Retail industry: The last decade has experienced a fundamental change in the Indian retailing industry structure, with a very perceptible shift from unorganized kirana and small independent shops to organized retailing such as retail chains and franchised outlets. This gradual shift is attributed to increased purchasing power along with aspirational demands of a segment driven by exposure to the Westem world because of media. An NCAER study shows that only 0. 25% of total population falls in the category of earnings above Rs 5,00,000. Most of the organized retailers are targeting this supra-niche segment for higher margins.
Retail sector witnessed the entry of concepts like Shopper’s Stop, Crossroads, Globus, FoodWorld, and discount chains like Subhiksha. Pantaloon Retail (India) Ltd (Pantaloon) is one of such listed companies to enter this business, with a presence in both discount shops (Big Bazaar) and retail stores (Pantaloon outlets). Background: Pantaloon Retail (India) Limited is today recognized as one of the pioneers in the business of organized retailing in the country with a turnover of over Rs 400 crores in the financial year ending june 2003.
The company is headquartered in Mumbai with zonal offices at Kolkata, Bangalore, and Gurgaon (Delhi). It has 4 kinds of stores; 14 Pantaloon Family Stores, 7 Big Bazaar discount hypermarkets, 6 Food Bazaar large sized supermarket stores, and Gold Bazaar Stores with over 6. 5 lakh sq. ft retail space across Kolkata, Mumbai, Thane, Pune, Hyderabad, Bangalore, Nagpur, Ahmedabad, Kanpur, Chennai, and Gurgaon (Delhi). Pantaloon Retail India Limited is the flagship company of the Pantaloon group promoted by Mr Kishore Biyani. It has been one of the pioneers in organized retailing in India.
It began its retailing operations in India way back in 1987 Currently, it manufactures and sells ready-made garments through its own retail outlets and two discounting stores. The company plans to diversify into the business of discounting in a big way, which is targeted at the growing middle class segment. It has India’s second largest retail chain with 17 retail outlets and two discounting stores branded as Big Bazaars across the country at an estimated retail space of 4,01,300 sq. ft. The company plans to double its retail space in the next couple of years.
Pantaloon has come up with an excellent revenue model, focusing on ‘value for money’ segment. Pantaloon plans to target the upper middle and the middle class segment, which forms the large chunk of Indian population. This segment is very price conscious and always looks out for value for money. Pantaloon has already opened two discount stores at Hyderabad and Calcutta. It also plans to sell household items through its discount stores along with apparels. Since the company has got strong brands like john Miller and Pantaloon, coupling it with the discount store model would boost the sales to the larger population.
Pantaloon successfully launched its discount store chain (branded as Big Bazaar), which targets the large and growing upper-middle and middle class of Indian society. This is totally in contrast to the other organized retail players, which focus on high net-worth of individuals. Pantaloon has the second largest selling space amongst the retailers. Big Bazaar offers products and services such as a chemist, a photography shop, a bakery, financial products, automobile accessories, bicycles, and electrical hardware among other items – the range is vast and fulfils practically every need of the consumer under one roof.
This is backed by complete automation of the retail outlets. After completion of the central hub at Mumbai the company’s operations would be fully integrated which would give its operating efficiency a boost. Big Bazaar has strong own brand names in its portfolio across product categories. The brands include Pantaloon, john Miller, and Bare. Higher percentage of ‘own brand’ sales improves margins, thus reducing the breakeven level of sales. Big Bazaar has diversified from apparels to household items in its discount stores.
This has enabled them to enlarge their basket of offerings. Expansion Plans: This concept of discount stores resemble the Wall-Mart strategy. In India and especially in metro cities like Mumba; Bangalore, Calcutta and Hyderabad, where the population is dense and consists of a high middle—class population, the concept of discount stores is gaining a lot of acceptance. The company plans to expand rapidly. The next year it plans to open its stores in Mumbai and Delhi at critical locations. It has plans to open hree Big Bazaars (discount stores) in ‘A~class cities’ like Bangalore. Pantaloon has already bagged substantial retail space in Hyderabad (60,000 sq. ft), Kolkata (35,000 sq. ft), and Bangalore (40,000 sq. ft). In Mumbai it acquired 50,000 sq. ft area at each of its locations at Lower Parel, Mulund, and the westem suburbs. Challenges: The key challenges facing the company are as follows: •Fund raising – The company acknowledges that expansion plans of the company cannot be met from internal resources. This means that the company has to tap external sources to fund expansion.
The company has recently allotted shares to promoters at SEBI formula price. It plans to borrow heavily to fund its expansionplans. As a consequence of increased interest payment and depreciation expense, the net profit margins would remain flat. •Competition – Although there are a few stores operating in this segment such as Giant in Hyderabad, it is mostly intematrional chains such as Wal»Mart and Carrefour that are the better known names as discount stores worldwide. Meanwhile, the general retailers in Mumbai are not too pleased about the concept of discount stores.
Claims a retailer at a south Mumbai outlet, ‘We can’t figure out from where such stores get their margines. It must have a feasible revenue model to sustain the venture. ‘ The company is facing limited competition from the organized retailers but strong competition exists from the downtown center’s unorganized retailers. With respect to Mumbai, with the presence of Giant Hypermarket, which is also Competing on the price platform, Big Bazaar is experiencing competition from the similar kind of retail format. Discount stores in Mumbai are wooing the value for money oriented Consumer.
Whilst Big Bazaar’s positioning has been ‘lsse sasta aur kahin nahin’ (Nowhere else you A get it cheaper). Giant`s positioning is ‘Bada choice chota price (Big choice small price. ), However, both appear to claim to be the cheapest but neither is planning to cut prices on any of its lines to attract customers from the other. That’s probably because of the different locations that they are in• Lower Patel and Malad, respectively. Giant offers maximum reduction on food items. sanitation products, and apparels. The reduction anges between 10-15%. Big Bazaar on the other hand gives more discounts on buckets, luggage, and non-stick cookwares, all of which, it claims, are around 15-20% cheaper. In the apparels section, it claims prices are lower by 50%. ‘Our proposition, “lsse sasta aur accha kahin nahin” encapsulates our business model of a discount store concept which our customers have accepted, said the marketing manager, Big Bazaar. ‘Our model is a high volume, low margin business, more of a mass-market model`, said the marketing manager, Giant Hypermarket.
Giant offers discounts, which range from 3-20% whereas Big Bazaar has discounts in the range of 2-60%. The larger discounts are usually on their in-store brands rather than the established mega brands. Questions 1. Evaluate the retail format of Big Bazaar and discuss its business strategy. 2. Identify & analyze the recent challenges faced by Big Bazaar. Suggest strategies to overcome them. 3. Devise a strategic plan for small retailers to be able to face challenges posed by retail formats like that of Big Bazaar. 4. In the context of Big Bazaar retail mix strategy, evaluate the scope for organized retailing in India.
