The Retailer April12

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The retailerApril 2012


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Foreword

Dear reader,

It gives us great pleasure to present to you the April 2012 edition of The retailer, our quarterly publication

on the retail and consumer products sector.

In this edition, we have focused on themes for operational improvement, covering the major issues faced by

retail and consumer product companies in their store operations and distribution functions, respectively.

We have showcased how consumer product companies can maximize their prots through customer pricing.

In the last few years, the protability of leading retailers has been under pressure. In this edition, we have

focused on ways to improve the efciency and productivity of stores with the objective of conserving

precious capital.

In the hot Indian summer, ice-cream is popular among consumers. We have focused on opportunities, trends and success factors in

the Indian ice-cream and frozen dessert market.

In our interview feature, Mr. Krishna Shete, Vice President, Business Development of Radhakrishna Foodland Pvt. Ltd., shares his

views on evolving supply chains in the Indian retail and consumer products sector.

We also feature our Retail innovation board section, in which we present to you snapshots of recent innovations that have emerged

in the Indian and global retail industries.

We hope you enjoy reading this issue of The Retailer and we look forward to your comments and feedback.

Pinakiranjan Mishra

Partner and National Leader, Retail and Consumer ProductsErnst & Young, India


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Contents

Involve yourself:

We look forward to hearing your feedback and suggestions.

To contribute to editorial content, please contact Ashish Kakwani

T: +91 22 6192 0423

E: [email protected]

Customer pricing for prot value leakage 04

Performance improvement themes for Indian retailers 11

Ice-creams in India the inside scoop 17

Interview with Mr. Krishna Shete, Vice President, Business Development,Radhakrishna Foodland Pvt. Ltd. 25

Special feature: Innovation board 29


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4 The retailer

Customer pricing for prot value leakage

1

How consumer product companiescan maximize their prots through

customer pricing

While a consumer product company (CPC) can maximize its

prots by implementing initiatives including the right marketing

mix, segmentation, improved distribution system, optimization

of costs, etc., the fastest and most effective means of

maximizing prot is optimized pricing.

The payoffs of improved pricing far outweigh the benets

of other levers of prot. For example, CPCs operate at an

operating (EBITDA) margin of ~12-18%, and a 1% reduction in

its operating expenses will at best be reected in a 0.5%0.8%

improvement in its operating margin, while a 1% increase on its

overall sales through pricing can result in a ~5-8% improvement

in its operating margin! However, pricing decisions are often

fraught with risk, since incorrect pricing can drastically affect

volumes. Therefore, a systematic approach to pricing is critical

for the success of any company.

In the Indian scenario, customer refers to channel

intermediaries that cater to the end consumer. In this context,

optimal pricing relates to customer pricing or transaction price

management, i.e., the actual price realized by the company in its

transactions with its channel intermediaries. This is also known

as its pocket price.

While a company has a target list price for each transaction,

there are many on-invoice and off-invoice discounts and rebates

that exist under the guise of volume discounts, consumer

promotions, incentives to the sales force incentives, etc., which

can drive down the list price to a net realized price the pocket

price. In addition to this, a differential product mix and servicingarrangements across customers impacts this price further,

leading to differential marginal contributions (MCs) across

different customers.

Apart from these economic considerations, these measures

enable customers to extract an enhanced price from the

company due to factors such as tenure of relationship with

the latter and the perceived importance of a customer. These

considerations result in variations in the MC accrued to the

organization from individual customers. An analysis of these

variations demonstrates that the MCs are often part of a broad

range that is known as the Marginal Contribution Band (depicted

below).

Individual elements (off-invoice discounts, consumer

promotions, etc.) serve as input provided by the company to

generate sales. In a utopian world, each input and its outcome

should be evaluated at the customer level. However, while

invoice or gross sales is tracked at the micro level (customer-

wise), companies are unable to track and put into action the

individual spend elements of each customer and instead club

these at a gross level. Therefore, similar input may result in

differential output at the customer level this customer level

granularity is lost in the overall spend prole, making it difcultto assess individual customers contribution to the organization.

This lack of visibility of granular details results in value leakage

across the chain.

2% 2% 3%

6%

10%

15%18%

23%

20%

13%

8%6%

0%

5%

10%

15%

20%

25%

0-10%

10-12%

12-14%

14-16%

16-18%

18-20%

20-22%

22-24%

24-26%

26-28%

28-30%

>30%

%ofcustomers

Marginal contribution - as a percentage of gross sales

Marginal Contribution Band


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5The retailer

The sheer volume of transactions, of varying degrees of

complexity, tends to create a smoke screen, which makes it

difcult for companies to manage and understand opportunities

for margin leakage (as illustrated below).

Most organizations do not effectively manage true

customer pricing.

This leads to missed opportunities.

Absence of product-level protability Exploitation of price change to maximize protability

Historical precedent-based pricing/spend decisions Large number of low prot or unprotable customers

Limited visibility of true customer costs and protability Inconsistent discounting and investment across customers, markets and product types

No clear strategy to optimize mix of products by

customer, channel and market

Introducing the margin leakagewaterfall

The margin leakage waterfall is the basis on which the true

protability of a customer is analyzed. It assigns key spends

to customer segments (or markets or products) to identify

potential areas where prot can be optimized.

Margin leakage waterfall: Provides a framework for generating

hypotheses and identifying the highest value opportunities

In essence, the Value Leakage Waterfall achieves two main

objectives:

1. Allocates all costs to deliver a fully loaded view of current

protability by market, customer segment and product

2. Provides a common baseline to enable meaningful

comparisons within and across customer segments

Up-sell highmarginproductsand services

Margin leakage waterfall

Provides framework for generating hypotheses and identifying highest value opportunities

Simplify discounts, align to customer value, andcease heavy period-end discounts

Improve ROI onadvertisingspend deploymarketing mixanalytics

Drive up customerprofitability, eliminateunprofitable tail andincentivise the salesforce based on

CustomerContributionStandardisepayment termsand incentivisepromptpayments

Build cost-to-serve inpricing terms

Promotion spendoptimization institute payfor performance withincustomers/channels

Cost-to-serve COGS

Grosssales

Excise

Ne

tSales

On-invoicedis

counts

Invoic

esales

Off-invoicedis

counts

Nonmonetary

promo

Consumerprom

otions

Netsale

svalue

OtherBTL

spends

Costo

fcredit

Baddebts

Costofdistr

ibution

Pocketprice

Costofgoo

dssold

MarginalContr

ibution

Marketin

gcosts

fixedove

rheads

Pocket

margin

Sales Inputs

Enhanceprofitabilitythrough pricevolume trade offsusing elasticityanalytics


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6 The retailer

Opportunity identication through

Value Leakage Waterfall

The Value Leakage Waterfall can be used to leverage the

following opportunities:

Our experience indicates that addressing these opportunitiestypically enable improved margin opportunities worth around

2%5% of net revenue.

Identify protability distinctions across customer

segments and remodels negotiations to enhance

protability

Deploy differentiated input across segments

Develop pay for performance standards, aligning

input with objective delivery across similar customers

Dene service delivery across segments in line with

needs and delivery of protability

Align credit alignment with discounting

Leverage cross-selling and up-selling opportunities

to guide product improvement mix within customer

segment

Customers

protability

Sales

input

Cost to

serve

Improved

product mix

Ernst & Youngs point of view usingValue Leakage Framework to enhanceprotability

In our experience, the margin leakage approach is centered

around effective segmentation and objective-linked assessment

of customer-level spends.

Margin Leakage

Reduction

Implementation frameworks to transition spends

Customer segmentation and spend mapping

How should the spend s be transitioned to

overcome legacy effects ans ensure customer

segments?

How can the customer base be segmented

to identify respresentative and manageable

number of customer segments?

What is the true profitability delivered by

customer segments?

Objective linked assessment of spends for target segments

How should spend elements be redeployed to the needs of

segments?

Are spends for similar customers aligned to objective delivery?

Are cross-sell and up-sell opportunities adequately utilized to

drive margin improvements?

3

1

2


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7The retailer

1: Effective segmentation and mapping of spend thestarting point of margin-improvement initiatives

Segment customer base

Creation of representative and manageable segments

Key questions

What are the key criteria according to which the customerbase can be segregated?

What is the best methodology that can be used to create

actionable segments?

Can the segmentation be easily revamped as new

customers are added and market dynamics change?

Identication of true segment protability

Assignment of customer level spends

Key questions

Which spends are variable for a customer? How should individual spends be apportioned to the

customer base?

What is the true protability delivered by segments? Which

segments should be selected for margin improvement

initiatives?

Segmentation involves using one or both the behavioral and

attitudinal dimensions as variables:

Behavioral attributes:

Segment characteristics such as size and geography

Buying behavior such as frequency of purchase, average

ticket size and recentness of purchase

Business economics including contribution of turnover,

number of deliveries and customers ROI

Attitudinal attributes:

Needs and preferences including service needs, reputation

and responsiveness

Attitude to product or service including attitude to new

technology

Internal and external sources can be both used to collect data

on selected variables. If statistical techniques such as factor

and cluster analysis are required, multiple iterations may be

needed to generate the nal segment.

These nal segments must then be proled for analysis. Pilot

segmenatation solutions are developed accordingly.

Proling

Denition of segments that are identiable, attributable,

responsive and actionable

Process of assigning a character to the segment to make iteasily identiable, based on similar customer characteristics

Attribution

Segmentation is usually carried out using a sample of

customers; attribution required to ensure that all customers

can be attributed to one of the segments

Identication of manageable number of characteristics that

dene the membership of a customer in a segment

Marginal contributions across segments are identied to assess

inter-segmental variability, which can then be addressed.

0%

5%

10%

15%

20%

25%

30%

35%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Marginal contribution delivered as % of MRP acrossCustomer Groups/Accounts

Marginal contribution delivered

Largevolume

Mediumvolume

Lowvolume

Targetgroupstoimprove

profitability


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8 The retailer

2: Objective-linked assessment of spend heads is carried outto determine margin-improvement opportunities to feed into

pilot and implementation plans.

Redeploy over-lapped inputs

Map spends to objective delivery for identied segments and

redeployment of low value adding spends

Key questions

What are the main objectives to be delivered by spend

heads?

How important are these spends across the segments in

delivering the central objectives?

In light of multiple spends serving similar objectives, what are

the opportunities for redeploying spends?

This exercise helps to prioritize spends that can be redeployed

or reduced for the identied segments (identied in the previous

step), based on the relative importance of spends for the

segment.

For example, an analysis of marginal contribution revealed the

need for improvement in the high-volume customer function of

an Indian semi-durables player. On analyzing input overlaps, its

blanket goodwill scheme, which aimed to share the companysincremental prots with all its channel partners, was found to

have low import with its high-volume customers while it was

important for its low-volume ones. Redeployment of the input

as a loyalty program component was identied as a priority

intervention to help the company grow its top line, and thereby,

improve the marginal contribution of similar spend levels.

(Level of importance (H,M,L or NA) for each objective-dealer type combination) HMS LMS

Central objective Objective Input type Segment A Segment FOverall retailer share

(increase)

Block competition asset entry to drive future

growth

Loyalty input M H

Overall retailer share

(increase)

Encourage retailers to upgrade to higher /

more prestigious segment

Top-tier portfolio program H NA


(increase)

Increase retailer share by limiting competition

visibility

Visual Merchandising H L


(increase)

Reward retailer growth Goodwill schemes L H


(maintain)

Block competition entry Visual Merchandising H M

Overall retailer share(maintain)

Block competition entry (only top companies) Loyalty input L H


(maintain)

Customer meets to generate goodwill Field team tactical spends H M


(maintain)

Maintain retailer goodwill Goodwill schemes L L


(maintain)

Maintain retailer goodwill Top-tier portfolio program H NA


(maintain)

Subsidize institutional orders from retail Product-level ToT deals M L

Re-deploy into top-tier loyalty for Segment A

HMS - High Margin Segment

LMS - Low Margin Segment


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9The retailer

Identication of input-level overspend

Comparision of value delivered by segments of similarcustomers (same segment)

This exercise helps to identify intra-segment variations that can

be addressed to plug value leakage within a segment.

Since customers within a segment are similar, their spend levels

as a percent of sale should also be similar. However, large

variations are typically observed on their deep-diving in the

case of similar customers. While some of these can be explained

as tactical interventions, the majority are typically the result of

legacy effects.

The difference in spend levels across similar customers need

not be a cause for concern as long as the difference deliversproportionate returns from the customers. The gure below

depicts this as an example of an Indian CPG company. Large

variations were found in the case of customers belonging to the

same segment for critical spend heads linked to their product-

level growth. Furthermore, a customer-level growth analysis

revealed that 40% of overall spends were not delivering growth

that was commensurate with the overspend level. A transition

plan to address these overspends was devised and implemented

to improve the effectiveness of the spends of identied

customers.

0

1

2

3

4

5

6

7

8

0.3% 0.8% 1.3% 1.8%

No.

ofdealers

Input spends higher

than segment average

Higher spends

acceptable if

commensurate growth

is achieved

SegmentAvg

Input spend effectiveness within a customer group

Instances of overspend identified if extra spend as % of sales does not

generate higher growth redeploy spends with higher linkage to

growth


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10 The retailer

In a scenario with a limited number of customers, pricing should

be driven by the cost-to-serve across the customers. This

includes credit arrangements and delivery terms. For example,

two similar customers, one demanding 90 days of credit and the

other working on the basis of a 30-day credit window, should

work on different discounting levels. Marginal contribution

should also factor in the product mix so that companies can

derive benets through a basket mix analysis across their

customer segments with the aim of up-selling high gross marginproducts to targeted customer segments.

3: Implementation frameworks for transitioning spends

The greatest challenge is to effectively draw up a transition

plan that overcomes the legacy effect and ensures a customers

alignment with the redened business model. In most cases, this

is a gradual process that ensures customer stickiness and helps

to address their resistance effectively.

In the overspend example discussed in the previous section,

this problem was addressed by a segmentation solution,

which grouped large customers together to deploy a segment-

specic transition methodology. A three-year conversion

plan, which involved transition to the base + high incentive

methodology, was adopted in annual negotiations. At the end

of the transition plan, the spend head could be optimized due to

customers willingness to accept a pure pay for performance

methodology,.

In conclusion

Customer management is a critical function in any organization.

Complete visibility into customer transactions, although

challenging, given their sheer number and complexity, can

enable an organization to maximize prot through customer

pricing. Analysis of value leakage can also be a powerful tool

for managing this complexity, delivering margin-improvement

opportunities amounting to 2%5% of net revenues.

Value leakage principles require consistent and rigorous

implementation by organizations to capture consumer-level

transactional spends. Moreover, getting the segmentation

process right is an important element in managing complexity by

enabling segment-level decisions, instead of dealing with a large

number of customers.

Implementation of the opportunities identied through value

leakage brings with it challenges relating to alignment of

customers with the acceptable level of return for sales input.

Transition planning for important customers is therefore a key

element for realizing the benets derived through this approach.

Karan Bhatia

Manager

Ernst & Young Private Limited

Karan is a Manager in Ernst & Youngs

Performance Improvement practice, which is

focused on the consumer products sector. He

is has PGDM qualication from IIM, Kozhikode and has six

years experience with consumer product companies in the

elds of strategy, process consulting, sales and distribution,marketing operations, research and development, and

execution of entry and market expansion strategies.


T: +91 22 6192 0937

Inputs by Richa Tiwari


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11The retailer

2Performance improvement themes for Indian

retailers

IntroductionIn India, leading retailers are struggling to enhance or

maintain their margins, given the astronomical increase

in rental, manpower and supply chain costs. Retailers

are increasingly focusing on improving efciency and

productivity in their stores to conserve capital and fund

their next phase of expansion. Historically, there havebeen only a few retailers in India who have managed and

implemented initiatives on improving their store operations

successfully. Approach adopted for stores by such retailers

is one of the key reasons for low success rate. There

approach was transactional in nature rather than aimed

at building an organizational culture that was tuned to

continuous improvement. Moreover, most retailers only

utilized a few improvement levers rather than opting for a

comprehensive and rigorous improvement initiative.

For comprehensive operational improvement, retailers

need to look at levers that have linkages with the external

(catchment) and internal (retailing space, supply chain,manpower, etc.) environment of retail stores.

Improvement levers for operation ofstores

Retailers can use the following framework to ensure that theyhave explored all the relevant improvement levers to improve

their retail stores:

Figure 1: Framework for improving the performance of stores

Network EBITDA

Improvement

Efficiency and asset utilization

Improvement levers

Improve the utilization andproductivity of assets used for

store operations

Cost reduction levers

Develop operational

capabilities to optimize costs

in various operating areas and

improve margins

Improve support elements

Usually ignored support

elements can prove to be agame changer if used

effectively and efficiently

Top-line drivers

Identify levers that could

increase the sales at store level

Bottom-linefocus

Catchment activation

Improving operating

parameters related to

footfalls, conversion,

bill size, repeat

purchase

Customer relationship

management and loyaltyRange rationalization

Category management

Right MIS and

performance boards for

decision making

Visual merchandise

improvement

Customer service

improvementConvenient and

attractive store layout

Cost reduction in the

area of manpower,

power, supply chain,

rentals, administrative,

sales and marketing

spends, promotion

spends

Shrinkage reductionSupply chain cost

reduction

Space productivity

improvement

Fixture efficiency

improvement

Manpower productivity

improvement

Marketing and sales

spend effectiveness

Effective markdownsClosure of financially

non-viable stores

Top-line

focus


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12 The retailer

However, at the same time, it is imperative for retailers to

prioritize these improvement levers so that maximum value

can be extracted in the shortest possible time. Prioritization

is primarily driven by the nature of the gaps that exist in the

current retail operations of retailers and an effort made to plug

these. Nevertheless, retailers could focus on the following key

levers as their primary initiatives, and the rest of the levers can

be taken up during the next phase of improvement.

Top line focus

Catchment activation and improvement in operating

parameters

Almost every retailer measures and monitors operating

parameters including footfalls, conversion, average ticket size

and repeat purchase percentage. But most of them either fail to

understand or are not able to take corrective action in the event

of a plunge in the values of these parameters. These parameters

could help retailers determine the extent of catchment

awareness and activation in their businesses, as well as thesuccess of their brand-building activities and the selling skills of

their sales staff.

A simplistic customer funnel using these operating parameters

can track the progress of potential customers moving from the

awareness to the loyal customer stage, and in turn, help the

retailer determine the stage at which most potential customers

are being dropped. To evaluate the possible reasons for this, the

retailer can establish one-to-one mapping at various stages of

the customer funnel.

For example, awareness of a catchment store is directly linked

to the effectiveness of marketing initiatives, whereas thenumber of customers who buy from the store can be linked

to product pricing and assortment as well as to customer

service and loyalty. Similarly, the number of repeat purchases

can be mapped to the loyalty card scheme, product quality or

assortment.

Figure 2: Illustrative customer activation funnel

Detailed customer data captured at the time of sales can help

retailers to further analyze operating parameters. For example,

based on loyalty cards or delivery address data, retailers can

determine the catchment penetration of each of their stores.

This may help them to design catchment-specic marketing

and sales activities, which will result in effective and efcient

marketing initiatives.

Awareness80%

Interest40%

50%conversion

Visit30%

Buy20%

Loyal15%

66%conversion

75%conversion

75%conversion


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13The retailer

Figure 3: Illustrative catchment penetration

Category management and range rationalization

Category management and range rationalization are other areas

that can drive the top line for retailers. It has been observed

that effective and efcient category management can result in

incremental top line growth and better space utilization (to the

extent of 10%15%). This would require selection of the right

assortment and merchandize, assignment and activation of

the right category roles (e.g., prot enhancers, trafc builders,

image creators, impulse drivers, etc.), pruning or rationalizing

the range, appropriate pricing and in-season mark-down

management.

Retailers can use pareto analysis in conjunction with cluster

analysis to determine their store-specic assortment plans.

Parameters like category characteristics and their tment with

customer needs, consumer behavior and catchment analysis in

terms of demographics and socio-economic understanding can

be used for custering the stores.

Bopodi

Camp

Khed

Residential

Industrial belt

Wholesale markets

and malls

Player 1

Player 2

Retailers

Player 3

Player 4

Player 5

Key areas

Addressed Catchment

Households: 76,438

Player 2: 1%

Player 3: 3%

Player 5: 10%

High density catchment

Households: 106,438

Player 1: 5%

Player 2: 3%

Player 3: 7%

Untapped Catchment

Visual merchandize

Visual merchandize is an effective tool to entice customers, results

in higher footfalls, and eventually, top line growth. In general,

retailers can focus on the following areas to improve visual

merchandize:

Enhancing ease of shopping

Easily available store maps in stores and on shopping carts

Appropriate and consistent xtures to improve ease of selection

and their right placement within stores so that customer

movement is not obstructed and there are minimal dead spots

Right ambience and appropriate visual elements (xtures,

displays and signages)

Standardized, clear and specic visual merchandizing elements,

but at the same time, maintaining the distinctiveness of eachdepartment

Interactive visual merchandizing to incorporate entertainment

in shopping


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14 The retailer

Bottom-line focus

Cost optimization across cost elements

In a low-margin and volume driven retail business, managing

operating costs is the most essential and vital lever to improve

EBITDA. In addition to the cost of merchandize, the key

operating cost elements for a retailer include rentals, utilities,

manpower, selling and marketing, and the interest cost.

Rental is one of the key cost elements that can make or

break a retail business. It has been frequently observed that

renegotiation of issues relating to the actual area and the area

mentioned in historic or old lease agreements with a developer

may reduce rentals. Such discrepancies have been observed

frequently. If this can be renegotiated with the developer,

rental outgo can be reduced. In some cases, retailers have

re-negotiated the percentage of super built-up area and CAM

charges with developers to reduce the overall rental, based on

a benchmarking exercise. Retailers are increasingly looking at

changing the rental model from a xed to variable rental mode,

so that the risk of a high xed cost can be mitigated.

In the case of power, the benchmarking exercise within a store

network can spur a large number of surprises. The cost of

electricity is crucial for some retailers or formats because of

their high usage of power due to high lux requirements. The

following gure presents some levers that could be considered

by retailers to reduce their power consumption:

Figure 4: Illustrative power consumption across a chain of stores

2.2

1.8

1.5

1.2

0 0.5 1 1.5 2 2.5

Store 4

Store 3

Store 2

Store 1

Units/Sqft/Month Levers for reducing power usage

Submeters installed for each department

with department managers responsibility

to control power consumption

Lowering height of light fixtures to

increase lux levels

SOPs are put in place for controlling

power costs such as lighting, cooling and

computers

Increasing set-point for shop

temperature to 24 degrees Celsius to 24

+/- 1

Norms set for weekdays and weekends

power usage

Installing a lighting transformer

Reducing voltage for lighting in certain

stores

Installation of air curtains at exits

Regular cleaning of AC filters

Power saving investments: Capacitor

funnel, energy savers etc

Apart from rental and power costs, one of the major issues

retailers face is to optimize staff costs. Measuring or

benchmarking staff cost as a percentage of sales and store area

(in sq. ft.) can throw up various challenges. One would imagine

that large stores require a sizeable number of employees to

maintain appropriate service levels and touch points with their

customers. However, if sales are low despite a large store area,

a high staff count may be counter-productive. That is why

some retailers benchmark their mature and immature (openedrecently) stores differently. In the case of mature stores, staff

costs as a percentage of sales may work, whereas, in the case

of newly opened stores, it can be benchmarked against the

cost per unit of store area. The staff count can be increased or

reduced, based on this benchmarking exercise. Additionally,

this cost can be optimized by employing part-time employees

and brand promoters. Enhancing the cross-selling and up-selling

prociency of existing employees and inculcating multi-tasking

skills in selected existing employees can also enhance the staff

productivity.

Lastly, improving the effectiveness of sales and marketing

initiatives may result in improvement of the top line as well

as the bottom line. Retailers need to put in place a robust

monitoring mechanism to determine the effectiveness of sales

and marketing initiatives. A healthy mix of various initiatives can

be determined on the basis of an available budget, diminishing

returns on marketing spend and an index, which could reect

effectiveness in terms of cost, quality and reach.


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15The retailer

Figure 5: Illustrative comparison of space allocation

Space efciency

Space is a scarce resource in any retail store and its utilization

needs to be optimal to derive the maximum benet from the

rental outgo.

One of the means of enhancing space efciency is to allocate

optimal space to every category. This may not be as simple as it

sounds, but retailers can try to allocate category-specic spaces

using the following concepts:

Category-specic gross margin return on investment

(GMROI): GMROI analysis can be utilized in conjunction with

inverted U curves, which can be drawn between category

sales per unit area and areas allocated to different categories

(based on historic or network data), to assign optimal space

to specic categories of products within stores.

Design of experiments (DOE): Retailers can plan sets

of experiments in their network stores by allocating

different areas to specic categories. They can monitor

the performance of a category over a period of time todetermine optimal space allocation. In addition, to take into

account catchment characteristics, they can perform similar

experiments after forming catchment-specic store clusters.

Heuristics and linear programming-based models: These

models would typically use the gross margin or top line

as a maximization function after taking into account various

constraints (e.g., the minimum and maximum space that

can be allocated to a particular category, the effect of

adjacencies of categories, the impact of shelf placement,

etc.)

0.81 0.75 0.700.68 0.65

0.72

0.00

0.10

0.200.30

0.40

0.50

0.60

0.70

0.80

0.90

Store A Store B Store C Store D Store EAverage

Retail to carpet area

100%

30%

70%

10%5% 2% 5%

48%

Chargeable Carpet Aisle Trial

room

Cash Back/Office

Retail

area

Illustrative breakup of the area for a store


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16 The retailer

Another alternative to enhance efciency of space is to use

appropriate xtures. This may not be very relevant for some

categories including food, vegetables or staples, but can add

immense value to space utilization in the case of most other

categories. For instance, a leading apparel retailer has increased

its sales and display productivity by 15% by replacing its existing

xtures with more exible ones. This has resulted in higher

density product display.

Inventory costs

In any retail operation, optimizing inventory costs is of the

utmost importance. Inventory mismanagement may result in

stock-outs of some categories and an excess of others. Low

inventory turns will have a negative impact on GMROI, and

especially, in the case of categories for which gross margin is

fairly low, e.g., fruits, vegetables, milk, staples, mobiles, etc.

In addition, large inventories result in obsolete stock, leakage

of margins, damages, and high returns and carrying costs

(including interest, space, handling costs, etc.). Therefore,

retailers need to have clear-cut category- and product-

specic inventory policies, which can be either forecasting- orreplenishment-based.

Shrinkage

Shrinkage is another key concern area that retailers need to

be aware of and should be able to contain. It has a serious and

negative impact on the revenues and margins of stores, as well

as on their customer satisfaction and an organizations image.

Shrinkage is generally caused by internal and external theft,

failure of processes, fraud or vendor-related issues. Retailers

should focus on the following to reduce shrinkage:

Robust and reliable process for stock count and reconciliation

at various stages of the supply chain

Appropriate metrics for measurement of shrinkage across

various stages of the supply chain

Maintenance of data integrity (including stock data)

Advanced IT systems to check, capture and measure

shrinkage

Deepesh Jain

Senior ManagerErnst & Young Private Limited

Deepesh is a Senior Manager in

Ernst & Youngs Performance Improvement

practice and has over nine years work

experience, largely in the areas of strategy development,

operations and performance improvement, business process

re-engineering, benchmarking, gap analysis and sales force

effectiveness. Deepesh has an MBA from IIMA and has

worked in sectors including retail and consumer products

and oil and gas.


T: +91 22 6192 1835

Rigorous process for identifying root causes of shrinkage

and eliminating these (Some of the causes would be failure of

the information process, products being stored in the wrong

locations, mis-pick or over-delivery due to rain, damage

caused by material-handling equipment, faulty packaging,

load movement in transit, crushing of carton corners or

theft, eating, planned and opportunist shoplifting and theft

by employees.)

Conclusion

Retailers can explore multiple levers at their stores to

improve their EBITDA, but prioritization of these levers is

the key. Secondly, benchmarking a stores performance

within a retailers network and comparing this with that of

its competitors might throw up numerous opportunities for

improvement and can be a good starting point.


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17The retailer

Ice-creams in India the inside scoop

3

Introduction

The ice-cream industry in India has traditionally been heavily

fragmented and dominated by local players selling unbranded

ice-creams. Over the years, organized players have tried

to counter them by focusing on promotional campaigns

and aggressive brand-building exercises. However, for an

organized player to capture a signicant market share inthis extremely fragmented and competitive industry, the

other three Ps product, price and place of its strategy

are perhaps equally or even more important than promotion

alone. While aggressive promotion can help to create a mind

share, especially in the urban market, it is the availability

of the right mix of products at the right price that can

help players secure a signicant share of customer spend,

particularly impulse spend on products such as ice-creams.

On the ip side, as competition intensies in the ice-cream

industry, players that do not focus on these three Ps risk

losing even their well-established mind share with their

customers.

The key elements that need to be addressed while evaluating

and dening a companys strategy include the following:

Product

portfolio

Identify the focus SKU types/avors, aligned

with target customer segments and markets

Distribution

structure

Deploy the correct network structure to tap the

target customer segments and markets

Cost

control

Estimate and control the key cost heads

in order to manage competitive pricing of

products while ensuring overall protability of

the rm

Organizations currently tend to address these elements

separately, since they come under the purview of separate

functional structures (e.g., marketing, sales and nance).

However, these inter-related elements need to be addressed

comprehensively for a company to compete effectively and

achieve protable growth.

Market overview

The ice-cream industry in India is currently estimated at around

INR2530 billion, growing at 15%20%, with only 45%50%

comprising of organized players, i.e., the branded segment.

*Note: This includes manufacturers of ice-creams and frozen desserts.

Regional players differ by region, but on an average constitute betweena fourth and third of the overall market.

In spite of largely favorable climatic conditions, per capita

consumption of ice-cream in India is signicantly lower than the

world average as well as that of smaller neighboring countries

such as Pakistan.

However, per capita consumption of ice-cream is expected

to grow at least two-fold in the next decade due to improving

hygiene and rising disposable income levels in the country.

Amul35-40%

Kwality Walls

15-20%

Vadilal

15-18%

Regional

players25-35%

Organized players - Market share

(Total market ~1200-1500 cr.)

23 L

18 L

14 L

2.3 L 2 L750 ml 350 ml

US Australia Sweden World Avg. China Pakistan India

Ice-cream per capita consumption


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18 The retailer

Therefore, it is evident that India presents a signicant growth

opportunity for organized players offering branded ice-

creams. However, the stiff competition between organized andunorganized players makes it difcult for the former to achieve

protable growth. We will now look at each of the three key

elements in detail, in context of the complexities associated with

the Indian marketplace.

0

300

600

900

1200

1500

1800

0

50

100

150

200

250

300

1990 1995 2000 2005 2010 2015 2020 2025 2030

Urban -Disposable income All India -Disposable incomeRural -Disposable income Per capita Ice-cream consumption

India Disposable income vs. Ice-cream consumption

Dispo

sableincome

percap

ita

(inRs.

000) Ice

-creamconsumption

percapita

(

inml)

Enablers for

growing ice-cream

consumption

Growing

urbanization

Improving

availability of

power

Improving

disposable

income levels

Increasing

freezer

penetration

Growth of

modern trade

channels

Improving

cold chain

infrastructure

SKU mix

While buying ice-creams, most customers like to choose froma range of options. Moreover, preferences and spending

patterns vary signicantly across age groups and locations. For

instance, young people in cities are more likely to experiment

with different avors or premium Stock Keeping Units (SKUs),

as compared to the youth in semi-urban or rural areas; visitors

at tourist spots such as beaches and amusement parks are more

likely to buy cones and sticks.

Therefore, for ice-cream manufacturers, designing their product

portfolios is a fairly complex task, and requires them to t in a

broad range of SKUs at competitive price points for their target

customer segments and markets. Intensifying competition in the

organized space further accentuates the need to have the rightmix of SKUs. Hence, the rst step in developing a companys

strategy should be to dene its product portfolio along the three

dimensions of SKU types, avors and fat content. Decisions

should be taken keeping these dimensions in view as well as the

companys desired pricing structure.


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19The retailer

SKU Type

All organized players are offering range of SKU variants targeted

at different customer segments

Kids Cups & Candy sticks, Youth Cones, Premium sticks& Specialty Items (e.g. Casatta slices), Family Tubs, Family

Packs, Institutions Bulk packs, Cups (small)

Cups, cones & sticks make up approx.70% of total ice-cream sales

Some players are focusing on specic SKUs to capture the markete.g. Amul is aggressively focusing on Tubs & Bulk Packs, which

contribute over 35-40% of its total sales

Flavors

Four standard avors Vanilla, Strawberry, Butterscotch andChocolate constitute around 80% of the total market

Companies are trying to differentiate their product portfolio byoffering other variants too

Natural fruits & dry fruit avors (e.g. Mango, Orange, Pista,Badam, Raisins)

Local avors (e.g. Rose milk for South India)

Festive avors (e.g. Dates, Anjeer for Ramazan period)

Fat Content

Varying the Fat content helps manage raw material costs & offercompetitive pricing

Typical Fat options available : Premium 16%, Regular 12%,Medium 9%, Low 6%

Most organized players vary Fat content in certain SKU types or

for specic customer segments Medium fat ice-cream is used in combination SKUs like

Chocobar

Low fat ice-creams (cups & bulk packs) offered for institutionalsales (hotels, banquets)


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20 The retailer

This is the critical rst step because decisions relating to product

portfolios eventually become the starting point that dene

companies marketing, sales and distribution strategies.

Distribution structure

Climatic conditions in India lead to extreme seasonal swings

in ice-cream sales in most regions. For example, the summer

season (MarchJuly) accounts for over 60% of the total sales of

most players. On the other hand, utilization of manufacturingcapacity can fall as low as 30% during the off-peak season.

This makes the option of building large-scale and/or multiple

manufacturing bases inherently unviable. As a result, most

organized players currently have a single manufacturing

location (except for large national players such as Amul and

Kwality Walls) and a limited regional footprint around it.

Therefore, it is evident that ice-cream manufacturers, by the

very nature of the product they sell, require a very well-designed

distribution network and cold chain logistics support to ensure

that their products reach their target markets and customers.

The two main objectives of such networks include:

Providing an adequate number of depots and distributors

that can store the products and ensure that these reach

dealer points in good condition

Providing an adequate number of dealer points that offer

easy access to customers

Dealers

Factory Depots Distributors

In-storeKiosks

Supermarkets

Push Carts

Hotels /Banquets

Ice-creamParlors

Consumers

Decisions on the design of distribution networks need to take

into consideration these two aspects (mentioned above) from

the perspective of availability of options and their viability.

Unavailability of a robust back-end infrastructure, including

road networks, power supply, cold stores and cold chain

transportation, makes the task of building a large customer

and geographical footprint across the country extremely

challenging. Most companies use the hub and spoke model withthird party managed depots, each feeding more than 2530

exclusive distributors. Each distributor supplies dealers within

a radius of around 10 kilometers. However, it is difcult to set

up third-party depots or distributors in semi-urban and rural

markets, and so companies often set up their own depots or

appoint super distributors that supply dealers and other small

distributors.

In such a complex environment with multiple operating model

options, companies need to effectively manage tradeoffs

between the following:

Setting up of optimal number of depots (company-run or

third party-managed) and their running cost

Optimal number of distributors vs their market coverage

the number of dealers one distributor can effectively serve

Stock levels at various nodes vs the cost of trips made by

refrigerator-mounted vehicles to feed the entire network

On the front end, there are

multiple options now available to

reach consumers. In-store deep

freezers in neighborhood grocery

stores or sweet shops have been

the most used format over the

years. However, with growing

urbanization and increasing

purchasing power, standalone

parlors, which were earlier only

used by premium or super-

premium players such as Naturals

and Baskin Robbins, are also fast

gaining traction. For instance,

Arun (Hatsun Agro) has been very

aggressive in setting up standalone scooping parlors across

south India.


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21The retailer

In-store

Kiosks /

Freezers

Companies place deep freezers (approx. 200-400 l) capacity in existing stores, typically in residential neighborhoods grocerystores, supermarkets, sweet shops, juice bars

Most companies like Kwality Walls provide the freezers free of cost while some charge a nominal dealership fee (around Rs.15-25000) to recover the cost of the freezers

Key suppliers of deep freezers Voltas, Bluestar, Carrier, Haier, Western

Vending

Carts

Vending carts (approx. 200 l) are extensively used around places like beach, tourist spots (like India Gate), fairs, exhibitions Orsemi urban/rural areas with limited presence

Area of operation of vending carts is xed by the manufacturers In many cases, vending carts are owned by depots / distributors and run on commission basis by the actual cart vendors

Standalone

Parlors /

Stores

Companies are now opening standalone scooping parlors (300-500 sq. ft.) in up-market residential areas and shopping districtsto increase their sales as well as Brand Equity

Stores are usually franchisee outlets, with manufacturers charging a one time brand royalty fee / refundable brand deposit ofRs.50000-100000.

Equipment purchase is usually subsidized or facilitated by from preferred suppliers

Institutional

Sales

Earlier a preserve of local players, most manufacturers are now aggressively focusing on tapping institutional segment hotels,restaurants, banquets

Quick Service Restaurants (e.g. McDonalds, Dominos Pizza) / Coffee chains (e.g. Caf Coffee Day, Barista) have emerged asother key targets for institutional sales

Most rms now have a sales team focused on this segment

As mentioned earlier, there are extreme swings in ice-cream

sales in India due to climatic conditions in the country.

Companies need to factor in this aspect while developing their

sales networks, since their sales swing will have a varying impact

across dealer formats. They should also ensure the viability of

these formats through focused sales support during the off-

peak season. For instance, most companies launch Buy 1 Get

1 Free offers on certain SKUs to boost sales of in-store kiosks

and parlors during these months, especially on special occasions

such as Diwali, Christmas and Valentines Day.


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22 The retailer

Format Investment

(Approx. in Rs.)

Avg. Monthly Sale (in Rs.) Typical Margin

(%)

Breakeven

PeriodOff-peak Peak (Summer)

Vending Cart 35,000 10,000 30,000 25% - 35% 5 7 months

In-store Freezer / Kiosk 25,000 25,000 60,000 20% - 25% 3 5 months

Standalone Parlor 3,50,000 80,000 1,50,000 40% - 50% 4 - 8 months

Therefore, it is clear that given the broad range of available

options, companies need to develop the right networks of

various formats, which are best supported by their product

mix and helps them tap their target markets and customer

segments.

10000

3000025000

60000

80000

150000

0

20000

40000

60000

80000

100000

120000

140000

160000

Off-peak Peak (Summer)

Avg.

MonthlySale(inRs.)

Season

Sales format - Seasonal variations

Vending cart In-store freezer/Kiosk Standalone parlor


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23The retailer

Kids/Pre-teens Youth Adults/Families

SKU: Bulk Packs, Cups

Format: Direct sales Standard flavors (Vanilla,

Strawberry) most popular

Profile of customers

< Rs.100

Rs.100 -300

> Rs.500

Averagespend

Institutions

Rs.300 -500

SKU: Scoops, Tubs, Family Packs

Format: Scooping Parlors, Freezersin Supermarkets

Best segment to target premium /

innovative flavors

SKU: Cones, Premium Sticks, Specialty

Items (Casatta slices, Sundaes etc.) Format:Kiosks (Malls/Office food

courts), Scooping Parlors, Vending carts

(Beach, Cinema Halls)

SKUs: Candy Sticks, Cones,

Cups Target format: Vending Carts,

Freezers in stores near schools

/colleges

Mapping of Target Segment, SKUs and Formats

Cost control

Apart from taking decisions on their

product portfolios and distribution

structures, ice-cream manufacturers also

need to focus on keeping their overall

cost of manufacturing and operations

under control. For instance, giventhe seasonal nature of sales, capacity

utilization of manufacturing facilities

and the overall distribution network falls

dramatically (as low as 30%) during the

off-peak season. On the other hand,

availability becoming a major issue during

the peak season, with raw materials and

the prices of packing material uctuating.

A high xed cost structure in such an

operating scenario can severely impact

protability. Based on our experience, we

present below the typical cost structureof a manufacturer:

Typical cost structure (as a % of sales) and key focus areas

EBITDA

10-20%

Sales and

marketing

15-20%

Distribution

8-10%

Factory

overheads

10-15%

Material

cost

40-45%

Sales and marketing efforts are focused on :

Increasing market coverage through dealer network expansion

Dealer performance monitoring ensure optimum stock levels at existingdealers and closure of non-performing ones

Ensure sale of right product mix to achieve the targeted realization per unit/

litre of ice-cream sold

Logistics team fixes the stock norms for all key nodes in the network and

minimum order quantities

Focus is to ensure higher vehicle capacity utilization per trip

Overall firm focus is on achieving high sales throughput to ensure better

capacity utilization esp. during off-peak season

Power and fuel costs can be as high 6-7%, hence firms focus on optimal

utilization of cold storage facilities in factory and depots

Most firms do not have captive dairies and rely on local farmers and dairies

for key raw materials like Milk, Cream, Skimmed Milk Powder

High focus packing material items from both availability and cost perspective

are: Cups, Cones, Tubs


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24 The retailer

These cost heads need to be managed through a mix of strategic

and tactical initiatives including the following:

Strategic sourcing of raw and packing material through long-

term contracts with selected suppliers (especially for critical

items such as milk, cream, sugar, cups, cones and sticks)

Optimal inventory management of nished goods since this

also impacts the power consumption of cold storage facilities in

company-managed factories and depots

Stock norm denition of depots and enhanced route planning to

keep logistic costs under control

Limitation of xed workforce to only management staff and

skilled employees in factories for quality control, production

control, plant maintenance, etc.

Strong tie-ups with HR companies to provide adequate unskilled

labor during the peak season (typically for three-shift operations

six days a week) and only a limited labor force during the off-

peak season on a need basis (for single-shift operation on only

two or three days a week)

Conclusion

Organized players that are focusing on Indias ice-cream

industry need to concentrate on their product portfolios,

distribution structures and cost control measures, irrespective

of the markets in which they operate. Their ability to take

specic strategic and tactical decisions on these elements

will eventually help them capture a market share and achieve

protable growth in this extremely competitive industry space.Anant Sood

Senior Manager

Ernst & Young Private Limited

Anant is a Senior Manager in Ernst & Youngs

Performance Improvement practice and has

over 11 years of consulting experience in India, China, the

Middle East and the US. He has an MBA in systems and

marketing and worked in sectors including oil and gas, travel

and leisure, fertilizers and automotives.


T: +91 44 6632 8551

Inputs by Ramswaroop Sharma

Fast facts: Ice-cream vs. frozen dessert

Ice-cream has actually become a generic term, but technically

not every cup, cone or tub of frozen delicacy one indulges in

is an ice-cream. Prevention of Food Adulteration (PFA) Rules

provide clear guidelines on differentiating ice-creams from other

frozen desserts.

Ice-cream Frozen Desserts

As per The Prevention ofFood Adulteration (PFA)

Rules, ice-cream is dened

as a product obtained by

freezing a pasteurized mix

prepared from milk and / or

other products derived from

milk

Made from 100% Milk orderived ingredients like

cream, skimmed milk powder,

they are rich in nutrients like

protein, calcium & vitamins

For a litre of ice-cream, costof milk fat mix is around

Rs.60/litre

Indian players : Amul, MotherDairy, Arun, Jamaai, Baskin

Robbins

Products obtained by freezinga pasteurized mix prepared

with milk fat and / or edible

vegetable oils and fats in

combination with milk protein

and / or vegetable protein

products

Typically made with oils likePalm Oil or Coconut Oil, they

have low nutritional value

compared to ice-creams

For a litre of ice-cream, costof vegetable fat based mix isaround Rs.30 / litre

Indian players : Kwality Walls,Vadilal


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25The retailer

Interview with Mr. Krishna Shete,

Vice President, Business Development,Radhakrishna Foodland Pvt. Ltd.

4

1. Could you take us through the evolution of Radhakrishna

Foodland, highlighting the key milestones achieved?

Radhakrishna Foodland Pvt. Ltd. (RFPL) started as a ship-

chandling company. It gradually evolved to become an

integrated provider of supply chain solutions to the Food

and Near Food industries. We thrived and grew our food-

distribution business in an era when knowledge of food

safety was limited and cold chain infrastructure inadequate.

Presently, our business is aligned to ve sectors that

we service. These include Processed Agri, Retail, quick

service restaurants (QSRs), Food Service and Retail. We

have developed a category-led approach for 32 categories

of our services across these ve sectors. Our customers

patronage, as well as our ideology and commitment to their

businesses has helped to create a differentiated position for

us in the marketplace.

1. Could you take us through the evolution of Radhakrishna

Foodland, highlighting the key milestones achieved?

Radhakrishna Foodland Pvt. Ltd. (RFPL) started as a ship-

chandling company. It gradually evolved to become an

integrated provider of supply chain solutions to the Food

and Near Food industries. We thrived and grew our food-

distribution business in an era when knowledge of food

safety was limited and cold chain infrastructure inadequate.

Presently, our business is aligned to ve sectors that

we service. These include Processed Agri, Retail, quick

service restaurants (QSRs), Food Service and Retail. We

have developed a category-led approach for 32 categories

of our services across these ve sectors. Our customers

patronage, as well as our ideology and commitment to their

businesses has helped to create a differentiated position for

us in the marketplace.

2. How do you differentiate yourself from other logistics and

supply chain solution providers?

Logistics and supply chain solutions are perceived as

generic and differentiation is a challenge. We believe in

differentiating our offerings and operations through our suit

of end-to-end services and our team of domain experts.

RFPL is geared to offer end-to-end supply chain solutions

from the factory stage to our customers, and in certaincases, even consumers. Our suit of services, along with

our proven track record, singles us out as a differentiated

provider of the services mentioned above.

We have aligned our people and organization with the

ve sectors we serve. This is reected in the professional

backgrounds and ground experience of our key executives.

This enables us to understand our clients needs better and

deliver solutions that focus on areas that are critical for

them.

3. What are the major challenges in the supply chain of the

Indian retail and consumer products sector? How doesRadhakrishna Foodland assist its clients in overcoming

these challenges?

Leading Indian consumer brands are witnessing

unprecedented growth in terms of geographic reach and

volume. Given this rapid growth, it is critical for them to

focus on each players core capabilities. However, during

their evolutionary phase, players such as RFPL are required

to their build capacities around people, processes and

infrastructure for the future, since servicing this pace of

growth is challenging.

Consumer markets are dynamic and require the industry

to focus on compliance, product integrity and business

continuity to ensure smooth operations. Apart from

capability-building, there is also an increasing need to focus

on soft aspects such as hidden costs. We at RFPL are doing

all of this and have developed an in-house model Service

Quality Value Management (SQVM) function to ensure

minimum wastage, error and theft (WET).

Furthermore, a major challenge facing the industry is

seamless sharing of information. The information shared

between clients and supply partners is not optimal and

transparent, which gives rise to inefciencies in the supply

chain. Therefore, it is critical to dene specications, scope,

SLAs and metrics to track performance, and accordingly

decide on information-sharing plans and tools.

Krishna Shete

Krishna is the promoter of

Radhakrishna Foodland and

leads the Sales & Marketing

function in the companys

Executive Management team.

Radhakrishna Foodlands

business development

strategy, a key aspect of its

client activation function, is

driven by Krishna. With his

fresh approach and dynamism,

he manages and addresses

business challenges in keeping with the long-term goals of

the organization.


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26 The retailer

4. How different are the logistics and supply chain

operations of food and non-food categories?

In the supply chain, the critical activities of movement,

handling and storage are directly dependent on the category

of goods being handled. For example, we service categories

with a shelf life of 3 days to 18 months with each having the

following:

Specic requirements relating to temperature, foodsafety, etc.

Challenges pertaining to cross-contamination, hazards,

etc.

As a provider of supply chain solutions, we have to handle

the variety of foods products coming from the same

company in a different manner. For example, confectionery

and beverages need to be moved, stored and handled in

different ways.

In a nutshell, the supply chain is category specic and the

challenge is to group categories that are similar in such a

way that it does not impact the other categories.

5. How will the changes in the Food Safety and Security

Act of India (FSSAI) impact the logistics and supply chain

operations of FMCG categories?

Historically, adherence to and enforcement of food safety

and security norms has been low. However, with recent

developments in the area, the industry is gradually moving

toward a healthy and FSSAI-compliant supply chain.

We at RFPL comply with global best practices relatingto food safety and security. Furthermore, leading food

companies and supply chain providers (including us) have

been investing in building the required infrastructure to

comply with and even exceed FSSAI requirements.

However, the bigger challenge facing us is that our eco-

system (supporting infrastructure) is not ready for FSSAI.

For example, leading commercial complexes and malls do

not have the required back-end infrastructure (for loading

and unloading), resulting in manual intervention, which may

not be compliant with FSSAI requirements.


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27The retailer

6. What will be the impact on the supply chain of Indian retail

and consumer products companies after implementation

of GST?

Implementation of GST is expected to result in consolidation

or reduction in the number of distribution centers. In this

event, the emergence of larger distribution centers is

inevitable.

In view of this scenario, players will be required to gear up tomanage the complexities of these large distribution centers.

Furthermore, they will also have to redesign processes and

train people to manage this change.

In addition, leading players may have to focus on investing in

shared infrastructure at strategic locations to drive time and

cost efciencies.

However, in the overall scheme, implementation of GST will

give a further impetus to the growth of the organized sector

and drive consolidation among industry players.

7. How do you foresee the supply chain models of retail and

consumer product companies evolving over the next 5

to10 years?

Supply chain models are continuously evolving in India. In

the next three to ve years, the three key changes I foresee

in common practices include:

Increased focus on category-specic requirements

Enhanced focus of supply chain providers on their core

capabilities

FMCG companies and supply chain solution providers

co-investing in and building their capability to service their

customers effectively

In a nutshell, supply chain models are expected to lay

increased emphasis on the depth of their offering rather

than its width.


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28 The retailer

1Marks & Spencerstores go digital 2Walmart trying to bridge gap betweenbrick and mortar and online stores

Special feature: Innovation board

5

Marks & Spencer (M&S) is working with

NCR Corporation to pilot new multimedia

zones in its stores. These will combine

digital discovery touch screens, video

walls and displays of actual outts.

The retailers Style Online touch screens

help shoppers keep up-to-date with the

latest fashions and provide a digital

stylist tool that enables them to combine

different garments and accessories to

create their own personalized look.

This enables shoppers to achieve the

tailored look they want without retailers

having to hold excessive stock on-site.

It unlocks the pressure on margins and

enhances the value proposition to the

customer.

Consumers like being able to touch, feel

and see products in-store, but also want

the benet of endless choices, and one-

touch ordering enables them to shop in

the easiest and quickest possible manner.

These screens complement mobile

commerce by offering fast, high-

denition and widescreen digital access

to information, and thereby, offers

consumers a novel experience.

M&S has set up multimedia touch screensin several stores in the UK as well as in its

agship store in Paris. These converged

retailing solutions enable retailers to

differentiate themselves, reduce their

operating costs and attract todays

empowered and frequently elusive

consumers.

Growing competition from online retailers

is driving brick- and- mortar retailers

to innovate continuously. Walmart, the

worlds largest retailer, is developing

applications and offerings that will impact

shopping behavior widely. This includes

development of applications to provide

customers with the exact location of

products in stores as well as detailed

product comparisons a feature that

typically only found on online shopping

websites.

(http://www.ncr.com/newsroom/resources/marks-and-spencer, accessed 2nd April, 2012)

(http://www.innovationmanagement.se/2011/11/11/walmart-setting-up-rd-centre-in-india-for-e-commerce-innovations/, accessed 2nd April, 2012)

Furthermore, this technology could enable

customers to check (from anywhere in

the store) the availability of a product in a

store. For example, customers could read

product codes in the window to check

whether a dress is available in specic

sizes. The biggest advantage of this is that

it can also be done when the stores are

closed. It will also help customers create

a route through the shopping area, based

on their shopping lists. This helps to make

shopping an enhanced experience for

customers by cutting down on their time

and effort.


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29The retailer

3 4Tescos onlinetrial option Kivas new and improved warehousemanagement systemsOnline shoppers face the problem of

products not matching expectations

in terms of size, look and feel. Tescos

Augmented Reality platform is set to

solve this issue by enabling consumers to

visualize products at home.

Updated reality technology enables

customers to visualize televisions, toys

and other products at home and helps

them make better purchase decisions.

This is a signicant step forward in the

online shopping experience. Customers

are able to see the actual sizes and

proportions of products from the comfort

of their homes before ordering, and as a

result, reducing the number of returned

products.

In addition, Tesco is currently piloting

augmented reality in its stores and online,

which enables shoppers to view 3D

images of products on computer screens.

Customers can access a virtual 3D view

of items in their homes by using their

webcams and markers.

The pilot, which is being conducted

with Total Immersions partner and UK

software company Kishino, is aimed at

saving shelf space in Tesco retail stores.

Augmented reality will enable customers

to get a close view of products and

interact in ways that has never been

possible before.

The progression of technology is a

boon for the retail industry. Kiva uses

mobile robots for automation and order

fulllment in warehouses. Its material-

handling systems are currently being

used by some of the worlds leading retail

companies.

Products are kept on portable storage

units. When an order for an item arrives,

battery-powered robots are guided by a

computerized control system to fetch the

order. These follow a grid system of 2D

bar codes on the oor to navigate their

way to mobile shelves containing the

desired inventory. The robots navigate

around the warehouse using an onboard

(http://econsultancy.com/us/awards/winners,accessed 2nd April, 2012)

(http://www.fastcompany.com/most-innovative-companies/2012/kiva-systems- accessed 2nd

April 2012)

camera to read barcode stickers on the

warehouse oor. They communicate

wirelessly to computer servers that run

order-processing software and deliver

directions.

The system is much more efcient and

accurate than the traditional method of

having human workers traveling around

a warehouse, and locating and collecting

items.

Kivas relatively new automated material-

handling systems for order fulllment

are gaining traction in e-commerce, retail

restocking, distribution of parts and

other major distribution operations in

warehouses.


30/32

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Mumbai - 400 063, India

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NCR

Golf View Corporate

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Near DLF Golf Course

Sector 42Gurgaon 122 002

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18-20 Kasturba Gandhi Marg

New Delhi 110 001

Tel: +91 11 4363 3000

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The Retailer April12