Supermarkets Make a Tryst with Record Sales on Independence Day

Top retail chains posted their highestever weekly sales in the six days to Independence Day, when heavy discount offers lured buyers to splurge on daily household products, apparels and consumer durables.

Retailers such as Future Group, Reliance Retail, Bharti Retail, RPG Group’s Spencer and K Raheja Corp’s HyperCITY — helped by active participation of several consumer product companies — offered deep discounts across product categories to push volumes at a time when consumer spending is slowing and there are fears of poor monsoon rains impacting demand.
“Consumers are looking at savings more than ever before,” said Rakesh Biyani, joint MD of the country’s largest retailer, Future Group, whose 164 Big Bazaar outlets across some 90 cities saw more than 8.1 million visitors during the week ended August 15. “We have been working to integrate our supply chain to bring down prices as far as possible.”
Several suppliers, including Coca-Cola, Britannia and Procter & Gamble, participated in special Independence week deals, helping retailers to offer higher discounts than before.
Darshana Shah, business head for marketing at HyperCITY, a hypermarket format run by Shoppers Stop, said increased vendor participation as well as entire malls going for sales helped pull in the crowds. “The sale was definitely better this year as we had stronger and bigger deals since market sentiment was soft,” she said. HyperCITY also increased its spend on marketing this year at around 2% of overall sales. During the week, Big Bazaar outlets sold more than 1.4 lakh packs of a combination of 5 kg of rice and sugar each with 5 litre of edible oil, and more than 1,500 tonnes of detergent. LED TVs, mixer-grinders and induction cookers were among the other top sellers at Big Bazaar, officials said.
Spencer’s Retail said its same-store sales increased 24% year-on-year during August 11-15, driven by beverages, health and beauty, bakery products and staples that saw over 30% sales growth. Sales of FMCG household products grew over 50% while liquor sales rose 30%, Sanjay Gupta, executive director (marketing & business development) at Spencer’s Retail, said.
Such discounting, however, reflects the escalating pressure on retailers, whose sales are slowing during non-discounted periods. “Because of the slowdown sentiment, consumers have been withholding purchases, so companies are trying to push volumes through discount seasons at retail chains,” said Mayank Shah, group product manager at Parle Products, the country’s largest biscuit maker.
But those volumes come at the cost of bottom lines, he added. Earlier this month, credit rating agency Fitch said same-store sales growth of retailers slipped across lifestyle and value-based formats in the quarter ended June, adding that it expects retailers to combat slowing sales by offering discounts.
“However, this may lead to an erosion of gross margins,” Fitch said, while revising the outlook for the Indian retail sector to negative from stable for the first half of this fiscal due to sustained decline in the discretionary spending ability. A slew of factors such as economic slowdown, deepening crisis in Europe, high food and fuel prices has impacted consumer sentiment in the country, slowing sales of everything from cars to carpets.
Some retailers use inflation as a marketing tool. A case in point is Bharti Retail’s “freedom from inflation” campaign at Easyday stores, which help people fight inflation by providing quality merchandise at low prices. Retailers such as Reliance Retail used the week to increase their customer base. Reliance introduced discount offers such as ‘double the difference’ price guarantees across various product categories.


It’s No Longer Kirana Versus Modern Retail

While neighbourhood stores have been growing in single digits since 2006, modern trade has had double-digit growth, says a Nielsen study

Arrival of big retailers has had an impact on small grocers, but neighbourhood stores are still growing their sales, although at a much lower rate than modern trade, according to data from market research firm The Nielsen Company. 

Since 2006, when most big retailers either entered the retail space or began expanding their network, sales in local kiranas have grown in the low single digits even less than the GDP growth rate, while modern trade has grown in strong double digits, though at a much lower base.
For instance, sales at modern stores grew 34% in 2006 and 29.3% in 2010. Traditional stores could increase sales only 1.5% in 2006, but improved the growth rate to 6.2% last year (see graph).
The data comes at a time the government finally moves closer to allowing multinational retailers such as Wal-Mart and Carrefour open shops in the country after several years of debates, protests and lobbying. Critics, including the Left and the BJP, say such a move will impact the livelihood of small shopkeepers and traders, but the thinking in government circles is that this will help check rising food prices by removing several layers of middlemen between farmers and consumers.
Organised retail accounts for less than 10% of India’s retail market estimated at close to $400 million. The Boston Consulting Group estimates the size of organised retail market at $28 billion and expects it to grow nine times to $260 billion in 10 years.
Nielsen says Indians have embraced modern retail.  “The Indian Shopper has discovered modern retail and is increasingly shopping there,” says Nielsen’s Executive Director for Retail and Shopper Practice Dipita Chakraborty. This trend is fueled by the growth in number of modern stores, she adds.
The study shows that the frequency of consumers going to large stores has increased. More than 37% consumers visited modern trade stores every month this year, up from 30% last year.
Reliance Retail President Bijou Kurien attributes this to more options that big retailers offer to consumers. “In momand-pop stores, customer has to be very specific with what they want, but they can get more options in a modern store, and that’s where we are gaining,” he says.
The Indian government has been advocating that FDI in retail could help small farmers and other producers as well as generate employment for some time now.
In fact, an inter-ministerial group set up by Prime Minister Manmohan Singh to suggest ways to tackle high inflation has said that organised retail will reduce the margin between the price farmers get and what consumers pay by eliminating traders, and this will bring down prices. The group also tried to allay fears of small shopkeepers by suggesting creation of several zones and restricting the number of large-format retail stores in each zone.
Multinationals like Wal-Mart and Carrefour, which are lobbying for entry into the big and fast-growing Indian retail market, also say big investments in cold storages will cut wastage of fruits and vegetable in the country, estimated at . 130 crore every day, or about half the total production.
And big retailers say they are no threat to small grocers.  “Both the formats can co-exist. In fact, when modern trade help create new categories, the spillover effect is helping generate more demand in kirana stores as well,” says Damodar Mall, director, integrated food strategy, Future Group, the country’s largest retailer. “Once more wholesale or cash and carry stores are opened, smaller stores too will have more bargaining power and source products at lower costs,” added Mall.
However small shopkeepers are not convinced. And they are holding their ground, more or less.  “It’s true that our business is down compared to what we did few years ago. But we are also observing that few consumers are coming back to our stores for want of better credit facility or home delivery which large format stores can’t offer,” says Chandrakant Gala, secretary, Bombay Suburban Grain Dealers Association.
Meanwhile, big consumer product companies, including the country’s largest consumer products firm Hindustan Unilever that has relied on millions of small shops to build its empire, are now aggressively tapping modern stores.
Modern retail now accounts for 10% of Hindustan Unilever’s sales, up from 5% in 2005. “Last year, 85% of our business has grown share in modern trade. In modern trade we want to be significantly overweight,” the company’s executive director for sales & customer development Hemand Bakshi had told ET in April.
One reason for this is premium products are sold more in modern retail. And the Indian consumers’ love for premium products, which offer higher margins to manufacturers, is increasing along with their rising incomes, exposure and aspirations.

Retailers pitch for loyalty in tough times.

LOYALTY pays, even during a slowdown. At a time when consumer spending is on a decline, leading retail chains are either expanding or restructuring their loyalty programmes. The retailers expect such a strategy will help them increase footfalls, conversion level and ultimately drive their topline growth.

While the likes of Future Group, Shoppers Stop, Westside and Reliance Retail are driving the focus on customer relationship management (CRM), restaurant chains like Speciality Restaurants (SRPL) are also gung-ho on the same. “The CRM programmes are important for any retail chain and they work, especially during a recessionary trend. They give customers some comfort and ensure that they keep coming back again and again,” SRPL chairman and MD Anjan Chatterjee told ET.

SRPL’s loyalty programme currently has 70,000-odd customers within its folds, who account for 30-35% of their sales. “We are now planning a marketing blitz to penetrate into 70% of our target audience by July-August,” said Mr Chatterjee.

Within six months, Future Group is planning to roll out a single loyalty programme that spans across formats. The group is currently investing heavily on the IT backbone. Currently, the group’s Green Card loyalty programme at Pantaloons accounts for 55% of sales.

“As the first step towards a uniform loyalty scheme, we have rolled out a prepaidcum-loyalty card in Pune and Kolkata. We’ve clocked nearly Rs 15 crore business out of this. Eventually, we expect 70% of our sales from lifestyle formats to be generated from loyalty scheme customers,” said Future Group president-customer strategies Sandip Tarkas.

Interestingly, Reliance Retail already operates its ‘RelianceOne’ loyalty programme across formats with four million customers. “We see a significant percentage of our sales coming from our loyalty card holders,” said a Reliance Retail spokesperson.

Shoppers Stop has just launched a new loyalty scheme for its hypermarket ‘Hypercity’. “The loyalty programme is a long-term strategic initiative, which drives repeated purchases. We add nearly three lakh customers under loyalty every year,” said Shoppers Stop MD BS Nagesh. As of end-2008, the retailer had more than 11.8 lakh loyalty members.

Westside has relaxed the entry norms for its loyalty programme ‘Clubwest’ to cash in on the large footfalls the store is witnessing due to Nano bookings. Earlier, to become a silver member, one had to shop for Rs 2,000 on one occasion and register. “Now, a customer can enrol for the programme even by shopping for Rs 500 and subsequently get upgraded, if he completes Rs 2,000 billing within three months,” said Westside marketing-head Smeeta Neogi. The chain currently has over eight lakh members, who generate over 50% of sales.

Reliance Retail ties up with UK’s Wincanton for back-end biz

NEW DELHI: After having signed up at least half-a-dozen partnerships for specialty formats, Reliance Retail is now entering into a joint venture with leading European supply chain specialist Wincanton for its food and grocery and hypermarket businesses.

The synergy would enable Reliance to efficiently run its critical back-end operations, which essentially include warehousing of goods and transporting them to stores on time.

The latest move by India’s largest corporate house, which jumped on the retail bandwagon two years ago by promising to do everything on its own, seems to suggest that it now needs a partner for almost every retail initiative.

Industry observers believe that the company has expanded very fast and has managed to set up over 600 stores across various retail formats in less than two years, but its supply chain is in a mess. “How to get the right merchandise to the stores on time has been its biggest problem. You’d often not find the goods you want in Reliance’s food and grocery outlets,” said a source.

Wincanton, the UK-based $4-billion supply chain solution provider, has been roped in precisely to tackle this problem. It is expected to completely take over the supply chain, find the right warehouses for goods and transport them in time and in the right quantity to Reliance Retail stores.

Supply chain solution providers, Wincanton, for example, have IT systems in place to update them with regular data on inventory level in stores.

So, even without a store manager calling up, the warehouse manager would know the stores’ requirements. Wincanton serves several companies across industries, from FMCG to retail, automotive and oil. Its client list includes retail giants Tesco and Woolworths, auto companies Ford and DaimlerChrysler, and consumer goods firms P&G, Nestle, SAB Miller and GSK.

For Reliance, an alliance such as this means a major shift in its strategy. The season of alliances has begun at Reliance with specialty stores and is now fast extending to almost everything. Two years ago, when India’s largest private telecom operator, the Bharti Group, announced a tie-up with the world’s largest retailer, Wal-Mart, many thought it had got a headstart over other Indian corporate biggies foraying into retail.

But unlike Bharti, Reliance had decided to go solo. It made the ambitious announcement, not unusual from the house of the Ambanis, that Reliance Industries had earmarked Rs 25,000 crore for its retail business. Reliance had evaluated the options of partnering with a foreign retailer as well as buying out an existing Indian retailer, but had not found it very exciting.

True to its form, Reliance built scale fairly rapidly, spreading from one city to another. The growth was achieved through a team of professionals poached from existing Indian retailers, but the pace of execution dwarfed rivals’ achievements.

Reliance, however, realised it needed to do a lot more on the back-end to continue the pace of expansion and return early profits, which its shareholders usually expect.

“It didn’t take Reliance long to realise that retail was a different ballgame altogether. It’s not just about some long-term government policy or certain business competency, which it’s known to manage well. The variables in retail business are far too many. There could be a number of factors such as general economic downturn, terror scare, shorter wedding season, cricket season like an IPL or a political protest, which can affect store sales. You need to be able to manage that,” said a source close to Reliance.

The company has entered into alliances with foreign companies for several specialty stores, including opticals (Pearle Europe), toys (Hamleys) and apparel (M&S).

In most cases, the foreign retailer has the majority stake. This model, however, can’t be extended to front-end retail in food and grocery or hypermarkets as Indian laws don’t allow FDI in multi-brand retail. But it could be done in the cash and carry segment or retail back-end, an area where Reliance is in urgent need of help.

Retailers look for new revenue opportunites

There’s no escaping the fact that times are tough, so much so that retailers are having to ‘think outside the box’ more than ever to find alternative ways to drive their revenues.

Whilst it is proving difficult to continue growing sales from their existing core businesses, I think there is evidence of some good examples of retailers broadening their horizons beyond their traditional markets and areas of expertise.

Expansion into new business areas is hardly a new phenomenon but as the market has toughened it has become more of an imperative for many companies. The search for new revenue streams has led more retailers into the area of ‘venturing’, which can take a variety of forms: from the setting up of a formal joint venture company with a third-party, through to the simple creation of a revenue-sharing arrangement where a retailer sells products in their store or on their website using another company’s recognised brand name.

As with many initiatives in the retail sector, it is the supermarkets that have led the way, setting up joint venture businesses that have taken them into new areas, such as financial services.

Tesco and Sainsbury’s were the front runners into this sector when they teamed up with big banking names to provide their own services just over a decade ago. The former linked with the Royal Bank of Scotland to set up Tesco Personal Finance, and the launch of a combined debit and loyalty card was swiftly followed by credit cards and insurance policies. RBS recently agreed to sell its 50 per cent stake in the venture to Tesco for £1 billion.

The key to success with such ventures is ensuring that each partner’s skills are complementary and that they have the same objectives for their businesses and for their brands. There are plenty of learning points, such as making sure that the culture of both organisations are aligned, and it crucial that control of the joint venture entity is shared, with a clear understanding of who is the dominant party.

As well as joint-ownership venture arrangements, some retailers have taken stakes in other businesses to extend their reach. A good example is Ocado, in which the John Lewis Partnership, Waitrose’s parent company, has a share. Again, the objectives of the parties involved are firmly aligned, which in this case centres on the fundamental aim of delivering food with a high level of customer service.

Joint venture deals are also being used to drive revenue growth through entry into emerging markets. Over the past year or so, we’ve seen UK retailers announce a series of joint ventures in India. Earlier this year, Hamleys announced a joint venture with Reliance Retail, one of India’s largest industrial conglomerates and this has followed the likes of Marks & Spencer, which currently has 14 stores in India with Planet Retail; Wal-Mart, set to open its first cash-and-carry with India-based Bharti by December 2008; and Giorgio Armani, which has entered into a joint venture with real estate developer DLF to open stores which will sell and distribute various Armani brands.

And it’s not just UK companies looking overseas for new opportunities – businesses here have plenty to offer in terms of market knowledge and expertise. Carphone Warehouse recently announced a joint venture worth £1.1 billion with American electrical giant Best Buy, which will see the two businesses open ‘electricals supermarkets’ in the UK and across Europe from next year.

As times become ever-tougher for high street retailers the need to look outside their core businesses for new opportunities will become stronger, so we may well see more innovation through venture type activities in the future.

Article by Helen Dickinson

Reliance eyes retail JV with M&S

NEW DELHI/BANGALORE: Reliance Industries chairman Mukesh Ambani’s deal-making spree to get the best domain expertise in the retail sector is poised for the big one now. His retail arm, Reliance Retail (RRL), is locked in ‘substantial’ discussions to float an equal joint venture with iconic UK fashion retailer Marks & Spencer (M&S) for apparel, gourmet food and cafes, multiple sources familiar with the situation said.The deal, slated to be clinched in the next three weeks, would see the UK retailer bringing in new formats like food and cafes into India. M&S’ core business – apparel and lingerie – is already operational in the country.

According to a source close to the deal, the gourmet food format is likely to be integrated with Reliance Fresh “wherever possible,” (upmarket localities) as a shop-in-shop format. This would help M&S get immediate scale in food business. There are 491 Reliance Fresh stores that sell food, FMCG and fruits and vegetables and this figure is likely to touch 1,400 by the end of next fiscal.

“The implications of this particular JV are much deeper. It’s much more holistic in nature and therefore taking long to seal,” the source added.

The $16-billion M&S, operating in the country through a franchisee arrangement with Planet Retail since 2001, is in the midst of charting a new India strategy aimed at accelerating expansion in the domestic market. It recently slashed prices by 20% to attract more footfalls in the stores and taking prime space in malls to open more stores.

Planet Retail was earlier a 51:49 JV between Indonesian NRI VP Sharma and Pantaloon Retail. The JV has now been called off and the brands that it was managing has been divided into fashion (Sharma) and sports (Pantaloon).

Indian government allows foreign retail companies to invest up to 51% in Indian retail companies on the condition that they sell goods under a single brand. It also allows 100% foreign investment in wholesale business. What it still does not allow is foreign investment in companies that sell goods of more than one brand directly to consumers.

The fear is that such a move would kill small grocery businesses – the mainstay of everyday shopping in India. So, while Starbucks, Louis Vuitton and M&S are allowed to come in as they sell goods under a single brand globally, Carrefour and Wal-Mart are not allowed to sell to consumers directly as they sell thousands of brands.

Informed sources said the senior Ambani’s core team has made significant progress in its talks with M&S, which also had preliminary engagements with other Indian corporates like AV Birla group, Mahindras, Trent and even the audit firm Lodha &Co.

Clair Foster, M&S’ spokesperson in London, declined to comment on market rumours. The UK retailer operates more than 20 stores in India out of the 760-strong network globally. M&S recently set up a business development team in Bangalore under senior executive Spencer Sheen to rework the India gameplan.

Sources said M&S would settle for a 50:50 JV with Reliance, in a marked departure from its earlier stance that it would like to keep the maximum permissible 51% stake under FDI regulations in single-brand retaiing. Troubled by stagnant growth in matured markets, M&S is looking to rapidly scale up operations in expanding economies like India and China.

M&S may have found a match in Reliance, which is carrying out one of the most ambitious retail rollouts in this part of the world. For Reliance, the UK retailer’s stature as a leading global mid-market fashion trend-setters will augment its key apparel retailing vertical.

In context, it may be mentioned that Reliance has adopted a pragmatic approach of floating joint ventures that may help bring in critical domain expertise or a definitive brand edge. Its JV with Citigroup for retail financial services, and another one with US home improvement company Lowe are pointers in this direction.

Reliance Retail to sell connected homes concept

Mukesh Ambani’s Reliance Retail has entered into an agreement with Microsoft to launch the ‘connected homes’ concept.

Reliance Retail’s consumer durable and IT format, Reliance Digital, is planning to launch the concept at its upcoming store in Gurgaon in the NCR region.

Tata’s Infinity Retail and Future Group’s e-Zone have already tied up with Microsoft to launch the concept as a pilot project at their stores.

Connected homes offers users the opportunity to connect all their consumer durables, electronic and IT products at home with their personal computer or laptops through Microsoft software such as Windows Vista and X Box, among others. The computer and the products are connected through wireless technology.

Reliance Digital will showcase the Microsoft products in a 500 sqft area in the store. Initially, it will be a pilot project and, depending on the success, the company is planning to open many such kiosks at Reliance Digital stores, which is eyeing revenues of Rs 20,000 crore (Rs 200 billion) by 2011, according to company sources.

At present, Reliance Digital has three stores and will have two more by March and aims to have nearly 50 stores by the end of the next financial year.

“If the pilot project succeeds, we will have the connected homes concept in all our stores,” said a Reliance Retail executive.

Reliance Retail has also tied up with Apple to open iStores in the country.

iStores sell Apple products such as Macintosh, i-Mac, iPod, and software and support services. Reliance Retail has three iStores and plans to launch 40 more in the next 18 months.

Tata’s Infiniti Retail has tied up with Microsoft to launch MS@Retail, a ‘connected homes’ concept at Croma outlets from October 2007. It was envisaged as a shop-in-shop pilot kiosk at Croma’s Juhu outlet.

“After the launch of the concept, we have seen a huge surge in our laptop sales. We are also planning to take it to our other stores,” said Ajith Joshi, CEO, Croma.

Croma has nine stores now and plans to add nine more in the next couple of months.

“The connected homes concept has gained popularity in the US and it will catch up in India, too, as users are benefiting from its usage,” said Joshi.

Future Group’s e-Zone, which tied up with Microsoft in January 2008 for its Hyderabad store, is taking the concept to its 28 other stores across the country, starting with a 30,000 sq ft store it is planning at Bangalore.

According to Manoj Kumar, CEO, e-Zone, “After the launch of the pilot, the sale of Microsoft products have gone up by five times. We are planning to take it to all our stores soon,” Kumar said. The company is planning to set up nearly 110 new e-Zones in the next 18 months.

After the success with Croma and e-Zone, Microsoft is believed to be taking the concept to all the major cities of India and ensuring its presence in major outlets.

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