strategy project ppt group 6

1

Objectives and Approach

Objective

Approach

Analyse the strategy of entities operating in an informally organized sector in India; Special focus on small-scale fruit

and vegetable retailers (FVR) operating either on handcarts or through tiny shops

A mix of primary and secondary research was followed with multiple stakeholders being met for inputs. While a

significant part of the primary interactions were in Jamshedpur, a few interviews were conducted outside as well

Primary Interactions:

• 20 Vendors met – 16 in Jamshedpur across Sakchi (5), Sonari (3) & Bistupur (8); 1 in Delhi and 3 in Hyderabad

• 8 customer interviews in person and 29 respondents to an online survey

• Market Sizing

• Business Model

• Strategy Map

• CSFs

• Business

Operations

• Challenges Faced

• Voice of Customer

• Kirana Stores Vs

Organized Retail

Deliverable

Primary &

Secondary

Research

Transcription

& CollationAnalysis

Secondary

Research:

• NSSO 68th

Round

• Indicus

Analytics

• EY & IBEF

Reports

2

The Fruits & Vegetables Retail (FVR) Industry

Source: IBEF Report (2008), EY Report (2006)

12 MillionTraditional Indian Retail

Outlets

40% selling vegetables and

grocery

97%Informally organized

FVR market

Highly localized and

fragmented structure

Model supply chain observed in the sector:

Producer

Wholesalers

VendorsTraditional

Retailers

Agents Auctioneers

Consumers

Number and Variety of Intermediaries Involved:

Mom & Pop Stores Pushcart Sellers

Temporary Shops Wholesale Traders

Pavement Vendors Commission Agents

Roadside Vendors Auctioneers

Source: Primary Interviews

3

Expenditure on Food in India

Source: Indicus Analytics ‘Market Skyline of India’ (2013) Source: Indicus Analytics ‘Market Skyline of India’ (2013), NSSO 68th Round, Team Analysis

~INR 18 TrillionTotal Household Spend

~263 Million Households in India

~INR 68,745Annual per Household spend

All India Urban India Rural India

Total HH

Spend INR 18.07 Tn. INR 6.73 Tn. INR 11.34 Tn.

Total HH262.86 Mn. 87.09 Mn. 175.77 Mn.

Annual Per

HH Spend INR 68,745.19 INR 77,224.24 INR 64,544.01

Monthly Per

HH Spend INR 5,728.77 INR 6,435.35 INR 5,378.67

Daily Per HH

Spend INR 188.34 INR 211.57 INR 176.83

Average HH

Size 4.30 4.00 4.50

Daily Per

Capita

SpendINR 43.80 INR 52.89 INR 39.30

NOTE: This is the expenditure on Food items and not limited to Fruits and Vegetable items only

4

Strategy Map

Customer Satisfaction

PROFITABILITY

VOLUMEMARGIN

Quality

Reduce Wastage

Location

Marketing Demand

Items on Shelf

Line of Credit

Prices of ProductsAvailability of Substitutes Revenue

Competition

Seasonality

Trend Analysis

Situational Factors

Stock Management

Wholesaler / Supply Chain Logistics

Exotic Varieties

CSFs

5

Critical Success Factors

• Reduced Wastage (or Spoilage)

• Effective Inventory Management

• Demand Forecasting

KPIs – Loss/day because of wastage,

Inventory turnover

• Location

• Proximity to customers (e.g. near a

hospital/ residential area)

• Location within a market – near

competition or away from competition

KPIs – Sales/day, Number of

Customers/day

• Availability

• Of seasonal/ exotic varieties

• Providing enough choices to the

customer

KPIs – % of Exotic fruits/vegetables

sold/day, Number of different

Fruits/vegetables available in shop

• Quality

• Closely linked with pricing strategy

• Supplier/ wholesaler relationship for

better prices and quality

KPIs – Repeat customers

6

Typical Business Model

KEY PARTNERS

Farmers

Wholesalers

Supplier

Other Retailers

KEY ACTIVITIES

Procurement

Organizing in the

store

Pricing decisions

Direct Marketing

VALUE

PROPOSITION

Satisfying the

staple food needs

for consumers

Fulfilling the

nutritional needs

Exotic fruits –

Upper class

Basic fruits and

vegetables –

Middle class

CUSTOMER

RELATIONSHIPS

New Customers

through proximity

Regular customers

through lucrative

pricing offers

CUSTOMER

SEGMENTS

Socio Economic

Classes - A, B,C,D,E

Very few customer

segments that are

not served

KEY RESOURCES

Location

Working Capital

Manpower

Stock

Time

CHANNELS

Handcarts

Standalone stores

Market

COST STRUCTURE

Cost of the stock

Transportation

Labour cost

Real estate rent / Cost of handcart; and maintenance

REVENUE STREAMS

B2C sales

7

Typical Business Model

KEY PARTNERS

Farmers

Wholesalers

Supplier

Other Retailers

KEY ACTIVITIES

Procurement

Organizing in the

store

Pricing decisions

Direct Marketing

VALUE

PROPOSITION

Satisfying the staple

food needs for

consumers

Fulfilling the

nutritional needs

Exotic fruits – Upper

class

Basic fruits and

vegetables – Middle

class

CUSTOMER

RELATIONSHIPS

New Customers

through proximity

Regular customers

through lucrative

pricing offers

CUSTOMER

SEGMENTS

Socio Economic

Classes - A, B,C,D,E

Very few customer

segments that are not

served

KEY RESOURCES

Location

Working Capital

Manpower

Stock

Time

CHANNELS

Handcarts

Standalone stores

Market

COST STRUCTURE

Cost of the stock

Transportation

Labour cost

Real estate rent / Cost of handcart; and maintenance

REVENUE STREAMS

B2C sales

Some Observations on the business model during our interaction with Retailers:

1. Handcarts / Push Carts

1. Price over quality

2. Leveraging proximity

2. Standalone stores

1. Quality focus

2. Location plays a key role

3. Customer relationship is important

3. Market

1. Cooperation among vendors

2. Bargaining power with wholesalers (or suppliers)

8

Business Operations - Procurement

Characteristics Stock Management

• Bulk Buy

• Better service by Supplier to vendors who place

large orders

• Buying decisions are “Straight Re-purchase”

• Routine ordering

• Order the same items from the same suppliers

at the wholesaler market

1. Vegetable Vendors:

1. Stock procured on that day or a day in advance.

2. A few vendors keep track of the stock through

the day (either through assigning a specific

person or through periodic inspections).

3. Few vendors maintain as much variety as

possible, to push the product quickly, maintain

low quantities.

2. Fruit Vendors:

1. Display the better looking stock, so that

customers are interested in the stock.

2. Proper protection from sunlight/rain to protect

easily perishable fruits.

3. Wholesalers:

1. Some wholesalers procure stock weekly while

some procure daily.

2. A notebook is used to keep track of the stock

(opening stock – closing stock)

Process

How it works:

Demand from

Market

Place order

if Demand

> Stock

Vendor

checks his

stock

position

Whom to procure from:

Check

availability in

nearby market

Delivery

takes

between 1-

2 hours to

2-4 days

Supplier

choice

function

of price &

quality

9

Business Operations - Pricing

Characteristics Pricing Model

• Dependent on three factors

• Demand

• Direct correlation

• Season

• Summer season sees higher prices vis-à-

vis winter season

• Quality

• Direct correlation

• Due to perishable nature of products, cost-plus

model is followed

• Final Price is a sum of the following

• Purchase Price

• Overhead expenses

• Profit margin

• Prices marked up by 20-30% and profits are ~20%

of total sales. However, profits are not fixed

Pricing Process

Vendors assemble at Wholesale

market everyday

Highest bid becomes

wholesale market price

for that day

Bidding starts at 5

am following

reverse auction

process

• Price changes daily

• Some vendors may yet charge a higher price provided the produce they are selling is of a superior quality

10

Business Operations - Selling

Characteristics Observations

• Offer and price should be precise

• Offer shouldn’t be too complicated for the

consumer to assess

• Keep communication channel absolutely

simple and easy

• Customize their marketing pitch

• Display of merchandize in a manner so as to

attract consumers

• Fruit/Vegetable vendors and street hawkers

are the best marketers.

• Low priced products – Creativity in their

salesmanship for success.

• Vegetable sellers – Readymade bundles of

certain products to save time during rush hour

• Crowded Marketplace – Quarrels over

bargaining & cheating in measuring quantities.

• Decreased sales – Wastage of time.

Revenue Figures

• Revenues around INR 3,000-4,000 for small vendors to INR 12,000 for comparatively large vendors

• Profitability typically ranges between INR 500 – 3,000 per day

11

Business Operations - Competition

Who From Why

Cart VendorShops and

Markets• Reasons of quality and customer preference

FVR Other FVRs

• Usually collaborate when required and carry out their

business

• In a market setting, they compete not on price but on quality

FVR Organized Retail• Personal service and experience that is a hallmark of the

friendly neighborhood “sabziwala”

Wholesaler Wholesaler

• In the Jamshedpur region, new wholesale markets at Sakchi

and Kadma have added to the competition for the Bistupur

market

Vegetable

VendorsSubstitutes

• Soya Chunks, Cottage Cheese, Instant Meals, Sprouts and

other healthy options such as organic foods

• Increased Professionalization and dual income – Families

opting for instant meals or dining-in options

Fruit Vendors Substitutes • Artificial fruit beverages and other soft drinks/ eatables

12

Challenges Faced

Challenge About Potential Remedy

Lack of Cold

Storage• Low Shelf life of fruits

• The shop keepers spray water on the

fruits to make them look fresh

Wastage

(Spoilage)

• Unpredictable nature of sales

• Unforeseen circumstances - like bad

climate, bandh in the locality

• 20 - 30% stock goes waste

• Some big shops sell it to Restaurants,

Hand Cart vendors

• Some items are sold to feed cattle and

rest thrown off

Space Constraint• Limited space especially for small

road side shops

• Maximize space by arranging products

vertically

Uncertainty in

Demand &

Delivery form

Supplier

• Majority of customers are not repeat

customers

• Few items are directly procured from

farmers

• Additional quantity of longer shelf life

vegetables procured.

• In case of shortfall, borrowed from

neighboring shop

Wholesaler faces

vendor collusion

• Retailers Collude on price doesn’t give

autonomy in price

• Timely delivery & Maintaining good

quality get Control in the market

Contingency Action

• Mutual Co-operation for stock lending amongst nearby FVRs in case of shortage of stock.

• Sometimes to drive down demand in peak periods, prices are jointly increased, until stocks are delivered

13

Customer Inputs

Profile

• Varied classes of customers.

• Lower & Middle – Cheaper vegetables and basic

fruits.

• Middle & Upper – Bigger basket and varied tastes.

• Demand for special fruits and seasonal

fruits(Eg.. Litchi, good variety

Availability

• Most Common: Apple, Banana, Grapes & Oranges

• Buying Time: 50% – Evening | Free Time

• Seasonal Fruits: Watermelon, Pineapple, Litchi,

Strawberry and Peaches

Choice of Vendor

• Major Criteria: Proximity to Shop

• Preference: Mixed – Roadside & Super Markets

• Loyalty: Yes, after Multiple Transactions

Mode of Purchase• Cash and Carry preferred by most of the

Customers. Rarely Credit

Quantity of Purchase

• Period: Purchase for Daily Consumption a

common phenomenon (>75%)

• Proximity of fruit shop is key.

• Basket size: Varies location to location

• Bistupur (Rs.100-120), Sonari (Rs.50-80).

Price Vs. Quality

• Clear Winner: Quality Win – 72% of Customers

• Taste Prevails over Nutritional Value

• Taste preferred by over 60% of customers

Miscellaneous

• Some customers prefer Cut Fruits & Juices

• Bargaining: Common Phenomenon

• At least 76% of cases – Vendors Overcharge

14

Kirana Store – Our Understanding

Customer

Company

Distributor

Wholesaler or APMC (Mandi)

Retailer 1 Retailer 2 Retailer 3

• Refill Stock @ Retailer in 2-3 Days

1

• Varied Choices of Kirana Stores

1

• Purchases in Credit

• Home Delivery Option

2

• Bulk Order –Loyal Shop

• Else Purchase: Distance of Shop Items Availability

3

• Customer Base: Middle & Lower Middle Class

1

• Avg. margin – 10 to 15%

• Tax Evasion

2

• Credit to Customers• Receives only 7 days

3

• Long Shelf Life F&V• Impulse Buy Items

4

• Internal Adjustment if stock runs out

5

• Threat – Supermarket• Loyalty Cards, Bulk

Deals

6

15

FVR / Kirana Vs. Super Markets

CRITERIAINFORMALLY ORGANIZED

RETAILORGANIZED RETAIL

Ownership Household Business Corporate Business

Size of Operation Small Medium-Large

Nature of

EmploymentFamily members etc. Hired employees

Product AvailabilitySelective Brands and

unbranded(loose items)

Wide variety of branded as well as

company branded products

Selling Price Usually at MRP Discounted if bulk purchase/MRP

Store Ambience Poor/dim-lit Excellent/Well-lit

PromotionsCompany Promotion(Kirana)

Minimal in FVR(Shouting etc.)Joint Promotions

Tax Payment Evasion is common Stronger enforcement

Market Experience High Low

Proximity to

CustomerClose(Round the corner) Far/Shopping Malls

© 2013 KPMG Advisory Services Private Limited, an

Indian limited liability company and a member firm of

the KPMG network of independent member firms

affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights

reserved.

The KPMG name, logo and “cutting through

complexity” are registered trademarks or trademarks

of KPMG International Cooperative (“KPMG

International”).

Thank you

strategy project ppt group 6

Documents