Ikea Invades India - Market Research report on entry strategy in India

1. IKEA INVADES INDIA Market Research Report on Entry Strategy manigarg21@gmail.com Maneesh Garg

2. About the company  IKEA was founded in 1943 when 17-year-old Ingvar Kamprad decided to start a local catalog company using some money his father had given him  Initially, the company sold basic household goods at discount prices  Today, the IKEA has more than 300 stores in more than 35 countries and more than 130,000 co-workers

3. About the company Timeline 1943- Ingvar Kamprad registers his firm IKEA, (Ingvar Kamprad Elmtaryd Agunnaryd) on July 28 1948- Stylish, modern furniture is introduced into the IKEA product range. 1951- The very first IKEA catalogue is published.Then, as now, free of charge. 1953- Ingvar Kamprad opens his first furniture showroom in Älmhult, Sweden. 1955- IKEA starts to design its own furniture. The commitment to provide functional, well-designed home furnishings at prices so low that as many people as possible will be able to afford them begins. 1958- The world's first IKEA store opens in Älmhult, Sweden. IKEA designer Gillis Lundgren designs the TORE series, which was first displayed in rooms for children. 1959- Self-assembly furniture begins and gradually develops as part of the IKEA Concept. Flat packages = reduced transport costs = lower prices. 1963- The first IKEA store outside Sweden is opened in Oslo (Nesbru), Norway. 1964- A price/quality comparison published in "Allt I Hemmet" magazine confirms that IKEA products are of good function and design at a low price, and does wonders for IKEA sales. 1965- The largest IKEA store is opened in Kungens Kurva, Stockholm. The success of the opening led to the idea of opening up the warehouse and letting people serve themselves; an important part of the IKEA Concept was born. 1973- The first IKEA store outside of Scandinavia opens in Spreitenbach, Switzerland 1978- 1997- Time of product innovations and experiments

4. About the company Product Innovation 1978- IKEA brings storage shelves into the living room, 1980- LACK, another innovative product, is introduced. This low-priced, functional coffee table is made from a strong, light material that is normally used for interior doors. 1980- The KLIPPAN sofa with removable, washable covers is introduced. Children and parents quickly start discovering the practical benefits. 1982- The PATRULL series, a line of children's safety products is launched, highlighting the IKEA commitment to safety at home. 1984- The STOCKHOLM range of furnishings appears. It had everything expected of classic high quality, except a high price. STOCKHOLM received the prestigious Excellent Swedish Design award. 1985- A supermarket trolley factory helped IKEA with the frame for the MOMENT sofa. The innovative design won a prize. 1995- The IKEA PS series is first presented. This series allows designers free reign to shape the latest creations. The low prices, however, are set with a firm hand. 1996- Some things from the past can still be great. This is the reasoning when IKEA launches products based on 18th century Scandinavian furnishings. 1997- For the most important people in the world, Children's IKEA is launched. A range specially developed for children.

5. About the company The IKEA Concept The IKEA Concept is based on  offering a wide range of well designed, functional home furnishing products  at prices so low that as many people as possible will be able to afford them The IKEA Concept guides the way IKEA products are designed, manufactured, transported, sold and assembled. All of these factors contribute to transforming the IKEA Concept into a reality

6. About the company The IKEA Store  Visitors are encouraged to take their time and get comfortable with IKEA home furnishing solutions and products in realistic room settings and real-life homes.  To sit, lie down,  open and close drawers  To compare styles  Compare prices  And imagine the possibilities!  The IKEA Concept relies on customers to choose, collect, transport and assemble IKEA products themselves  All products in the store are supported by price and product information that is clearly marked on large, easy-to-read tags  This makes it easy for visitors to serve themselves  Knowledgeable co-workers are also available to customers when needed

7. About the company Shopping Experience at IKEA Inside the IKEA store, there are hundreds of inspirational displays - from realistic room settings to reallife homes, all with product combinations that provide fresh ideas and know-how on contemporary interior design.  There are up to 10,000 different products offered in the IKEA store. There are many new products introduced throughout the year in the IKEA store. This gives visitors huge possibilities to find solutions that best suit their needs.  While exploring the store, visitors may be inspired to pick up a few extra products. The IKEA store is laid out so they will not only find what they came for, but also be inspired by unexpected ideas and low-priced products as well.  The IKEA store provides everything that is needed for convenient shopping: pencils, notepads, tape measures, store guides, IKEA catalogues, shopping bags, strollers and trolleys. The only thing that customers need to bring is an empty car to take purchases home. Or they can use the low-priced IKEA home delivery service if that is easier.  And no one has to shop on an empty stomach: IKEA stores have a restaurant that serves unique Swedish dishes along with local favourites. It is a comfortable place to relax, look through the IKEA catalogue and think about what to buy

8. About the company IKEA Catalogue It includes  Product Range  Product Information in detail  Product price The IKEA catalogue has been a vital part of IKEA retailing since the first edition was published in Sweden in 1951. Today, more than 100 million households around the world receive the IKEA catalogue, every year, free of charge

9. About the company IKEA Facts Turnover Store visits IKEA Catalogue IKEA Stores

10. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis POLITICAL FACTORS      Political instability: Indian politics is cacophonous and fractious with sharp social inequities, a corrupt and inefficient bureaucracy, and poor accountability of politicians Instability- shaky coalition governments 11 general elections 9 prime ministers during the last two decade Economic reforms are slow and inadequate

11. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis In 2011 – FDI in India- US$ 25 billion FDI in China – US$ 228 billion (2012 report of UNCTAD)

12. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis ECONOMICAL FACTORS India’s macroeconomic factors: GDP and its components: Real GDP growth – 6.9% in q2 of FY2011-12 It was 8% in year 2010

13. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis India’s export remained strong during 2011 Inflation decline to below 5% in November 2011 from a high 11.6% in March

14. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis Current Industrial Growth Rate in India on Year-on-Year Basis: April 2012 to June 2012: -0.10% Yearly April 2011 to March 2012: 2.80% Yearly April 2010 to March 2011: 8.16% Yearly April 2009 to March 2010: 5.28% Yearly April 2008 to March 2009: 2.52% Yearly It was 9.45% in June 2011

15. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis  Per capita income – Rs. 80,000 p.a.  The service sector remain buoyant and growing at the rate of 9.6%  Land resource constraint (real states rising) 5 reasons why India excites  The aggressively young population – 54% of the population is blow the age of 25  Spends patterns of splurge in the TOP and MOP  The investment mindset, and the change in life style  The poised Next-gen ahead – high education level  India’s metros as a magnet city

16. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis SOCIAL FACTORS  Diverse society  Different social beliefs and values   Traditional mind set Social inequalities

17. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis TECHNOLOGICAL FACTORS  Poor infrastructure - Electricity, Roads, transportation  Poor supply chain  Resource challenge : Less skilled manpower  There are some underexploited or unexploited resources

18. Environmental Analysis of the Indian Furniture Industry PESTEL Analysis ENVIRONMENTAL & LEGAL FACTORS  Commercial Law and Government regulations: The Guidelines of the Ministry of Industry effectively put the Indian companies in a position to dictate terms to their joint venture partners and licensors of technology and trademarks.( amendment 1999)  Labor Laws  Tax and Tariff  51% FDI in retail allowed Domestic market ruled by local player 86% market share- Unorganized sector  Too many government touch points  State- Centre conflicts  Lack of transparency & red tapes  Time Gap between the formation and implementation of policies

19. Market Outlook  With a middle class population of over 400 million and purchasing power on the rise, the Indian furniture retail market has been classified by CSIL Milano as one of the 14 largest furniture markets in the world.  The Indian furniture market is worth US$8 billion and is growing at 30% compound annual growth rate in the organized sector which represents only 15% of the whole industry. (worldfurnitureonline.com)  The branded furniture market comprising of residential and commercial furniture, is valued at US$1.3 billion in 2008 and expected to reach US$3.7 billion in 2012. (KPMG report)  Currently there are only 10,500 furniture importers in the organized sector and they mainly import from Italy, Germany, Spain and Malaysia. (EconomyWatch)  Domestic demand is largely satisfied by local production. Nonetheless, as the potential demand for foreign products is huge, imports are increasing at a very fast pace. (worldfurnitureonline.com)

20. Decision Making Point 1  Are we going to do business in India?  Yes High growth rate 5.9% High purchasing power Well develop cities Aggressively young population Change in life style High education level  What is the scope of furniture industry in India.

21. Domestic Market Facts about furniture industry in India  The Indian Furniture market is worth about US$ 8 billion  Constitutes 0.5% of the total GDP  Employs 300,000 people  Highly unorganized – only about 15% in organized sector  Organized sector growing at 30% CAGR  The Organized Sector includes domestic players as well as imports  There are about 5000 firms in the domestic organized sector, and nearly 10500 importers of furniture  Products are classified based on material used, and consumer segments  Wooden Home furniture is the biggest segment

22. Domestic Market Facts about furniture industry in India  Key states for wood furniture: Gujarat, UP, Punjab, Kerala, Andhra, West Bengal  Household furniture designs are region-specific  Increasing trend of imported furniture in affluent households  Imports worth about US$ 150 million, growing at 60% CAGR  Imports are a rapidly growing segment, catering to urban, affluent households  Key countries imported from: Italy Germany Spain Malaysia

23. Industry Segments The Indian furniture industry is mainly segmented into:  Residential – a major contribution from high-spending middle class population  Office – expanding growth in real estate and office construction  Contract – driven by growing hotel developments and tourism demand

24. “Innovation in the industry” Traditional furniture, modular kitchens and furniture made of recycled wood are also gaining popularity in Indian market Traditional furniture making a comeback Modular Kitchens emerging as new growth segments Recycled wood a new source of raw material

25. Innovation continued… MDF a substitute for conventiona l wood and plywood

26. SWOT Analysis of the Indian Furniture Industry Strengths:  Increasing demand in modern, clean, minimalist designs  Highly educated, skilled, young, capable & dynamic human resources  Established branding, tradition  Worldly-renowned outsourcing hub  Diversity vs. Ideas (Innovation, Integration)  Big democracy: big market & free media

27. SWOT Analysis of the Indian Furniture Industry Weakness:  Inefficient stock control; outdated system  Lack of trust in external organizations  Fear of sharing knowledge & taking risks  Lack of effective & execution framework  Decreasing demand in traditional furniture  Industry has slow absorption of innovation & change  Lack of quality awareness

28. SWOT Analysis of the Indian Furniture Industry Opportunity:  Big potential market in Design sector & emerging new market segment in Services  Lower labor costs in outsourcing  Research & Development capability  More efficient production method  Hybrid solutions– balancing & blending  Need modernization of infrastructure  Very little competition in modern furniture design

29. SWOT Analysis of the Indian Furniture Industry Threats:  Large fluctuations in stock control (new production method)  Inter-company collaboration is unknown  Rising cost of imported goods  Pioneering uncertainties  Clashes in Diversity vs. Imbalance  Fast change Internet (IT), new inventions (Technology, Innovations)

30. Why will IKEA succeed in India?  1. IKEA offers Everything under one roof From its trademark foldable, pre fabricated, light furniture, to household items to stationery, to an IKEA food store to the linen section to home accessories to kitchenware to decorative items, IKEA has it all  2.IKEA’s pre fabricated furniture and goods represent modern Indian lifestyles More and more working Indians living in suburban metros want shopping hubs that offer quick service, a reliable brand name, wide options under one roof and quick delivery  3.IKEA is a familiar brand name amongst urban Indians IKEA along with Starbucks and Walmart, has been made familiar to Indians because they keep appearing in the media due to their constantly changing plans of entering the Indian marketplace  4.IKEA’s CSR operations in India IKEA supports UNICEF’s water and sanitation program and funds initiatives in the carpet and cotton regions in the country. In the coming years too, IKEA plans to spend in areas of women empowerment, education, health awareness and industry-based programs that aims to benefit about a 100 million women and children

31. Decision Making Point 2 To enter into a Joint venture AV. BIRLA Group  Not in furniture business  Trusted Name In India  Significant Presence  Old Business House  Other retailers: Pantaloon retails, K Raheja group  Tata Group- Trent , Rpg Group, Land mark Group, Piramal group  Subhiksha, Bharti Wal-Mart, Reliance

32. Competitor Analysis  Competitive Advantage:  Differentiation- Concept of Fashionable & Stylish furniture not currently present in India  High level of customization  Cost Leadership  85% Unorganized Sector

33. Major Players

34. Major Players

35. Major Players

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37. Major Players

38. Furniture Retail chains

39. Furniture Retail chains

40. Other Big Giants in furniture retailing 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Pantaloon Shoppers’Stop Vishal Retail Reliance Tata group Godrej & Boyce Manufacturing Co Ltd BP Ergo Feather Lite, Haworth Yantra Renaissance Millenium Lifestyles Kian Tangent Furniturewala PSL Modular Furniture among others

41. Ranking of India as an Investment spot in comparison to South Asia Ease of doing business Starting a business Dealing with construction permits Getting electricity Registering property Maldives Afghanistan Maldives Sri Lanka Nepal Sri Lanka Sri Lanka Bangladesh INDIA Bhutan Pakistan Maldives Pakistan Nepal INDIA Nepal Bhutan Sri Lanka Afghanistan Pakistan Bangladesh Bangladesh Bhutan Maldives Maldives INDIA Pakistan Nepal Bhutan Nepal Afghanistan Pakistan Afghanistan Afghanistan INDIA INDIA Bangladesh Bangladesh Sri Lanka

42. Ranking of India as an Investment spot in comparison to South Asia Getting Credit Protecting Investors Paying Taxes Trading across Borders Enforcing Contracts Resolving insolvency INDIA Bangladesh Maldives Sri Lanka Bhutan Maldives Nepal & Pakistan Pakistan Afghanistan Pakistan Maldives Sri Lanka Sri Lanka Bhutan INDIA Sri Lanka Pakistan Nepal Bangladesh Nepal Afghanistan Bangladesh Maldives Pakistan Bangladesh INDIA Nepal Afghanistan Nepal INDIA Sri Lanka Bangladesh Nepal Maldives Bhutan Afghanistan Bhutan Pakistan Bhutan Bangladesh INDIA Maldives Afghanistan Sri Lanka Afghanistan INDIA Bhutan

43. Indian Consumption Behavior wrt furniture  Value for Money  Durability is important  High Involvement Purchase Reasons to buy furniture When need arises Child grows up Wedding Child Birth Transfer to a new city/house

44. Consumption Behaviour wrt furniture High Value Furniture Once in 15-20 years During occasions Change frequently • Durability more important than design • Price conscious, not brand conscious • Buy when need be • Wedding- Quality extremely important • For children – Birth/when they grow up • Change every 5 years or less • Care a lot about being trendy and in tune with fashion • Transferable Jobs • Status Symbol – Business Men/ Black Money • Price & durability not an issue • Use & Throw Mentality

45. Consumption Behaviour wrt furniture      Dressing Table Tables- Coffee Tables/Side Tables/Center Tables Wall Units Storage Units Lighting Buying Behaviour:     Furniture Shopping is a family affair No Research before purchasing Quality important People go to the shop, feel the product and buy based on quality and instinct Low Value Furniture Purchased much more frequently

46. Segmentation In India, IKEA should segment it’s customers, based on the below parameters:  Based on geography:  Urban Population  Based on income stream:  Upper Middle Class (open to experimentation)  Based on lifestyle:  People who shift houses frequently  People who are in transferable jobs

47. Target Group After proper segmentation is done, customers can be targeted as below:  People running their own business  Professionals employed in the IT industry  Young Couples- newly married/about to get married  Couples who are expecting a child  Youngsters who love to design their room and crave for individuality IKEA could also deliver its products to:  Colleges/Hostels  Start Ups

48. Positioning  IKEA should position itself on:  Fashion and Style  Furniture for the youth  Designer/Contemporary Brand  Customized/ Unique Furniture  Initial Positioning can focus on Affordable Price, but only for a short period of time

49. 4P Analysis Product Trends come and go, but combining a low price with good design and function never goes out of style Profile:  IKEA caters to the need of people having limited budgets and limited space in their homes  The IKEA product range meets these needs by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them  The IKEA range includes products for every part of the home  IKEA products have the label "Design and Quality, IKEA of Sweden“

50. 4P Analysis Product Design: While most retailers use design to justify a higher price, IKEA designers work in exactly the opposite way. Instead they use design to secure the lowest possible price  IKEA designers design every IKEA product starting with a functional need and a price  Then they use their vast knowledge of innovative, low-cost manufacturing processes to create functional products, often coordinated in style  Then large volumes are purchased to push prices down even further Most IKEA products are also designed to be transported in flat packs and assembled at the customer's home. This lowers the price by minimizing transportation and storage costs In this way, the IKEA Concept uses design to ensure that IKEA products can be purchased and enjoyed by as many people as possible

51. 4P Analysis Price Low Price Strategy Low price is a prerequisite for the IKEA Concept to realize the IKEA vision - "to create a better everyday life for the many people". As the IKEA Concept aims to serve "the many people", the IKEA product range needs extremely low price levels IKEA designers do their part to keep prices low by using production capabilities from other areas in unique and previously unimagined ways :  like having a shirt factory produce furniture upholstery  or using leftover materials from the production of one product to create an entirely new one

52. 4P Analysis Price  After deciding product priority , a product developer would set the product’s target retail price using what the company referred to as “the matrix”  The matrix consisted of three basic price ranges and four basic styles  Within each price range, the company would survey the competition to establish a benchmark and then set its own price point 30% to 50% lower than those of its rivals IKEA’s Price Matrix

53. 4P Analysis Price  There was a separate matrix for each product type IKEA sold—that is, a price matrix for sofas, a price matrix for kitchen tables, and so on  In addition to being used to set retail prices, the matrix was used to identify gaps in the company’s product lineup  By plotting the company’s current product offerings on the grid and looking for empty spaces, product managers could readily identify market opportunities

54. 4P Analysis Place  Metro cities- Delhi NCR, Mumbai, Chennai, Kolkata, Bangalore  Tier two cites- Hyderabad, Ahmadabad, Pune, Surat, Jaipur

55. 4P Analysis Promotion  In India, IKEA will promote itself as a fashionable brand for homes  Media Channels covered will be: TVC/Print/Digital  Pull strategy will be executed so that the customers themselves pull out the product from the shop

56. Marketing Strategy • Furniture for your house • New Designs • Makes the house look trendy and fashionable • Peps up self esteem, since its an international brand • IKEA should therefore sell fashion and style

57. Marketing Strategy Brand Personality  Trendy  Stylish  Contemporary  Young  Experimental

58. Marketing Strategy Branding Idea Consumer Desire Brand Offering Wants home interior to be stylish & unique Customized furniture in a wide variety of designs IDEA Fashionable Homes

59. Marketing Strategy Media Plan PRINT Put up on Bus Stops and Metro Station  Magazines- Living etc, India Today Home  Tie ups with fashion magazines- Vogue, Cosmopolitan, Femina, GQ  Newspaper Supplements- TOI/HT TVC  Star Movies  HBO  Sony – Byah Humari Bahu Ka/ Bade ache lagte hain Colors – Balika Vadhu/Big Boss  Travel and Living  MTV & Channel V DIGITAL  YouTube  Twitter  Facebook  Blogs

60. Distribution Channel for IKEA in India Supplier (1 or more than factory) Distribution Centre (Warehouse) Store Customer

61. Budgeting  Budget- 1.27 cr /week. Tv shows Trp Time Slot Crime Petrol 4.06 10sec Did little champs 4.7 Diya Bati aur Ham Price (12-7 pm), mon-fri 5.3 Bade ache lagte hai 4.8 Metro advertisement Slot Slot 54000 150 sat-sun 1.8 lakh 20 reach total 75 million 11700000 1000000

62. Possible Roadblocks Ahead  Huge competition from local players  Procurement and transportation might be an issue due to poor logistics  Self-Assembly and self service concepts might not be accepted by Indian customers  Indian customers are not used to driving to the city outskirts for their shopping

63. THANK YOU