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Booz&co Presentation Transcript

  • 1. Booz & Company Mumbai, February 2013 Executive SummarySuccessful Innovations in Indian Retail –How smart ideas translate into profitablebusinessRaghav GuptaPrincipal, Consumer and Retail PracticeBooz & Company Prepared for Retail Leadership Summit - 2013
  • 2. The Indian Retail industry is today at cross-roads – manychallenges threaten the true potential for “profitable growth” Projected Organized Retail in India Key Challenges faced by Indian Retailers US$ Bn % responses, RAI – Booz Retailers Survey 2013¹1) RAI-Booz survey was conducted in January 2013; total no. of respondents was 410Source: IBEF, Centrum Research, Literature Survey, RAI – Booz Retailers Survey, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 1
  • 3. Evolution of Organized Retail in India has been led by Apparel &Footwear, unlike other markets where Food & Grocery leads India USA China Retail in India, 2012 ~ $ 500 Bn Retail in USA, 2012 ~ $ 4,500 Bn Retail in China, 2012 ~ $ 1,200 Bn % Share of Org. Retail : 8% % Share of Org. Retail : 85% % Share of Org. Retail : 20% Organized Retail Share (%) Organized Retail Share (%) 100 100 100 80 Organized Retail Share (%) 80 80 60 60 60 40 40 40 20 20 20 0 0 0 0 20 40 60 80 100 0 20 40 60 80 100 0 20 40 60 80 100 Years Since Inception Years Since Inception Years Since Inception Super/Hypermarkets Home Pharmacy & Wellness Apparel Jewellery & Watches Books, Music & EntertainmentNote: Apparel includes departmental stores; list of retail categories is not exhaustiveSource: Secondary research, Euromonitor, IRF, Booz & Company analysis Consumer Electronics FootwearBooz & Company Prepared for Retail Leadership Summit - 2013 2
  • 4. A joint RAI-Booz study was conducted to identify key innovationsin Indian retail; and develop learnings & implications Approach and Criteria for Evaluation Focus was on ‘Adapt’ and ‘New’ innovations and not on ‘Adopt’ Identified Innovations A B Consumer Key Impact Relevance Learnings C D E F .. Economic Implications Impact Scalability 40 for Retailers “ideas”Source: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 3
  • 5. There are four key lessons that these innovators offer us, bringingforth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer A simple, well executed idea can lead to successful innovation; large 1 investments are not always necessarySource: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 4
  • 6. 1 2 3 4Tanishq launched the ‘Karat Meter’ and provided a premium retailexperience, thereby changing the paradigm in jewellery retail Trust Building Innovation – Other Key Success Factors Implications for Tanishq & The ‘Karat Meter’ the Jewellery Industry Launch of Tanishq with 1995 mainly diamond jewellery Retail Experience of Titan Tanishq has grown revenues to over Rs. 7000 Crores Launch of ‘Karat Meter’ with a wider gold jewellery collection Success of Tanishq led to Tata Group’s Image growth of organized retail in 1999 ‘Karat Meter’ jewellery Higher transparency in quality Focus on Continuous led to gold jewellery carratage Improvement Market leader with 150 moving from14 to 20 karats 2012 stores across IndiaSource: ICMR India, Primary interviews, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 5
  • 7. 1 2 3 4Chitale Bandhu’s innovation to reduce billing time is an exampleof how even smaller retailers implement simple innovations Innovation in Billing Process – Usage of RFID Technology Opportunity Impact Customer usesIssues faced by RFID card at Customer Impact 12345 each countermithai shops Reduced billing RFID Card Counter I Counter II Crowded and high given at time waiting times entrance Customer Customer gives RFID Poor service quality at billing counter satisfaction Customer and bill is generated Customer curiosity dissatisfaction Retailer ImpactBilling is a major Increased footfall Significantbottleneck reduction in time Reduced Manual account of Customer Billing Counter turnaround time all purchases Low manpower Increased need for Finding the right technology Lower training manpower Enablers Willingness to try out new technologySource: Primary interviews, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 6
  • 8. There are four key lessons that these innovators offer us, bringingforth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer A simple, well executed idea can lead to successful innovation; large 1 investments are not always necessary Successful innovations need not only be ‘new & path breaking ideas’ 2 but can be an adopted model tailored to meet specific market needsSource: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 7
  • 9. 1 2 3 4GreenDust adapted an innovation in reverse logistics to offer highquality branded refurbished products at 25-30% lower cost GreenDust’s Innovation on Reverse Logistics Returned Product Consumer Refurbished Product OEM Opportunity Value Added Impact Retailer Center 4-6% stock returns Products at 25-30% from CDIT OEMs discount with warranty Online Sales Low priority area for 50% sales from Tier OEMs or Retailers 2/3 cities Customer Stock currently sold to Warehouse 60% repeat buyers scrap yard dealers Achieved 9x growth in Franchisee Opportunity valued at last 2 years, revenues ~ INR 75,000 Cr. OEM sells to GreenDust through Revenue Sharing and of over Rs. 500 Cr Outright Purchase Models at 40%-80% discounts Equal sales volumes through franchisee stores and online store Extensive knowledge of global reverse logistics Enablers Propriety reverse logistics technology platform Reduced franchisee set up cost & pan-India serviceSource: Retailer Interviews; Online Research, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 8
  • 10. There are four key lessons that these innovators offer us, bringingforth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer A simple, well executed idea can lead to successful innovation; large 1 investments are not always necessary Successful innovations need not only be ‘new & path breaking ideas’ 2 but can be an adopted model tailored to meet specific market needs Supply-side innovations can lead to as high a consumer impact as 3 Demand-side innovationsSource: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 9
  • 11. 1 2 3 4Fabindia’s supplier co-ownership model, though focused on back-end, enabled growth in rural, ethnic & handloom products Fabindia’s Innovation: Co-ownership Model Impact on Industry & Fabindia Fab India Product Selection Committee Creation of Ethnic Segment Business Community Owned Designers Experts Company (COC) Premium Retail Experience Artisans Artisans Craftsmen Craftsmen Weavers Weavers Artisans Craftsmen Weavers • Enables financial independence of artisans Strong • 80,000 artisans are part of 17 COCs Brand • Fabindia limited its stake to 49% in COC with Loyalty suppliers holding at least 26%* 0% DISCOUNT Employed by Fabindia Self-employed*Fabindia is moving to a model where suppliers will be given ownership in the Fabindia company rather than COCsSource: Secondary Research, Company sources, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 10
  • 12. 1 2 3 4Kovai Pazhamudir has achieved success in the challenging ‘fresh’segment through strong sourcing & lean store operations Innovation in Sourcing and Store Operations Opportunity Impact +Profitability in Fruits & Preferred destinationVegetables a challenge Local Mandi Exotic F&V Collection Centre Kovai Stores for consumersfor organized retailers: 38+ stores and Preference for local Sourcing: Local/ regional Mandis and import exotic varieties growing* sellers Distribution: From collection centre (Coimbatore) to Kovai High average Organized Retail stores all over Tamil Nadu monthly sales stores used mainly Higher gross margin as top-up Store Operations: Stand alone stores of avg. size 2500 sq. ft. of ~20% compared to Loss leader at most – Staff lives at store site in dormitories other players (11- major retailers but 15%) Product: Wide assortment of 125 SKUs of quality F&V drives footfalls – Serve fresh fruit chat/ juice to utilize inventory, reduce wastage Clear understanding of target consumers Capabilities & Enablers Focus on F&V segment, strong sourcing and lean retail*A total of 80+ stores can be found in Tamil Nadu modeled on the Kovai Pazhamudir Nilayam format managed by different groupsSource: Primary interviews, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 11
  • 13. There are four key lessons that these innovators offer us, bringingforth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer A simple, well executed idea can lead to successful innovation; large 1 investments are not always necessary Successful innovations need not only be ‘new & path breaking ideas’ 2 but can be an adopted model tailored to meet specific market needs Supply-side innovations can lead to as high a consumer impact as 3 Demand-side innovations Innovations need to evolve and keep themselves relevant to 4 continuously deliver value; it is not a ‘one-time’ playSource: Booz & Company AnalysisBooz & Company Prepared for Retail Leadership Summit - 2013 12
  • 14. 1 2 3 4Big Bazaar’s success can be attributed to continuous innovationfrom the original bazaar format to the current evolved formats Consumer Perception in Original Big Bazaar Format Evolution of Formats the mid-90’s Big Bazaar Family Center Smaller Aisles Air I am paying for conditioning their fancy Big Bazaar Express means it is lights and Loose expensive salespeople Products Original Big Bazaar Store Products in Bins These English Food Bazaar It is a big speaking store; it must Granite salespeople be exclusive are intimidating Floors Fashion at Big Bazaar DealsSource: Primary Interviews, Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 13
  • 15. The following takeaways emerge from the 40 innovation cases 40 Impactful Innovations in Indian Retail Incremental Substantial Break-Through Innovation Innovation Innovation Total Key Takeaways Sectors Apparel & Dept. Store 10 Clear need to innovate, given Food & various challenges for retailers and Grocery 7 strong co-relation between Food 6 innovation and business success Services Jewellery & Apparel leads in innovation; Food & Watches 4 Grocery and Home are under Pharmacy & Wellness 3 indexedElectronics & 3 High number of cases focused on Durables marketing / promotions; fewer Online Retailing 3 examples of business model, Books & product or supply chain innovation Music 1 Rich discussions on “what was the Footwear 1 innovation”, however “how theOthers (Home+ 2 innovation was delivered” not as Rural) clearly understood Total 11 22 7 LOW Level of Disruptiveness HIGH Source: Booz & Company analysis Booz & Company Prepared for Retail Leadership Summit - 2013 14
  • 16. Booz & Company Mumbai, February 2013 Executive SummarySuccessful Innovations in Indian Retail –How smart ideas translate into profitablebusinessMarco KestelooSenior Partner, Head – Global Retail PracticeBooz & Company Prepared for Retail Leadership Summit - 2013
  • 17. The retail sector has seen many innovations across the globe, bothin value chain and commercial functions Food Retail Innovations Europe, 1945 – 2010 Supermarket Premium PL Online shopping Non-food only store Budget PL Self scanning Online non-food sales Self service store Compact Hypermarket Barcode scanning Express stores 1960 1980 1994 1996 1998 2000 2002 2004 2006 2008 Bubble size represent stretch Bubble color represent of innovation scope of innovation Substantial Value ChainSource: Company websites Incremental CommercialBooz & Company Prepared for Retail Leadership Summit - 2013 16
  • 18. Such innovations have had significant business impact; with newplayers often over taking the incumbents Specialty Retailer vs. Fast Fashion Player Electronics Retailer vs. Online Player Gross Margin Productivity: Sales per sq. feet Cost to Sell: Typical Flat Screen TV Gap Zara $/UNIT Amazon Best Buy 958 960 Returns Zara’s margin 5 13 56% greater Card Fees 940 than Gap 25 Above Store ~15% Price advantage 920 898 $ (Indexed) $ (Indexed) 900 17 880 77 Labor 20 860 25 20% cost disadvantage 840 10 820 14 48 Real Estate 800 23 2 Shipping 790 790 Laid down cost at DC Sales / Sq. Foot Sales / Sq. Foot 0Source: Booz & Company analysis COGS MarginBooz & Company Prepared for Retail Leadership Summit - 2013 17
  • 19. Booz & Co’s research shows that innovation & success are co- related; however higher spend does not ensure innovation success Example analysis showing link Example analysis showing link between innovation and success between R&D and financial performanceHigh Indexed Sales Growth 5 y = 0.032x + 1.2914 R² = 0.0114 Success 0 0 1 2 3 4 5 6 7 -5 Indexed R&D / Sales HighLow Low High Innovation More details on Booz & Company’s Innovation Studies can be found at: http://www.booz.com/global/home/what_we_think/global-innovation-1000 Source: Booz & Company Global Innovation 1000, 2006 Booz & Company Prepared for Retail Leadership Summit - 2013 18
  • 20. The process & sources for idea generation are partly determined bythe strategic choice of being a “first mover” or “follower” First Mover Idea Generation Scope Follower Idea Generation Scope Research -ers Compe Other Compe Employees -titors Markets -titorsCustomers Etc. Examples Examples India examples: FabIndia, Big Bazaar India examples: GreenDust, COD Intl examples: IKEA, Amazon, Zara Intl examples: Hypermarket (various)Source: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 19
  • 21. Our research and discussions with Indian retailers havehighlighted 5 key “hows” to make innovation successful “WHAT” “HOW” “Execute well on small ideas 1 Leadership and Resourcing • while evaluating the big bets” “An Adapt Model works as well as 2 Culture • new and path breaking ideas” 3 Capabilities • “Supply focused efforts can also deliver consumer and business 4 Direct Consumer Insights • impact” “Continuous and evolving 5 Process Discipline • innovation is key to sustain value”Source: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 20
  • 22. 1Leadership and Resourcing: Innovation needs to be a C-Level agenda to ensure adequate sponsorship and resourcing Innovation Matrix Leadership and Resourcing Visible commitment and explicit support from High senior leadership Break Adequate and tailored resourcing and also away capability plays a key role in driving success: Innovation – Breakaway Innovations: away from the Level of “green” operationDisruptiveness Substantial – Incremental Innovations: close to Innovation operationals for speed & applicability Examples: Incremental Innovation – Big Bazaar: Visionary leadership of Mr. Low Biyani to push the boundaries, reinvent the High wheel and take risks Low – On-line food groceries – addressing last Predictability of Outcome mile economics; Pick-up-Point Source: Oxford Institute of Retail Management, Booz & Company Booz & Company Prepared for Retail Leadership Summit - 2013 21
  • 23. 2 Culture: Aligning organization culture and innovation strategycan help deliver superior results Gross Profit (5 year CAGRA) by Cultural Alignment 50 49 Cultural Attributes Strong identification with customers 45 44 45 Culture of collaboration across geography / 42 functions Openness to ideas from external sources 40 Culture fostering experimenting and risk taking 35 India example: Big Bazaar o Ceremony to appoint ‘store kartas’ o Mrs. Iyer Audit International example: pursuit of low cost 30 Low Alignment Moderate Alignment High Alignment in e.g. German discount Cultural Alignment to Innovation(A) Normalized 5 year CAGR for gross profit and enterprise value were considered for analysisSource: strategy + business 2011: Why Culture is Key; Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 22
  • 24. 3 Capabilities: Retailers will have to identify / build capabilitiesthat enable them to deliver on innovation aspirations Capability Set for Example UK Retailers Planning, Supplier Demand Planning Operations and Consumer & Merchandising Category Development and & Inventory In-store Customer Service Market Insights & Marketing Management Sourcing Management Execution Strategy Customer Analytics Operational Excellence Format Differentiation Merchandising Excellence Service Excellence Private Label ExecutionSource: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 23
  • 25. 4 Direct Consumer Interaction: Listening to customers helps develop innovations that have maximum impact Sources of Innovation (1) Recoded Mean Examples 0% 10% 20% 30% 40% 50% India Example: Big Bazaar Direct Customer 42% – Understanding consumer trends via. Observation kitchen audits, market visits, etc. Traditional Market Research 31% – Mapping consumer usage patterns to tailor product offering e.g. bundled tea Feedback from 22% time offeringSales & Customer Support – Product assortment based on local Idea Work-Out 19% preferences e.g. Private label ‘Ektaa’ Sessions Technology Road Mapping 18% International example: Self service All other invented in IKEA in ’70s categories 15% (<15% each) 1) Based on survey responses from ~ 700 global companies in the 2007 Booz & Company Global Innovation Study Source: 2007 Booz & Company Global 1000 Innovation Study: The Customer Connection Booz & Company analysis Booz & Company Prepared for Retail Leadership Summit - 2013 24
  • 26. 5 Process Discipline: A structured and phased process that leadsfrom innovation strategy to implementation is essential Defining tomorrow Winning tomorrow Winning today Innovation Innovation Innovation Integrate in Portfolio Project Strategy Operations Management Execution Align innovation directly Manage portfolio Achieve executing Implement innovation with business vision – Idea generation excellence Manage incremental – Speed: first mover / – Selection process Manage hand over to innovation follower – Innovation timing operations – Scope: commercial innovation / value chain innovation – Stretch: incremental / radical innovation Results in a strong Results in flawless Results in a clear Results in and balanced execution and innovation strategy capturing value portfolio of projects handoverSource: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 25
  • 27. Finally, we believe retailers in India should consider the followingkey questions related to innovation in their business Key Questions on Innovation for Retailers in India 1 What role can innovation play in driving success and creating value in my business? 2 What models for innovation should my business consider? Adopt, Adapt or New to the world 4 themes from the RAI – Booz study First Mover Idea Generation or Follower Idea Generation 3 What is the right balance between a formal and informal process (the “hows”) for my business? 4 What investments would be required? What capabilities to leverage / build? Internal and / or external expertise?Source: Booz & Company analysisBooz & Company Prepared for Retail Leadership Summit - 2013 26
  • 28. Marco Kesteloo Booz & Company RAGHAV GUPTA Booz & Company (India) Pvt. Ltd. Apollolaan 151 11th Floor, Building 9B Vice President Principal 1077 AR Amsterdam DLF Cyber City The Netherlands Gurgaon 122 002 Tel.: +31 20 504 1900 Haryana, India Fax: +31 20 504 1990 Tel: +91 (124) 499 8700 Mobile: +31-20-504-1942 Fax: +91 (124) 499 8701 marco.kesteloo@booz.com Mobile: +91 99585 22993 raghav.gupta@booz.comBooz & Company Prepared for Retail Leadership Summit - 2013 27