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Unravelling Big Bazaar Direct

 
 

Rohit Nautiyal, Business Standard - The Strategist

New Delhi, October 7, 2013

starbucks mumbai Thirty-year-old Ramesh Bhonsale, son of the owner of a big kirana store in Nagpur's Byramji Town, has become extra kind towards his father's customers lately. He often draws them into conversations explaining at length that they can now order groceries online and pay by cash. The delivery will be done within three to seven days. While most of the loyal customers of Bhonsale senior have heard his son out, a handful have placed orders on the tablet by routing a small portion of their monthly grocery budget to Ramesh's new venture. In the following days, as more people in the locality warmed up to this unique e-direct selling model, Ramesh had to face his father's wrath for poaching customers, something he hasn't intended doing.

The names have been changed but the story is real. This happened during Big Bazaar Direct's (BBD) pilot in Maharashtra's eastern region of Vidarbha. BBD is the brainchild of Future Group CEO Kishore Biyani who claims, "If it works, BBD will be bigger than Future Group's flagship store Big Bazaar."

The big idea

Attention readers: This model has no precedence globally. So we were not sure whether it was direct sales or e-commerce. To decode this model, The Strategist met with a BBD executive after filling up the franchisee registration form on its website. At its heart, BBD is a franchisee-based model where the franchisees are expected to personally visit consumers and take orders. This will be done over a tablet which is integrated with the back-end to avoid discrepancy in product demand and availability.

Now the tablet has a catalogue with 1,000 deals (other than the ones available at Big Bazaar stores) on select products like groceries, electronics and furniture. As of now, no perishable items - such as fruits, vegetable and dairy products - are part of this catalogue. BBD's catalogue on a franchisee's tablet can be updated on a daily basis to reflect changes in the deals and prices. BBD can send training modules on the tablet from time to time to test the awareness level among franchisees.

To become a franchisee, one has to make an upfront investment of Rs 3 lakh. The break-up of this amount is like this: Rs 1 lakh is the refundable security deposit; Rs 1 lakh is the set-up charge for the BBD tablet, initial branding, a year's training, launch material etc; the last Rs 1 lakh will be a franchisee's e-wallet, which will be used for placing orders. The moment an order is fed into the tablet, the order value will be deducted from this e-wallet. The customer will get an SMS confirming the order immediately and the delivery will be done within seven days (maximum). The customer will pay the franchisee when she places her order and gets an SMS confirmation. There will be additional shipping charges if the total billable amount is Rs 500 or less.

Unlike brick-and-mortar stores, there will be no territory demarcation for franchisees while placing orders. For instance, a franchisee based in Nagpur (Maharashtra) can take an order for a customer in his network from Bhandara (Maharashtra). All she has to do is punch in the correct area code. What's in it for the franchisee? The franchisee will earn commission ranging between 3 and 20 per cent on every product sold. While grocery items will earn her commission of 3 to 6 per cent, electronics and furniture fall under commission slabs of 3 to 7 per cent and 8 to 20 per cent, respectively. The total commission earned every month will be credited to the franchisee's account by the 5th of the subsequent month. BBD's relationship managers will support franchisees on matters relating to marketing and communication. BBD will also conduct knowledge seminars from time to time to educate franchisee on the various aspects of this new business.

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Since the Future Group has its national warehouse in Nagpur, it decided to kick-start the pilot from that city. After wrapping up the pilot across Nagpur, Amravati and Bhandara, Future Group will head to Gujarat to test waters.

By the end of 2013, BBD aims to achieve a national footprint.

Based on the lessons learned during its pilot, BBD is open to tweaking the business model. So what you just read above is not to be interpreted as the last word on the company's plans.

Right time, right place

It is easy to see why BBD is such a big deal for the Future Group and why the Group's accent is on Tier II and III markets. The Indian retail market is estimated at $490 billion with only the organised segment making up just about 10 per cent. In a slowing economy, a large chunk of the organised segment is bleeding thanks to rising operating costs. Technopak's latest retail report says that since more than 85 per cent of the transactions are in cash, under-invoicing and non-reporting of sales is the order of the day. High credit in the system translates into high distribution cost and an inefficient supply chain.

In this scenario, an architecture combining the best of e-tailing and direct selling appears an attractive alternative model for expansion. By itself, e-tailing, which is only 0.2 per cent of the overall pie and expected to reach 6.5 per cent by 2023, is a huge opportunity. On its part, there are close to 150 direct selling companies in India currently. While about a thousand such ventures are started every year, only a couple survive. That said, network direct selling is a $1 billion market annually.

Interestingly, this business model will also result in higher working capital for the company. Imagine the amount the company will mop up if even 1,000 franchisees sign up with a security deposit of Rs 1 lakh over the next six months.

Going forward, Biyani's mega game plan will need flawless execution. Experts have always said that the simplest way to succeed in a new venture is to avoid mistakes made by others in the past. Some experts point at a similar pilot by another retail chain in Thane with around 70 franchisees. In the product catalogue, it ignored essential FMCG products and focused more on high margin items like toys and plastic wares. The pilot did not go as planned and the venture was canned. Surely, BBD has picked up valuable lessons and will focus on the right product mix.

Other than that, the importance of touch and feel cannot be ignored for categories like furniture and electronics. While BBD will provide publicity materials like posters and pamphlets to franchisees, stocking a few products will be a good idea. As part of its e-franchisee model, jewellery manufacturer Gitanjali Group, for instance, allows franchisees to stock jewellery worth Rs 5 lakh or so at a place where they can be exhibited and take orders on a tablet. If required, the franchisee can sell jewellery on the spot.

Love thy franchisee

BBD is in no hurry to increase its franchisee network. In fact, a rigorous pre-selection scanning procedure is already in place to understand the potential of prospective franchisees. This is the tricky part. There is no guarantee that roping in a candidate with a direct selling background will make things easy.

Therefore, the Group is looking at people who have a customer base already along with a certain level of selling skills, says a BBD executive looking after the Vidarbha pilot on condition of anonymity.

Second, unlike network-based direct selling players like Amway, Avon and Alfa Metalcraft, a BBD franchisee can choose to fix monthly targets according to her convenience. This could be a problem for the franchiser. If at an Avon a senior sales manager keeps goading distributors to deliver higher sales figures, at BBD, the franchisees are not 'accountable' in that sense. One of the ways to engage a franchisee would be to offer some sort of an incentive. This will be a win-win for both the franchisee and the franchiser.

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At the end of the day, however, everything will hinge on keeping the delivery promise. Achieving this will be a mammoth task considering that BBD's delivery operations will be handled by Future Group's national and regional warehouses that already cater to Big Bazaar's brick-and-mortar stores. A logistics expert says on a light-hearted note, "They can take a cue from Domino's by returning the billed amount if the order arrives later than seven days."

So far, the Future Group was handling business to business logistics by ferrying goods between its warehouses and physical stores. With BBD, the Group will learn the ropes of business to consumer logistics. Experts suggest that BBD should work towards bringing down the delivery time to 48 hours at some point.

Experts also say the largest chunk of orders placed will be for FMCG products and no consumer is willing to wait for their FMCG supply for more than a week. Going by the shopping trends across metros (that are not on BBD's radar currently), most of the orders are likely to be placed in the evenings, after people return from work. Initiating the delivery process in the evening right from order aggregation at the warehouse to the last mile home delivery is a task easier said than done.

Since we are still a few years away from complete warehouse automation, one can assume that the job of aggregation will be done manually for now. Once this is taken care of, the parcel will be moved to vans, the next hurdle. Currently most of the e-commerce companies in India deal in low volume deliveries. Books, cameras, apparels, and mobile handsets are the typical products. Such products are loaded into jumbo bags that are then mounted on motorbikes that do the last mile delivery. If one is looking at bulk deliveries, one will require bigger vehicles and the issues relating to the time required to carry even a single customer's monthly grocery to her doorstep and then parking the vehicle need to be thought through. This high manual play could be mind-boggling for courier vendors. Then residents living in gated housing societies across metros have to adhere to delivery timings fixed by welfare associations and residential societies. So BBD may be forced to wrap up deliveries within a short time window.

Currently e-commerce players are witnessing high return rates, especially the ones dealing in apparels. While experts are unanimous that FMCG products will have the lower returns, BBD will have to be prepared with its reverse logistics strategy anyway. At the same time, the technology side of this architecture will be relatively easier to put in place and use subsequently since all the information on the franchisees will be on a centralised database.

The challenges are many, but then Kishore Biyani is called the Retail Raja for a reason.

The article has been written with inputs from Kishore Biyani, CEO, Future Group; Devangshu Dutta, CEO, Third Eyesight; Ankur Bisen, vice-president, retail and consumer products, Technopak; Samarjeet Singh, co-founder, Iksula, and Vineet Kanaujia, VP, marketing, Safexpress

 
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