The strategy of selecting the right Location

In India, when a customer needs something for the home, a typical thought is to seek it from the bazaar. A bazaar is a place where a complete range of products is always available to the consumer. This is true across India. As the store would offer a large mix of products at a discounted price, the name Big Bazaar was finalized. The idea was to recreate a complete bazaar, with a large product offering (at times modified to suit local needs) and to offer a good depth and width in terms of range. The mind to market for the first was just six months.

Price was the basic value proposition at Big Bazaar. The Big bazaar outlets sold the variety of products at prices which were 5 to 60 per cent lower than the market price. The line Isse sasta aur achha kahin nahin emphasized this! (You will not find anything cheaper or better anywhere else).

The key question faced by the management was whether the low margins on the products would allow the company to sustain growth. With aim of answering this question and in order to help the company decide on the right location, it rolled out three stores in three different locations. In Calcutta the store was opened in a suburban market, in Hyderabad it was in the heart of the market viz., Abids and in Bangalore the store was opened in an up market residential area.

The key learning which came out of this exercise was that for a store like Big Bazaar, a large catchment area was needed. The management decided to stick to the existing market places within the city. It realized that the western model of hypermarket where the store was located in large spaces on the outskirts of the city would not really work in India. The cost of time spent on travel and the cost of period in India would eat into the savings made. Property deals were negotiated keeping this factor in mind. The lease deeds negotiated were or a period of 12 – 20 years and the rentals varied from Rs 30 per square foot to Rs 50 per square foot, depending on the city and location.

The merchandise Mix

The key driver of the footfalls at Big Bazaar was the large product mix offered to the customer. Big Bazaar stocked about 130,000 items in over 20 product categories. For the initial stores the classification was simply done in terms of apparel and non-apparel and shop in shops. In the first year, apparel accounted for 70% of the off take and the price was largely responsible or the success the prices ranged from Rs 99 to Rs 799.

Non apparel which included plastic items, footwear toys, luggage, appliances, white goods and stationery accounted for 30% of the off take in the first year. The shop in shops which were a part of the store added to the product mix being offered to the customer without requiring the company to invest in the inventory.

The buying process for most of the categories at Big Bazaar was largely price driven. The objective was to deliver good products at the best possible prices. A key element of the pricing strategy is to achieve Market Breaking Price. To achieve this price that will offer value to the customer is first determined. An appropriate sourcing strategy is then worked upon to achieve this objective value. Pricing and maintenance of quality are the key factors influencing the pricing decisions.

The management was aware that the food retail sector was one of the fastest growing sectors in the Indian retail market. The fact that food would never go out of fashion and the spending on food stood at 53 % of personal income was a very strong reason for the company to consider entering food retailing. Keeping this in mind and to enhance the footballs at its existing Big bazaar outlets the company launched Food bazaar in the first year of operations.