Porters Five Forces and SWOT

RETAIL INDUSTRY

VAIBHAV GUMASTE - 15
ADITYA KRISHNAN - 29
RESHMA CHORE - 7
NAYAN SATSANGI - 46
NIKITA DEORA - 10
HARNISH ZAVERI - 52
KANDARP DESAI - 11
Introduction
Retailing in India is one of the pillars of Indias economy and
accounts for 14 to 15 percent of its GDP.

Organized retailing, in India, refers to trading activities
undertaken by licensed retailers, that is, those who are
registered for sales tax, income tax, etc. These include the
publicly traded supermarkets, corporate-
backed hypermarkets and retail chains, and also the
privately owned large retail businesses. Organised retailing
accounts for 4% of total retailing.

Unorganized retailing, on the other hand, refers to the
traditional formats of low-cost retailing, for example, the
local corner shops, owner manned general
stores, paan/beedi shops, convenience stores, hand
cart and pavement vendors, etc.



Retail Industry Evolution


Traditional
Formats
Itinerant Salesman
Haats
Melas
Mandis etc.
Established
formats
Kirana shops
Convenience/
department stores
PDS/
fair price shops
Pan/ Beedi shops
Emerging
Formats
Exclusive retail outlets
Hypermarket
Internal retail
Malls / Specialty Malls
Multiplexes
Fast food outlets
Service galleries
Trends in retailing
In January 2012, India approved reforms for
single-brand stores welcoming anyone in the
world to innovate in Indian retail market with
100% ownership, but imposed the requirement
that the single brand retailer source 30% of its
goods from India.

On 7 December 2012, the Federal Government of
India allowed 51% FDI in multi-brand retail in
India.


Internal Rivalry
Rivalry refers to number of companies competing
in the same markets.
If there is intense rivalry in an industry, it will
encourage businesses to engage in:
1) Price wars (competitive price reductions),
2) Investment in innovation & new products
Intensive promotion (sales promotion and higher
spending on advertising)
All these activities are likely to increase costs and
lower profits.

The presence of different types of retailers
in India , i.e, foreign retailers and domestic
organized and unorganized retail , creates
diversity in competition.
Foreign and domesic retailers in organized
sector are competing on large size , broad
assortment ,self service format and
pleasant store environment.


Product differentiation can increase
profitibility by creating lesser rivalry in the
market
Smaller retailers are moving towards
organised formats by including branded
merchandise in their offerings.
Presence of foreign retailers and increased
competition create product diversity and
innovation in the market.
Characteriza
tion
(current)
Future
Trend
Degree of seller
concentration
High High
Excess capacity Medium High
Cost structure of firm High High
Degree of product
differentiation among seller
Medium High
Buyers cost of switching
from one competitor to
another
Low Low
Strength of exit barriers Low to
Medium
Low to
Medium
THREAT OF NEW ENTRANTs
Profitable
markets
High
yields
Attract
new firms
New
entrants
BARRIERS
1. ECONOMIES OF SCALE
Retailing- one of the business enterprises of economy.
Accounts for 14-15% of GDP as Aug,12.
Market share- US $450 billion.
By 2020,
Expected to cross US $1.3 trillion.
Additional US $800 billion in next 8 years.
Modern retail will grow upto US $220 billion.
2. ACCESS TO DISTRIBUTION
CHANNELS
The emergence of Digital Channels-
To augment customers reach and engage with them.
In India- Lack of physical presence, low technology
penetration and usage and imperfect payment
mechanisms.
Sales through digital marketing-
Miniscule percentage today
By 2020, US $13.3-17.6 billion with 6-8% of modern
retailing
3. GOVERNMENT PROTECTION OF
INCUMBENTS
Conditions contemplated by government-
Requirement of State permission
Minimum FDI of `450Cr and maximum stake of 51%
Half of the total investment must be in the back-end
infrastructure.
30% manufactured products should be sourced from
SME.
PERCEPTIONS OF ENTRANTS ABOUT
EXPECTED RETALIATION OF INCUMBENTS
The Road Ahead for new entrants
Growth opportunities for foreign retailers.
Particularly, for supermarket and hypermarket.
Mom-n-pop'/'kirana' grocery stores - force to reckon with for
new foreign entrants.
Liberalization- phased and calibrated.
Time for potential foreign entrants to make earnest start
with strategizing locations.
Luxury brands like Marks & Spencer, Louis Vuitton or
Versace - to open more stores in the country.
Threat of substitute in the Retail Industry
Availability of Substitutes:

The tendency in retail is not to specialize in one
good or service, but to deal in a wide range of products
and services. This means that what one store offers you
will likely find at another store. Retailers offering products
that are unique have a distinct or absolute advantage
over their competitors.
Threat of Substitute Products or Services
Threat of substitute products or services high when
there are many alternatives to a product or service, and
low when there are few alternatives
If youre a buyer, you want this to be high
If youre a supplier, you want this to be low
5-16
Threat of Substitute Products
Products
with similar
function
limit the
prices firms
can charge
Keys to evaluate substitute products:
Products with improving
price/performance tradeoffs
relative to present industry
products
Example:
Electronic security systems in
place of security guards
Fax machines in place of
overnight mail delivery
Porters 5 Forces and Profit
Force Profitability will
be higher if:
Profitability will
be lower if:
Threat of
substitutes
Few possible
substitutes
Many possible
substitutes
Threat of Substitute Products or Services
As a supplier, you can use switching costs
Switching costs costs that make customers reluctant
to switch to another supplier
Can be monetary penalties for early termination
Can be like Amazon, which tracks information about you and tailors
offerings
5-19
Examples

Products/services facing a strong threat of
substitution:
Washing powder. A dozen of brands sitting on the
shelves and waiting for consumers to pick them
up. Consumer will often pick up the one that is on
special on shopping day.
Retail Outlets. Don't like Dmart . Shop at Big
Bazar
Products/services facing a weak threat of
substitution:
Oil. Although alternative forms of energy are
being studied and introduced, most engines
today run on gasoline. Gasoline can not be
replaced that quickly on a large scale.

The threat of substitute product can be evaluated in the
terms of the availability and performance of substitutes,
switching cost incurred by the customers and propensity
of the consumer to consume.

There is a high threat of substitution the Indian retail
market due its unique market structure. Indian consumers
have an array of options to choose ,including small
unorganised retailers and large organised retailers for
domestic and foreign brands.
Availability of close complement
A perfect complement is a good that has to be
consumed with another good.
Other examples include:
Printers and ink cartridges
DVD players and DVDs
Computer hardware and computer software
Torch and battery
Car and petrol

Substitutes and Complements
Although the five-forces analysis does not
directly consider demand, it considers two
important factors that influence demand-
substitutes and complements.
Substitutes erode profits in the same way as
entrants by stealing business and intensifying
competition.
Complements boost the demand for the
product in question, thereby enhancing profit
opportunities for the industry.
23
The power of the buyer is the impact that the customers has on a
producing industry.

In general, when the buyers power is strong, the relationship to the
producing industry is near to market in which there are many
supplier and only one buyer.

Under such conditions the buyer sets the price.

In reality there are few such markets.

However the Indian retail sectors are characterized by high buyer-to-
supplier ratio with highest density of retail outlets in the world
,making India a suppliers market.

The Retail sector can be broadly divided into two segments:

Value Retailing- which is typically a low margin-high volume
business

Lifestyle Retailing-which is a high margin-low volume
business




Bargaining Power of Customers
Factors determining the bargaining power
of customers.
Number of Customers

Their size of their orders

Number of firms supplying the product

The threat of integrating backward

The cost of switching
Future Trend
In the retail Industry food dominates market consumption followed by
fashion.

The relatively low contribution of other categories indicates opportunity
for organized retail growth in these segments, especially with India
being one of the worlds youngest markets.

Historically, Indians have been conservative spenders ,thus food forms a
huge chunk of Indias consumption needs.

Transition from traditional retail to organized retailing is taking place due
to changing consumer expectations, demographic mix etc. With the
revival in consumer spending, expansion plans of retailers are back in
full swing.

Many International brands have entered the market.

With FDI coming in the bargaining power of the customers will increase
further.

Bargaining Power of suppliers
Bargaining power of suppliers is the ability of a
supplier to control the cost and supply of the
inputs in the market.

The supplier power of an industry can be altered
in many ways, which can include

I. Differentiation of inputs.
II. Switching costs for transferring to other
suppliers.


Bargaining power of suppliers

The number of buyers and the existence of a few dominant
suppliers influence the bargaining power of suppliers.

Brand manufacturers can set up their own retail outlets which
can be seen as a threat.

The suppliers to the retail sector are the companies who
actually provide the finished products that can be sold in a
retail store.



Power of suppliers : Retail industry

The bargaining power of suppliers varies from product to
product, however, at an overall level one can say that the
bargaining power of suppliers in India is low because there are
a large number of potential suppliers in the market.

Supplier can exert power by threatening to raise prices or
reduce the quality of purchased goods.

Large no of suppliers and product differentiation is low.





Power of Suppliers : Retail Industry
Varies depending upon the target segment, the format
followed, and products on offer.

The unorganised sector has a dominant position, still
contributing 95% of the total retail market.

There are few players who have a slight edge over
others on account of being established players and
enjoying brand distinction.

Since it is a capital intensive industry, access to capital
also plays an important part for expansion in the
space.

Factors affecting power of suppliers
Current Future trend
Do supplier pose credible
Threat of forward integration
into the product market ?
Less only a few
main suppliers
have started
Can be a option for
many well known brands
to control direct
distribution.
Do firms in industry purchase
in small volumes relative to
other customers of supplier?
Most of the firms
are still local
retailers who
purchase in
relatively small
volume.
Firms will purchase in
bulk as organised retail
is set to grow in India in
the coming years.
Are suppliers able to price
discriminate among
prospective customers
according to ability to pay for
input?
They are able to
discriminate
customers based
on their
requirements.
They may have a
problem as there would
be many new players in
the retail market.
SWOT ANALYSIS
Strengths
High brand equity .
State of the art infrastructure.
A vast variety of products under one roof.
Maximum percent of footfalls converted in sales.
It offers a family shopping experience, where entire family
can visit together.
Benefit of early entry into the retail industry.
Huge investment capacity.
Biggest value retail chain in India .
Available facilities such as online booking & delivery of
goods.

Weakness
Long lines at billing counters which are time
consuming.
High cost of operations due to large fixed costs.
Unable to meet store opening targets on time.
Falling revenue per sq ft.
Overcrowded during offers and peak seasons.
Many branded products are are still missing from Big
Bazaars line of products.
High attrition rate of employees.


Opportunities
Lot of potential in the rural market and can also
expand the business in smaller towns .
They can enter into production of various products
due to their understanding of customers taste and
preferences.
Organised retail is expected to garner about 16-
18 % of the total retail market in the next 5 years.
Increasing mall culture in India.
Improving in store experiences according to
evolving customer preferences.
FDI in retail.
Threats
Competition from other value retail chains such
as Shoprite, Reliance (Fresh and trends),
Hypercity and D mart.
Unorganized retail also appears to be a threat
to Big Bazaars business.
Changing Government policies.
International players looking to foray into the
market.
High business risk involved and margin of
business reducing all the time.
Increasing number of Online retail sites.
SWOT matrix
Strength Opportunity
High brand equity and huge investment
capacity can help them to enter rural markets
and smaller towns.

Private labels offering good value will have
huge scope given the escalating prices of
conventional branded offerings. Big Bazaar will
have an advantage due to their scale.

As a biggest retail value chain in India it
should try to establish partnerships with foreign
players after FDI in retail announcement.
Strength- Threat
Selling goods at a lesser price will
help them to overcome the threat of
local retailers where the goods are
priced higher.

Brand awareness and loyalty is high
due to which many people buy goods
from Big Bazaar in the supermarket
category this may suppress the threat
of other competitors.

Weakness- Opportunity
It can reduce the waiting time of customers at
billing counters and improve the in store
customer experience by opening more
counters and keeping them always functional
with adequate staff.


Weakness- Threat
High attrition rate will lead to more
untrained staff, lack of knowlegde and
may decrease service quality affecting
sales.
Absence of many branded products
may give the competitors a huge edge
.



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