The Case:
Bengaluru-based ‘Fiction Supreme’ (Fiction) is a 15-year-old supermarket chain that stocks a wide variety of FMCG (fast moving consumer goods) brands. It even has its own line of baked goods and dairy products. Amongst the chain’s salient features is the prime choice of location for its 10 outlets in the city and prompt service. Currently, the family-owned Fiction is profitable but the gen next has an eye on further growth by going national. As the supermarket has an established market in Bengaluru, its familiarity with the southern markets has prompted the owners to look at opening 10 stores in other southern cities on an annual basis. So far, the chain has been funded internally but with plans of product diversification and opening additional stores on the anvil, it is critical for Fiction to play its cards right to grow at an accelerated pace and compete with the big league players.
The Expert:
Snehamoy Mukherjee leads the analytics practice at Technopak Advisors and has over a decade of experience in the analytics industry having worked in multiple domains like retail consulting, FMCG /CPG (consumer packaged goods), insurance and market research. Prior to joining Technopak, Mukherjee was director of analytics with Dunnhumby, the premier retail consulting organisation in the U.S. and Europe, where he helped set up the consulting team for Dunnhumby in India and was leading all the teams working for clients of Dunnhumby, U.S. and consulted for different specialty chains like grocery retail majors, consumer electronics chains, food and beverage chains, departmental stores, general merchandising chains and helped them develop customer centric business solutions. He has a Bachelors and Masters in Mathematics and Scientific Computing from IIT Kanpur and a Minor in Engineering Management from the same institute.
Expert Talk:
In keeping with its growth plans, Fiction must first consider obtaining external funding. But before approaching venture capitalists (VCs) or private equity (PE) investors, its management needs to professionalise its functioning (including the hiring of management professionals) and adopt a clear business plan, entailing the goal it wants to reach.
“Setting up one store at a time and perfecting all aspects of store management is the best way to expand. Also, word of mouth from that one store will help increase the brand value.”
Fiction also needs to make the best use of research technology to help it run its retail business on scientific analysis of data. To achieve this, Fiction could gather useful data from researching other modern retail outlets in India and abroad, by talking to consultants and experts in the field, and by also updating its information technology (IT) systems. The key takeaway for Fiction from this exercise will be a better understanding of the backbone of retail, namely, supply chain. Additionally, this research will also provide Fiction knowledge on buying patterns of customers, product placement, assortment management and inventory management.
Once this is done, it is relatively easy to attract investors, especially those looking at this space. Retail businesses yield low margins and exits are possible only after five years, unlike some of the high growth sectors. But the fact that home grown businesses like Fiction are profitable will appeal to interested investors. PE investors also bring with them a wealth of knowledge and a good network to help set up strategic alliances, improve branding and marketing – value adds that Fiction will lose out on with the debt option. On the flip side, since the investors also have a say in the management issues, there are chances of conflicts arising.
The set up
Location is the most critical factor for a supermarket chain. Most retailers now rely on a site framework that factors footfalls and the desired target audience. Domain creation is another aspect that supermarket retailers should be aware of. Fiction should do a study of its existing stores and understand the gaps in that area. It can analyse data on people’s needs and the type of products that are not available, so as to cater to those who are not serviced by the present set of retailers. Irrespective of how the previous 10 stores are run, new IT systems like point of sale software, CRM (customer relationship management) and ERP (enterprise resource planning) tools need to be implemented in order to make informed decisions. This is more important than focusing on the look and feel of the store.
One at a time
While opening 10 stores at a go is good for publicity, it is far riskier as you need capital to back it up since not all stores will do well immediately. The other risk of opening 10 stores is you might not have enough bandwidth to manage all the stores uniformly. Setting up one store at a time and perfecting all aspects of store management is the best way to expand. Also, word of mouth from that one store will help increase the brand value.
The concept of setting up a supermarket in gated communities is also fast catching up. But it should be planned carefully on how much front-end and back-end spaces are required, since such stores are also expected to offer home delivery. It might need a storage facility or a warehouse.
In terms of choosing the franchise or fully-owned route, I have always observed that self-owned strategy does well in any industry. In Fiction’s case, I would advocate the franchise model only if it does not have the resources to set up its own stores as on an enterprise-wide strategy, it becomes difficult to control franchisees. For instance, if Fiction wanted to start a loyalty programme, not all franchisees will come onboard with the idea.
Building a brand
In a scenario where a supermarket has to operate in both Tier I and Tier II brackets, the branding has to be varied according to the perceptions of the target audience in each geography. For instance, Monoprix is one of the biggest retailers in France. While it is known by that name in the bigger cities like Paris, it goes by the name of Casino in Tier II cities. This ensures that the brand name is intact across geographies.
Diversifying private labels
The hub and spoke model of distribution would be ideal when it comes to offering Fiction’s products. But stocking up only in 10 – 15 stores does not justify the spending on private brands. It can tie-up with other retailers to promote its products as well. Prior to further product diversification, it would be wise to survey consumer switching habits at its prospective new locations. If consumer loyalty towards existing brands is high, there is not much scope for in-house brands. Importantly, product placement in Tier I and Tier II cities should be considered. For instance, UK-based Tesco has three types of in-house brands: value, premium and finest. Tesco stocks all three types but according to the city, its offering changes.
Hiring right
Retailers face stiff competition and huge attrition. To tackle this, Fiction must set up its own training centre than poach from other retailers. By doing this, not only will it get to hire locally and train the staff but it will also motivate the existing employees as they can train the new recruits.
Retaining quality
About 10 -20 years ago, retailers had yearly targets but now they look at weekly targets. For this, Fiction should implement standard operating procedures that should be audited regularly. Many think it is a waste of time to put things down on paper but a rulebook makes sure standards are adhered to. The chain can even have a separate internal audit team or there are agencies that focus on retail auditing, and they also offer mystery shopping, which is an excellent way to gauge customer service. Not all stores need to be audited – the findings from the well-performing stores can be applied to those that are lagging.
