INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

Application of Economics in
Today’s Businesses

“Big Bazaar” – A Case Study

Presented By: Group 3

Section A
MBA (IB) | 2010 – 13

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Team Structure
S. No. Name Roll Role
No.
1 Gaurav Chopra 25 Group Leader &
Member
2 Aditya Verma 5 Member
3 Khushboo Sethi 34 Member

4 Abhishek 4 Member
Sharma
5 Amit Rawat 9 Member
6 Krithika Kannan 35 Member

7 Goumtesh 26 Member
Singh BUSINESS ECONOMICS TRIMESTER 1
INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

Agenda
1.Introduction

2.PEST Analysis

3.S.W.O.T Analysis

4.Economies of effective management

5.Industry Analysis

6.Nature & Importance of Profit

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1. Introduction
1.1 Definition of Managerial Economics

Applies Economic Theory, Methods to business, administrative business

decision making

Prescribes rules for improving managerial decisions

Managerial economics uses economic concepts and decision science

techniques to solve managerial problems through:

Product price & output

Make or Buy
Production Technique
Investment & Financing

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1. Introduction
1.2 PEST Analysis

Political/Legal Factor

Economic Factors

Macroeconomic Environment
Microeconomic Environment

Social/Cultural Factors

Technological Analysis

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2. S.W.O.T
Strengths
Weaknesse
•Excellent revenue model
focusing on value for money. s
•Second largest selling space
among competitors •Heavy fund borrowings

•Strong brands • Larger discounts only on limited

home grown brands
•Diversified product portfolio and
price advantage •Inability to cut prices

Threats
Opportunit
ies
•Organized Retailers: Targeting
same segment for higher margins
•International Chains: Wal-Mart &
Carrefour that are better known
•Target upper and middle class
names
segment
•Unorganized retailer
•Heavy discounts by Giant: 10-
•Expansion plans in cities with
15% on food items, sanitation
dense middle population
products and appare
•Coupling plans with discount store
model to boost up sales

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3. Effective
Management
Productive

Advanced Technology

Market Capitalization

Competitive Environment

Quality

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4. Industry Analysis
4.1 Market Overview

As per estimates by CRISIL, the Indian retail

industry is poised to grow at a rate of 19% over the
next 5 years

The organized retail market in India is projected

to grow to US$ 23 billion in 2009-10

The organized retail segment is expected to grow

from 5% to about 7 to 8 % by 2012-13

The market is witnessing a migration from traditional

retailing to modern/organized retail formats, with an
explosive proliferation of malls and branded outlets

Sources: IBEF Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS INFAC: “2009 Global Retail Development
Index”

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4. Industry Analysis
4.2 Future
Outlook Changing Paradigm: The Confluence of Modern & Traditional Retail
Consolidations,
High
Investments,
Technology Confluence of
Adoption, Indian Retail
leveraging
traditional
formats for
Range, Portfolio, modern retail
Format Options,
beginning of the
rural-urban retail
merge
Entry, Growth,
Expansion, top
line focus for
organized retail

reP
1st Phase 2nd Phase atipaC 3rd Phase 4th Phase
liateR
ecapS

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS
INFAC

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4. Industry Analysis
4.3 Key Players…………..
(1/2)
Pantaloon Retail Shopper’s Stop Ltd. Landmark Group
(India) Ltd.
• Started operations in 1994 and has • Established in 1991, has now • Present in India since 1999
since emerged as a retailing major in expanded to more than 100 retail • Retail sector activity: Apparel, home
India outlets décor and furnishing
• 12 million sq.ft. space spread over • Spread across 1.82 million sq.ft. of • Current store formats: Department
1,000 stores across 71 cities built-up area, spanning the entire Stores, hypermarkets
• Revenues worth US$ 887 million in spectrum of retailing verticals and • current Outlets: 15 lifestyle stores
2007-08, a 75% increase over 2006-07 formats and 8 home centres
• Net Profit stood at US$ 29.75 million • Has a total of 26 stores in 12 cities • Future Plans: Presence in mini-
with a hike of 87% over the previous metros and Tier II cities
year • Principal Fascia: Lifestyle, Home
Centre, Max Retail

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS
INFAC

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4. Industry Analysis
4.3 Key Players…………..
(2/2)
RPG Enterprises Vishal Megamart Ltd. Archies Ltd.

• Spencer’s Retail Ltd. was established • Established in 1986 • Present since 1979
in 1996 • Current Stores: 180 showrooms in • Retail Sector Activity: cards & gifts
• Spencer’s has a retail footage of over 100 cities • Current Store Formats: Standalone
1.1 million sq.ft. • Retail area coverage of 2,990,140 Stores
• Stores: 250 stores, including 36 large sq.ft. • Current Outlets: Archies has 100
format stores across 66 cities in India • current Store Formats: company-owned stores in India and
• Retail Sector Activity: Music, Food & Supermarkets 450 franchise-run outlets
Grocery, Beauty Products • Popular Brands: Zero Degree and • Future Plans: It plans another 100
• Current Store Formats: Convenience Fume company-owned outlets by 2010
Stores, Supermarkets, Hypermarkets • Has a factory with 700 imported • Principal Fascia: Archies and Stupid
• Music World has tie-ups with 350 machines that have the capacity to Cupid
affiliates across the country manufacture 150,000 pieces a
• Principal Fascia: Spencer’s & Music month
World • 10 Warehouses

Source: IBEF: Retail Report (Sep 2009), Retail: Industry Profile, March 2009, CRIS
INFAC

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5. Theory of Firms

A combination of people, physical and financial assets, and information

Existence: Mass Market, Increasing purchasing power, focus on upper-

middle class

Boundaries: Raw Material Cost, Premium on Brand Value

Organization Structure: Location, Customer Service, Store Atmosphere,

Price

Heterogeneity: Perfect Competition, Target Audience, Promotion

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6. Nature & Importance of Profit

Definition: Defined as the residual of sales revenue less total costs

Objective: Firms aim for business profit to spur efficient allocation of 4M

(Men, Material, Machine & Money)

Reason: Profits a vehicle for spurring investments over consumption,

reward risk taking, innovation & enterprise

Types: Normal Profit vs. Windfall : Norm vs. Exception

Theories: Frictional, Monopoly, Innovation, Monopolistic, Innovation,

Compensatory, Firms respond based on market cycle

Profit define Market Behavior, Allocation of Resources & Efficiency

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6. Profits and Big Bazaar : An Insight

Monopolistic Competition: Low margins averaging 700 bps.

Aim for TR >= TCLow margins averaging 700 bps.
Aim for TR>=TC.
Innovation Profit model : Maximize revenue with differential pricing

Efficiency key to success : Economies of scale/ scope and cost control

Extensive emphasis on inventory management: Optimize holding cost

Store wide operation margins :Demand forecasting, optimal product mix

Revenue Maximization : Using pricing and promotion strategies

Scope of Growth : 98% of unorganised retail, a hurdle or an opportunity.

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Thank You !!

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