INTRODUCTION: This research is basically done to find out the training needs of the sales people in the retail
industry and how they are being fulfilled. The retail industry in our country is at boom and getting organized day by day, the demands of customers are not just great products but also great shopping experience and to make this possible a retail outlet should have well trained sales people. This study is made to know how well the sales people of retail industry in INDIA are trained to meet the customer expectations and global standards. The retail sales people demonstrate how items work and explain details of items to customers; they give information about various models, colors, and brands of an item. Sometimes they give special information about very expensive or complex items. They help customers to find items in the store, they try to convince customers to buy those items. Retail sales people compute the amount of the total sale and received cash, cheque or credit card payments. Sales people also handle returns or exchanges of items. The above mentioned are the very basic and important duties of sales people and they require great skills and knowledge to perform well. And this high level performance can only be seen if the sales people are provided with training as and when required. Retailers are increasingly stressing the importance of providing courteous and efficient service in order to remain competitive. The direct link between the customers and the company is the sales people who are expected to provide this courteous and efficient service to the customers. Sales people are periodically given training to update and refine their skills for providing the best customers.
A sales persons gain experience and seniority; they usually move to positions of greater responsibility and may be given their choice of departments. This often means moving to areas with potentially higher earnings and commissions. The highest earnings potential is usually found in big-ticket items. This type of positions often requires the most knowledge of the product and the highest talent for persuasion. So training is the most important aspect in recent trend which increases the potential of sales people to meet the organizational and personal objectives The retail industry in INDIA has changed its face and approach. Sales people working in this industry play major role in handling the customers effectively. This study is done to evaluate the training system used by the retail industry in INDIA and also to understand training aspects which keeps the sales force of retain industry fit and ready to face any kind of challenges, particularly due to increasing domestic and international competition.
GROWTH OF RETAIL SECTOR
Retail and real estate are the two booming sectors of India in the present times. And if industry experts are to be believed, the prospects of both the sectors are mutually dependent on each other. Retail, one of India’s largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market. Accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment retailing in India is gradually inching its way toward becoming the next boom industry. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are Low share of organized retailing Falling real estate prices Increase in disposable income and customer aspiration Increase in expenditure for luxury items Another credible factor in the prospects of the retail sector in India is the
increase in the young working population. In India, hefty pay-packets, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector. These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing a rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space specially the malls, the Tier II cities are no longer behind in the race. If development plans till 2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The government of states like Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increasing the availability of land for retail space; thus making NCR render to 50% of the malls in India. India goldmine for is retail being seen as a potential investors from over the world and latest research has rated India as the top destination for retailers for an attractive emerging retail market. India’s vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Even though India has well over 5 million retail outlets, the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, burgeoning income and favorable demographic outline.
Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet. The government is now set to initiate a second wave of reforms in the segment by liberalizing investment norms further. This will not only favor the retail sector develop in terms of design concept, construction quality and providing modern amenities but will also help in creating a consumer-friendly environment. Retail industry in India is at the crossroads but the future of the consumer markets is promising as the market is growing, government policies are becoming more favorable and emerging technologies are facilitating operations in India. And this upsurge in the retail industry has made India a promising destination for retail investors and at the same time has impelled investments in the real estate sector. As foreign investors cautiously test the Indian Markets for investments in the retail sector, local companies and joint ventures are expected to be more advantageously positioned than the purely foreign ones in the evolving India's organized retailing industry.
INDIAN RETAIL SCENARIO
The word retail is derived from the French word ‘retailer’, meaning ‘to cut a piece off’ or ‘to break bulk’. Retailing involves a direct interface with the customers and the coordination of business activities from end to end. The retail scenario in India is unique. Much of it is in the unorganized sector. With over 12 million retail outlets of various sizes and formats. Almost 96% of these retail outlets are less than 500sq.ft. In the size and the percapita retail space in India being 2 sq.ft compared to the U.S. figure of 16sq.ft. India’s percapita retailing space is the lowest in the world. With more than 9 outlets per 1000 people, India has the largest number in the world. Most of them are independent and contribute as much as 96% to total retail sales. There is an incredible amount of activity in terms of creation of retail-oriented space across India. As per some estimates, there are over 200 retail mall projects under construction or under active planning stage spanning over 25 cities. This may translate into over 25 million sq. ft. of new retail space in the market within next 24 months. Present Indian Scenario • Unorganized market: Rs. 583,000 crores • Organized market: Rs.5, 000 crores • 5X growth in organized retailing between 2000-2005 • Over 4,000 new modern retail outlets in the last 3 years • Over 5,000,000 sq. ft. of mall space under development • The top 3 modern retailers control over 750,000 sq. ft. of retail space • Over 400,000 shoppers walk through their doors every week • Growth in organized retail on par with expectations and projections of the last 5 Years on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06
Organized retail formats in India
Each of the retail stars has identified and settled into a feasible and sustainable business model of its own: Shoppers' Stop Westside Giant and Big Bazaar Food World and Nilgiris Pantaloons and The Home Store Tanishq business High quality organized retail Department store format Marks & Spencer model of 100% private label Hypermarket/cash & carry store Supermarket format Speciality retailing
The retail business in India in the year 2000 was Rs. 4000,000 crore and is estimated to go to Rs. 800,000 crore by the year 2005,an annual increase of 20%. The contribution of the organized retail industry in the year 2000 was Rs.20, 000 crore and is likely to increase to Rs. 160,000 crore by 2005.
According to the survey conducted by Federation Of Indian Chambers Of Commerce & Industry [FCCI] and price water house coopers indicates that the Indian retail sector will under go a sea change in size as well as formats in the next 10 yrs. It also expects that by 2010 the country’s top retailers will operate at least 3 to 4 format, all scalable to size, location and providing value to their target customers.
Change Accelerators The following factors will be significant in driving growth in the retail sector: • Consumer factors • Increase in income • Workingwomen • Changes in lifestyle – demand for “global” trends • Supply side factors • Growing importance of retailing in political and economic agenda • Real estate reforms to be undertaken in the next 24 months • Major restructuring of the manufacturing sector easing product supply constraints for efficient retailing • Reduction in import duties-offering more global sourcing options Human Resource Issues And Concerns In Retail Industry: Manpower planning Recruitment Motivation and retention and building reward system that ensure performance orientation.
UNDERSTANDING THE INDIAN RETAIL SCENARIO Retail is India’s largest industry, accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment. Retail industry in India is at the crossroads. It has emerged as one of the most dynamic and fast paced industries with several players entering the market. But because of the heavy initial investments required, break even is difficult to achieve and many of these players have not tasted success so far. However, the future is promising; the market is growing, government policies are becoming more favorable and emerging technologies are facilitating operations. Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Modern retail has entered India as seen in sprawling shopping centres, multi-storeyed malls and huge complexes offer shopping, entertainment and food all under one roof. The Indian retailing sector is at an inflexion point
where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory. The Indian population is witnessing a significant change in its demographics. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector in India. Retailing today is not only about selling at the shop, but also about surveying the market, offering choice and experience to consumers, competitive prices and retaining consumers as well. The Indian retail industry is no more nascent today. There has been a significant change in retail trading over the years, from small kiranawalas in the vicinity to big super markets; a transition is happening from the traditional retail sector to organized retailing. The unorganized sector still holds a dominant position in this industry. The organized segment holds just about 1.2% of the current US$ 245 billion retail market, which is expected to reach about US $ 385 billion by the middle of this decade. With consumers looking at convenience with multiplicity of choice under one roof and expectations evolving over time, consumer demand is truly the driving force for organized retailing in the country. Food and beverages form the main chunk of the retail market. They are followed by apparel and footwear. The Indian textile industry, the backbone of the apparel segment, has a large share of the Indian economy, accounting for over 20% of industrial production as well as providing direct and indirect employment to around 65 million people. Despite the retail store density in India with regard to population being the largest, it is estimated that over 90% of the stores are less than 500 sq. ft in size. Industry estimates put the number of retail outlets at 12 million. This is clearly indicative of small-shop ownership crowding the unorganized segment of retailing. While this fragmented market structure does pose significant challenges for organized retailing, potential does exist if modern information and
supply chain management systems are deployed to support the development of convenience shops that match customer expectations.
Growth in Organized Retailing The organized segment of the retail industry has grown past the 1% share during the year, from 0.6% of the market three years back. The establishment of supermarkets and convenience stores has been a great effort to communicate the advantages of organized retailing to customers. With supermarkets like Apna Bazaar, Sahakari Bhandar, 9 to 9, Food World and Margin Free shops providing easy access to goods at reduced prices, with few even providing a constant supply of foreign goods, the organized sector does attract the bargain hunter's attention. Food and clothing still account for the largest proportion of consumer spending. Together they account for about 60% of the estimated US$ 275 billion household expenditure. With the hospitality sector expected to grow at a compounded annual growth of about 13% during the next three years, the food retailing ventures can certainly be looked at to spread further across cities. Apart from the food segment, home improvement stores are the upcoming segment. Outlets like Gautier, Wonder Living, Bombay Bazaar, etc. have penetrated across metropolitan areas and leading Class A cities of the country. Research estimates that the total space for shopping malls is likely to go up from 50 lakh sq ft to 75 lakh sq ft during the year. India's per capita retail space is the lowest in the world at just about 2 sq. ft. Compare this with the US figure of 16 sq. ft. Therefore, the industry's need for real estate, which is on the rise, could well be justified. A significant fallout of the emergence of malls will be the trend of smaller retailers upgrading their establishments and emulating practices from the `mall experience'.
The growth in the organized segment is evident from the plans of the current players. Ventures like Food World and Music World are set to more than double their network, while Shoppers' Stop is gearing up for an expansion of 15 to 17 outlets all over the country. Pantaloon is expected to build about 11 super stores, moving ahead of its current store and franchise model of business. Regional retailers like Vivek's too are planning to expand the network across their region. Players like Crossword, Nilgiris, Vitan, Kemps Chain and Landmark are also planning expansions. Though there exists adequate opportunities for organized retailing, the unorganized sector does cash in on the tax advantage. The fragmented and unstructured segment makes it difficult, if not impossible, to administer the tax system. The other hurdle is to change the mind block of customers, who tend to perceive organized retailers to be far more expensive than unorganized ones with no specific distinction between the two in terms of the apparent value. While the former is a macro issue, the latter is being addressed by organized retailers through relationship marketing, where customer preference and customer satisfaction play a key role. Customer relationship management tracks down loyal customers and focuses on their satisfaction. A rapid transformation from traditional to organized retailing would occur only on account of a change in consumer expectation and behaviour. To tackle this factor, retailers are focusing on retaining customers through various marketing strategies. Payment through card facilities is now available in most supermarkets and multistoried shopping arcades, providing convenience and comfort to customers. Multi-brand outlets like Cross Roads, Globus and Shoppers' Stop have membership cards for frequent customers providing special offers and discounts.
The demand perspective in India highlights some key changes in consumer demographics driving organized retailing. These include: Income and consumption growth Increasing literacy levels Changes in family structure and women’s role in the family Growing role of children as influencers
Gradual acceptance of frozen goods as a viable alternative to fresh produce Growing influence of TV.
Household income levels are expected to rise, with the lowest income group to comprise only 24% in 2004 from its current level of 31.5%. The cumulative growth of the other income groups is likely to be about 7%, meaning growth in consumers who favour the emerging trends in retailing. Households in the top 4 income categories (over a lakh of annual income) account for about 53% of the total household consumption expenditure. On an average the expenditure on consumables - food, clothing and consumer durables, by the lower income category is as high as 74% while in the higher income category this forms only 57% of their expenditure. Though the percentage contribution of consumables is relatively higher by the lower class, the purchase location is predominantly traditional outlets, as compared to the higher income category, which prefer to shop through organized outlets to a greater extent. Technology Advantage Technology in the retailing industry has provided a new dimension. The introduction of point of sale equipment, bar codes and huge storage capacity for billing and payment database has facilitated the management of large set-ups with ease. Operations can be recorded in a structured and systematic manner, providing detailed analysis of the sales and volume of transactions. Electronic transactions have increased the volume of sales in the country. Flexibility in the mode of payment and cashless transactions have helped in driving sales. Communication assists in maintaining a competitive advantage in retaining and attracting customers. The introduction of new technology may be intricate for retailers, but the convenience and cost effectiveness create the need for new advancements. Large stores need to monitor inventories and expenses of establishments. With automated machines and high-end computers making the task simpler, the focus of retailers can stay on retaining customers with
new strategies. Security systems also do help for a safer shopping, for retailers as well as customers, providing immense mental relief. Such technological advancements are only now coming into India and the need for it has been acknowledged. The point of sale (POS) applications will provide for quicker consumer check-out and multiple payment options like credit cards. Solutions ranging from simple Point of Sale (PoS) systems to complex retail ERPs have been implemented mainly by large, mid-sized and manufacturer-retailers in India. Using ERP packages and solutions like Retail Pro, higher-end solutions like JDA, SAP IS Retail or Retek facilitate backend operations.
optimization software, mobile computing and B2C concept assist retailers to cut cost and increase efficiency, but these solutions are mainly targeted at big retail stores with chains in India. Though these solutions have been implemented, returns on these investments take a longer period. The emphasis of retailers are now in utilizing IT solutions like CRM, OLAP, CPFR tools to carryout the behavioral analysis to stay in the competitive market. Retail ERP packages have been implemented by large retailers but today they are experiencing difficulty in utilizing it fully, one of the key reasons could be the lack of adequate training. But it is expected that the demand and utilization of these packages will grow in the near future. It is estimated that about 400 to 500 mega bytes of data are transmitted daily between point-of-sales counters and corporate headquarters of retail chains in developed countries. Relay of transaction data in such volumes helps to maintain a close working relationship between retailers and vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby save cost. Retailing database also helps in tracking purchase behaviour through demographic and psychographic information. This clearly is an
indication of technology serving as an effective means to build the retail business and not just restricted to supporting and improving the operational efficiency. Use of electronic communication like e-marketing could well be a cost-effective form of attracting and retaining customers. With internet penetration and awareness on the rise in the country, e-marketing does prove to be a good communication tool. Use of technology could further be extended to home shopping, direct mails and telemarketing. It can also facilitate growth in newer applications like kiosks, intelligent vending machines, PC net shops, etc.
Despite the huge presence of the unorganized sector, the Indian retail industry is attractive for international players. It is favoured over China's among the developing countries due to a slew of laws in the communist country at various levels. Though the market hasn't seen big time players of the developed nations yet, the fact that Indian per capita retail space is among the lowest, is expected to provoke people to look at retail as a potential business arena. The growth of integrated shopping malls, retail chains and multi-brand outlets is evidence of consumer behaviour being favourable to the growing organized segment of the business. Space, ambience and convenience are beginning to play an important role in drawing customers. With the Indian per capita income on the rise and the distribution of consumption expenditure expected to remain fairly stable, the current segments of food and apparel is likely to remain attractive. Upgradation of traditional grocery stores to present quality food products in ways and methods adopted in North America and Europe can help in communicating value and attracting customers. Though the Indian retail industry is still a "protected industry" from the stand point of foreign direct investment (FDI), the government is expected to provide some flexibility on this front. Though FDI can help generate employment in this sector, it is likely to pose stiff competition for existing small businesses. Unlike the country's FDI investment objective of technology transfer and export promotion of the 1980s, today's infusion of capital - specifically in the retail segment -- can bring to the table issues on size of investment, actual inflows and domestic company take-overs. Given the constraints, FDI should be viewed as a developmental
resource that can help in restructuring the industry. It should be aimed at filling up the resource and technology gaps in the retail segment. While the differing tax and licensing systems across states could raise some issues when organized retailers expand nationally, this could well protect the interests of regional retailers. But the key to success is to build a fairly extensive network of stores across the country to enable e-commerce transactions. This in the emerging scenario would help retailers to target a wider audience and maximize returns. Strength in physical distribution will remain the backbone of any retail arrangement; however, ongoing investment in bandwidth, development of internet facilities, and increasing awareness of IT among the literate and educated population is expected to create a large base of shoppers. The minimal contribution of the organized sector is a profitable direction for potential investors. The movement of more and more people up the income brackets also indicates a good market potential. Labour cost differential, the removal of investment restrictions and the rationalization of the tax structure can bring about best practices and the latest offerings to the Indian retail industry. Growth opportunities for the organized sector can be propelled through land reforms as well as uniformity in tax structure, which reduces the cost advantage of the unorganized sector. These measures, if rightly implemented, would provide a competitive environment for the Indian retail industry. MEASURING UP Managing any business, whether brick-and-mortar, catalogue, or on the Web, requires measuring what matters - the business performance. From these, one derives key metrics to measure and analyze the firm's business performance. The need for the measurement of these metrics stems from three primary sources: Sales and revenue targets. Simply put, retail, like any other business, must make a profit. Retail performance measures not only aid in analyzing the sales performance in greater detail but also are an invaluable aid in defining sales and revenue targets. Historic provides valuable trend information. performance. The ability to compare a retail store's present performance relative to its past performance
Benchmarking. It is not enough to know your own business' performance; it is also critical to know the performance of your competitors. Revenues may be less than expected, but if competitors have faired worse, it may change your interpretation of the situation. Apart from comparison within a sector, structured performance measurement also enables across-sector comparisons and learning.. The following are some of the performance measures in the retail sector: Walk-ins and Conversion Walk-ins is the measure of number of people who walk into the stores within a pre-determined period of time (daily, hourly, monthly). Conversion is the percentage of customers who actually buy from the store. Conversion = (No. of Customers who make a transaction) * 100/ walkins The conversion figure is the benchmark of stores performance when evaluated along with the Average Transaction Value. There could be a scenario wherein due to high value of merchandise in a store, the conversion is low but the average transaction value is high. Eg: jewelry stores Average It is calculated as: Avg. Transaction Value= Avg. Sales per day/ (Avg.daily walk in * Avg. Conversion %) The ratio gives an indication of how much each customer on an average spends in the store. Useful for comparison and analysing if this needs to be increased. Display to stock ratio The display to stock ratio means the amount of backroom inventory maintained as a backbone to that displayed in the store. It is calculated as follows: Display to stock ratio = No of pcs of an SKU on display/ No of pcs of the SKU in backroom stock Typically this ratio is maintained higher for the "Fast-moving" SKUs(those with higher sales and experience more stock outs). This ratio should be kept at an optimum level after Transaction Value Average Transaction Value means the value worth of goods purchased by the customers.
considering the sales trend of the SKU, the minimum coverage levels required for an item, display rules, so that unnecessary investment in Inventory is avoided. It should also not be kept too low or else there would be a scenario of frequent stock outs for the SKU Sales revenue generated per per square foot sq. of ft. Retail space. Sales per square foot is a very important retail performance benchmarking ratio. It is the sales It is calculated as: Sales per Sq.ft = Gross Sales/ Retail space in sq. ft Since cost of Retail space is a significant cost element in the retail business, this ratio is instrumental in gauging the store sales performance. Sales per employee Sales per employee is indicative of the performance of the sales staff. This would in turn enable the decision making for their appraisals and further training. It would further indicate whether or not the store is adequately staffed. Sales per employee = Gross Sales / Strength of sales staff A motivated sales team is one of the keys to better conversion in the outlet. This ratio therefore benchmarks the sales team performance and also aids in fixing their sales targets. Inventory turnover rate Inventory Turnover: The inventory turnover ratio measures the number of times during a year that a company replaces its inventory. The turnover is only meaningful when comparing other firms in the industry or a company's prior inventory turnover. Differences in turnover rates result from product characteristics and differing operating characteristics within an industry. The inventory turnover rate is calculated as follows: Inventory Turnover = Cost of goods sold/ (Average inventory at cost OR = Sales / Average inventory at sales The higher the inventory turnover rate means the more efficiently a company is able to grow sales volume. There are several things to keep in mind when calculating turnover rates: 1) Only consider cost of goods sold from stock sales filled from warehouse inventory. Do not include on-stock items and direct shipments. Sure, these sales are important, but don't involve your warehouse stock (your investment in inventory). 2) The cost of goods sold
figure in the formula includes transfers of stocked products to other branches and quantities of these products used for internal purposes such as repairs and assemblies. 3) Inventory turnover is based on the cost of items (what you paid for them) not sales dollars (what you sold them for). Inventory turnover depends on the average value of stocked inventory. To determine your average inventory investment: 1) Calculate the total value of every product in inventory (quantity on hand times cost) every month, on the same day of the month. Be consistent in using the same cost basis (average cost, last cost, replacement cost, etc.) to calculate both the cost of goods sold and average inventory investment. 2) If your inventory levels fluctuate throughout the month, calculate your total inventory value on the first and 15th of every month. 3) Determine the average inventory value by averaging all inventory valuations recorded during the past 12 months. Gross margin per sq. ft. Gross Margin per square ft is indicative of the profitability of the Retail space. It is calculated as: Gross margin per sq ft = Gross margin / Area of retail space GMROI In simple terms GMROI(Gross Margin Return On Inventory) tells us how many times over a year we get our stock investment returned with a given margin . In simple terms it may be defined as 'how hard the inventory is working for the profitability of the business'. It is calculated as follows: GMROI = (Gross MArgin% / (100% -Gross Margin%)) x (52/weeks cover) So a product with a gross margin of 50% and an average 26 weeks cover would give (50/50) we (40/60) see x x us a (52/26) that (52/17) the = = G.M.R.O.I 1 G.M.R.O.I. 2/3 x x is 3.01 of 2 = also = 2.0 2.0 2.0 2.0
If we compare this with a product with a gross margin of 40% but an average of 17 weeks cover
Simple gross margin measurement would indicate that the first of these products was a better investment. GMROI shows us a fuller picture that shows that the second product provided an
equal return on stock invested. We can see from this that we can use G.M.R.O.I. as a powerful measure of historical performance, but it has an equally powerful application in merchandise planning. In this instance we might well apply the measure at a summary level, perhaps sub product group by branch, to give us an indication of those sub product groups that have greater potential than others in specific branches. From this we can make better informed decisions as to which should have more space allocated to them, be better supported by stock or have ranges expanded or contracted. For example, products with low cover and high gross margin will probably have experienced stock outs and fragmentation of ranges, and were therefore not fully exploited in terms of their ability to generate profit. This combination would result in a relatively high G.M.R.O.I.. Assuming that this performance were not the result of a fashion "blip", it would make sense to increase the stock support for this area and maybe increase the space allocated to it. We might also look at increasing the number of options available. Conversely a product with high cover and a low gross margin was obviously over supported with stock, and failed to generate a reasonable return in spite of this. It would therefore make sense to reduce its space allocation ,and to channel the stock investment to a more appropriate area, maybe reducing range width at the same time. In extreme cases we might decide to remove the product area from the range altogether. Conclusion The adoption and analysis of the illustrated measures enable in-depth sales analysis not only at the overall level but also at the category and sub-category levels. This "drill-down" analysis can be effectively used to evaluate the performance of retail outlets, product categories, promotions as well as the human resources thereby assessing the performance at a micro level
Organized retail formats prevalent globally
Supermarkets: Self-service 4000-20000 sq ft stores with shopping carts typically focused on regular groceries, household goods and personal care
products. Tesco, Ahold and Safeway are key players in this format. Hypermarkets: Huge stores over 40000 sq ft situated outside the town with ample parking space aimed for bulk purchases stocking electronics, furniture and clothing. Carrefour is the global major in this format. Mass merchandisers: Large destination stores that sell everything at competitive prices. They have cross-country chain operations with centralized sourcing and a hub-and-spoke distribution. Makro and Sam's Club are leading players in this format. Discounters: Aimed at bargain buyers offering less choice but deep discount on bulk sourcing deals through controlled inventory. Aldi is the world leader in this format. Convenience Stores: Small stores located at convenient points like petrol stations working round the clock. Specialties Stores: These stores offer consultative shopping experience with skill that cannot be duplicated. Mom-and-Pop Stores: Traditional small family owned format.
Indian Retail Sector: Business Analysis
During the last 10 years, many retail start-ups promised a lot. A few folded up even before they really got started, a few others struggled and then burnt out before they could develop a sustainable business model and others are still evolving. However, a significant number of new (and some not so new) retail businesses have broken rank and seem poised to surge ahead with renewed vigor, optimism, confidence and capability. Shoppers' Stop, Lifestyle, Westside, Giant and Tanishq are the current torch-bearers of the modern Indian retail sector, flanked creditably by FoodWorld, Nilgiris, Big Bazaar and Pantaloon, and The Home Store.
Business Opportunities in the Indian Retail Sector
The current players have just touched the tip of the total potential of over Rs 8, 50,000 crore of annual consumer spending in India through various retail channels. There is an outstanding opportunity in other product categories, in new formats, and in new geographical territories. For example, let us consider new product categories that are under-represented in India in terms of reach of efficient, organized retail channels.
Change in consumer behavior The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Rising income levels, falling real estate costs and a greater exposure to media and international trends have fuelled retail growth. Consumer spending in India is estimated to have grown at an average rate of 11.5% per year over the past decade. While retailers have improved their offerings, many attribute their better fortunes to a change in consumer behavior.
Forces that could make or break the industry 1. Challenges facing the industry
The unorganized nature of retailing had stunted its growth over several years. Lack of industry status affects financing prospects and stunts growth of the industry. In the current scenario, only players with deep pockets have been able to make it big. In addition to the advent of Internet, there are many other challenges that retailers have to address. Human Resources Availability of trained personnel and retaining the human resources is a major challenge for these big retailers. The bigwigs like Crossroads offer high compensation and create a cohesive environment that makes an employee proud to be a part of such big retail chains. Space and Infrastructure To establish a retail shop / mall, the real estate and the infrastructure are very vital. The expenditure and availability on both the accounts do hinder the growth of the retail chain. The lack of secondary infrastructure also affects the logistics and supply chain management for retail companies. Labor Laws Existing labor laws in India forbid employment of staff on contractual basis that makes it difficult to manage employee schedules especially 365-day operations.
Types of retailers:
Departmental store: Several product lines with each line operated as a separate department managed by specialist buyers or merchandisers. Specialty store: These stores usually stock narrow product lines with a deep assortment. Supermarket: Relatively large, low cost, low margin, high-volume, self services designed to serve total needs for food, laundry, and household maintenance products. Convenience store: Relatively small store located near residential area, open long hours seven days a week, and carrying a limited line of high-turnover convenience products at slightly higher price. Discount store: Standard merchandise sold at lower prices with lower margins and higher volumes.
Off-price retailers: Merchandise bought at less than regular wholesale prices and sold at less than retail often leftover goods, overruns, and irregulars obtained at reduced prices from manufacturers or other retailers. Superstore: It is traditionally aimed at meeting consumers’ total needs for routinely purchased food and nonfood items. Catalog showroom: Broad selection of high-markup, fast moving, brand name goods at discount prices. Customer order goods from a catalog in the showroom then pick these goods up at a merchandise pickup area in the store.
Push and pull strategy: The promotional mix is heavily influenced by whether the company chooses a push or pull strategy to create sales. A push strategy involves the manufacturer using sales force and trade promotion to induce intermediaries to carry, promote, and sell the product to end users. Push strategy is especially appropriate where there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood. A pull strategy involves the manufacturer advertising and using consumer promotion to induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it. Pull strategy is especially appropriate when there is high brand loyalty and high involvement in the category, people perceive differences between brands, and people choose the brand before they go to the store. Companies in the same industry may differ in their emphasis on push or pull.
Communicating to the customers: Consumer marketers spend on sales promotion, advertising, personal selling, and public relations in that order, to communicate to the customers. Whereas advertising offers a reason to buy, sales promotion offers an incentive to buy. Personal selling can also make a strong contribution in consumer goods marketing. An effectively trained consumer company sales force can make four important contributions: increased stock position, enthusiasm building, and missionary selling, key account management. Manufacturers also use a number of trade-promotion tools. A decade ago, the advertising-to –sales promotion ratio was about 60:40. Today in many consumer- packagedgoods companies, sales promotion accounts for 65 to 75 percent of the combined budget. Surprisingly, a higher proportion of the promotion pie is devoted to trade-promotion tools than to consumer promotion, with media advertising capturing the remaining. Manufacturers award money to the trade for four reasons: To persuade the retailer or wholesaler to carry the brand: Shelf space is so scarce that manufacturers often have to offer prices off, allowances, buyback guarantees, free goods, or outright payments (called slotting allowances) to get on the shelf, and once there, to stay on the shelf. To persuade the retailer or wholesaler to carry more units than the normal amount: Manufacturers will offer volume allowances to get the trade to carry more in warehouses and stores. Manufacturers believe the trade will work harder when they are “loaded” with the manufacturer’s product. To induce retailers to promote the brand by featuring, display, and price reductions: Manufacturers might seek an end-of-aisle display, increased shelf facings, or price
reduction stickers and obtain them by offering the retailers allowances paid on “proof of performance”. To stimulate retailers and their sales clerks to push the product: Manufacturers compete for retailer sales effort by offering push money, sales aids, recognizing programs, premiums, and sales contests.
Major trade promotion tools: Price-off (off-invoice or off-list): A straight discount off the list price on each case purchased during a stated time period. The offer encourages dealers to buy a quantity or carry a new item that they might not ordinarily buy. The dealers can use the buying allowance for immediate profit, advertising, or price reductions. Allowance: An amount offered in return for the retailer’s agreeing to feature the manufacturer’s products in some way. An advertising allowance compensates retailers for advertising the manufacturer’s products. A display allowance compensates them for carrying a special product display. Free goods: Offers of extra cases of merchandise to intermediaries who buy a certain quantity or who feature a certain flavor or size. Manufacturers might offer push money or free space-advertising items to retailers that carry the company’s name.
Manufacturers spend more on trade promotion than they want to spend. The growing power of large retailers has increased their ability to demand trade promotions at the expense of consumer promotion and advertising. These retailers depend on promotion money from the manufacturers. No manufacturer could unilaterally stop offering trade allowances without losing retailer support.
Introduction to the FMCG industry: The Fast Moving Consumer Goods (FMCG) sector is the fourth largest sector in the economy with a total market size in excess of Rs. 60,000 crores. This industry essentially comprises Consumer Non Durable (CND) products and caters to the everyday need of the population. The fast moving consumer goods business is characterized by two pillars - strong brand equity and a wide distribution network. Brand equities are built over a period of time by technological innovations, consistent high quality, aggressive advertisement and marketing. Availability near the consumer through a wide distribution network is another crucial success factor, as products are of small value, frequently purchased daily use items.
Product Characteristics: Products belonging to the FMCG segment generally have the following characteristics: They are used at least once a month They are used directly by the end-consumer They are non-durable They are sold in packaged form They are branded Industry Segments: The main segments of the FMCG sector are: Personal Care: Oral care, hair care, skin care, personal wash (soaps), cosmetics and toiletries, deodorants, perfumes, paper products (tissues, diapers, sanitary), shoe care. Major companies active in this segment include Hindustan Lever, Godrej Soaps, Colgate-Palmolive, Marico, Dabur and Procter & Gamble.
Household Care: Fabric wash (laundry soaps and synthetic detergents), household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, metal polish and furniture polish). Major companies active in this segment include Hindustan Lever, Nirma and Reckitt & Colman. Branded and Packaged Food and Beverages: Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; branded rice; branded sugar; juices etc. Major companies active in this segment include Hindustan Lever, Nestle, Cadbury & Dabur
Spirits and Tobacco: Major companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace. An exact product-wise sales break up for each of the items is difficult. The size of the fabric wash market is estimated to be Rs 4500 crore, of household cleaners to be Rs 1100 crore, of personal wash products to be Rs 4000 crore, of hair care products to be Rs 2600 crore, of oral care products to be Rs 2600 crore, of health beverages to be Rs 1100 crore, of bread and biscuits to be Rs 8000 crore, of chocolates to be Rs 350 crore and of ice cream to be Rs 900 crore. In volume terms, the production of toilet soap is estimated to have grown by four per cent in 1999-2000 from 5,30.000 tonnes from 5,10,000 tonnes in 1998-99. The production of synthetic detergents has grown by eight per cent in 1999-2000 to 2.6 million tonnes. The cosmetics and toiletries segment has registered a 15 per cent growth in 1999-2000 as against an annual growth of 30 per cent recorded during the period 1992-93 to 1997-98. In the packaged food and beverage segment, ice cream has registered a negligible growth and the soft drink industry has registered a six per cent growth in 1999-2000.
Background: The size of the Indian fast-moving consumer goods (FMCG) sector is close to Rs 600 bn. The northern and the western regions of the country account for more than half of the market for consumer goods. Barring the fastest-growing personal care segment, no other product segment has seen the entry of so many players. In the past decade, the personal care industry has witnessed a consumer boom. This has been due to liberalization, urbanization, and an increase in the disposable incomes, and altered lifestyles, especially a heightened level of awareness among the rural community, consequent to the onslaught of satellite television. Furthermore, the boom has also been fuelled by the reduction of excise duties, dereservation from the small-scale sector and the concerted efforts of personal care companies to woo the burgeoning affluent segment of the middle class through product and packaging innovations.
Unlike in the past, when domestic companies were not perceived as competitive vis-à-vis multinational corporations (MNCs), the scenario is gradually changing, with some domestic companies, like Nirma, Marico and Jyothi Labs, standing up to their MNC counterparts. Also, competition amongst the MNCs has intensified, leading to shrinkage of margins. The personal and home care segment has very low entry barriers of technology and capital requirements. This attracts new players and has resulted in intensifying competition. Despite this, the strong distribution networks and heavy investments needed for brand building remain key deterrents to new players. Low margins and high volumes characterize the industry. While the level of disposable incomes determines the overall sector growth, the market has already been segmented and sub-segmented. Companies have launched products at a number of price points to drive up volumes. New products are being launched in niche segments, and old products re-launched. Brand equity drives the customer’s purchase decisions, and is the key to gaining market share. Also, competitive pressures have hiked the advertising budgets of most players. Besides, a profusion of promotional schemes are being offered. Most players, including Hindustan Lever Ltd (HLL), are struggling to maintain top line growth, despite the heavy advertising and sales promotion (ASP) expenditure. A lower price differential between the organized and the unorganized sectors from reducing excise duties allows the former to grow at the expense of the latter. The organized sector also has a superior distribution reach. Although most of the product categories are still in the growth phase, a few broad categories, like detergents, have reached a mature phase only in the urban market. According to industry sources, the affluent segment in the rural sector is growing at a faster rate than the urban one. For the past three years, the organized sector has been focusing on the rural markets, which are perceived to drive growth in the industry and which, to a very large extent, are dominated by unorganized players.
• Branding: Creating strong brands is important for FMCG companies and they devote considerable money and effort in developing bands. With differentiation on functional attributes being difficult to achieve in this competitive market, branding results in consumer loyalty and sales growth. • Distribution Network: Given the fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG companies need to develop extensive distribution networks to achieve a high level of penetration in both the urban and rural markets. Once they are able to create a strong distribution network, it gives them significant advantages over their competitors. • Contract manufacturing: As FMCG companies concentrate on brand building, product development and creating distribution networks, they are at the same time outsourcing their production requirements to third party manufacturers. Moreover, with several items reserved for the small scale industry and with these SSI units enjoying tax incentives, the contract manufacturing route has grown in importance and popularity. • Large unorganised sector : The unorganised sector has a presence in most product categories of the FMCG sector. Small companies from this sector have used their locational advantages and regional presence to reach out to remote areas where large consumer products have only limited presence. Their low cost structure also gives them an advantage. • Brand Equity: Brand equities are built over time by technological innovations, consistent quality, aggressive advertising and marketing. Key players in the FMCG industry: There is a strong MNC presence in the Indian FMCG market and out of the top 10 FMCG companies, four are multinationals while two others have significant MNC shareholdings. Unlike several other sectors where multinationals have entered after 1991, MNCs have been active in India for a long time. The top five listed FMCG companies on the basis of their sales turnover in the last financial year (either year ended December 31, 1999 or March 31, 2000) are: Company Name th & year Mon sales After Profit Tax
(fina Hindustan Ltd. I T C Ltd. 2000 Nirma Ltd. 2000 22Nestle India Ltd. 1999 Britannia Industries Ltd. Colgate-Palmolive (India) Ltd. Godfrey India Ltd. Dabur India Ltd. 2000 Smithkline Beecham Consumer Healthcare Ltd. Godrej Soaps Ltd. Marico Ltd. Cadbury India Ltd. 1999 Procter & Gamble Hygiene & Health Care Ltd. 2000 Reckitt & Colman Of India Ltd. I S P L Industries Ltd. 1999 1998 03 1999 03 03 12 06 12 2000 Phillips 2000 03 12 2000 03 03 12 03 03 nce year) Lever 1999 03 12 /
Rs. Crores 1 3 7 1 1 1 1 1 1 7 7 6 5 4 4 2
Rs. Crores 1073.7 792.44 234.1 98.47 51.02 51.79 42.1 77.67 97.61 61.89 35.73 36.7 75.03 31.47 0.04
0978.31 / 971.94 / 717.88 / 546.43 / 169.84 / 123.53 / 082.63 / 046.28 / 43.38 / 14.74 / 49.05 / 11.08 / 92.85 / 35.33 / 1.57
2000 Industries 2000
Among the major companies, Hindustan Lever has a strong presence in the food, personal care and household care (detergents) sectors, ITC is the market leader in cigarettes,
Nirma has a strong presence in the detergent market, Nestle and Britannia are active in the food sector and Colgate has a strong presence in the oral care segment. Salient features of the FMCG industry: The FMCG sector is a key component of India’s GDP and is a significant direct and indirect employer. It is the fourth largest sector in the economy and is responsible for five per cent of total factory employment in the country. The sector also creates employment for three million people in downstream activities, much of which is disbursed in small towns and rural India. Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality the sector meets the every day needs of the masses, across the country. Low-priced products contribute the majority of the sales volume and lower income and lower middle income groups account for over 60 per cent of the sector’s sales. Moreover, rural markets account for 56 per cent of total domestic FMCG demand and FMCG outlets reach more villages than any other basic facility such as primary schools or bus facilities. The FMCG sector has several other salient features. It has strong links with agriculture and 71 per cent of sales come from agro-based products, it is a significant value creator with a market capitalisation second only to the IT sector and it is a key contributor to the exchequer. In 2000-01, it accounted for eight per cent of total corporate tax, six per cent of central excise revenue and seven per cent of state tax revenues. Pricing: The Indian consumer is very price sensitive. In the personal care sector, branding allows companies to partially pass on the cost increases to the customers. Most players have introduced products with mass-market pricing, so as to build volumes. The increased promotional activity that is taking place amongst players has relegated brand loyalty to the backseat. Moreover, the increased competition has restricted not only growth rates, but also the ability to absorb frequent price increases, thus benefiting the consumer. With the rise in
disposable incomes of consumers, players in the premium-product categories will be able to increase volumes. SWOT analysis of the FMCG industry: Strengths: Well-established distribution network extending to rural areas. Strong brands in the FMCG sector. Low cost operations Weaknesses: Low export levels. Small scale sector reservations limit ability to invest in technology and achieve economies of scale. Several “me-too” products. Opportunities: Large domestic market. Export potential. Increasing income levels will result in faster revenue growth. Threats: Imports. Tax and regulatory structure. Slowdown in rural demand.
Fabric wash market: The fabric wash market has three segments, laundry bars, synthetic detergents and powders. The 3-mn tonne market, valued at Rs 45 bn, is amongst the world's largest, after China and USA. Laundry soaps accounts for 20 per cent of the total volumes and 15 per cent of the value.
Consumer preferences have been changing in the past few years. In the urban markets, people prefer to use washing powder and detergents, instead of bars, on account of convenience of usage, increased purchasing power, aggressive advertising and increased penetration of washing machines. The demand for detergents has been growing at an annualized growth rate of 10-11 per cent in the past five years, while the laundry bar market has witnessed a negative growth. In the fabric wash market, the rural growth is at a higher rate of 13-14 per cent, compared to the urban growth rate of 8-9 per cent. The major players in the detergent market are HLL (Surf), Nirma (Nirma Super, Nima), Proctor & Gamble (Ariel, Gain, Tide) and Henkel-Spic (Henko), with the rest of the market being fragmented amongst a large number of players. Personal wash market: The Indian soap industry is a mature market, which is valued at Rs 45 bn, and can be classified into popular and premium categories. While the growth rate for the overall personal wash market is only 7-8 per cent, premium and middle-end soaps are growing at a rate of 10 per cent. Positioning of the product is very important in this market. The leading players in this market are HLL (Lux, Lifebuoy, Breeze, Rexona), Nirma (Nima), Godrej Soaps (Cinthol, FairGlow, Shikakai, Nikhar), and Reckitt & Colman (Dettol). The rest of the market is highly fragmented, with companies having strong presence in select segments or a regional presence only. Brand loyalty is very low, except at the premium end. Key factors to success are distribution (in rural markets) and advertising (in urban markets). Dish Wash market: The total size of the dish wash market, estimated at Rs 3.4 bn, recorded a 40 per cent growth over last year. Over 60 per cent of the market is dominated by bars, while dish wash powders accounts for 32 per cent. The penetration levels are, however, still very low. Estimates show that nearly 50 per cent of the urban population and 80 per cent of the rural one still use proxy products like ash and other cheap detergents for dishwashing purposes. HLL is the leading player, with its Vim Bar. Repellants market:
The estimated market for insecticides and repellants is around Rs 8 bn, which is growing at 15 per cent annually. It includes mosquito coils, mats and other insecticide products. The leading players are Godrej Sara Lee (Goodknight), which has a 38.1 per cent share followed by RCI (Mortein), with a 23.5 per cent market share. Godrej Sara Lee is the world's largest manufacturer of mosquito mats, with an all-India market share of 66 per cent. The organized sector is trying to increase penetration levels by higher brand visibility. Agarbatti (incense sticks) market: The agarbatti market is estimated at Rs.1,000 crore (Rs 10 billion). It is an industry where about 1,000 brands are fighting it out. Cycle, the biggest brand in the agarbatti industry, has only a 5 per cent market share. The manufacture of agarbattis (incense sticks) is a traditional cottage industry emanating from the Thanjavur region of Tamil Nadu. It has increasingly taken on a national character and is now spread over the states of Karnataka (which is the dominant producer), Andhra Pradesh, Gujarat, Kerala, Orissa and Bihar.
Fabric whitener market: The fabric whitener market is estimated at Rs. 250 crore. Robin Blue fabric whitener was the dominant market leader in the fabric whitener segment until local player Jyoti Laboratories stormed the market with the launch of a superior liquid whitener Ujala. Robin Blue has been unable to regain market share as consumers have shifted to using liquid whiteners. FMCG outlook:
The FMCG sector has traditionally grown at a very fast rate and has generally out performed the rest of the industry. Over the last one year, however the rate of growth has slowed down and the sector has recorded sales growth of just five per cent in the last four quarters. The outlook in the short term does not appear to be very positive for the sector. Rural demand is on the decline and the Centre for Monitoring Indian Economy (CMIE) has already down scaled its projection for agriculture growth in the current fiscal. Poor monsoon in some states, too, is unlikely to help matters. Moreover, the general slowdown in the economy is also likely to have an adverse impact on disposable income and purchasing power as a whole. The growth of imports constitutes another problem area and while so far imports in this sector have been confined to the premium segment, FMCG companies estimate they have already cornered a four to six per cent market share. The high burden of local taxes is another reason attributed for the slowdown in the industry At the same time, the long-term outlook for revenue growth is positive. Give the large market and the requirement for continuous repurchase of these products, FMCG companies should continue to do well in the long run. Moreover
The retailers should be educated about the various brands ofproduct and about their use. The retailers should be taken seriously and the company should give more attention to them.
The company should work at making a good name for itself in the market. The company should advertise its products well to keep the customers well informed about the products. The newly launched product of the company should be advertised as soon as possible so that the customers get informed about the product. This would also lead to more customer enquiries for the product. Since most of the retailers are buying their stocks from the company’s distributors the company should work at giving better service to the retailers. The company’s distributors should regularly visit the shops and should be courteous with the retailers. The company’s distributors should work at maintaining better relations with the retailers. The company should keep its products in display at the retail shops in order to increase sales of its products. There should be more advertisements of products so that the customers are well informed about the products. For the retailers to start suggesting the products to the customers there should be more customer enquiries and more sales for these products. For this there should be more ads for the products. The company should work at maintaining good quality of its products.
The retailers should be given some incentives in the form of either more profit or more schemes or better service or cash discounts on huge purchases or schemes or credit facility or commissions, regular supply etc.. The company should try to do something regarding the imitation to the brands by shops survey.. The company should continue the sales promotion activities. so it is able to capture a good market share for itself. The company should go for poster ads and hoardings in addition to the TV and radio ads.