Differentiated range

The fourth article in the series about a basic retail model and its various elements was published in Business Line today.

"Customers frequent retailers who stock a range that is relevant to them. A look at the factors that help the retailer arrive at the right mix.. "

- Differentiated range

Retail Brand Building

Retail brand building happens at the customer’s home. Expectations created needs to be met and if possible surpassed. Take the example of this advertisement which I saw today. This retailer has smartly identified one of the core pain points of consumer durables purchase; Delivery and installation.

Note the promise of having a running AC tonight. After spending a fairly significant sum of money no one would like to chase the retailer or the installation team to start enjoying the benefits of such a purchase.

A simple promise to enable you to enjoy the benefits almost immediately is indeed a powerful one. If this expectation is met and maybe surpassed, where do you think the customer would buy their next consumer durable from?

So, where does the faith and trust in the retailer get built? At the customer’s home, post the installation when the room is chill and comfortable. Same is the case when one purchases almost everything, especially grocery and rice.

Simple but powerful truth of retail!

Delivering better value

An article written by me, about delivering better value, published in The Hindu Business Line.

Supermarkets should aim to become the neighbourhood contact point, touching every facet of their customers’ lives.

More value for your money’ is the oft-repeated cliché of most marketers. This favourite line is used or rather overused, more so in retail than anywhere else, because of the power of that statement. However, consumers are growing increasingly weary of empty words and statements without experiencing the same......

The URL for the article -

- Delivering better value

100 days and counting!

I have been blogging for 100 days now.

5,000 plus walk ins, lots of comments for various posts, a Google page rank of 2, etc.

A big ‘Thank you’ to all the readers and supporters of this blog.

Decided to do something interesting for all the readers of the blog and those who follow me on Twitter and Facebook, to celebrate all these milestones. So, have planned a daily post through the month of July ’09, wherein each post would feature a Retail jargon, its meaning and sometimes my interpretation too! I plan to include all the conventional established jargons as also a few weird ones, which may or may not be commonly used.

Hope to receive your feedback regarding this series. Some of you might find these posts too basic, please bear with me.

Not the end of the rack. Part I

Article written by me for the magazine “Indian Management”, June 2009

There are gloom and doom stories about Corporate Indian Retail everyday and just as it was in the stock market crash, everyone wants to stand up and claim, I told you so! But, is it really the end of the great Indian Retail story? I don’t think so.

Store Level Reality

The stores are being closed for very valid reasons which are linked to making the Retail model viable.

The store is a key OPEX component and as such the cost structure of each store is crucial to the success of any Retailer. In India, the typical margins that a supermarket would realize is in the range of 18 - 19% and three of the biggest cost components are rent, manpower and energy costs. These should ideally be in the range of 12 - 13%. However, over the past years the rental costs alone have risen to as high as 7 - 8% in many cases. Coupled with the other components the top three cost components today typically totals up to 15 - 16%. Which means that the store is either losing money or the positive contribution is not large enough to sustain the other common costs being apportioned.

This steep escalation in the rental component is a direct consequence of supply and demand. With so many mega plans having been announced and location being a supposedly crucial factor, what else can one expect?

So, the first take out is that at a store level, if the cost structure does not make sense no amount of any other corrective action will make up for that.

The downturn and the falling demand in real estate is an excellent opportunity to correct the initial mistake of indiscriminate store opening without regard for high rentals. The chains are renegotiating rentals and right sizing stores to make the cost structure workable.

The cost structure is linked to projected or estimated sales. All the percentages I mentioned before have a common base. That is the optimum sale that is required for a store to be sustainable. Typically supermarkets used to generate an average of Rs. 1,000 per sq. ft. per month and this became the benchmark for developing the supermarket model. However, nowadays the typical average in a supermarket is in the range of Rs. 700 with the lower end of the spectrum touching even Rs. 450.

The simplistic solution is to realign costs to this sales figure, so that percentages remain the same. However, it’s easier said than done, especially for cost components like rentals, which is being done by most Retailers.

The other option is to increase either the sales or the margins which is the tougher thing to achieve, because there are several very valid reasons for low sales, one being oversaturation of similar stores in a locality. So, the closing or down or right sizing of stores is possibly the most prudent activity in the current context and reflects that corporate Retail not only knows what needs to be done, but is acting on that.

Not the end of the rack. Part II

Continuation of the article written by me for the magazine “Indian Management”, June 2009

Viability of the chains

Next is the larger issue of overall viability of these chains and whether they would sustain and grow. Again my view is that it will happen because there are possible solutions to existing operational problems.

At the heart of the matter is the reality that most chains have rushed in to open stores without doing a basic differentiation strategy. As one friend of mine remarked “If the fancy boards are hidden, one would not really know which store it is”. Somewhat similar to the age old debate about Coke and Pepsi and how in a blind test most people can’t spot the difference. Yet, these brands have been able to create well differentiated brand personae’s. Unfortunately food Retail cannot afford these kind of media spends and frankly it is not required.

In Retail, the store experience is the basis for anyone’s imagery of that store. And this can be a powerful tool to create a differentiated branding. At the heart of the experience is the fact that customers come to the store to purchase.

Hence, a well thought out assortment strategy with a noticeable percentage of unique or differentiated products is the first step to success. However, in the Indian context there is a serious constraint to this, in the form of availability. Even a well thought out plan would be ineffective if the customers do not see these products at the store. With fill rates of 75 – 80% from the best of vendors, every Retailer has to manage a situation of empty shelves and therefore a poor imagery in the customers mind.

This is where the private label program of a Retailer plays a crucial role apart from also generating better margins. A comprehensive private label approach which seeks to supplement the offering while providing opportunity to offer alternatives to customers in the absence of stocks is a sure fire winner.

Not the end of the rack. Part III

Continuation of the article written by me for the magazine “Indian Management”, June 2009

Next is the issue of service.

Shopping is a habit, especially grocery shopping. This habit is driven primarily by trust built over years and based on softer service elements. Hence, even with similar stores offering similar products, one tends to have strong loyalties with a particular Kirana store.

In the case of corporate Retail, the structuring of the business model itself makes it very difficult to offer these softer service elements. Hence the need for a very sound value proposition, to the customer. The value proposition can be built around the store design, range and service. However, with similar looking stores with hardly any differentiation, how can anyone perceive a unique value proposition?

This has led to customers constantly shifting between stores either because of availability issues or driven by pricing and promotions. This leads to two things –

• Promotion/ pricing driven purchases lead to lower margins. A promotional sales contribution of 15% is a healthy indicator that the promotions are being perceived to be good and seen to deliver value. When this share goes up significantly it is a surefire indicator that customers are only “cherry picking” at that store.


• Customers alternating between various stores leads to a misleading picture with regards to sales analysis and this in turn could severely impact the forecasting and replenishment of a store. The direct consequence is certain products not being available, which is again a trigger for customers to frequent other stores.
  

Recruiting store staff has always been a challenge because of the perception of Retailing and getting trained people has been a bigger challenge. This is further compounded by the cost cutting orientation which has led many chains to reduce the head count in a store. This not only puts pressure on the staff to fulfill their internal work and yet interface with customers. This is truly a Hobson’s choice because customers come to a store to buy and hence the staff needs to ensure that the products are available and displayed. Yet, the customer would build loyalty and rapport only based on interactions and service, which often is compromised. An even simple thing like smiling and wishing or thanking the customer after billing is increasingly hard to experience. Is it any wonder that customers have little or no loyalty to any store?

Retail chains should look beyond the downturn. Today, these chains are scrambling for the reducing share of the shopping basket, further compounded by overcrowding and without any differentiation. By reducing store staff and thereby impacting the service levels, the chains are only further reducing any chance of differentiation and therefore customer loyalty.

Also, in the coming years when the economy picks up again and expansion starts, getting store staff is going to become increasingly difficult in spite of a slew of training academies being opened by everyone, including the Retail chains.

Perhaps it is now time for the Retail chains to work towards the staffing models of stores abroad, wherein elderly people and students form the majority of the work force and work as temporary staff. India has both these segments of people and youngsters today are increasingly adopting the work and study model. Such people can be used to supplement the store staff’s efforts, especially in customer interface and customer service functions.

Last, is the issue about funding, debt, etc., which is seen as a major factor to doom this sector. Retail, the largest employer in India and also abroad is not an industry in India. Suffice to say that being recognized as an industry would help manage this issue as currently these chains are largely dependent on PE funding.In summary, the store would be a tipping point in the Indian Retail story. Which side of the fence it tips over, is a result of some concentrated action which is required immediately.

The good news is that, this seems to be happening and shortly when the sector resumes its growth story, I can claim that I told you so!.

Guest Post by Mr. Shiv Murti, A mentor for most Indian retail professionals!

I can remember the first time I saw the site sometime in 2000 1st. Quarter. The site comprised of 2 factory sheds with a road in between and I wondered how we would make a Hypermarket out of it. Many months later the final design came out and when the civil work was completed it was like a transformation of the Ugly duckling. India's first single level Hypermarket was born.

The next step was filling it up. 45,000 sq.ft. of store space - a team that was more used to filling up supermarkets of 3,000 sq.ft - new product categories to handle. It was a learning experience and a very enriching one and within 4 months we had the Product Master ready with the space allocations etc.

Then the order placement and the drive to fill up the store. We set ourselves an impossible task of 15 days time from first receipt to opening. I remember Kruben saying it normally took 60 days but he had done it in 45 days with a supply chain that worked, vendor supply efficiencies of 90% plus and with experienced staff. We had none of these but we had a team that was willing, eager and did not know the meaning of the word impossible. We were ready 1 hour before the store opening with what even Michael and Kruben admitted was a very high level of store readiness and a store fill of approx 84% of what we had planned as the SKU count. It took passion and an immense drive from everyone concerned to make it possible.

And then of course the store opened. And within the first hour we knew it was a runaway success. That was the story of the opening of the first true hypermarket in India and it was all made possible by a very committed team.