Buying in bulk, at the lowest possible prices, hold the key to success in most retailing formats. Through this ability, the store makes a handsome margin. It then passes on a good portion of it, to the consumer and when the customer gets the benefit of low prices, she comes back again and again to the store and buys more.
Using volume clout: Achieving high volume and using volume clout for getting the best prices/terms is the name of the game here. For their Chennai city stores, Food world buys 3,100 to 4,000 tonnes of rice a month. With such volume clout, they do not have to buy the rice from the Chennai wholesale market at wholesale process. They have a much better procurement alternative. They go straight to Nellore and buy the rice straight off the paddy fields. Also, they have their own millers, who clear, break and pack the rice for them. Similarly, being one of the biggest vegetable buyers, they go directly to a large farmer and tell him to grow for them 50 acres each of brinjal and pumpkin. They transport this crop directly from his farm to their warehouses where it is appropriately paced for their different stores. In short, they eliminate the whole chain of middleman and get the produce direct from the farmer at the most attractive price.
Sourcing/vendor development: In India for many product categories, such as groceries and processed foods, the ‘supply chain’ does not exist in any well defined form. Moreover, poor transport infrastructure and inadequate refrigeration pose special problems.
The first problem is that most food categories such as frozen foods, fresh fruit and vegetables, meat, sea foods, grains, pulses, species etc., do not have any organized suppliers. The next problem is that there are a large number of intermediaries between the growers/processor and the retailers. This result in inconsistencies in the quality of products, especially in items like fruit and vegetables supplied to the store. It becomes difficult to ensure the freshness in these items. The presence of a large number of intermediaries at several levels also results in lower margins.
Merchandising is another key activity in retailing. Merchandising is essentially the ability to decide which items will go on the shelves. In the case of apparels, for example, it involves analysis of fashion trends, forecasting future ones, designing appropriate garments sourcing, checking the finished merchandise, putting it on shelves and ensuring it is best situated to grab customer attention.
The other important merchandising decision relates to the categories to which the store will give prominence. In other words, category management is a important part of merchandising. The life Style store for example emphasizes household products, shoes and children’s apparel. It concentrates on these categories because it is able to leverage and strengthen of its international partner, who specialists in these categories.
Big retail stores need several merchandises so that very category receives the merchandising expertise it needs. For example, in a music retail shop, shop, one merchandiser may focus on Carnatic music, another on Hindustan classical and yet another on Western pop. To be a good merchandiser, basically a person should have the qualities that make up a good buyer. He must know what exactly the customers are looking for and be able to source, buy and offer that product at competitive prices.
To be effective the chain stores have to e backed up by a good deal of sales promotion. Most chains do carry out several sales promotion measures for attracting and rating customers. For example, Escorts Nanz hosts ‘melas’ to promote sales. A Hindustan Lever Special is one such event. At this ‘mela’ the chain issues discount coupons to the buyers on all purchases of HLL products. The Nestle week is another such event. Nanz also has HLL, Pongals, Christmas and Easter specials. The aim of all these melas is basically twofold: (1) to increase customer traffic to Nanz stores, and (2) to increase customer loyalty towards Nanz brand.
Using customer in promotion: In advanced countries like the US, many supermarkets have given smart cards to their customers. With these cards, they know exactly what the customers has purchased during his previous visits. This information facilitates carrying out direct mail and other promotional campaigns targeted at specific customers for specific products. This yields better results than mass advertising.