Agri & food retailing

Agri & Food Retailing

Retailing encompasses the business activities involved in selling goods &
services to consumers for their personal, family, or household use.
It includes every sale to the final consumer – ranging from cars to apparel to
meals at restaurants to movie tickets.
What is Retail Management?
Key issues that retailer must resolve:
How can we best serve our customer while earning a fair profit?
How can we stand out in a highly competitive environment where customers
have so many choices?
How can we grow our business while retailing a core of loyal customers?

Retail Functions in Distribution
A Typical Channel of Distribution
Manufacturer Wholesaler
Retailer
Final
consumer
Manufacturer
Brand A
Manufacturer
Brand B
Manufacturer
Brand C
Manufacturer
Brand D
Wholesaler
Wholesaler
Retailer
Brand A
customers
Brand B
customers
Brand C
customers
Brand D
customers
Retailers role in sorting process

Major type of retail stores
There is no universally accepted method of classifying retailer.
Various schemes have been proposed to categories retailers
based on
 Number of outlets
 Margin vs. turnover
 Location
 Size.
Because of overlap of classification criteria, some stores may
qualify as under two different categories.

1. General merchandise retailer: general merchandise
retailer carry a variety of product lines, with considerable
depth. Some major types of these stores include
supermarkets and hypermarkets , discount stores and
department stores.
o Super market: A supermarket is a large self service retail
store that carries a wide variety of consumer products under
one roof , such as complete line of food products , laundry
requirement, household maintenance items. In India
cooperative have managed some supermarkets for quite
sometime like super bazaar in Delhi, apna bazaar shakari
bhandar etc.

o Discount store: these stores are self service, standard
general merchandise retailers regularly offering brand name
and private brand items at low price, earn lower margins and
push for high sales turnover. The characteristics of true
discount stores include
 Selling products at discounted price
 Carry standard international , national, or store brand toi build image
 Self service stores to minimize operational costs
 Preferred store location are low rent areas.
Like best known discount store is Wal-Mart. In India almost all
retail stores offer discounts, Big Bazaar, More,. etc..

o Department store: a department store is larger retail store
organized into several departments, offering a broad verity and
depth of product lines. The product mix may include food
products, appliances, clothing, furnishing and other household
goods.
 Like Pantaloons, shoppers’ stop,
 department store only for kids is Kids Kemp.
 Fashion related department stores in India are Ebony, Globus,
pantaloons, lifestyles.

2. Specialty Stores: specialty stores carry a narrow product
mix with depth of assortment within the line.
 The emphasis is on a limited number of complimentary products
and high level of customer service
 Specialty store often sell shopping goods such as Jewelry, apparel,
computers, music systems, sporting goods.
 Like; Tanishq, Titan watches, Van Heusen, Raymond's.
3. Shopping Malls: shopping malls typically deal with several
bases and product categories and provide a large variety of
merchandise abs service. There are 96 operational malls in
India and expected to grow 158 by this current year.
 Ansal plaza (Delhi), Garuda mall (Bangalore) Sahara plaza Gurgaon
Spenser Plaza Chennai
8

4. Retail chains: a retail chain operates multiple retail outlets
under common ownership in different cities and towns.
 To some extent the purchasing function and decision making
are coordinated or centralized.
 Like Westside, Globus, Food world, McDonald's retail petrol
outlets. Etc.
9

The Evolution of Retail in India
 Retail in India has evolved to support the unique needs of our
country, given its size and complexity Haats, Mandis and Melas have
always been a part of the Indian landscape. They still continue to
be present in most parts of the country and form an essential part
of life and trade in Various areas.
 The PDS (Public Distribution System) would easily as the
single largest retail chain existing in the country. the evolution of
the PDS of Grains in India has its origin in the “rationing
system” introduced by the British during world war II
10

 The system was started in 1939 in Bombay and subsequently
extended to other cities and towns. the system was abolished
post war but however attaining independence India was forced
to reintroduce it in 1950.
 There was rapid increase in the ration shops ( being
increasingly called the Fair Price Shop or FPSs)
 The Canteen Stores Department and the Post Offices
in India are also among the largest network of outlets in the
country reaching population across the country.
11

 The Khadi & Village industries (KVIC) was also set up post
independence. The cooperative movement was again championed by the
government.
India's Largest retail Chains:
1. PDS: 463,000
2. Post offices: 160,000
3. KVIC: 7,000
4. CSD Stores:3,400
(source business world marketing White book 2005)

 In the past decade, the Indian marketplace has transformed
dramatically. However from the 1950,s to the 80,s, investment
in various industries was limited due to low purchasing power
in the hands of the consumer and the government’s policies
favoring the small scale sector.
 The first attempts at organized retailing were noticed in the
textiles sector. One of the pioneers in this field was Raymond’s
which set up stores to retail fabric.
13

 Raymond’s distribution network today comprises 20,000
retailers and over 256 exclusive showrooms in over 120 cities
of the country
 Other textile manufacturing who set up their own retail chains
wee Reliance- which set up Vimal showrooms and Garden Silk
Mills, which set up Garden Vareli showrooms.
14

The Evolution of retail in India
15
Traditional
Formats
Itinerant Salesman
Haats
Melas
Mandis etc.
Established
formats
Kirana shops
Convenience/
department stores
PDS/
fair price shops
Pan/ Beedi shops
Emerging
Formats
Exclusive retail outlets
Hypermarket
Internal retail
Malls / Specialty Malls
Multiplexes
Fast food outlets
Service galleries

Drivers of Retail change in India
major drivers :
1. Changing Income Profiles: Steady economic growth fuelled
the increase in disposable income in India. The average
middle class family's disposable income rose by more than
20% between 1999-2003.
2. Diminishing difference between Rural and urban India: Rural
India accounts for over 75% of India population and this in
itself offers a tremendous opportunity for generating volume
driven growth. Tax benefit. In year 2002-03 LIC sold 50% of
its policies in rural India. Same BSNL also sold its 50%
connection in small towns .
16

3. Changes in Consumption patterns: Occupational changes and
expansion of media have caused a significant change in the
way the consumer lives and spends his money.
o The changes in income brought about changes in the
aspirations and the spending patterns of the consumers. the
buying basket of the consumer changed
4. The emergence of a young Earning India : Nearly 70% of the
Indian population is below the age of 34. taking advantages of
employment opportunity in the booming service sector these
young Indians are redefining service and consumption patterns
17

Prominent sector in Indian retail
1. Clothing, textiles and fashion Accessories:
2. Food & food Services:
3. Consumer Durables:
4. Books & Music:
Other emerging sectors
5. Jewellery retail
6. Footwear retail
7. Time Wear Retail
8. Fuel Retail/ petro retail
18

SWOT Analysis of Indian Retail
Industry
Strengths………….
• Demographic favor
• Rising disposable income
• Increase in number of people in earner
category.
• Urbanization
• Shopping convenience
• Low labor cost of skilled ones.
• Changing consumer habits and lifestyles.
• Plastic card revolution.
• Greater availability of quality retail space.

SWOT Analysis
Weakness……..
• Policy related issues
• - lack of industry status for retail.
• - numerous licence,permits and registration
requirement.
• -farmer and retailer unfriendly APMC act.
• Limited consumer insight
• -lack of detailed region specific customer data.
• -less data on spending pattern.
• inadequate human resources
• -lack of trained personnel at all level.
• -stringent employment and industry laws.
• -fragment approach to human resources.

SWOT Analysis
Weakness cont………..
 Taxation hurdle
-inconsistent octori and entry tax structure.
-vat and multiple taxation issues.
-large grey market presence.
 Underdeveloped supply chain
-underdeveloped logistics infrastructure.
-absence of national cold chain networks.
-lack of national distribution networks and hubs
 Lack of adequate utilities
- lack of basic infrastructure like power, transport and
communication creates difficulty in sustaining retail
operations across the large geographical spread of country.

SWOT Analysis
Opportunities……..
• Potential for investment.
• Locational advantage.
• Sectors with high growth potential.
• Fastest growing formats.
• Rural retail.
• Wholesale trading.
• Falling real estate cost
• E-retailing
• Retail franchising 22

SWOT Analysis
Threats…………..
• Political issues.
• Social issues.
• Lack of differentiation among the
malls that are coming.
• Poor inventory turns and stock
availability measures.
23

Size of the organized retail market (Rs Cr)
2001-02 2007 CAGR (%)
(compound Annual growth
rate)
TOTAL 16,000 37,216 18
Food 1,800 7,473 33
Clothing 4,950 10,423 16
Cons.Durables 1,650 3,787 18
Books & Music 450 1,426 26
24

Share of organized & unorganized retail with comparison
source: Ernst &Young, The Great Indian Retail Story, 2006
85 15
81 19
55 45
40 60
36 64
30 70
20 80
3 97
1 99
0% 20% 40% 60% 80% 100%
USA
TAIWAN
MALASIA
THAILAND
BRAZIL
INDONESIA
CHINA
INDIA
PAKISTAN
ORGANISED
UNORGANISED
25

Retail Trade- India, US and China
Trade
($ bn)
Employment
(%)
Shops
(million)
Organized
Sector
share (%)
India 180-394 7 12 2-3
China 360 12 2.7 20
US 3800 12.6-16 15.3 80
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Retailers often act as the contact between manufacturers, wholesalers, & customers.
Retailers collect an assortment (variety) from various sources, buy in large quantity, &
sell in small amount. This is sorting process.
Retailers communicate with customers, wholesalers & manufacturers.
Shoppers learn about the availability & characteristics of goods & services, store hours,
sales etc., from retailers advt., sales people & displays.
Manufacturers & wholesalers are informed by their retailers with regard to sales forecast,
delivery delays, customer complaints, defective items, inventory turnover and so on..
Many goods & services have been modified due to retailer feedback.
For small suppliers, retailers provide assistance by transporting, sorting, marketing,
advertising, & pre-paying for the products.
Retailers also complete transactions with customers i.e., having convenient locations,
filling order promptly & accurately, & processing credit purchase.
Some retailers also provide customer services such as gifts wrapping, delivery, &
installation.
To be more appealing, many firms engage in multi-channel retailing i.e., multiple point
of contact like physical stores, websites, mail-order catalogs etc.

Benefits
Reach more customers
Reduce costs
Improve cash flow
Increase sales more rapidly
Focus on area of expertise
Manufacturers also do operate retail
facilities (besides selling at
conventional retailers). In running their
stores, these firms compete the full
range of retailing functions & compete
with conventional retailers.

Retailers are part of distribution channel, so manufacturers (wholesalers) are concerned
about:
Caliber of displays
Customer service
Store hours
Retailer‘s reliability as business partners
Retailers are also major customers of goods & services for resale, store fixtures,
computers, management consulting ,& insurance.
Retailer-Supplier Relationship
Retailers and supplier have different priorities on:
Control over distribution channel
Profit allocation
No. of competing retailers handling supplier‘s products
Product display
Promotion support
Payment terms
Operating flexibility

Channel Relations
Exclusive Distribution
Suppliers make agreements with one or a few retailers that designates them the only one
to carry certain brands/products in a specific geographic region.
Both parties work together to maintain an image, assign self space, allot profits & costs,
& advertise.
This is the smoothest channel relationship.
Retailer-Supplier Relationship
Intensive Distribution
Suppliers sell through as many retailers as possible.
This maximizes suppliers‘ sales & lets retailers offer many brands & product versions.
Retailers may assign little self space to specific brands, set high price on them, & not
advertise them.
This is most volatile channel relationship.
Selective Distribution
Suppliers sell through a moderate no. of retailers carrying some competing brands.
This combines aspects of Exclusive & Intensive Distribution

The average amount of a sales transaction for retailers is much less than
manufacturers.
This low amount creates the need to tightly control the cost associated with each
transaction like sales personnel, credit verification, & bagging.
To maximize the no. of customer the retailer has to emphasize more on ads & special
promotions.
Increase impulse sales by more aggressive selling.
The Special Characteristics of Retailing
Final consumers make many unplanned or impulse purchases.
Large %age of consumers do not look at ads before shopping.
They do not prepare shopping list.
Make fully unplanned purchases.
This indicates the value of in-store displays, attractive store layouts, & well organized
stores, catalogs, & website.
Retailer‘s ability to forecast, budget, order merchandise, & sufficient personnel on the
selling floor becomes difficult.

Retail customers usually visit a store, even though mail, phone, & web sales has
increased.
Most retail transactions happen in stores & will continue in future.
Many people like to shop in person, want to touch, smell, and/or try on products.
Many people to browse for unplanned purchases.
They feel more comfortable talking a purchase home with them than waiting for a
delivery.
Desire privacy while at home.
Retailers must work to attract shoppers to stores & consider such factors such as store
location, transportation, store hours, proximity (nearness) of competitors, product
selection, parking & ads.
The Special Characteristics of Retailing

Retail strategy is the overall plan guiding a retail firm. It influences the firm’s business
activities & its response to market forces, such as competition & economy.
Six steps in strategic planning
Define the type of business in terms of the goods or services & company‘s specific
orientation.
Set long-run & short-run objectives for sales & profit, market share, image etc.
Determine the customer market to target on the basis of its characteristics (like gender
& income level) & needs (like product & brand preferences).
Devise an overall, long-run plan that gives general direction to the firms & its employees.
Implement an integrated strategy that combines factors like store location,
transportation, product variety, pricing, and advertising & display to achieve objectives.
Regularly evaluate performance & correct weaknesses or problems when observed.
Importance of Retail Strategy

Growth-oriented objectives
Appeal to prime market
Distinctive company image
Focus
Strong customer service for its retail category
Multiple points of contact
Employee relations
Innovation
Commitment to technology
Community involvement
Constantly monitoring performance
Key to success

Customer orientation - The retailer determines the attributes & needs of its customers
& endeavors (take action) to satisfy these needs.
Coordinated effort - The retailers integrates all plans & activities to maximize
efficiency.
Value-driven - The retailer offers good value to the customers, whether it be upscale
(expensive) or discount i.e., ―appropriate pricing‖ for goods & customer service.
Goal oriented - The retailer sets goal & uses its strategy to attain them.
The Retailing Concept
Customer
orientation
Coordinated effort
Value- driven
Goal orientation
Retailing
concept Retail Strategy

Classification of Retail Institutions
Ownership
Store-based retail
strategy mix
Nonstore-based
retail strategy mix
& nontraditional
retailing
• Independent
• Chain
• Franchise
• Leased department
• Vertical marketing system
• Consumer cooperative
• Convenience store
• Conventional supermarket
• Food-based supermarket
• Combination store
• Box (limited line) store
• Warehouse store
• Specialty store
• Variety store
• Traditional department store
• Full-line department store
• Off-price chain
• Factory outlet
• Membership club
• Flea (louse) market
• Direct marketing
• Direct selling
• Vending machine
• World wide web (WWW)

Ownership format serves a marketplace niche.
Independent retailers capitalize on a very small targeted customer base & please
shoppers in a friendly, folksy (simple) way. Word-of mouth communication is important.
These retailers should not try to serve too many customer & enter into price wars.
Chain retailers benefit from widely known image, economies of scales (i.e. cost
advantages that a business obtains due to expansion), & mass promotion possibilities.
They should maintain their image chain wide & not be inflexible in adapting changes in
the marketplace.
Franchisors have strong geographic coverage & motivation of the franchisees as owner-
operators. They should not get bogged down in policy disputes with franchisees or charge
excessive royalty fees.
Leased departments enable store operators & outside parties to join forces & enhance
the shopping experience, while sharing expertise & expenses. They should not hurt the
image of the store or place too much pressure on the lessee to bring in store traffic.
A vertically integrated channel gives a firm greater control over sources of supply, but it
should not provide consumers with too little choice of products or too few outlets.
Cooperatives provide members with price savings. They should not expect too much
involvement by members or add facilities that raise costs too much.
Retail Institution by Ownership

An independent retailer owns one retail unit.
Independent Retailer
Advantages
There is flexibility in choosing retail formats, location, assortment (variety), prices, hours etc.,
& devising strategy based on the target customers.
Investment costs for leases, fixtures, workers, & merchandise can be brought down. There is no
duplication of stock or personnel function. Responsibilities are clearly delineated (defined)
within the store.
Independents frequently act as specialist in a niche of the particular goods/services category.
They are then more efficient & can lure (attract) shoppers interested in specialized retailers.
Independents exert strong control over their strategies, & the owner-operator is typically on
the premises. Decision making is centralized & layers of management personnel are minimized.
There are certain image attached to independents, particularly small ones, that chains cannot
readily capture.
Independents can easily sustain consistency in their efforts because only one store is operated.
Independents have ―Independence‖. No meetings, union, stockholders & labor unrest etc.
Entrepreneurial drive.

Independent Retailer
Disadvantages
Less bargaining power with the suppliers as they buy less quantity.
Cannot gain economies of scale (i.e. cost advantages that a business obtains due to expansion) in
buying & maintaining inventory. Transportation, ordering, & handling costs are high.
Operations are labor intensive.
They are limited to certain media for advt. because of financial constraints.
Family-run independents is overdependence on the owner. It is difficult to keep it up &
running.
Limited time allotted to long-run planning, since owner is intimately involved in day-to day
operations.

Chain retailer operates multiple outlets (store units) under common ownership. It
usually involves in some level of centralized purchasing & decision making.
Chain Retailer
Advantages
Many chains have bargaining power due to their purchase volume. They receive new items
when introduced, have orders promptly filled, get sales support, & obtain volume discounts.
Chains achieve cost efficiencies when they buy directly from the manufacturers & in large
volumes, ship and store goods, & attend trade shows sponsored by the suppliers to learn about
new offerings. They can sometimes bypass wholesalers.
Efficiency is gained by sharing warehouse facilities; purchasing standardized store fixtures;
centralized buying & decision making etc. Headquarters have broad authority for personnel
policies & for buying, pricing, & advt. decisions.
Computerized ordering merchandise, inventory, forecasting, sales, & bookkeeping. This reduces
overall costs.
Take advantage of variety of media from print to electronic.
Detailed & clear responsibility for employees with available substitute incase any employee is
retiring or quitting.
Spend considerable time in strategic planning. Opportunity & threat are closely monitored.

Chain Retailer
Disadvantages
Flexibility may be limited. Consistent strategies on pricing, promotions, & product variety must
be followed throughout all units which may be difficult to adapt to local diverse market.
Investment is high due to infrastructure & store as multiple store has to be stocked.
Managerial control is complex due to geographically dispersed branches.
Limited independence to the personnel.

Franchising involves a contractual arrangement between a franchisor (a
manufacturer, wholesaler, or service sponsor) & a retail franchisee, which allows
the franchisee to conduct business under a established name & according to a given
pattern of business.
The franchisee pays an initial fees & a monthly %age of the gross sales in exchange
for the rights to sell goods & services in an area.
A franchisee operates autonomously in setting store hours, chooses a location, &
determines facilities & displays.
Franchising
Three structural arrangements dominate retail franchising
Manufacturer-retailer – A manufacturer gives independent franchisees the right to sell goods &
related services through licensing agreement. (Eg., Auto/truck dealers like GM, Petroleum
products dealers like IOC).
Wholesaler-retailer
Voluntary - A wholesaler sets up a franchise system & grants franchises to individual
retailer. (Eg., Auto accessories stores, Consumer electronics stores).
Cooperative – A group of retailers sets up a franchise system & shares the ownership &
operations of a wholesaling organization. (Eg., Food stores).
Service sponsor-retailer – A service firm licenses individual retailers so they can offer specific
service packages to customers. (Eg., McDoland‘s).

Advantages of Franchisees
They own a retail enterprise with a relatively small capital.
They acquire well-known names & goods/services lines.
Standard operating procedures & management skills may be taught to them.
Cooperative marketing efforts (like national advt.) are facilitated.
They obtain exclusive selling rights for specified geographical territories.
Their purchases may be less costly per unit due to the volume of the overall franchise.
Franchising contd..
Disadvantages of Franchisees
Oversaturation could occur if too many franchisees are there in one geographical area.
Due to overzealous selling by some franchisors, franchisees‘ income potential, required
managerial ability, & investment may be incorrectly stated.
They may be locked into contracts requiring purchases from franchisors or certain vendors.
Cancellation clauses may give franchisors the right to void agreement if provisions are not
satisfied.
In some industries, franchise agreements are of short duration.
Royalties are often a %age of gross sales, regardless of franchisee profits.

Advantages of Franchisors
A national & global presence is developed more quickly & with less franchisor investment.
Franchisee qualification for ownership are set & enforced.
Agreement require franchisees to abide by stringent operating rules set by franchisors.
Money is obtained when goods are delivered rather than when goods are sold.
Because franchisees are owners & not employees, they have greater initiative to work hard.
Even after franchisees have paid for their outlets, franchisors receive royalties & may sell
products to the individual proprietors.
Franchising contd..
Disadvantages of Franchisors
Franchisees harm the overall reputation if they do not adhere to company standards.
Lack of uniformity among outlets adversely affects customer loyalty.
Intra-franchise competition is not desirable.
The resale value of individual units is injured if franchisees perform poorly.
Ineffective franchised units directly injure franchisors‘ profitability.
Franchisees, in greater number, are seeking to limit franchisors‘ rules & regulations.

A leased department is a department in a retail store – usually a department,
discount, or specialty store – that is rented to outside party.
The leased department proprietor is responsible for all aspects of its business &
normally pays a %age of sales as rent.
The store sets operating restrictions for the leased department to ensure overall
consistency & coordination.
Leased Department
Advantages (from the stores’ prespective)
The market is enlarged by providing one-stop customer shopping.
Personnel management, merchandise displays, & reordering items are undertaken by lessees.
Regular store personnel do not have to be involved.
Leased department operators pay for some expenses, thus reducing store costs.
A %age of revenue is received regularly.
Disadvantages (from the stores’ prespective)
Leased department operating procedures may conflict with store procedures.
Lessees may adversely affect the stores‘ image.
Customers may blame problems on the store rather than on the lessees.

Leased Department
Advantages for Leased department operators
Stores are known, have steady customers, & generate immediate sales for leased departments.
Some costs are reduced through shared facilities like security equipment & display windows.
Their image is enhanced by the relationships with popular stores.
Disadvantages for Leased department operators
There may be inflexibility as to the store hours they must be open & the operating style.
The goods / services lines are usually restricted.
If they are successful, the store may raise rent or not renew leases when they expire.
In-store locations may not generate the sales expected.

A vertical marketing system consists of all the levels of independently owned businesses along a
channel of distribution.
Vertical Marketing System
Type of channel Channel Functions Ownership
Independent system
• Manufacturers or retailers are small
• Intensive distribution is sought
• Customers are widely dispersed
• Unit sales are high
• Company resources are low
• Channel members share costs & risk
• Task specialization is desirable
Manufacturing
Wholesaling
Retailing
Independent manufacturer
Independent wholesaler
Independent retailer
Partially integrated system
• Manufacturers & retailers are large
• Selective or exclusive distribution
• Unit sales are moderate
• Company resources are high
• Greater channel control is desired
• Existing wholesalers are too expensive or
unavailable
Manufacturing
Wholesaling
Retailing
Two channel members own all
facilities & perform all functions.
Fully integrated system
• Firm has total control over its strategy
• Direct customer contact
• Exclusive offerings
• System is costly & requires lot of
expertise
Manufacturing
Wholesaling
Retailing
All production & distribution
functions are performed by one
channel member.

A consumer cooperative is a retail firm owned by its customer members.
A group of customers invests, elects officers, manages operations & share profits.
They account for tiny piece of retail sales.
Cooperatives are formed because they think they can do retailing function,
traditional retailers are inadequate & prices are high.
They have not grown because consumer initiative is required, expertise may be
lacking, expectations have frequently not been met, & boredom occurs.
Consumer Cooperative

Retail Location Strategies & Decisions

There are three most important aspects in Retailing – location, location
& location.
Locating the retail store in the right place was considered to be
adequate for success.
It is a important part of the retail strategy as it conveys a fair amount
of image.
It influences the merchandise mix & interior layout of the store.
It is difficult to change the location once the store comes into
existence.
Change of location may result in loss of customer & employees.
Why Location is Important?

The choice of the location of the store depends on the target audience & kind
of merchandise to be sold.
Types of Retail Location
Types:
Freestanding/Isolated store
Store located along major traffic artery
No competitive retailers around
Rents are usually low
Advertising cost are high
Customers may not prefer to travel long distance to visit only one store
Part of a business district
A business district (primary, secondary or neighborhood) is a place of commerce in
the city
Rent is high; parking is cumbersome
It has good accessibility in terms of transport
Customers are more

Types of Retail Location contd..
Types:
Part of a shopping centre
Shopping centre - A group of retail & other commercial establishments that is
planned, developed, owned & managed as single property
Parking is available
Basic configuration – mall or strip centre with walkway
Ideally enclosed & climate control

Steps involved in choosing a retail
location
1. Identify the market in which to locate the store
2. Evaluate the demand & supply within that market i.e., determine the market potential
1. Demographic features of the population
2. The characteristics of the households in the area
3. Competition & compatibility
4. Laws & regulations
5. Trade area analysis
3. Identify the most attractive sites
1. Traffic
2. Accessibility of the market
3. The no. & types of stores in the area
4. Amenities available
5. To buy or to lease
6. The product mix offered
4. Select the best site available

The Spread of Organized Retail in India
Mumbai
Delhi
Kolkata
Pune
Chandigarh
Hyderabad
Indore
Gurgaon
Noida
Jaipur
Bhopal
Bhubaneshwar
Nagpur
Udaipur
Bangalore
Chennai

Retail Merchandising

What is Merchandising?
Merchandising is planning, buying & selling of merchandise (product).
The American Marketing Association defined merchandising as ―the planning involved in
marketing the right merchandise at the right place at the right time in the right quantity
at the right price‖.
Merchandising can be termed as the analysis, planning, acquisition, handling & control of
the merchandise investments of a retail operation.
Factors affecting the merchandising function
Merchandising
function
Size of
organization
Types of stores
Organization
structure
Merchandising
tobecarried

Merchandise Planning
Merchandise planning can be defined as the planning & control of the merchandise
inventory of the retail firm, in a manner which balances between the expectations of the
target customers & the strategy of the firm.
Implication of Merchandise Planning
Merchandise
Planning
Finance
Payments to suppliers
Profitability measurements
Store Operations
Space planning
Communication about new
products & their features
Marketing
Newproductintroductions
Developingadvertisements
Warehouse&Logistics
DetailsofPurchaseOrder
Detailsofallocations

Merchandise Planning Process
Stage I: Developing the Sales Forecast
1. Reviewing past sales
2. Analyzing the changes in the economic conditions
3. Analyzing the changes in the sales potential
4. Analyzing the changes in the marketing strategies & the competition
5. Create the sales forecast
Stage II: Determining the Merchandise Requirements
Planning in merchandising is at two levels:
1. The creation of the Merchandise Budget (5 parts)
2. The Assortment Plan
Merchandise
Budget
Sales Plan
Stock
support plan
Planned
reduction
Planned
Purchase
Gross
Margins

Stage II: Determining the Merchandise Requirements
Planning in merchandising is at two levels:
1. The creation of the Merchandise Budget (5 parts)
2. The Assortment Plan
Company Department
Merchandise
Classification
Merchandise
Category
Merchandise
Sub Category
Style Price
point
SKU (Stock
Keeping Unit)
The Merchandise Hierarchy

Some key merchandising terms
Staple/basic merchandising – products always in demand (basic necessities)
Fashion merchandising – products has high demand for a relatively short period of time
Seasonal merchandising – seasonal products
Fad merchandising – enjoy popularity for a limited period of time; generated high sales for
a short time
Style – unique shape or form of any product (taste in music)
Assortment – variety of merchandise mix
The width/breadth of assortment – refers to the number of brands
The depth of assortment – variety in one goods/services category
Points to be kept in mind while creating a plan -
The merchandise budget should be prepared in advance of selling season.
The language of the budget should be easy to understand.
Merchandise budget must be planned for a short period – 6 months is the normal norm.
Budget should be flexible.

Key Components of Merchandise Planning
Planned sales – Planned sales are projected sales for a period that is planned.
Month %age increase Planned sales (Rs)
Feb 12% 35,000 X 12% + 35,000 = 39,200
April 25% 43,750
June 21% 42,350
Example:
Last year’s sale for the same period = 35,000
Planned purchase – Planned purchases represent the merchandise that is to be purchased
during any given period.
Planned Purchase = Planned Sales + Planned Reductions + Planned EOM – Planned BOM

Planned reduction – Markdowns (deductions in prices), employee discounts & inventory
shrinkage due to theft or pilferage come under planned reduction.
Planned markup – After calculating the level of inventory that needs to be purchased, the
retailer needs to determine the initial markup for the products.
Markup in Rs. = Selling Price – Cost Price
Markup % = Markup in Rs.
Retail Price
Gross Margin – Gross margin is the difference between the selling price & the cost of the
product, less reductions from markdowns, shrinkage & employee discounts.
Profit = Gross margin – operating expenses
B.O.M (Beginning-of-month) & E.O.M (End-of-month) planned inventory levels –
Four Methods of Inventory Planning:
a. Stock-to-Sales Method
S/S Ratio = Stock in hand E.O.M (at retail value) = Value of inventory
Sales for the same month Actual sales
Planned BOM Inventory = Stock-sales ratio x Planned sales

The Basic Stock Method – In this method, the buyer believes that he needs to carry a
certain amount of inventory in the store at all times.
Basic Stock = Average stock for the season – Average monthly sales for the season
Average monthly sales for the season = Total planned sales for the season
No. of months in the season
Average stock for the season = Total planned sales for the season
Estimated inventory turnover rate for the season
Beginning of the month (BOM) stock = Planned monthly sales + Basic Stock
The Percentage Variation Method – This method of inventory calculation is used in case
the stock turnover typically exceeds six times a year.
BOM Stock = Avg. stock for season * 1/2 * [1 + (Planned sales for the month / Avg.
monthly sales)]
The Week’s Supply Method – Retailers who need to maintain a control over the
inventories on a weekly basis, may use this method.
BOM Stock = Average weekly sales x No. of weeks to be stocked

Stage III: Merchandise Control – The Open to Buy
The concept of Open to buy has two folds:
1. depending on sales of the month & the reduction, the merchandise buying can
be adjusted.
2. the planned relation between the stock & sales can be maintained.
Open to buy ensures that the buyer –
Limits overbuying & under buying
Prevents loss of sales due to unavailability of the required stock
Maintain purchases within the budgeted limits
Reduce markdowns i.e., reduction in price which may arise due to excess
buying
Open-to-Buy = Planned EOM Stock – Projected EOM Stock
Projected EOM Stock = Actual BOM Stock + Actual Additions to stock + Actual on
order – Planned monthly sale – Planned reductions for the
month

Stage IV: Assortment Planning
Assortment Planning involves determining the quantities of each product that will
be purchased to fit into the overall merchandise plan.
Details of color, size, brand, materials etc. have to be specified.
To create a balanced assortment merchandise for the customer.
Depth
Breadth
Product Line
Department Menswear
Shirts
Zodiac
Styles Color ……
Van Heusen
Louis
Philippe
Arrow
Trousers Accessories

The Range Plan:
The aim of the range plan is to create a balanced range for each category of products that
the retailer choose to offer.
Range planning should take care of -
The no. of items/options available to the customer should be sufficient at all times &
should be such that it helps the customer make a choice.
The overbuying & under buying is limited.
Sufficient quantities of the product are available, so that all the stores can be serviced
& the product is available at all the stores across various locations.
The lower limit of the range width is often called aesthetic minimum

The Model Stock Plan:
After determining the money available for buying, a decision needs to be taken on what to
buy? & in what quantity?
Steps -
1. Identify the attributes that the customer would consider while buying the product.
2. Identify the number of levels under each attribute.
3. Allocate the total units to the respective item category.
The process of merchandise planning may be top down or bottom up.
Top down planning occurs when the corporate objectives dictate the company’s financial objectives
in terms of sales, profit & working capital.
In Bottom up planning, individual department managers work on the estimated sales projections

The Model Stock Plan
Men’s shirt
100% (1000)
Casual
40% (400)
Small
25% (100)
Medium
40% (160)
Full Sleeve
30% (48)
Half Sleeve
70% (112)
Button
Down
40% (45)
White
40% (18)
Cotton
25% (4)
Cotton
Blend
75% (14)
Blue
30% (14)
Cream
20% (9)
Grey
10% (4)
Other
60% (67)
Large
25% (100)
Extra large
10% (100)
Dress
10% (100)
Formal
20% (200)
Sport
30% (300)

Branding & Private Labels

Branding
Brand
The American Marketing Association defined a brand as “a name, term, design,
symbol or a combination of them, intended to identify the goods or services of
one seller or group of sellers & to differentiate them from those of the
competitors”.
Branding existed from the time man felt the need to differentiate his products from that
being offered by others.
Branding gradually became a guarantee of the source of the product & ultimately its use
as a form of legal protection against copying grew.
With the development of shops, shopkeepers hung pictures above their shops indicating
the types of goods they sold.
With industrial revolution mass production came into existence but the distance between
the manufacturers & customers increased.
This eventually led to the evolution of the role of the brands as tools by which consumers
identified the products.

Building a Retail Brand
Key questions for retail brands –
Can the brand be identified with the lifestyles of its target customers?
Is there a perceptible difference between the brand & the products offering by the
retailer & other retailers?
Can a story be woven around the brand?
A retail brand is a combination of the company‘s heritage, the merchandise mix, the
store environment, the service strategy, the advertising & promotion.
Successful retail branding starts with a clear definition of what retailers stand for – an
identification of what the customers associate it with, leading customers to think: “This
brand is a reflection of me.. This brand is meaningful to me..”
The retailer needs to determine the specific value proposition for the end customers.
Playing on emotional benefits can also be a branding exercise of the retailer.
Retail branding does not sell a specific product. It is about customer service.

The Retail Value Chain
Suppliers
Third Party
Logistics
Retail
Operations
Customer
Mgmt.
Customers
Support Functions
Systems

Private Label
When the retailer decides to sell products or a line of merchandise which is owned,
controlled, merchandised & sold by the retailer in his own store/chain of stores, he is said
to be Selling Own Label / Brand or Private Label merchandise.
A private label can be classified as:
Store Brand – which carries the retailer‘s name, such as Westside, Food World, Big Bazaar
etc.
An Umbrella Brand – where a common brand name is used across multiple categories –
example Splash (Lifestyle), Bare (Pantaloon) etc.
Individual Brands – where specific brand names are created for specific market segments
and/or categories.
The Private Label Marketing Association defines store products as “all merchandise sold
under a retail store’s private label. That label can be stores name or a name created
exclusively by that store. In some cases, a store may belong to a wholesale buying group
that owns labels, which are available to the members of the group. These whole-sale
owned labels are referred to as controlled labels”
Private Labels

Private Label - Evolution
Private labels were traditionally defined as generic product offerings that competed with
national brands on the basis of value proposition.
They were often seen as the lower priced alternative to the ―real‖ thing.
Private label carried the stigma of inferior quality & therefore inspired less confidence.
Generics, which were products distinguishable by their plain & basic packaging were the
first type of private labels.
With the increase in retail stores, the need to earn higher profit & the desire to service
the gaps in consumer requirements gave rise to private labels, both in apparel & the food
& grocery sector.
Today, most of the large department stores have their own private labels which cater to a
specific audience.
Private labels rely on in-store advertisements.
In order to compete with national brands, private labels need to focus on quality.
The average quality of one product compared to other
Consistency in quality over a period of time
Private label goods become more successful where the no. of competing products is
lower.

Why Private Label?
Retailer can fill in the need gaps that may exist in the market place.
Private label gives the retailer an advantage of offering the customer another
option.
A private label allows the retailer to offer a unique product in the marketplace.
Private label allows a retailer to earn a higher margin than other brands he
chooses to retail because designing, merchandising, sourcing & distribution is
done by the retailer. Also, advertisement is in-store.
Make or
Buy
Placing
the order
&
Allocating
the goods
Marketing
Identification of
the need
Performance
Measurement
Private Label Creation Process

Merchandise Procurement / Sourcing
The term sourcing means finding or seeking out products from different places,
manufacturers or suppliers.
Method of Procuring Merchandise
1. Identifying the sources of supply
Costs associated with global sourcing:
Country of origin effects – Many a times, where the merchandise has been
manufactured makes a difference in the final sale of the product.
Foreign currency fluctuations – Effects the buying price of the products.
Tariffs – Taxes placed by the govt. on imports.
Foreign trade zones – These are special areas within the country that can be
used for warehousing, packaging, inspection, labeling, exhibition, assembly,
fabrication etc., of imports, without becoming subject to the country‘s
tariffs.
Cost of carrying inventory
Transportation cost

2. Contacting & Evaluating the sources of supply
Contacting can be vendor initiated contact or retailer initiated contact
Points to be kept in mind
The target market for whom the merchandise is being purchased.
The image of the retail organization & the fit between the product & the
image of the retail organization.
The merchandise & the prices offered.
Terms & service offered by the vendor.
The vendor‘s reputation & reliability.
3. Negotiating with the sources of supply
The types of discounts that could be made available to the buyer
Trade discounts
Chain discounts
Quantity discounts
Seasonal discounts
Cash discounts

4. Establishing Vendor Relations
To build & maintain strategic partnership with vendors, the buyer needs to build on:
Mutual trust
Open communication
Common goals
Credible commitments
5. Analyzing Vendor Performance
The total orders placed on the vendor in a year
The total returns to the vendor, the quality of the merchandise
The initial markup on the products
The markdowns (if any)
Vendor‘s participation in various schemes & promotions
Transportation expenses if borne by the retailer
Cash discounts offered by the vendor
The sales performance of the merchandise

Category Management
- A Method of Merchandise Management

Category Management
Category Management can be defined as “the distributor/supplier process of managing
categories as SBUs, producing enhanced business results by focusing on delivering customer
value”.
A category is an assortment of items that a customer sees as reasonable substitutes
of each other.
A category management concept is a focus on a better understanding of consumer
needs as the basis for retailers‘ & suppliers‘ strategies, goal, & work processes.
The need to reduce costs, control inventory levels & replenish (refill) stock
efficiently led to the concept of Efficient Consumer Response (ECR).
Category management provides renewed opportunities for meeting consumer needs
& at the same time, for achieving competitive advantage as well as lower costs
through greater work process efficiencies.

Category Management contd..
Category Management is now considered as the “new science of retailing”
because -
1. It involves a systematic process.
2. It emphasizes decision-making based on complex analysis of consumer
data & market level syndicate data.
3. It replaces the brand bias that stems from suppliers‘ interest & encourages
objective view based on consumers‘ desires.
Why Category Management?
Consumer changes
Competitive pressures
Economic & efficiency considerations
Advances in IT

Components Category Management
Strategy
Business Process
Performance
Measurement
Organizational
Capabilities
Information
Technology
Trading
Partner
Relationships

The Category Management Business Process

Step 1: Category Definition
A distinct, manageable group of products/services that consumers perceive to be
interrelated/substitutable in meeting a consumer need.
The category definition should be based on how the customer buys, & not on how
the retailer buy.
This step decides the products that represent a category, sub-category & major
segmentation.
At this step, the retailer assigns products to the various categories based on factors
such as consumer usage & packaging.
Step 2: Category Role
It determines the priority & importance of each category in the overall business.
It serves the basis of resource allocation.
Consumer-based category roles:
Destination categories – Why you as a retailer?
Preferred/routine category
Occasional/seasonal category
Convenience category – one-stop shop

Step 3: Category Assessment – Brain Harris’s Quadrant Analysis
Opportunities
- Harmonise product mix with market trends
- Improve price image via low prices for key
products
- Maximise shelf space at category level
- Give promotional support to key items
Questionable
- Limit product mix to core assortment & delist
marginal products
- Look for price raises
- Minimise self space at category level
- Transfer logistical & operational work to third
parties
Winners
- Continue current policies
- Be alert to adaptation of new products
- Minimise operational problems like “out of
stock”
- Optimise margin mix
Sleepers
- Identify key products within category
- Delist slow movers & marginal products
- Give quick movers more self space
- Optimize margin mix
MarketShare
Market Growth

Step 4: Category Performance Measures
Sales
Profits
Market Share
Inventory Turnover
Changes in the Assortment
Consumer Transaction
Step 5: Category Strategies
Typical category marketing strategies are:
Traffic building
Transaction building
Turf defending
Profit generating
Cash generating
Excitement creating
Image enhancing (Areas: Price, Service, Quality & Varity)

Step 6: Category Tactics
Category tactics work towards the determination of optimal category pricing,
promotion, assortment & shelf management/presentation of the merchandise.
Step 7: Category Plan Implementation
What specific tasks needs to be done?
When each task needs to be completed?
Who will accomplish each task?
Step 8: Category Review

Retail Marketing Mix
The Retail
Marketing
Mix

Customer
Service
People
Brand
Associations
Shopping
Experience
Pricing
Promotion
Place /
Location
Product /
Merchandise
features
Presentation
The Retail Image Factors
Retail
Store
Image

The Retail Communication Mix
Retail
Communication
Mix
Sales
Promotion
Public
Relations
Direct
Marketing
Personal
Selling
Advertising

Retail Selling Process
Acquiring Product/Merchandise Knowledge
Studying the Customer
Approaching the Customer
Presenting the Merchandise
Overcoming Resistance
Suggestive Selling
Closing the Sale

Retail Management Information System

Effect of a Single Customer Transaction
Customer
Transaction
Marketing &
Promotions
Inventory
Management
Sales Analysis
Credit Card
Payments
Customer
Database
Warehouse
Recording
Merchandise

Efficient Stocking of Merchandise
Collection of Data
Efficiency in Operations
Helps Communication
Why IT in Retail?
Factors
affecting
the use of
IT
Scale &
scope of
operations
The
financial
resources
available
The nature
of
business
HR
availability

Electronic Data Interchange (EDI)
Database Management, Data Warehousing, Data Mining
Radio Frequency Identification (RFID)
Transaction Processing System (TPS)
Decision Support System (DSS)
Enterprise Resource Planning (ERP)
Intranet & Internet
E-Commerce or E-Trailing
……
Application of IT

SCM in Retail

The Basic Supply Chain
Finance Flow
Supplier
Raw material packaging
warehouse Manufacturer
Manufacturer warehouse
Retailer warehouse
Retailer
PhysicalFlow

Framework for Analyzing Issues in SCM
Customer
Service
Channel
Design
Network
Strategy
Policies &
Procedures
Organization &
Change
Management
Information
Systems
Facilities &
Equipment
Warehouse
Design &
Operations
Materials
Management
Transportation
Management
STRATEGIC
STRUCTURAL
FUNCTIONAL
IMPLEMENTATION

Servicing the Retail Customer

Customer Service
―Customer service is a task, other than proactive selling, that involves
interactions with customers in person or by telecommunication, mail or
automated process. It is designed, performed & communicated with two goals in
mind –
Operational Production
Customer Satisfaction
Kill a Brand, Keep a Customer!
Customer Service focuses on measurement of how
well a firm meets the established performance
standards that are viewed as important for
meeting customer needs.
Customer Satisfaction is how the customers
measure externally the service performance of a
firm.

Customer Service – A USP
Retail mix like Product, Price, Place, Promotion can be duplicated or copied by
competitors – the total experience (image of the store, ambience, music,& level
of service offered) that the customer gets in the store stay unique.
Identify the key customers & listen
& respond to them
Define superior service & establish a
service strategy
Set standards & measure
performance
Select, train & empower employees
to work for the customer
Recognize & reward
accomplishments

Customer Relationship Management (CRM)

How CRM Benefits Retailer?
Customer needs Retailer traditionally
provides
CRM benefits customer
by enabling
Product choice Range selection Tailored range
Access Channel choice Consistent experience
Support Information Enhanced service
Individual treatment Customer service Customer defined
“value”
Value Scale efficiencies

Customer Segmentation in Retail
Lower Value Segment
Grow able Segment
Most Valued Segment
In-store PoS
Advertisement
Merchandising
Targeted Direct
Mail
Added value
services
Tailored, cross-
learning based
relationship
No. of
customers
Value per
customer
Lower value
segment
Grow able
Segment
Most Valuable
Segment

Retail Store Design & Visual
Merchandising

Retail stores needs to be designed to be more competitive, the retailer first needs to
catch the customer‘s eye & then, to draw his attention away from other stores.
The basic principles of store design require that the image being created in tune with
the merchandise, the advertising & the service offered by the store.
Retail design is primarily a specialized practice of architecture and interior design,
however it also incorporates elements of interior decoration, graphic design,
ergonomics, and advertising.
Retail Store Design
Store
Image
Store
Atmosphere
Store Theme
Elements of the Store Environment

Why Retail Store Design is Important?
The store design & layout tells a customer what the store is all about.
The creates the image of the retail store in the minds of the customer.
This image is the starting point of all marketing efforts.
It make the store simple to navigate.
It creates the sense to belongingness, responsibility, security, & pleasure in
shopping.

Elements of Retail Design
Store Design
Location
Parking
Access
Building
Arch.
Frontage &
Entrance
Safety
Store
Theme
Target
Customer
Merchandise
Mix

Interior Store Design
Space
Planning
Layout
Atmosphere
& Aesthetics
Space Planning helps determining:
The location of various departments.
The location of various products within the
department i.e., creating planograms.
The pros/cons of specific location for impulse
products, destination areas, seasonal products,
products with specific merchandising needs,
adjacent departments etc.
The relationship of space to profitability.
Atmosphere & Aesthetics
Fixtures
Flooring & Ceiling
Lighting
Graphics & Signage
Theme graphics
Campaign graphics
Promotional graphics

Free-flow Layout
Fixtures and merchandise are grouped into free-flowing patterns
on the sales floor.

Grid Layout
The counters and fixtures are placed in long rows or ‗‗runs,‘‘
usually at right angles, throughout the store.

Racetrack/Loop Layout
A major customer aisle begins at the entrance, loops through the store—
usually in the shape of a circle, square, or rectangle—and then returns the
customer to the front of the store.

Spine Layout
A single main aisle runs from the front to the back of the store,
transporting customers in both directions, and where on either side of this
spine, merchandise departments using either a free-flow or grid pattern
branch off toward the back side walls.

Visual Merchandising
An orderly, systematic, logical, & intelligent way of putting stock on the floor.

It has several aspects & involves SKU planning, store windows & floor displays, signs,
space design, fixtures & hardware, props & mannequins.
Creating the right atmosphere in the store & presenting the merchandise in the right
manner is very important.
Good visual merchandise means a selling space that is neat, easy-to-see, follow & shop.
Visual Merchandising contd..
Methods
of
Display
Color
dominance
Presentation
by price
Coordinated
presentation

The supply chain umbrella
• Purchasing
• Quality control
• Demand and supply planning
• Material or inventory control

Buying process of organised
food retailers
• Buy locally from the traders in the retailing destination
• Buy in bulk from the traders in the
production/processing destination and distribute to
the retailing destination
• Buy in bulk from the processors in the
production/processing destination and distribute to
the retailing destination
• Buy raw materials from farmers or local traders in
production destination; carry processing and packaging
activities by self or by job work followed by distribution
to the retailing destinations.

Channel of Procurement by retailers

Supply chain innovations under organised retail
• Backward integration/ dis-intermediated model
– Spencer’s retail, Smart (WRPL), More (ABRL) and Reliance Fresh follow
this kind of model, in which they procure directly fresh produce from
farmers either through own personnel or appointed agents

Supply Chain Efficiency in Direct Model

Effect on farmer and consumer prices due to direct
procurement

Corporate farming model (Namadhari fresh)

Precision farming model
• Promoting hi-tech horticulture through the
use of precision technology
• Promoting market-led horticulture by
encouraging farmer’s forums and associations
and increas-ing the overall value accruing to
the farmers

Horticulture Producers Co-operative Marketing
and Processing Society limited (HOPCOMS)
• To provide a fair price to the producers of fruits
and vegetables through direct procurement and
make them available to consumers
• The District HOPCOMS get the produce from
their farmer members and sell it to both the
household and institutional customers.
• The societies have a large network of farmer
members, decentralized procurement centers at
district levels and retail network

Franchisee model (Suguna poultry)
• It has come up with the concept of ‘Suguna Daily
Fresh’, which is a chain of high-quality, modern air-
conditioned futuristic retail stores.
• Operating on a dealership model, Suguna Daily Fresh
retails, fresh, hygienic, nutritious and tender chicken in
eight forms including whole dressed chicken, portioned
plain and marinated items
• The outlet also stocks Suguna value added eggs in four
variants, frozen fish, sea food, sausages, salami and
Suguna Home Bites, a range of ready to cook and ready
to heat-and-eat items.

Agri & food retailing

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