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INDIAN INSTITUTE OF FOREIGN TRADE (IIFT

)

Application of Economics in Today’s Businesses “Big Bazaar” – A Case Study
Presented By: Group 3 Section A MBA (IB) | 2010 – 13

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INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

Team Structure
S. No. 1 2 3 4 5 6 7 Name Gaurav Chopra Aditya Verma Khushboo Sethi Abhishek Sharma Amit Rawat Krithika Kannan Goumtesh Singh Roll No. 25 5 34 4 9 35 26 Role Group Leader & Member Member Member Member Member Member Member
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Agenda
1.Introduction 2.PEST Analysis 3.S.W.O.T Analysis 4.Economies of effective management 5.Industry Analysis 6.Nature & Importance of Profit

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INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

1. Introduction

1.1 Definition of Managerial Economics Applies Economic Theory, Methods to business, administrative business decision making Prescribes rules for improving managerial decisions Managerial economics uses economic concepts and decision science techniques to solve managerial problems through: Product price & output Make or Buy Production Technique Investment & Financing

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1. Introduction

1.2 PEST Analysis Political/Legal Factor Economic Factors Macroeconomic Environment Microeconomic Environment Social/Cultural Factors Technological Analysis

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2. S.W.O.T
Weaknesse s
•Heavy fund borrowings • Larger discounts only on limited home grown brands •Inability to cut prices

Strengths
•Excellent revenue model focusing on value for money. •Second largest selling space among competitors •Strong brands •Diversified product portfolio and price advantage

Threats
•Organized Retailers: Targeting same segment for higher margins •International Chains: Wal-Mart & Carrefour that are better known names •Unorganized retailer •Heavy discounts by Giant: 1015% on food items, sanitation products and appare

Opportunit ies
•Target upper and middle class segment •Expansion plans in cities with dense middle population •Coupling plans with discount store model to boost up sales

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3. Effective Management

Productive Advanced Technology Market Capitalization Competitive Environment Quality

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4. Industry Analysis

4.1 Market Overview
As per estimates by CRISIL, the Indian retail industry is poised to grow at a rate of 19% over the next 5 years The organized retail market in India is projected to grow to US$ 23 billion in 2009-10 The organized retail segment is expected to grow from 5% to about 7 to 8 % by 2012-13 The market is witnessing a migration from traditional retailing to modern/organized retail formats, with an explosive proliferation of malls and branded outlets
Sources: IBEF Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC: “2009 Global Retail Development Index”

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4. Industry Analysis

4.2 Future Outlook

Changing Paradigm: The Confluence of Modern & Traditional Retail
Consolidations, High Investments, Confluence of Indian Retail

Entry, Growth, Expansion, top line focus for organized retail

Range, Portfolio, Format Options, beginning of the rural-urban retail merge

Technology Adoption, leveraging traditional formats for modern retail

1st Phase

2nd Phase

P re i ta apC tR iae cpl eaS

3rd Phase

4th Phase

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC

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4. Industry Analysis

4.3 Key Players………….. (1/2)
Pantaloon Retail (India) Ltd.
• Started operations in 1994 and has

Shopper’s Stop Ltd.

Landmark Group
• Present in India since 1999 • Retail sector activity: Apparel, home décor and furnishing • Current store formats: Department Stores, hypermarkets • current Outlets: 15 lifestyle stores and 8 home centres • Future Plans: Presence in minimetros and Tier II cities • Principal Fascia: Lifestyle, Home Centre, Max Retail

• Established in 1991, has now since emerged as a retailing major in expanded to more than 100 retail outlets India • Spread across 1.82 million sq.ft. of • 12 million sq.ft. space spread over built-up area, spanning the entire 1,000 stores across 71 cities • Revenues worth US$ 887 million in spectrum of retailing verticals and 2007-08, a 75% increase over 2006-07 formats • Net Profit stood at US$ 29.75 million • Has a total of 26 stores in 12 cities with a hike of 87% over the previous year

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC

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4. Industry Analysis

4.3 Key Players………….. (2/2)
RPG Enterprises Vishal Megamart Ltd. Archies Ltd.

• Spencer’s Retail Ltd. was established • Established in 1986

• Present since 1979 • Current Stores: 180 showrooms in • Retail Sector Activity: cards & gifts in 1996 • Current Store Formats: Standalone • Spencer’s has a retail footage of over 100 cities • Retail area coverage of 2,990,140 Stores 1.1 million sq.ft. • Current Outlets: Archies has 100 • Stores: 250 stores, including 36 large sq.ft. • current Store Formats: company-owned stores in India and format stores across 66 cities in India 450 franchise-run outlets • Retail Sector Activity: Music, Food & Supermarkets • Popular Brands: Zero Degree and • Future Plans: It plans another 100 Grocery, Beauty Products company-owned outlets by 2010 • Current Store Formats: Convenience Fume • Has a factory with 700 imported • Principal Fascia: Archies and Stupid Stores, Supermarkets, Hypermarkets machines that have the capacity to Cupid • Music World has tie-ups with 350 manufacture 150,000 pieces a affiliates across the country • Principal Fascia: Spencer’s & Music month • 10 Warehouses World

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC

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5. Theory of Firms

A combination of people, physical and financial assets, and information Existence: Mass Market, Increasing purchasing power, focus on uppermiddle class Boundaries: Raw Material Cost, Premium on Brand Value Organization Structure: Location, Customer Service, Store Atmosphere, Price Heterogeneity: Perfect Competition, Target Audience, Promotion

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6. Nature & Importance of Profit
Definition: Defined as the residual of sales revenue less total costs Objective: Firms aim for business profit to spur efficient allocation of 4M (Men, Material, Machine & Money) Reason: Profits a vehicle for spurring investments over consumption, reward risk taking, innovation & enterprise Types: Normal Profit vs. Windfall : Norm vs. Exception

Theories: Frictional, Monopoly, Innovation, Monopolistic, Innovation, Compensatory, Firms respond based on market cycle
Profit define Market Behavior, Allocation of Resources & Efficiency

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6. Profits and Big Bazaar : An Insight
Monopolistic Competition: Low margins averaging 700 bps. Aim for TR >= TCLow margins averaging 700 bps. Aim for TR>=TC. Innovation Profit model : Maximize revenue with differential pricing Efficiency key to success : Economies of scale/ scope and cost control Extensive emphasis on inventory management: Optimize holding cost Store wide operation margins :Demand forecasting, optimal product mix Revenue Maximization : Using pricing and promotion strategies Scope of Growth : 98% of unorganised retail, a hurdle or an opportunity.

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Thank You !!

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