Written By Sangeeta Tanwar

Two of India’s leading retail chains are currently preparing the ground for their full-fledged e-commerce forays, albeit in totally different ways.

While the Kishore Biyani-led Future Group, which operates the popular Big Bazaar hypermarket chain, is busy listing its labels on Amazon, rival Reliance Retail is withdrawing its products from all e-commerce platforms, as parent Reliance Industries (RIL) gears up to launch its own online marketplace.

For both the traditional players, cracking online sales is important as they prepare for a future beyond high street retail.

Online sales in India will balloon from last year’s $18 billion (Rs1.25 lakh crore) to $170 billion by 2030, Jefferies India predicted recently. This potential aside, Indian e-commerce is still nascent and retailers are still perfecting their strategies.

“E-commerce is now a game of two dimensions, one of scale and the other of last-mile ubiquity. Whoever gets this right, will manage growth, revenue, and customer acquisition,” said Anil V Pillai, director of the independent marketing firm Terragni Consulting.

As for the Future Group, it thinks the best way to achieve this is by riding piggyback on Amazon’s proven capabilities in scale and last-mile delivery.

How the plan evolved

In 2016, the Future Group had made its first e-commerce acquisition by buying out the struggling furniture retailer FabFurnish from its German incubator Rocket Internet. Biyani had hoped to find synergies between the startup and his group’s furniture brand Hometown.

A year later, hit by heavy losses, FabFurnish was shuttered. Biyani downplayed the move saying his losses were “compensated” as the company had learnt “enough” from the episode.

The move now to partner Amazon seems to have stemmed from that learning.

Over the past month, the two have been trying to make joint plans, including in distribution, warehousing, and creating products for Amazon and its grocery format, Pantry. Also, Future group brands, including Big Bazaar, are being aligned with Amazon Now, which promises delivery of everyday essentials within two hours, suggest media reports.

A more serious handicap will be Amazon controlling Future Group’s data and customer relationships in the partnership. “In e-commerce, ownership of customer relationship and data, which offers consumer insights, is the real asset,” points out Devangshu Dutta, CEO of Third Eyesight, a consulting firm focussed on retail and consumer products.

Vianello agrees: “When you have your own e-commerce venture, as Reliance Retail plans, you are the owner of the data and you can slice and dice it to come up with exciting product offerings and improved service experience.”

This is one of the advantages that RIL might have seen in going it alone.

Going solo

“Reliance Retail has taken a more integrated approach towards e-commerce,” observed Dutta. “The company is set to leverage its pan-India retail presence and Reliance Jio’s (RIL’s telecom business) data capabilities to roll out an e-commerce platform,” explained Dutta.

The synergy between Reliance Jio and Reliance Retail is a big advantage. The retailer has about 10,000 stores across 6,500 towns in India, while Jio has a subscriber base of 306 million. After bringing many Indians online with Jio’s affordable data offerings, Reliance now hopes to get most of them to start shopping online as well.

The challenge, though, would be in getting the last-mile delivery right. “Reliance Retail could be at a disadvantage here compared to the Future Group, which has its delivery mechanism in place courtesy its partnership with Amazon,” suggested Vianello.

Moreover, like with Jio, consumers will expect heavy discounts from Reliance’s e-commerce venture as well, which may be difficult to sustain given the initial investments. “Biyani’s (online) launch involves lower upfront costs, while Reliance Retail’s will be resource hungry since it’s an almost greenfield project,” pointed out Pillai, adding, “Reliance’s challenge is the overwhelming perception about the group being a price warrior and disrupter.”

So, which strategy will triumph? Everything comes down to execution. “Success in retail, including e-commerce, is about more and more customers choosing to transact with you repeatedly. Achieving this is a difficult and ongoing process. There are no guaranteed or permanent winners,” says Dutta.

Source: qz

The last three years have been a roller coaster ride for food & grocery modern retail in India.

Progressive Grocer’s India edition was launched in September 2007, during what was an excellent series of years for the modern retail trade in the country.

It was a year after the launch of Reliance Fresh, and a few months after the acquisition of Trinethra’s chain of 170 stores by the traditionally conservative Aditya Birla Group. Spencer’s announced its plans to raise capital for expansion, while Food Bazaar together with its value-format non-food twin Big Bazaar already accounted for more than half the Future Group’s sales.

Other than the established corporate groups, new entrants such as Wadhawan were also well into growth through mergers and acquisitions, including their purchase of Sangam, Hindustan Unilever’s experiment at retailing directly to consumers, Sabka Bazaar and The Home Store.

The four largest foreign retailers were also making their presence felt through Walmart’s announcement of a joint-venture with Bharti in August, Tesco’s and Carrefour’s intensive investigations of the market and negotiations with potential partners, and Metro’s announcement of its planned growth to 100 outlets.

The modern retail engine seemed to be chugging along strongly. But there were also spots of trouble in paradise.

Protests against the opening of corporate chain stores were seen in a few states. In some cases state administrations even formally stepped in to ask for closure of corporate chains to avoid civic trouble, and it looked as if the lights were going out even before the party had really started!

Along with the battle between modern and traditional, both sides of the debate on foreign direct investment (FDI) into the Indian retail sector were also ramping up their arguments. There was vocal opposition from emerging large Indian retailers, as well as the small traders group, while investors and some of the prominent retailers championed the cause of foreign investment.

In both debates, international examples of the damage wrought by large or foreign retailers to local economies were quoted by those opposed to corporate retailers. And in both, the developmental aspects of modern retail were quoted by proponents of modern retail and FDI.

At Third Eyesight, in early 2007 we had carried out a study (“From Ripples to Waves”) on the increasing impact of modern retail on the supply chain. Amongst the study’s respondents, both retailers and suppliers had favourable things to say about the growth of modern retail and its impact on the supply chains for various products. There was not just talk of efficiency with fewer layers of transactions and lower costs, but also of effectiveness, with suppliers reporting 10-25% higher per square foot sales in modern retail stores as compared to their displays in traditional independent stores.

After years of resisting the impending changes to their ordering and servicing structures, major Indian FMCG and food brands became busy setting up or strengthening teams focussed on the modern trade or ‘organised’ corporate customers.

The market was rich with format experimentation for food and general merchandise retail, typically between 1,000 sq ft and 10,000 sq ft, but also with a gradual growing emphasis on 20,000-80,000 sq ft supermarkets and hypermarkets.

Literally hundreds of food brands from other countries actively sought to tap into the growing Indian market, and modern retailers offered them a familiar environment and a well-managed platform for launch.

At the same time, plenty of respondents also said that they had not made any significant changes to their business. Either inertia or fear of channel conflict was preventing them from pushing ahead with newer business models.

In short, there was no dearth of action and contradiction, no matter where you looked.

However, towards the end of 2007 and beginning of 2008, we had a sense of foreboding. With the rush to expand the store network to get first to some yet-invisible finish line, both property acquisition and human resource costs were driven up by a feeling of a shortage in both. I recall writing a column around that time, urging retailers to look at store productivity as their first priority (See: Priority #1: Store Productivity, Same Store Growth).

By the middle of 2008 the crisis was evident. There was a lot of square footage, much of it in the wrong places. There were issues with the supply chain for managing fresh and perishables, those very products that drive frequent footfall into a food store. More importantly, the global financial storm had started gathering strength, reducing liquidity in the market and making investors and lenders look more closely at existing business models.

The spectacular meltdown of Subhiksha in 2008, and the more gradual but equally deep impact on other businesses was visible. And worrying. Players as disparate as Reliance, with its ambitious plans to grow into a Rs. 300 billion retail juggernaut, and the Shopper’s Stop premium format Hypercity seem to take a break to rethink.

2008 and 2009 were years that I am sure many retailers would like to forget, but they were also very valuable. Some people have compared these years to the churning of the ocean (manthan) by the devas and the asuras in Indian mythology, with the deadly poison halahal coming to the surface before the divine nectar amrit could be reached.

In these two years, we have seen stores closed, formats changed, and organisations made slimmer. Store staff have discovered how to live with small changes like higher ambient air-conditioning temperatures, and are learning the more important science of higher transaction values, even with leaner inventories. Management teams are becoming more accustomed to looking at retail metrics other than only sales growth that could be achieved from new square footage. Vendors are finding newer ways to make their brands more relevant to consumers and to the retailers.

More importantly, these years have also underlined the importance of India as a growth market to non-Indian companies.

2010 so far seems a far happier year. Income and GDP growth figures look much healthier. Real estate inventories in malls that were not released in 2007-2009 are coming on the market, many at terms that are more favourable than earlier. Retailers’ financial results look healthier.

There could always be the temptation to rush headlong into growth again. But I don’t think food retailers or their vendors should drop their guard yet.

The coming months and years need significant sharpening up of customer insight, merchandise and inventory planning capabilities and supply chains. Operational assessments, analytics, organisational capability building, are all tools which will need to be looked at closely.

We are at the cusp of the next growth curve, as the population grows and matures, and the market become more sophisticated.

Though the large-small, local-foreign debate isn’t closed yet, the much-awaited approval from the government to allow foreign investment into multi-brand retail businesses may be around the corner.

Even if FDI doesn’t happen immediately, the majors are already in or preparing to enter and ride the consumption growth that will logically happen. In addition to its support to Bharti’s Easyday chain, Walmart has launched its cash and carry operation, Bestprice. Carrefour reportedly is looking to open its first Indian (wholesale) outlet by November in New Delhi on its own, even as rumours of a partnership with the Future Group fly thick and fast. And Tesco is steadily steaming ahead with the Tata group.

And practically every month we are seeing new products and even new brands being launched by Indian and non-Indian companies.

An old saying goes: the journey of a thousand miles begins with a single step.

From the tumultuous events of the last three years, it seems that the Indian food retail sector must have travelled at least a few hundred miles already. In one sense it has. Many of the developments that we’ve seen in three years would have taken at least a couple of decades in the more mature markets.

However, in another sense, the food and grocery modern retail sector in India has only taken the first few steps, with much to be accomplished still. The sector remains fragmented, and wide swathes of the market are yet to be penetrated – not just by modern trade, but even by brands that already supply traditional retail. The blend of players and business models, not to forget the spicy regional mix of different market segments, promises valuable lessons not only for those in India but potentially for other markets in the world.

There are very big questions seeking answers. How to improve agricultural productivity so that food security is ensured. How to save the abundant harvests rather than letting them rot in unprotected storage dumps. How to ensure adequate calories and nutrition get delivered not just to the wealthy and the middle class, but also to the poorest in the country.

On the retail side, the Indian versions of Walmart, Carrefour and Tesco are possibly still in the making, and may yet surprise us with their origins and growth stories. And e-commerce is a work-in-progress that may be the dark horse, or forever the black sheep.

I think the big stories are yet to unfold, and the unfolding will be exciting, whether we are just watching or actively participating in the modernisation of the Indian food retail business.

When we began studying the basic fundamentals of marketing, our professor introduced us to the 4-P framework covering Product, Price, Place and Promotion created by “the Great P” of Marketing, Philip Kotler, whose textbooks are classics among marketing management studies.

In time, others modified it to 5-P, 6-P and 7-P, but the basic framework stands best on the original four legs defined by Kotler.

The principle is that to design an effective marketing strategy you need to:

• clearly define the product or service (covering the core as well as augmented product) to sell to the target customer
• identify the price (point or range)
• define where it will be sold and
• define what will be communicated, and how the product offer will be promoted.

If you are truly disciplined, you may then extend any of these into spider-webs of clearer attribute definition. For instance, when you get involved with defining the product it can start from “breakfast” and then be further defined by attributes such as taste (e.g. sweetened or unsweetened), texture (e.g. crunchy or wet), fullness (e.g. light or filling), and go further into the benefits (e.g. helpful in losing weight, or in gaining body mass) etc.

Given that the basic framework is straight-forward and simple to apply, when we ask the question “what is your marketing strategy”, it is surprising to get the answer: “advertising”. It gets somewhat more distressing when we interrogate further, when we examine what the advertising is focussed on: “cheaper prices than competition”.

Okay, let’s grant a couple of reality checks here. One is that most retailers and consumer goods companies in the current stage of the market’s growth want to grab the maximum possible market share in the minimum possible time. Two, if you want to get the attention of a lot of customers very quickly, shouting out a great price offer is one of the easiest ways to do it.

Which brings us to the basic issue: in the current market scenario, if you are a retailer or if you have a brand that you want to scale up fast, advertising extensively about the “great value” is highly likely to quickly give you the footfall and conversions you need.

But the question is, when does it stop being a good tactic and just becomes lazy marketing? And once it’s in that territory, when does it become dangerously weak even as a sustained tactic?

Imagine a scenario with me: the CEO strides into a marketing strategy meeting and says, “I want you to stop advertising the way you do. In fact, I want you to stop advertising, period. But I don’t want sales to drop and I don’t want our brand image to suffer.”

Shock, horror, dismay at the thought of “where is this company going”? Resignations, even, on the CEO’s table?

But just stay with that thought for a minute, and then look at Kotler’s framework again.

Let’s look at “product” holistically because, in the noise of high-decibel advertising about low prices, typically the definition of the “product” is the first to slip from attention. How the customer relates to the store, what her experience is as she walks through from the entrance to the check-out and beyond is part and parcel of the “product”. What does she think the store is about? Does her perception of the store’s “product” (the entire experience of shopping) match with the retailer’s own perception? Does the retailer even have a clear perception of his product?

Secondly, “place”. Sure, in-store product placement is frequently governed by the marketing function. But how many retailers have marketing involved in selecting the store location? A great store location is the best live, “walk-in advertisement” that a retailer can have. If a fashion brand like Zara can eschew advertising (founder Amancio Ortega has been quoted as saying that “advertising” is a distraction), and instead focus on its stores to create the traffic and the awareness about the brands, surely the store location should receive some attention from the marketing heads of food and grocery companies.

Let’s also reconsider how much connection there is between the marketing strategy and the store layout itself (in many cases it is not enough). Whether the customer likes wide aisles and a “clean” experience or prefers a chaotic environment, the store must make a statement that is in sync with the overall business strategy and the target customer.  Good retailers understand this intuitively, but it is important also to express it overtly within the organisation and get the marketing team involved in the planning and execution. Further, once the customer is actually in the store, clear price ticketing, intuitive adjacencies and clean signage can make a tremendous difference in converting walk-ins to purchases.

Let’s leave price alone for this inquiry because, whether high or low, it gets a lot of attention anyway, and let’s move to promotion.

If we define marketing’s role as getting customers into the store and getting them to buy, then the surely promotion is the driver of the marketing engine. But does promotion necessarily have to mean advertising?

We’ve discussed Zara’s example of using the stores as the medium of promotion. Another thing that works for Zara is word of mouth publicity, as well as the humongous amount of publicity the company gets due to its business model. (Other interesting companies, such as Pantaloon, Reliance, Wal-Mart, The Body Shop etc. also enjoy promotion through publicity.)

Pizza companies use cost-effective menu flyers dropped at the customer’s door and “box toppers” to drive the next purchase (yes, of course, they also advertise hugely, but during their lean years when they have had to reduce advertising, it is the flyers and box-toppers that have kept them going.) Direct selling companies can also offer some learnings about creating and sustaining interest, as do entrepreneurial start-ups. As a matter of fact, think of the last time you saw an advertisement of the most popular “unbranded” take-away in your area. Ever?

It may be time for us to dust off the notes from the Marketing 101 class, and re-examine what we do.