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KiranaNow - Strategic Company Analysis


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The 2017 Exit Exam for Dual Degree students of the Master in Management at IE Business School consisted of a strategic company analysis of KiranaNow, an Amazon online subsidiary launched as a hyperlocal platform for B2C grocery delivery in India. My group developed a written report as well as the following presentation, which provides an analysis of the Indian online grocery market and recommends a future strategy for KiranaNow. The vast potential of the Indian market, which is set to grow extensively and is yet to experience the grand transition to online retail, urged Amazon to venture into the online grocery market and gain a first-mover advantage. The use of technical, strategical and industrial analyses, including PESTEL, SWOT and Porter Five Forces will provide the basis to suggest three potential strategies for KiranaNow’s success in the future. Of which the best alternative is to cease business with Kirana stores and venture through AmazonNow smartphone application into partnerships with continuously hyperlocal, yet more established food retailers. The strategy recommendation includes a revised business model featuring financial, operational and marketing forecasts as well as implementation strategies. During the time, the government blockade of foreign direct investment limited Amazon from launching an inventory-led B2C model, yet forecasts strongly implied that this ban would be lifted. As soon as this takes effect, we propose Amazon to venture mission towards such model, similar to Amazon Fresh in the United States, in which Amazon gains full control of operations and profit.

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KiranaNow - Strategic Company Analysis

  1. 1. KiranaNow Dual Degree Exit Exam 2017 Master in Management IE Business School
  2. 2. Amazon’s KiranaNow 2013 Amazon enters Indian market with only 2 Categories: Books & Movies 2014 expansion of other categories 2015 Pilot of KiranaNow  Hyperlocal marketplace solution for Kirana stores  Small local “mom-and-pop” stores  Express or Scheduled Delivery of Kirana products
  4. 4. External Situation Analysis through PESTEL & Porter’s 5 Forces
  5. 5. CONTEXT Political Economical Social Technological Environmental Legal PESTEL
  6. 6. 1 2 3 45 PORTER’S 5 Forces Threat of new entrants, bargaining power suppliers & buyers, SUBSTITUTES, rivalry among competitors
  7. 7. 1 2 3 45 Threat of New Entrants - High Endogenous entry barrier: Highly concentrated market with strong brands Low entry barriers in marketplace model: low initial investment Highly attractive market: Exponential annual growth of market and customer base
  8. 8. 1 2 3 45 Bargaining Power of Suppliers - Moderate Small commission on already thin margins Strong loyal customer base with existing delivery option Benefit from online market integration
  9. 9. 1 2 3 45 Bargaining Power of Buyers - High Low switching costs Undifferentiated products Loyal relationships with Kiranas – negotiation / credit / promotion
  10. 10. 1 2 3 4 Threat of Substitutes - High Direct shopping at Kirana store Large supermarket chains with competitive pricing Shoppings done by maids / Eating at restaurants 5
  11. 11. 1 2 3 45 Rivalry Among Competitors – Moderate/ High Several large players with early mover advantage High threat of new entrants Undifferentiated offering / increasing customer demand
  12. 12. Internal Situation Analysis through SWOT Analysis and Problem Identification
  13. 13. Strengths Weaknesses Opportunities Threats • Leveraging Amazon’s resources and capabilities • Convenient cancellation and delivery policies • No distribution centers & lower costs • Economies of scale • Competitive pricing model • Funding backup in case of price war • Strong brand image • Little quality control and low quality data • Costly cancellation and return policies • Difficult to predict customer behaviour • Inflexible payment options in a cash-dominated country (90% of transactions cash and 50% of population own bank account) • Network of drivers, suppliers and buyers needs time to be established and sustainable SWOT • Kirana stores are niche segment • Growing phone & internet penetration • Increasing acceptance of digital buying • Technology push, modernizing Kiranas • Growth in online grocery shopping • Increasing disposable income, rising GDP • First-mover advantage: achieve high market penetration • Change in regulations to allow FDI in inventory based models • Low technological penetration in India • Consumer preference: offline shopping • Strategic deal between Walmart and Flipkart • Dynamic sector with frequent market entries and exits • Changes in regulations • Strong bargaining power of buyers, mainly due to very low switching costs
  14. 14. The Challenges Low Customer Demand  Consumer preference: offline shopping  Low technology adaption: customers & suppliers  Value proposition: increase convenience, flawless high-quality shopping experience, customer retention schemes. 1 Market-Based Model  FDI regulations prevent inventory-based online retail model  High delivery costs  Difficulties assuring product availability and limited product portfolio  Quality control of perishable goods difficult up to impossible to achieve 2
  15. 15. Employee Turnover  Very high attrition rates  Business model requires high number of trained staff  Negative effect on the business scalability 3 High Competition  Increasing rapidly due to low entry barriers and attractive economic, social and technological market trends  Inevestments and mergers among competition  Failure of similar ventures in the past 4 The Challenges
  16. 16. Solution Alternatives definition of 3 Possible Options
  17. 17. Change to B2B supply businesses (Kiranas, Restaurants) through inventory-based model Integrate KiranaNow in AmazonNow and establish partnerships with large supermarket chains Continue Business but adapt operations and enhance offering to better address challenges
  18. 18. Change to B2B Supply businesses (Kiranas, Restaurants) through inventory-based model Integrate KiranaNow in AmazonNow and establish partnerships with large supermarket chains but adapt operations and enhance offering to better address challenges Continue Business
  19. 19. Implementation Plan of our Recommendation
  20. 20. Two Possible Paths 1 Enter market and expand alone 2 Enter and expand by acquiring ZopNow
  21. 21. Financial Analysis Independent Expansion vs. Acquisition of ZopNow Calculation of NPV for both projects  Estimations based on PepperTap & Grofers  Expansion into 17 Cities, cost 10$m  ZopNow Acquisition price: 25$m  CAGR: 62%  Online grocery growth: 30% NPV 1: - 22$m NPV 2: 400$k Decision: Acquire ZopNow
  22. 22. Financial Analysis Independent Expansion vs. Acquisition of ZopNow Input Source CAGR Revenue share Acquisition price ($million) Merger cost ($million) Expected revenues 1 ($) Growth rate CFs 1 ($) Expected revenues 2 ($) CFs 2 ($) 0,62 2% 25 10,00 65.106,30 0,3 203.457 Online grocery market online vs. overall grocery market Rule of thumb 2-3 times raised funds Required for expansion in 10 cities Without Zopnow (20’188 orders/day); based on Grofers revenues Growth rate of retail industry Infinite growing annuity calculation NPV 1 NPV 2 -22.796.543 129.000 403.125 403.090 With Zopnow (40.000 orders/day) Infinit growing annuity calculation Revenues Burn Rate Losses Bigbasket Grofers $87,24m $ 2,22m $6m $2m 42,92 34,86 Company
  23. 23. Operations Chain After order is fulfilled, user rates experience Places order on AmazonNow application Partner store receives order digitally Picker assembles order within time given by Amazon Amazon algorithm chooses and notifies best driverDriver picks up order at partner store and delivers to user User 1 2 3 5 4 Cash payment collected if chosen 6 Automated online payment if chosen Partner receives payment minus commission 2
  24. 24. Organizational Strategy Attrition rate and high staff demand lead to increased costs for staffing and training Well trained and qualified staff is crucial for business success Incentives to increase employee motivation: corporate culture and reawarding system
  25. 25. MARKETING Value: 5-Box Positioning Model ”Kirana Now has a small product variety and doesn't promise quality or standard. The technology is unreliable and drivers are tardy ” ”I order at Kirana Now sometimes, but can’t pay with cash and I am not getting the same prices as with my local Kirana, therefore visit them directly” ”Get a large variety of high quality products delivered to your door in less than 2h at at a great value for money. Simply order and pay using our mobile app ” “Amazon’s high quality and brand products are superior, while the simple and reliable user experience makes my life easier and saves time.” “I buy all my groceries and necessaire at Kirana Now because it is the most convenient option and they have everything I need” Current Belief Current Do Desired BeliefConsumer Proposition Desired Do
  26. 26. $ PriceProduct Deliver Value: Product Price Placing, Positioning • Enhance offering • Standardize products • Better quality control • Smooth customer experience
  27. 27. $ Price Deliver Value: Product Price Placing, Positioning Product • Enhance offering • Standardize products • Better quality control • Smooth customer experience • Competitive prices across all segments • Rising willingness to pay for convenience • High quality = high price
  28. 28. Placing Promotion Deliver Value: Product Price Placing, Positioning • Easy use on mobile devices • Scheduled delivery option • Catering to flexibility needs • Expansion throughout India
  29. 29. Promotion Deliver Value: Product Price Placing, Positioning Placing • Easy use on mobile devices • Scheduled delivery option • Catering to flexibility needs • Expansion throughout India • Online and mobile targeting • SEO, PPC, email newsletters • Social media • Magazines and high frequency areas • Discount and loyalty program
  30. 30. Summary and Outlook
  31. 31. Summary Cease operations with Kiranas Leverage technology advantage and user base Potential acquisition of ZopNow Prepare for FDI approval for B2C inventory based model Partner with supermarkets through AmazonNow Immediately venture into inventory led model
  32. 32. AmazonNow Dual Degree Exit Exam 2017 Master in Management IE Business School