portfolioanalyis_retail_group3_sectionc.pdf

7/29/2019 PortfolioAnalyis_Retail_Group3_SectionC.pdf

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PortfolioAnalysisOfTheRetailSector

FutureGroup

SectionC,Group3


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TableofContents

TheIndianRetailStory:...............................................................................................................3

PortersFiveForcesModelForTheIndianRetailIndustry:...........................................5

FutureGroup:..................................................................................................................................6SWOTAnalysisOfTheFutureGroup:......................................................................................8

BCGMatrix:.......................................................................................................................................9

GEMatrix:........................................................................................................................................13

Linkingcompetitivestrategytoportfolio:...........................................................................19

Recommendations:......................................................................................................................20

References:.....................................................................................................................................21


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TheIndianRetailStory:

TheretailindustryisoneofthelargestsectorswithamarketsizeofUSD425million

andaCAGRof6.8since98.Theorganizedretailpenetrationisaround6%andhasa

growthpotentialofaround20%by2020.Theapparelsegmentclaimsthelargest

segmentintheretailpiefollowedbyfoodandgrocery.Beautyandhealthsegment

bringsuptherear.Thereishugepotentialasfarasorganizedretailisconcernedand

theeconomicprojectionssuggestadouble-digitgrowthinthissector.

Thegrocerysegmentisbyfarthemostattractiveintheworldanditissaidthat

hypermarketswouldhavethelargestshareofretailspaceintheyearstocome.Ifwe

lookatPESTanalysisofthenation,Indiahashugemarketpotential,moderateeconomic

andpoliticalrisk.Thenetsaleisalsohigh;IndiaranksthirdafterChinaandBrazil.

ThejourneyofIndianRetailinIndiabeganinpre-1990swhenmanufacturersbeganto

opentheirownoutletstoservecustomers.Thencametheearly90swhenretailers

begantounderstandtheextentofuntappedpotentialforthemarketinthecountryandthebasewasapparelsegment.Thiswasthescenariofor15yearstillinvestmentsbegan

tobemadeinthisindustrybycorporateandfoodandgeneralmerchandisecategory

foundprominence.Theexistingplayerswentforarepositioningstrategytotargeta

widermarket.Thestatusquoisbasicallyintenserivalryamonglocalplayers,

competitionfromtheinternationalarena,afewplayersproducingbulkofrevenueand

expansionintotheruralareas.

Breakup Of The Retail Pie:

Aswecanseefromtheretailpiechartabove,textilesoccupythemajorshareof

revenuesintheretailsegmentwithashareofasmuchas38.10%.Foodfollowsnext


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withamarketshareof11.50%.Consumerdurables,footweararealsomajorsegments

intheretailsector.Healthandbeautybringsinleastintermsofrevenueswithashare

of0.8%.

Aswecanseefromtheretailpiechartabove,textilesoccupythemajorshareof

revenuesintheretailsegmentwithashareofasmuchas38.10%.Foodfollowsnext

withamarketshareof11.50%.Consumerdurables,footweararealsomajorsegments

intheretailsector.Healthandbeautybringsinleastintermsofrevenueswithashare

of0.8%.

Monoorexclusivebrandretailshopsaremanufacturerownedorfranchisedout,for

agivenbrandalltheproductvariantsareavailable.Multibrandedretailshopshavemanybrandsavailableandrangeofproductsforeach

brandandcustomershavealotofchoiceinthiscasetoselectfromawiderangeof

productsandbrands.

Convergenceretailoutletsaremoreofaone-stopshopforcustomersandcarries

productsrangingfromconsumertoelectronicproductsspanningITand

communication.

Furthersegregationofretailcanbemadeasunder:-

Departmentalstores:-MajorplayersunderthiscategoryarePantaloons,Shoppers

StopandRelianceRetail.

Hypermarkets:-Pantaloonsisagaintheclearleaderinthiscategorywith145Big

BazaarstoresfollowedbySpencers,AdityaBirlaRetailetc.

Supermarkets:-ProminentplayersareAdityaBirlaRetailwithmorethan500stores

andRelianceFresh,KBFairPriceShopetc.

SpecialtyStores:-Titanhasthelionsshareinthissegment.

CashandCarryStores:-ThepioneerinthissegmentwasMetrooperatinginthetier-1

cities,BhartiWal-MarthasfollowedsuitwithitsfirststorebeingsetupinPunjab.

MostoftheretailersinIndiahaveadoptedstrategiesforsalesmaximization.Theyhave

cashedinonthepricesensitivityofcustomersinordertodoso.

Discounts:-Off-seasonsalesarecommonandamajorfactorforattractingcustomers

andbolsteringsales.

DipinPrices:-asortofpricewasamongcompetitorsbyofferingabestpricewithoutanymarkdowns.

IndianRetail

EXCLUSIVEBRANDRETAIL

SHOPS

EXCLUSIVEBRANDRETAIL

SHOPS

CONVERGENCERETAILOUTLETS


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ValueaddedServices:-innovativeideaslikehappyhourswhileshoppingwhichtarget

theconsumerpsychearegainingpopularity

Partnerships:-tie-upswithserviceproviders;amanufactureretc.toensureattention

aproductgetsisconvertedtopurchase.

FactorsthathavehelpedretailgrowinIndiaaretherisingpurchasingpoweramong

consumersandgrowingawarenessandbrandconsciousness,availabilityofcreditateasytermsandincreaseinconsumerclass.Ifweweretolookatforeigninvestmentsin

retailinIndia,aspartofliberalization,51%FDIwasallowedinretailin91and

extendedtosinglebrandretailin06.Alandmarkdecisionispendingwiththeawaited

approvalof100%FDIinmultibrandretailingwhichmayamajorimpactonthelocal

retailers.

Ifwelookfromthetaxstructurepointofview,CSThasmadewayforGST;removalof

excisedutywouldleadtobettercashflows;fromconsumerspointofview,goods

wouldbeavailableatlowercosts.Taxreductionongoodspurchasedforresalewould

significantlyreducetheinventorycostsofdistribution.Thesupplychainwouldget

revampedwithtaxapplicationsatallpoints.

PortersFiveForcesModelForTheIndianRetailIndustry:


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Rivalryamongcompetitorsismoderatewithlimitednumberofcompetingfirms,

similarsizeoftheplayersandthehighgrowthrate.

Threatofnewentrantsismoderatetohighwithinternationalplayersenteringthe

marketanddomesticgiantslookingtostartretailchains.Organizedretailisatanascent

stageandattemptsarebeingmadetoincreaseitsproportionto9-10%whichpresents

anopportunityfornewplayers.Newlayersbringinnewcapacity;desiretogainmarketshareandsubstantialresources.Thebarrierstoentryareintheformof

governmentregulationsregardingFDIlimitingforeigninvestments.Anadditional

barrieristhedifficultytoachieveeconomiesofscalegiventhediversenatureandsize

ofthemarket.Smallplayersmaybebarredfromenteringthismarketduetolackof

experienceandresources.Financiallystrongretailerscanavoidbarrierstoalarge

extent.Theeconomiesofscalesachievedbyexistingplayersaremoderate.The

switchingcostsarenthigh;thereisnoparticularcostadvantagetoincumbents.The

productdifferentiationisnthighandthereisexpectedretaliationfromtheexisting

playersintheindustry.Theaccumulatedcapitalinvestmentsrequiredaremoderate.

Bargainingpowerofsuppliersislowwithlargenumberofsupplierswith

undifferentiatedproducts.Inaddition,someofthemarewillingtointegrateforward.

Thesubstituteforsuppliersismoderate,switchingcostsaremoderate,lowthreatof

forwardintegrationandsupplierproductsaredifferentiated.

Bargainingpowerofbuyersasindividualsisless,propensitytopayislow,butbuyers

arepricesensitive,soaswhole,ifhighqualitygoodsweredemandedataffordable

prices,theretailerswouldhavetooblige.Asthereisnohighbuyerconcentration,the

productsareundifferentiated.Thoughthereisnothreatofbuyersgoingforbackward

integration,buyershavefullinformation,whichmakesmeetingthebuyerneedsa

difficulttask.

Threatofsubstitutesishighwiththepossibilityoffindingasimilariteminanother

store.Anothersourceofthreatcouldbefromtheunorganizedretailsegmentwhere

cheaperversionsoftheproductareavailable.Unorganizedretailcaterstotheneedsof

boththemiddleincomeandthebottomofpyramidgroup,thusgaininglotof

importance.Onlyfewcanaffordrealluxuryitems;sothreatfromthissectorisvery

high.

ThePortersanalysisshowsthattheretailindustryisoneofthemostfragmented

industrieswithonly6%organizedretailwhichmeansthereisalmost94%ofmarket

yettobeexplored.SinceIndiaisacostdrivenmarket,retailersarerequiredtobringin

costefficiencytoimprovetheirprocessestogainmarketshare.Consumerprotection

lawsareverystronginIndia,whichgivesadvantagetothebuyer.Inareaswhere

retailersareconcentrated,therivalryisstrong;whereitisfragmented,interfirm

rivalryisntthathigh.Onthewhole,theIndianretailIndustryisattractive.

FutureGroup:

Future Group is one of the biggest retail players in India with its business in retail such as

Pantaloons, Big Bazaar, Food Bazaar, Ezone, Home Town, and Central etc. Future group


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employs about 35,000 employees and about 220 million customers walk in to their storesevery year. Their business is mainly classified into Lifestyle retail, Value retail, and Digital.

Home/Furniture/Electronics:

Home Town: This comes under the home furnishing category of the retail industry. Thesestores sell furniture, bath and sanitary ware, modular kitchens, electronics, electrical,furnishing and accessories etc. They also provide service of skilled technicians.

Ezone: These stores are typically of size 12000sq feet. All kinds of latest electronicinstruments are available here at best prices. The Liberation Zone offers personal productslike computers, laptops, handy cams, MP 3 players and mobile phones. Entertainment

products such as Plasma / LCD, Flat TVs, Home Theatre systems, DVD players, and Stereosystems are displayed in the Experience Zone. In the Home Zone segment, one gets to pickelectronic goods of his or her choice including Refrigerators, Air-Conditioners.

Fashion/Apparel:

Pantaloons:This retail store of Future Group where cosmetics and apparels of differentbrands including their private labels are sold. Pantaloons is the market leader in apparelretail. Apparels of different kinds such as mens wear, womens wear, kids wear, and spoutswear are available. Pantaloons is present in almost all large cities of India.

Central:This is the first of its kind type of mall launched in 2004 in India. This shoppingmall has every kind of thing that a customer needs. It has apparels, cosmetics, food courts,dining restaurants, multiplex theaters, gaming zones etc. It is like a fun club and shoppingmall at the same time.Brand Factory: It is the place where all kinds of apparel brands are brought together and aresold at attractive prices and discounts. These stores are fully air conditioned with a sizevarying of about 70,000sq feet to 150,000 sq feet. These stores are present in all big cities ofthe country. These stores offer a peculiar type of shopping named brand plus bargain kind ofshopping.

Planet Sports:These stores have all kinds of sportswear and equipment. These stores are theIndias largest multi-brand sports and lifestyle brands. It is one of the most preferreddestinations for sports lovers as well as avid sports professionals; Planet Sports has become aone-stop destination for the latest global trends in the sports and lifestyle segment.

Big Bazaar:Big bazaar is one of the largest hypermarkets, which caters every need of acustomer. Every kind of retail item is available in these stores. Normally these stores are thelargest in size when compared all others stores in the Future group portfolio. Apparels, sportsequipment, stationery, home decorating materials etc. are available at best prices. Mostly70% of the products sold here are their private label brands.

Electronics/Ecommerce:

Future Bazaar: In e-commerce business Future Group has an online shopping website calledfuturebazaar.com. All kinds of retail items are sold here. The business from this category is

very less but it is growing very well in pace with the e-commerce growth.


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Food/Grocery:

Food Bazaar: Food Bazaar is the largest player in food category of retail industry. In thesestores, food grains, packaged food, fruits etc. are sold at low prices. The qualities of productsthat are sold are very high. The procurement process is very difficult for these stores. Theseare second largest in store space next to Big Bazaar.

Fairprice:KBs Fair Price are neighborhood stores spread across an average area of 1,000 to1,500 sq. ft. These are simple but modern, self-service ration shops. These stores retail only300 essential products at simply the lowest prices in town. These are no frills stores and arenot air-conditioned.

SWOTAnalysisOfTheFutureGroup:

SWOT analysis for a particular business gives us the main strengths and weakness of the firmand lets us to analyze the situation and increase our opportunity to improve. The followingdiagram briefly describes the quick SWOT analysis of the Future Group.

STRENGTHS:

Future group is a well-known player in the retail industry. The industry is well dominated bythis group to a great extent. Pantaloon, which is a part of future group, is a market leader inthe retail industry. It is very well established and strong player. Also this group is very good

in acquisitions, which are constantly increasing their strength. The Future Group is indifferent parts of retail such as apparels, food, home furnishing and even electronics and e-

FoodInlation

LeaserentalsIntenseCompetiition

Privatelabel

StayathomeGrowthofIndianretail

Nonretailportfolioisstillpartofthegroup

Pantaloondominantplayer

AcquisitionsBalancedportfolioBrilliantvaluechain

Strength Weakness

ThreatsOpportunity


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commerce business. This diversified portfolio of business, which they are holding, is helpingthem in fighting the business and market risk in each segment. They have great learning andexperience curve and so they have a very good value chain and supply chain procedures,which are really hard for the competitors to copy.

WEAKNESS:

Their e-commerce business is still very small and its growth is also being very slow. There isnot much presence of the futurebazaar in online market place. Still ebay and flipkart aredoing better in these segments. The presence of Future Group in non-retail segments likefinancial services is also weakness as they are not able to do so well in this segment. Thesenon-retail parts are not so much useful for the Future Group to diversify their market risk.These weak links require more allocation of the companys resources.

OPPORTUNITIES:

The name retail itself indicates the meaning of huge opportunity and growth. In a country likeIndia where there is a high growth in population and rapid change in peoples life style andincome levels, retail in India gives huge opportunity for growth and innovative products.Future Group can still work and improve on their private label brands. Private label brands,which they sell, are relatively cheap when compared to its competitors. They can introducemore and more private labels in the market, as price consciousness is high among Indianconsumers. This will give them huge extra profits. They also have a great opportunity indeveloping their e-business, which they do through futurebazaar. The use of Internet isgrowing in India at a rapid growth and the willingness of the customer to buy a productthrough Internet has grown to a high point and is still growing above. So pushing thecustomers for e-commerce will increase their sales to a great extent and increase the profitmany fold, as the transaction cost is very less in e-commerce business.

THREATS:

As the industry is growing there is always the threat of competition and there are alwaysthreats from the market environment such as inflation and recession. Food segment is one ofthe segments, which is facing these problems. The prices of items like fruits, grains andonions are increasing day by day which is decreasing the competitive advantage of FutureGroup (Big Bazaar) against its competitors. There are also a lot of competitors from localvendors in food category and its growing.

Portfolio Analysis:

BCGMatrix:Due to the lack of data about the various store formats, we look at Future Groups business asfourfold

1. Home, which includes furniture and Ezone2. Electronic, which is their E-commerce business

3. Apparel4. Food


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To come up with the BCG growth-share matrix, the relative market shares and market growthrates for each of the businesses were taken and rated on a scale of 1-10.

SBU/CATEGORY GROWTH

RATE

MARKET

SHARE

RANKING

MS

RS SALES/

SQFTHOME 17.5%(7) 11% 1 5850

ELECTRONIC 18.4%(8) 1.6% 6 10425

APPAREL/FASHIION 10.4%(4) 25% 1 17975

FOOD/GROCERY 11.5%(5) 30% 1 19950

The sizes of the bubbles are indicative of the sales/sqft in rupees.

Growth rate:

The home business, which includes furniture and consumer durables, is one of the fastestgrowing segments in India. The market is highly fragmented and has a lot of opportunity. Itgets a rating of 7/10.The E-commerce business has huge growth prospects and is one of thefastest growth sectors making up the Indian retail pie. It is still constrained by the lack ofInternet penetration in India and so gets a rating of 8/10. The Apparel fashion has hugemarket size but has been around for a long time. The growth rate is respectable but less thanhome or electronic. So, it gets a rating of 4/10. The Food grocery business has the same

behavior as apparel and gets a rating of 5/10.

Relative market share:

The home segment is highly fragmented but future group has the market share amongst thecompetition, which gives it the rating of 9/10. In the E-commerce space the company is doingok but has a lot of scope for improvement. They have an abysmal market share and areranked 6th overall. This gives them a rating of 5/10. In the apparel category because of therehuge size they are the market leaders with a market share of 25%. This gives them a rating of10 w.r.t to the competition. They are the kings of the food category with a market share of30%. The competition is catching up and so they get a rating of 9/10.

This completes the X and Y-axis for the BCG matrix.

Sales/Sqft:

The food business has the maximum sales/Sqft and hence has the biggest radius. Then comesthe apparel business, which is also generating a lot of cash per square feet. The third largestcircle is the E-commerce business followed by the home business.


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Analysis:

Dogs:

Fortunately for Future Group there are no dogs in their portfolio. They had forayed into

books and music (depot). Lack of opportunities forced them to deprioritize this business.


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Question marks:

The E-commerce business has the highest potential for growth. Future group should ake thisa high priority sector and make it a star. With the Indian retail sector space would be a hugeissue in the future. This category is highly fragmented with a variety of players operating in a

myriad of categories. Future group is doing the right thing by investing in this space. Mr.Kishore Biyani talks about E-commerce being the next big thing to hit the retail sector. Theyhave implemented nuFuture Connected Commerce, which they hope, would help them makeE-commerce a mainstay of their business. It has the potential to contribute over 15% to the

business. They want to increase their market share to 15% and create a digital backbone thatwill run seamlessly across every facet of daily Indian life. Transformations have startedhappening on the futurebazaar.com, which includes increasing the number of SKUs. Theyhave also experimented with Chaupati, a phone-based commerce start-up and One Mobile: ane-commerce format for mobile phones.

Stars:

The Home segment is their star. The sector has huge growth potential and Future group istrying its best to convert it into a star by investing a lot in different store formats. Betweennow and 2014, an estimated 360000 families would have moved into a new house in one ofthe hundreds of modern residential complexes that are coming up in the key 12 urban areas inthe country spending close to Rs.18000 Crores. This would be the growth driver for thesector. Future group plans to cater to different clusters right from consumers who are lookingfor furniture to people looking for end-to-end solutions. They have invested in a lot of storeformats; Home Town, their flagship stores are spread across 1.15million Sqft. This caters tofurniture needs. Home Town Express: close to the city, follows the CCD express model. HTDesign & Build, end-to-end consulting services. They have also started to collaborate withdevelopers to furnish homes (example: Lavasa). On the consumer durables side of the

business they have increased the number of SKUs and floor space to capture the market. Thesuccess of their e-commerce platform would increase their market penetration.

Food:

Future group is the king of this category. This cash cow would help them invest in othersectors and help them diversify and build other businesses. The highest proportion of salescomes from this business. They have to milk the cow and maintain their market position.They have decided to invest in their store formats and increase the presence of existing

formats. Future Group looks at India as India-1 and India-2. India-1 is a customer who shopsfor something thats up in the value chain and has more money to spend on aspirationalproducts. India-2 is the customer who shops at the local grocer. They have opened 26 newfood bazaar outlets for India-1 where they would be upgrading the product portfolio in tunewith the growing aspirations of the Indian Bourgeois. For India-2 they have opened 214 KBsfairprice, which are no frill stores like local unorganized sector outlets. On the supply chainthey have specialized subsidiaries for procurement and a Wal-Mart kind of food distributioncenter. They have also experimented with Food hall, which caters to the elite connoisseur.They are braising themselves for the entry of foreign players and to protect their marketshare.

Apparel: This sector is of utmost importance to the Future Group. It has a lions share of themarket because of the diverse portfolio of formats. They have formats like Pantaloons,


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Central, and Big Bazaar, Ethnicity etcetera. Pantaloons focuses on their in house brandswhile Central is higher up the ladder. Brand factory is their format based on the discountstore model. They are investing a lot to hold on to their market position and are reaping the

benefits. This business has the highest floor space allotted to it. They have increased focus onin store brands to drive margins up. One of the major problems with this segment is the

volatility in cotton prices. Due to the space crunch they are trying to move to an e-commerceplatform. With increasing presence they would be able to arm-twist national brands like Wal-Mart does in the foreign markets. They have introduced a lot of loyalty programs to hold onto consumer and milk the cow.

GEMatrix:

Industry attractiveness:

The parameters on which we measured the Industry attractiveness and their relativeweightages are given below.

INDUSTRY ATTRACTIVENESS WEIGHTAGE

MARKET SIZE 0.3

MARKET GROWTH RATE 0.2

INDUSTRY PM 0.2

AMOUNT OF COMPETITION 0.1

PRIVATE LABEL ACCEPTABILITY 0.1

SUPPLY CHAIN REQUIREMENTS 0.1

The weights were assigned based on the relative importance of the parameter for the industry.

ATTRACTIVENESS

RATINGS

1 Extremely Unattractive

5 Industry Average

9 Extremely Attractive

Market size:

WEIGHTAGE HOME ELECTRONIC APPAREL/FASHION FOOD

MARKETSIZE

0.3 7$5.4Billion

6$4.5 Billion

8$9.1 Billion

9306.1

billion

Market growth rate:


GROW 0.2 8 8 6 7


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THRATE

17.5% 18.4% 10.4% 11.5%

Industry profit margin:

WEIGHT

AGE

HOME ELECTRONIC APPAREL/FASHION FOOD

PM 0.2 810%- consumerdurables35+ furniture

48%

835-40%

615-17%

Amount of competition


AmountofCompetition

0.1 4 4 3 5

The ratings have been given of these parameters. The Home market is highly fragmentedwith a number of small players also offering discounts. The E-commerce business is one ofthe most competitive spaces to be in with a lot of players. The competition in the Apparel

segment is the most intense with a number of players fighting for consumers. Thecompetition in the food segment is not as severe as the apparel segment.

Private label acceptability:


Privatelabel

0.1 7 5 8 7

The ratings have been given of these parameters. Consumers are willing to accept in housebrands when it comes to food and apparel. They might not buy products online if its notfrom a reputed brand. The home segment is all about private labels.

Supply chain requirements:


Supplychain

requirement

0.1 6 9 7 4


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The ratings have been given of these parameters. The Supply chain requirements of foodsegment are high, as it has to pass through the government system and FMCG distributionchains. Hence, attractiveness is low. The E-commerce system doesnt have may supply chaindistribution requirements compared to the other segments. So, based on this parameter we

can safely assume that the attractiveness is high. The apparel segment doesnt impose toomany restrictions on the Supply chain and so has a decent rating. The Home segment isdependent on skilled labour manufacturing furniture, which is a little tough on the supplychain. But, the consumer durables market makes up for it. It gets a rating of 6.

The final index value and size of SBUs in given below.

INDUSTRY

ATTRACTIVENESS

WEIGHTS HOME ELECTRONIC APPAREL FOOD

MARKET SIZE 0.3 7 6 8 9

MARKET GROWTHRATE 0.2 8 8 6 7

INDUSTRY PM 0.2 8 4 8 6

AMOUNT OFCOMPETITION

0.1 4 4 3 5

PRIVATE LABELACCEPTABILITY

0.1 7 5 8 7

SUPPLY CHAINREQUIREMENTS

0.1 6 9 7 4

RELATIVE SIZE OFTHE SBU IN THEINDUSTRY-RANKS

1 6 1 1

INDEX VALUE 7 6 7 6.9

Business strength:

BUSINESS STRENGTH RATING

1 Extremely Weak

5 Industry Average

9 Extremely Strong representing industry best practice

The parameters and weights are given below

BUSINESS STENGTH WEIGHTAGE

RELATIVE MARKET SHARE 0.25

PRICE COMPETITIVENESS 0.25

PRODUCT QUALITY 0.15

CUSTOMER AND MARKET KNOWLEDGE 0.15


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SALES EFFECTIVENESS 0.1

GEOGRAPHIC ADVANTAGES 0.1

Relative market share:

WEIGHTAGE HOME ELECTRONIC APPAREL FOOD

Relative marketshare

0.25 6 4 8 8

This is based on the rankings in the relative segment. Future group is number one in home,food and apparel. The home market has a lot of small players and hence tit gets a point less.The E-commerce space is where they have to improve. They are currently 6th in a highlyfragmented market.

Price competitiveness:


Pricecompetitiveness

0.25 6 4 8 8

This parameter measures how competitive the segment is against the industry per se. Theprices offered. Future group has Brand Factory, which offers huge discounts, and hence, itgets a higher rating. KBs Fair Price is highly price competitive and so gets a similar rating.Due to its lack of presence in the e-commerce space the business strength due to this

parameter is quite less. They are able to compete with other players in the home segment butthe competitiveness is limited because of the consumer durable business.

Product quality:


Product quality 0.15 8 6 8 5

Source: Resurgent India

Customer and market knowledge


Knowledge 0.15 7 6 8 9

Future Group has invested a lot in Futureinnoversity. This is their research wing, which doesa lot of market research. Across all sectors their knowledge is pretty good. Their knowledgeof the Indian market is top notch. The offers at Big bazaar and Central are very goodcompared to the competition. So, the apparel sector gets a high rating. The food sector gets ahigh score because they are launching new formats based on the consumer insights. The


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Home segment also has a lot of consumer knowhow. The e-commerce sector needs a bigpush.

Sales effectiveness:


Sales effectiveness 0.1 7 6 9 9

This is based on the no of sales offers in the market. Their effectiveness was discussed in thegroup and ratings given.

Geographic advantages:


Geographicadvantages

0.1 4 8 8 6

This rating has been given on the basis of the number of cities where they have a presenceand floor space. Since, Electronic is virtual its advantage is only limited by the Internet

penetration. Home business requires a lot of space and hence has a less score. The appareland food business have the highest percentage of space and hence have good ratings.

The final table is given below

BUSINESS STENGTH WEIGHTAGE HOME

ELECTRONIC

APPAREL FOOD

RELATIVE MARKETSHARE

0.25 7 4 8 8

PRICECOMPETITIVENESS

0.25 7 7 8 5

PRODUCT QUALITY 0.15 8 6 8 5

CUSTOMER ANDMARKETKNOWLEDGE

0.15 7 6 8 9

SALESEFFECTIVENESS

0.1 7 6 9 9

GEOGRAPHICADVANTAGES

0.1 4 8 8 6

INDEX VALUE 6.85 5.95 8.1 6.85

Based on the values of Industry attractiveness and business strength, we have the followingGE matrix.


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Home:

The GE matrix points to the fact that Future Group must invest in the home segment. One ofthe major problems facing the segment is that consumers come to the store look at the designand then get the final product made outside. They should reposition an offshoot of Hometownto cater to this market. They have all the other segments covered with Hometown Expressand HT design studio. Another opportunity for growth would be the consumer durable

business. This is a highly competitive marketplace where customers prefer to buy frompurely electronic retail stores. They have to improve Ezone and give it more visibility. Thecustomers are looking for end-to-end solutions. They should stock these SKUs in their stores.


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E-commerce:

The E-commerce business is a laggard but has great potential as Internet penetrationimproves and consumers become more confident about using the Internet when purchasing

products. In a crowded market space they should invest heavily to gain market share. One

strategy could be to target Tier III cities where people dont have access to retail chains.They could strengthen the supply chain and offer these services to people who want to

purchase products but have no avenues for purchase. By changing the value proposition theycan get a huge chunk of the market. They could also create specialized storefronts for variouscategories and break the clutter.

Food:

They should maintain the market share by increasing floor space. They have to continue toexpand the Aadhar retail chain as rural markets offer the next step and are untapped. Theyhave divided India into two tiers and are trying to maintain the market share. KBs Fair Price

was one of the most innovative new formats to increase coverage in unorganized retail. Theyshould focus a lot more on private labels. Their food distribution center model is followingWal-Marts model.

Apparel:

They should strive to maintain the market share. They should continue with the three-pronged approach of Pantaloons for in-store brands, Central their hip and happening storeand Brand factory as their discount store. This would help them cover a wide spectrum ofcustomers. They should focus a lot more on in store brands, which offer them greatermargins. They should make use of the advertising space available at their stores to generatemore revenues.

Linkingcompetitivestrategytoportfolio:

1. Subsidiaries:

One of the most important tenets of Future Groups corporate strategy is the synergy theyhave with their retail focus.

Future Supply Chain Solutions: This takes care of the entire supply chain requirements ofFuture group

Future Brands: advises global and Indian companies on conceptual and operational brandchallenges and helps them succeed in business through insights & knowledge-based brandsolutions

Future Media India Limited: a subsidiary of the Future Group, has been helping brandsconnect with their consumers in a consumption environment since Oct 2007. Just as the

parent company, the Future Group, is leading the charge in Modern Retail, Future Media isthe leading Out-Of-Home (OOH) media provider with a focus on the point of sales.


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Future Space: This is the investment arm of the company, which pools in money for theinfrastructure requirements.

2.Home Business:

Future group sees customers looking for end-to-end solutions. They have stocking up theirSKUs I line with this and also opened up a HT design Studio, which would be offeringconsulting services, which would help patrons in designing their homes. In order to save onspace they have opened outlets designed on the CCD express format. These no frills serviceshave been a huge success. They have increased the floor space of Hometown their flagshipstore.

3.Food:

Food is one category future group is investing in heavily. They divide the consumer set intotwo segments; India-1, who are having the cash to splurge and have the propensity to move

up the aspirational ladder and India-2 is the traditional customer who still prefers thetraditional unorganized retail system. For India-1, they have food bazaar, which has startedupgrading the portfolio of products. They have Food Hall which stocks products, which arefor the connoisseurs. For India-2 they have Aadhar their rural retail value chain and KBs fair

price where they are looking to introduce customers to organized retail. They operate onwafer thin margins and are looking at a market penetration strategy.

4. Apparel:

They follow a three-pronged approach and have Pantaloons for in-store brands, Central theirhip and happening store and Brand factory as their discount store. They have recently openedEthnicity which houses traditional Indian wear and are bullish on this segment for drivinggrowth. With FabIndia gaining huge market share they are looking to take a bite of thecherry. They have also forayed into the shoe category with Shoe factory. They are trying togain a competitive advantage by foraying into various categories.

5.E-commerce: This is one business model they have to build on. With a fragmentedmarketplace its extremely difficult to gain market share. Mr. Kishore Biyani talks about E-commerce being the next big thing as India is running out of space for retail outlets. Theyhave been tweaking with the concept of Future bazar for a long time but their efforts have notmaterialized. They hold only 1.6% of the market.

Recommendations:

1. The Indian rural consumer is the next big prize and Future Group should continue theexpansion of Aadhar retail chain.

2. They have to build on their E-commerce business and use it to supplement theirexisting operations.

3. Continue to invest in Home, Food and Apparel segments to hold market share.4. Their success has been the different store formats, which cater to different segments.

They should continue innovation on this front.

5. Hive off the non-core businesses from PRIL as soon as possible and make it a pureplay retail player. This would increase the focus on retail.


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6. Their forays into Mobile telephony- T24 and books and music- Depot and Shoeshould be hived off.

7. Try out the cash and carry model.8. Continue to use subsidiaries to support their core business.9. Build a robust supply chain in the foods category before Wal-Mart saunters in.10. As there is a crunch for floor space they should share space with other groupcompanies.11.Develop their in-house brands, as it will give them a lot of leverage.

References:1. www.marketlineinfo.com

2. www.Datamonotor.com

3. www.resurgentindia.com

4. PRIL Annual report 2010-11

5. www.ibef.org

6. Investopedia,theindustryhandbookonretailindustry,StrategicManagementandBusinessPolicybyThomasLWheelen,JDavidHunger

7.Deloittereport,ArancaResearch

8.KPMGinternational2011,ArancaResearch

9.TechnopakAdvisorsPvtLtd,Cushman&WakefieldResearch

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