Jiana Blog: big bazaar

Showing posts with label big bazaar. Show all posts

Monday, 6 October 2008

Big Bazaar footprint explodes all around

Kishore Biyani does not subscribe to the view of a global meltdown. His Future Group's strategy is paying off in numbers and his outlets seem to have more and more goods to offer.

In effect, he is increasing the real estate that has been leased out to his company for more and more retail outlets.
One wonders whether people are buying more things if they enter a pretty looking showroom or a mall such as Pantaloons or Big Bazaar. To put it in John Donne's language , "Wasn't the customer weaned till then?"

For one, the Future Group's retail chain Big Bazaar is itself is planning to have 300 hypermarkets in the country by 2010-11 .

The company may also increase its annual turnover to Rs 13,000 crore by 2010-11 , up from Rs 3,600 crore last fiscal on the back of its expansion. They had reported begun with their first store in October 2001 and till date have crossed the 100-store mark. This was capped with three stores that opened recently in Pune, Cuttack and Delhi. The company's top brass plans to increase the number of stores to 300 by end of the 2010-11 fiscal.

Big Bazaar chief executive officer, Rajan Malhotra has reportedly concurred on that figure. The company has also gone on record saying that it would have another 35 stores by the end of its fiscal in June 2009 to take the total number to 135. To achieve this they are targeting a turnover of Rs 5,000 crore in the current fiscal year and have formulated plans for reaching a figure of Rs 13,000 crore by 2010-11 fiscal.

Malhotra has also reportedly concurred on such figures as well.

Ror the expansion, the company would be looking at both the metros and Tier I cities, besides Tier II and smaller cities.

The strategy seems to be perfectly on track as the Big Bazaar hypermarkets had a footfall of 11 crore last fiscal and the company is aiming for an increase in the numbers up to 14 crore this year. The average size of a Big Bazaar hypermarket is 30,000 sq ft to one lakh sq ft.

The retail industry is the largest in India among the new and the old economy industries. It employs around 7.93 per cent of the total workforce in this happening economy and also contributes to over 11 per cent of Indian's GDP.

The retail industry in India will keep growing as it is not yet targeting even one per cent of the potential customer base and their day to day needs.

The industry as a result is expected to rise by 25 per cent yearly growth being driven by strong incomes, mutating lifestyles, and a young and spending populating compared to an aging one in other parts of the country.

It is widely believed that by 2015, the burgeoning retail industry in India will be worth $175 - 200 billion. Incidentally, it seems that India's retail industry is one of the fastest growing with revenue to touch $320 billion in 2009. It may also be growing at a rate of six per cent every year.

A still higher increase of seven to eight per cent is expected owing to growth in spending in urban areas, rising incomes, and a parallel rise in consumption in rural areas.

Slowing economy may offer respite to retail sector

Inflation may be eating into consumers’ wallets, but domestic retailers are not giving up just yet. Retail rentals are showing signs of fatigue after soaring multi-fold until recently. A slowing economy, hardened home loan rates and liquidity crunch indicate rental rates will soon fall in a manageable range. As of now, rentals have dropped by 5-10 % and are set to see a further fall of 15-20 % in the next few months. Even older deals are being renegotiated towards lesser per sq foot cost.

Currently, lease rentals account for 15-25 % of retailers’ revenues in India and constitute the second-largest cost head, next only to merchandise cost. Salaries & wages and energy bills are next in line. Given the fact that operating profits of major retailers range from 5-10 % of their net sales, small savings on lease rentals can have a dramatic influence on their profitability.

For instance, Pantaloon Retail’s rental cost for FY07 was Rs 209 crore, which was 6% of its net sales. The 80% growth in rental costs, compared to the 73% increase in sales, has hit operating margins. Though a part of the rise in rentals can be attributed to the company’s rapid expansion, the effect of soaring realty prices last year can’t be ignored.

However, one cannot help miss the savings in the total operating cost. Even if we were to consider that rentals will stabilise at current levels, it will help Pantaloon Retail’s operating margins as the company continues to grow its revenues.

The scenario is quite similar for Shopper’s Stop with rentals bills at Rs 101 crore for FY08, comprising 8% of the company’s turnover. Here also, the rental growth has doubled vis-a-vis the increase in retail sales. If rentals were to decline by an average of 10% at the current sales level, the company would have ended FY08 with a positive bottomline.

EMERGING TREND:

The domestic retail industry is following in the footsteps of its international counterparts. Having attained a decent geographic reach, players are experimenting with various formats to suit their respective business models. This is done keeping in mind the needs of the catchment area as well.

Another important trend that has emerged from this drop in rentals is the co-existence of the revenue-sharing model in the domestic retail sector. In this system, there is no fixed monthly rent. Instead, there is a minimum guarantee amount, plus a revenue-sharing percentage between the landlord and the retailer.

For instance, a typical co-existence deal will consist of the minimum guarantee of Rs 20-25 per month per sq ft with about 5% of revenue, compared to the Rs 70-110 per month per sq ft rent for an anchor tenant.

In the current scenario, this model works well for the bigger players rather than the smaller players, as it is difficult to keep track of their ,sales. Big Bazaar, Shopper’s Stop, Provogue and Vishal Retail are going ahead with their expansions as planned. Some of these players have already worked out deals on a revenue-sharing basis.

Online retailing or e-tailing is another format which is fast catching up with the conventional brick and mortar form of retailing. The fact that products can be delivered anywhere makes it a seamless form of shopping. Retailing through mobile phones, though a very recent phenomenon, is also catching up.

GLOBAL VS INDIAN:

Typically, international retailers pay just 3-4 % of their sales as rentals. Moreover, it is during similar downturns that global retail majors like Wal-Mart , Carrefour and Tesco increased their store presence, as rentals were low. Till not too long ago, real estate developers in India were not ready to negotiate prices, as there was ample demand for any mall located in a good catchment area.

As retailers went on an expansion spree to attain geographical reach, it was a seller’s market. However , things have changed now. Not only have these organised retailers realised the importance of a sizeable reach, but they also know that good mallmanagement is important for a thriving business.

Internationally, good facility management seems to be the key differentiating factor for the success of any mall. In India, too, it is now being recognised as an important deciding factor. As they say ‘customer is king’ ; it will be the customers who can make or break this entire euphoria about the retail industry’s success.

Wednesday, 10 October 2007

Private Labels: Big Retailers

Few examples:

Big Bazaar: DreamLine, Kryo, Pure, Premium Harvest, Tasty Treat, Clean Mate and Care Mate

Reliance: Reliance Select

Subhiksha, Spencers, Food World : Same label

[The Ecomonic Times Oct. 4:]

Big Bazaar isn't alone in this display of bravado. Almost every retailer in India that has acquired a certain size and scale has private label brands, which allow them to enter new categories faster than traditional marketers. And as organised retail grows in scale, Indian retailers are leapfrogging ahead, experimenting with various kinds of private label strategies.

Private labels serve many purposes.

Exclusivity and Differentiation to retailers.
Plugging a need gap -- for instance, Big Bazaar's label DreamLine is aimed at providing shoppers the entire gamut of home improvement solutions under one brand.
Retailers are also spurred to launch private labels given the low penetration of most categories in India.
Then there is the aspect of supply chain efficiencies.
Private labels also help in cutting down on intermediaries
Dropping cost
Better margins for retailers
More customer discounts

"The established brand is always the reference brand. Private labels are pitched on the plank of the same or a higher value at a lower price," explain officials at Reliance Retail. Own labels also offer more choice to customers, build loyalty and retention. "You are more in control of your own destiny with private labels. You get to decide its positioning, price architecture, packaging and the way it's sold," says Andrew Levermore, CEO, HyperCity.

According to a Euromonitor study, the global private label market was estimated to be worth $1,411 billion in 2005, and is growing at 6 percent per annum. Organised retail currently forms only about 3.59 percent of total retail in India, but its share will leap to 28 percent by 2017, according to a study by Technopak Analysis. And a 2007 study by Technopak says that overall, private labels already form 19 percent of the total market share in India.

Future's private labels account for 20 percent of the food category, while overall, the share of private labels for the group is pegged at about 10 percent.

Given the nascence of retailing in India, one would assume that players are looking only at generic private label brands. But segmentation is already taking place even within own labels -- from pure generic brands to premium brands being retailed on the shelves. For instance, Big Bazaar has four different private labels strategies -- opening price point labels, promotional labels, trade-up labels and even deep-discount labels.

In clothing, it is 100 percent for players like Tesco, Sainsbury's and Asda, says George. "Starting from a pure 'value' play, it has now become 'quasi branded' like Tesco Value, Tesco Finest," he says, adding that the private label product hierarchy in Tesco is being managed like a brand, with sophisticated analysis being put into space, pricing, promotion and strategies.

The emergence of private labels is giving smaller brands -- especially in functional driven categories where emotional connect plays a negligible role -- a chance to compete with the big boys. For example, Food Bazaar has 'adopted' labels like Wow Premium sanitary napkins and insecticide spray Quit, manufactured by Asian ITG, a manufacturer for brands like Mortein.

Subhiksha has recently moved to third party brands, which include brands sold exclusively at Subhiksha and made to quality specifications approved by the retailer. This covers groceries sold under the Subhiksha name as well as other products typically sold by national FMCG companies.

Retailers are looking at ethnic merchandising depending on the demographics of a store location, and bringing non-national brands into right ethnic catchments. For example, Spinach retails Kolkata-based Zarna Ghee (manufactured by Sunderman Dairy) and Kerala-based Curry Milk in Mumbai. Subhiksha retails south Indian pickles in RK Puram at Delhi.

There is hardly any special advertising created for own labels, except for the odd leaflet or two. Most retailers rely on shelf space and signages, and techniques like sampling and active merchandising at the store, for promoting their brands. Subhiksha and Spinach believe the key is inducing trials, though the store can only influence trial, but the product has to take over and deliver. He also feels it is essential that the packaging and look and feel are as good as if not better than national brands so customers don't have reason to view the products with suspicion.

The real challenge, however, will be for retailers to take own labels outside their stores and make them national brands -- something that Future Group has announced it will do. DreamLine and apparel brand Buffalo are the two labels it has mandated for national roll-out, and the responsibility of taking these labels across various other channels rests with Future Brands. Malhotra says the rollout will be a learning experience, given that the brands will move out of the protected environment of the stores. "It will give us an understanding on whether private labels can stand on their own," he explains.

Another trend on the anvil is exclusive co-branded labels in the form of joint venture between manufacturers and retailers. "Co-branding is evolving, though more work needs to be done before the level of comfort is arrived at," says Shahra.

Retailers, however, know that a balance needs to be struck between private labels and branded products from traditional marketers.