Retail Strategy at Spencer’s

Company Background:
Spencer has a vibrant history in the Indian retail market. It first started its operations in 1863 in
Chennai. Currently, it is owned by the RP-Sanjiv Goenka group. It had more than 120 stores operating in
three formats - Spencer’s neighbourhood store (1500-15000 sq. ft. convenience store), Spencer’s
Supermarket, and Spencer’s Hypermarket (15000-50000 sq. ft.). 80% of its total sales were from food
and grocery verticals. Spencer was unable to generate positive cash flow. The other financial parameters
such as quick ratio, cash ratio were also low as compared to the competitors.
Positioning:
Spencer introduced TTW (Taste The World) strategy in 2008, aiming to provide its customers
with a futuristic and international shopping experience. They displayed new categories such as wine and
spirit, gourmet centre by International chefs, patisserie section, etc. 
This helped them in creating a unique position but without generating profits, because Indian
consumers were price conscious and the high-end pricing was affiliated with high-end consumers with
the discontinuation of TTW in 2011. Because of the high prices, the middle class and lower-class
customers did not prefer Spencer stores. Thus, the stores long term sustainability was in question.
People were happy with the store experience and the product quality but with the lack of affordable
prices, there was a negative impression created on the stores.
MFLA (Make Fine Life Affordable) was introduced in 2011, to modify their positioning based on
the feedback, which was targeted towards typical Indian middle-class consumers. It was introduced to
strike a balance between the quality and the price point, making Spencer’s a VFM (value for money)
store. The prices were made affordable and a more value-oriented approach was followed. They created
“entry price points” to attract consumers and also introduced private labels with heavy focus on visual
merchandising and space allocation.
Problem Statement:
Should Spencer focus on making the efficient stores efficient by cutting down costs, increase in
operational efficiency or by aggressively increasing the number of stores?

Market Scenario:
 Future Avenue Trend
Spencer’s Reliance Hypercity
Name Enterprises Supermart Hypermarke
(2015) Fresh Ltd. Retail Ltd.
Ltd. s Ltd. t Ltd.
EBITDA -807.31 140953.90 15996.50 62207.90 760.35 -577.90
(1.95) (4.46) (-7.53)
(margin) (-4.8) (6.18) (7.2)

Operating profit -1238.24 137922.90 4484.70 61401.90 518.98 -813.90

(0) (0) (-10.61)
(Margin) (-7.36) (12.13) (4.91)

Net Profit (Loss) -1735.52 2724.80 379.90 2113.90 134.77 -843.10

ROA -21.35 3.18 0.12 9 2.63 -7.53

*Exhibit 6

The competitors are able to generate positive EBITDA and Operating Profit signifying that
Spencer’s is having high Operating expenses and overheads with respect to revenue. The reason being
that they were in premium locations as per their image. They need to focus on decreasing the operating
costs. The table also shows that the ROA is negative, which depicts unutilized assets or improper assets
usage.

Also, we can see that the Operating profit of Spencer’s is -7.36% as compared to the Industry average of
Hyperstore as 7.2% (from exhibit 2B). This shows that they are spending a lot in Operations than
needed.

Recommendation:

Given the current scenario, it is recommended for Spencer’s to first increase the efficiency of the
existing stores. This will enable them to get a confidence boost in terms of profitability. They also need
to reduce the average store sizes, reducing the operations cost of the stores and helping them in
excelling in Operation costs.

Later, they should focus on the aggressively expanding to tier 2 & 3 cities, since the Retail segment
shows potential to grow at 17% annually. The rental costs in tier 1 cities is very high, this may not be
beneficial for growth, hence tier 1 cities can be avoided.