Kishore Biyani, a pioneer
in the organized retail industry has once again, is venturing with a new idea
of BBD – Big Bazaar Direct to propel the growth strategy for the Future Group.
Man himself is well known for risk taking ability, right from starting with new
store formats in late 1990s, venturing into new territory such as consumer
finance or selling off his priced assets. The novel idea is being helmed as pet
project of this risk-taker.
It is estimated that
almost 90 percent of the Indian retail sector is unorganized while large format
stores occupy nearly 4 percent of the organized segment. With the flourishing
middle class and rising spending power, the retail provides lot of room for
further growth for the organized players. Other estimates by big consulting
firms put the growth rate of organized sector to be above 20 percent annually
for the next several years and the percentage occupied by organized sector
increasing from the current 10 percent levels to about 20 percent by 2020.
Tier-II and III cities are also expected to witness the presence of these large
retailers.
With the industry expected
to grow at a higher double digits for foreseeable future, Big Bazaar has been continuously
crafting its growth strategy to capture the market. The Big Bazaar Fair Price
shops being hailed to promote private labels with a smaller store format has
been established to compete with local shops. This strategic shift from larger
format to smaller neighborhood store is also felt from global big retailers
such as Wal-Mart and Target. Wal-Mart Express which is the smaller store format
is also expected to double its count of new stores with more than 200 stores,
located largely at densely populated urban areas. The Future Group estimate
that these fair price shops will contribute significantly to the top line in
the coming years.
Now with this new venture
BBD, Biyani is planning to tap the customers from remote places or to target
households that are far away from the location of its big format stores. It is
planning to utilize the local entrepreneurial talent as glorified sales force
for this venture through franchise route. It invites anyone in the locality who
has good contacts with its neighborhood such as paper man, kirana stores, chemists, beautician (Interesting) or for that matter anyone with shop in the vicinity. The applications are being
assessed by a team to extend its franchises. These entrepreneurs may have to
shell out 3 lakh as advance which this amount will be used for training,
branding and technology upgradation.
After hearing on this
venture, two things struck my mind immediately in terms of business proposal
and the operational aspects. First, on the proposal itself, is it a novel idea?
Is it any different from project Shakthi by HUL which used the NGO and local
women to sell their products? Is it different from ‘Cash and Carry’ business
type wherein the wholesalers and retailers buy products in bulk and sell it at
their locality? Why doesn’t BB stock the local stores with their private labels
and other products just like any other consumer goods companies? There have been
some ventures in the rural where the entrepreneur will collect the necessities
of their people and buy the required things from urban once in a week which may
work out cheaper as they buy it in bulk. These questions arise on the business
idea itself. On the other hand, how are they planning to manage the new found
large scale sales force? Though agreed BB has several thousand on its payroll
but this sales force is different. They need incentives to continue their role
as glorified sales people of BB. They may also want to calculate the return on
their 3 lakh investment as they earn certain low single digit commission on the
sales of BB products. The entrepreneurs need to have long term strategic
association with BB as their brand ambassadors as well as their sales persons.
They need to believe in this idea and it may take couple of years or more for
them to earn a reasonable return for
their efforts as it is with any business. They need to compete with the local
retail stores for their market presence which means these people need to have
greater skills in communication, promotion and engagement. The adequate
knowledge of these people akin to sales persons in store on different product
categories, customer segmentation and targeting may need to be imparted which
BB plans through their yearlong training sessions. Should we think of sales
team of banks as lessons to engage the local talent with attractive offers for
their sales and reward them with ‘Sales man of the year’ or free trip to Europe
or just like erstwhile offers for the LIC agents. Also, how do we restrict
these new sales force to confine within the business for BB and not engage in
other solicitations?
The margin compression may
be felt by BB on this venture as they have to pay commissions for the sales,
which retail already is a low margin business. They may have to work out on
their operational aspects such as sourcing, distribution and logistics section
to lead this business successfully. With their large store format in several
cities and fair price shops in various towns, they already have established
distribution facilities in place. The question of extending the existing set up
for this venture which it may consider large store as Hub center for purchases
within that city while creating other fulfillment centers to meet the demands
of different regions. The company is planning to test this venture first in
Nagpur and check out on their fulfillment of their orders which may throw
lessons to be learnt before expanding. The question is on the robust infrastructure required as the orders are made online and the back end technology and
intelligence to route the request to appropriate centers which is both cost and
delivery effective? Amazon or Wal-Mart have invested large scale on their
online fulfillment process and linking the systems with logistics and
distribution for improving on their customer service. The products ordered may
not be found in one location and we need intelligent routing to gather the
products and look at which distribution facility to source and ship the
products which can be quite heavy considering the fact if people are purchasing
groceries. BB already has an online shopping store and why is it not promoting
the site instead laying hands on new found sales channel? One, internet penetration
is still low despite rapidly growing usage of smartphones and online purchases and
two, the customer segment may totally be different, which is not technology
savvy.
Winning the confidence of
the customers is paramount. BB is using the local people to bring in that trust
element as the money is paid upfront and the products will be delivered within
5 days. This is an ecommerce venture of a different kind with more assistance
provided by trusted next door sales man to its customers. Can it provide
competitive advantage with larger presence through their neighborhood concept
and becoming a household name? Is it a meaningful innovation in terms of using
the outsider as extended sales force? Some of the ventures by other consumer
goods companies have been successful on this line. Despite the uncertainty, a
big gung-ho for this leap by the risk-taker who has never doubted on his idea
and always been a vanguard for novelties. The latest growth strategy of getting
larger in terms of market presence by becoming smaller in terms of sales and
store format needs to be seen in the coming years and it may have to reinvent
on the process for a successful growth path.
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