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17 June 2008

DOMESTIC RETAIL : TAKE A BITE

Shopping in India has lots of menus and flavours. As an event, it could be a one stop bhaji-subzi deal or a protracted family outing culminating in one sunday's worth of time sacrificed at its alter. As a dish, there are the food-chain guys, the clothing lines, personal accessories, electronics, home-improvement items and jewellery. These could be served in different formats like the speciality store(a thai restaurant), discount store (the thali), cash and carry business or a supermarket/hypermarket (a buffet meal). All permutations and combinations have their own dynamics.
However I am swayed by C K Prahalad in looking for fortune at the bottom of the pyramid. With a small modification - the bottom to be an Above Poverty Line. And any retailer in India who is successful in targeting this strata will in the long run make money. The thali caters for this segment. It signifies a wholesome, value-for-money and affordable meal, catering to a large cross-section of tastes.

The Discount Store : Thali
Subiksha, Vishal Mega Mart and Big Bazaar spring to mind. The first two though efficient, are one-trick-ponies. However Big Bazaar (though technically a hypermart is treated as a discount store due to its pure value-for-money proposition), being a part of a larger bouquet of offerings by Pantaloon Retail, looks more promising.

Big Bazaar : The Business
It offers some discount on the MRP or clubs items together as a 'deal'. Usually this is a practice followed by the general retailers to attract consumers and increase sales volume. It offers a broad variety of merchandise, limited service and low prices. It uses strategic pricing to entice consumers to shop more frequently and to increase their purchase quantity during each visit. Encouraging shoppers to make more frequent visits to the store is critical, because it increases the likelihood of unplanned purchases. Also, its stores emphasise the self-service format and employ minimal employees per square foot keeping operating expenses at the minimum.
Big Bazaar stores generally buy their merchandise in very large quantities, thereby getting the advantage of reduced prices. Part of this benefit of reduced prices is passed on to the consumers by employing various pricing strategies. It is a full line discounter offering a wide assortment ofmerchandise including apparel, home accessories, consumer electronics, house-ware, health and beauty products and children goods. It keeps private label brands along with branded merchandise to increase variety.
So in essence, Big Bazaar looks to make money by selling large number of merchandise at low profit margins. Hence the key determinants for its profitability are accessibility, a large range of inventory and low prices. It can achieve that by a combination of a good location, efficient supply chain management and low overheads.

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