The Indian Retail Sector

Ravi Kumar Suman

The Indian Retail Sector Franchising

A Model for sustainable growth in organized retailing

Retail Industry – Current Scenario

• Organized retail still a laggard, 8% of all retail• Big Brands; Big Money = But no right model yet• Same Store growth Vs New Store Growth – The Suspect

story of Growth• Few Chains closing down; some bankrupt; some going

slow; foreign retailers still “cat-on-the-wall”• The Indian Retail Story is still – an emerging story

Retail – A unique industry

Worlds Largest Industry and Employer

Last Mile of every industry

Brutally competitive- in India 13 Million outlets

Live by the Day

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Sales ($ Trillion)

Retail

FinancialServicesEnginering

Chemicals

PackagedGoodsElectronics &TelecomAutomotive

Issues with Retailing

• Poor supply chain management and weak support infrastructure

• Rentals – skyrocketing to all time high• Crowding in unattractive locations• Inability to compete with traditional retail• Over reliance on debt funding

Elements of Resource Efficiency

Margins

Space People

Merchandise

Elements of Resource Efficiency

Margins

Space People

Merchandise

• Impacted by markdowns and shrinkage.• Technology – a key optimizing tool.• Key control level : Favorable Buying

• 20-40% of operating expenses

• Planogram and location choice – a key mgt

tool.

• Choose and utilise wisely

• High Cost-High sensitivity

• Wrong type- high cost impact –markdowns.

• 50-80% of working capital, 40-60% assets.

• Wisely chosen through data analysis and NPI

• 15-40% of expenses• Retention and engagement – difficult• Right people difficult to find.

Measures of Resource EfficiencyG

ross

mar

gin

/Net

sal

es =

GM

%

Net sales/Inventory =

Inventory/ Selling feet =

Net Sales/ Selling feet =

Selling feet/ No of Employees =

Stock turn

Merchandise Efficiency

Sales per sq ft

Service Intensity

Gross Margin/InventoryGross Margin Return on

Inventory

GMROI=

Net Sales/ No of Employees = Sales per employee

Gross Margin/Selling feetGross margin Return on Sq ft

GMROF=

Gross Margin /EmployeeGross Margin Return on labour

GMROL

==

A Fresh Look at retailing

• Customer Service is a complicated science• Impossible to come up with a “right formula”; “right code

of conduct & service levels”• Needs authority / responsibility right at the front end• Requires “ownership” mindset at the front end• Create “ownership Culture” or Franchise?

Franchising Facts

Some key facts that point to the growth of the Franchising sector in India are as follows:

• There are over 1200 active franchisors in the country.

• There are over 1,00,000 franchisees (across sectors) in India today.

• The total investments put in by these franchisees in setting up their individual franchised businesses is over Rs.40,000 crores.

• The total annual turnover achieved by franchised businesses in India is in the region of Rs.8000-10,000 crores.

•  • The total manpower directly employed by these franchised businesses is around 300,000.

• All these facts & figures point clearly to the extent to which Franchising has been accepted in India as a way of doing business. There are an increasing number of businesses that are exploring the Franchising route to business expansion.

How Franchising Works?

1. Franchising essentially works by replicating a successful and proven business model across multiple locations through a network of entrepreneurs.

2.The person who develops the business format, known as the franchisor, grants access to his business name, goodwill and business model to another person, known as the franchisee.

3.This ensures that the franchisor can extend his reach without having to invest substantial amount of money in new markets.

4.The franchisee on the other hand profits by having a readymade business model with access to backup facilities like training, marketing tools, technology etc. He hence benefits from the security provided by a tried and tested business model.

5.Many variations of franchising model exist within the sector. Some of the more popular ones include Master Franchisee, Area Development Rights and Unit Franchise. India has seen the emergence of other models also like Joint Venture cum franchise agreement, Management Contract etc.

The Franchised Retail Model

Franchisor

Warehouse

Franchisee1 Franchisee2 Franchisee3

Benefits to Franchisor (Retailer)

• Store Employee Salary / Number of Employees Reduction• Only back end operation Control• Rent /No Rent If No Minimum Purchase• Electricity• Stock Loss• Pilferage/Theft• Capital Investment /Interest Cost• Other Miss Exp• Expansion without Investment• IT Cost• Title Controls• One Point Sale• Ware House Out Source• One Time franchisee Fee • Maximum Promotion of Private label

Benefits to Franchisee

• Centralized purchase & the single-point delivery of all products!• Opportunity of Multi Store Ownership• Proven & never-ending business!• Readymade & ever-growing customer base!• Groceries, food products and vegetables at challenge prices in the industry!• No investment risk in the inventory!• Remarkable payback period - Just 1 years• Low on investment, high on returns!• Advisory for site selection, store design and visual merchandising!• Reliable recruitment and training support.• Very high success in delivery!• Strong Customer Loyalty!• Very high success in delivery!• An established brand! • Great vendor base! Excellent relationships!• Exclusive Rights• Initial Start up Training• Proven Support Systems!• Aggressive brand-promotion, advertising and marketing campaign! Mega Launch!

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REI 6 Ten Retail Ltd. a pioneer in more ways than one

• Successfully Running more then 300 Franchised outlets Pan India.

• Franchised 300 + outlets with in 300 Days

• Customers acceptance of REI 6 Ten Retail Ltd. as a Must have brand –

known for F&V, Private Label ,Grocery

• Established quality standards for products

• A well established network of channel partners/ franchisees

• An Indigenous model

REI 6 Ten Retail Ltd. should keep creating new paradigms & seizing new service opportunities

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New Paradigms that REI 6 Ten Retail Ltd. have created

• Store In-charge run format / Store Franchising /warehouse Franchising

• The store walk method

• The Eye Ball customer contact “trust”

• Vendor managed Inventory

• Private label business

• On the job training

• Direct to store logistics…..

Processes which others will take years to perfectREI 6 Ten Retail Ltd. invented the new private FMCG retail

Brand is neither owned by the Company nor by the franchisee – it is owned by the Consumer

• There is a consumer pull for the brand

• It is the consumer who will drive the future and not the company or franchisee

• Quality can not be compromised .

• Consumer waits for stores to open

• Specialized orders of non available SKUs are placed and consumers are ready to wait for the product arrival

• Even if there is a quality issue in the product, the franchisee & store staff are blamed but brand is perceived to be clean

• Other Stalls such as F&V perform better when placed within the store premise rather than placing outside the store physical boundary

• There is a consumer perception that even if the product quality is unsatisfactory, the store will take back the product

Evidences

Possible Action Points

• At least 2500 direct customer contacts to be established By the Individual Store /Managers & Sales representative

• New product launches to be done based on customer feedback – taste panel for customers

• Formal training to all franchisee & their staff

• Focus on Higher rate of product innovation

• Apart from standards focus on packaging to avoid petty issues

• Daily replenishment & smaller consumer packs

Brand goes beyond products…. Its “quality”

Service Depth

• Eye ball recognition

• Quick response time

• Personal attention to every customer – even by the franchisee

• Customized order taking on special customer request

• Customers neither neglected nor over intimidated while shopping in store

• Product depth within all categories in a store is the highest

• Meets all buying & usage occasions of consumers

• Consumers perceive have highest range of staples & FMCG products for any organized retailer

Product Standards

• Apart from basic packaging issues, REI 6 Ten Retail Ltd. product quality per say is perceived to be best

• Procures the best in class products for all its SKUs within a store

4 Pillars of Quality

Freshness

• Apparent quality superiority in Dairy & bakery products in terms of freshness

• Consumers feel that Store. has an efficient supply mechanism to maintain the freshness of highly perishable products such as breads, curd, milk, cream, paneer etc.

Evid

ence

s

Possible Action Areas

Possible product category expansion option:

• Ayurvedic• Skin acre• Wellness• Bakery• Organic• Dairy Products• Exclusive Hand Made Products• Travel & Tourism kiosk (shop In Shop)• Home Rental Consultation kiosk (Shop In Shop)

Retailers should aim to:

• Bringing down Real estate costs• Renegotiating Real estate costs• Entering into revenue sharing model as against fixed rental• Leveraging Information Technology• Manpower training• Real Estate Management• Supply chain visibility• Store operations• Logistics management• Reevaluating store viability and expansion plans• Efficient store management• It’s the time of Private Labeling• Venture into under penetrated markets: Rural• Retailing

Project: Franchise Development Outsourcing (FDO)

Background

• Franchise Connect India is the nation’s first full-service franchise sales outsourcing firm operating on a cost-justifiable compensation schedule. FDO is Franchise Connect India’s professional lead management service which assists you right the way through the franchisee recruitment process, from lead generation through to the signing of the franchise agreement.

• We have franchise 300 Retail outlets of 6 Ten with in 300 Days on Pan India Level

• Designed the India’s First Model of Franchising into FMCG Sector

• Targeted Investor Group

• Word of mouth

•Brand Image•Franchise Opportunity•Success Story•Franchise Support Structure•Franchisee Background•Financial Assessment

Letter of interest signed.

Agreement Process

Final conversion and lead goes to operations for processing

Basic Information provided to interested investors

Expression of Interest generated

Site visits/franchisee details collected

Weekly progress sheet submitted to Moti Mahal

Lead management

MarketingLead

GenerationRecruitment

Share Business PlanShare AgreementsSite selectionFranchisee rollout PlanMeeting with Brand Team

Franchise Meetings , conference call , to be organized with the qualified prospects

Reaching the dedicated investors registered in franchise Connect database through different mediums of marketing

Thank You

Ravi Kumar Suman

+91-9311552759