big bazaar case study 11.07.10

INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

BUSINESS ECONOMICS TRIMESTER 1

Application of Economics in Today’s Businesses

“Big Bazaar” – A Case Study

Presented By: Group 3Section AMBA (IB) | 2010 – 13



Team Structure

S. No. Name Roll No. Role

1 Gaurav Chopra 25 Group Leader & Member

2 Aditya Verma 5 Member

3 Khushboo Sethi 34 Member

4 Abhishek Sharma 4 Member

5 Amit Rawat 9 Member

6 Krithika Kannan 35 Member

7 Goumtesh Singh 26 Member



Agenda1.Introduction

2.PEST Analysis

3.S.W.O.T Analysis

4.Economies of effective management

5.Industry Analysis

6.Nature & Importance of Profit



1. Introduction

1.1 Definition of Managerial Economics

Applies Economic Theory, Methods to business, administrative business decision making

Prescribes rules for improving managerial decisions

Managerial economics uses economic concepts and decision science techniques to solve managerial problems through:

Product price & output

Make or Buy

Production Technique

Investment & Financing



1.2 PEST Analysis

Political/Legal Factor

Economic Factors

Macroeconomic EnvironmentMicroeconomic Environment

Social/Cultural Factors

Technological Analysis

1. Introduction



2. S.W.O.T

Strengths•Excellent revenue model focusing on value for money.

•Second largest selling space among competitors

•Strong brands

•Diversified product portfolio and price advantage

Weaknesses•Heavy fund borrowings

• Larger discounts only on limited home grown brands

•Inability to cut prices

Threats•Organized Retailers: Targeting same segment for higher margins•International Chains: Wal-Mart & Carrefour that are better known names•Unorganized retailer•Heavy discounts by Giant: 10-15% on food items, sanitation products and appare

Opportunities•Target upper and middle class segment

•Expansion plans in cities with dense middle population

•Coupling plans with discount store model to boost up sales



3. Effective Management

Productive

Advanced Technology

Market Capitalization

Competitive Environment

Quality



4. Industry Analysis

4.1 Market Overview

As per estimates by CRISIL, the Indian retailindustry is poised to grow at a rate of 19% over the next 5 years

The organized retail market in India is projectedto grow to US$ 23 billion in 2009-10

The organized retail segment is expected to grow from 5% to about 7 to 8 % by 2012-13

The market is witnessing a migration from traditionalretailing to modern/organized retail formats, with anexplosive proliferation of malls and branded outlets

Sources: IBEF Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC: “2009 Global Retail Development Index”

INDIAN INSTITUTE OF FOREIGN TRADE



4.2 Future Outlook

1st Phase 2nd Phase 3rd Phase 4th Phase

Entry, Growth, Expansion, top line focus for organized retail

Range, Portfolio, Format Options, beginning of the rural-urban retail merge

Technology Adoption, leveraging traditional formats for modern retail

Consolidations, High Investments, Confluence of Indian Retail

Changing Paradigm: The Confluence of Modern & Traditional Retail

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC

Per Capita

Retail Space




4.3 Key Players…………..(1/2)


Pantaloon Retail (India) Ltd. Shopper’s Stop Ltd. Landmark Group• Started operations in 1994 and has since emerged as a retailing major in India • 12 million sq.ft. space spread over 1,000 stores across 71 cities• Revenues worth US$ 887 million in 2007-08, a 75% increase over 2006-07• Net Profit stood at US$ 29.75 million with a hike of 87% over the previous year

• Established in 1991, has now expanded to more than 100 retail outlets• Spread across 1.82 million sq.ft. of built-up area, spanning the entire spectrum of retailing verticals and formats• Has a total of 26 stores in 12 cities

• Present in India since 1999• Retail sector activity: Apparel, home décor and furnishing• Current store formats: Department Stores, hypermarkets• current Outlets: 15 lifestyle stores and 8 home centres• Future Plans: Presence in mini-metros and Tier II cities• Principal Fascia: Lifestyle, Home Centre, Max Retail




4.3 Key Players…………..(2/2)


RPG Enterprises Vishal Megamart Ltd. Archies Ltd.• Spencer’s Retail Ltd. was established in 1996• Spencer’s has a retail footage of over 1.1 million sq.ft. • Stores: 250 stores, including 36 large format stores across 66 cities in India• Retail Sector Activity: Music, Food & Grocery, Beauty Products• Current Store Formats: Convenience Stores, Supermarkets, Hypermarkets• Music World has tie-ups with 350 affiliates across the country• Principal Fascia: Spencer’s & Music World

• Established in 1986• Current Stores: 180 showrooms in 100 cities• Retail area coverage of 2,990,140 sq.ft.• current Store Formats: Supermarkets• Popular Brands: Zero Degree and Fume• Has a factory with 700 imported machines that have the capacity to manufacture 150,000 pieces a month• 10 Warehouses

• Present since 1979• Retail Sector Activity: cards & gifts• Current Store Formats: Standalone Stores• Current Outlets: Archies has 100 company-owned stores in India and 450 franchise-run outlets• Future Plans: It plans another 100 company-owned outlets by 2010 • Principal Fascia: Archies and Stupid Cupid



5. Theory of Firms

A combination of people, physical and financial assets, and information

Existence: Mass Market, Increasing purchasing power, focus on upper-middle class

Boundaries: Raw Material Cost, Premium on Brand Value

Organization Structure: Location, Customer Service, Store Atmosphere, Price

Heterogeneity: Perfect Competition, Target Audience, Promotion



6. Nature & Importance of Profit

Definition: Defined as the residual of sales revenue less total costs

Objective: Firms aim for business profit to spur efficient allocation of 4M (Men, Material, Machine & Money)

Reason: Profits a vehicle for spurring investments over consumption, reward risk taking, innovation & enterprise

Types: Normal Profit vs. Windfall : Norm vs. Exception

Theories: Frictional, Monopoly, Innovation, Monopolistic, Innovation, Compensatory, Firms respond based on market cycle

Profit define Market Behavior, Allocation of Resources & Efficiency



6. Profits and Big Bazaar : An Insight

Monopolistic Competition: Low margins averaging 700 bps. Aim for TR >= TCLow margins averaging 700 bps.

Aim for TR>=TC.Innovation Profit model : Maximize revenue with differential pricing

Efficiency key to success : Economies of scale/ scope and cost control

Extensive emphasis on inventory management: Optimize holding cost

Store wide operation margins :Demand forecasting, optimal product mix

Revenue Maximization : Using pricing and promotion strategies

Scope of Growth : 98% of unorganised retail, a hurdle or an opportunity.



Thank You !!

big bazaar case study 11.07.10

Documents