DGPESTLE ANALYSIS- RETAIL INDUSTRY COMPANY: SUBHIKSHA

Demographics: India is the worlds 4th largest economy as regards GDP(in PPP terms) and is expected to rank 3rd by 2010, just behind the US and China. The country is on the brink of becoming an economic powerhouse ready to unleash its largely untapped potential for those who are willing to take the right step forward. In the retail sector, in spite of a 1.07 billion strong population, the target consumer base for most retailers in India stands at about 405 million. Of this, about 30 million have a combined purchasing capacity of USD 230 billion. The countrys 6 million rich population shops worth USD 28.36 billion every year. The retail sector in India is highly fragmented and organized retail in the country is at a very nascent stage. There are about 12 million retail outlets spread across India, earning it the epithet of a nation of shopkeepers. More than 80% of these 12 million outlets are run by small family businesses which use only household labour. Traditionally, smallstore (kirana )retailing has been one of the easiest ways to generate self-employment, as it requires limited investment in land, capital and labour. Consequently, India has one of the highest retail densities in the world at 6% (12 million retail shops for about 209 million households). In India presently transitioning segmental and income demographics with booming middle class households armed with greater disposable incomes currently comprise 8% of the total number of households. This figure is expected to increase to 13% by 2010 growing annually at around 15%. Disposable incomes too are expected to rise at an average of 8.5% p.a. till 2015. These conditions are favorable for retail business. Subhiksha caters mainly to the needs of middle and lower income groups as they wanted to attract not the top end customer but the aam aadmi. Subhiksha was one of the early entrants in retail market. They entered retail market in year 1997 with capital of 5 Crores. Organized retail was new concept then. The first question when they started was why would customer come to their store abandoning the existing store? It had to be the price they thought, because ultimately there is no difference between the branded products like say Boost or Surf or such things. So, Subhiksha decided to sell branded products at a lower price. Also mostly women are involved in purchases of grocery items and they are quite price-conscious. So Subhiksha offers goods at lowest possible prices.

Geographic:
Besides the 6 metros, India has 61 other cities with populations greater than 0.5 million these cities represent 80% of Indias population and contribute about 14% to the countrys GDP. Even though the 6 metros have the greatest concentration of Indias wealth, the other 61 cities have consistently outpaced the metros in growth rates since

1995. These cities are witnessing higher incomes and a fundamental change in consumer mindset. Increasing awareness levels in Tier II cities are eroding the earlier difference between metros and Tier II cities in terms of urban aspirations. International brands increasingly relying on Tier II cities to drive growth are Nokia, Pizza Hut, Ford, Reebok and Adidas. Subhiksha has presence in all types of cities, Metros and Tier II cities. From the companys early research of three months, Subhiksha found that consumers prefer buying groceries from closer home. So, they decided to set up 1,000 sq ft shops all across the city and not a 10,000 sq ft big store at one location in Chennai. Subhiksha has focused on opening stores region by region. It is important to achieve deep penetration to compete with neighborhood kirana stores. Presently Subhiksha have presence nationally with 1000 outlets and spread across more than 90 cities.

Political:
In spite of the opposition presented by the Left parties, in January 2006, the Union Cabinet approved a major rationalization of the policy on. FDI in retail to further simplify procedures for investing in India and to avoid multiple layers of approvals required in some activities. Till now, Government approval was required for FDI in wholesale cash and carry trading and FDI beyond 51% in export trading. To facilitate easier FDI inflow, instead of having to seek FIPB approval, FDI up to 100% will now be allowed under the automatic route for cash and carry wholesale trading and export trading. The Cabinet has also allowed FDI up to 51% with prior Government approval for retail trade in Single Brand products with the objective of attracting investment, technology and global best practices and catering to the demand for such branded goods in India. This implies that foreign companies can now sell goods sold globally under a single brand, such as Reebok, Nokia and Adidas. Retailing of goods of multiple brands, even if the goods are produced by the same manufacturer, is not be allowed. Going ahead, the Government is expected to adopt a highly calibrated approach to allowing further FDI in the retail space. There is a possibility that the relaxation of FDI restrictions may take another 3-5 years. This may deter some international retailers from investing in a big way. However, regardless of the restrictions, international retailers are entering India in droves. The returns on FDI in retailing in India are likely to be greater than those in China because large Indian retailers are much smaller than their Chinese counterparts. International retailers will find the competitive environment easier on the market share and the growth fronts.

ECONOMIC
Indian Economic Situation : India's economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services.Agriculture employs nearly 62% of total

population. Service sector accounts more than half of India's Gross Domestic Product. It recorded a GDP growth rate of 9.1% for the fiscal year 20072008.The recent financial crisis in US is showing some impact on Indian Economy. Indias GDP growth estimate for the current fiscal (2008-09) has been downgraded from 8 per cent to 7.4 per cent and, for the next financial year (2009-10), from 8.5 per cent to 7 per cent.. FIIs have been pulling out from the stock market in a big way, and corporate borrowings from the global markets are becoming increasingly difficult. Taxation : Companies residents in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. A corporation is deemed to be resident in India if it is incorporated in India or if its control and management is situated entirely in India. Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge. Foreign corporations have a basic tax rate of 40% and a 2.5% surcharge. Domestic corporations have to pay dividend distribution tax at the rate of 12.5%, however, such dividends received are exempt in the hands of recipients. FDI : Currently, FDI in multi-brand retail is not permitted, while 51 per cent foreign equity participation is allowed in single-brand retail. And in Cash & Carry Business FDI allowed is 51 per cent Meanwhile, the DIPP has proposed FDI of up to 51 per cent in multi-brand retail of watches, electronic items, computers and sports goods. Impact On Subhiksha; Since the borrowing has become more costly in Indian market the expansion plan s of Subhiksha might need to postponed. The current tax structure and plan is a deterrent to the Subhiksha. There are different sales tax rates as well as stamp duties levied in different parts of the country. Movement of goods across districts incurs octroi duty, which is a drain on revenues. Therefore, a key demand from the industry is to abolish local levies like octroi or entertainment tax, and implement VAT uniformly across all states. Subhiksha and Organized retail sector has to pay huge taxes, which is negligible for small retail business. The higher FDI allowed will help in Subhiksha to have foreign partner. The Foreign partner will bring in Capital and Technology which will help in improving the Supply Chain efficiencies and can also boost Subhikshas expansion plans.

SOCIAL
Consumer Attitudes: Currently the country has a population of over one billion, 60% of which is under 30 years of age. This means majority of the population is young and working class with higher purchasing power. The low median age of population means a higher current

consumption rate which augurs well for the retail sector. This young population has severe impact on familys purchasing decision. Today more and more consumers are vocal on the quality of the products/services that they expect from the market. This awareness has made the consumer seek more and more reliable sources for purchases and hence the logical shift to purchases from the organized retail chains that has a corporate background and where the accountability is more pronounced. This young population has a very positive attitude towards organized retail sector. Subhiksha should target this young population of India. Living Standards: Living Standards of Indians has increased over the last few years in a significant way. India has around 192 million households. Of these only a little over six million are affluent that is, with household income in excess of INR215, 000. Another 75 million households are in the category of well off immediately below the affluent, earning between INR45,000 and INR215,000. This is a sizable proportion offers excellent opportunity for Subhiksha to serve.

TECHNOLOGY
a) Retail Demand Forecasting: All customer transactions throughout the day, all details of their purchases, are stored as database, and then the patterns are analyzed to forecast the future trends of the consumers' behaviour. b) Inventory Management: The use of stock should be regulated. There should be optimal use of store space and maximum for selling. The varying time for replenishment of different products helps them to save space and avoid blockage of money. c) Store Management: A place for safe-keeping of retail and whole-sale commodities is kept. IT helps sending alerts regarding out-of-place or stock-out items. Technologies Used RFID Radio Frequency Identification: It's a technology used to locate and check the availability of a product. It's a data collection technology that uses electronic tags for storing data. The tag, also known as an "electronic label", "transponder" or "code plate", is made up of an RFID chip attached to an antenna. The reader sends the wave, which can read the chip. Unlike bar code system, which needs a scanner closely held to the product to read, the RFID chip tag can be read from distance. Smart Operating Systems: Smart Operating Systems enterprise software are providing solution for manufacturing and distribution from Lean Manufacturing, Just-In-Time (JIT), and Six Sigma initiatives, to postponement strategies to Collaborative Planning, Forecasting, and Replenishment (CPFR), and Sales & Operations Planning (S&OP)

activities. It calculates the uncertainties even of the minute form and gives safety stock levels to keep the inventory stable. Studies the supply chain and points out where it can be improved. Point of Sale: It records the location, date, time of the transaction taken place. There are computers or specialized terminals that are combined with cash registers, bar-code readers, optical scanners, and magnetic-strip readers for accurately and instantly capturing the transaction. IT has really made grocery markets advanced which has given great advantage to the customers, such as: Saves Time Saves Labour Customer Satisfaction Subhiksha is planning to expand its IT infrastructure to keep up with rapid growth. To help in this endeavor, the retail chain has turned to HP Financial Services for financing software licenses as well as leasing and asset management services for the IT assets Subhiksha is deploying. Subhiksha has been very pleased with the results they have achieved by using HP's financing and asset management services In addition to facilitating deployment of SAP business enterprise software, HP Financial Services is providing desktop PCs and other IT equipment on lease. HP Financial Services is a subsidiary of HP that provides asset management services and leasing of IT equipment. Strengthening Business Intelligence The company is also working on strengthening its business intelligence solution and is developing it in-house. A separate team is using internal data on price points, stock movement and purchase patterns to build a company-specific solution .The companys recent customer loyalty programmes are based on some of this data and it is putting in place solutions that will directly impact the supply chain. Subhiksha is also migrating its existing backend infotech deployments to the SAP platform to make scaling up operations easier.

LEGAL
Subhiksha is currently under the scanner of state FDA of Maharashtra for alleged sale of repackaged goods as well as unhygienic conditions in its godowns, according to a BS report, is scheduled to offer its defense to the regulatory authority on Friday, the 8th August. Subhiksha management has alleged that its competitors are unfairly using the state agency to target the retail chain. Although, 80% of the products sold at Subhiksha are sourced from large companies and carry nationally popular brands, the retail chain is being constantly harassed by vested interests as it offers them at discount. Various regulatory agencies have repeatedly attempted to discredit the retail chain to make it appear that lower prices were linked to lower quality. Subhiksha gets reprieve as Bombay HC sets aside Maha FDAs suspension orders

Environmental
Competition represents only one force in the environment in which the marketer operates. Subhiksha competitors include Big Bazaar, Reliance Fresh, More, Spencers Daily, Vishal Mega mart, Etc. Suppliers: Bulk purchases directly from manufacturers or stockists qualified for deep discounts. Quick inventory turns also improved the cash flow and reduced operating costs. Subhiksha made spot payments against delivery to get cash discounts. The supplier helped in inventory control and in return got an improved cash flow. Subhiksha sold all its products all the time below MRP. It eliminated the margins in the traditional supply chain consisting of the manufacturer-wholesaler/dealer retailer network. Subhiksha had a centralized purchasing system to eliminate multiplicity of billings, which would occur if the stores were to make independent purchases. It bought directly from distributors who sold at only a small margin above the mill prices and from around 150 manufacturing companies. Customers Subhiksha helped consumers make informed buying decisions. Smaller packs of products of established brands were usually less economical. However, promotional offers

by leading brands usually priced smaller packs at lower prices to induce buying greater quantities. At a time when many retailers wish to be a one-stop shop for the consumer, Subhiksha focuses on selling FMCG, fruits and vegetables, medicines and mobile phones. Fruits and vegetables are purchased at a greater frequency, in some cases, almost on a daily basis. Drawing customers into the store regularly and frequently might induce them to make impulse purchases. Subhiksha has focused on opening stores region by region. It is important to achieve deep penetration to compete with neighborhood kirana stores. Their catchment area is now a radius of 750 metres. The first 500 meters of the catchment area offer the highest potential in terms of attracting customer walk-ins. Any competition that comes up within that radius would be stiff.