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8/2/2019 Retail Market Opportunities and Franchising
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RETAIL MARKET
OPPORTUNITIES AND
FRANCHISING
By :-
Sudhanshu Gupta (34-MBA-10)
Suraj Gandotra (35-MBA-10)
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RETAIL
Retailing is the interface between the producerand the individual consumer buying for personalconsumption.
A retailer is one who stocks the producer‟s goods
and is involved in the act of selling it to theindividual consumer , at a margin of profit.
As such retailing is the last link connectingindividual consumer with the manufacturing anddistributing chain.
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THE INDIAN SCENARIO ….
Components Share % in
GDP (2002-03)
Growth during
2002-03
Construction 5.3 7.3
Trade 14.0 4.5
Hotels & Restaurants 1.1 4.0
Railways 1.1 5.7
Other transport 4.3 6.0
Storage 0.1 -7.8
Communications 3.5 22.0
Banking & Insurance 6.9 11.6Real Estate, Business/ legal Services 6.1 5.9
Defense 5.9 5.3
Other Community & Social Services 7.8 6.2
Total 56.1 7.2
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THE INDIAN SCENARIO ….
Retail industry is divided into organized andunorganized sectors.
Organized Retailing – trading activitiesundertaken by licensed retailers , i.e.; thoseregistered for sales tax, income tax , etc.
These include corporate-backed hypermarkets andretail chains and pvt. owned large retailbusinesses.
Unorganized Retailing – refers to the traditional
formats of low-cost retailing , for example , thelocal kirana shops , owner manned general stores, paan/beedi shops , convenience stores ,hand cartand pavement vendors, etc.
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THE INDIAN SCENARIO ….
Unorganized retailing constitutes 98% of trade(2002-03) and remaining 2% as organized tradeaccounts.
Kearney estimated the true size of retail businessin India as Rs 4,00,000 crores.
Out of the retail , food retail is most importantand is increasing employment opportunities intimes to come with food retail sales as 63% of thetotal retail sales.
Efficiency enhancements and increase in the foodretail sales activity would have a cascading effecton employment and economic activity in ruralareas also.
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Since there is no dearth of indigenous capital, the question arises :-
WHAT IS THE NEED
OF FDI ????
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FDI ….
Foreign direct investment is a cross borderinvestment where foreign assets are invested intothe organizations of the target market excludinginvestment in stock.
Majors drivers of FDI have been :-
Availability of cheap labor.
Uninterrupted availability of raw material.
Less production cost compared with othercountries.
Quick and easy market penetration.
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WHY INDIA ?
India‟s GDP growth is second highest in the
world.
India has world‟s youngest population with 66 %
Indians under 35 and 50 % under 25 years.
According to national sample survey literacy ratewill touch around 75 % by 2020.
The number of female heads of households grewby 16 % from 2002 to 2003 and has been
increasing since then.
Working women constitute 15 % of total urbanfemale population and this is to rise to 20% by2020.
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WHY INDIA ….
Expenditure on babies:- Apparel – Rs 2209 cr.
IT products – Rs 1978 cr.
`Stationery - Rs.621 cr.
Health & Beauty (not including cosmetics or services) - Rs.415 cr.
Toys – Rs 389 cr.
Indian kids Spend nearly Rs 219 crores as pocket money
As per international survey , brand loyalty among Indians startsat age of 11 yrs.
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F.D.I.
GOOD
ORBAD????
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FDI GOOD ….
Efficiency.
Greater integration into the global economy.
Improvement of living standards.
Consumer will be benefited.
Technology introductions.
More jobs in Mfg.
Benefits to local producer especially farmers.
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FDI BAD ….
Retail as „forced employment‟ Sector
Indian retail is highly fragmented with lots of kiraana and paan /beedi shops, hardware stores ,bazaars etc.
There are about 11 million outlets operating in the country
and only 4 % of them being larger than 500 square feet in size.
One of the reasons for fragmentation of retail is the primaryform of disguised unemployment/underemployment in thecountry.
Till 2005 413.88 lakhs job seekers registered at employmentexchange and over period 1992-93 to 2001-02 , only a total of 30,000 jobs have been added in the organized sector in thewhole country.
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FDI BAD – THE WAITING GIANT
WALL MART ….
The largest retailer in the world „Wal-Mart‟ has a turnover
of $ 256 bn and is growing annually at an average of 12-13%.
In 2004 its net profit was $ 9000 mn.
It had 4806 stores employing 1.4 mn persons of these 1355were outside USA.
The average Indian retailer had a turnover of Rs 186,075and total turnover of the unorganized retail sector was Rs
735,000 crores employing 39.5 mn persons.
Wallmart has deep pockets to sustain losses for years.
This will entail job losses by millions.
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WAITING GIANT - WALLMART
Walmart performance per store – turnover of Rs 80,330mn with only 10195 employees extrapolating this inIndia will mean displacing about 4,32,000 persons.
If large FDI driven retailers were to take 20 % of theretail trade , it would mean employing of 43,540 personsand displacing nearly 8 mn persons employed inunorganized sector.
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WAITING GIANT - WALLMART
Once wall mart is set , it would sell everything fromvegetables to electronic gadgets.
Major chunk of these materials will be outsourced fromforeign countries rather than India.( opening of a giant
pipeline from China, Thailand ,ASEAN countries ). Indian manufacturing is not ready to cater to the
giants thus forcing foreign spending rather thanindigenous buying.
Also countries like China , Malaysia who have openedtheir doors for retail FDI have now stared constantlymonitoring these retails and forming policies to curtailthem.
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WEAK MANUFACTURING IN INDIA
Agriculture employs nearly 60% of our totalworkforce , and is in dire need of shedding excessbaggage.
That leaves us with manufacturing with only 17% workforce employed. This sector can hardlyabsorb anything without major expansion.
China has been expanding with GDP around 10 %from manufacturing as major driver whereasIndia has been growing around 5.6 % withservices as the main driver.
The underlying point here is that Retail is not a nactivity that can boost GDP by itself, It is only anintermediate value-adding process.
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WHAT INDIA CAN DO
More availability of bank finance to retailers.
National commission be setup for policies forforeign retailers to curtail their monopoly.
Entry of foreign players made gradual and high
entry costs. Location of giant stores to be far (at least 15 km)
away from main markets.
Improve manufacturing sector in India.
Co-operative stores to be setup.
Attention should be given to agro producers.
Infrastructure facilities should be made tofacilitate the setup of big stores by Indian
players.
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FRANCHISING
Franchising is the practice of using another firm'ssuccessful business model.
For the franchisor, the franchise is an alternativeto building chain stores to distribute goods and
avoid the need for investments and liability for achain.
The franchisor's success depends on the success of the franchisees.
The franchisee is said to have a greater incentivethan a direct employee because he or she has adirect stake in the business.
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BENEFITS OF FRANCHISING
Franchising allows the franchisor to :
Have greater access to capital
Expand rapidly
Save operating costs
Capitalize on the abilities of independententrepreneurs
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BENEFITS OF FRANCHISING
Franchisees joining a franchise system enjoy thefollowing benefits:
Backing of a bigger organization
Shorter learning curve
Established trade mark or service mark
Economies of scale
Joint advertising and promotion
Transfer of management expertise
Training & support from the franchisor
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FRANCHISING IN INDIA Acceptability growing by the day.
Fairly conventional industry spread.
Approximately 600 franchisors spread across industrieslike education, retailing, professional services, healthcareetc.
Over 40,000 franchisees.
Annual turnover from Franchising – anywhere betweenRs.8000-Rs.10,000 crores.
Total investments made by Franchisees – over Rs.5000crores .
Over 300,000 people directly employed by franchised
businesses. Variety of hybrid formats in practice.
Number of International franchises already existing, morecoming in.
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FACTORS DEFINING THE GROWTH
OF FRANCHISING IN INDIA
Positive Factors
Huge consuming class
Fast-growing consumerism Shift towards Services from Agriculture &
Manufacturing
Franchising has already proven to be
successful in several sectors Large entrepreneurial pool
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FACTORS DEFINING THE GROWTH
OF FRANCHISING IN INDIA
Negative Factors
Lack of regulatory framework
Financing mechanisms not in place
Skewed real estate markets
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FRANCHISING TRENDS IN INDIA
The Education sector dominates the Indianfranchising scenario, although Retail is fast catchingup.
Most of the franchisors are relatively new andsmall.
Several large Indian corporate also going thefranchising way Newer & innovative concepts beingintroduced.
Substantial interest from international franchisorsas well as Indian business houses for masterfranchises.
Franchising is now spread across the country,thereby providing opportunities to entrepreneurseverywhere.
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RETAIL FRANCHISING WITHIN
INDIA
Grew initially in the apparel & footwear sectors
Has gradually grown to cover a wide variety of sectors including food,consumer durables, jewelry, books, home décor etc
Two varieties of Retailers: the manufacturer-retailers :
Typically Product Distribution Franchises – have been around for awhile
The aggregators – typically Business Format Franchises – onlynow beginning to show up
Existent & likely to be successful only in smaller formats
Substantial action also happening in non metro locations
Thereby spreading organized retailing over a larger footprint
Has had to contend with the peculiarities of the Indian real estate markets
Result – MG (Minimum Guarantee) has become the key driver
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THE FRANCHISED RETAIL MODEL
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BENEFITS TO FRANCHISOR
(RETAILER) Store Employee Salary / Number of Employees Reduction
Only back end operation Control
Electricity
Stock Loss
Pilferage/Theft
Capital Investment /Interest Cost
Other Miss Exp
Expansion without Investment
IT Cost
Title Controls
One Point Sale
Ware House Out Source
One Time franchisee Fee
Maximum Promotion of Private label
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BENEFITS TO FRANCHISEE Centralized purchase & the single-point delivery of all products!
Opportunity of Multi Store Ownership
Proven & never-ending business!
Readymade & ever-growing customer base!
Groceries, food products and vegetables at challenge prices in the industry!
No investment risk in the inventory!
Remarkable payback period - Just 1 yearsLow on investment, high on returns!
Advisory for site selection, store design and visual merchandising!
Reliable recruitment and training support.Very high success in delivery!
Strong Customer Loyalty!
Very high success in delivery!
An established brand!
Great vendor base!
Excellent relationships!
Exclusive RightsInitial Start up TrainingProven Support Systems!
Aggressive brand-promotion, advertising and marketing campaign!
Mega Launch!
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PANTALOON INDIA
Pantaloon Retail, a Future Group venture startedits operations with Pantaloon Shoppe in 1993.
Emerged as the retailing giant of India with over5 million.
Square feet of retail space spread over 450 storesacross.
40 cities in India. Pantaloon Retail operates inover twenty.
Diverse store formats, with a spectrum of offerings ranging from food and grocery tocarpentry services.
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CONCLUSION
The retail is no doubt the buzz sector today and inrecent times to come but government can checkthe entry of foreign players to an extent wherethey don‟t disrupt the market but compliment a
healthy competition.
Moreover the big ingenious retails of India like“Pantaloons” and shopper stop should be
promoted more vigorously to open morefranchised stores to help the local shop keepers inkeeping tandem with the big retail stores.
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THANK YOU
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DHANYAVAAD