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Booz&Co Indian Retail Innovations 2013
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    Booz&Co Indian Retail Innovations 2013 Booz&Co Indian Retail Innovations 2013 Presentation Transcript

    • Booz & Company Prepared for Retail Leadership Summit - 2013 Successful Innovations in Indian Retail – How smart ideas translate into profitable business Raghav Gupta Principal, Consumer and Retail Practice Booz & Company Mumbai, February 2013 Executive Summary
    • Booz & Company Prepared for Retail Leadership Summit - 2013 The Indian Retail industry is today at cross-roads – many challenges threaten the true potential for “profitable growth” 1 1) RAI-Booz survey was conducted in January 2013; total no. of respondents was 410 Source: IBEF, Centrum Research, Literature Survey, RAI – Booz Retailers Survey, Booz & Company analysis Key Challenges faced by Indian Retailers % responses, RAI – Booz Retailers Survey 2013¹ Projected Organized Retail in India US$ Bn
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Evolution of Organized Retail in India has been led by Apparel & Footwear, unlike other markets where Food & Grocery leads USAIndia 0 20 40 60 80 100 0 20 40 60 80 100 Years Since Inception OrganizedRetailShare(%) Pharmacy & Wellness Footwear Books, Music & Entertainment Home Jewellery & Watches Consumer Electronics Apparel Super/Hypermarkets 0 20 40 60 80 100 0 20 40 60 80 100 Years Since Inception OrganizedRetailShare(%) 0 20 40 60 80 100 0 20 40 60 80 100 OrganizedRetailShare(%) Years Since Inception Note: Apparel includes departmental stores; list of retail categories is not exhaustive Source: Secondary research, Euromonitor, IRF, Booz & Company analysis China Retail in India, 2012 ~ $ 500 Bn % Share of Org. Retail : 8% Retail in USA, 2012 ~ $ 4,500 Bn % Share of Org. Retail : 85% Retail in China, 2012 ~ $ 1,200 Bn % Share of Org. Retail : 20% 2
    • Booz & Company Prepared for Retail Leadership Summit - 2013 A joint RAI-Booz study was conducted to identify key innovations in Indian retail; and develop learnings & implications 3 Identified Innovations A B C D E F .. 40 “ideas” Relevance Consumer Impact Economic Impact Scalability Approach and Criteria for Evaluation Key Learnings Implications for Retailers Focus was on ‘Adapt’ and ‘New’ innovations and not on ‘Adopt’ Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 4 A simple, well executed idea can lead to successful innovation; large investments are not always necessary1 There are four key lessons that these innovators offer us, bringing forth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Tanishq launched the ‘Karat Meter’ and provided a premium retail experience, thereby changing the paradigm in jewellery retail 5 Source: ICMR India, Primary interviews, Booz & Company analysis Implications for Tanishq & the Jewellery Industry Success of Tanishq led to growth of organized retail in jewellery Tanishq has grown revenues to over Rs. 7000 Crores Higher transparency in quality led to gold jewellery carratage moving from14 to 20 karats Trust Building Innovation – The ‘Karat Meter’ 1 2 3 4 Other Key Success Factors Tata Group’s Image Retail Experience of Titan Focus on Continuous Improvement ‘Karat Meter’ 1995 Launch of Tanishq with mainly diamond jewellery 1999 Launch of ‘Karat Meter’ with a wider gold jewellery collection 2012 Market leader with 150 stores across India
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Finding the right technology Willingness to try out new technology Chitale Bandhu’s innovation to reduce billing time is an example of how even smaller retailers implement simple innovations 6 Opportunity Issues faced by mithai shops Crowded and high waiting times Poor service quality Customer dissatisfaction Billing is a major bottleneck Manual account of all purchases Increased need for manpower Impact Customer Impact Reduced billing time Customer satisfaction Customer curiosity Retailer Impact Increased footfall Reduced turnaround time Low manpower Lower training Innovation in Billing Process – Usage of RFID Technology Customer RFID Card given at entrance Counter I Customer uses RFID card at each counter Billing Counter Counter II Customer gives RFID at billing counter and bill is generated Significant reduction in time Source: Primary interviews, Booz & Company analysis 12345 Enablers 1 2 3 4
    • Booz & Company Prepared for Retail Leadership Summit - 2013 7 Successful innovations need not only be ‘new & path breaking ideas’ but can be an adopted model tailored to meet specific market needs2 A simple, well executed idea can lead to successful innovation; large investments are not always necessary1 There are four key lessons that these innovators offer us, bringing forth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 GreenDust adapted an innovation in reverse logistics to offer high quality branded refurbished products at 25-30% lower cost 8 Source: Retailer Interviews; Online Research, Booz & Company analysis Opportunity 4-6% stock returns from CDIT OEMs Low priority area for OEMs or Retailers Stock currently sold to scrap yard dealers Opportunity valued at ~ INR 75,000 Cr. GreenDust’s Innovation on Reverse Logistics Extensive knowledge of global reverse logistics Propriety reverse logistics technology platform Reduced franchisee set up cost & pan-India service Enablers Impact Products at 25-30% discount with warranty 50% sales from Tier 2/3 cities 60% repeat buyers Achieved 9x growth in last 2 years, revenues of over Rs. 500 Cr Consumer Value Added Center Warehouse Online Sales Franchisee Customer Returned Product Refurbished Product OEM sells to GreenDust through Revenue Sharing and Outright Purchase Models at 40%-80% discounts Equal sales volumes through franchisee stores and online store 1 2 3 4 OEM Retailer
    • Booz & Company Prepared for Retail Leadership Summit - 2013 9 Successful innovations need not only be ‘new & path breaking ideas’ but can be an adopted model tailored to meet specific market needs2 A simple, well executed idea can lead to successful innovation; large investments are not always necessary1 Supply-side innovations can lead to as high a consumer impact as Demand-side innovations3 There are four key lessons that these innovators offer us, bringing forth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Fabindia’s supplier co-ownership model, though focused on back- end, enabled growth in rural, ethnic & handloom products 10 *Fabindia is moving to a model where suppliers will be given ownership in the Fabindia company rather than COCs Source: Secondary Research, Company sources, Booz & Company analysis Impact on Industry & Fabindia 1 2 3 4 Strong Brand Loyalty • Enables financial independence of artisans • 80,000 artisans are part of 17 COCs • Fabindia limited its stake to 49% in COC with suppliers holding at least 26%* Employed by Fabindia Self-employed Fabindia’s Innovation: Co-ownership Model Artisans Craftsmen WeaversWeaversWeaversCraftsmenCraftsmenArtisansArtisans Designers Fab India Product Selection Committee Community Owned Company (COC) Business Experts Creation of Ethnic Segment Premium Retail Experience 0% DISCOUNT
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Kovai Pazhamudir has achieved success in the challenging ‘fresh’ segment through strong sourcing & lean store operations Opportunity Profitability in Fruits & Vegetables a challenge for organized retailers: Preference for local sellers Organized Retail stores used mainly as top-up Loss leader at most major retailers but drives footfalls Impact Preferred destination for consumers 38+ stores and growing* High average monthly sales Higher gross margin of ~20% compared to other players (11- 15%) Innovation in Sourcing and Store Operations *A total of 80+ stores can be found in Tamil Nadu modeled on the Kovai Pazhamudir Nilayam format managed by different groups Source: Primary interviews, Booz & Company analysis Sourcing: Local/ regional Mandis and import exotic varieties Distribution: From collection centre (Coimbatore) to Kovai stores all over Tamil Nadu Store Operations: Stand alone stores of avg. size 2500 sq. ft. – Staff lives at store site in dormitories Product: Wide assortment of 125 SKUs of quality F&V – Serve fresh fruit chat/ juice to utilize inventory, reduce wastage Local Mandi + Clear understanding of target consumers Focus on F&V segment, strong sourcing and lean retail Capabilities & Enablers Kovai StoresExotic F&V Collection Centre 1 2 3 4 11
    • Booz & Company Prepared for Retail Leadership Summit - 2013 12 Successful innovations need not only be ‘new & path breaking ideas’ but can be an adopted model tailored to meet specific market needs2 A simple, well executed idea can lead to successful innovation; large investments are not always necessary1 Supply-side innovations can lead to as high a consumer impact as Demand-side innovations3 Innovations need to evolve and keep themselves relevant to continuously deliver value; it is not a ‘one-time’ play4 There are four key lessons that these innovators offer us, bringing forth fresh perspectives on innovation in Indian Retail Key Lessons that India’s Retail Innovations Offer Source: Booz & Company Analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Big Bazaar’s success can be attributed to continuous innovation from the original bazaar format to the current evolved formats 13 Source: Primary Interviews, Booz & Company analysis 1 2 3 4 I am paying for their fancy lights and salespeople These English speaking salespeople are intimidating It is a big store; it must be exclusive Air conditioning means it is expensive Consumer Perception in the mid-90’s Evolution of Formats Big Bazaar Family Center Big Bazaar Express Original Big Bazaar Store Food Bazaar Fashion at Big Bazaar Original Big Bazaar Format Smaller Aisles Loose Products Products in Bins Granite Floors Deals
    • Booz & Company Prepared for Retail Leadership Summit - 2013 The following takeaways emerge from the 40 innovation cases 14 Source: Booz & Company analysis Key Takeaways Clear need to innovate, given various challenges for retailers and strong co-relation between innovation and business success Apparel leads in innovation; Food & Grocery and Home are under indexed High number of cases focused on marketing / promotions; fewer examples of business model, product or supply chain innovation Rich discussions on “what was the innovation”, however “how the innovation was delivered” not as clearly understood 40 Impactful Innovations in Indian Retail Pharmacy & Wellness Books & Music Food Services Online Retailing Food & Grocery Apparel & Dept. Store Footwear Electronics & Durables Others (Home+ Rural) Jewellery & Watches Incremental Innovation Substantial Innovation Break-Through Innovation Level of DisruptivenessLOW HIGH Sectors 11 22 7Total Total 10 6 7 4 3 3 1 3 1 2
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Successful Innovations in Indian Retail – How smart ideas translate into profitable business Marco Kesteloo Senior Partner, Head – Global Retail Practice Booz & Company Mumbai, February 2013 Executive Summary
    • Booz & Company Prepared for Retail Leadership Summit - 2013 20082004200220001980 1998199619941960 2006 Online shopping Premium PL Supermarket Online non-food sales Non-food only store Barcode scanning Budget PL Compact Hypermarket Self scanning Express stores Self service store The retail sector has seen many innovations across the globe, both in value chain and commercial functions Source: Company websites Bubble size represent stretch of innovation Substantial Incremental Bubble color represent scope of innovation Commercial Value Chain 16 Food Retail Innovations Europe, 1945 – 2010
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Such innovations have had significant business impact; with new players often over taking the incumbents Gap $(Indexed) Zara $(Indexed) Sales / Sq. Foot Sales / Sq. Foot ~15% Price advantage COGS Margin 14 48 10 77 25 25 20 13 840 940 Labor Above Store Card Fees Returns 958 800 0 Laid down cost at DC Shipping Real Estate 820 $/UNIT 960 920 900 880 860 790 2 5 898 790 23 17 Electronics Retailer vs. Online Player Cost to Sell: Typical Flat Screen TV Specialty Retailer vs. Fast Fashion Player Gross Margin Productivity: Sales per sq. feet 20% cost disadvantage Amazon Best Buy Zara’s margin 56% greater than Gap 17 Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Booz & Co’s research shows that innovation & success are co- related; however higher spend does not ensure innovation success 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 y = 0.032x + 1.2914 R² = 0.0114 -5 0 5 0 1 2 3 4 5 6 7 Indexed Sales Growth Indexed R&D / Sales Example analysis showing link between R&D and financial performance High Success Innovation High Low Low 18 Example analysis showing link between innovation and success High
    • Booz & Company Prepared for Retail Leadership Summit - 2013 The process & sources for idea generation are partly determined by the strategic choice of being a “first mover” or “follower” 19 Examples India examples: FabIndia, Big Bazaar Intl examples: IKEA, Amazon, Zara Examples India examples: GreenDust, COD Intl examples: Hypermarket (various) First Mover Idea Generation Scope Follower Idea Generation Scope Customers Compe -titors Employees Research -ers Etc. Compe -titors Other Markets Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Our research and discussions with Indian retailers have highlighted 5 key “hows” to make innovation successful “WHAT” “Execute well on small ideas while evaluating the big bets” “An Adapt Model works as well as new and path breaking ideas” “Supply focused efforts can also deliver consumer and business impact” “Continuous and evolving innovation is key to sustain value” “HOW” • Leadership and Resourcing • Culture • Capabilities • Direct Consumer Insights • Process Discipline 1 2 3 4 5 20 Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Leadership and Resourcing: Innovation needs to be a C-Level agenda to ensure adequate sponsorship and resourcing Source: Oxford Institute of Retail Management, Booz & Company Predictability of Outcome Level of Disruptiveness Innovation Matrix LowHigh Low High Incremental Innovation Substantial Innovation Break away Innovation Leadership and Resourcing Visible commitment and explicit support from senior leadership Adequate and tailored resourcing and also capability plays a key role in driving success: – Breakaway Innovations: away from the “green” operation – Incremental Innovations: close to operationals for speed & applicability Examples: – Big Bazaar: Visionary leadership of Mr. Biyani to push the boundaries, reinvent the wheel and take risks – On-line food groceries – addressing last mile economics; Pick-up-Point 1 21
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Culture: Aligning organization culture and innovation strategy can help deliver superior results Gross Profit (5 year CAGRA) by Cultural Alignment 49 44 42 50 45 40 35 30 45 High AlignmentModerate AlignmentLow Alignment Cultural Alignment to Innovation (A) Normalized 5 year CAGR for gross profit and enterprise value were considered for analysis Source: strategy + business 2011: Why Culture is Key; Booz & Company analysis Cultural Attributes Strong identification with customers Culture of collaboration across geography / functions Openness to ideas from external sources Culture fostering experimenting and risk taking India example: Big Bazaar o Ceremony to appoint ‘store kartas’ o Mrs. Iyer Audit International example: pursuit of low cost in e.g. German discount 2 22
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Capabilities: Retailers will have to identify / build capabilities that enable them to deliver on innovation aspirations Customer Analytics Merchandising Excellence Service Excellence Operational Excellence Capability Set for Example UK Retailers Customer Service Operations and In-store Execution Demand Planning & Inventory Management Supplier Development and Sourcing Category Management Consumer & Market Insights Planning, Merchandising & Marketing Strategy Format Differentiation Private Label Execution 3 23 Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Direct Consumer Interaction: Listening to customers helps develop innovations that have maximum impact 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 15% 18% 19% 22% 31% 42% 50%40% Recoded Mean Technology Road Mapping All other categories (<15% each) 30%0% 20%10% Idea Work-Out Sessions Feedback from Sales & Customer Support Traditional Market Research Direct Customer Observation Sources of Innovation (1) 4 Examples India Example: Big Bazaar – Understanding consumer trends via. kitchen audits, market visits, etc. – Mapping consumer usage patterns to tailor product offering e.g. bundled tea time offering – Product assortment based on local preferences e.g. Private label ‘Ektaa’ International example: Self service invented in IKEA in ’70s 24
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Process Discipline: A structured and phased process that leads from innovation strategy to implementation is essential Innovation Strategy Innovation Portfolio Management Innovation Project Execution Integrate in Operations Align innovation directly with business vision – Speed: first mover / follower – Scope: commercial innovation / value chain innovation – Stretch: incremental / radical innovation Manage portfolio – Idea generation – Selection process – Innovation timing Achieve executing excellence Manage hand over to operations Implement innovation Manage incremental innovation Results in a clear innovation strategy Results in a strong and balanced portfolio of projects Results in flawless execution and handover Results in capturing value Defining tomorrow Winning tomorrow Winning today 5 25 Source: Booz & Company analysis
    • Booz & Company Prepared for Retail Leadership Summit - 2013 Finally, we believe retailers in India should consider the following key questions related to innovation in their business What role can innovation play in driving success and creating value in my business? 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 What is the right balance between a formal and informal process (the “hows”) for my business? What investments would be required? What capabilities to leverage / build? Internal and / or external expertise? 1 2 3 4 26 Source: Booz & Company analysis Key Questions on Innovation for Retailers in India
    • Booz & Company Prepared for Retail Leadership Summit - 2013 27 RAGHAV GUPTA Principal Booz & Company (India) Pvt. Ltd. 11th Floor, Building 9B DLF Cyber City Gurgaon 122 002 Haryana, India Tel: +91 (124) 499 8700 Fax: +91 (124) 499 8701 Mobile: +91 99585 22993 raghav.gupta@booz.com Marco Kesteloo Vice President Booz & Company Apollolaan 151 1077 AR Amsterdam The Netherlands Tel.: +31 20 504 1900 Fax: +31 20 504 1990 Mobile: +31-20-504-1942 marco.kesteloo@booz.com