WHOLESALING AND RETAILING

Wholesaler

Introduction
y Mostly buy from producers and sell mostly to retailers, y y y y

industrial consumers, institutions and other wholesalers Includes all activities involved in selling goods and services to those buying for resale or business use Sale of product between businesses, as opposed to ultimate household consumers Provides added by providing channel flows. Value of these flows are often underappreciated Tasks are mundane, but bundled with valued services at low cost, treated as unglamorous unlike other channel members

Types of Wholesaler
Types of wholesalers

Merchant wholesalers

Brokers

Agent

Full Service

Limited Service

Merchant Wholesalers
y Independently owned businesses, take title to goods y Full-Service wholesalers: Provide a full line of services,

carrying stock, maintaining a sales force, offering credit, making deliveries, providing management assistance.
y Wholesale Merchants sell to retailers y Industrial Distributors Sell to manufacturers

Merchant Wholesalers
y Limited Service Wholesalers: Offer few services than full-service

wholesalers. y Cash-and-carry wholesalers: Carry a limited line of fastmoving goods and sell to small retailers for cash. y Truck Wholesalers: Perform a selling and delivery function (semi perishables) y Drop Shippers: Do not carry inventory or handle the product. On receiving order, select a manufacturer, who ships directly to customer. Assumes title and risk from order to delivery. (coal, heavy equipment, lumber) _ Rack Jobbers: Serve grocery and drug retailers, in non-food items. Bills only goods sold by retailers, title retained.

Brokers and Agents

y Do not take title to goods. Facilitate buying and selling on a commission y Broker: Bringing buyers and sellers together and assisting in negotiation. Paid by the party who hired them. Do not carry inventory, do assume risk y Agents: Represent either buyer or seller on a more permanent basis than brokers do
y Manufacturers agents y Selling agents y Purchasing agents y Commission merchants

Trends in Wholesaling
y Wholesale industry is facing considerable challenges y Fierce resistance to price increases and winnowing out of

suppliers who are not adding value based on cost and quality y Distinction between large retailers and large wholesalers is getting blurred

RETAILING

RETAILING
Retailing is the set of business activities that adds value to the products & services sold to the consumers for their personal or family use. y It is not only sale of products in stores but also sale of services y Not all retailing done in stores - direct sales of cosmetics, catalog sales, home shopping n/w on cable TV ,haircut

RETAILING
Distribution channel

Manufacturing

wholesaler

Consumer

RETAILER

Retailer at the end of the distribution chain & involve in y Retailers are
direct interface with the customer y Referred as intermediaries pass on products from producers & wholesalers to customers y Provision of channel in a convenient location to provide a successful channel of distribution y Key objective: availability of right product, in right qty, at right time successful channel
Annual sales of Wal mart, kmart. Sears are much greater than annual sales of P&G,Pepsico

Functions of Retailing
y Retailers perform business activities that increase the value of

product & service they sell to customers y Activities: * Providing an assortment of products & services * Breaking bulk * Holding inventory * Providing services

Providing an assortment of products

y Supermarkets carry 15000 different items made by over 500

companies y This assortment enables customers to buy wide selection of brands,designs,sizes.colors & prices in one location y Not the case in individual manufactures retail outlets

Breaking Bulk
y To reduce transportation costs, mfrs ship whole cases of

their products to retailers y Retailers then offer the products in smaller quantities tailored to individual consumers usage pattern y Breaking the large shipments into smaller consumer quantities Breaking Bulk

Holding inventory
y Function of retailers to make the availability of products

when consumers want them y Consumers can have small inventory of products at home as retailers will have the availability y By maintaining inventory,retailers reduce customers cost of storing products

Providing services
y Provide services that make it easier for customers to buy &

use products y Offer products on credit y Display products for ease of use by customers for purchase y Assistance provided by sales people on purchase

Retailing formats in India

y Malls: The largest form of organized retailing today. Located mainly in

metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof.Examples include Shoppers Stop, Piramyd, Pantaloon.

y Specialty Stores: Chains such as the Bangalore based Kids Kemp, the

Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors. y Discount Stores: As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non perishable goods y Department Stores: large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc.
y Hyper marts/Supermarkets: Large self service outlets, catering to

varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Indian Retailing Industry

y Indian retail industry is the fifth largest in the world. y Comprising of organized and unorganized sectors y One of the fastest growing industries in India y Industry is expected to grow at a pace of 25-30% annually y Expected to grow from Rs. 35,000 crore in 2004-05 to Rs.

109,000 crore by the year 2010 y Contribution to GDP expected to reach 22% by 2010 now its 12%

Examples
y Pantaloon:

Pantaloon is one of the biggest retailers in India with more than 450 stores across the country. Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the country. It's growing at an enviable pace and is expected to reach 30 million sq. ft by the year 2010. In 2001, Pantaloon launched country's first hypermarket Big Bazaar. It has the following retail segments:
y y y y y y y

Food & Grocery: Big Bazaar, Food Bazaar Home Solutions: Hometown, Furniture Bazaar, Collection-i Consumer Electronics: e-zone Shoes: Shoe Factory Books, Music & Gifts: Depot Health & Beauty Care: Star, Sitara E-tailing: Futurebazaar.com Entertainment: Bowling Co.

y Tata Group

Tata group is another major player in Indian retail industry with its subsidiary Trent, which operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book and music retailer in India Landmark in 2005. Trent owns over 4 lakh sq. ft retail space across the country.

y Reliance

Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail market. It's expecting its sales to reach Rs. 90,000 crores by 2010

y RPG Group

RPG Group is one of the earlier entrants in the Indian retail market, when it came into food & grocery retailing in 1996 with its retail Foodworld stores. Later it also opened the pharmacy and beauty care outlets Health & Glow.

y Bharti-Walmart y Their plans include US$ 7 bn investment in creating retail

network in the country including 100 hypermarkets and several hundred small stores. They have signed a 50:50 percent joint venture agreement with Walmart. Wal-Mart will do the cash & carry while Bharti will do the front-end.

y AV Birla Group y They have a strong presence in apparel retailing through Madura

garments which is subsidiary of Aditya Birla Nuvo Ltd. They own brands like Louis Phillipe, Van Heusen, Allen Solly, Peter England, Trouser town. y In other segments of retail, AV Birla Group has announced investment plans of Rs 8000 - 9000 crores in the first 3 years till 2010. y The acquisition of Trinethra (food & grocery) chain in the south has moved their tally to 400 stores in the country. Their More range of 15 supermarkets are slated to open at Nashik, Pune and other tier II cities in Western India in 2007.

Retailing: An overview


Retailing  Worlds largest private industry US$ 6.6 trillion sales annually Indian retailing  Largest employer after agriculture - 8%* of population  Highest outlet density in world Around 12 mn outlets  Still evolving as an industry Long way to go

An overview

Retailing: An overview


An overview

Wal-Mart  Topmost global Fortune 500 company(3 Consecutive Years)  Annual Sales of over US$ 250 bn  Indias two largest retail player turnover around US$ 158 mn (Bata) and US$ 102 mn (Shoppers Stop) Fortune 100  9 Retailers  Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons

Evolution of Indian retail

Historic/Rural Reach Traditional/Pervasiv e Reach Government Supported Modern Formats/ International

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives Convenience Stores Mom and Pop/Kiranas Weekly Markets Village Fairs Melas
Source of Entertainment Neighborhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency

Evolution of Indian retail



Indian retail


Informal retailing Sector  Typically small retailers.  Evasion of taxes  Difficulty in enforcing tax collection mechanisms  No monitoring of labor laws Formal Retailing Sector  Typically large retailers  Greater enforcement of taxation mechanisms  High level of labor usage monitoring

Categories of Indian retail



Indian retail


Corporate Houses  Tatas: Tata Trent  RPG group: Food World, Health and Glow, etc  ITC: Wills Life Style  Rahejas(ShoppersStop), Hiranandani(Haiko), DLF(DT cinemas) etc. Dedicated brand outlets  Nike, Reebok, Zodiac etc Multi-brand outlets  Vijay Sales, Viveks etc Manufacturers/ Exporters  Pantaloons, Bata, Weekender

Classifying Indian retail



Indian retail


Modern Format retailers  Supermarkets (Foodworld)  Hypermarkets (Big Bazaar)  Department Stores (S Stop)  Specialty Chains (Ikea)  Company Owned Company Operated Traditional Format Retailers  Kiranas: Traditional Mom and Pop Stores  Kiosks  Street Markets  Exclusive /Multiple Brand Outlets

Large Indian retailers



Hypermarket
   

Big Bazaar Giants Shoprite Star Lifestyle Pantaloons Pyramids Shoppers Stop Trent Fame Adlabs Fun Republic Inox PVR

Department store
    

Indian retailers

Entertainment
   

The changing Indian consumer



Indian consumer

Greater per capita income  Increase in disposable income of middle class households  20.9%* growth in real disposable income in 99-03. Growing high and middle income population  Growing at a pace of over 10%* per annum over last decade Affordability growth  Falling interest rates  Easier consumer credit  Greater variety and quality at all price points

The changing Indian consumer



The urban consumer  Getting exposed to international lifestyles  Inclined to acquiring asset  More discerning and demanding than ever No longer need-based shopping  Shopping is a family experience Changing Mindset  Increasing tendency to spend  Post Liberalization children coming of age 100 mn 17-21 year olds*. Tend to spend freely. Greater levels of education

Indian consumer

Challenges

   

Real Estate Costs Supply Chain Inconsistency Poor Infrastructure Lack of Skilled Manpower

issues

The Indian advantage

India ranked 1st in the Global A.T Kearney Retail Development Index
  

Advantage India

India Russia China

FDI in Indian retailing



FDI in Retail not permitted

Current Indian FDI Regime  FDI not permitted in retail trade sector, except in:  Private labels  Hi-Tech items / items requiring specialized after sales service  Medical and diagnostic items  Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator)  For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)

FDI in Indian retailing



Metro Group of Germany  Cash-and-carry wholesale trading  Proposal faced strong opposition Entities established prior to 1997  Allowed to continue with their existing foreign equity components.  No FDI restrictions in the retail sector pre1997  Foodworld  51:49 JV between RPG and Dairy Farm International,  Leading food retailer in India now  Mc Donalds

Current FDI

International retailers in India: Strategies



How they are present

Franchise  International company gives name and technology to local partner. Gets royalty in return  In case master franchise is appointed for region or country, he has right to appoint local franchisees Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango Manufacturing  Company sets up Indian arm for production  Bata India. It also has right to retail in India

International retailers in India: Strategies



How they are present



Distribution  International company sets up local distribution office  Supply products to Indian retailers to sell  Also set up franchised outlets for brand Swarovski, Hugo Boss Wholesale trading  Cash and Carry operations  100% FDI permitted  Metro Cash n Carry

Why FDI?
  

Benefits of FDI

Improve competition Develop the market Greater level of exports due to increased sourcing by major players  Sourcing by Wal-Mart from China improved multifold after FDI permitted in China  Similar increase in sourcing observed for Metro in India  Provides access to global markets for Indian producers

Why FDI?


Investment in technology


Benefits of FDI

Cold storage chains solve the perennial problem of wastage Greater investment in the food processing sector technology Better operations in production cycle and distribution Greater level of wages paid by international players usually More product variety Newer product categories Economies of scale to help lower consumer price Increased purchasing capacity of consumers

Better lifestyle


   

How FDI ?


FDI should be allowed in stages  Initial stages: 26% FDI



2 yrs 2 yrs 2 yrs

Establishment Phase: 49% FDI Mature Phase: 100% FDI

How FDI ?


FDI policy  No incentives needed to attract FDI  Market size and potential are sufficient inducers  No need for costly tax breaks, import duty exemptions, land and power subsidies, and other enticements