1. Project Summary
This project is aimed at finding out how business are adapting to the changing retail
structure in India. The report starts with a brief introduction to the retail sector in India,
divisions of retail business into organized and unorganized sectors, reasons for the growth
of the FMCG industry in India and the drivers for this growth. Retail sector is heavily
regulated by the government in India and FDI in retail sector is being contemplated
seriously. The implications of this on retail industry, the strategies adopted by smaller and
larger organized retailers in this dynamic and competitive environment are analyzed. The
research has been qualitative in nature with in-depth interviews of store managers at
leading organized retail chains ‘Big Bazaar’, Spencer’s and ‘More’. Valuable insights about
the organization, trends in the revenue, brand offerings, footfall, supply chain and product
lines, the reasons behind each were obtained and analyzed. Potential threats as perceived
by these organizations, their competitive advantages and differentiators, and the audience
they target have been analyzed. The marketing techniques adopted by these firms to suit to
changing consumer profiles and preferences, customer retention techniques are a part of
the findings. Various innovative measures have been taken by retail giants to provide an
experience beyond normal shopping and to provide contemporary and international
standard shopping experience.
We also interviewed a number of smaller retails to get first hand information about how
their businesses are adapting in this changing times. Their target segments, change in
operational strategies after the advent of large retail, trends in the SEC of consumers and
revenues, future opportunities of growth have been analyzed. The different types of small
retail stores interviewed have given us a holistic view of the retail scenario in Kolkata & India
The retail industry is fastest growing sector in the Indian economy with a three year CAGR of
46.64%. The retail industry has been divided into two- Organized and unorganized retail.
Organized retail refers to licensed retailers who are registered for sales tax, income tax. It
also includes supermarkets, hypermarkets and retail chains owned by Companies.
Unorganized retail refers to traditional form of mom-n-pop stores, kirana stores,
convenience stores. The Indian retail sector is heavily guarded by the government
regulations. India currently allows 51 per cent foreign investment in single-brand retailers
and 100 percent for wholesale operations.
The unorganized retail has the highest penetration. But the retail scenario in India is
changing fast, with organized retail gaining ground while traditional formats innovate to
compete. The retail sector has witnessed immense growth in the last few years, the
important drivers for this growth being changing consumer profile and demographics,
increase in the number of international brands, economic implications of the government
increasing urbanization, credit availability, improvement in the infrastructure, increasing
investment in technology and real estate building a world class shopping environment for
customers. According to Nielsen survey Indian consumers spending on FMCG items at
modern retail stores is set to nearly triple to USD 5 billion by 2015 from USD 1.8 billion at
Organized retailers have been more responsive in reducing or holding prices of day-to-day
products. This is mainly because of their ability check operational costs bargain hard with
suppliers and launch private labels. The power of modern retail lies in the scale and
efficiencies. In the past few years, modern retailers have been able to significantly cut
operational costs related to real estate rentals, energy costs and increase per square-feet
productivity of employees. This has led to savings in people costs. By launching private
labels, they are able to get better control on selling prices and profit margins and some
savings being passed on to the customers.
Many kirana stores and other small shops are affected by the organized retail format. Their
margins have decreased. Local grocery shops contribute 75-80 percent to the sales of fast
moving consumer goods (FMCG) companies. Now, the shops plan to associate directly with
FMCG companies to compete with the big retail stores. FMCG companies are now
commencing programmes for this segment to make them run their shops in a competitive
and modern way. To start with Marico Ltd has identified over 7,000 grocery stores in eight
cities, including metros, for its training programme. The programme envisages the kind of
manpower requirement, the right infrastructure, cutting expenses, basics in inventory
management and the need to have credit card machines. Coca Cola too is planning
programmes for training kirana shop owners with opening of a retail university. Dabur India
has launched an initiative named Parivaar to partner with neighbourhood kiranas (grocery
shops) by offering higher margins to drive volumes in the fast moving consumer goods
The Indian retail industry is also one of the largest employer after agriculture. But the
organized retail industry has been facing severe shortage in skilled man power. To overcome
this Retailers Association Skill Council of India (RASCI), set up by Retailers Association of
India and funded by the National Skill Development Corporation (NSDC), expects to train
five million people for the industry in the next 4-5 years.
The objective of this project is to find what are the changes happening in the retailing
structure in India especially in Kolkata, challenges which retailers are facing due to these
changes. The group has tried to find out the reasons behind these changes to better
understand the way businesses are coping and coming out with new strategies to gain
competitive advantage in a dynamic and changing environment. The group also tried to find
out the strategies adopted by organized retailers in building a market for them and retain
their customers against other such retailers and small kirana stores. With the organized
retailing coming on to the business map of India, group tried to understand the challenges
which are now faced by the small retailers.
The project used qualitative research methodology. We began by collecting secondary data
to gain a broad understanding of the nature of organized retail in India, recent trends, and
challenges faced by it. The major source of secondary used was the database in the BC Roy
Memorial library which gave access to articles from prominent newspapers and magazines
like the Economist, the Economic Times, Portfolio organizer and Business Standard. Once
secondary data collection was done, the research design was formulated. The sampling
method used was judgmental sampling as the project required respondents who had
considerable level of expertise in modern day retail. The design used was a cross sectional
design. The data collection method consisted of a broad mix of interview and interactions.
In the course of the project, a total of five in-depth interviews were conducted with the
store managers of the following retail chains-More, Spencer's, Food Bazaar (Esplanade &
Camac Street) and Arambagh Food Mart. Each interview lasted for 35-45 minutes followed
by 5-10 minutes of member checking. The interviews were also complemented with
interactions with customers of these retail chains to understand the factors that influenced
their buying behaviour and with the store personnel to gain awareness about the various
practices and tools used by the top management to ensure very high level of service. In
addition, in depth interviews were also conducted with a total of 8 small retailers, to
understand how the entry of the retail chains were affecting their businesses and how are
they reacting to it. The data collection was succeeded by content analysis and preparation
of project report.
The numbers 5 and 8 as used above were arrived in a process of judgmental sampling and
the group find high repetition rates in responses after these many interviews had been
conducted. Given constraints of time these were used as final.
Findings from secondary source:
Impact on Unorganized Retailers
Unorganized retailers in the vicinity of organized retailers experienced a decline in their
volume of business and profit in the initial years after the entry of large organized retailers.
Although the adverse impact on sales and profit weakens over time. The response has been
moderately competitive from traditional retailer through improved business practices and
A majority of unorganized retailers is keen to stay in the business and compete, while also
wanting the next generation to continue likewise. Small retailers have been extending more
credit to attract and retain customers. However, only 12 per cent of unorganized retailers
have access to institutional credit and 37 per cent felt the need for better access to
commercial bank credit. And most unorganized retailers are committed to remaining
independent and barely 10 per cent preferred to become franchisees of organized retailers.
These numbers were confirmed by the small retailers.
Impact on Consumers
Overall consumer spending has increased with the entry of the organized retail. While all
income groups saved through organized retail purchases, it is observed that lower income
consumers saved more. Thus, organized retail is relatively more beneficial to the less welloff consumers.
Proximity is a major comparative advantage of unorganized outlets. And unorganized
retailers have significant competitive strengths that include consumer goodwill, credit sales,
and amenability to bargaining, ability to sell loose items, convenient timings, and home
Impact on Intermediaries
The growth of organized retail and big retailers coming into the market has affected the
intermediaries adversely. But the growth of the unorganized has also given them new
opportunities to grow. Overall there is some adverse impact on turnover and profit of
intermediaries dealing in products such as, fruit, vegetables, and apparel. Over two-thirds of
the intermediaries plan to expand their businesses in response to increased business
opportunities opened by the expansion of retail.
Impact on Farmers
Farmers benefit significantly from the option of direct sales to organized retailers. Profit
realization for farmers selling directly to organized retailers is about 60 per cent higher than
that received from selling in the mandi. The difference is greater when the amount charged
by the commission agent (about 10% of sale price) in the mandi is taken into account.
Impact on Manufacturers
Large manufacturers have started feeling the competitive impact of organized retail through
price and payment pressures. Manufacturers have responded through building and
reinforcing their brand strength, increasing their own retail presence, ‘adopting’ small
retailers, and setting up dedicated teams to deal with modern retailers.
Entry of organized retail is transforming the logistics industry. This will create significant
positive externalities across the economy. Small manufacturers did not report any
significant impact of organized retail.
Aditya Birla More store, Behala
Retail chain of Aditya Birla Retail Limited, with over 700 stores in India and 23 stores in
Store locations are decided based on population density and economic conditions in the
The More store in Behala has a square footage of 2000 and a personnel strength of 11
along with 2 duty managers. Average footfall per day is 200 which might reach as high as
500 in peak season. The main target group is the age group of 25 to 50 who hail from
the socio-economic sections A and B. The popular products are ready to eat foods and
Marketing is mainly through advertisements in printed magazines, telecalling,
announcements in streets, word of mouth and sponsoring local events like Durga Puja.
Inventory management completely automated and on a daily basis. Store layout
centrally planned in Mumbai head office and updated every week
Very high levels of service ensured through the following steps
Store attendants must know the names of at least 20 customers
Regular mystery audits by top management to check the quality of service
A website where customers can file complaints. Interestingly More does not offer
a customer care number to which customers can call to complain
Tele-calling to customers to keep them updated about offers and schemes of
interest to them
Tracking customer visits and calling up customers who haven’t visited in a long
time to understand the reasons
Big Bazar, Camac Street and Esplanade:
Food Bazar are FMCG retail outlets of Future group which are attached to Pantaloons
stores, Big Bazars and are also established in standalone formats. Food bazar associated
with Pantaloons stores attracts more high end customers than the Food Bazar
associated with big bazar stores. Food Bazar focuses on discounts and availability of
wide variety of products and brands to provide maximum value for money and time of
the customer. The reach of a large retail store like food bazar at Camac Street is
estimated to be 5-6 km
Food Bazar wants to overcome the aversion of middle class towards entering into an
expensive looking store format.
Food Bazar has become popular with the wide variety of products, brands and SKUs
available in the store with great discounts and product bundles. These discounts and
offers are controlled by the higher management and stores don’t have control over it
Food Bazar has come up with T24 scheme in which they give some talk time on
purchase of certain amount. They also give loyalty cards where you get certain points
on certain amount of shopping which can be redeemed as a discount or gift later on.
Food Bazar provides wheel chair facility to the shoppers who cannot stand for a long
time or cannot walk but want to shop at such places.
They offer private labels in wide variety of products with high margins like tea,
beverages, liquid cleaners etc. Some private labels are Assam Best tea, Tasty Treat, Care
Mate, Fresh & Pure etc. This not only increases their profitability but also increases
their bargaining power against the big brands. They bargain from companies for up to
15-20% discount and sell to customers at a discount of 5-10%.
They try to push bigger SKUs and high margin products by making them more accessible
in the store. They keep bigger SKUs and more profitable products at the eye level so
that these products are more accessible. Food Bazar keeps fast moving and essential
items nearer to the exit and keeps the non essential items towards entry which
customers pick and they get more out of the same customers' pocket. As per the store
manager there are certain products which are available in these stores like frozen
foods, exotic vegetables for which many people exclusively come to these stores.
They allow certain brands to keep their promoters on the store and get a better margin
from these brands and push more volumes with the help of their sales force.
According to the food Bazar manager they don't have compete with small retailers
because they target very different market segment. They observe more footfalls during
the month beginning and weekends, which creates problems for them with a lot of
customers on the floor and billing counters. Hence, to promote shopping on weekdays
they give offers on weekdays like promoting Wednesday as "hafte ka sabse sasta din"
Spencer’s Hypermarket, South City Mall, Kolkata
Interviewed the in-charge of Customer Service. He has a Floor Supervisor, Floor Manager
and Store Manager above him in the hierarchy.
Spencer’s is the pioneer and one of the fastest growing organised retail stores in India,
with significant expansion plans. Currently Spencer’s offers two different retail formats:
Convenience stores called Spencer’s and Hypermarkets called Spencer’s Hyper
Hypermarkets are megastores stock large number of items across a wide range of
products - FMCG, food items, fruits and vegetables, fish and meat, apparel, baby care
products, electronics and other hi-tech products with attractive deals. These stores also
have a bakery, food courts and other entertainment facilities all under one roof. Hyper
markets organise country and theme festivals, some also have a Chef Corner where
customers can learn to make exotic dishes. Basically, Spencer’s Hypermarkets try to
provide an enriching experience beyond just shopping.
Spencer’s offers a range of private brands across different product categories including
food, fashion, and personal care and home utility items.
Spencer’s Smart Rewards is a programme where customers can earn reward points and
redeem them during future purchases. Loyalty cards are offered to almost all customers
unlike schemes offered by Shopper’s stop for select privileged customers.
Spencer’s differentiates itself from other brands mainly in terms of quality, which is not
compromised at any cost. Spencer’s offers widest range of products with over 32000
SKUs, and it is a “food first” retailer with “Taste the world” experience. Spencer’s also
provides contemporary and international standard shopping experience. Promotions are
always customer-centric suited to the buying cycle and the product basket of customers.
Spencer’s targets India’s burgeoning middle class as well as esteemed customers unlike
Shopper’s Stop. Spencer’s prides itself for its after-sales service. Spencer’s does not
believe in big discounts like Big Bazaar as Quality Assurance becomes difficult.
All the employees regularly participate in “STUC- Show that you care” sessions which
help employees learn how to interact and deal with customers. Spencer’s have proper
feedback mechanism “Have your say” to get feedback from customers.
Offers in-store branding opportunities to the suppliers by letting them deploy promoters
Spencer’s advertises through newspapers, radio and SMS to customers about deals
Competition is mainly from other major organised retail chains and new entrants like
‘Reliance Fresh’ and ‘More’. Also Spencer’s sees a threat of FDI in retail sector, which
they plan to overcome by leveraging their unique differentiators and providing
international and contemporary shopping experience.
Spencer’s believes in constant innovation. A welcoming storefront design, upscale look
and convenient location of items through attractive signage, efficient maintenance of
shop-space- these retail design innovations were first introduced in South City Mall
Hypermarket. It is aimed at making shopping not only convenient but also a visual treat
with innovative graphics, innovative lighting and emphasis on interior design.
Some of the Visual merchandising innovations include having hotspots inside the store
making customers to look at the visually appealing products and enjoy the ambience.
Category specific colour coding of merchandise, making it easy to locate items. They also
have visual metaphors like “farm-fresh” to drive home the brand promise.
In-store events like ‘Live Kitchen’ and ‘Spencer’s Chef Corner’ to learn exotic dishes,
“Modern Menu” at food courts make shopping more enjoyable and educative.
“Increasing awareness amongst customers, especially middle class people and emphasis
on quality is driving more people into organised retail. More competition forces us to be
on our toes always” says the customer service in-charge.
The small retail segment can be classified on the basis of their locations: kirana stores for
the lower middle class, street side stores, mid-size stores in semi residential areas and
departmental stores in upscale residential areas.
Jai Maa Durga Store and Madhusudhan Bhandar (provision stores)
It is a 23 year old provision store in Behala, which is an underdeveloped market since
there is little competition from big retailers & the customers are lower middle class.
About 60% of the customers generally make weekly purchases due to proximity,
however upper middle class people come here too, for bulk purchases.
Number of brands stocked is limited as store owner influences the buying decision.
Hence limited changes have been made in the business format except home delivery
Although no market insights, they retain customers by tracking demand, expanding
their product line, discounts on bulk orders, or giving goods on credit.
Sandhya Store and Sundaram Store (street side stores)
Located in a non-residential area next to Aditya Birla More, it has lost out to the big
retailer because of no special offers or product variety for customers, and more
importantly, too many intermediaries in the supply chain reducing margin
Characterized by few, irregular customers with small purchases. Hxence, they don’t
employ any competitive strategy against nearby shops and rely on footfall.
Highest sales in items that are quickly consumed: biscuits, cigarettes, cold drinks etc
Paul Sweets & Provision Store and Shiv Nath Store (midsize store in semi-residential area)
Believe that customers now prefer variety of items on offer compared to price
variations due to a general increase in their purchasing power.
Their profits are marred due to long supply chains and lack of bargaining power
when it comes to buying from distributors, hence can’t give too many discounts.
The purchases were of medium range, and more than half the customers were new.
Understandably, the fastest moving items were packed food items or fresh snacks.
They believe that large retail stores overpriced items whose prices weren’t readily
observable like utensils etc, and charged a brand premium on their own product line
They believe that they are more efficient than big retail when it comes to small
purchases as they cut down on billing and checking processes. They would perform
better in residential areas, but real estate is expensive & most markets are saturated
Mom & Pop stores aren’t adept at handling taxation, regulatory requirements for
accounts and return filling, since they lack expertise and money to seek professional
help unlike large retail stores who hire professionals to carry out these tasks
Subidha Departmental Store and Metropolis (situated in residential areas)
Similar stores in vicinity are the main competition. Hence they appeal to customers
by posting special offers & discounts outside apart from environmentally conscious
posters to appeal to customer instincts. 90% of the customers are regular.
Provide facilities like home delivery, all cards & meal vouchers accepted.
Approximately 3000 SKUs on display, mostly packaged products.
They believe in responding to customer requests and being dynamic with respect to
their product lines, based on surge in demand.
A common perspective that was observed in all small retail stores was that they felt
that big retail had stolen their sales, and had overpriced products. While customers
would prefer ambience and quality, they thought the whole process was not valuefor-money. Their expansion plans were curtailed by lack of capital.
With the increase in disposable income and standard of living in urban India, customers
are looking for better quality and a better shopping experience. Hence, organized
retailing is growing at a fast pace in India but is limited mainly to metro cities.
Organized retail chains score over the traditional kirana stores in two big areas- service
and price. On the pricing side, they are able to offer fabulous prices by emphasizing
heavily on cost-cutting through efficient inventory management and bulk purchasing. On
the service side, customer delight is a mantra they ardently follow-the top management
ensures this by policies and rules which promote customer service. Combining these
two, they offer a delightful experience for customers.
Big retailers follow different strategies to attract customers to their stores. Food Bazar
focuses on sourcing and buying products at discounts and giving better value for money
to their customers; while stores like Spencer's focus on quality products. Stores like
Arambagh food mart focus on penetration & availability of such stores in local markets.
Big retailers are using private labels in high margin products to increase their
profitability and bargaining power against suppliers and big FMCG companies.
Large retailers are increasingly focusing on differentiating by customer service by
providing, promotional offers and discounts
In Kolkata small retailers are quite passive and have not taken any major steps to rise up
to the competition posed by big retailers. Retailers in Kolkata have not been very
effectively able to manage the competition posed by big organized retail chains. Yet the
areas of operation are generally distinct for the traditional retail and modern retail
concept, the former catering to daily or weekly needs of customers in areas with no
organized retail presence and the latter capturing the bulk purchase market for monthly
needs where big savings can be realized. In areas with organized retail's direct presence,
the market is very competitive for unorganized retail. Unless time is a constraint or small
purchases are involved, consumers go for the biggies. Major reasons for slow growth of
the sector include unavailability of cash, low market insight and little professional help.
Only in old entrenched lower middle class residential markets and in cases where small
retailers could invest sufficient capital to capture local customers from going to large
retailers, have the unorganized retailers beat the organized retail competition. Small
retailers many a time enjoy a loyal customer base in their locality and also offer credit
facility and discounts on bulk purchases which helps them attract and retain the
customers. Organized retail chains focusing on lower and middle income level segments
face a challenge in attracting these customers. In other areas the organized retailers
have occupied the bulk purchase market quite effectively while the small to medium
purchases market and the lower income segments still accrues to local small retailers.
Big retail chains go beyond traditional FMCG product lines and offer product lines like
fashion, gourmet, electronics and other unique products. These chains also have private
labels of products which have higher margins. This increases their bargaining power with
supplier of these products. In-house marketing of other brands in big retail outlets gives
higher margins to the retailers and it is also beneficial for the brand promoters to push
their products through these retail chains. Innovations have been introduced in
storefront design, shop space utilization, product location, and in interior design.
Products are strategically placed to maximize convenience for customers & profitability.
1. "Impact on Organized Retailing on the Unorganized Sector" Report by "INDIAN
COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS"
2. "Indian Retail: Time to change lanes " Report by "KPMG IN INDIA"
Business Monitor Online
India Business insight Database
ISI Emerging Markets India