increase in output of agri-products. Another potential area, Assocham said, was the rural retail market — currently estimated at $112 billion, or around 40 per cent of the $280-billion retail market. "
Source - The Hindu Business Line: April 12, 2009