A Study on Foreign Direct Investment in Multi-Brand Retail to Develop a Business Model for Domestic Supermarkets in the Convenience Stores Format.

A Study on Foreign Direct Investment in Multi-Brand Retail to Develop a Business Model for Domestic Supermarkets in the Convenience Stores Format.

The main focus of this research is in the area of organised retail specifically in the convenience stores format in India. The Indian organised retail is growing rapidly but is still in the nascent stage. There are many challenges in terms of infrastructure, supply chain efficiencies, cost structure and customer adaptability to the emerging retail formats. India is perceived to be a lucrative destination for retail and with opening up of foreign direct investment imminent many multinational giants are eyeing India. Indian companies are grappling with many challenges and experimenting with many formats in retail. This study attempts to understand the present scenario and the preparedness of domestic companies in consolidating their existing position to evolve a business frame work model for domestic companies to not only consolidate their existing position but also counter threats from multinationals entering into India. The research revealed that there are not many integrated business models, though there are models on different components of supply chain and retail, Indian companies will certainly benefit from creation of integrated business model which can assist them in taking strategic decisions in terms of managing cost and revenue structure and expansion plans. Scope of this study is Grocery and staples and fruits and vegetables business as food contributes to almost 63% in the organised retail business and was bifurcated into back end and front end operations. This study is intended to understand the drivers and factors influencing the back end operations in the area of supply chain efficiencies and the front end operations particularly in respect of costs, revenues and key drivers to create an integrated business model frame work to drive optimisations at all levels. Sample of this study was two major organised retail companies in Bangalore catering to about seventy outlets in Bangalore and having distribution centres. Tools used in this study was data observation sheets for all the key parameters for both back end and front end operations, in addition to unstructured in depth interview with expert group. However the protocol for the interview was predetermined to capture all key data and elements and involved some qualitative aspect and Linear programming for simulation and trying out various permutation combinations. Some of the major findings were: Stock keeping units, cost of procurement and secondary freight emerged as significant drivers to be controlled for efficiency and optimisation link in the back end grocery and staples. Cost of procurement, net sales value and operations cost emerged as the key drivers of efficiency and optimisation link in the back end Fruits and Vegetables. Rentals, Sales, Cost of goods sold, Total personnel cost and Total facilities cost had significant influence on EBIDTA in the front end super market. Break even point for same size stores differed depending upon the location and other cost drivers. Sensitivity analysis revealed that manpower, rent and total facilities cost had significant impact on EBIDTA in the front end. Limitations and future areas of research have also been discussed.

A.S. Suresh

Management Studies