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Case Study

(Big Bazaar)

Kishore Biyani's saga starts with his family business in textiles, which he joined
after graduating in commerce. In 1987, Biyani launched the first branded ready-
made trousers brand known as Pantaloon through his company Pantaloon
Fashions. The trousers were marketed through the Pantaloon Shoppe stores. By
the time Pantaloon Fashions went public in 1992, it had 60 exclusive shops.
Later, he started manufacturing garments under two more brands-John Miller and
Bare. Despite pod products and competitive pricing, the business seemed
unviable due to high distribution costs and margins. Therefore, in August 1997,
Biyani decided to open his own store at Kolkata to market these brands. He was
expecting to do business of around Rs 70 million in the first year, but beating all
expectations, the store did a business of Rs 100 million. This experience was an
eye-opener for Biyani, who came to know that Indian market is 'under-retailed'.

The year 2001 saw Biyani's entry into the hypermarket concept adapted to
Indian conditions in the form of Big Bazaar. During that time, Pantaloon's topline
was around Rs 1.8 billion. Big Bazaar required a lot of investment and the
company had generated profits only worth Rs 40 million. It was not feasible to
raise money from the market as the share price was low at Rs 18. This would
have also meant the dilution of equity for the Biyani family, which held 40 per
cent of the equity. Exposing himself to high-risk debt exposure, Biyani had to go
for a loan of Rs 1.2 billion. Failure of the Big Bazaar concept would have left the
company in red. As it turned out, the first Big Bazaar at Mumbai clicked with the
masses and pulled over 100,000 people within the first week of its operation. It
thus paved the way for many more stores throughout the country.

Biyani wanted to give the Indian customer the feel of a local market place--
narrow lanes, crowded marketplace, and customers bumping into each other
and into commodities. Big Bazaar wears the look of intentional distinctive layout
scheme designed by Biyani. He is quite clear that Indians like the hustle-bustle
of the marketplace, which gives them a feeling that the goods being sold there
are low-priced. The major challenge before the retailers in India was to dispel
the myth in the minds of the Indian consumer that big shopping stores charge
more prices for commodities, compared to the local kirana stores, due to high
overhead costs. Big Bazaar and Biyani have been able to successfully overcome
this challenge by way of clear communication to the public through their
advertisement campaigns. The economies of scale enable big retailers to
provide lower prices, discounts, and promotional gifts at their stores.

Biyani has exploited the economies of scale to the hilt, from raising finances to
negotiating rentals for the store space. During his earlier days, he used to pay
about Rs 75 million for a 50,000 sq. ft store and would generate an annual
turnover of Rs 3.5 billion. Today, for a store of the same size, he spends about
Rs 40 million and generates a turnover of about Rs 500-600 million. This may be
partly attributed to the mall-making frenzy in the country, whereby builders
prefer to rent their spaces to outlets, which have the ability to pull crowds.
There was a time when Biyani had to do the interiors for the space after
acquiring a leased space. Not anymore, as the builders are ready to provide
fully-furnished stores to let him start the operations immediately.
Biyani has often tied up with manufacturers to bring down the selling price of
the products sold in Big Bazaar. For example, there were days when the lowest
price of a pair of denim jeans for their Bare brand used to be Rs 695, while
Newport used to be the cheapest brand in the market at Rs 599. Big Bazaar
contacted Arvind Mills to know whether they were willing to provide jeans at Rs
299 per piece to them, if the company bought 100,000 units every month. Thus,
Arvind created the Ruf-n-Tuf brand exclusively for Biyani's stores and got into a
similar contract for T-shirts. Big Bazaar is able to engineer its own prices with its
tie-ups with big manufacturers in the product categories of plastic, food, leather,
etc.

In June 2002, Biyani started Food Bazaar within the Big Bazaars. Now over the
period of time, Food Bazaar has several separate outlets. Biyani's focuses on the
'farm to plate' concept in Food Bazaar. According to him Indians prize
'freshness' in their food. Therefore, while managers elsewhere in the country are
focusing upon creating a cold storage chain to preserve eatables, Biyani's vision
is to have the farm next to his stores. The Food Bazaar at Ahmedabad has a full-
fledged dairy having a capacity of 1000 litres a day and produces its own
paneer and pasteurized milk. It also has a spice grinder and an atta chakki (flour
mill). To quote Biyani on this aspect, 'Managers always complicate things. It is
the MBA culture. B-Schools teach you how to manage complexity, but I don't
think that is necessary. Life is quite simple.' Biyani has created in-house labels
for certain products. For example, his stores sell the in-house ketchup brand for
Rs 38, while the nearest rival brand is priced at Rs 58. By 2008, Biyani is
targeting to occupy 60 per cent of the shelf-space in his stores with in-house
brands.

Another major decision taken by Big Bazaar was to use the traditional supply
chain rather than developing its exclusive supply chain to replenish its stores,
now located in every part of the country. The traditional supply chain is used by
the small as well as big kirana stores and has various elements such as the
manufacturer, clearing and forwarding (C&F) agents, distributors, wholesalers,
and finally the kirana stores. Biyani chose this traditional supply chain not only
because creating an exclusive distribution system is highly capital intensive, but
also because the distributors play a major role in the traditional supply chain by
operating at wafer-thin margins while utilizing their family-owned warehouses
inherited from generations. Most of these distributors involve their family
members into the business and are ready to provide goods even in small
quantities by using inexpensive modes of transportation such as cycle
rickshaws. By following this strategy, Big Bazaar runs the risk of facing
shortages in scenarios where a particular product related promotional scheme is
launched in all its stores simultaneously. These distributors may then be
swamped with orders from the stores, which may be beyond their capacities to
handle. It is yet to be seen how this system works in the wake of competition
from the new players such as Reliance, and Wal-Mart (which is entering the
Indian market in collaboration with Bharti). The R.P. Goenka (RPG) enterprises
and the K. Raheja group have always been stiff rivals by way of retail outlets
such as FoodWorld and Shoppers' Stop respectively. Then there are smaller
players in the hypermarket arena such as FabMall lndia, who may also grow
stronger over the period of time. The mettle of the so called father of retailing in
India, Kishore Biyani, would be tested in this final countdown.