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

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

Of late, the Indian organised retail industry has become very lucrative, attracting both Indian andinternational business corporations to try their hand at the retail business. Though the recession thatset in following the global financial crisis of 2008 slowed down the progress of Indian organisedretail, 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 intothe retail sector with varying formats. Kishore Biyani’s (Biyani) Future Group has long been in theorganised retail with its retail arm Pantaloon and is doing well in spite of the recession. ITC, well-known for cigarettes, has diversified itself into agribusiness and retail, already a major player in thefashion apparel retailing, with Wills Lifestyle and has even entered into the urban markets with ITCChoupal Fresh – a neighbourhood store selling vegetables and other farm-related products. Buckingthe trend, Reliance has also made its way into the organised retail sector with a unique ‘retailconglomerate 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 invarious verticals – 14 in all – ranging from groceries to auto accessories. Despite the best of fundingand experienced ‘think-tank’ it has, it would be too early to predict the future of Reliance retail, as ithas to compete with the best of the incumbents in each of the verticals.

“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

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.

1 Rajshekhar M., “ Kishore Biyani: The Man They Wrote Off”, http://www.businessworld.in/index.php/Retail-FMCG/The-

Man-They-Wrote-Off.html, July 14 th 20042 Ananda M. and Natti Sunitha, “Fresh and Small”, http://www.businessworld.in/index.php/Fresh-and-Small.html

Ref. No. COM0240

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

2

Reliance Retail

Reliance’s entry into the much sought after retail sector was not just intuitive. The company hasworked hard to analyse the potential of the field and even tested the retail space before making agrand entry into the retail segment. For this, Reliance tied-up with the state-owned, old style cooperativestore in Mumbai, Sahakari Bhandar, and renovated it to be greeted by a huge success. It served asa test bed for Reliance’s retail ventures. With the success of Sahakari Bhandar, the RelianceIndustries 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 peoplefrom 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 lowerprice, left most of the cart vendors and independent unorganised retailers in panic. The store, whichwas started as a convenience store format, was told to be a ‘farm-to-fork’ initiative and was expectedto provide the utmost benefits to the farmers (Exhibit I).

Exhibit IThe Farm-to-fork Model

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

Farmer

Aggregator

AgricultureMarket Yard

Wholesaler

SemiWholesaler

Retailer

Consumer

Mandi Route Retailers’ Ideal

Farmer

Collection Centre

Processing andDistribution centreStore

Consumer

3


Later on, Fresh also added a range of items to its list of offerings. “Fresh now carries, in additionto fruit and vegetables, grocery, bakery, dairy, personal care, cleaning, kitchen essentials and someimpulse items as well,” said Raghu Pillai, chairman and CEO (Strategy and Operations), RRL.3 Theconvenient store format also served staples under the private label ‘Reliance Select’, for bettermargins. 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.Afaster 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 fromlocal traders as it caused a dent in their business. Traders ransacked the Reliance Fresh stores inmany of the states including Kerala, Orissa, West Bengal and Uttar Pradesh. As a result of theprotests and also due to the prevailing downturn, the number of Reliance Fresh stores had reducedconsiderably. Reliance’s wholesale venture in the same sector, Ranger Farm, aimed to serve streetsidevegetable vendorsalso could not make much impact on the market.

Reliance had also started the retailing of fuel through franchised petrol pumps, alongside thelaunch of Reliance Fresh. But the venture, which started in 2006, did not prosper. Though the outletsprovided good product quality and services, they were forced to sell the fuels for higher prices asthey 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 companyclosed 1,432 petrol pumps after it incurred a loss of INR 800 crore in its petroleum retail business4 in2008. Reliance bought back the property from its dealers paying huge amounts. But its plan to buildmalls and multiplexes in the sites has not yet realised.

However, the undeterred Reliance once again bounced back into the retail segment by opening itsfirst consumer durables retail chain, Reliance Digital, inApril 2007. Through a tie-up with the computermajor Apple, Reliance Digital opened stand-alone stores – called ‘istores’ – to sell Apple’s productsexclusively. Further, it made a tie-up with Reva Electric Car Company, India’s first electric carmanufacturer, to sell its electric car through Reliance Digital outlets. It has also planned to have privatelabels introduced in Reliance Digital in the near future. “We will see how the volumes build. Then willget 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-aloneretailers to organised retailers, who offer an assortment of products and brands, enabling easy andbetter choice for customers. The organised retail chains have a small share of over 8%, translating toINR 25,000 crore, of consumer durables market. As not many organised retailers are present in thisfield, 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 20094 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 12th 20085 Bhushan Bushra, “Reliance forays in to digital world”, http://ibnlive.in.com/news/reliance-forays-into-digital-world/39151-

7.html, April 25th 2007


4

products like ipods, iPhones and Macintosh computers through its istores. However, it has to face toughcompetition from Future Group’s e-zones, one of the main competitors for Reliance Digital, and BigBazaar, which has its own private labels in certain electronics. Also, neck-to-neck competition fromother major players like Tata’s Croma, Next, exclusive outlets like Sony Center and from much trustedlocal 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 adozen speciality formats (Exhibit II).

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

Exhibit IIRRL’s Retail Formats

Compiled by the authors

In March 2009, Reliance Retail’s 920 stores were spread across 20 formats in 80 cities and 14States 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

5


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 storeoffers world famous international brands in lifestyle segment and its own private labels and nationalbrands in value segment. Dependence on private labels is to make higher profitability. RelianceTrends 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. Evenafter 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 isto be among the top two players in the organised retail market for apparels by that period,” disclosedReliance 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 largestretailer Bata, has taken many by surprise. It sells well-known brands from all over the world includingprivate label footwear. It has entered into a partnership with Bata to sell all Reliance private labelfootwear through Bata, which has the largest number of exclusive footwear chains across India. Italso has ambitious plans to sell its private labels through other retail players. “Footprint has a 20:80ratio 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 foreignfootwear brands to bring their presence to India.

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

Exhibit IIIHow Reliance Retail Stores Stacked up

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 20088 Das Debdutta, “Reliance Retail to Set up Global Footwear Format”, http://www.thehindubusinessline.com/2007/11/17/stories/

2007111751710500.htm, November 17 th 2007

Fresh 645 Ranger Farm 33

Hypermart and Super 43 Apple stores 9

Digital 9 Books & music 4

Jewellery 6 Delight 100

Sahakari Bhandar 17 Health and Beauty 15

Apparel Specialty 11 Furniture & kitchen 10

Footprint 14 Automotive 4


6

Reliance Jewels, the jewellery chain store of RRL, claims to provide a unique shopping experienceto the lovers of the yellow metal. Its exquisite collection comprises of Kolkata Filigree, Rajkot Minakarijewellery, 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 outletsacross the country. Though there are specialised retailers in this segment, the Indian consumer isalways ready to experiment with new formats and players and organised retailers are ever expandingin this arena. For instance, Big Bazaar’s jewellery retail is carried through the store-in-store formatnamed Navras. However, with the vast collection and stand-alone store format, Reliance Jewels maybeat the competition from Navras as well as other players. It has also big plans to expand the chainsoon. “We plan to open 50 such stores during the next one year and another 300 speciality stores acrossthe 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 likewell-experienced incumbents and uncountable local players.

As far as speciality stores for books, music, toys and gifts are concerned, Reliance retail haslaunched a new member in the race, named Reliance TimeOut (TimeOut). Many of the retail majorslike Future Group’s Depot, RPG’s Books&Beyond and K Raheja’s Crossword are already operatingin this segment in addition to foreign players like Walden. TimeOut stores, spread over an area of21,000 sq. ft., offer books, music, toys and gifts and have an in-store coffee shop. TimeOut alsoconducts weekend workshops for kids to improve their creativity (and to impress the parents whoare the potential customers). It has plans to expand the number of stores to 47 by 2010.11 “Our targetcustomers are primarily the youth, modern professionals and young parents. We want to create aplace that will cater to all sections of society. We will allow customers to browse at leisure and shopat pleasure,”12 elaborated Bijou Kurien. However, with the ongoing financial meltdown coupled withstiff 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. Butthe real danger comes from other local players, bookstores, stationery stores and toyshops, whichhave 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 morecustomers than its competitors.

Reliance Delight (Delight), a non-vegetarian retail outlet offering fresh fish and frozen meat, wasanother venture of RRL. The stores were opened to tap the potential of the non-vegetarian retail inIndia that delivers margins up to 20%, compared with the 10%–15% margins in food and groceryretailing.13 Also, with the number of non-vegetarians in the country gradually increasing, Delight hasgood 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 20th 200810 “Reliance Jewels Makes Debut”, http://www.hindu.com/2007/11/17/stories/2007111753751500.htm, November 17 th 200711 “Reliance Retail Forays in to Books , Music with Time out stores”, http://www.financialexpress.com/news/reliance-retail-

forays-into-books-music-with-timeout-stores/248980/, December 11 th 200712 Ibid.13 “Reliance Retail Forays in to Books, Music with Time out stores”, op.cit.

7


of location, Delight stores are located next to Reliance fresh stores. The neat and clean maintenanceof the Delight stores has already impressed many non-vegetarian consumers. However, immediatelyafter the opening of these stores, RRL had to face protests from the fishermen in Andhra Pradeshand Tamil Nadu, who were afraid that the clean ambience of the stores would take away theirbusiness. 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 consideringnon-vegetarian retailing. Though the Godrej-operated integrated poultry business, ‘Real Good’ hasthe 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. Withfewer players in the sector, Reliance Delight is expected to contribute 10% to the overall revenue ofRRL, over years.15

Reliance Autozone (Autozone) is RRL’s another initiative in the retail sector. The auto retail chainengages in sales and service of accessories for two-wheelers and four-wheelers under one roof. Thechain also undertakes sales of electric scooters, a new phenomenon in the Indian automotive sector. Atypical store with 6,500 sq.ft. presents the ambience that can be found only in global automotive retailerchains. 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 andaccessory shops, the one-stop-shop format might provide a massive advantage for Reliance. “Thisnew format provides a one-stop solution to automobile owners who face inconvenience by having tocrisscross between various touch points for accessories, batteries, tyres and lubes, etc., at differentlocations at different times,”16 says Arun Dey, chief executive, Autozone.

The same advantage can be associated with RRL’s pharma venture ‘Reliance Wellness’, a one-stop-shop for all health and wellness products. The stores contain medicines inAllopathic, HomeopathicandAyurvedic medicinal systems and have a well-equipped optical shop with a qualified ophthalmologistand preferred brands of lenses. To help people who are under long-term medication, Reliance Wellnesshas launched a programme called ‘Medical Compliance Programme’, in which the customers willget alerts and reminders about replenishments and uses of their medicines. Another customer loyaltyprogramme of free health insurance to customers is done through a tie-up with ICICI LombardGeneral Insurance. With its additional facilities, such as attractive insurance and customer loyaltyprogramme, Reliance Wellness may also be able to carve a niche for itself. It has already wonawards for its ‘Innovative Drug Store’ concept. The advantage is that a one-stop solution like RelianceWellness is rare even in metros. But with the presence of ‘Fit and Healthy’ of Future Group, Healthand Glow of RPG Group, Apollo Pharmacy and other chains like Med Plus and Medicine Shoppebesides the regional and local pharmacy shops, it would not be an easy task for Reliance Wellness toachieve 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/reliance-

plans-1000-delight-stores-in-2-yrs/350946/, March 5 th 200915 Ibid.16 “Reliance Sets Up Autozone in Gurgaon”, http://www.blonnet.com/2008/07/27/stories/2008072750990700.htm, July 27 th

2008


8

Same is the case with RRL’s home furniture and furnishing retail chains, Reliance Living Furnitureand Reliance Living Furnishing. Indian furniture retailing is clouded with local as well as the brandedplayers 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 theFurnishing retail space in the country when it comes to the range being design led without the normalpenalty of being too expensive. High quality fashion and design in home furnishings need no longerbe expensive,”17 said Raghu Pillai. Reliance Living Furnishing offers both international brands andprivate labels to its customers. The 4,500 sq.ft. stores promise a unique shopping experience butRRL will have to wait to know whether it would be able to tap the INR 30,000 crore worth Indianfurniture and furnishings market.

Reliance Super and Reliance Mart, the supermarket and hypermarket stores of RRL, face thesame dilemma as that of its furniture and furnishing retail chains. They have forayed into the mostclouded arena of supermarket in Indian retail. Even in 2009, round-the-street mom-and-pop storesaccounted for 95% of the total Indian grocery retail. On the top of it, in this business with wafer thinmargins, organised players such as Vishal Mega Mart, Big Bazaar, Spencer’s, etc., have alreadyfortified 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 spreadover 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 getanything 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 andprivate 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-launches-

8217reliance-living-furnishings8217/342332/, December 5 th 200818 “Reliance Opens Mega retail Outlet”, http://www.thehindu.com/2007/08/16/stories/2007081656181600.htm , August 15th

2007

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13


RRL had earlier planned to expand its chains with an investment of INR 25,000 by 2011, but alldevelopments have come to a standstill because of the global recession. With independent stores ineach 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 staffand 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 capitalintensive business model of companies like Reliance Retail makes their ventures very risky. Threeyears down the line we may see these ventures going in for a spin-off (stake sell out).”19 Hisestimation may become true if things proceed the way they are now.

Whatsoever, with the expected policy alteration from Indian government in favour of 100% FDIin the retail sector, RRL can benefit by tying up with foreign players. But the current policy allowsonly 51% FDI, that to only for single brand retailing. For multi-brand retailers, FDI remains a forbiddenfruit. RRL had already tied up with UK-based toy-maker Hamleys to design the stores, train thepersonnel and the like. It has also tied up with many foreign retailers in other verticals, but only in theback-end processes. Once 100% FDI is allowed, tie-ups can be made with respect to the front-endprocesses too. Then there would be a better chance to compete with the best in the industry andprobably that is what MukeshAmbani, 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 FutureGroup, 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 froma 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, brandedpackaged foods, personal care products, greeting, gifting & stationery, incense sticks and safetymatches. In the lifestyle retail sector, ITC is one of the preferred names with its Wills LifestyleStores and John Players brand. ITC’s agribusiness and paperkraft are one of the topmost namesin 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 surethat they would not go wrong. Wills Lifestyle, which started with a range of men and women’s relaxwear, ‘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 200620 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.


14

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

Exhibit VITC’s Lines of Business

Compiled by the author

15


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

Exhibit VIThe Brands and Endorsers


Product Line Brand Endorsers

Clothing WillsClassic Work Wear Western Models

WillsSport Relax Wear

WillsClublife Party Wear

WillsSignature Designer Wear

John Players Casual Wear Hrithik Roshan, Bollywood actor

Party Wear

Work Wear

Denims

Outer Wear

Suits and Jackets

Miss Players Women’s Wear Amritha Rao, Bollywood actress

Bath & Body Care Essenza Di Wills Fragrances Diana Hayden, former Miss World

Fiamma DiWills Shampoos, Shower Deepika Padukone,Gels, Soaps Bollywood actress

VivelDiWills Shampoos, Shower Trisha and Hrithik RoshanGels, Soaps actors

Vivel Shampoos, Shower Kareena Kapoor,Gels, Soaps Bollywood actress


16

ITC’s positioning as a brand has helped it enormously in becoming a major lifestyle retailer.Apartfrom lifestyle retailing, ITC forayed into agri-retail too, both in rural and urban areas. It recognisedthe needs of rural population, an untapped potential, which no company was able to exploit prior tothem. The initiative was also aimed at empowering small and marginal farmers. It had helped thefarmers to overcome the inhibitions of poor farming and risk taking. With a blend of click and mortarcapabilities, village internet kiosks managed by farmers – called sanchalaks – enable the agriculturalcommunity 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 andpurchase farm produce right at the farmers’ doorsteps.21 ITC’s Agribusiness division, the biggestexporter of agricultural commodities from India, has conceived e-Choupal as a more back-endintegrated supply chain. ITC soon forayed into rural retailing with its rural malls named ChoupalSagar. The 7,000 sq. ft. stores not only sell commodities, apparel and branded home appliances, butalso motor pump sets, pesticides and other agriculture products to its customers. Apart from thegoods, these malls provide services like soil testing, banking, insurance and medical facilities tofarmers. ITC is planning to open one Choupal Sagar for every 30–40 e-Choupals. ITC spent INR4 crore for a Choupal Sagar and in return it is getting a turnover of INR 3 crore per annum. Thereare also plans to expand Choupal Sagar and open smaller malls in smaller towns. However, theseplans 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 vegetableoutlets named Choupal Fresh, which sources its merchandise directly from farmers through e-Choupalinitiative. Choupal Fresh is being operated in only selected metros and the company has plans toincrease the number of outlets to 140 by 2010. “The emphasis is on improving the qualityand productivityof domestic horticulture products through ITC’s good agricultural practices as opposed to relying onimported products,” said Siva kumar, chief executive of ITC’s Agribusiness. The speciality of thesechains 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 wholesalebusiness. Future Group’s Pantaloon retail had entered into a strategic tie-up with Choupal Freshchains to gather fresh fruits and vegetables for its ‘Fresh & Pure’ section in Food Bazaar. ThoughGodrejAgrovet’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 togrow to realise its actual potential.

ITC has a number of brands in FMCG and staples, which they supply through kirana storesand competitors’ retail outlets (Exhibit VII). ITC’s ready-to-eat foods, snacks, staples andconfectionery have become household names for Indians in a short span of time and fetched therecognition of an FMCG company. It was also conferred the Business Today Award for the BestManaged Company – Retail and Consumer Products for the year 2008.22

21 “ITC e-choupal”, http://www.itcportal.com/sets/echoupal_frameset.htm22 “ITC acknowledged as Best Managed Retail and consumer products Company”, http://www.itcportal.com/newsroom/

press_releases_10mar08.htm, March 6th 2008

17


The conglomerate model of ITC was thus gaining momentum but the recession and the higherrent of the retail space had forced it to reduce its pace. Around eight of Wills Lifestyle exclusiveshowrooms 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 andhigh rent. However, ITC is trying to get into more customer-centric activities to increase the droppingsales. Deveshwar is confident that the company will come out of the blues soon.

Exhibit-VIIITC Brands


Products ITC Brands Competitors

Atta Ashirwad Pillsburry (Pillsburry Baking),Annapurna (HUL),Reliance Select (Reliance Foods)

Salt Tata Salt, Sprinkle, Captain Cook

Spices Everest, Eastern, MDH

Instant Mixes

Cooking Pastes

Biscuits Sunfeast Britannia, Parle-G, Modern (HLL)

Pasta 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 Candyman

Potato Chips Bingo Lays, Local Players

Finger Snacks

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

Notebooks Classmates Local Players

Pens Reynolds, Parker, Cello

Pencils Natraj, Apsara, Faber Castle

Premium Stationery Paperkraft Archies, Hallmark

Matchbox Aim Local Players

Incense Sticks Mangal Deep Cycle, Goloka Nag Champa, Local Players

Aromatic Candles Expressions Local Players


18

Future Group’s Retail

Future group’s retailing arm Pantaloon Retail (India) Limited has its presence in various sectorsof 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 fromINR 285.3 crore in FY 2002 to INR 5,048.9 crore in the year ended June 2008. During the sameperiod, the Group’s Profit After Tax (PAT) has jumped from INR 7 crore to INR 126 crore. Itsmarket capitalisation also increased from INR 60 crore in FY 2000 to INR 3,737.8 crore as onOctober 13th 2008.23

Exhibit VIIIPantaloon 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

19


Exhibit IXFuture Group’s Retail Empire

Line of Business Stores/Formats Products

e-tailing (web-based retailing) Future BazaarElectronic Products and GeneralMerchandise

Brew Bar

Chamosa

Café Bollywood

Food

Sports Bar

Food and Beverages

aLL Apparel for Plus Size People

Big Bazaar Hypermarket

Blue Sky Sunglasses and WatchesBrand Factory Apparel and Footwear

Celio Apparel

Central Mall

Navras Jewellery

Fashion @ BigBazaar ApparelPantaloon Apparel

Fashion

Planet Sports Sports and Lifestyle Goods

Home Town Flooring, Furniture, Furnishings, etc.

e-zone Consumer Durables

Furniture Bazaar Furniture

Electronic Bazaar Electronic Goods and Appliances

Home Bazaar Flooring, Furniture, Furnishings, etc.

Home Solutions

Collection i Furniture

Gen M

One MobileTelecom & IT

M-Port

Mobile Phones, Mobile Phone Accessoriesand Electronic Gadgets

Big Bazaar

KB's Fair PriceGrocery, Staples, etc.

General MerchandiseFood Bazaar

Grocery, Staples, Fresh Vegetables andFruits

Star Sitara Beauty SalonWellness and BeautyFit & Healthy Pharmacy, Health and Personal Care

Books and Music Depot Books, Music, Toys and Gifts

Bowling Co.Leisure and EntertainmentF123

Entertainment Centres



20

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

Exhibit XFuture Group: Divisions Other than Retail

Divisions Services

Future Capital Holdings Consumer Finance (Future Money)

Investment Advisory Services

Retail Financial Services

Research

Future Learning and DevelopmentLimited TalentAcquisition

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 fromthe customers. The company, which was incorporated as an apparel retailer ‘Manz Wear’ withIndia’s first men’s formal trouser brand Pantaloon, had forayed into the retailing mainstream in 1997with its 8,000 sq.ft. Pantaloon retail showroom. Later, Pantaloon launched big format retail centreslike Big Bazaar and Central. Big Bazaar ranges from 15,000 to 20,000 sq.ft. and Central spreadsover 200,000 sq.ft. In 2006, ‘Pantaloon Group’ was renamed as ‘Future Group’ and its retail armwas 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

21


manner’, Future Group brought out such innovative retail formats that Indian consumers had beenonly dreaming of. The company’s supply chain management is done through Future Logistics, itslogistics arm. Future Logistics has plans to become independent and obtain the benefits of third partylogistics market.

But the largest retailer also has not been spared by the recession. With the credit freeze, Pantaloonretail has decided to restructure its operations by consolidation. Future Group, at present is aconglomerate with many divisions. To make the business model more sustainable, it was planned torestructure the company and rename it as Future Markets & Consumer division. The new divisionwould be a holding company with two subsidiaries – Future Value Retail, that will own all fashionbrands and Future Speciality Retail, that will own all the supermarket chains. However, the restructuringwas postponed due to expectations of new FDI policy by the government. Future Group has ambitiousplans 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 foran opportunity to enter. What matters most is the business model that these retailers are going toadopt 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 justemerging in India. By mid-2009, with a model that extends services to value-based consumers andlower socio-economic segment, Biyani was leading the pack. His competitors, however, are right onhis heels. The models and value chain clearly vary for all the players. While Big Bazaar is aiming totarget the middle and lower income strata alike, ITC is developing its image in the Lifestyle segmentwith 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 storesacross the country in almost 15 verticals.

Retailing is not all about re-selling things in a shop. The background work that each company hasto do is enormous. The decisions on the issues, ‘make or buy’, ‘in-house or outsource’ are the mostcritical ones. The right mix of manufacturing products and outsourcing of the processes is critical forevery retailer. The concerns that follow are integration of back-end processes and supply chainmanagement. The pattern varies across the three corporate houses of India.

It would be surprising to know that ITC does not have manufacturing facilities. The respectedIndian conglomerate does not manufacture almost anything, but bets heavily on outsourcing theproduction of all its merchandise. Even apparel designs were initially made in association withAmerican Design Intelligence Group (ADIG), a San Francisco, US-based garment and retailconsultancy. However, later on, ITC has hired its own set of designers and established a closerelationship with Science and Designs, an Italian fashion design house, for additional assistance in

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


22

apparel design. Though the retailer established in-house designing, it does not manufacture any ofits collections. Kamal Bose, general manager, Sourcing and Merchandising, ITC Lifestyle, explains,“Companies are primarily following three models for outsourcing – completely controlled, partnershipand buyer-supplier. Our company had realised the potential of outsourcing manufacturing andgone for 100% outsourcing from the day we began operations.”25 LRBD has around 20 vendorsfrom whom they source their items. Apart from India, its vendors are from nearby foreign countriessuch as, Nepal, Bangladesh and Hong Kong. An outsourced Just In Time (JIT) manufacturingfacility 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 managedto make its cigarettes reach every nook and corner of the country. Over the years, ITC has developeda flexible supply chain for its LRBD. By putting into practice concepts like JIT Production, FullTruck Load (FTL) and Regional Distribution Centres (RDC), ITC has managed to significantly cutcost in its supply chain. The award, ‘Best Supply Chain Practice-Organised Retail’ for 2006 furthersupports this fact. Since LRBD’s suppliers are spread across India, it has no compulsion of keepingthe major production facilities and the central warehouses nearby to its locations. LRBD has set upregional distribution centres for each of the four zones – Delhi, Kolkata, Bangalore and Pune; establishedstrategically 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 theyare required. It replenishes all the stores in the major markets within 24 hours and all over Indiawithin 48 hours of order placement. “Our decentralised model has grown in significance with theadvent of the Large Format Retailers (LFR). If the retailer’s store shelves are empty, we can fillthem 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 minimumtime. With the help of technology in logistics, ITC is further planning to cut the cost in its supply chainside and deliver more value to the consumers.

ITC’s strong presence in the FMCG sector in the country comes from cottage business andSmall 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) andmarketing should be noted as ITC’s effort to enhance the competence of SMEs. Its notebooks areoutsourced from vendors in Tamil Nadu and incense sticks (Agarbattis) are made in associationwith SriAurobindoAshram Udyog, Pondicherry and ITC’s matchboxes are made in cottage industriesof South India. Similarly, all its packaged food and powders are also outsourced to SME manufacturingfacilities spread across the country. ITC assists its manufacturers in maintaining highest level ofhygiene 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 200726 “In a Matter of Days”, http://www.safexpress.com/FTIssue/FT12.pdf, July–September 2006

23


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 themanufacturing facilities, godowns and warehouses exceptionally well all across the vast spread ofthe country, utilising all the knowledge that it has acquired from decades of experience inagribusiness.All these have grown in the recent past, forcing it to find better methods of supply chainmanagement. To find alternatives, ITC is trying to build an IT infrastructure to barcode the FMCGproduce even before it reaches the retailers so that it would be easy to track all the products andmanage its facilities and inventory in a better way.

While ITC’s competency lies in supply chain management, Future group’s lies in its value-basedvolume business it holds across its formats. It has 98 Big Bazaar outlets spread across the country in59 cities and receives a massive 110 million footfalls per annum.27 Being a reseller that sourcesproducts in bulk, it has managed to maintain a margin from its sourcing activities. Further, to strengthenits agri-products sourcing, Future Group has purchased 70% of Adhaar, a hub of agri-products, fromGodrej. This was brought through Future Ventures, Future Group’s venture capital arm. It is supposedto exploit the rural retailing chances and at the same time help Future’s retail ventures to maintain aconstant supply of agri-products. For in-house electronics brands such as Sensei and Koryo, it has asourcing alliance with Indian electronics major Videocon. As a part of its global sourcing, FutureGroup has set up purchasing centres in Hong Kong and China, the first attempt of its kind by anIndian retailer. It sources both perishables and non-perishables from these places. A huge part ofFuture Group’s private labels are sourced from China. In garments, private labels of Pantaloon aremanufactured in its own manufacturing facilities located at Mumbai and Gurgaon. This backwardintegration 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 servesexternal business parties in finding logistics solutions by acting as a distribution intermediary and asa wholesaler. The fact that not many organised players are there in the wholesale distribution chainmanagement market is an added advantage for FLSL. Its initiatives of providing all logistics servicesfrom warehousing, transportation, international logistics, reverse logistics and distribution are sure toenrich the profits of the Group. The company plans to lease 7.5 million sq. ft. for its business toincrease 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. RRLhas a tie up with ITC Choupal Fresh for an uninterrupted supply of fruits and vegetables. Apart fromthis, RRL tied up with US-based fresh fruit and vegetable suppliers – Dole and Chiquita – and meatretailers – Sadia of Brazil and Doux of France. The association with these foreign players is supposedto give the requisite technological and process expertise to the growing fresh food formats of RelianceFresh 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 fromVideocon to introduce private labels. Reliancehas plans to set up its sourcing office in China to source electronic and footwear products in largequantities. 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


24

private labels. It has also tied up with Sixty Group, an Italian design shop, to sell its brands throughTrends. Footprint, the footwear chain, is also sourcing from international players. In order to activelypromote its private labels, Reliance is sourcing heavily from domestic footwear exporters. Some ofits stock is sourced from China too. Reliance also intends to tie up with some more famous internationalbrands to assure their presence in India. For the jewellery retail initiative, RRL sources from acrossthe country varying from regional kaarigars (regional term for goldsmiths) as well as establisheddesign houses in order to make its collection suit every occasion. Moreover, it has tied up with 37manufacturing partners for various kinds of jewellery.28 It is also in talks with major exporters tomake designs for its Reliance Jewels showrooms. Reliance Wellness is all planning to sign up a dealwith Cipla, a major pharmaceutical manufacturer. If this materialises, Cipla will supply genericpharmaceutical 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 sourceheavily from China for their private labels.

To resolve worries in supply chain management, which is one of the worst problems for Indianorganised retailers, Reliance has signed a Memorandum of Understanding with UK-based supplychain management major, Wincanton. But recession has corroded RRL’s expansion plans andWincanton 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 hasevery chance to win the retail game. But its competitors, RRL and Future are not far behind. RRL isbetting heavily on its stand-alone speciality stores through its retail conglomeration model. But it isunsure whether Indians will accept the model. Future group has already proved its success but thechanging consumer preferences and global recession has dimmed its glory of store-in-store formatsand seamless malls.

With decreasing footfalls and reducing profits, organised retailers in India are unsure whetherthey are following the right format and models of their business. The question seems to be toodifficult to be answered because the models, which are initially appreciated, also seem to be losingtheir 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 privatelabels and other merchandise to kirana stores. They expect twin benefits out of this move – toleverage their supply chain network for earning incremental revenue and to push their private labelsthrough kirana shops for wider exposure. While ITC is a leader in FMCG products and also sellsthrough kirana stores, RRL and Future Group are also planning to sell their private labels throughsmall unorganised retailers. Experimentation of models with Indian consumers is quite expensive asit is difficult to deal with large number of customers. Many of the major organised retailers are alsowaiting for the government to allow 100% FDI in multi-brand retailing. Once it is allowed, Indianorganised retailing will be altogether a new story. Only time would tell which retail business modelwould 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 200829 “Reliance, Cipla in Talks to Retail Pact”, http://www.allbusiness.com/pharmaceuticals-biotechnology/pharmaceuticals/8826654-

1.html, July 21st, 2007

Documents

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