Indian Retail Models - Reliances vs Itc vs Future Group[Smallpdf.com]

Ref. No. COM0240

Indian Retail Models: Reliance Retail vs ITC Retail vs Future Group Retail “Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing.”1 – Kishore Biyani, Managing Director, Pantaloon Retail “Unlike global retailers who operate on thin margins, Reliance Retail is looking at a fairly high-margin business model.”2 – Business World

Of late, the Indian organised retail industry has become very lucrative, attracting both Indian and international business corporations to try their hand at the retail business. Though the recession that set in following the global financial crisis of 2008 slowed down the progress of Indian organised retail, increasing number of players are entering the segment because of the large potential it offers. Indian corporate majors like Tata, Birla, Bharti, RPG and Raheja groups have made their foray into the retail sector with varying formats. Kishore Biyani’s (Biyani) Future Group has long been in the organised retail with its retail arm Pantaloon and is doing well in spite of the recession. ITC, wellknown for cigarettes, has diversified itself into agribusiness and retail, already a major player in the fashion apparel retailing, with Wills Lifestyle and has even entered into the urban markets with ITC Choupal Fresh – a neighbourhood store selling vegetables and other farm-related products. Bucking the trend, Reliance has also made its way into the organised retail sector with a unique ‘retail conglomerate model’. While most of the major players were trying to establish one-stop-shops, Reliance has come up with a diagonally opposing model of operating as a speciality retailer in various verticals – 14 in all – ranging from groceries to auto accessories. Despite the best of funding and experienced ‘think-tank’ it has, it would be too early to predict the future of Reliance retail, as it has to compete with the best of the incumbents in each of the verticals. 1

Rajshekhar M., “ Kishore Biyani: The Man They Wrote Off”, http://www.businessworld.in/index.php/Retail-FMCG/TheMan-They-Wrote-Off.html, July 14 th 2004

2

Ananda M. and Natti Sunitha, “Fresh and Small”, http://www.businessworld.in/index.php/Fresh-and-Small.html

This case study was written by M.V. Vivek and Saradhi Kumar Gonela under the guidance of Dr. Nagendra V Chowdary, IBSCDC. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources. © 2009, IBSCDC. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

Indian Retail Models: Reliance Retail vs ITC Retail vs Future Group Retail

Reliance Retail Reliance’s entry into the much sought after retail sector was not just intuitive. The company has worked hard to analyse the potential of the field and even tested the retail space before making a grand entry into the retail segment. For this, Reliance tied-up with the state-owned, old style cooperative store in Mumbai, Sahakari Bhandar, and renovated it to be greeted by a huge success. It served as a test bed for Reliance’s retail ventures. With the success of Sahakari Bhandar, the Reliance Industries Limited’s (RIL) retail arm Reliance Retail Limited (RRL) drew a pan-Indian retail plan. At first, it formed an excellent management team by hiring some of the highly experienced people from retail and consumer durables industries. With this expertise, RRL forayed into the organised retail in November 2006. Its first initiative, Reliance Fresh where fresh fruits, vegetables, dairy products and staples are offered at a lower price, left most of the cart vendors and independent unorganised retailers in panic. The store, which was started as a convenience store format, was told to be a ‘farm-to-fork’ initiative and was expected to provide the utmost benefits to the farmers (Exhibit I).

Exhibit I The Farm-to-fork Model

Mandi Route

Retailers’ Ideal

Farmer

Farmer

Aggregator Agriculture Market Yard Wholesaler

Collection Centre

Semi Wholesaler Retailer Consumer

Store

Processing and Distribution centre

Consumer

Source: “Farm Retail”, http://www.businessworld.in/index.php/Retail-FMCG/The-New-Middle-Man/Page-4.html

2


Later on, Fresh also added a range of items to its list of offerings. “Fresh now carries, in addition to fruit and vegetables, grocery, bakery, dairy, personal care, cleaning, kitchen essentials and some impulse items as well,” said Raghu Pillai, chairman and CEO (Strategy and Operations), RRL. 3 The convenient store format also served staples under the private label ‘Reliance Select’, for better margins. In addition, to increase the visibility and develop the brand, RRL is planning to supply ‘Reliance Select’ to mom-and-pop stores (famous as kirana stores in India) as well. Thus, the convenience store format proved to be a success initially. A faster turnover was expected, from the lesser area and convenience store format. However, it did not work out in the long run. Apart from the profitability concerns, Reliance Fresh stores were also subjected to protests from local traders as it caused a dent in their business. Traders ransacked the Reliance Fresh stores in many of the states including Kerala, Orissa, West Bengal and Uttar Pradesh. As a result of the protests and also due to the prevailing downturn, the number of Reliance Fresh stores had reduced considerably. Reliance’s wholesale venture in the same sector, Ranger Farm, aimed to serve streetside vegetable vendorsalso could not make much impact on the market. Reliance had also started the retailing of fuel through franchised petrol pumps, alongside the launch of Reliance Fresh. But the venture, which started in 2006, did not prosper. Though the outlets provided good product quality and services, they were forced to sell the fuels for higher prices as they did not have the subsidy, which the government owned fuel outlets had. Due to the higher price, the number of customers dropped and soon, the business turned unviable to run. The company closed 1,432 petrol pumps after it incurred a loss of INR 800 crore in its petroleum retail business 4 in 2008. Reliance bought back the property from its dealers paying huge amounts. But its plan to build malls and multiplexes in the sites has not yet realised. However, the undeterred Reliance once again bounced back into the retail segment by opening its first consumer durables retail chain, Reliance Digital, inApril 2007. Through a tie-up with the computer major Apple, Reliance Digital opened stand-alone stores – called ‘istores’ – to sell Apple’s products exclusively. Further, it made a tie-up with Reva Electric Car Company, India’s first electric car manufacturer, to sell its electric car through Reliance Digital outlets. It has also planned to have private labels introduced in Reliance Digital in the near future. “We will see how the volumes build. Then will get private labels as well,”5 said Reliance Retail Consumer Durables Information Technology (CDIT) head-Operations, Nitish Tipnis. Though the chances for the success of private labels are minimal, Reliance Digital can still be hopeful, as the trend is gradually shifting from traditional stand-alone retailers to organised retailers, who offer an assortment of products and brands, enabling easy and better choice for customers. The organised retail chains have a small share of over 8%, translating to INR 25,000 crore, of consumer durables market. As not many organised retailers are present in this field, Reliance Digital has a competitive edge by the virtue of being the exclusive retailer for Apple 3

Layak Suman, “Time Out?”, http://businesstoday.intoday.in/index.php?option=com_content&task=view&id=10383, March 5th 2009

4

John Nevin, “Reliance to use closed fuel outlets for malls and multiplexes”, http://www.business-standard.com/india/news/ reliance-to-use-closed-fuel-outlets-for-mallsmultiplexes/322692/, May 12 th 2008

5

Bhushan Bushra, “Reliance forays in to digital world”, http://ibnlive.in.com/news/reliance-forays-into-digital-world/391517.html, April 25 th 2007

3


products like ipods, iPhones and Macintosh computers through its istores. However, it has to face tough competition from Future Group’s e-zones, one of the main competitors for Reliance Digital, and Big Bazaar, which has its own private labels in certain electronics. Also, neck-to-neck competition from other major players like Tata’s Croma, Next, exclusive outlets like Sony Center and from much trusted local players like TMC makes the situation tough for Reliance Digital. Despite the setbacks and the challenges, RRL has been quite aggressive in the retail business. When other retailers were consolidating and cutting down retail spaces fearing the global recession, RRL launched speciality outlet chains in more than one vertical. At present, RRL has more than a dozen speciality formats (Exhibit II).

Exhibit II RRL’s Retail Formats Verticals

Formats

Fruits, Vegetables, Staples

Reliance Fresh

Consumer Durables and IT Accessories

Reliance Digital

ipods and Apple Products

istore

Apparel, Luggage and Accessories

Reliance Trends

Footwear

Reliance Footprint

Jewellery

Reliance Jewels

Frozen Meat, Fresh Fish

Reliance Delight

Premium Clothing

Vimal

Books, Music, Toys, Gifts

Reliance TimeOut

Auto Accessories and Services

Reliance Autozone

Health and Pharmaceutical Products

Reliance Wellness

Home Furniture and Furnishings

Reliance Living

Mini Marts

Reliance Super

Hypermarkets

Reliance Mart

Compiled by the authors

In March 2009, Reliance Retail’s 920 stores were spread across 20 formats in 80 cities and 14 States covering almost 4.5 million sq. ft. of consumer-facing retail space6 (Exhibit III).

6

Kamath Vinay, “Reliance Retail Looks to Scale up Fresh, Hyper Value Formats”, http://www.blonnet.com/2009/03/05/ stories/2009030551531500.htm, March 4 th 2009

4


Exhibit III How Reliance Retail Stores Stacked up Fresh Hypermart and Super

645

Ranger Farm

33

43

Apple stores

9 4

Digital

9

Books & music

Jewellery

6

Delight

100

Sahakari Bhandar

17

Health and Beauty

15

Apparel Specialty

11

Furniture & kitchen

10

Footprint

14

Automotive

4

Source: Kamath Vinay, “Reliance Retail Looks to Scale up Fresh, Hyper Value Formats”, http://www.blonnet.com/2009/ 03/05/stories/2009030551531500.htm, March 4th 2009

In the apparel segment, RRL has come up with Reliance Trends (Trends), a speciality chain, which also handles luggage and accessories. Projected as a mix of values and lifestyles, the store offers world famous international brands in lifestyle segment and its own private labels and national brands in value segment. Dependence on private labels is to make higher profitability. Reliance Trends is expected to be a hit as a wide array of products are made available at affordable prices. But Trends faces stiff competition from incumbents like ITC-Wills Lifestyle, Future Group-Fashion @ Big Bazaar, Brand Factory, Pantaloon, Tata-Westside stores and innumerable local players. Even after being a price under-cutter, the chain is in an intense battle of finding and maintaining customers. “We are now present in five cities with seven stores and plan to have 100 by 2010–2011. Our aim is to be among the top two players in the organised retail market for apparels by that period,” disclosed Reliance Trends’ chief executive, Arun Srideshmukh.7 Reliance Footprint (Footprint), RRL’s footwear vertical chain store, is also in a similar state. Major players in the footwear retail, including Bata, Woodlands and international brands like Reebok, Adidas, etc., are posing a threat to Footprint, which is finding it tough to cope with the competition. Reliance’s entry into the 15,000 crore domestic footwear industry, which is dominated by the largest retailer Bata, has taken many by surprise. It sells well-known brands from all over the world including private label footwear. It has entered into a partnership with Bata to sell all Reliance private label footwear through Bata, which has the largest number of exclusive footwear chains across India. It also has ambitious plans to sell its private labels through other retail players. “Footprint has a 20:80 ratio of private label footwear to other domestic and international brands,”8 explained G. Shanker, chief executive, Footwear, RRL. Footprint has also planned to tie up with some of the foreign footwear brands to bring their presence to India. 7

“Reliance Retail to set up 100 Trends stores by 2011”, http://economictimes.indiatimes.com/News/News_By_Industry/ Services/Retailing/Reliance_Retail_to_set_up_100_Reliance_Trends_stores, December 19 th 2008

8

Das Debdutta, “Reliance Retail to Set up Global Footwear Format”, http://www.thehindubusinessline.com/2007/11/17/stories/ 2007111751710500.htm, November 17 th 2007

5


Reliance Jewels, the jewellery chain store of RRL, claims to provide a unique shopping experience to the lovers of the yellow metal. Its exquisite collection comprises of Kolkata Filigree, Rajkot Minakari jewellery, Kundan from Jaipur, temple jewellery from Kerala, Jadau from Amritsar and much more. Jewellery retail in India is ever expanding at a rate of 40%9 with new players setting up retail outlets across the country. Though there are specialised retailers in this segment, the Indian consumer is always ready to experiment with new formats and players and organised retailers are ever expanding in this arena. For instance, Big Bazaar’s jewellery retail is carried through the store-in-store format named Navras. However, with the vast collection and stand-alone store format, Reliance Jewels may beat the competition from Navras as well as other players. It has also big plans to expand the chain soon. “We plan to open 50 such stores during the next one year and another 300 speciality stores across the country during the next three years,”10 said Bijou Kurien, president and chief executive, Lifestyle, RRL. But it is still doubtful if Reliance would be able to deal with the nuances of jewellery retailing like well-experienced incumbents and uncountable local players. As far as speciality stores for books, music, toys and gifts are concerned, Reliance retail has launched a new member in the race, named Reliance TimeOut (TimeOut). Many of the retail majors like Future Group’s Depot, RPG’s Books&Beyond and K Raheja’s Crossword are already operating in this segment in addition to foreign players like Walden. TimeOut stores, spread over an area of 21,000 sq. ft., offer books, music, toys and gifts and have an in-store coffee shop. TimeOut also conducts weekend workshops for kids to improve their creativity (and to impress the parents who are the potential customers). It has plans to expand the number of stores to 47 by 2010. 11 “Our target customers are primarily the youth, modern professionals and young parents. We want to create a place that will cater to all sections of society. We will allow customers to browse at leisure and shop at pleasure,”12 elaborated Bijou Kurien. However, with the ongoing financial meltdown coupled with stiff competition from established players, TimeOut has a long way to go. Future Group’s Depot, which offers the same merchandise, is a store-in-store and poses tough competition to Reliance. But the real danger comes from other local players, bookstores, stationery stores and toyshops, which have established strong sourcing networks and occupied strategically important locations. Nonetheless, with the additional services and benefits that TimeOut is providing, it might be able to gain more customers than its competitors. Reliance Delight (Delight), a non-vegetarian retail outlet offering fresh fish and frozen meat, was another venture of RRL. The stores were opened to tap the potential of the non-vegetarian retail in India that delivers margins up to 20%, compared with the 10%–15% margins in food and grocery retailing.13 Also, with the number of non-vegetarians in the country gradually increasing, Delight has good opportunities, as the number of organised players in the market is very low. To gain advantage

9

“Jewellery retail set

for ‘major

expansion’ in

India”,

http://www.gold.org/news/2008/05/20/story/9345/

jewellery_retail_set_for_major_expansion_in_india, May 20 th 2008 10

“Reliance Jewels Makes Debut”, http://www.hindu.com/2007/11/17/stories/2007111753751500.htm, November 17 th 2007

11

“Reliance Retail Forays in to Books , Music with Time out stores”, http://www.financialexpress.com/news/reliance-retailforays-into-books-music-with-timeout-stores/248980/, December 11 th 2007

12

Ibid.

13

“Reliance Retail Forays in to Books, Music with Time out stores”, op.cit.

6


of location, Delight stores are located next to Reliance fresh stores. The neat and clean maintenance of the Delight stores has already impressed many non-vegetarian consumers. However, immediately after the opening of these stores, RRL had to face protests from the fishermen in Andhra Pradesh and Tamil Nadu, who were afraid that the clean ambience of the stores would take away their business. Despite these protests, Delight is planning to open 1,000 stores by the end of 2010. 14 Reliance bags a huge advantage in this field, as other organised retailers are not even considering non-vegetarian retailing. Though the Godrej-operated integrated poultry business, ‘Real Good’ has the first mover advantage, Delight is likely to become popular among the non-vegetarian Indians. Some other retailers in the non-vegetarian retailing are Spencer’s, Spinach and Hypercity. With fewer players in the sector, Reliance Delight is expected to contribute 10% to the overall revenue of RRL, over years.15 Reliance Autozone (Autozone) is RRL’s another initiative in the retail sector. The auto retail chain engages in sales and service of accessories for two-wheelers and four-wheelers under one roof. The chain also undertakes sales of electric scooters, a new phenomenon in the Indian automotive sector. A typical store with 6,500 sq.ft. presents the ambience that can be found only in global automotive retailer chains. RRLis keen to capitalise on the business opportunities it has in this sector. Despite the competition, Autozone is expected to grow steadily. Though there are many companies with their own service and accessory shops, the one-stop-shop format might provide a massive advantage for Reliance. “This new format provides a one-stop solution to automobile owners who face inconvenience by having to crisscross between various touch points for accessories, batteries, tyres and lubes, etc., at different locations at different times,”16 says Arun Dey, chief executive, Autozone. The same advantage can be associated with RRL’s pharma venture ‘Reliance Wellness’, a onestop-shop for all health and wellness products. The stores contain medicines inAllopathic, Homeopathic andAyurvedic medicinal systems and have a well-equipped optical shop with a qualified ophthalmologist and preferred brands of lenses. To help people who are under long-term medication, Reliance Wellness has launched a programme called ‘Medical Compliance Programme’, in which the customers will get alerts and reminders about replenishments and uses of their medicines. Another customer loyalty programme of free health insurance to customers is done through a tie-up with ICICI Lombard General Insurance. With its additional facilities, such as attractive insurance and customer loyalty programme, Reliance Wellness may also be able to carve a niche for itself. It has already won awards for its ‘Innovative Drug Store’ concept. The advantage is that a one-stop solution like Reliance Wellness is rare even in metros. But with the presence of ‘Fit and Healthy’ of Future Group, Health and Glow of RPG Group, Apollo Pharmacy and other chains like Med Plus and Medicine Shoppe besides the regional and local pharmacy shops, it would not be an easy task for Reliance Wellness to achieve its INR 6,000 crore target by 2011.

14

Kamath Raghavendra, “Reliance plans 1000 Delight stores in 2 yrs”, http://www.business-standard.com/india/news/relianceplans-1000-delight-stores-in-2-yrs/350946/, March 5 th 2009

15

Ibid.

16

“Reliance Sets Up Autozone in Gurgaon”, http://www.blonnet.com/2008/07/27/stories/2008072750990700.htm, July 27 th 2008

7


Same is the case with RRL’s home furniture and furnishing retail chains, Reliance Living Furniture and Reliance Living Furnishing. Indian furniture retailing is clouded with local as well as the branded players such as Future Group’s Home Town and Furniture Bazaar, Godrej Lifespace, Timbor Home, Housefull and popular foreign Groups such as Durian and Kian. “There is an opportunity in the Furnishing retail space in the country when it comes to the range being design led without the normal penalty of being too expensive. High quality fashion and design in home furnishings need no longer be expensive,”17 said Raghu Pillai. Reliance Living Furnishing offers both international brands and private labels to its customers. The 4,500 sq.ft. stores promise a unique shopping experience but RRL will have to wait to know whether it would be able to tap the INR 30,000 crore worth Indian furniture and furnishings market. Reliance Super and Reliance Mart, the supermarket and hypermarket stores of RRL, face the same dilemma as that of its furniture and furnishing retail chains. They have forayed into the most clouded arena of supermarket in Indian retail. Even in 2009, round-the-street mom-and-pop stores accounted for 95% of the total Indian grocery retail. On the top of it, in this business with wafer thin margins, organised players such as Vishal Mega Mart, Big Bazaar, Spencer’s, etc., have already fortified their brands and many other cash-rich players are getting ready to open their supermarkets. However, with 10,000–15,000 sq.ft. space to stack up goods and provide easy access to customers, Reliance Super is expected to have a cutting edge over other retailers. Even Reliance Mart is spread over an area of 165,000 sq.ft. and aims to become the one-stop solution to all customer demands. “The concept is to develop it as a ‘solution centre’ where anyone can come to our Mart and get anything under one roof and at cheaper or equivalent prices but with much better quality products,” 18 Raghu Pillai said. Both Reliance Mart and Reliance Super have bet high on the value platform and private labels, like other players, but they still have not managed to clock the expected business. Thus, RRL has tough competition in almost all the verticals (Exhibit IV).

17

“Reliance Retail Launches Living Home Furnishings”, http://www.business-standard.com/india/news/reliance-retail-launches8217reliance-living-furnishings8217/342332/, December 5 th 2008

18

8

“Reliance Opens Mega retail Outlet”, http://www.thehindu.com/2007/08/16/stories/2007081656181600.htm , August 15th 2007

9

Lifestyle

Value

Reliance Autozone

Rliance Delight

Reliance Jewels Lifestyle

Value

Format

Jewellery

Specialty Store 6,000 sq. ft.

Fresh Fish, Specialty Store Frozen Chicken and Meat

Car and Bike Specialty Store Accessories, 12,000 sq. ft. Tyres and Batteries

Vegetables, Supermarket Fruits, Grocery, 3,000– Dairy products 4,000 sq. ft.

Segment Merchandise

Reliance Fresh

Name Nilgiris

More

ITC Choupal Fresh

Tanishq

Local Players

Navras

Spar

Gitanjali

JoyAlukkas

Local Auto Auto Tyre Players Companies’ Companies’ Companies’ Franchises Service Retail Centers Outlets

Spencers

Major Competitors

Exhibit IV Major Competitors for Reliance

Damas

Food Bazaar

Contd...

Prince Jewellers, Bhima Jewellers, Khazana Jewellery

Suguna Chicken

Trinetra Varkeys Maveli Stores

Regional Players


10

Books, Music, Specialty Store Crossword Stationary, Gifts 21,000 sq. ft. and Toys Apparel, Specialty Store Brand Luggage and 24,000 sq. ft. Factory/ Accessories Pantaloons

Lifestyle

Reliance Trends Lifestyle

Specialty Store 6,000– 10,000 sq. ft.

Ezone

Bata

Wills Lifestyle

Depot

Woodland

All Major Showrooms Electronics of Cellular Retailers Service Providers

Reliance Time Out

Foot Wear

Specialty Store

Lifestyle

iPods & Other Apple Products

Reliance Foot Print

Tata Croma

Lifestyle

Specialty Store 20,000 sq. ft.

iStore

Electronics & Home Appliances

Lifestyle

Reliance Digital

Shoppers Stop

Odyssey

Brand Factory/ Shoe Factory

PCH e zone

Westside

Landmark

Reebok

Sony Center

Lifestyle

Books and Beyond

Adidas

Next

Contd...


11

Reliance Wellness

Reliance Super

Reliance Mart

Value

Value

Minimart 10,000– 15,000 sq. ft.

Health Foods, Specilty Store Personal Care, 3,500 sq. ft. Healthcare and Pharma Products

Consumer Goods, Healthcare Products, Groceries, Footwear and Readymade Clothes Health and Glow

Appolo Pharmacy

Fit & Healthy

General Hypermarket Merchandise 165,000 sq. ft. including Home Furnishings, Utensils, Crockery, Cutlery, Sports Goods, Star India Big Bazaar Spencer’s Garments Bazaar

MedPlus

Hypercity

Medicine Shoppe

Vishal Megamart

Contd...


12

Lifestyle

Vimal


Lifestyle

Reliance Living Homeware

Apparel

Home Furnishings

Specialty Store 1,500– 2,500 sq. ft.

Bombay Dyeing

Specialty Store Furniture 4,500 sq. ft. Bazaar

Mayur (RSWM)

Home Town

Grasim

Godrej Lifespace

Raymond

Timbor Home

S Kumars Reid & Taylor, Belmonte, etc.

House Full



RRL had earlier planned to expand its chains with an investment of INR 25,000 by 2011, but all developments have come to a standstill because of the global recession. With independent stores in each of the verticals, insufficient and inefficient supply chains and stiff competition in every vertical, RRL is still bungling through its way to success. The recession-hit retailer had to downsize the staff and reduce the retail space in order to save money. The director of Center for Research in Technology & Innovation at the Kellogg School of Management Prof. Mohanbir Sawhney opines, “The capital intensive business model of companies like Reliance Retail makes their ventures very risky. Three years down the line we may see these ventures going in for a spin-off (stake sell out).” 19 His estimation may become true if things proceed the way they are now. Whatsoever, with the expected policy alteration from Indian government in favour of 100% FDI in the retail sector, RRL can benefit by tying up with foreign players. But the current policy allows only 51% FDI, that to only for single brand retailing. For multi-brand retailers, FDI remains a forbidden fruit. RRL had already tied up with UK-based toy-maker Hamleys to design the stores, train the personnel and the like. It has also tied up with many foreign retailers in other verticals, but only in the back-end processes. Once 100% FDI is allowed, tie-ups can be made with respect to the front-end processes too. Then there would be a better chance to compete with the best in the industry and probably that is what Mukesh Ambani, CEO of RIL, had been expecting to happen. In the meanwhile, ITC, one of the biggest, oldest and the most respected conglomerates in the country and Future Group, the largest retailer in India, are preparing for a neck-to-neck competition with RRL.

ITC’s Retail Venture ITC, formerly Imperial Tobacco Company of India Limited, is striving to change its image from a cigarette maker to a socially responsible, value driven conglomerate (Exhibit V). Since 2000, apart from consolidating its traditional businesses, ITC has forayed into lifestyle retailing, branded packaged foods, personal care products, greeting, gifting & stationery, incense sticks and safety matches. In the lifestyle retail sector, ITC is one of the preferred names with its Wills Lifestyle Stores and John Players brand. ITC’s agribusiness and paperkraft are one of the topmost names in their respective sectors. Before the launch of Wills Lifestyle, ITC had the experience of making tobacco and paperboard. Nothing related to retailing; however, chairman Yogesh Chandra Deveshwar (Deveshwar) was sure that they would not go wrong. Wills Lifestyle, which started with a range of men and women’s relax wear, ‘Wills Sport’, soon filled up its exclusive retail outlets with new brands of clothing and accessories. ITC’s Lifestyle Retailing Business Division (LRBD) grew swiftly winning various awards in retailing20, which provided the necessary impetus for a new chain attempting to move closer to its target audience.

19

“Reliance Retail Model Very Risky”, http://www.financialexpress.com/news/reliance-retail-model-very-risky/179963/0, October 9th 2006

20

Wills Lifestyle has received a number of awards including “Retailer of the Year” by Asian Retail Congress for 2008 and “Best Supply Chain Practices Award-2006” by Retailers Association of India (RAI) in association with ITWSignode – both international leaders in packaging solutions.

13


Exhibit V ITC’s Lines of Business Line of Business

Divisions/Products/Services

FMCG

Cigarettes Foods Lifestyle Retailing Personal Care Education and Stationery Safety Matches Incense Sticks

Hotels

Welcome Fortune Wellcom Heritage

IT (ITC Infotech)

Banking, Financial Services & Insurance (BFSI) Consumer Packaged Goods & Retail Manufacturing & Engineering Travel Hospitality and Transportation Media & Entertainment

Paper Board

Paper Board and Speciality Paper Packaging

Agribusiness

Agri-commodities, Rural Services Leaf Tobacco Spices Agri Inputs

Compiled by the author

14


Apart from Wills Lifestyle clothing range, ITC launched John Players, men’s casual and formal clothing range, and Miss Players, a range of formal and casual wear for women. It also launched Essenzia Di Wills, the fragrance range, Fiama Di Wills and Vivel Di Wills, bath and personal care products. ITC has carved a niche with its excessive and effective advertisement campaigns targeting the youth and super rich. All the brand endorsers of ITC lifestyle products are youth icons and that had paid off well (Exhibit VI).

Exhibit VI The Brands and Endorsers Product Line

Brand

Endorsers

Clothing

Wills Classic

Work Wear

Wills Sport

Relax Wear

Wills Clublife

Party Wear

Wills Signature

Designer Wear

John Players

Casual Wear

Western Models

Hrithik Roshan, Bollywood actor

Party Wear Work Wear Denims Outer Wear Suits and Jackets Miss Players

Women’s Wear

Bath & Body Care Essenza Di Wills Fragrances


15

Amritha Rao, Bollywood actress Diana Hayden, former Miss World

Fiamma Di Wills Shampoos, Shower Gels, Soaps

Deepika Padukone, Bollywood actress

Vivel Di Wills

Shampoos, Shower Gels, Soaps

Trisha and Hrithik Roshan actors

Vivel

Shampoos, Shower Gels, Soaps

Kareena Kapoor, Bollywood actress


ITC’s positioning as a brand has helped it enormously in becoming a major lifestyle retailer. Apart from lifestyle retailing, ITC forayed into agri-retail too, both in rural and urban areas. It recognised the needs of rural population, an untapped potential, which no company was able to exploit prior to them. The initiative was also aimed at empowering small and marginal farmers. It had helped the farmers to overcome the inhibitions of poor farming and risk taking. With a blend of click and mortar capabilities, village internet kiosks managed by farmers – called sanchalaks – enable the agricultural community to access ready information in their local language on weather and market prices, disseminate knowledge on scientific farm practices and risk management, and sell farm inputs and purchase farm produce right at the farmers’ doorsteps.21 ITC’s Agribusiness division, the biggest exporter of agricultural commodities from India, has conceived e-Choupal as a more back-end integrated supply chain. ITC soon forayed into rural retailing with its rural malls named Choupal Sagar. The 7,000 sq. ft. stores not only sell commodities, apparel and branded home appliances, but also motor pump sets, pesticides and other agriculture products to its customers. Apart from the goods, these malls provide services like soil testing, banking, insurance and medical facilities to farmers. ITC is planning to open one Choupal Sagar for every 30–40 e-Choupals. ITC spent INR 4 crore for a Choupal Sagar and in return it is getting a turnover of INR 3 crore per annum. There are also plans to expand Choupal Sagar and open smaller malls in smaller towns. However, these plans have come to a sudden halt due to the financial crisis and economic slowdown. ITC, apart from opening rural malls, entered the urban market too with fresh fruits and vegetable outlets named Choupal Fresh, which sources its merchandise directly from farmers through e-Choupal initiative. Choupal Fresh is being operated in only selected metros and the company has plans to increase the number of outlets to 140 by 2010. “The emphasis is on improving the quality and productivity of domestic horticulture products through ITC’s good agricultural practices as opposed to relying on imported products,” said Siva kumar, chief executive of ITC’s Agribusiness. The speciality of these chains is that they combine retail with wholesale. The 2,500 sq.ft. store is backed up by a 7,500 sq.ft. cold storage and warehouse facility. Choupal Fresh stores open at 5 a.m. to serve the wholesale business. Future Group’s Pantaloon retail had entered into a strategic tie-up with Choupal Fresh chains to gather fresh fruits and vegetables for its ‘Fresh & Pure’ section in Food Bazaar. Though Godrej Agrovet’s ‘Nature’s Basket’was the first of its kind store selling farm fresh food in urban areas, Choupal Fresh has made significant advantages as it deals with both wholesaling and retailing. However, India’s farm fresh organised retail has a lot to improve in terms of supply chain practices in order to grow to realise its actual potential. ITC has a number of brands in FMCG and staples, which they supply through kirana stores and competitors’ retail outlets (Exhibit VII). ITC’s ready-to-eat foods, snacks, staples and confectionery have become household names for Indians in a short span of time and fetched the recognition of an FMCG company. It was also conferred the Business Today Award for the Best Managed Company – Retail and Consumer Products for the year 2008. 22

21

“ITC e-choupal”, http://www.itcportal.com/sets/echoupal_frameset.htm

22

“ITC acknowledged as Best Managed Retail and consumer products Company”, http://www.itcportal.com/newsroom/ press_releases_10mar08.htm, March 6 th 2008

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Exhibit-VII ITC Brands Products Atta

ITC Brands Ashirwad

Salt Spices

Competitors Pillsburry (Pillsburry Baking),Annapurna (HUL), Reliance Select (Reliance Foods) Tata Salt, Sprinkle, Captain Cook Everest, Eastern, MDH

Instant Mixes Cooking Pastes Biscuits Pasta

Sunfeast

Britannia, Parle-G, Modern (HLL) Maggi, Romano, Knorr

Ready-to-Eat Products Kitchens of India Knorr (HLL), Shakti Bhog, Maggi, Veetee Fine Foods Conserves Chutneys Curry Pastes Desserts Confectionery

Mint-O

Parle, Nutrine, Perfetti

Confectionery Potato Chips

Candyman Bingo

Lays, Local Players

Finger Snacks Shampoo

Superia

Clinic plus, ClinicAll Clear, Sunsilk (HLL), Pantene (P&G), Vatika (Dabur)

Classmates

Local Players Reynolds, Parker, Cello

Notebooks Pens Pencils Premium Stationery

Paperkraft

Natraj, Apsara, Faber Castle Archies, Hallmark

Matchbox Incense Sticks

Aim Mangal Deep

Local Players Cycle, Goloka Nag Champa, Local Players

Aromatic Candles

Expressions

Local Players


The conglomerate model of ITC was thus gaining momentum but the recession and the higher rent of the retail space had forced it to reduce its pace. Around eight of Wills Lifestyle exclusive showrooms were closed and now ITC is planning to set up boutiques in its own chains of hotels. Wills Lifestyle has also closed down four of its exclusive retail chains due to decrease in sales and high rent. However, ITC is trying to get into more customer-centric activities to increase the dropping sales. Deveshwar is confident that the company will come out of the blues soon. 17


Future Group’s Retail Future group’s retailing arm Pantaloon Retail (India) Limited has its presence in various sectors of retail in multiple formats (Exhibit VIII) with a number of formats in each of the lines of business (Exhibit IX). As the business is based on the ‘value for money’ psyche of Indian middle class, Pantaloon’s retailing has become a huge success. The company’s turnover has surged from INR 285.3 crore in FY 2002 to INR 5,048.9 crore in the year ended June 2008. During the same period, the Group’s Profit After Tax (PAT) has jumped from INR 7 crore to INR 126 crore. Its market capitalisation also increased from INR 60 crore in FY 2000 to INR 3,737.8 crore as on October 13th 2008.23

Exhibit VIII Pantaloon Retail: Lines of Business

Source: “Lines of Business”, http://www.pantaloon.com/retail.asp

23

Verma Supriya, “Retail Biggies”, http://economictimes.indiatimes.com/Features/Investors_Guide/Retail_sector_biggies/ articleshow/3616980.cms, October 20 th 2008

18


Exhibit IX Future Group’s Retail Empire Line of Business

Stores/Formats

e-tailing (web-based retailing) Food

Future Bazaar Brew Bar Chamosa Café Bollywood

Fashion

Home Solutions

Telecom & IT

Sports Bar aLL Big Bazaar Blue Sky Brand Factory Celio Central Navras Fashion @ BigBazaar Pantaloon Planet Sports Home Town e-zone Furniture Bazaar Electronic Bazaar Home Bazaar Collection i Gen M One Mobile M-Port Big Bazaar KB's Fair Price

General Merchandise Wellness and Beauty Books and Music Leisure and Entertainment


19

Food Bazaar Star Sitara Fit & Healthy Depot Bowling Co. F123

Products Electronic Products and General Merchandise Food and Beverages

Apparel for Plus Size People Hypermarket Sunglasses and Watches Apparel and Footwear Apparel Mall Jewellery Apparel Apparel Sports and Lifestyle Goods Flooring, Furniture, Furnishings, etc. Consumer Durables Furniture Electronic Goods and Appliances Flooring, Furniture, Furnishings, etc. Furniture Mobile Phones, Mobile Phone Accessories and Electronic Gadgets Grocery, Staples, etc. Grocery, Staples, Fresh Vegetables and Fruits Beauty Salon Pharmacy, Health and Personal Care Books, Music, Toys and Gifts Entertainment Centres


Apart from retail business, it has a few specialised businesses in which it operates independently (Exhibit X).

Exhibit X Future Group: Divisions Other than Retail Divisions

Services

Future Capital Holdings

Consumer Finance (Future Money) Investment Advisory Services Retail Financial Services Research

Future Learning and Development Limited

Talent Acquisition

Future Media India Limited

Future Visual Spaces Future Theatres Future TV Future Radio Future Print Future Fuel

Future Brands

Developing Brands and Consulting Practice

Future Generali

Insurance

Future Logistics Solutions Limited

Logistics

Future Knowledge Services

Technology Services Business Process Management


The value-based retail business of Pantaloon retail has received a phenomenal acceptance from the customers. The company, which was incorporated as an apparel retailer ‘Manz Wear’ with India’s first men’s formal trouser brand Pantaloon, had forayed into the retailing mainstream in 1997 with its 8,000 sq.ft. Pantaloon retail showroom. Later, Pantaloon launched big format retail centres like Big Bazaar and Central. Big Bazaar ranges from 15,000 to 20,000 sq.ft. and Central spreads over 200,000 sq.ft. In 2006, ‘Pantaloon Group’ was renamed as ‘Future Group’ and its retail arm was named Pantaloon Retail (India) Limited. In his book, It Happened in India, Kishore Biyani (Biyani), CEO of Future Group, explained how the group had come a long way. With its vision to ‘Deliver Everything, Everywhere, Every time for Every Indian Consumer in the most profitable

20


manner’, Future Group brought out such innovative retail formats that Indian consumers had been only dreaming of. The company’s supply chain management is done through Future Logistics, its logistics arm. Future Logistics has plans to become independent and obtain the benefits of third party logistics market. But the largest retailer also has not been spared by the recession. With the credit freeze, Pantaloon retail has decided to restructure its operations by consolidation. Future Group, at present is a conglomerate with many divisions. To make the business model more sustainable, it was planned to restructure the company and rename it as Future Markets & Consumer division. The new division would be a holding company with two subsidiaries – Future Value Retail, that will own all fashion brands and Future Speciality Retail, that will own all the supermarket chains. However, the restructuring was postponed due to expectations of new FDI policy by the government. Future Group has ambitious plans once 100% FDI is allowed on multi-brand retailing.

Businesses Converge, but Business Models Diverge Competition in the Indian retail is intensifying by day with many on the field and many waiting for an opportunity to enter. What matters most is the business model that these retailers are going to adopt and not really the ‘retail’ tag. “Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing,”24 echoed Biyani when the organised retail was just emerging in India. By mid-2009, with a model that extends services to value-based consumers and lower socio-economic segment, Biyani was leading the pack. His competitors, however, are right on his heels. The models and value chain clearly vary for all the players. While Big Bazaar is aiming to target the middle and lower income strata alike, ITC is developing its image in the Lifestyle segment with Wills Lifestyle and John Players. While Future Group has diversified into Future Capital Holdings, Future Logistics and Pantaloon Retail, ITC has expanded into agribusiness and Lifestyle retailing. RRL, on the other hand, has evolved as an all-inclusive retail by opening 920 independent stores across the country in almost 15 verticals. Retailing is not all about re-selling things in a shop. The background work that each company has to do is enormous. The decisions on the issues, ‘make or buy’, ‘in-house or outsource’ are the most critical ones. The right mix of manufacturing products and outsourcing of the processes is critical for every retailer. The concerns that follow are integration of back-end processes and supply chain management. The pattern varies across the three corporate houses of India. It would be surprising to know that ITC does not have manufacturing facilities. The respected Indian conglomerate does not manufacture almost anything, but bets heavily on outsourcing the production of all its merchandise. Even apparel designs were initially made in association with American Design Intelligence Group (ADIG), a San Francisco, US-based garment and retail consultancy. However, later on, ITC has hired its own set of designers and established a close relationship with Science and Designs, an Italian fashion design house, for additional assistance in

24

“Kishore Biyani-The Man They Wrote Off”, op.cit.

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apparel design. Though the retailer established in-house designing, it does not manufacture any of its collections. Kamal Bose, general manager, Sourcing and Merchandising, ITC Lifestyle, explains, “Companies are primarily following three models for outsourcing – completely controlled, partnership and buyer-supplier. Our company had realised the potential of outsourcing manufacturing and gone for 100% outsourcing from the day we began operations.” 25 LRBD has around 20 vendors from whom they source their items. Apart from India, its vendors are from nearby foreign countries such as, Nepal, Bangladesh and Hong Kong. An outsourced Just In Time (JIT) manufacturing facility for ‘quick response’ located in Bangalore is LRBD’s prime strength. On the supplies network, ITC does best what it has practised for years together. It has managed to make its cigarettes reach every nook and corner of the country. Over the years, ITC has developed a flexible supply chain for its LRBD. By putting into practice concepts like JIT Production, Full Truck Load (FTL) and Regional Distribution Centres (RDC), ITC has managed to significantly cut cost in its supply chain. The award, ‘Best Supply Chain Practice-Organised Retail’ for 2006 further supports this fact. Since LRBD’s suppliers are spread across India, it has no compulsion of keeping the major production facilities and the central warehouses nearby to its locations. LRBD has set up regional distribution centres for each of the four zones – Delhi, Kolkata, Bangalore and Pune; established strategically in important cities of all the four regions of India – North, East, South and West respectively. Since these locations are near major markets, LRBD is able to supply the products as and when they are required. It replenishes all the stores in the major markets within 24 hours and all over India within 48 hours of order placement. “Our decentralised model has grown in significance with the advent of the Large Format Retailers (LFR). If the retailer’s store shelves are empty, we can fill them up before the others can arrive (which might take days),”26 examines Sanjeev S. Khanna, manager, Logistics, LRBD. With its Electronic Shelf Labels (ESL) and Radio Frequency Identification (RFID), ITC can keep track of the changes in the stock easily and take necessary action in minimum time. With the help of technology in logistics, ITC is further planning to cut the cost in its supply chain side and deliver more value to the consumers. ITC’s strong presence in the FMCG sector in the country comes from cottage business and Small and Medium Enterprises’ (SME) entrepreneurs, and not from its own manufacturing facilities. The support that ITC provides through its facilities of Research and Development (R&D) and marketing should be noted as ITC’s effort to enhance the competence of SMEs. Its notebooks are outsourced from vendors in Tamil Nadu and incense sticks (Agarbattis) are made in association with Sri Aurobindo Ashram Udyog, Pondicherry and ITC’s matchboxes are made in cottage industries of South India. Similarly, all its packaged food and powders are also outsourced to SME manufacturing facilities spread across the country. ITC assists its manufacturers in maintaining highest level of hygiene with Hazard Analysis and Critical Control Points (HACCP) certification.

25

Saxena Ruchita, “Apparel Forms go for outsourcing”, http://www.business-standard.com/india/storypage.php?autono=295651, August 24th 2007

26

“In a Matter of Days”, http://www.safexpress.com/FTIssue/FT12.pdf, July–September 2006

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Not just manufacturing, ITC has also been hailed for the way it developed FMCG supply chain, a task that is considered to be the toughest by the FMCG companies. It has integrated all the manufacturing facilities, godowns and warehouses exceptionally well all across the vast spread of the country, utilising all the knowledge that it has acquired from decades of experience in agribusiness. All these have grown in the recent past, forcing it to find better methods of supply chain management. To find alternatives, ITC is trying to build an IT infrastructure to barcode the FMCG produce even before it reaches the retailers so that it would be easy to track all the products and manage its facilities and inventory in a better way. While ITC’s competency lies in supply chain management, Future group’s lies in its value-based volume business it holds across its formats. It has 98 Big Bazaar outlets spread across the country in 59 cities and receives a massive 110 million footfalls per annum.27 Being a reseller that sources products in bulk, it has managed to maintain a margin from its sourcing activities. Further, to strengthen its agri-products sourcing, Future Group has purchased 70% of Adhaar, a hub of agri-products, from Godrej. This was brought through Future Ventures, Future Group’s venture capital arm. It is supposed to exploit the rural retailing chances and at the same time help Future’s retail ventures to maintain a constant supply of agri-products. For in-house electronics brands such as Sensei and Koryo, it has a sourcing alliance with Indian electronics major Videocon. As a part of its global sourcing, Future Group has set up purchasing centres in Hong Kong and China, the first attempt of its kind by an Indian retailer. It sources both perishables and non-perishables from these places. A huge part of Future Group’s private labels are sourced from China. In garments, private labels of Pantaloon are manufactured in its own manufacturing facilities located at Mumbai and Gurgaon. This backward integration has helped the group largely in maintaining its bottom line. To translate sourcing efficiencies into logistics management, Future Group’s supply chain arm, Future Logistics Solutions Limited (FLSL) was incorporated as a separate entity. FLSL even serves external business parties in finding logistics solutions by acting as a distribution intermediary and as a wholesaler. The fact that not many organised players are there in the wholesale distribution chain management market is an added advantage for FLSL. Its initiatives of providing all logistics services from warehousing, transportation, international logistics, reverse logistics and distribution are sure to enrich the profits of the Group. The company plans to lease 7.5 million sq. ft. for its business to increase the warehouse area and build an efficient IT infrastructure. The sourcing model of RRL is vastly different compared to those of ITC and Future Group. RRL has a tie up with ITC Choupal Fresh for an uninterrupted supply of fruits and vegetables. Apart from this, RRL tied up with US-based fresh fruit and vegetable suppliers – Dole and Chiquita – and meat retailers – Sadia of Brazil and Doux of France. The association with these foreign players is supposed to give the requisite technological and process expertise to the growing fresh food formats of Reliance Fresh and Reliance Delight. Reliance has also set up rural sourcing hubs in states like West Bengal, Punjab, Haryana, Uttaranchal and Himachal Pradesh for sourcing grains and milk products. Reliance Digital has plans to source televisions from Videocon to introduce private labels. Reliance has plans to set up its sourcing office in China to source electronic and footwear products in large quantities. For Trends, the apparel speciality chain, RRL has its own manufacturing facilities for the 27

“Kishore Biyani Targets 300 Big Bazaar Out lets by 2011”, http://www.domain-b.com/companies/companies_f/future_group/ 20080930_future_group.html, September 30 th 2008

23


private labels. It has also tied up with Sixty Group, an Italian design shop, to sell its brands through Trends. Footprint, the footwear chain, is also sourcing from international players. In order to actively promote its private labels, Reliance is sourcing heavily from domestic footwear exporters. Some of its stock is sourced from China too. Reliance also intends to tie up with some more famous international brands to assure their presence in India. For the jewellery retail initiative, RRL sources from across the country varying from regional kaarigars (regional term for goldsmiths) as well as established design houses in order to make its collection suit every occasion. Moreover, it has tied up with 37 manufacturing partners for various kinds of jewellery.28 It is also in talks with major exporters to make designs for its Reliance Jewels showrooms. Reliance Wellness is all planning to sign up a deal with Cipla, a major pharmaceutical manufacturer. If this materialises, Cipla will supply generic pharmaceutical products to Reliance Retail, which will sell them under its private label at its outlets.29 Reliance’s bigger retail formats, Reliance Super and Reliance Mart are also supposed to source heavily from China for their private labels. To resolve worries in supply chain management, which is one of the worst problems for Indian organised retailers, Reliance has signed a Memorandum of Understanding with UK-based supply chain management major, Wincanton. But recession has corroded RRL’s expansion plans and Wincanton is unsure about the deal. The operation was supposed to start in the beginning of 2009, but nothing significant has happened even by mid-2009. With innumerable retailers to sell its FMCG brands and exclusive stores for LRBD, ITC has every chance to win the retail game. But its competitors, RRL and Future are not far behind. RRL is betting heavily on its stand-alone speciality stores through its retail conglomeration model. But it is unsure whether Indians will accept the model. Future group has already proved its success but the changing consumer preferences and global recession has dimmed its glory of store-in-store formats and seamless malls. With decreasing footfalls and reducing profits, organised retailers in India are unsure whether they are following the right format and models of their business. The question seems to be too difficult to be answered because the models, which are initially appreciated, also seem to be losing their charm in no time. The three retailers are in the experimentation mode to strike the right balance. In the wake of declining footfalls, all the three retailers are considering plans to supply their private labels and other merchandise to kirana stores. They expect twin benefits out of this move – to leverage their supply chain network for earning incremental revenue and to push their private labels through kirana shops for wider exposure. While ITC is a leader in FMCG products and also sells through kirana stores, RRL and Future Group are also planning to sell their private labels through small unorganised retailers. Experimentation of models with Indian consumers is quite expensive as it is difficult to deal with large number of customers. Many of the major organised retailers are also waiting for the government to allow 100% FDI in multi-brand retailing. Once it is allowed, Indian organised retailing will be altogether a new story. Only time would tell which retail business model would be able to sustain and survive the swift changes in consumer behaviour. 28

“Reliance to Open More Jewellery”, http://www.financialexpress.com/news/reliance-to-open-more-jewellery-stores/281789, March 8th 2008

29

“Reliance, Cipla in Talks to Retail Pact”, http://www.allbusiness.com/pharmaceuticals-biotechnology/pharmaceuticals/88266541.html, July 21 st, 2007

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Indian Retail Models - Reliances vs Itc vs Future Group[Smallpdf.com]

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