Low-cost advantage Spencers

As stated earlier Spencers was the earliest entrant in the OCR sector, this makes it the most experienced in this field. A result of this has been its expertise in the management and planning. This has given RPG a fair idea of what the market requires and what the consumer demands. Spencers, as a brand has a strong value in the southern region of the country. In Chennai, Bangalore, Hyderabad & Trivandrum, the name signifies trust and quality. This applies to other grade B towns in these regions as well. RPG group has interests in varied sectors. Their legendary expertise in fields like Power and Tyres as well as entertainment is unmatched.

Many a times they have been able to resurrect sagging profits by bouncing back. One of the most important pre-requisites for the retail sector is space. Spencers has been active in the real estate scene for sometime now. This has resulted in real estate properties in prime locations. Development of these spaces into Spencers will enhance profitability without having to buy or rent properties. The early entry of Foodworld and Musicworld has bought many loyalists. The fact that they had launched their services ahead of their time will increase

A strong marketshare in their respective segments will result in an automatic customer base when the proposed integration takes place. Weakness One of the biggest weakness that Spencers faces as a brand is the lack of awareness. Virtually no one outside the “catchment area” of the store knows about it. There is a big way to go as far as branding the firm is considered. Spencers has not made any effort to invest in a marketing communications campaign. This has resulted in very low Brand recall. Before the overhauling of the operations, more thrust was given to Foodworld and Musicworld.

Decision-making in the affairs of Spencers was lagging behind. This is also evident in the mode of expansion. While Foodworld has grown from 40 to 90 in less than three years, Spencers took three years to get its second store. Spencers is itself undefined about its USP. It has not been able to position itself on any of its merits as a result it has turned out to be “just another supermarket”. Most of the competitors have positioned themselves either on pricing or convenience or quality but Spencers hasn’t highlighted any of these.

A major handicap for Spencers is its low number of outlets. Two outlets don’t give it an opportunity to muscle its way with its vendors. This has also made the customer think that it is “not so big”. Spencers is nowhere near the market leader as far as marketshare goes. Big Bazaar, by the sheer might of its operations, has captured the market. There is also lot to be desired on the pricing front because of not-so-effective supply chain management. Again the perception that the local Kirana store is convenient and perfect-for-small-buys has been a hurdle.

This perception arises out of Spencers’ weakness to promote itself as an aggressive player with loads of merits. External Environment Analysis Opportunity India shining- as India adds more to the global workforce than any other nation in the world over the next decade and as this cohort exercises its prosperity for consumption, it can power India to developed country status in just a couple of decades. Other than this the economy is growing at 8-9% what this means to Spencers is that more and more people make the transition from one economic class to the next one.

Since 1994-95, the number of lower income households has been decreasing rapidly while the number of middle and high-income households has been going up. In fact as per a recent NCAER study the number of middle-income households is expected to rise by 1. 6 times in 2006-07. As a part of the recent operational rejig, the integration of the four businesses i. e. Foodworld, Musicworld, Health & Glow and Spencers Hypermarket into one single operational firm- Spencers Hypermarket will give a new lease of life. This will also ensure that the expansion or operations is not concentrated separately but on just one firm.

With this there is an opportunity to regain some lost ground. As is known the government has allowed 51% FDI in single-brand retailing, very soon the norms on FDI in multi-branded retailing will be eased. This is an excellent opportunity to explore possibilities of possible tie-ups or Joint Ventures with MNCs. This is a two-way win-win situation. More on this will be elaborated in the subsequent pages. In urban India the shopping behaviour of consumers has evolved into seeking convenience in the form of a wide-variety of products, all available in one place.

One-stop-shopping offers saving in time- especially for double-income families who have little time to spare. There is also a certain amount of ” shopping-experience” that customers feel in these stores. There is always a certain amount of customers who would defect loyalty when they find something better. This is also the case in retailing. Big Bazaar is losing favour with some customers (for apparently serving products that don’t last-long and certain products that are stale), this is an opportunity for Spencers to woo those customers by pitching itself as a worthy alternative.

etailing is another opportunity that hasn’t been explored by any OCR in India. This is an excellent way to improve sales by offering the customer the benefit of using electronic retailing to buy products. This idea will be later elaborated in the Big Idea. Threat Massive expansion by Pantaloon Retail India Limited through Food Bazaar, Big Bazaar is a threat to Spencers. PRIL has also acquired huge chunks of real estate across the country and has developed many of them into malls. This gives PRIL wider presence in a market where location plays one of the most key roles.

The new plan unveiled by Reliance industries to foray into the retail sector through a 750$ million investment is also a threat considering that RRL is planning to do a wal-mart in India. The sheer scale of the venture is a threat with RRL planning to cover the whole of India and venture into everything from Agri-Malls, Convenience stores, speciality stores and supermarkets. The relaxation of the FDI norms in multi-brand retailing will provide an opportunity to Wal-mart, Carrefour and other biggies to enter India.

With their wide experience and mammoth scale of operations they are bound to make an impact in the scene. Also the fact that they are global names will get the customers go to the stores. The promotional strategies by rivals are enticing bulk of the customers. This has already created a certain amount of brand-loyalty amongst the customers. If it is too late Spencers may just miss the bus. If the market gets saturated there may be no customers wanting to try something new. Spencers is in a position where many firms find themselves.

In spite of being one of the first entrants into the OCR sector and single-handedly pioneering the true hypermarket format, it still doesn’t enjoy a healthy market share. It is not as if they are making losses but they are still satisfied in operating in the circles. In spite of success with Foodworld, they haven’t been aggressive enough to tell the customer that they are there. Something that’s even more surprising is that the success that both Musicworld & Foodworld enjoy is because of word-of-mouth. They have never resorted to actual marketing communications or advertising.

This makes the marketing strategies all the more important. The marketing strategies (A & B) have been formulated with the idea of conveying the USP of the firm. The first strategy aims at getting the customer to the store by putting across the fact that now Spencers has a Foodworld as well as a Musicworld within it. The second strategy aims at making the customer frequent the store by giving the customer the feeling that the products at Spencers are an absolute value-for-money proposition STRATEGIES STRATEGY A This strategy is called first blood Supply Chain Management.

It basically aims at getting the loyal Foodworld & Musicworld customers to experience and feel Spencers. Now that all the brands have been integrated, Spencers will be able to live up to the all-under-one roof format. Many customers in grade -A cities and grade-B cities, which have the other two store will now be introduced to the Spencers Hypermarket. For sometime the stores will be bearing all the three names side by side; this will be for maximum acceptance, after establishing itself in the customer’s minds the store will be branded as Spencers hypermarket.

This natural transition will cut unnecessary expenditure on a massive name- changing campaign (the case in question is Hutch). The target of first blood is to get the customer to the store because of sheer curiosity. The fact that Foodworld, Musicworld & Spencers have opened together will definitely spread amongst probable customers. The Stickiness factor would be the low-cost of the products on the display. This will again make the customers initiate word-of-mouth publicity. The profitability for this strategy will be surprisingly, through both the volumes as well as the margins.

The sales will again be on shock-value. The low prices will lure the customers to actually indulge in buying. This would convert the browser (people who had come to just check out the store) into the buyer. And thus contribute to the sales. Again by offering “happy hours” to customers the sales could be increased at the time of the day when there aren’t many shoppers. Technically the time between 11-3 in the afternoon is the period when they aren’t many shoppers; the “happy hours” are therefore targeted at the housewives.

“Happy hours” is actually a concept wherein the buyer is assured a free gift on any purchase that is made. How this strategy will work? The reason this strategy is possible is because of the Supply Chain Management. Through SCM, the entire procurement pattern will be overhauled. As of now Spencers sources its grocery & household products from a wholesaler (this is already resulting in lower prices); the apparel and FMCG products are sourced from company-specific stockists. What we propose is as follows: Change the procurement process so as to do away with the stockist, wholesaler and other intermediaries.

This will reduce the additional charges that are levied when the product changes hands. This will also do away with C&F charges. So how will the products be procured? We must recognize that brand owners will over any length of time give additional margins only if they are giving it out of saved costs and not out of profits. Spencers can go to a Hindustan Levers and say it will take a truckload of surf every week then levers can supply that to Spencers directly from their factory and save costs of C&F, distributor, stockists etc.

And if that cost is 5% then legitimately Spencers can ask for a share of that and so on. But in the Indian context all volumes are aggregated in the context of a state and therefore it is necessary to build scale in that context. Therefore, while our ultimate margin model calls for us to aggregate our footfalls and thus demand, it is important to take on board that it is a function of the resultant scale and volume and what that enables the retailer to do going up the supply chain in terms of extracting / squeezing costs out of the system and sharing in the resultant surplus.

And thus a virtuous circle begins. Another important step to make this strategy work is possible Backward Integration. Following the Reliance pattern (the started with clothing,, then yarn, then nylon and other polyester derivatives, only to realise that these are by-products of petroleum, which made them plunge into petroleum refining and finally extracting gas), Spencers can go about it by getting into contracts with farmers directly so as to make them pledge their crop to RPG and paying them before-hand for that.

It is a win-win situation for both the farmer as well as the retailer. The farmer doesn’t have to live with the uncertainty about who will purchase his crop and the retailer can by-pass the intermediary market. Even in the case of household articles Spencers can buy their entire batch and do away with distributors. For in-house brands, Spencers can follow the ITC-choupal format where the firm is delivered the raw material straight from the fields. Since Spencers will now be having access to very huge volumes, it could be easier when the scale of operations increase.

Since this concept will also leave Spencers with a lot of surplus, it could in turn act as a wholesaler and supplier to other retailers, because of the low-cost advantage Spencers has a fair chance of emerging a strong contender in this sector also. Like in the consumer electronic sector (many a times, one manufacturer makes products for rival firms because of the cost advantage only to be sold under a different brand in the market place), Spencers can be complete vendor for its rival firms also.