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Successful Innovations Indian Retail 2013 PDF
Successful Innovations Indian Retail 2013 PDF
731
116
Organized Retail Real estate rental 74%
455
Unorganized Retail
33
Real estate quality 52%
615
422
Slowing consumerism 26%
1
Small and simple ideas can be implemented much more easily
“Execute well on and can have real impact on consumers and economics
small ideas while This needs to be balanced and pursued in parallel with more
evaluating the big bets”
resource and investment intensive big bets
2
Success is not linked only to the ingenuity of innovation…
“An
Adapt Model
… but in being able to tailor an existing practice to address time
works as well as new and situation specific consumer/ market need
and path breaking ideas”
Adapting and adopting these practices can deliver benefits
3
“Efforts focused on Retailers face significant supply side challenges which directly
the Supply-side can impact the consumer value proposition
also deliver consumer and Focused innovation efforts on the supply side can bring paradigm
business impact” change and also result in sustainable competitive advantage
4
Consumer needs and market dynamics are evolving at a rapid rate
“Continuous and
As a result there is a need to evaluate the consumer value
evolving innovation proposition and business model on an on-going basis
is key to sustain value”
And make changes to sustain / strengthen market position
1
Demonstrate visible commitment and explicit support from senior leaders
Leadership and Ensure adequate and tailored resourcing – both in terms of numbers and also
Resourcing capability – by leveraging cross functional teams
4 Ensure adequate listening to customers which helps develop innovations that have
Direct Customer maximum impact and sustainability
Interaction Utilize multiple sources (e.g. observation, research, feedback, sales organization)
5 Roll-out a structured and phased process that extends from innovation strategy to
Process Discipline implementation
Develop and utilize supporting metrics to ensure compliance and decision making
5% 5% 6% 6% 7%
+8% 455
422 33 22%
391 27
363 22
337
19
15
394 422 7%
344 368
322
Org. Retail
% Share of
8% 9% 11% 12% 14%
India 7%
+9% 712
China 20% 648
592
97 24%
542 78
496 63
Indonesia 30% 51
41
Malaysia 55%
Taiwan 81%
2012 2013 2014 2015 2016
Source: IBEF, Centrum Research, Literature Survey, Booz & Company analysis
712 731
Potential Impact of FDI in Retail
97 24% 116 29%
Potential FDI of US$ 5-6 Bn in foreign
investments over the next 5-6 years
455
~1.5 million direct and indirect 33
employment opportunities
Investments in back-end infrastructure 615 8% 615 8%
Benefits to consumers through lower 422
price points and better shopping
experience
Access to new technology and capital
from international players for existing 2011 2016 2016
(As Is) (With FDI)
retailers
Organized Retail Unorganized Retail CAGR (2011-16)
Note Scenario “with FDI” is based on most current status on FDI regulation in India – 100% in single brand, 51% in multi-brand (with riders) and 100% in cash & carry
Source: IBEF, Centrum Research, Literature Survey, Booz & Company Analysis
services Retail
F&G
F&G Retail
Food Trends in Organized Retail
Size of Organized Retail
Services
Food
Apparel
footwear
Liberalization led to an exponential
Apparel
increase in organized retail across
categories
Apparel
Jewellery Foot-
Foot-
wear years that Food & Grocery has
witnessed the entry of large
domestic and foreign players
Footwear
Note: List of players/categories is not exhaustive – a representative list of major players (with at least 4-5 retail outlets) in key retail categories has been depicted
Source: Secondary research, Booz & Company analysis
Super/Hypermarkets is a young category in India with high potential for format evolution, as is evident from trends in USA and China
Apparel & Footwear, categories with the highest penetration of organized retail in India, will witness slower growth compared to F&G
Note: Apparel includes departmental stores; List of retail categories is not exhaustive
Source: Secondary research, Euromonitor, IRF, Booz & Company analysis
Key Takeaways
Real estate rental 74%
The Indian market presents major structural
Real estate quality 52% challenges…
– Rising real estate costs are posing a key
Slowing consumerism 26% challenge for retailers across all sectors
– MRP constraints compel retailers to operate on
MRP* constraints 25%
thin margins
Poor consumer sentiment 25% – Competition from kiranas as well as an
increasing number of foreign retailers has
Strengths of kiranas 24% intensified over the past decade
– Poor supply chain (including cold chain) due to
Low supplier fill rates 21% inadequate infrastructure leads to high wastage
and impacts timely availability of products
Relative strength
of suppliers
16%
Competition from … as well as addressable short term concerns
14%
foreign retailers (e.g., poor consumer sentiment)
67% respondents feel Innovation plays a key role in the Feedback from Retailers through Primary Interviews
retail sector and the 2013 RAI – Booz Retailers Survey
Importance of Innovation in Indian Retail
% respondents “Innovation is a game-changer and not
just a value –add; it must be embraced”
67%
7%
“Innovation is important for the growth of
modern retail”
Very Relevant Not Relevant
Source: RAI-Booz Retailers Survey 2013 (410 respondents), Booz & Company Analysis
Study Objectives
Collate examples of innovation in retailing in India (across all retail segments
and covering the end-to-end value chain)
Understand the role of innovation in Indian Retail with a focus on mapping the
most common avenues and levers as well as challenges and impediments
Study how the innovations have created value (for both company as well the
consumer) and driven leadership
Identify key learnings based on the innovations to date
Detail out implications for Indian Retailers moving forward
Food &
Groceries
Industry Reports
Apparel Press reviews
Public
Sources
Company Reports and
Footwear
website
Electronics &
Durables
Home
40 cases of
innovations Literature
Review
Jewellery & identified
Watches
Pharmacy &
Wellness
Books &
Interviews with Indian
Music Primary Retailers
Research Online survey of ~400+
Food
Services retailers in India
Online
Retailing
33
Streamlined in-store consumer experience through
Online Retail
Spencer’s 38
technology in a typical chaotic ‘mithai’ shop
Amongst the retailers to introduce Cash on Delivery,
34 propelling online product sales in India
Leverages social media f or orders; delivery points 39
Introduced the Virtual Mirror concept in eyewear to
include bus stops and train stations
assist decision making online
35 40 Led development of home shopping channel in India
Pioneered large f ormat, multi-cuisine, 24x7 f ood
outlets at railway stations; of f ers on-seat delivery in and now cover 3,000 cities and towns; amongst the
trains retailers to introduce Cash on Delivery
Price
Business Challenge/ Unique Consumer Value
Opportunity
Proposition
(Market share loss, low profits/
growth, market whitespace… ) (Value, Experience, Trust …)
Convenience
Paradigm Shift
Paradigm – What consumers Paradigm Breaker – What innovation Examples
thought delivered
“Air conditioning, big & clean stores, Non-intimidating bazaar type format
English speaking staff...modern retail drove penetration and acceptance in
is more expensive and not for me” mid-market consumers
Value
“An international restaurant is Product innovation, pricing and
expensive and products are not for marketing drove high acceptance
my Indian tastes “ across consumer segments
The karat meter and differentiated retail
“I buy jewellery only from my family experience delivered trust and a strong
jeweller because we know him” value proposition to jewellery buyers
Experience
“Buying online is not for me; I like to Cash on delivery offers options to see
touch and feel the product and pay the product and pay in cash on delivery
cash after delivery”
“Ethnic and handloom apparel is not Ethnic and handloom apparel is trendy
trendy and inconsistent on quality and and consistent in quality and size,
fit/size” through reliable supply base of artisans
Trust
A mithai shop can deliver streamlined /
“Shopping at a busy mithai shop is a
smooth store experience through
chaotic experience”
technology
Successful innovations need not only be ‘new and path breaking ideas’
2 but can be an adopted model tailored to meet specific market needs
1 2 3 4
1 2 3 4
Key Challenges
Key Challenged Posed
Posed by
by Local
LocalJewellers
jewellers
Personalized
Unreliable Quality
Customizations and Customer An inexpensive, unreliable
modifications to jewellery Checks
Services and slightly destructive
were made at the customer’s technique was used to
convenience determine the purity of gold
1 2 3 4
1 2 3 4
1 2 3 4
Opportunity Impact
Customer uses
Issues faced by RFID card at Customer Impact
sweet/mithai shops 12345 each counter
– Reduced billing
RFID Card
– Crowded and high Counter I Counter II time
given at
waiting times entrance – Customer
– Poor quality of Customer gives RFID
satisfaction
service at billing counter – Increased
– Customer and bill is generated customer curiosity
dissatisfaction
Retailer Impact
Billing is the major – Increased footfall
bottleneck Significant
reduction in – Reduced
– Manual account of all turnaround time
time
purchases Customer Billing Counter
– Low manpower
– Increased need for
manpower – Limited training
Finding the right technology actually required for the costs
Enablers business
Willingness to experiment with new technology
1 2 3 4
Leveraged Twitter to generate orders and to Focus on connecting with local communities
spread awareness about their products Strategy is divided into 3 phases:
- Scouting Phase: Stores determine future
Regular status updates about new offerings and weddings in region via. churches, halls etc.,
prizes for regular customers on Facebook - Pitch Phase: Stores assess family potential
Continuous customer engagement has helped and develop a tailored sales pitch
them develop their nascent brand - Purchase Phase: Invites extended family to
store to showcase product line
1 2 3 4
_ Type Description
1 2 3 4
Notes: All prices are ex-Mumbai, Veg Puff & Veg. Combo are from Taj Sats; Vada Pav is from Jumbo King
Source: McDonalds Interview, Secondary Research, Booz & Company analysis
1 2 3 4
Vendor
Management
Development
• Outcome of local management Closely worked with Good Day
initiated menu development Foods
exercise
Devised incentives for milk farmers
1) Supply chain best practices and Advertisements apply across products with McDonalds Global Enabler Local Enabler
Source: McDonalds Interview, Business Today, Booz & Company analysis
1 2 3 4
361
Indians felt entry of international players
Exploitative
was detrimental to Indian economy as
Relationship 130
they would eat into local player shares
1 2 3 4
OEM
Retailer Value Added
Center
Opportunity Impact
1 2 3 4
Average sale increase varies between 20 – 40% Within OTC/nutraceuticals and FMCG
during cash back offer period. Redemption of categories, Guardian has higher private label
30-35% during cash back redemption period. penetration giving them better margins
1 2 3 4
1) Based on responses from 410 retailers in India on the 2013 RAI-Booz Retail Innovation Survey
Source: Booz & Company analysis
1 2 3 4
Artisans
Artisans Craftsmen
Craftsmen Weavers
Weavers
Artisans Craftsmen Weavers First Indian brand to offer
premium experience in textile
• Fabindia’s co-ownership model enables self-sufficiency and made from traditional
Premium techniques with a wide
financial independence of artisans
Retail product mix
• There are a total of 80,000 artisans as part of 17 SRC’s and this
Experience
number is likely to grow to 100,000 Pioneered the “mix & match”
• Fabindia limited its stake to 49% in SRC with suppliers holding at style of buying traditional
least 26%* garments
Employed by Fabindia Self-employed
*Fabindia is moving to a model where suppliers will be given ownership in the Fabindia Company rather than SRCs
Source: Secondary Research, Company sources, Booz & Company analysis
1 2 3 4
Source: Fabindia Website, Literature Review, Secondary Research, Booz & Company analysis
1 2 3 4
1 2 3 4
Opportunity Impact
*A total of 80+ stores can be found in Tamil Nadu modeled on the Kovai Pazhamudir Nilayam format managed by different groups
Source: Primary interviews, Booz & Company analysis
1 2 3 4
In their initial years, followed a strategy of buying real estate Cultural inhibitions and low access to non-cash payments were
for stores in prime locations rather than leasing stores major hurdles faced by online retailers until Cash on Delivery
Supply direct to store; first DC recently opened in Mumbai COD innovation has helped overcome this
Manage costs by paying employee salaries in the last quartile –Retailer ships product to customer through logistics partner
of the industry; employees offered stock options to enable this –Logistics partner releases product to customer on receipt of
cash on delivery and passes on the cash to Retailer
Operate 80+ stores with 30%+ growth in turnover each year
Has transformed online-retailing in India with significant
increase in eye-balls
1 2 3 4
Innovation Approaches
1 2 3 4
Consumer Perception in the mid-90’s How were Big Bazaar Stores Different
Creates atmosphere of a crowded market
Smaller place enabling Indian consumers to feel at
Aisles home
Air I am paying
conditioning for their
means it is fancy lights Allows consumers to touch wheat, rice and
Loose other products and check for quality
expensive and
Products themselves
salespeople
These
It is a big English Simple flooring allowed new consumers to
Granite be at ease and not be intimidated by large
store; it speaking
must be salespeople
Floors store format
exclusive are
intimidating
Special schemes and bundled goods
Deals provided good deals to consumers – at par
with Kiranas
Source: Primary interviews, IBEF, Centrum Research, Literature Survey, Booz & Company analysis
1 2 3 4
Big Bazaar Family Center Large stores of ~80,000 sq. feet serving as regional
consumptions hubs
Wider product assortment covering good, better and best in
terms of product variety and quality.
Big Bazaar Express Smaller format (18,000-20,000 sq. feet) with a selected
product assortment
Focus on consumer convenience and quick activation of
products
Original Big Bazaar Store Typical format of 40,000 sq. feet based on the original Big
Bazaar stores
Targeted at the mid-level consumer segment for overall
household needs
Food Bazaar
Positioned as the neighborhood food & grocery store.
Original Big Bazaar Store The store serves as a construct to build catchment.
Aim is to assist consumers in food and grocery buying.
Fashion at Big Bazaar FBB positioned as an affordable fashion store serving the
fashion aspiration of tier 2 and 3 cities.
Focus on presentation of merchandise, staff experience
and communication
1 2 3 4
1 2 3 4
Performance Summary
Future Group Performance*
INR Crore Growth in No. of Big Bazaar Stores
Sales PAT
12,000 240 143 144 157
11,029 116
11,000 220 90
10,000 200 56
9,011
9,000 180
8,000 160 2007 2008 2009 2010 2011 2012
1 2 3 4
Jalan Group
1974 1999 2005-10
Fixed price Outlet with high quality One Stop shop for
Format
Executive Summary
Retail Context for Innovation
Study Objectives & Approach
Key Learnings from the Innovation Study
Implications for Retailers
About RAI and Booz & Company
Self Assessment of Indian Retailers on Innovation Feedback from Retailers through Primary Interviews
in their Own Business and the RAI – Booz Retailers Survey 2013
% responses who rated innovation in their company “Indian Innovation is piecemeal and
below 6 on a scale of 1-10* reactive.”
Key Barriers to Innovation in Businesses Feedback from Retailers through Primary Interviews
RAI – Booz Retailers Survey 2013 and the RAI – Booz Retailers Survey 2013
1)*Weighted average scores were calculated by assigning weights to ranks (1,2 or 3) indicated by survey respondents. The weighted average score is calculated out
of a total of 3, 3 being the highest.
Source: RAI-Booz Retailers Survey 2013 (410 respondents), Booz & Company analysis
0
0 1 2 3 4 5 6 7
The report first released in 2005 is an annual study which
quantifies total innovation (R&D) spend across top 1000
global companies ($603 Billion in 2011)
-5 Indexed R&D / Sales Identified companies called “High Leverage Innovators”
who produced better results per R&D dollar than industry
~10,000 analyses found no statistical relationship between peers by focusing on:
R&D spend and:
– Aligning R&D effort with company’s business strategy
Sales growth Net profit growth
– Having direct customer interaction
Gross profit growth Net Margin
– Having a (global) dispersed footprint
Operating profit growth Market cap growth – Investing in a coherent set of capabilities
Operating Margin Total shareholder return – Creating the right culture across the R&D organization
More details on Booz & Company’s Innovation Studies can be found at: http://www.booz.com/global/home/what_we_think/global-innovation-1000
Source: Booz & Company Global Innovation 1000, 2006
“ WHAT” “HOW”
50 49
Cultural Attributes
Strong identification with customers
45 44 45
42
Passion for and pride in the products and
services offered
40
Culture of collaboration across
geography/functions
(A) Normalized 5 year CAGR for gross profit and enterprise value were considered for analysis
Source: strategy + business 2011: Why Culture is Key; Booz & Company analysis
Development / Commercialization
– Pilot selection/controlled roll-outs
– Supplier/partner engagement in the
development process
– Rigorous and data based decision making
Low to Highly Coherent Low to Highly Coherent
Moderately Companies Moderately Companies
Coherent Companies Coherent Companies
1.2 Traditional
1.0 Market Research
31%
1.0
0.4 0.3
Idea Work-Out
Sessions
19%
0.2
0.0
Technology
Direct Indirect Direct Indirect 18%
Road Mapping
Customer Insight Customer Insight
Engagement Approach Engagement Approach All other
categories 15%
(<15% each)
3Y Operating Income CAGR 3Y Return on Assets
1) Based on survey responses from ~ 700 global companies in the 2007 Booz & Company Global Innovation Study
Source: 2007 Booz & Company Global 1000 Innovation Study: The Customer Connection Booz & Company analysis
Innovation Innovation
Innovation Integrate in
Portfolio Project
Strategy Operations
Management Execution
RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that will
delight customers. RAI has a three charter aim of Retail Development, Facilitation and Propagation.
Retailers Association of India (RAI) always strives to bring best practices to the retail industry and it's stakeholders. RAI's efforts centre
around advocacy and government representations, bringing best practices to the industry, fostering retail learning and training, creating
a reservoir of information through retail research, disseminating communication through magazines, newsletter, website etc. for the
benefit of it's members and the industry.
RAI Focus
Industry Creation
Advocacy Talent Development
Activities
Development of learning
Government and Semi
programs across the lifecycle of Events
Government Bodies
retail employees
Media: Internal (STOrai + Sector Skill Council through Members
replenish) and external RASCI under NSDC Networking Meetings
Collaboration with Service provider
Research and advisory services
communities and Database and related
including probing recruitment help
international organizations services
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Düsseldorf Moscow Warsaw Oldest management consulting firm
North America Frankfurt Munich Zurich founded in 1914
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DC
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Santiago
São Paulo & Southeast Asia Client list: 400 of the Fortune Top 500
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Core Business
Strategy Commercial Operations
Development Management
Business positioning Value chain Store operations
Store f ootprint improvement Collaborative value
Format Category management chain
Multi-channel strategy Private label Supply chain
Mall management development management
Financial services Loyalty programs Logistic strategy and
strategy Pricing and promotion network design
optimisation Customer care
More details on Booz & Company’s Innovation Studies can be found at: http://www.booz.com/global/home/what_we_think/global-innovation-1000
Source: Booz & Company Analysis
Note: Neeti Goel and Siddhant Dube, both consultants with Booz & Company have supported the creation of this report