Dear Readers, Recently, the Government of India took the decision to allow 100% FDI in Single-Brand Retail and 51% FDI in Multi-Brand Retail. The implication of the decision can be gauged from the fact that Opposition stalled the parliament for nine days following the decision. At this moment of Time, Retail is one of the issues that demands immediate attention given the Issues of Inflation and Foreign Institutional Investment. The Indian retail sector accounts for 15% of GDP and employs 3.3% of the Indian Population. Because of the poor state of Infrastructure and Cold Chains, the endconsumer ends up paying 200% -400% of what the Farmer actually gets and around 25% of the produced 230 million tonne of vegetables and fruits produced each year goes waste. All these factors, in addition to the mushrooming of the e-tailing industry show that the Indian Retail sector is gearing up for a change. Through the OPEP Club at IIM Raipur, we provide a platform to the Students, Faculty members and Industry Practitioners for sharing of knowledge in the field of Operations and Supply Chain Management. The magazine starts with an article by Prof. Bhalender Singh in which he has thrown light on the Retail Sector of India highlighting the merits and demerits of the Government’s latest decision. It is followed by an article by Prof. Naval Bajpai where he has dicussed the significance of Research in the Retail Sector. In the industry section, through an exclusive interview, Mr. Arvind Singhal, Chairman and Managing Director of Technopak, has given a glimpse of the Retail Sector world-wide and how it is different from India. Mr. Ajay Kaul, CEO of Jubilant Foodworks Limited (formerly Domino’s Pizza India Ltd.) has discussed the Success Story of Domino’s Pizza in India. Students have written articles on the role played by Farmers and Middle-Men in the Supply Chain, emergence of E-Tailing in India, Retail in China, Book Review of “It Happened in India” and Success stories of Amul and Walmart. The local challenge discussed in this issue is the upcoming Logistics Hub in Raipur.
In addition to the earlier column on Summer Internship Experience we have added two new columns this time. Through the column of Gurumantra, we would be explaining some of the technical terms. In this issue, the RFID technology has been explained in detail. The other column is a debate, where students have presented contrasting views on “Should India allow FDI in Retail?” We would like to express gratitude to Prof. B.S. Sahay for motivating us to bring out this magazine, Prof. Ravi Shankar, Prof. Omkar Prasad Vaidya and Prof. Naval Bajpai for teaching us courses on Operations and Supply Chain Management and Prof. Bhalender Singh for teaching a course on Retail Management which helped us in developing a strong foundation from where we have started applying our skills to real life problems. We thank Mr. Arvind Singhal and Mr. Ajay Kaul for taking out time from their busy schedule and contributing articles for the magazine. My editorial would be incomplete without acknowledging the support of Abhijeet, Akshay, Anshu, and Navjeet in bringing out this issue and the whole Team OPEP for their commitment and dedication towards the club activities. Please send us your Valuable feedback and suggestions for improvement at opep@ iimraipur.ac.in Rohit Bhagat Editor, Strive
Directorâ€™s Message Since the very first day of its inception, IIM Raipur has set very high standards for Management Education and Research. The research commitments of the students of OPEP are highly commendable. The inaugural issue of Strive, the Half Yearly magazine of Operations and Supply Chain Club (OPEP) of IIM Raipur was another achievement on these lines. It enjoyed fabulous success and I compliment the OPEP team. Moving ahead with bigger expectations, the OPEP team is presenting to you the Second Issue of Strive. While the global economy is going through turbulent times, India being no exception, however we can take pride that our fundamentals are well in place. Still there are certain sectors where we need improvements. Some of them being retail, healthcare and education. I am delighted to see that this issue of Strive focuses on one of these areas, i.e. the retail sector. I believe that this publication may succeed in delivering some novel insights into this important subject. I wish OPEP great success in their endeavors and hope that you enjoy reading this publication. Prof. B.S. Sahay
Contents FACULTY ARTICLES FDI in Retail: Boon or Bane?.......................................5 Importance of Research in Retail..............................11 COVER STORIES Agriculture and FDI: Farmer’s Point of View............15 FDI in Retail: Role of ‘Middle Man’. ..........................17 EMERGING AREAS Logistics Hub in Raipur...............................................20 E-Tailing in India..........................................................22 SPECIALS Gurumantras: RFID........................................37 ARTICLES FOM INDUSTRY Interview with Mr. Arvind Singhal, Chairman and Managing Director, Technopak.................................24
Is FDI in Retail beneficial for India?- The Grand Debate ...........................................................39
Domino’s- Story of success in Retail – Mr. Ajay Kaul, Summer Internship Chief Executive Officer, Jubilant Foodworks Ltd......27 Experience.....................................................40 SUCCESS STORIES Retail in China: What India can learn?......................30 Amul organised retail..................................................33
Book Review: It Happened in India...............................................41 Crossword..............................................42
Walmart: Operations Strategy....................................35
About the Cover Page The world map on the cover page signifies the fast-shrinking world, where the different countries and continents are coming close to each other while globalization has been taking up grounds. Retail sector is one of the most aggressive participants of this phenomenon, as the retail organizations are targeting every person on the globe as a potential customer. They have come a long way from being local entities to global brands. The retail sector and these organizations have been represented on the cover page by the relevant and well-known names of some of the companies in the world map.
FDI in Retail: Bane or Boon? Prof. Bhalender Singh Indian Institute of Management Lucknow
This was the easiest track with FDI being allowed with the approval of RBI under the Foreign Exchange Management Act. Fast food chains, apparel and footwear companies have entered through this route.
About the Author Prof. Bhalender Singh Nayyar is an Adjunct Faculty at Indian Institute of Management Lucknow (Noida Campus) and Visiting Faculty at Indian Institute of Management Raipur and Rohtak. He has done his PGDM from Indian Institute of Management Calcutta. He has a rich experience of more than 30 years in diverse fields including Retail and has worked with companies like Pepsi, Asian Sky Shop, Usha Sales etc. He has been associated with Impetus Consulting Singapore in 2008 and 2009 for consultancy in the area of sales and distribution and is a Principal Consultant with MART
Cash and Carry Wholesale Trading The government allowed 100% FDI in cash and carry wholesale under the Government approval route in 1997. Metro and Shoprite entered through this route. It was brought under the automatic route in 2006. This opened the doors for the international giants to enter India for the backroom support for retail. Wal-Mart has established 11 stores already with Carrefour opening up only two. TESCO tied up with TATA group. The flow of FDI through this route from April 2000 to March 2010 was $ 1.78 billion. This comprised only 1.54% of the total FDI inflows received during this period. Strategic Licensing Agreements Some foreign brands give exclusive rights to Indian companies for sales through own stores or shop-in-shop. Mango in agreement with Pyramid and SPAR Radhakrishna Foodlands Pvt. Ltd has entered through this route.
he cabinet of ministers cleared the commerce ministry’s proposal for 51% FDI in multi-brand retail (with several riders) and increased the limit in single brand retail from 51% to 100%. There was an immediate hue and cry from the opposition parties, traders associations and finally political allies that this would result in the death of the small trader and long term exploitation by the international giants. Prior to 1997, FDI in multi-brand retail was allowed on a case to case basis and one of the prominent players which entered was Dairy Farm International in a tie up with RPG group to start the Foodworld chain.
Manufacturing and Wholly Owned Subsidiaries Wholly owned subsidiaries in manufacturing are treated as Indian companies and are therefore allowed to retail. Nike, Reebok, Adidas and others have entered through this route. FDI in Single Brand Retail In February 2006, FDI was allowed up to 51%, with prior Government approval, in “Single Brand” products subject to products being sold under the same brand internationally and those branded at time of manufacturing. 94 proposals were received from 2006 to 2010. Of these, only
Some entry routes used by foreign players have been: Franchising Agreements
and defensive action to respond to modern retail. Offensive steps included improving store display, increase range and brands, improving store looks and launch of self service. Defensive actions were cutting of expenses, cutting prices, reducing staff. 6. 71% of the shoppers who shopped at modern retail outlets were in favour of opening of more such stores. 24% were not in favour while 5% had no opinion. 7. The main reasons for preference of modern retail stores were better quality of products, discounts, higher brand choices, one-stop shopping, fresh or new stock, wide product range, family shopping experience and better service. 8. 34% of the shoppers who shopped at small neighbourhood stores were in favour of opening up of modern retail outlets in their area with 25% against and 41% with no opinion. 9. The preference for small retailers were closer to home, goodwill, availability of credit, bargaining, buying of small/loose quantities, convenient timings and home delivery. Another report in 2008 revealed the following on supply side: 1. The average realisation for the farmers when they sold directly to retailers was 15 to 20% higher against sale through mandis. 2. The turnover and the profits of intermediaries had been affected. Most of them, however, wanted to expand their businesses due to opportunities in selling to modern retail 3. Large manufacturers have started feeling the pinch through price and payment pressures from larger retailers. They have reacted by strengthening brands, increasing retail
57 were approved. Against a clearance of $ 137 million through this route only $ 44.55 million have come through this route. Retail Sector in India The retail sector in India is estimated at Rs. 19 trillion and is growing steadily at around 9% for the last five years. The share of modern retail has risen from around 3% in 2004 to around 7% last year. The growth rate of the modern retail has varied between 17 and 20% while that for traditional retail has been around 7 to 8%. Category wise break-up of the Indian retail market is given on this page. The retail sector is the second largest employer after agriculture. As per NSSO 64th round, in 2007-08 retail trade employed 7.2% of the workforce providing jobs to 33.1 million persons.(Rural to Urban 1:4). Effect of Modern Retail on Small Shopkeepers A study conducted by ICRIER across 1,598 small retailers (793 in head to head competition and 805 in safe neighbourhoods) was conducted from March to October 2007. Some significant findings were: 1. Head to head stores â€“ sales decreased in 50% of stores, was flat in 33%, increased in 17% of stores. Safe neighbourhood stores â€“ sales decrease in 29%, flat 31%, increase 40%. 61% of decline in sales was attributed to the opening of modern retail 2. Profitability of head to head stores fell by 16% while in safe neighbourhood stores it went up by 5%. 3. Decrease in employee count was around 2 to 3% in both the stores. 4. The rate of closure of small retail shops was found to be 4.2% which is much lower than the global average. Only 1.7% closed down due to modern retail. 5. Small retailers were taking both offensive
presence, adopting small retailers, and setting foreign players over 3 to 5 years with social up dedicated teams to deal with modern safeguards to avoid loss of jobs. retailers. Concerns on Introducing FDI in Retail The Standing Committee on ‘Foreign and Domestic Investment in Retail Sector’ in July 2009 raised concerns: 1. Displacement of labour. 2. Job losses due to predatory pricing strategies of large retailers. 3. Monopolies of global retail chains leading to control of supply chains at both ends. 4. Non-adherence of single brand retailing by some foreign retailers. 5. Backdoor entry of foreign players through cash and carry route.
Effect of Modern Retail on Small Shopkeepers The limitations of the retail setup as of April 2010 were: 1. Inefficient market mechanism with lack of investment in the logistics of retail chains. There were only 5,386 cold storages with a capacity of 23.6 million tonnes. 80% of this was used for potatoes. Though 100% FDI was allowed in cold chain, the investments were insignificant. 2. Intermediaries dominated the value chain with lack of transparency. Farmers received only 1/3rd of final consumer price against 2/3rd by farmers in nations with a higher share of modern retail. 3. The public procurement and public distribution system were inefficient resulting in increased food subsidies. 4. Agricultural Produce Marketing Committees needed to be dismantled or streamlined. 5. The MSME were suffering due to lack of branding and lack of avenues to reach out to the vast global markets. 6. Players in modern retail were making losses due to high rentals, unbridled expansion and/or lack of focus. Big players like Subhiksha, Vishal Retail and others had closed down operations. 7. Investments by bigger players like Future group, TATA or Reliance were slowing down due to vast financial requirements. 8. Heavy investments were required in agricultural and supply chain infrastructure. Recommendations for Introducing FDI in Retail Various studies had therefore recommended the induction of FDI in retail to bring about: • Up gradation of agricultural practices and supply chain • Investment in technology • Manpower and skill development • Greater sourcing from India • Efficient medium and small manufacturing enterprises • Better productivity • Growth in market size They, however, wanted a gradual entry of
Recommendations made by the Committee included: 1. Blanket ban on large domestic houses and foreign players in the area of grocery, food and vegetables. 2. Policy for re-employment/deployment of people dislocated by modern retail. 3. Legal and regulatory framework to avoid displacement of small retailers by unfair means. 4. Extension of institutional credit and undertaking programmes to assist small retailers in upgrading themselves. 5. Analysis of traffic and economic aspects before a store is opened. 6. Adequate safeguards to prevent diversion of agricultural land for building malls. Experience of FDI in Retail Trade in China • 49% foreign ownership was permitted in six provinces and Special Economic Zones in 1992. Restrictions were lifted progressively and in 2004 were lifted completely. • Retail sales have been increasing at a healthy pace of over 16%. The size of China market was estimated at over a trillion dollars in 2010 with share of modern retail being around 25% • Between 1996 and 2001 number of traditional
outlets in China went up from 1.9 million to 2.5 million. Employment in the retail and wholesale sector went up from 28 million to 54 million in the same period. • Most of the international players have entered China and are having a reasonable level of success. Experience of FDI in Retail Trade in Thailand • Wet market and small family owned grocery stores dominated the scene. Modern retail boomed in early 90s. • Allowed 100% FDI only in 1997 with capital requirement of TBH 100 million and TBH 20 million for each additional outlet and TBH 100 million for each wholesale. • Local players were marginalised by the entry of foreign players. • Entry of foreign players in a recessionary economy adversely impacted manufacturers, wholesalers and retailers in the short run. • Thailand has now become an important shopping destination. • Entry of foreign players has encouraged growth of agro-food processing industry and enhanced the exports of Thai made goods through networks of the foreign retailers.
with domestic capital. • Late in the 90s, Carrefour and Ahold entered the market and within 3 years increased their market share to around 9% • They, however, had to withdraw completely from the market in 2006. • The Top Two domestic chains control 65% of the Chile retail market. The Proposal The draft policy included the following conditions for multi-brand retail: 1. 51% FDI after approval from Foreign Investment Board. 2. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. 3. The government will have the first right to procure agricultural produce. 4. Minimum investment of $100 million o f which at least 50% in ‘backend infrastructure’. 5. At least 30% of manufactured and processed products from ‘small industry’. 6. Compliance through self-certification. Investors need to keep all records. 7. Retail sale locations can be set in cities with more than one million population, based on the 2011 census. There are 51 such sites.
Experience of FDI in Retail Trade in Russia • First retail chain only in 1994. • FDI allowed only in 2000. • Healthy growth rate of 23% from 2000 to 2008(USD 558 billion) dropped to USD 470 billion in 2009 and recovered to USD 543 billion in 2010 • Metro entered Russia in 2001 followed by Auchan in 2002. Both remain in the Top 10 although all others are Russian • Carrefour entered and exited the Russian Market in 2009. Wal-Mart is yet to enter the market. • Share of modern retail is over 40% in Russia
The Plus Points 1. The main point which is raised is the efficiency in the supply chain especially for perishables. The elimination of certain middlemen will increase the income of the farmers by at least 25%. 2. Competition will also force lower consumer prices and hence control inflation. A Nielsen study during first quarter of 2010 had revealed that modern retail dropped prices by more and increased prices by less between October 2009 and March 2010. 3. Government will gain additional income through taxes, as monitoring and transparency
Experience of FDI in Retail Trade in Chile • Supermarket sector was launched in 1990s
will improve. 4. Acceleration in growth of retail market will benefit MSME since nearly 35% of goods are already being procured from this sector. A lot of smaller brands have got a tremendous boost through launch of private labels by modern retail. 5. There is the potential of local procurement by global retail chains from India. 6. Modern retailers also welcome the move since they can have strategic partnerships and get much needed capital to expand. The major players are, however, clear that they will not give majority stake to any partner. 7. Entry of foreign players will result in creation of four million new direct jobs and up to six million indirect jobs in areas such as logistics, contract labour for distribution, repackaging, housekeeping and store security. 8. The consumer would get consistent quality and there would be a lower risk of adulteration and counterfeit goods.
large family. Weekend shopping and storing in freezers only moves the wastage from the supply chain to the consumer. 6. Higher investments are required in agriculture to increase their bargaining power before FDI is
allowed in retail. 7. Big retailers use cheap prices only for a few items to lure customers into their stores and charge higher prices for other items to maintain margins. An air-conditioned big box store with provisions for parking and high overheads will pass these on to the consumers. 8. A lot of small retailers will have to close down in the towns where FDI would be allowed in retail. There could be a repetition of Thailand in India. 9. FDI in retail will raise the demand for real estate in retail thereby increasing the rentals and wrong utilisation of agricultural land to put up swanky malls. 10. Foreign players will flood the Indian market with cheap foreign goods impacting local industry. 11. Giant shopping centres will add to our existing urban snarls.
The Opponentâ€™s View 1. FDI in retail is a non-critical area of intervention. There is no lack of access especially in the urban markets. The gloss of a shiny international brand name need not be the differential.
Implementation Problems for Foreign Players 1. Investment of USD 50 million in front end will mean opening up of approximately 1 million square feet of retail space. This would mean around 200 stores of 5,000 square feet or 20 stores of 50,000 square feet. 2. Sourcing of minimum 30% of items from MSME especially for non-food sector will be very difficult since customers prefer established brands. 3. Around 50 licenses are required for opening
2. The role of middlemen in perishables can be altered by policy changes and does not require foreign retail to come in. 3. Foreign retailers will give better prices to farmers in the short term but will squeeze them with growing control on the supply chain. 4. Modern retail is only supporting this move since they are really looking for bailouts and profitable exits from this sector. 5. Big formats are not suitable to the Indian psyche which looks to buy daily for a reasonably
up a store in many states. The red tape and the corruption involved will be a big deterrent. 4. A number of states are ruled by Opposition parties and defiant allies. They may not allow foreign retail to come up in their respective states. 5. Real estate costs are prohibitive in the cities chosen. 6. Credit and free home deliveries are alien to their nature while it is the main demand of the average Indian consumer. Areas of Improvement before FDI is brought in 1. Dismantling of APMC in almost all major states to cut down the trader margins. 2. Support to small retailers to upgrade their efficiencies. 3. A relook at the Public Distribution System to cut down wastages and corruption. 4. Provision of training in handling, storing, transporting, grading, sorting, maintaining hygiene standards and packing of fresh produce. 5. Creation of infrastructure at Mandis. 6. Integrating long food supply chains in the food area. It seems from the above that the main problems are in the back end while the main fears are in the front end. Foreign players could, therefore, be asked to invest a minimum of USD 50 million in Cash and Carry stores before being allowed the USD 50 million in the front end. The approach of the foreign players would therefore be partnership with the smaller retailers rather than confrontation. Foreign players should be asked to set up training centres for farmers and small producers to enhance the quality and productivity. Carrefour has already organised over forty camps in this direction. There has to be inclusive growth in this
sector and this should include small farmers, manufacturers and traders. The debate in the parliament, of course, ended with the government putting the issue on the back burner till mid-term elections are over. They have done this also for almost all economic decisions with media pointing to the paralysis in the government machinery because of the corruption and Lokpal issues. Some even mentioned that the red herring of FDI in retail was brought in to minimise the time for the debate on Lokpal Bill so that it could also go into deep freeze. It may, of course, be relevant to see if the entry of FDI in other service areas such as banking and financial services has actually been beneficial to the average Indian consumer before we get into the debate on FDI in retail. Another area of thought is whether organised manufacturing is against entry of foreign players in retail since this will weaken their bargaining power in the distribution chain.
Quick Fact: The word retail is derived from the French word retailier, meaning to cut a piece off or to break bulk.
Importance of Research in Retail Prof. Naval Bajpai Indian Institute of Management Raipur
About the Author Prof. Naval Bajpai is Associate Professor at the Indian Institute of Management, Raipur. He has a multifarious background in industrial, teaching and research fields spanning over a decade and is a life-time member of the Indian Society for Technical Education. With over 35 research papers published in journals of national and international repute, Professor Bajpai is an avid analyst of contemporary work trends in public-sector organizations. Dr. Bajpai has authored three books published by Pearson Education, India- Business Statistics, India, Business Research Methods and has coauthored a book titled Quantitative Analysis. He has developed 30 case studies in Indian context, in the area of Business Statistics and Business Research Methods.
etail refers to sale of goods under the following conditions:
1. The sale takes place from a fixed location, 2. The goods must be sold in small quantities or individual lots and 3. The selling should be for direct consumption It sometimes includes subordinate activities like delivery (very common in case of e-commerce). Retail can be considered the â€œfront-endâ€? of the supply chain which directly interacts with the customers and consumers and also provides the last-mile connectivity. In the recent years, several new trends have emerged in the Indian retail sector. Organized retail has succeeded in penetrating the market to a good extent. The retail sector in India is valued at US$ 550 billion, only 5% of which is organized (around US$ 28 billion). The organized retail has around 7% penetration. But just within the next decade, organized retail is projected to go to US$ 260 billion. Malls have
sprung up even in tier 2 and tier 3 cities across the country. Another development is the aggressive growth in e-tailing and e-commerce. This section of retail is riding high on the penetration of internet in the not-so-urban regions of the country, where brand awareness is high but availability is poor. Several major acquisitions have occurred in e-commerce arena and foreign behemoths like Amazon have also entered the competition in India. Many start-up companies have come up in the same or similar businesses in the last couple of years z. First, any industry on such a growth spree demands the managements of the involved organizations to take well-calculated, wellinformed and yet, quick decisions. This calls for very efficient data collection and processing to provide a strong base for the decisions. Secondly, direct interaction with the consumer makes retail a tricky business as a lot depends on the behaviour of the consumers. Many of the decisive factors influencing this parameter are not easily quantifiable. Business research has proven its worth in various industries by delivering good results in such situations in the past. This discipline has vast applications in retail sector, especially in the present context, and must be understood well by the relevant companies to utilize it in the best possible way. Research is all about finding something, the absence of which may distort our ability to take informed decisions. The ability to take an informed decision is generated through a systematic study that is conducted through various interrelated stages.To design something, various parts are put together to complete the phenomenon. The same process is done to conduct a research. All the steps in a research are interrelated and no independent activity is launched without considering the decisions on the previous stages. One has to really understand that, from problem identification to presentation of findings, every step is interlinked and interrelated. For example, a research project title or objective is set as â€œConsumer motivation to purchase
a refrigerator: A comparative study between two leading brands.” The title of the research project itself introduces the dimensions of these interrelated steps. In the light of the title, a researcher has to first construct a theoretical model of consumer motivation. All other steps such as the questionnaire design, setting the research questions, and setting the hypotheses are related to the title and are interrelated—not independent. The figure explains the process of conducting a business research. A research design is the detailed blueprint used to guide a research study towards its objective . In the previous section, it has already been discussed that the steps in conducting a research programme are interlinked and interrelated. A good research is conducted using 10 steps. Let us have a look at these one at a time: 1. Problem or Opportunity Identification The process of business research starts with the problem or opportunity identification. Actually, the management of the company identifies the problem or opportunity in the organization or in the environment. For example, a manager in a supermarket might identify a problem like diminishing footfalls in the supermarket. 2. Decision Maker and Business Researcher Meeting to Discuss the Problem and Opportunity Dimensions The decision maker contacts the business research firm and then discusses the problem or opportunity with the business researcher. The researcher can only suggest solution to a problem, but the actual decision is taken by the decision maker. Hence, it is important that the decision maker should understand the dimensions of the research and the researcher should also understand the scope of decision making by the decision maker.
sales in a retail store. This management problem focuses on the symptoms. Research problem is somewhat information oriented and focuses mainly on the causes and not on the symptoms. This is to determine the consumer’s opinion on psychological pricing and to estimate their purchase behaviour for the psychological price being offered by the retail store. 4. Formal Research Proposal and Introducing the Dimensions to the Problem Next, the researcher prepares a formal proposal of the research and develops the approaches to the research problem. It includes the following steps: i) Preparing a Theoretical Model: A set of major factors that decide the “visiting intentions” of a customer are identified. In our case they could be location, prices of the products, range of products offered and behaviour of the staff. Apart from these some moderating variables are also identified. They can be age, gender and income of the customer. ii) Preparing Questions for Questionnaire: Each main variable identified is explored in details and statements characterizing them are obtained from literature. These statements are used to form questions. iii) Forming Hypothesis: Based on the main factors, several hypotheses are formed. In our example, one hypothesis could be “location of a supermarket has a significant linear impact on the visiting intention.” 5. Approaches to Research Approaches to research consists of making a suitable decision regarding research components like types of research, measurement and scaling, development of questionnaire, sample size-determined sampling techniques and data analysis plan.
All researches can be classified into three groups: 3. Defining the Management Problem and i) Exploratory Research: mainly used to explore Subsequently the Research Problem the insight of the general research problem. It The management problem is concerned with the must be used with other types of research and decision maker and is action oriented in nature. never alone. For example, the management problem offers a ii) Descriptive Research: it is conducted to psychological pricing to enhance the quantum of describe the business or market characteristics.
iii) Causal Research: helps in identifying the 10. Management Decision and Its cause and effect relationship between two or Implementation more business (or decision) variables. As the last step of conducting a research programme, the findings are conveyed to the decision maker after consultation with the 6. Fieldwork and Data Collection The fieldwork and data collection activities are research programmer. The decision maker now planned. Supporting ideas are collected analyses the findings and takes an appropriate through the analysis of secondary data sources. decision in the light of the statistical findings The researcher also decides whether he should presented by the researcher. The researcher go for a survey or adopt observation methods presents the results and conclusions/options to and whether the project requires a field data the decision maker. It is then left to the decision collection or a laboratory experiment. Only then maker to take an appropriate action for his own the fieldwork is carried out. For our example, company. the decision could be to conduct a survey among shoppers in the supermarket and in As shown in the above steps, business research other supermarkets in the vicinity. is a highly systematic and methodical way to assess and study any problem or opportunity and provides with logical options with a lot 7. Data Preparation and Data Entry After field work, the collected data are in raw of clarity and predictability. It is unfortunate format. Before performing data analysis, it that in India, many managers still base their is important for a researcher to structure the decisions on ad hoc analysis or observations data. There is a specific scientific procedure to and “gut feelings”, when the chances of success deal with the missing data and other problems of any decision can be dramatically improved related to the data-collection process. After by employing business research. The future preparing the data, a researcher has to feed of Indian retail at least partially depends on it into a computer spreadsheet in a pre- the realization of this fact and subsequent determined manner to execute the data analysis appropriate application of this tool in business. exercise. Preparing this data matrix through References the spreadsheet is also a scientific exercise and requires a lot of expertise and experience.
 “Future Group buys Transmart India warehousing business.” Economic Times, 12 December 2011.
8. Data Analysis The data thus obtained is analyzed using the appropriate parametric or non-parametric  “Online stores see strong business from nonmetros, villages.”Economic Times, 21 April 2011. statistical tools. 9. Interpretation of Result and Presentation of Finding The researcher interprets the result and nonstatistical findings derived from the statistical data. A meaningful interpretation of the result is a skilful activity and is an important aspect of research. The researcher has to determine whether the result of the study is in line with the existing literature. It is also important to present the findings in a scientific manner. Considering our example, the result could be that the prices of the products being offered are comparatively higher than those in other supermarkets.
 Nwokah, N. G.; Kiabel, B. D. and Briggs, A. E. (2009): Philosophical foundations and research relevance: issues for marketing information research, European Journal of Scientific Research, Vol. 33, No. 3, pp 429–437.  Aaker, D. A.; Kumar, V. and Day, G. S. (2000): Marketing Research, 7th ed. (John Wiley & Sons Inc), p 70.
Agriculture and FDI: Farmer’s Point of View
Abhay Shankar, Akshay Agarwal, PGP 2011-13 Indian Institute of Management Raipur
ecently, we have witnessed upheavals and debates on (not) allowing foreign direct investment (FDI) in Indian retail sector. Amidst the chaos, one of the most talked about communities, which many believe would be directly affected by the decision of the government, is that of the Indian farmers. The basic idea is that the retail giants would, to offer their consumers low prices, directly buy farm produces from the farmers, thus eliminating the middlemen. It is also believed by many that this would also benefit the farmers since they would be offered better prices. Besides, these huge organizations are capable enough to develop and maintain proper and adequate food infrastructure and supply chain networks in the country. But the ground reality might not be as simple. In pursuit of the true picture, we have met a few farmers and gathered their views about FDI as well as some common, but not so well-known practices followed in the fields. Dressed in a white shirt and gray trousers and wielding a Nokia, Prem Kumar Sahu, aged around 30, seems somewhat busy but calm, as he talks to us as well as receives frequent phone calls. He has been cultivating vegetables and fruits along with his father on their 6.5 acres land on Murra Road in village Datrenga near Raipur. He supplies the produce, which includes tomato, cabbage, cauliflower, banana and some other vegetables to Mohanlal Khillumar, an arthiya (middleman) in Shastri Market, a major fruits and vegetables mandi of Raipur. The transaction takes place three or four times a year and each time, Prem gets his payment in cash from Mohanlal around a week after the delivery is made. Some of the money he uses to pay the wages of the ten odd labourers in his fields and buy resources for the next crop, i.e. seeds, fertilizers, pesticides etc. When asked about the reason for this delay in the payment, Prem readily replies that the payment is made on the basis of the sales of his produce during the week. He gets, according to him, a fair price – the selling price sans an eight per cent commission that is kept by the middleman. The huge fluctuations in the market prices of
fruits and vegetables are a concern though, which at times, eat away the profits. And sometimes, in order to get rid of access inventory, the middleman sells the produce at prices lower than the actual prices. But Prem seems to agree that he has little choice. The produce, being perishable, must be sold without much delay. Besides, Prem and other regular suppliers of Mohanlal easily get credits of a couple of thousand rupees from the arthiya in case they run out of cash. So the farmers feel secured against the occasional bad yield, price hike in fertilizers, drop in the market prices of the produce, etc.
When asked about his views on the effects of foreign direct investment in retail sector on farmers, Prem seems unfazed, and after thinking for a while, he says that farmers might be benefitted but only if the retail giants buy directly from them. “But wouldn’t they have strict quality norms?” he quickly questions, clearly voicing concerns regarding the selective buying practices of the major retail players. In contrast, the arthiyas buy all of the produce regardless of the quality, and even sell some of the low quality vegetables or do number ka maal along with the good quality produce at the same prices. So strong is the trust between the farmer and the middleman, that Prem doesn’t recall selling to anybody else. He even claims that no farmer
in the village or the surrounding villages, in his knowledge, has ever sold to any big retail chain or store. He himself has never even thought of selling to anyone else, owing to the years of seamless business with Mohanlal. Prem also grows dhaan (paddy) on around ten acres of land that he has leased. The government buys paddy from the farmers through rural banks at minimum support price. Mr. Jai Kumar Sapara, who works at the nearest Bachat Bank in Boria Khurd, explains that each farmer can sell only upto 20 quintals of paddy per acre of land (the quantity cap varies with region and state) owned by him to the government. Some of the remaining produce, they again sell to the government, but under the names of other farmers who own land but do not grow enough paddy, and pay some commission to these farmers. If they are still left with some paddy, it goes to middlemen in mandis at prices 1520% lower than the minimum support prices. Prem readily agrees having been following the above practice from many years, adding that he doesn’t know, and is not even interested in knowing the commission earned by the arthiya in Pandri Dhaan Mandi in Raipur, where he sells the dhaan that he fails to sell at the bank.
quality paddy, and is mainly used for making chiwda (rice flakes) and other processed food products. This paddy has to be sold to millers at 20-40% lower prices as compared to the minimum support prices that the government offers for kharif crops. The transaction is done directly or through middlemen. Anil adds that even if FDI is approved and giant retailers enter the market, they would have to buy only milled rice for direct selling to consumers, and so, they would not be able to do any direct purchasing from the farmers. Instead, they would go to the millers. The same is true for other farm products unfit for direct consumption. The farmers would benefit only in case the retail players widen their scope of activities by getting the milling (and other processing) done themselves. The major impact of FDI in retail sector would be seen in the fruits and vegetable markets, as far as food sector is concerned.
Another interesting way for middlemen to make profits is to exploit the differences between the minimum support prices in the adjacent regions. For example, suppose region A has higher support price than region B. An arthiya would first approach the farmers of A who have spare selling capacity and determine the maximum quantity that could be sold to the bank in A Anil Chandraker, besides being the owner of a under their names. Then he would buy the same fuel station on Dhamtari Road, Raipur, is also quantity of paddy from farmers in region B at a farmer. He grows paddy on 75 acres of land, prices slightly better than the support price at producing over 1600 quintals. Since he uses B, but substantially lower than that at A. The high quality ‘foundation’ seeds, he is able to paddy would be sold to the bank at A and the sell most of the produce (around 1350 quintals) farmers in A involved in the transaction would to National Seeds Corporations Ltd, which pays get some commission. Thus the middleman and around Rs.500 more than the minimum support the farmers both derive benefits and the only price. The Seeds Corporation conducts several loser seems to be the government. rigorous tests before accepting the paddy. The reject goes to the government through the Both Anil and Prem react in a similar manner Bachat Bank, where only the moisture level is the when asked about their recommendations to criteria. The only farmers who sell to middlemen the government for the welfare of farmers. The are usually those who immediately need money major discontent is due to the recent steep price and cannot wait for the bank to start buying the hikes in agricultural necessities like seeds, produce (The bank procures from farmers from fertilizers, pesticides, fuel etc. They believe that around 1st November to around 20th January). in case these prices can’t be controlled, they Thus there is little involvement of middleman, must be matched with an equivalent hike in as far as the kharif crop (reaped in winters) is the minimum support prices. Secondly, there should be some system for providing relief to concerned. the farmers producing fruits and vegetables, But things change in case of rabi crop (reaped in similar to the ‘minimum support price’ scheme spring). The latter does not produce very good available in case of cereals.
FDI in Retail: Role of ‘MIDDLE MAN’ Anshu Katiyar and Harish Verma, PGP 2011-13 Indian Institute of Management Raipur
s far as FDI in Indian retail sector is concerned, the speculation levels are high but, again, these are the views of two farmers near Raipur(Read Article: Agriculture and FDI: Farmer’s Point of View), Chhattisgarh and might differ vastly from some other farmers. What we can conclude is that even if the retail giants enter India, it will be a new challenge for them to eliminate the middlemen, and perhaps, not even in their best interests. FDI in retail in India is perceived to be as a magic wand which will remove inflation, unemployment, commission agents, improve farmer`s condition and help the economy to recover from slow down. But considering the past records, FDI in retail is not going to bring big differences unless the firm tries hard to reach the farmers. Most of the big retails prefer to buy product from the middle men, the so called ‘Arthiyas’ rather than going to the farmers. These practices have made them the famous ‘Bad Boys’ of retail due to the commissions involved in the trade.
local wholesalers to the door to door vendors could clearly give a clear picture about the responsibility and complexity of job undertaken by these Arthiyas. They cannot be accused of charging heavy commission as they play an important role in establishing the market and organizing them. One can also say that from the present structure, they form an important backbone and a channel of goods transfer. Some might think it is unethical for them to charge such a high premium as commission without doing anything productive and would like to blame them for the so called inflation but their role is not limited to the market itself. They may
The middle men are blamed for the unorganised market conditions and enormous agricultural wastage as they rot either due to bad weather conditions or due to poor handling of the goods. Cold storage could turn things around as this would definitely prolong the life of the goods, but looking at the present facilities made available to farmers in our country we can realise that it’s farfetched from reality. Middle men are also accused of paying less to farmers of what they deserve but there is no guarantee even in the present bill that will ensure better condition to the farmers in our country. No doubt the bill may be drafted considering the interest of the citizens and the development of our country but only its implementation from the root level will create the difference by adding value to the society.
be the bad guys or could be better termed as the commission agents but they are considered to be very respectable in the market not because of their position and power but because they associate themselves with their suppliers (farmers) and buyers (local wholesalers and door to door vendors). Normally Arthiyas charge 5% commission of which 1% is being paid back to the mandi. Big retail chains can save this commission by procuring the products directly from the farmers thus saving expense and it could directly be transferred to the consumer in form of cheaper products. But how the condition of a farmer is going to be improved remains a big question. Even in the present scenario many big firms prefer buying from middle men rather Considering the present market size where tons trying to reach farmers. Now this is a tricky of vegetable and fruits are brought from various situation as in such situations the prices are parts of the country and are being sold from the going to increase than decrease, as it`s similar
to adding one high profile commission agent in the chain and the condition will become more adverse. When Mr.Rajender Kumar Mishra, a middle man himself was interviewed it seemed as if the government took no notice of such a group of people. A Master of Commerce himself, he has been in this business for 15 years and knows quite a lot of how the policies of the government would affect their business. He manages a basic storage as he mostly clears the stocks on a day to day basis where the quality of the goods is in the condition in which it was procured from the farmer and this negates the need of cold storage. Mr.Rajender also owns vehicles that aid in the delivery of goods across the state. We also found that the price decided by any the middle men are purely based on the supply and demand at that point in time, thus fluctuating often and approximately a daily volume of 60-80 sacks of 100 Kgâ€™s each clearance. He supplies to some retail outlets and hotels too. Mr.Rajender is firmly against the FDI stating that it will definitely affect his business and put its future in doubts. He also claims that the policies are corrupt and has no relevance to ground realities. Unhappy with policies and taxes levied, Mr.Rajender suggests that the government should shift its focus on helping traders rather than levying taxes, which seem to be quite a valid point.
other community functions. So now it`s not the pure business we are talking about it`s about the emotional bonding which is created between farmer and arthiyas over a period of time. There are farmers who have been associated with some specific arthiyas for generations and farmer won`t be able to leave such strong bonding for petty gains. Lot of local wholesalers and local door to door vendors also purchase the products on credit, roughly they are given a time of 7 to 8 days to pay their debt. A normal note book is being maintained where each vendor registers his name and signs at the time of collecting goods, while at the time of paying, the collector put his signature to clear him from the debt. It`s not so easy to deal in these accounts as crores of rupees are at risk and no organisation can think of working in such manner. These farmers and local vendors are totally dependent on the arthiyas for the credit sales as they do not have sufficient fund to invest in their business. It is amazing to see such an untraditional banking system working in the market in very efficient and effective manner where there was no case of cheating or fraud being heard as everyone knows each other very well.
Quality of the product could be another factor to be considered as many times it does happen that due to poor infrastructure and facilities the crops get affected which results in poor production of quality or quantity. As the big retailers are renowned for their high standards and their A share of the Arthiyas may not have access to practice to cherry-pick the best product, what formal education but the vast knowledge they will happen to the crop which is slightly below possess in the field of their expertise gives them their standards? Where will the farmer find the an upper edge, they can state the difference market for such products? between the similar looking fruit/vegetable and which will last longer and thus know which There is no doubt that the consumer will get the product they need to sell first. This knowledge best product on the shelves and they should helps them in managing the inventory wisely get it as they are paying hard earned money in these huge unorganised markets. But this is for buying the product. They should not suffer not the end of the story as the most important for the flaws in the system, but isn`t it the part played by these arthiyas is as follows; they responsibility of the government to provide the are considered to be the financiers in the market necessary infrastructure and equipment to the as they lend money to the farmers for buying farmer so they are able to provide the best quality the seeds and fertilisers at the time of crop product in the market. Looking at the farming plantation, they even pay for sacks which are conditions available in our country where the used to store and carry grains. Cash in lakhs are farmers depend on rain water for irrigation, given many months in advance to the farmers. traditional methods are used for farming, they Arthiyas also give them money for building do not have access to good quality seeds or in their homes, for buying cattle, for marriages and some cases farmers lack funds needed to buy
seeds and fertilizers. Electricity is still a distant picture for majority of the villages and the dropping water level adds to their misery. Few places are suffering from floods and few from drought in such adverse conditions how can we believe that making policy will help the country grow and will equip them completely in the global market. How can we dream of a shining India? The necessity of time says we need to be strong enough in implementing the policies and monitoring them at regular intervals as it`s not the poor policies which lead to the failure rather the poor implementations of the policies which make things miserable.
big retailers are revising their plans and are looking for various alternatives to enter India. Similarly Government of India needs to make things more transparent as to how it will help the citizens and an action plan which could aid in the development of India. The bigger worry will be the way in which the bill would be implemented which has always been a debacle for India.
Unless we are clear with our action plan for the near future we won`t be benefitted from the huge investments to be made by the big firms in India. To cash it in for the best interest of the nation we need to improve our basic infrastructure because only then will we be able to fight at the international level with the standard quality and quantity of our product. Clearly we need to lift our standards as the world has become a global village thus we can`t expect our government to protect the domestic market by trade barriers for longer duration as itâ€™s a hindrance to the national growth. Thus we need to work together and improvise our standards making India a premium brand not just by drafting bills and allowing the foreign brands to capture our markets rather competing with them on the level ground. The bill is still in the box and a consensus needs to be reached before it could be implemented but before that there are quite a lot of facts that needs to be made clear as people are still not sure about how the bill will help them in developing their business. For instance it is being stated that foreign retailers can wholly own their business but need to source 30% of their product from SMEs with revenue not exceeding Rupees 5 crores but considering the size of the product required by these big retailers, if a supplier meets their demand he will cross the Rs. 5 crore mark very easily and would no longer remain a SME. If the retailers go for several suppliers it will be difficult for them to maintain the uniform quality among their products which may hamper their brand image and the trust created over decades. Many
Quick Fact: Workers in China cost about 92 cents an hour compared with $1.2 in Thailand, $1.7 in Mexico and about $21.8 in the United States. Only India among the major export countries, at about 70 cents an hour, is cheaper.
Implementation Strategy for Logistics Hub at Raipur
Aditya Kumar Konathala and Ranjit Kumar Ram, PGP 2010-12 Indian Institute of Management Raipur
hhattisgarh economy has witnessed fast paced growth over the last decade, making it one of the preferred investment destinations for multinational corporations and a recognized industrial hub to the world. Chhattisgarh is the central hub for steel, iron, power, aluminum, medium scale industries in India. This, in turn, has resulted in increased demand for world-class logistics and warehousing services at Raipur, the capital city of Chhattisgarh. Chhattisgarh State reveals a well connected
Truck Terminal, Warehouses (Open/Covered), other facilities such as Commercial Area with provision for Office complex, Maintenance Workshop for equipments & Cleaning, Auto Service Centres with Spare Parts& Accessories and so on.
region in terms of three modes of transportation (rail, road and air). The Raipur region is strategically located in central India with the Mumbai â€“ Kolkata rail link and the major eastwest (NH-6) corridor connecting Surat/ Mumbai to Kolkata passing through it. Chhattisgarh Logistics Hub, project site is located between NH-6 and Raipur-Vishakhapatnam Main Broad Gauge Rail Line, at the northern boundary of Naya Raipur City. As a part of the Logistics Hub, NRDA (Naya Raipur Development Authority) is planning to establish a Railway Siding,
of various modes of freight transportation â€“ viz. roadways, railways, ports, waterways and airways. The report also examined steps that can achieve increased efficiency and ensure a more balanced and planned growth of the logistics sector.
Today, the biggest challenge before the logistics industry is to increase efficiencies and become more cost-effective, thereby increasing overall cost arbitrage. We presented the SWOT analysis
For an efficient and effective Logistic hub at Raipur, we presented the supply chain network design and Multimodal Distribution Planning with Cross-docking, which are critical
in facilitating coordination among suppliers, manufacturers, distribution centres and customers.
dedicated autonomous body that stimulates the development of the entire hub.
An optimized distribution centre model will help in reduction in logistic cost in addition to this facility. Since there will be two kind of flow handled by logistic hub at Raipur – Goods which will be exported from Raipur to all over India or outside India, Goods which will come from outside India or all over India to Raipur or Chhattisgarh, we proposed an Intermodal logistics model that use transportation costs, ﬁxed location costs, modal connectivity costs, modal transit times and service time requirements, for three modes of transportation: road, rail and air. The inherent benefit of There is a need for national logistics strategy intermodal shipments lies in the cost advantage that can improve efficiency and lower costs, in obtained by the joint use of multiple modes of order to achieve high customer service at low transportation: road, intermodal rail, air and cost. This strategy aims at aligning diverse state ocean freight. and central government policies, set targets for the growth of this sector, chalk out roles Thus logistics hub will improve the for the public and the private sector, focus on transportation capability of the region, enabling infrastructure development and facilitates the it to provide alternative transportation modes with improved levels of service, capitalizing entry of new players in the logistics industry. on the existing industrial and agricultural Emphasis has to be on creating the need to production capabilities within the catchment meet operational challenges by adopting area, while providing a new focus on higher world-class technology and business processes value added goods for the major target markets. The total number of truck registered in Chhattisgarh are more than 40000. Out of the total, 35000 trucks are operated from Raipur and rest are from Raigarh, Jagdalpur, Ambikapur and other places. Out of the total number of trucks, 70% are in Out-Bound and 30% are engaged in In-Bound Services. Approximately 7000 move towards Allahabad, 5000 towards Orrisa, 8000-9000 towards Maharashtra, rest towards Ramanujganj, Konta, and other places of the country including Andhra Pradesh.
in establishing a successful distribution and logistics hub at Raipur. For instance, the procedures to obtain railway and airport cargo clearances will need to be improved immediately through exercises such as business process reengineering. In the longer term, the State will need to match the performance of international hubs on aspects like on-time delivery and easy access to information for users. Practices like using Electronic Data Interchange (EDI) for submitting forms and checking delivery status will have to become routine. In addition, there is also a need to significantly expand the skills of staff working in the hub as well as ensure continual retraining.
Chhattisgarh logistics and distribution hub is a logical extension of the overall infrastructure initiative and a tangible way for the State to jump-start trade. It will also play a vital part in the success of many growth engines with an emphasis on exports, such as poultry, horticulture and labor intensive manufacturing industries.
(The above article is an abstract of the research paper “Implementation Strategy for Logistics Hub at Raipur”. This paper was selected for the finals of the International Operations Conference organized by IIM Calcutta and There is a need to create an autonomous body Society of operations Management, India on to manage the hub. The success of the hub will Dec 16, 2011) depend not only on the efficient functioning of its individual components like ports, roads, railways, airports, etc., but also on how these facilities are leveraged in tandem. The best way to achieve this would be to set up a
E-Tailing in India Vishal Singh, PGP 2011-13 Indian Institute of Management Raipur
Abstract : This article gives an inside view of the e-tailing industry in India, its growth prospects and current scenario. With the high growth potential of the e-tailing industry this article also cites certain examples from the industry explaining how this potential is being utilised by the traditional and new start-ups. How the growth is happening in India in e-tail through the tier 2-3 cities is also being explained in the article. And at the end, general aspects like how the e-tailing happens, advantages and challenges of the e-tailing business in India are explained.
-Tailing (short for Electronic Retailing) is defined as selling of retail goods through internet where the buyer and seller are not at the same physical location. Some of the goods sold though internet are like computer hardware, cinema, Books, Music cassettes / CDs, travel tickets and gifts etc. In India where the internet user mark has crossed 100 million and is expected to grow to 300 million mark in next three years according to the Internet and Mobile Association of India (IAMAI) growth potential of this business is immense. Real time facts also support this assumption e.g in year 2011 total e-commerce business in India was around Rs 46,250 crore, a growth of 47% with respect to Rs 31598 crore in year 2010 exceeding the expected 10-15% growth per year. Out of this Rs 46,250 crore business at Rs 2,700 crore, e-tailing accounted for around 6% of the total net commerce market, but is expected to grow more than 30% in coming years. According to the Industry experts apart from popular items like mobile phones, books, and electronics the trend of selling fashionable items like jewellery, accessories, apparel and footwear is catching fast in India. The reason being the brand preference, ease of selection and shipping make this category a preferred choice for online transactions. For example
seeing the huge potential in the e-tailing market retailers like Shoppers’ Stop, Globus, Gitanjali and Futurebazaar are looking at expanding their online presence like Shoppers’ Stop is looking at increasing its reach to more delivery locations, convenient payment methods, and better integration with its stores. Over the next 3-5 years, Shoppers’ Stop expects its online business to be equivalent to one of its larger stores. FutureBazaar.com, the e-commerce arm of the Future Group, that links to its stores including eZone, Pantaloons and Big Bazaar online delivers goods across 1,500 cities and towns in India covering 16,000 PIN codes. Apart from these traditional retailers several start-ups offering multi-brand products like flipkart.com, Snapdeal.com, fashionandyou. com and Naaptol.com. are also cashing in on the growth potential of the e- tailing industry. For an example Flipkart which has now become India’s Amazon sells 30,000 items a day with more than 2 million registered users. The rapid growth of e-commerce industry has attracted huge investment in past years in India e.g in 2011 alone $350 million investment was done into 57 internet startups which is more than the collective investment of the past four years. E-tailing is the second fastest growing online commerce segment after online travel bookings, say industry experts. In 2011 $3 billion worth of e-commerce was transacted and this is expected to grow to $20 billion in coming 5-7 years with 12-15% contribution of shopping through online. Globally with 100 million users, India ranks third in terms of total number of users in a country and this number is rapidly increasing. Rapid internet penetration and demand in the tier 2-3 cities and rural parts of India are fuelling the growth of e-tailing industry. In
tier 2-3 cities where there is brand awareness but no availability of products and services the demand supply gap is very high which is giving an opportunity for growth for the e-tailing companies. Online retailing portals such as eBay.in, Snapdeal.com, and Naaptol.com are registering anywhere between 40 and 60% of their sales from rural areas apart from the tier II and III cities like Vadodara, Faridabad. Jaipur, Visakhapatnam, Kanpur and Lucknow. According to eBay India Census 2010, about 3,296 Indian cities shopped on eBay last year, of which 2,234 were tier II and tier III cities, and 1,045 were rural towns. In order to understand the e-tailing business there are various aspects which are required to be known which are as follows: How does e-tailing happen ? After logging in to the company website, consumers order the product that they want after browsing through the options available. Goods are delivered through couriers or any other logistics partners. Payments are made either on delivery or upfront online through credit cards with links to secure payment gateways. E-tailing provides advantages for both sellers and buyers. Buyers are benefited as products offered on e-tailing websites are usually 10-15% cheaper than traditional retail stores or shops. A wide range of products are available to choose from and sometimes virtual modelling options are available to help trials in some cases. Information about the products is easily available on internet because of which consumers are sure whether they are buying the right product or not. It saves time for the consumers to shop while sitting at home and not spending time going outside searching and buying the products and devoting this saved time into their professional and domestic more important work. E-tailing helps companies save substantially on overhead expenses that include real estate rentals, staff salaries and store maintenance expenses, while also saving time. In retailing, as much as 50% of the initial investment could
go towards acquiring real estate. But, online retail only asks for brand trust, nothing more. E-tail gives a wide customer base for the company as the site can be accessed from anywhere in India or in fact any part of the world therefore building nationwide presence for a brand, even in far-flung places for example Bata boasts of e-tail sales from the Andaman and Kashmir. ‘Out of stock’ chances are low as the goods are delivered direct from the warehouses. The basic requirements for an e-tail business are:Building the Suppliers base- For every business a good supplier and distributor base is important for smooth functioning of business. And in e-tail business where products are almost always sourced from suppliers in real time and as and when the customer places an order and major part of business is the delivery of goods building a good supply chain base becomes important. Building Infrastructure for OperationsBasic infrastructure like company offices, warehouses at strategic locations are required for the e-tail business. Since delivering of goods at consumers location in an essential part of business tie-ups with major courier companies is also important. Use of Information system: Use of technology is an integrated part of e-tail business. Companies use sales to predict the inventory levels. All parts of business unit need to be integrated to know when, where and which item’s stock needs to be replenished. Use of technology to track the delivered good is also important. The customer needs to be updated about the status of his shipment via email or on the website. Major challenges for E-tailing are :Lack of trust among consumers Security of online transaction Many consumers want to ‘touch, feel and trial’ products before buying. In spite of 100 million users, new users may not readily start shopping online
Interview with Mr. Arvind Singhal About Mr. Arvind Singhal Mr. Arvind Singhal is Chairman and Managing Director of Technopak. He has done his Engineering from IIT, Roorkee and MBA from University of California, Los Angeles, USA. He has more than 30 years of experience in the industry. He is a regular contributor to various national and international publications that include Wall Street Journal and Washington Post. He has also been writing a fortnightly column for Business Standard for the last 10 years and now a monthly column for Economic Times. He regularly addresses Indian and International conferences and has given guest lectures at leading educational and other Institutions in India & abroad including Harvard Business School (USA), Wharton (USA), ESADE (Barcelona), various IIMs and IITs etc., and the Vatican (Italy). Strive: Please let us know your views on the Government’s latest decision to allow 100% FDI in Single-Brand Retail? Mr. Arvind Singhal: In my opinion, this decision taken by The Government is meaningless because of the riders attached to it. Take the condition of 30% sourcing from Small Scale and Cottage Industries. This condition is infeasible to achieve. Ikea, one of the World’s largest retailers for example sources tens and thousands of products from multiple vendors located at several locations like China and Europe and these vendors need to be highly competitive. If Ikea were to source 30% locally, the vendors need to have high quality and need to be highly efficient. If these vendors were to invest more than US$1 Million in their plant and machinery, they would no longer remain Small Scale and Cottage Industries. No Retailer would want to develop so many vendors. Luxury Brands like Lleyton Hewitt don’t even outsource. Recently, I read an article about how By law, Swiss Watches can’t be called Swiss Watches as most of the components are produced and assembled outside Switzerland. The decision taken by the Government is infeasible and has no relevance. Strive: What is your opinion on whether Government should allow 50% FDI in MultiBrand retail?
Mr. Arvind Singhal: The Government should allow 100% FDI in all sectors other than those that are of strategic importance. It hardly makes a difference whether a foreign player or an Indian player sells some products. Both have the same dangers, then why should there be a distinction between the two. Dumping can’t be done as Indian laws are strong enough to prohibit them. Companies can’t affect pricing because of excise rules and MRP of products. Such issues have not happened in any other country and hence this discussion is irrelevant. Rather, the policy should encourage small and medium-retailers against the large Retailers. Strive: What according to you are the advantages and disadvantages of allowing FDI in Retail Sector? Mr. Arvind Singhal: The decision of allowing FDI in Retail Sector has no disadvantages. It has only advantages. Firstly, it will aid in reducing prices. The country suffers from Inflation and it can be controlled if the foreign retailers bring the vendors in India. Secondly, Competition in the retail sector is good for the consumers. Strive: Please give us a glimpse of the current state of retail Sector world-wide and how is it different/similar to that of India? Mr. Arvind Singhal: No country has restrictions regarding ownership. Retail sector is one of
the largest employers in the world. There are fears that large retailers have impact on local communities. But this has happened only when these retailers are large and dominant and hence restrictions have been imposed on them in the small cities. It has been observed that as the economy slows down, it has an impact on
consumption which leads to increased stress among the retailers. In addition, Europe and USA have started to see an impact of online retailers as consumers look for cheaper goods. Hence, the Retail Sector world-wide is not very good. Strive: How is the overall environment, especially from the investment point of view, in India? Mr. Arvind Singhal: The overall environment from the investment point of view in India is largely subdued. The indicators are not good. The Index of Industrial Production grew by just 1.8% y-o-y in Decemberâ€™ 2011 compared to 5.9% increase in Novemberâ€™ 2011. There is a lot of negative news in the market and concern among
both the Indian and Overseas Investors. While the Government may claim the investment environment to be good, Investors need Stability and Good Governance. The Environment needs to improve. Strive: What do you think should be the entry
strategy for Foreign Retailers who want to enter into India keeping into consideration the various obstacles and challenges faced. Mr. Arvind Singhal: Foreign Retailers need to understand that India is a good long term story. There is diversity in buying behaviour of Indians and understanding of Consumer Behaviour is important. This requires a lot of patience and perseverance. Beyond this, the strategy of different retailers would be different depending on their business. Strive: Do you think that the Present state of Infrastructure and Supply Chain is sufficient enough to support the future growth in the Retail Sector? If no, Please let us know some recommendations for improvement. Mr. Arvind Singhal: The state of infrastructure
in India at present is insufficient. You can see that the price consumer pays for could be 200% - 400% of the price that the farmer gets. For instance, In Punjab, Haryana and Northern India farmers are dumping potatoes on the roads. On the other hand, potatoes are available at Rs. 3-4/ kg in Delhi Mandis and at Rs. 5/kg in Retail shops. Farmers don’t even get Rs. 1/kg for what they produce. The delta between the point of production and the point of consumption is quite significant. This leads to a lot of wastage. Once the proper Infrastructure is established, the farmer may or may not get more. But, at present there is a lot of wastage and middle men in the Supply Chain which need to be removed.
B-Schools you see students focussing on weekly tests and hence their vision is not long and is quite measurable. A job is meant to be for years and decades. But, we see young managers asking for increments after a few months and switching jobs in months. Young Managers want excitement in their life. Any sector has ups and downs and employers do well sometimes and not so well at other times. Managers need to learn and develop their competence slowly and steadily. (As told to Rohit Bhagat)
Strive: Some experts say e-commerce has a vital role to play in the retail industry ahead. What is your opinion? Mr. Arvind Singhal: E-Commerce plays a significant role in the Retail Sector. In the next 4-5 years, it will be the most dominant form of shopping. Not just 20-30 cities in Urban India, but 300-400 cities will go online. The Online retailers don’t face any limitations in terms of space. Consumers also prefer e-Commerce as they have to pay reduced prices and it is convenient for them sitting at home to order what they want. The prospects of E-Commerce are bright. Strive: Please give some advice to Budding Managers. Mr. Arvind Singhal: Surely, I would be pleased to do so. Firstly, I would advise Budding Managers to become Experts in a particular field and not just Generalists. By this, I don’t mean specialisation in Finance or Marketing etc. They should gain competency in an Industry. E.g the Healthcare Sector is expected to do well in the next 10 years. Now, the Budding Managers should learn how to manage the business issues of Healthcare. They should understand the Supply Chain of Healthcare which would be quite different from that of an FMCG, or the Marketing of Healthcare would be different from the Marketing of Telecom and similarly the HR Issues again would be quite different from those of other sectors. Hence, it is important to develop expertise in a sunrise industry. Secondly, I would advise them to not run life like a 100 metre dash but like a marathon. In
Domino’s - Story of Success in Retail Ajay Kaul, CEO Jubilant Foodworks Ltd.
Mr. Ajay Kaul is the CEO of Jubilant Foodworks Limited (formerly Domino’s Pizza India Ltd.). Mr. Kaul has over 20 years of Experience in Industries such as Financial Services, Airlines, Express Distribution and Logistics and Food Retail. Prior to joining Jubilant Foodworks, he was working in Indonesia as the Country Head of TNT Express Division. Mr. Kaul has been Whole Time Director of Jubilant Foodworks Limited since March 14, 2005. He holds a Bachelors Degree in Technology from Indian Institute of Technology, Delhi and did his MBA from XLRI, Jamshedpur. Mr. Ajay Kaul has won CEO with HR orientation award in Asia’s Best Employer Brand Award – 2010 presented by World HRD Congress, ‘Retail Professional of the Year 2010’ award presented by Franchisee India and ‘Entrepreneur of The Year 2010’ award, presented by Ernst and Young.
n December 2011, Domino’s sold over 5.5 million pizzas in India, the highest monthly sales so far in the country. The brand has enjoyed 31% same-store growth and 51% system level growth in nine months of FY 201112. Such success has become a routine for Domino’s in India. But things weren’t always this way, especially when the global giant was entering the country back in 1995. The competitors were many – fast foods like burgers, street foods like chats and samosas, south Indian snacks like dosas and also the traditional food cooked at home. In fact, Domino’s had to shut down in twenty
cities after year 2000. Thus it was operating 100 outlets in the country in 2000, and again the same number of outlets in 2005, while it was starting to recover. The major reasons for this set back were weak operations and supply chain. Unlike most retail products, the last mile value addition is very crucial in case of pizzas. This necessitates the presence of an efficient and robust supply chain network for the success of this business. Another issue was an acute shortage of trained manpower. Add to these the inadequate cold storage infrastructure in the country, and quality complaints also entered the picture. When Domino’s entered the Indian market through its franchisee Jubilant Foodworks (erstwhile Domino’s Pizza India Private Limited), it faced a double challenge – 1. To create a completely new segment in a market which was completely alien to the concepts of pizza as well as home delivery and 2. To establish Domino’s as the leading brand in this segment. In the beginning, the message communicated to the people was “Hungry kya? Domino’s Kha!”. The goal was to ingrain Domino’s into the psyche of the Indian consumers as a quality food provider. All the promotions including TV commercials reflected the same message. In fact, the delivery services offered by Domino’s were not pitched in order to avoid confusion among the consumers. This stage can be aptly called “Functional Laddering” as the brand was making its way into the minds of the consumers by fulfilling a functional requirement – hunger relief. Once the brand had established itself in the market, the other very important part of its service had to be highlighted. Thus came a
string of TV commercials with the slogan “30 Minutes or Free”. The concept itself made sense to very few people. The pizza had to be delivered at the consumers’ doorsteps within 30 minutes of placing the order, and if delayed due to any reason, it had to be delivered free. It simply defied logic due to more than one reasons. Firstly, giving away free pizzas was not profitable. Also, given the problems associated with traffic, bad roads, weather conditions etc. a lot of pizzas could go out for free. Secondly, this service could be provided only in a limited area around each outlet – 2.5 km radius/8 mins drive time (also called Lakhsman Rekha in company parlance). Thus Domino’s was actually refusing to take orders from the consumers outside this zone, even if they were not asking for the “30 minutes or free” service but just a delivery. This was a very difficult task for any store manager because it contradicted their fundamental goal – to meet the monthly targets. Needless to say, there were a few deviations, especially in the beginning, in complying with the new rules. But the management had their minds made up. A very strict militarylike regime was established to train the store owners and their staff members. Also, a culture of celebrating the first free delivery was introduced, which aimed at getting rid of the stigma one would naturally associate it with. An interesting rule in Domino’s is that each quarter, everyone in the senior management has to work in one of the stores as a staff member. This serves the dual purpose of understanding the customers first hand as well as absorbing and refreshing the unique cultural traits of Domino’s. Apart from combating the operational issues, i.e. enforcing new rules and developing a fresh culture, the “30 minutes or free” concept required a robust logistics and supply chain network. It is worth noting that on an average,
15 minutes go into the preparation of an order. 8 mins are reserved for delivery time, giving buffer of 5-6 mins for bad trafiic conditions. The stores’ locations played a very important role here and hence they were strategically placed. Latest softwares are being used to select the quickest route for each delivery. A “happiness hotline” has been created, which can be reached by the all-India number 68886888, which then redirects the call to the Domino’s store nearest to the caller. This not only saves the customer from the trouble of finding the contact number of the nearest Domino’s, but also ensures that the order goes to the nearest outlet and not any other outlet. Another problem that cropped up in the earlier days of implementation was the occasional delayed, yet “non-free” delivery. The reason, not surprisingly, was the kindness of the customer because of the misconception that a free delivery would result in penalties
against the delivery guy. To tackle this issue, every delivery boy was provided with a badge stating that he would not be fined for delivering free and was made to compulsorily wear it while delivering any order. Despite all these hurdles and complications, Domino’s has been maintaining an impressive “non-free” or on time delivery rate of 99.3%. The remaining 0.7% deliveries do look like an operational loss, but in reality, this loss represents a completely justified marketing expense. The number of free deliveries is monitored at the CEO level on daily basis.
While Domino’s was engaged in establishing its brand and supply chain network, it constantly innovated to introduce new products - the cheese burst pizza was named as the best product launched by Domino’s worldwide in 2006. Pizza Mania, or Rs. 35 pizza, aimed at penetrating the market, was launched in 2008. The next step was to enter the emotional space of the consumers’ mind, i.e. “Emotional Laddering”. This step involved showing the consumers that Domino’s provides more than just food or pizzas, it delivers happiness. The new slogan was “Khushiyon ki home delivery”. The commercials associated with this strategy highlighted the emotional aspects of happiness and sharing on any occasion. Needless to say, the strategy has worked quite well, and from the mere 100 outlets in 2005, Domino’s is now operating over 400 outlets and has plans well in place to aggressively grow year on year. During this exciting journey in the Indian market, Domino’s also set some other milestones. Jubilant Foodworks Ltd. is the only food service company to be listed on the Indian bourses. Domino’s Pizza India was globally rated amongst top 3 in Operational Excellence, consecutively for 4 Years by Domino’s Pizza
International. It was also awarded as the most Admired Retailer of the Year: Foodservice bestowed by Indian Retail forum at the 8th annual Images Retail Award and has been recognized as one of the 10 brands that have changed the consumer behaviour and set new trends in last decade, presented by Brand reporter & agency faqs. Domino’s India has also started online ordering system for pizzas, which serves the following advantages: 1. Domino’s employees do not need to engage on phone and explain the customers about the pizzas, add-ons, prices, varieties etc. 2. The customers get the visual descriptions of the products along with the prices, offers etc. Apart from making the choice easier for them, it prompts them to order more. Around 7-8% of the delivery orders in the country are being made online and this number is growing fast. To add another colorful feather to its cap, Jubilant Foodworks has already become a franchisee of the coffee and donuts giant Dunkin Donuts and will be bringing them to India this year itself.
Mr. Ajay Kaul addressing the students at IIM Raipur
Retail in China: What India can learn? Kriti Singhal and Umesh Chopra, PGP 2010-12 Indian Institute of Management Raipur
Abstract With highly effective government stimulus action in place, China’s economy was the first to rebound from the economic downturn among the major economies in the world. The official GDP growth rate reached 8.7 percent, surpassing the country’s growth target of 8 percent. China’s retail industry in particular demonstrated remarkable topline growth but also suffered serious margin compression. Although Chinese consumer confidence fell dramatically as a result of the global financial crisis, it was boosted again by the recovering global economy, as well as by central and local government policies designed to stimulate domestic demand, maintain growth, and restructure certain industries. Traditionally China’s retail was as fragmented and unorganized as what is India’s retail in the present times. But it survived the liberalization in terms of foreign entry into its market. Indian can learn a lot from them and perhaps implement before going further with liberalization.
owned supermarkets emerged. Food retail was opened to 100 percent FDI in the late 1990s and global retailers like Tesco, Walmart, Metro and Carrefour were quick to enter. If we look at this timeline, the Chinese retail environment is about 15 years ahead of us. Looking at their market today might give us a rough idea of how FDI in retail in India will be in the coming years. Despite an inconsistent policy environment and difficulties in tackling with the Chinese bureaucracy, foreign players have been fairly successful and have opened almost 3000 stores in mainly the wealthier coastal cities. Most are now turning a profit, although only after adapting to local customs and preferences. Their outlook is positive and they look to expand operations significantly in the near future. However, in spite of this success, they account for only a tiny fraction of the overall food retail market. They have been unable to challenge local retailers like Lianhua, Non-gong-shang and Wumart for market dominance and it is unlikely that they will do so in the near term.
fter a recent series of mishaps created by the Government of India and opposition alike on the issue of FDI in retail, a Continuous provoking thought is still there. Are we overestimating the impact that FDI will have on the existing Indian retail structure?
Apart from bringing their own expertise to Chinese shores, their presence has also benefited Chinese retail indirectly. To compete with the global players, the incumbents were forced to improve customer service and product quality while reducing costs, all of which has Our retail markets are disorganized but it is vast. led to greater efficiency in distribution and Is it possible for a single entity like Walmart to streamlined supply chains. The customer has emerge as a dominant player, even if it has a lot also benefited from more choice at the store and of luck, unlimited capital and a vast amount of product levels. expertise? Apart from establishing a full-fledged business, it would have to fight both organized At the same time, because the market is so and unorganized local players, who will contest large and growing so quickly, organized retail, with foreign players in every possible way. whether local or foreign, has been unable to Haven’t they shown their efforts by forcing the displace the traditional mom-and-pop stores. Even today, hypermarkets, convenience stores government to put FDI thing on ice? and other examples of organized retail make To understand what might happen to our up less than half of the urban food market. structure let’s look at China, historically it had Their presence in rural China is much smaller. a vast and fragmented retail structure. The The organized sector has been growing rapidly Chinese began liberalizing retail in the early – some estimates put growth at 30 percent 1990s, when the government began dismantling annually – but has barely been able to keep the state-operated system and the first privately pace with the surging expansion in demand, itself is a consequence of China’s rapid growth.
The organized sector has thus captured a large proportion of the growth in retail, but has been less successful in replacing traditional less-efficient retail networks in their historical stomping grounds. The retail pie has been large enough for everyone to get a slice. China has one of the most lucrative and rapidly growing retail markets in the world with the retail market growth at around 18.6 per cent. Despite the global economic downturn, China’s retail sales hit $1.8 trillion in 2009, up 15.5 percent year on year. Some of the major Chinese retailers are Suning Appliance Group, Gome Electrical Appliances Co. Ltd, Bailian Group, Dashang Group. The booming economy, increasing income levels, deregulation of retail sector and increased confidence of Chinese consumer still makes china a lucrative market for international retail players. The Chinese retail sector comprises of almost all the retail formats. The customary large-sized departmental stores continue to serve a large section of the population. The hypermarket & supermarket format of organized retail is emerging to satisfy the demand and provide an alluring shopping experience. The supermarket chains, specialty & convenience stores are also blossoming with the change in the consumption patterns. According to the data analysis reports, the growth rate of consumption of China has been around 6.9%, the highest in the world and is an indication of the extensive room for the market growth in the country. In the future, China’s retail market will continue to share the benefits from the fast development of China’s economy and increasing personal consumption. The factors that have primarily contributed are rapid urbanization, increasing middle-class population and improving social security system and moderate inflation helps retail sales
growth. The retail sector rules and regulations related to business records, capital investment, fixed establishment, personnel compensation and products have been explicitly mentioned by the Chinese Government which makes the foreign entry in this sector, a complicated but an extensively planned venture. PRC government regulations restrict foreign investment in certain sectors but offer opportunities in others such as e-commerce, fuel stations, and drug retailing. China’s retail drug sales increase at an average rate of approximately 15 per cent and the government’s intention to transform the fuel stations to service stations provide for huge growth opportunity. Although the licensing process for foreign investors is very complex and strict, still the Chinese Government provides its best support for the development of the retail industry in the country as exemplified by its conducive policies. In its 12th Five Year Plan, China’s government is committed to increasing the proportion of household income in the national income and salary income in total income. Other major initiatives include boosting the domestic household consumption by implementing unprecedented policy initiatives to raise Chinese residents’ disposable income, build a well-developed social safety network, push the development of economic housing and promote consumer finance. Another feature of retail sector in China is its highly fragmented nature and is composed of many small and medium-sized retailers. The highly fragmented retail markets in China provide a compelling opportunity for investors as each one has different market demands, consumer behaviors and the competition levels. Retailers in China need support from efficient business partners like distribution, Supply chain management, 3PL solutions, etc. Something which is very unique to China
retail is the channel diversity, with chains and franchise retailers capturing only a part of the retail value. Niche malls, for things like computers, accessories, and parts, or flooring and wall coverings, are also becoming branded chains, but they only brand and rent the space, occasionally distribute or warehouse goods. They are retail-relevant brand owners but they do not engage in retail themselves. The retail might look very lucrative in good economic conditions. But during bad times it becomes zero-sum game with big players. In the year of financial crisis, many retailers focused on increasing sales volume and shifted their focus of expansion to IIIrd and IVth tier urban markets. The central and local government policies were redesigned to stimulate the domestic demand, maintain growth and restructure certain industries.
competitive. Looking at the story of China retail, foreign players may not be as much as a threat to retail as perceived by the media. Foreign players and Indian players alike have to understand the cultural and culinary environment of India. Everybody has to prove that format is helping Indian farmers and consumers alike. We hope that we can learn from the struggle and success of China retail and implement the learnings and improve the flaws in our system. References: 1. Delloite: China powers of Retailing 2010 2. Insight (April 2011): Cracking the Chinese Retail Market. 3. AtKearney (2011): Retail Global Expansion: A Portfolio of Opportunities
A key point is that the top 100 chain retailers in 2009 actually underperformed the sector average. Their sales totaled 1.36 trillion RMB (USD 199 billion), up 13.5 percent annually, also underperforming the Top 100 increase in 2008 of 18.4%. The top 100 accounted for 10.8 percent of total domestic retail sales. Within that group, the Top 10 chain retailers demonstrated an aggregate sales growth of 10.1 percent, even lower than the 13.5 percent total sales growth of the Top 100 chain retailers. The fact that sales by the Top 100 chain retailers accounted for a reduced percentage of total sales of consumer goods, combined with the fact that the Top 10 accounted for a shrinking proportion of sales in the Top 100, seems at first mystifying in light of the fact that consumer confidence is increasing in China, and the Chinese customer has ever more disposable income to use towards the purchase of consumer goods. Retailers should be having increasing success as opposed to diminishing sales. The reason is that retail sector in China is becoming more diverse and
Quick Fact: Coffee was not the drink of choice until Starbucks came to China. But now, Shanghai and Beijing have more than 2 dozen Starbucks.
Amul : Organized Retail S.Madhula, PGP 2010-12 Indian Institute of Management Raipur
Abstract Started in 1946 with the objective of preventing farmers from corrupt middlemen, Amul is still striving to provide the maximum benefits for the farmers through its innovative methods. Amul has already spurred the White revolution of India, which has made India the largest producer of milk and milk products in the world. Adding to its cooperative union, supply chain practices, innovative products and ICT usage, the latest in the row is their Amul preferred outlets (APOs). They are aimed at effectively facing the shift that is currently happening in the food retail in India and the effect of the same against the milk producers. Amul has already succeeded in establishing several thousands of APOs at their preliminary strategic locations throughout the country within a short period of time. And now they are aiming to take these APOs to the neighborhood of each and every customer before 2020, thus paving way for the second white revolution in the country.
ujarat Cooperative M i l k M a r k e t i n g F e d e r a t i o n (GCMMF), the owner of the Amul brand is so far well known in the country for their successful cooperative network with interlocking arrangement and Supply Chain mechanism, where they primarily combined both social and market development in an emerging economy. Every day Amul collects 447,000 litres of milk from 2.12 million farmers (many illiterate), converts the milk into branded, packaged products, and delivers goods worth Rs 6 crore (Rs 60 million) to over 500,000 retail outlets across the country. Amul has been credited with positively impacting the lives of 3.1 million milk producer member families, 15,760 village societies, 15 District Unions and of having the Largest Cold Chain Network in India. Its
founder, Dr. Verghese Kurien is credited with being the architect of Operation Flood—the largest dairy development program in the world. Kurien helped modernise the Anand model of cooperative dairy development and thus engineered the White Revolution in India, and made India the largest milk producer in the world. Even countries like South Africa are looking up to Amul for learning the technical-know how of such a dairy cooperative model to replicate the same as they believe that this could be the answer to the poverty problems faced by their communities. But in the recent years Amul is often hitting the headlines for its superior “organized retail efforts”. Towards the end of 90’s, RETAIL – One of the largest sectors in India was going through a transition phase. Particularly the ‘food retail’ was facing a major boom and there was gradual shift from the unorganized retail towards organized in the same. That was the time when GCMMF realized the significance of organized retail in the future and in 2002 they opened their first “AMUL PREFFERED OUTLET” (APO). The other objectives of opening a APO was to capture the untapped market of exclusive food retail outlets in India, to provide the entire range of Amul products under one roof, to reach customers directly, and to create a launch pad for new products. Also Amul studied the US and European diary markets, where the big supermarket chains adopted pricing and supplier strategies that were ultimately creating a loose-loose situation for dairy farmers. Also unlike the usual 8 per cent margin to retailers, they were giving a whooping 15-16 per cent margin to the modern retailers. And the situation was only expected to worsen. Thus
Amul believed that APOs will be the crucial instrument in their hands to face the organized retail boom and also to deliver the total brand experience of Amul to the consumers, without depending on the retailers. At present Amul has around 7000 Amul Parlors and 1000 Amul scooping Parlors (focused on ICE creams) throughout the country and most of them are through franchisee agreements. The Parlors come under the market penetration strategy of Amul where it is trying to expand its customer base in the existing market. Also the new product development and differentiation strategies of Amul are tested in these parlors as they serve as the main launch pad for all their new products. Amul parlors provide customers with the entire gamut of Amul products including fresh milk, ice-creams, pizzas, chaas and flavored milk. However, they still sell the products at MRP.
continuous innovator is also continuously working on the social development of the country by impregnating it in its DNA. After the brilliant success of Amul parlors and scooping parlors, GCMMF has now entered in to the quick service restaurant market with the name “Amul Café”. After getting the green signal from the test run reports of the two federation owned outlets of Amul Cafes at Ahmedabad, GCMMF is now planning to spread the network of cafes across the country in the coming two years. Also it has crossed the $2 billion mark (Rs 9774 crore) in turnover during 2010-11 fiscal. It took 33 years for them to cross the $1 billion mark and just 4 years for bringing it to $2 billion. Thus in a fast track growth phase, continuing its focus on retail operations, GCMMF plans to open at least 10 Amul Cafe outlets across the major cities of Gujarat within this year. After which they The total contribution of these organized retail are expected to go for a pan-India expansion stores to the GCMMF’s business is 4% with a starting with Maharashtra, Karnataka, Tamil 37% year on year growth rate which shows a Nadu among other markets. very bright future for APOs. Also Amul is getting a better mileage from the organized retail set up Amul is also known for its efficient E-Supply as there is no one to influence the consumer chain management system through the behavior like kirana stores where shop-keeper Automatic milk collection system units pushes rival brands that might be fetching (AMCSU) and the Enterprise wide integrated better margins for him. Apart from conventional application system (EIAS). Each of these parlors locations like residential and commercial areas, are connected via internet and all of them send Amul Parlors are also coming up at educational daily reports on sales and inventory to the main institutions, railway stations, bus stands and system at Anand. Amul has even ventured in other high traffic locations. They are planning to the e-commerce through the “Amul cyber to have more than 1 lakh APOs to reach the stores” where it gives free home delivery for neighborhood of each and every customer products nationwide for a minimum order of by 2020, which would basically be nothing Rs.200. Thus the ICT enabled supply chain but the second white revolution. Amul management practices at Amul are helping has also planned to increase the capacity in it to have a greater control over these parlors. existing plants to meet the growing demands of Thus with an impulse to continuous innovation, consumers. In the recession times of 2009 and effective supply chain & distribution strategy even now, when layoffs are the common story and appropriate technology, Amul is all set in all sectors of the economy, GCMMF expects ready to create the second white revolution in Amul parlors to become a catalyst to give birth India through its organized retail. to thousands of small entrepreneurs all over India. This is because any enterprising person References: can set up an Amul parlor with an investment of around Rs1 lakh to Rs1.5 lakh and a shop Business Strategy for complex supply chain : with an area of 100-300 square feet. GCMMF will story of Amul by Pankaj Chandra, Devanath provide such entrepreneurs the entire range of Tirupathi Amul products and help them set up an outlet The e-experience of Amul by Anup Kotla as per our standards. The franchisee can start www.amul.com in a small way and then can be expanded as the business and revenues grow. Thus the
Walmart - Operations Strategy
Soumya Ranjan Mallick, PGP 2010-12 Indian Institute of Management Raipur
al-Mart Stores, Inc. or Wal-Mart is an American multinational retailer corporation that runs a chain of large, discount department stores. It was founded by Sam Walton in 1962 and has been recognised as largest public corporation by revenue, biggest private employer in the world, and the largest retailer in the world. “Always Low Prices” That is Wal-Mart’s Slogan and its business model- Low prices enabled by operating efficiency and buying power.
improved supply chain management. Wal-Mart uses advanced data mining techniques like RFID(radio frequency identification) in order to understand information regarding usage of customer purchase behaviour. This has led to increased customer satisfaction through more accurate forecasting of demand and lower costs through reduced inventory and shrinkage by improved matching of supply and demand. Customer oriented workforce culture has helped Wal-Mart to provide uncompromised
Wal-Mart has a distinct competitive advantage that makes it more successful than its competitors. Wal-Mart has an effective and efficient distribution system. They use cross docking, real time point of sales data transmission and a centralized hub and spoke system of warehouses and distribution centers. Wal-Mart has maintained a strong relationship with suppliers. They have integrated suppliers via IT and treats them well in terms of pricing. This has led to lower distribution costs and
good customer service and thus is more flexible to changing demand and have a continuous improvement mindset. Finally Wal-Mart ELDP(every day low price) strategy has improved customer satisfaction by following a volume driven strategy, low advertising costs and steady pricing. Wal-Mart uses formats like “ Neighbourhood stores” which offers a convenient and quicker shopping experience for customers who need daily home products
and merchandise at ease by using everyday low prices(EDLP) method. Wal-Mart has grown and developed over years in the global operations field as well. It has achieved this by using the strategy of EDLP, converting their discount formats to supercenters, and by implementing one-stop solution through store-in-store speciality stores, introducing new product and services as per different customers perceptions and demand, using customer o r i e n t e d workforce, good partnership relationship with vendors and suppliers. Thus it has successfully gained market share and attained profitability. So, the strategy of Wal-Mart is to extend all it products to every common man and household possible. It is achieved through wide distribution network stores spread all over. By doing so, they bridge the gap between Wal-Mart and its suppliers, provide empowerment and jobs to many people. Wal-Mart in India: In India Wal-Mart has a joint venture with Bharti Enterprises. The joint venture has been established for wholesale cash and carry and back-end supply chain management operations that is in line with the government of India. It operates under the brand name of Best Price Modern Wholesale store. This store meets the daily needs of hoteliers, caterers, restaurant owners, fruit and vegetable resellers, kiranas etc. The products are available at competitive wholesale process thereby allowing retailers and owners to have a low operations cost. The joint venture also established an efficient back-end supply chain management operation. They have established an efficient supply chain infrastructure that has benefitted farmers and manufacturers on one end and retailers and consumers on the other. It has also played an important role in guiding the famers to be a
successful entrepreneurs. Walmart has been sourcing a variety of products from suppliers in India which shows their expertise in sourcing, supply chain management and logistics. Wal-Mart scope in India: The contributions that the organized retail like Wal-Mart can make with more open FDI in retail are as follows: 1. I n d i a n farmers would get an opportunity for better support and sustained agricultural produce. It will help in waste reduction and higher efficiency of perishable food supply chain. It also ensures increased food safety and quality and meet the growing expectations of Indian consumers for better food hygiene through their expertise and technology. 2. Since SMEâ€™s are the backbone of our countryâ€™s economy, global retail partners can create lots of opportunity and thereby increase production, export and employment. 3. FDI in retail can make a real difference with inflation which is the key economic concern. An increase in FDI is estimated to reduce inflation rate by 50 to 70 basis points. References: 1) http://forbesindia.com/article/magazineextra/walmarts-strategy-through-theworld/6042/1?id=6042&pg=1 2) Operations Management - 5th Edition by Roberta Russell & Bernard W. Taylor, III 3) http://walmartstores.com/
Gurumantras: RFID Q) Sir, these days we hear a lot about RFID. What is RFID? A) Radio Frequency Identification (RFID) is a short term radio - technology that communicates information between a movable and a movable/stationary object. Q) Please throw some light on the History behind RFID. A) The technology behind RFID can be traced back to the nineteenth century where scientists Michael Faraday, James Clark Maxwell, Hertz and Marconi worked on electromagnetic waves (radio waves). Since one form of Radar is the combination of Radio broadcast technology and radar, it is expected that the thoughts of RFID occurred on the heels of the development of radar. During the World War, some crude methods were used to alert the radar crew on the ground about the nationality of the planes. An early work was done by Harry Stockman in his landmark paper, “Communication by Means of Reflected Power” published in 1948. However, it was only in 1950’s that RFID techniques were further explored and gained momentum. RFID tags were first used commercially in 1960s by Sensormatic, Knogo and Checkpoint which developed systems to counter the theft of merchandise. At that time, they could only detect the presence or absence of tags; however the tags could be made inexpensively and hence were quite effective in reducing pilferage. These systems were known as Electronic Article Surveillance (EAS). In the 1970s, notable advances were realized in the field but the intended applications were for animal tracking, vehicle tracking and factory automation. Mario W. Cardullo claims to have received the first U.S. patent for an active RFID tag with rewritable memory on January 23, 1973. Over the years, technology has been developed for multiple uses of tags across different business segments. The latest technology allows a reduction in the size of circuitry, reduction in cost of tags, increased functionality and increased reliability.
Q) Sir, How does this technology work? A) RFID tags are programmed and data is stored in the microchip of the tags. The RFID reader’s antenna transmits electromagnetic waves on the tag’s antenna. The tag sends radio waves back to the reader using power from its internal battery or power harvested from the reader’s electromagnetic field. The receiver picks up these waves and interprets the frequencies as meaningful data. The data transmitted by the tag may provide identification or location information, or specifics about the product tagged, such as price, date of purchase, etc. The radio frequency used determines the speed of communication and the range. Low frequency tags (LF) operate at less than 135 KHz and are appropriate for short range uses like animal identification and anti-theft systems. Devices that operate at 13.56 MHz are known as High Frequency (HF) devices and are primarily used in contactless “Smart Cards”. Frequencies above 900 MHz are known as Ultra High Frequency (UHF) and are used by major retailers in their Supply Chains. Q) How is RFID different from Bar Codes? A) RFID technology doesn’t require direct line of sight whereas Bar Codes require a direct line of sight. RFID tags can be read upto a distance of 300 feets compared to Bar Codes which can be read only upto 15 feets. These two factors in addition to the fact that RFID tags can be read upto the read rate of 40tags/second makes RFID technology quicker to process and less timeconsuming. RFID tags are reusable and the information is alterable due to the read/write nature of the tags. In a RFID tag, Data can be encrypted, password protected, or one can include a “kill” feature to remove data permanently, so information stored is much more secure. RFID require minimal human cost, once the system is set-up compared
to Bar Codes which require humans to scan each code individually. However, RFID tags are typically more expensive than barcodes. Q) Where all is RFID used in the industry? A) RFID is used in the following industries:Animal Tracking – In ecological studies, Wild animals are tracked using RFID technology. Many pets that were tagged have been returned to their owners. Asset Tracking – RFID technology is used by hospitals and pharmacies to meet tough product accountability legislation. Supply Chain - WalMart, Target, BestBuy, and other retailers have discovered that RFID technology can keep inventories at the optimal level, reduce out-of-stock losses, limit shoplifting, and speed customers through check-out lines.  People Tracking - People tracking system are used just as asset tracking system. Hospitals and jails are most general tracking required places. Document tracking - Availability of large amount of data and documents brings lots of problems in document management system along with the financial and legal implication of losing documents. An RFID document-tracking system saves time and money by substantially reducing the time spent searching for lost document and the inconvenience caused due to it. Government Library - Many government libraries use barcode and electromagnetic strips to track the books. RFID technology is used for reading these barcodes. The advantage of using RFID over barcode reader is that it can read multiple items at the same time. This reduces queues and increases the number of customers using self-check, which in turn will reduce the staff necessary at the circulation desks. Retail – In an ideal scenario, RFID readers are placed throughout the stores including the trial rooms. RFID tags are used to tag all the goods. Sales staff is given a small handheld reader known as wand. The advantages of such a system would be that the sales staff would have instant access to all the information related to a product using the wand. The reader located
around the store can identify buying pattern which can be used to upsell additional items to the customer. But, the retailers have to ensure that they do not intrude the privacy of the consumers. It is estimated that the US Retail Industry loses $180-$300 Million annually because of poor Supply Chain Visibility, the inability to track the location of products as they make their way from manufacturer to retailer. As a result, retailers are not always able to keep high-demand goods in stock, or they may have inventory that they can’t move. RFID technology can be used to bridge this gap and collect information regarding the movement of goods through the Supply Chain, hence improving visibility in multiple stages of the Supply Chain. In addition, the information collected using RFID would be more reliable in comparison to that collected through Bar Codes as the former is less susceptible to Human Errors. Hence, RFID provides information that can be used to place inventory at the right places and also remove pilferage. References  http://autoid.mit.edu/pickup/ RFID_Papers/008.pdf (last accessed 25/1/2012)  http://www.rfidjournal.com/ article/view/1338/2 (last accessed 25/1/2012)  http://electronics.howstuffworks.com/ gadgets/high-tech-gadgets/rfid1.htm (last accessed 25/1/2012)  http://www.technovelgy.com/ct/ Technology-Article.asp?ArtNum=60 (last accessed 25/1/2012)  http://www.ti.com/rfid/shtml/apps.shtml (last accessed 25/1/2012)  http://www.fibre2fashion.com/industryarticle/11/1023/rfid-applications1.asp (last accessed 25/1/2012)  http://www.bin95.com/case_studies/RFID_ Technology_Applications.htm (last accessed 25/1/2012)  http://www.ftc.gov/ os/2005/03/050308rfidrpt.pdf (last accessed 25/1/2012)
Is FDI in Retail Beneficial for India?
FOR Foreign direct investment in retail, if allowed, would have huge implications. After all, retail giants like Wal Mart have vast investment capabilities and Indian retail market is still Anurag Tripathi in a nascent stage, with a lot of PGP 2010-12 potential. One of the most obvious outcomes of such a move would be creation of a large number of employment opportunities in various sectors namely agro-processing, marketing, sorting, logistics management and front-end retail. Another major change would be the elimination of middlemen, thus enabling the farmers as well as the factories and industries to get a better price for their products. At the same time, the consumers would be offered a better deal, as is the USP of mega retail chains. They emphasize on smart procurement and inventory management to fulfill this requirement, while maintaining high quality standards through better technology and experience of foreign markets, where quality norms are much stricter than in India. In a broader sense, FDI in retail would help in checking inflation, resolving the slow growth rate and bringing an immediate correction in prices. The foreign players would certainly invest in back-end infrastructure including cold storage chains, refrigeration, transportation, packaging, sorting and processing. Thus the post-harvest losses would be minimized. Offering best prices to the consumers also means maintaining high supply chain efficiencies. Apart from reducing wastage of perishable food items, this would provide the local players a learning opportunity. Some say that FDI in retail sector would displace small shopkeepers, but such fears are mostly exaggerated. We have already witnessed the harmonious co-existence of supermarket chains and neighborhood pop-and-mom stores after the allowance of investment in retail by the domestic majors. It wonâ€™t be much different in case of FDI. Besides, impressive growth in retail and wholesale trade has been observed in many countries which approved of FDI in retail. Some of these are China, Germany, South Africa, UAE and Thailand.
AGAINST The biggest threat that FDI in retail poses is to millions of small retailers, most of whom do not have many alternatives for livelihood. This might further cause increased social tensions Sarvagya in an already poor and yet developing country like India, PGP 2010-12 where tens of millions are still seeking gainful employment. The already established supply chain would be completely destroyed. Though the consumers might benefit by low prices, the traditional kirana outlets would close down owing to the predatory pricing power of the foreign players. Such decisions must aim at collective well-being and not based on the welfare of a specific section of the society. In fact, FDI in retail would also cause consolidation of markets, thus making the consumers captive. Even in the manufacturing sector, jobs would be lost, as structured international retail chains would make most of their procurements from foreign markets. This has been the trend in almost all the countries which approved FDI in retail. Besides, comparing India to China in this regard is inappropriate as the latter is predominantly a manufacturing economy and being the largest supplier of Wal Mart, it had nothing to lose by allowing FDI in retail sector. On the other hand, India might have to face a slump in employment in both manufacturing and retail sectors, leading to a complete disruption of the current balance of the economy. The perception that only the foreign retail giants can create a robust supply chain for farm produce is incorrect. The government of India is capable enough to create and manage the required infrastructure. Another misplaced idea is that food inflation would be curtailed by FDI in retail. In reality, food inflation has to do with supply side shortages and distribution bottlenecks that have mostly to do with government policy in each case. It is a derivative of the paralysis of government and states and nothing to do with FDI in retail. The enabling of â€˜farm-to-storeâ€™ supply by elimination of the middlemen is another myth. The fact is that the existing middle men would be replaced by bigger, more organized and more prosperous middlemen.
Summer Internship Experience
Ankit Kalra, PGP 2010-12 Indian Institute of Management Raipur
did my summer internship with Reebok India Company. I was assigned a project on Reverse Logistics where I had to study the backward flow of materials coming into Reebok. Reebok sells 4 different Ankit Kalra types of products: footwear, apparels, accessories and fitness equipment. Each category had different structure of supply chain system and thus their returns had to be managed differently. Product returns will remain an inevitable part of the customer-company relationship even as manufacturing continues to improve product quality. Despite the company’s handling costs and its revenues lost from refunds, the customer’s ability to return products has a positive effect on his future purchases and actually increase long-term profits. Returns transactions provide a critical point of contact between the retail firm and the customer. Whenever a retailer wants to return an item, the retailer and the manufacturer usually had points of disagreement on any one of the following: • Condition of the item • Value of the item • Timeliness of response Reverse Logistics as a Strategic Weapon More and more firms have begun to view their ability to take back material through the supply chain as an important capability, emphasizing reverse logistics as a strategic variable. A goal of almost every business is to lock customers in so that they will not move to another supplier. An important service a supplier can offer to its customers is the ability to take back unsold or defective merchandise quickly, and credit the customers in a timely manner. The billing of RIC was on increase year-on-year, whereas its sales were only increasing marginally because of the big rise in the number of defective items. The customer returns are located back to the warehouse through two chains. First they are sent to the head-office for verification and
then sent to the warehouse. Second, they follow their route back through the distributor to the warehouse. This required policy changes in the customer return document. After the returned products reached the warehouse, Reebok faced challenges in disposing off the returned items in order to free up space for the new stock. From logistics perspective, the issue concerning all of these activities was how Reebok should effectively and efficiently get the products from where they are not wanted to where they can be processed, reused, and salvaged. Also, it must decide the final destination for products inserted into the reverse logistics flow. I carried on a thorough research on the Reverse Supply Chain Management carried on in footwear and apparel industry. It was desirable to minimize costs associated with product returns to permit reduced prices to the customer and provide improved operating margins for the manufacturer and the retailer. I recommended policy changes in the customer return system to realize savings in 4 areas: 1) Reducing the number of improper returns 2) Improving efficiency and reducing validation overhead in handling proper returns 3) Increasing the transportation efficiency of the returned goods 4) System inefficiencies A good system allows the firm to quickly obtain credit for returned product, which improves cash flow management through the reverse logistics pipeline. A company can change suppliers, liquidate the old supplier’s product, and get through final resolution much more quickly than if the reverse logistics information flow is not automated. The project gave me a deep insight into the Reverse Logistics flow of materials. I had to coordinate with many departments like the IT department, sales department and the distributor and retailer network to get the customer return policies in place. My summer internship was a great learning experience as Reebok has one of the strongest supply chain network in place.
Book Review : It Happened in India Dr. Ashwinkumar Narayankar, PGP 2010-12 Indian Institute of Management Raipur
“Single and Multi-brand Retail can bring in $10bn in Front-end” Kishore Biyani on the Government opening India’s Retail Sector for Foreign Investment It can be safely said that very few people understand India’s retail sector better than Kishore Biyani, and when he says something about it, it definitely merits some attention. With the Government flip-flopping on its decision about opening India’s retail sector to foreign investment it might well serve us good to go back and read about the beginning of the organised retail in India. ‘It Happened in India’ a lucid and free flowing book by Kishore Biyani, traces his journey from childhood to becoming the Retail King of India. The story runs smoothly. Do not expect fantastically dramatic happenings in the journey. Instead it is a story of a man who was at the right place, at the right time with the right ideas. Kishore Biyani (as we continuously become more acquainted with throughout the passage of the book) has always been questioning the status quo. This streak begins in childhood with his refusal to believe in religious superstitions and continues along when he questions the traditional accounting systems, the business practices of retailers and the government policy. The scepticism is aided by the can-do entrepreneurial spirit. This synergistic combination gives rise to many new ventures – a dandiya festival, two movies (Na Tum Jano Na Hum and Chura Liya Hai Tumne) and of course the Future Group. In the book Kishore Biyani narrates the genesis for these ideas and his experiences through them. Failure doesn’t bog him down and he is always on the lookout for new opportunities. A self confessed movie buff and a flaneur, Kishore Biyani likes observing behaviour of the
consumer in a store the most. It is from these observations that he derives most of the ideas that he applies in his retail stores. He classifies India into three groups- India One is the consuming class, with substantial disposable income and forms what is usually called the upper middle and the lower middle class. India Two or the serving class includes people like drivers, household helps, office peons, liftmen, washermen, etc. They are the people who make life easier for India One. The struggling class or India Three lives a hand-to-mouth existence. They live on the peripheries of the consumption cycle and their needs cannot be addressed by the existing business models (read capitalism). Big Bazaar through its “Isse Sasta aur Achcha Kahin Nahi” campaign has successfully brought India Two into the fold of Organised Retail. Incidentally it is Kishore Biyani’s objective to capture every rupee in the wallet of every Indian consumer, wherever they are – be it an Investment Banker living in South Mumbai or a farmer in Sangli. As large businesses enter retail space, Kishore Biyani is not just concentrating on retail but aiming to capture the entire Indian consumption space. From building shopping malls, developing consumer brands to selling insurance, he is into every business where customer spends money. India’s retail space is undergoing rapid and drastic changes. Foreign investment may or may not be allowed. Large businesses may or may not expand in retail. Store formats may change. Non store retailing may have a big dent. Even Big Bazaar might be acquired by a foreign retailer. We cannot predict the future. But we can definitely read about the past. Ladies and Gentlemen, “It Happened in India” by Kishore Biyani is worth a read.
Across 2. Average number of times a person reached by a message is exposed to retailers promotion. 5. Unplanned shopping area consist of a group of retail stores. 7. Number of distinct people exposed to retailers promotional effort. 8. Retailers operating multiple outlets under common ownership. 10. Selection of merchandise carried by a retailer. 13. Combination of separately owned retail firms. 15. An item a retailer owns with a monetary value. 17. Closing unprofitable stores or divisions. 18. Activities that are trustworthy, honest and respectful for each retailer constituency. Down 1. The methods, practices and operations used to promote and sustain categories of commercial activity. 2. Projection of expected retail sales for given time period. 3. Graphical representation of the space for selling and merchandising. 4. The retailer sets it`s own standards and measure performance based on them. 6. Stores at a given location compliment, blend with others to get benefited from others presence. 9. Sign used to display a store`s name and/or logo. 11. A method used for storing and remotely retrieving data using deice like transponders. 12. Reduction from the original retail price of an item to meet the lower price of another retailer. 14. Activities involved in selling goods and services to customer for their personal, family or household use. 16. Action that encompass a retailer`s daily and short-term operations.
Solution to Crossword
For Details, Contact
Operations and Supply Chain Club Indian Institute of Management Raipur GEC Campus, Old Dhamtari Road, Sejbahar Raipur 492015, India Email: firstname.lastname@example.org