Nautiyal, Business Standard - The Strategist
Delhi, October 7, 2013
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
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
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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,