Spencers – A Comprehensive Study

Despite the proliferation of malls and departmental stores in metros, retailing in India is still in its infancy. it has a long way to go before it can be compared to UK and France where organised retailing takes a relatively higher proportion of market space. Yet, there is no denying how important retail sector is important to the country’s economy. The conditions required for retail businesses to succeed seem to emerging in India. Many consumers who are hard-pressed for time are looking at retail malls as opportunities to combine one-stop shopping and entertainment.
Today with higher disposable income and the urge to possess, malls across the country leading to a retail boom. The total retailing industry is going to grow at about 5-6% over the next six years and in this period organised retail will grow at 30%. Organised retail chains are setting up shop at prominent locations. After the IT boom, retail seems to be the next big thing. With biggies like Reliance and TATAs going after a share of this pie, things are only looking brighter.
WAL-MART and company have already started investing money in researching the customer behaviour and market preferences. MNCs have already started knocking government’s doors to ease the FDI norms. All this hype in spite of the fact that organised retail accounts for only 2%of the total purchasing in the country. Which brings us to the market-kingpins- THE KIRANA STORE. India is all about Mom and Pop stores, this is where 98% of the business takes place.

For organised retailers to recover their costs and sustain profitability it is a tough task to fend off competition from the friendly neighbourhood “baniya ka dukaan”, moreover for the manufacturers it seems a more lucrative option to continue with their existing vendoring pattern and not compromise on margins and volumes. Customers also prefer the personal touch that they get at a kirana. It’s all about convenience. Having said that, there is a huge chunk of customer base who have made the transition from the kirana to the OCRs (organised chain retailers)
Very often the emergence of large well-lit stores in the urban high streets of the city is taken as a sign of modern retailing having arrived. The emergence of such stores does not even satisfy the sufficient conditions for organized retailing let alone the necessary ones. So what is organised retailing? Retailers are looking at the right marketing-mix with well-thought-out strategies.
The problem though is that few people are making money; the rate of investment in expansion remains much higher than the cash generated in the business. And the average number of footfalls is not quite enough to cover the cost of the real estate. We students have thought of certain strategies that may convert the footfalls into fortunes. The firm that our group has chosen is Spencers through this work our group has made an effort to study the Organised Chain Retailing sector. RPG took over Spencers in 1989. Spencers was a travel agency then; today Spencer is a big name in the same industry servicing clients like KLM and Lufthansa.
In early nineties when there was a new order of liberalisation and increased competition, RPG was looking for Greenfield projects. That was when Mckinsey suggested the possibility of building from scratch a comprehensive initiative in the whole area of retail consolidation given the impending availability of a variety of consumer product in a hitherto unprecedented scale. In 1996 RPG entered, much ahead of its time, the organised chain retail segment with a Foodworld store in Chennai.
This was a joint-venture with Dairy Farm International of the Jardine Matheson Group, a US $ 4.5 billion retail giant operating in the Asia-Pacific markets. By 2005 it was India’s largest and fastest growing supermarket chain offering state-of-the -art facilities with utmost convenience and more than 90 outlets. In 1997, RPG took another big step by launching Musicworld; today it is India’s largest music retail chain with over 170 outlets across India. It provides all classes of consumers with a complete range and repertoire of music, from International to Hindi, devotional or Regional music, so as to become the preferred choice for Indian and International music in India.
By 2001, buoyed by its success in previous ventures, Spencers entered the hypermarket scene with GIANT. The first store was opened in Hyderabad pning over 120000 sq. ft, again being the first to enter the OCR sector. With their second store in Mumbai’s In Orbit Mall, RPG opted for a name change’ bringing to the fore the Spencers Hypermarket brand. In 2005, an entire operations’ overhaul took place integrating the three brands i. e. Musicworld, Foodworld and Spencers Hypermarket into the Spencers Hypermarket name. With the new strategy, the group is eyeing 21 cities as a part of a major expansion drive.
The operations of the firm are mainly in grade-A cities and grade-B cities. This makes the firm target the middle-class and upper-middle class population as customers. In the cities where Foodworld operates, it has a share of about 62% in the organised sector. Musicworld also has an edge in its field of operations. Spencers Hypermarket, on its own hasn’t been able to make a mark, probably because of its smaller scale of operations. However it is too early to comment on it because the operational rejig has just been completed.
One has to add that the two Hypermarkets at Hyderabad and Mumbai have already broken-even, which is an achievement. Competition Philip Kotler defines Hypermarkets as Range between 80,000 -220000 sq. ft and combine supermarket, discount and warehouse retailing principles. Their product assortment goes beyond routinely purchased goods and includes furniture, large and small appliances, clothing items and many other items. The nature of operations makes Spencers compete with a host of players. For convenience we shall divide them into three sectors 1) Other organised retailers.
This includes the nearest competitor, the market leader- Big Bazaar. Spencers is perceived to be the closest alternative to Big Bazaar by customers, probably because of the Large-store format. Dmart is also known to give Spencers a tough time in the Mumbai circle. Shoppers Stop is another competitor to Spencers but the former’s focus on lifestyle goods tends to put it on a different level. However the inventory at Spencers does match up to Shoppers Stop in many of the product lines. Though Spencers perceives Shoppers Stop as a competitor, the customer thinks otherwise.
2) Speciality stores. This is usually the store who specialise in certain range of products. For example Vijay Sales is a competitor because both these stores deal in consumer electronics. Again Pantaloon is a competitor because both the stores have interests in clothing or apparels. An Apna Bazaar or a Sahkari Bhandar also poses as competitors for Spencers because of their specialisation in groceries. 3) Again the local Kirana store comes up as the biggest competitor. About 7million Kirana stores across the country have served as traditional retailers for many decades.
Again the Kirana stores currently handle 98% of the total business. There is also the perception in the customers’ mind that Kirana stores are convenient and cost-effective. Many of the customers feel that a trip to Spencers may turn out to be much more costlier than what they had planned. Its also the lesser number outlets and far-from-home locations that make Spencers a second option. Consumer Since most of the Spencers stores are located in metros and smaller cities, the basic consumer is the UPPIE- urban professional. The consumer survey suggested that most of them had an annual income well above Rs. 2 lacs.
This is logical since each visit to Spencers results in buying in excess of Rs 900 (this is an approximation) and most people visit the store thrice in a p of 70 days. UMPIES- upwardly mobile professionals are also a part of the customer base because of their time constraint on account of travelling but they don’t mind spending sometime at the store if they get good quality products. YUMMIES- young upwardly mobile mommies are also among the ones who frequent the store. The basic reason for their visit is because it gives them an opportunity to take their kids on an outing as well as wrap up their purchase at a single place.
This is because their sole demand is convenience. DIG- double income groups frequent the store because they would like to club one-stop shopping with entertainment within their time constraints Housewives- they constitute the day- shoppers. Most of them frequent the store because it meets their requirements of affordability without compromising on quality. Product Since Spencers is a Hypermarket, it offers a plethora of products. The stress is on groceries- this includes food grains, pulses and spices. Again FMCG products like pastes, toiletries, and detergents, snacks etc.
the Foodworld counter serves fresh vegetables, cut and cleansed ones for more convenience, fruits and Meats and drinks. Dairy products are also available. Household articles like mops etc are available. There are many shelves reserved for cosmetics ranging from creams to polishes to perfumes and Deodorants. Musicworld sells cassettes and CDs of Indian as well as international music and films. The electronic section sells all the consumer electronics from refrigerators to TVs to microwaves to dishwashers and music systems. The apparel section is one of the largest with products in the branded as well as the unbranded products.
There are women’s wears from sarees to salwars to kurtis and trousers as well as T-shirts. There is also a Lingerie counter. Likewise for men there are suits, shirts (both formals as well as casuals), there are trousers and denims. There is this section called the LOOT where one can get the best bargains on Jeans and shirts as well as sportswear. Then there is the section for undergarments. The other section includes shaving kits and Batteries and things like this. There are also food or snack stalls that serve a variety of dishes to satiate the breaks between shopping.