Internal assessment Test – 1 - ANSWERS

1(a)

Distribution of consumer products begins with the producer and ends with the ultimate consumer.
Retailing is defined as a conclusive set of business activities or steps used to sell a product or a service to
consumers for their personal or family use. The word Retail comes from the French word ‘Retaillier’
which means to break bulk. In between this are many middlemen some of which are termed as retailers.
Retailing is defined as a conclusive set of activities or steps used to sell a product or a service to
consumers for their personal or family use. A retailer is a person, agent, agency, company, or
organization which is instrumental in reaching the goods, merchandise or services to the ultimate
consumer. In between this are many middlemen some of which are termed as retailers

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1(b)

Retailing in India is one of the pillars of its economy and accounts for about 10 percent of its GDP. The
Indian retail market is estimated to be US$ 600 billion and one of the top five retail markets in the world
by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion
people. As of 2003, India's retailing industry was essentially owner manned small shops. In 2010, larger
format convenience stores and supermarkets accounted for about 4 percent of the industry, and these
were present only in large urban centers. India's retail and logistics industry employs about 40 million
Indians (3.3% of Indian population). Until 2011, Indian central government denied foreign direct
investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets,
convenience stores or any retail outlets. In November 2011, India announced retail reforms for both
multi-brand stores and single-brand stores. In January 2012, India approved reforms for single-brand
stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but
imposed the requirement that the single brand retailer source 30 percent of its goods from India. Indian
government continues the hold on retail reforms for multi-brand stores. These market reforms paved
the way for retail innovation and competition with multi-brand retailers such as Walmart, Carrefour and
Tesco, as well single brand majors such as IKEA, Nike, and Apple. The announcement sparked intense
activism, both in opposition and in support of the reforms.

Online retail business is the next generation format which has high potential for growth in the near
future.

After conquering physical stores, retailers are now foraying into the domain of e-retailing. E-
commerce is expected to be the next major area supporting retail growth in India. The industry is
projected to touch US$ 100 billion by 2020 growing from US$ 30 billion in 2016. With growth in the e-
commerce industry, online retail is estimated to reach US$ 70 billion by 2020 from the recorded value of
US$ 3 billion in 2014. India’s total potential of Business to Consumer (B2C) is estimated to be US$ 26
billion, of which $3 billion can be achieved in the next three years from 16 product categories, according
to a study by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Institute of
Foreign Trade (IIFT). India has replaced China as the most promising markets for retail expansion,
supported by expanding economy, coupled with booming consumption rates, urbanizing population and
growing middle class. India is expected to become the world’s fastest growing e-commerce market,
driven by robust investment in the sector and rapid increase in the number of internet users. Various
agencies have high expectations about growth of Indian e-commerce markets. Indian e-commerce sales
are expected to reach US$ 120 billion! By 2020 from US$ 30 billion in FY2016. Further, India's e-
commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and
530 million shoppers by 2025, led by faster speeds on reliable telecom networks, faster adoption of
online services and better variety as well as convenience. The size of modern retail in India is expected
to double to Rs 171,800 crore (US$ 25.7 billion) from Rs.87, 100 crore (US$ 13 billion) in three years
driven by Omni-channel retail.

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1c.

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totaling US$ 935
million during April 2000–December 2016, according to the Department of Industrial Policies and
Promotion (DIPP). With the rising need for consumer goods in different sectors including consumer
electronics and home appliances, many companies have invested in the Indian retail space in the past
few months. IKEA, the Netherlands-based furniture company, has opened its first Indian outlet in
Hyderabad and has plans to open more outlets by 2020.

Amazon India doubles its storage capacity in India by adding 14 new warehouses in 2017, aimed at
maintaining rapid growth in sales and catering to the remote parts of India.

Bang and Olufsen, Danish stereo and speaker system maker, has plans of setting up about eight to ten
standalone satellite stores by the end of FY 2017-18 in cities like Kolkata, Hyderabad, Ahmedabad,
among others. Walmart, global retail giant, plans to open 50 new cash-and-carry stores in India over the
next three to four years and locate half of the stores in Uttar Pradesh and Uttarakhand while creating
over 40,000 jobs in the two states. Global e-commerce giant, Amazon is planning to enter the Indian
food retailing sector by investing US$ 515 million in the next five years, as per Minister of Food
Processing Industries, and Government of India. US apparel retail major Gap Inc., has tied up with Arvind
Group’s fashion portal NNNow.com to sell its products online, which will help the retailer expand its
presence beyond metros and tier-I cities. Hamleys, has stated that India is one of the most important
markets for Hamleys globally, and outlined plans of opening six more stores, taking its total store count
in the country to 32 by 2018. Roche Bobois Group, outlined plans of opening new stores in cities like
Hyderabad, Chennai, Pune, Kolkata and Ahmedabad, in order to make India one of its top five markets
by 2022. A joint venture between Dutch asset manager APG Asset Management and real estate asset
platform Virtuous Retail, has acquired a portfolio of three shopping malls for US$ 300 million, and has
committed an additional US$ 150 million as equity capital to expand the portfolio. Future Consumer Ltd
has formed a joint venture (JV) with UK’s largest wholesaler, Booker Group, with an investment of Rs 50
crore (US$ 7.5 million), to set up 60-70 cash-and-carry stores in India in the next 3-4 years. Adidas India
Private Limited, outlined plans of opening around 30-40 big flagship stores across Delhi, Mumbai and
Bengaluru, by 2020. Mad over Donuts (MoD), outlined plans of expanding its operations in India by
opening nine new MOD stores in Hyderabad and Chennai by March 2017. Switzerland’s luxury retail
brand Bally, plans to re-enter the Indian market in a joint venture with Reliance Brands Ltd, by opening
its first store in New Delhi in March 2017, and thereafter aiming to expand to four stores in Delhi,
Mumbai, Kolkata and Chennai over the next 3 to 4 years. Urban Ladder, an online furniture store, is in
advanced talks to raise around US$ 25-30 million from existing investors Kalaari Capital, SAIF Partners
and Sequoia Capital, along with one new investor, which will be used to fund its expansion plans.
Hennes & Mauritz (H&M), the Sweden-based clothing retailer, is in advanced talks with Mumbai-based
Prakhhyat Infraprojects Pvt Ltd to lease around 275,000 square feet of space at Bhiwandi, Maharashtra,
to set up its first warehousing hub in India. Future Group has partnered with UK clothing and hardware
retailer Laura Ashley to make and sell merchandise as well as wholesale distribution in India. Parle Agro
Pvt Ltd is launching Frooti Fizz, a succession of the original Mango Frooti, which will be retailed across
1.2 million outlets in the country as it targets increasing its annual revenue from Rs 2800 crore (US$ 0.42
billion) to Rs 5000 crore (US$ 0.75 billion) by 2018. The Government of India may change the Foreign
Direct Investment (FDI) rules in food processing, in a bid to permit e-commerce companies and foreign
retailers to sell Made in India consumer products. Government of India has allowed 100 per cent Foreign
Direct Investment (FDI) in online retail of goods and services through the automatic route, thereby
providing clarity on the existing businesses of e-commerce companies operating in India.

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2(a)

Retail strategy is a holistic marketing plan for a product or a service to reach and influence the
consumers. This strategy covers everything from what retail channels a product or service will be
available in to what should be the price or sales incentive to be given and how to display the product in
the shelf.

Retail strategy is developed for product to be distributed through retail outlets. When a product is sold
through a retail outlet, a number of factors affect the sale of the product. Some of the factors are:

• Pricing/discounting of the product

• Incentive structure

• Promotions planned

• Placing of the product

• Display attractiveness

• Incentive structure for the retailers

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2(b)

The Indian Retail sector has come off age and has gone through major transformation over the last
decade with a noticeable shift towards organized retailing. There are many types of retail formats which
are in function:

General merchandise retailer: general merchandise retailer carry a variety of product lines, with
considerable depth.

Some major types of these stores include Supermarkets and Hypermarkets, Discount stores and
Department stores.
Super market: is a large self-service retail store that carries a wide variety of consumer products under
one roof, such as complete line of food products, laundry requirement, and household maintenance
items. In India cooperatives have managed some supermarkets for quite some time like Super bazaar in
Delhi, Apna bazaar Sahakari bhandar etc.

Specialty Stores: specialty stores carry a narrow product mix with depth of assortment within the line.
The emphasis is on a limited number of complimentary products and high level of customer service
Specialty store often sell shopping goods such as Jewelry, apparel, computers, music systems, sporting
goods. Like; Tanishq, Titan watches, Van Heusen, Raymond's.

Shopping Malls: -typically deal with several bases and product categories - provide a large variety of
merchandise and service. There are many operational malls in India

Retail chains: a retail chain operates multiple retail outlets under common ownership in different cities
and towns. To some extent the purchasing function and decision making are coordinated or centralized.
Like Westside, Globus, Food world, McDonald's retail petrol outlets. Etc.

Malls: Has a range of retail shops at a single outlet. Endow with products, food and entertainment under
a roof For Example: In orbit Mall, Ambience Mall Forum Mall, Phoenix Market City, VR Mall etc.

Mom and Pop Store (also called Kirana Store in India)

Mom and Pop stores are the small stores run by individuals in the nearby locality to cater to daily needs
of the consumers staying in the vicinity. They offer selected items and are not at all organized. The size
of the store would not be very big and depends on the land available to the owner. They wouldn’t offer
high-end products.

E Tailers: Now a days the customers have the option of shopping while sitting at their homes. They can
place their order through internet, pay with the help of debit or credit cards and the products are
delivered at their homes only. However, there are chances that the products ordered might not reach in
the same condition as they were ordered. This kind of shopping is convenient for those who have a
hectic schedule and are reluctant to go to retail outlets. In this kind of shopping; the transportation
charges are borne by the consumer itself.

The major contributors to Indian Retail trade in 1985 were: F&B 59%, Apparels 6% and Housing Utilities
15%

By 2017-18 the spend % changed as: F&B was 34%, Transportation came in at 19%, Housing utilities
went down to 12% and Healthcare emerged on the horizon as 9%

Following are the key Drivers in Indian Retail Industry:

1. Emergence of nuclear families

2. An increase in the double-income households’ trend

3. Large working population

4. Reasonable Real estate prices

5. Increase in disposable income and customer aspiration

7. Growing preference for branded products and higher aspirations

8. Growing liberalization of the FDI policy in the past decade

9. Increasing urbanization,

10. Rising affluence amid consumers

In the next five years it is expected that the market will be driven by growth in communication spend,
Education spend, Healthcare and Travel spend while the load on Food and beverage and utilities as a %
will drop.

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2c.

The major theories of Retail are as below:

1. Environmental theory:
a. Whole array of factors shape the nature of retail environment
i. Economic factors
ii. Social factors
iii. Political factors
iv. Regulatory factors
v. Cultural factors
vi. Demographic factors
vii. Changes to technology
viii. Changes in competition
2. Cyclical Theories:
a. The wheel of retailing – this concept proposes ‘a more or less definitive cycle’. When
retailers enter a market they compete by offering goods at the lowest possible price or
‘the bold new concept, the innovation’ in order to attract the customers. As retailers
develop their experience and gain capital, they tend to increase their level of service
and quality – and therefore the price. New retailers often enter the market place with
low prices, margins, and status. The low prices are usually the result of some innovative
cost-cutting procedures and soon attract competitors. With the passage of time, these
businesses strive to broaden their customer base and increase sales. Their operations
and facilities increase and become more expensive. They may move to better up market
locations, start carrying higher quality products or add services and ultimately emerge
as a high cost price service retailer. By this time newer competitors as low price, low
margin, low status emerge and these competitors too follow the same evolutionary
process. The wheel keeps on turning and all supermarkets etc. go through this cycle
b. The Retail Accordion theory - A theory of retail institutional change that suggests that
retail institutions go from outlets with wide assortments to specialized narrow line store
merchants and then back again to the more general wide assortment institution. It is
also referred to as the general-specific-general theory. As per Retail Accordion Theory
the merchandise mix expands and contracts like an accordion during different time
periods.
c. The retail life cycle theory
d. Melting Pot Theory - Also called “Dialectic Process”. A new value proposition by one
retailer gives rise to two new retailers with the same proposition. Retail firms adapt
mutually to the emerging competition and tend to adopt the plans and strategies of the
opposition. The retailers that successfully adapt to technological, social, demographic,
economic, and political changes are most likely to grow and prosper.
e. Polarization Theory - this theory suggests that, in a longer term, the industry consists of
mostly large and small size retailers. The medium size becomes unviable. This is called
polarization.

3. Case Study Solution:

1. Big Bazaar has positioned itself as a 'value for money proposition for Indian family' retail store.
They wanted to promote Big Bazaar as a retail store which gives its customers maximum
advantage over other retail stores by catering to all their needs budget wise and income level
wise.
a. Big Bazaar’s retail strategy believes that 'Consumers are always looking for best value
for their money. Continuing its efforts to provide the best shopping deals and savings to
Indian consumers, Big Bazaar is always set to make some key days like republic day
shopping, truly memorable, with rock bottom prices, best possible discounts and mega
offers.
b. Targets at the middle class and upper middle class only: It targets at the middle and
upper middle class due to which it ignores the upper and elite class people as they are
the cream of the society who are ready to pay any price for the quality and product they
need.
c. Big Bazaar can enter into production of various products due to its in depth
understanding of customers' tastes and preferences.
2. A discount store or discount shop is a retail shop which sells products at prices that are lower
than the typical market price.
a. Big Bazaar fits the definition of a Discount store going by the retail strategy itself. Big
Bazaar offers a wide assortment of goods with a focus on price rather than service,
display or wide choice within lines.
b. Since the strategy is to focus on low ‘Price’ there will be less attention on the décor of
the retail store.
c. Ambience is an important factor in getting the customer’s interest but the customer
category which the discount store like Big Bazaar is targeting does not care how the air-
conditioning is working or how good is the ambience as long as the customer gets his
goods at the lowest price as is being promised in the various offers announced by Big
Bazaar.