Managing Director and CEO, SPAR Hypermarkets, Rajeev Krishnan, shares this thoughts with Progressive Grocer on how his retail chain is at the forefront of introducing various innovations and technological enhancements with a view to delivering a fulfilling shopping experience across demographics and age groups. “There is a healthy mix of demographics and age groups that visit SPAR stores and we are doing all that a hypermarket is supposed to do,” he says. During the course of an expansive interview, apart from talking on various aspects of operations at SPAR, he weighs in on many germane matters about hypermarket retailing in India and the way forward for this retail format…
Tell us about your retail operations.
Our parent company, Landmark Group, is a multinational conglomerate involved in retailing of apparel, footwear, consumer electronics, cosmetics & beauty products, home improvement and baby products. The Dutch brand SPAR is the world’s largest voluntary retail chain with over 12,000 stores in 40 countries worldwide and meets the needs of over 13 million consumers every day. In India, SPAR Hypermarkets came about as a license agreement between the Dubai-based Landmark Group’s Max Hypermarkets India Pvt. Ltd and SPAR International. SPAR is the world’s largest independent food retail chain, which operates on the principle of a ‘Co-operative of Independent Retailers and Wholesalers.’
What have been your chain’s major achievements in India so far?
SPAR Hypermarkets operates over one million square feet area across 18 stores in nine cities, including Bengaluru, Mangalore, Coimbatore, Hyderabad, Delhi, Ghaziabad, Gurgaon, Chennai and Pune. Th e average store size is 40,000 sq.ft. and, between our 18 stores, SPAR serves 30 million customers annually. Our retail chain had revenues of about Rs. 1,000 crore last year. We are targeting a double digit growth this financial year.
How do you see the hypermarket format changing and evolving?
The hypermarket format has been evolving and will continue to evolve. If you think about it, in the last decade alone, this format has gone from about 150,000 sq. ft. to 25,000 sq. ft. It might be fascinating to know that the current hypermarket format that has evolved in India is also being looked at in the West (20,000 to 50,000 sq. ft.). In the current context, challenges will always be there: on availability of space and increasing rentals. As one gets to Tier 2-3 cities, the challenges change to product connectivity and availability. However, the upside is that the customer is there and looking for an opportunity to shop in a great environment. We continue to experiment on our store sizes as we tighten up the understanding of our customers, the cities we operate in, and the categories we build.
What is the typical customer profile at SPAR?
SPAR Hypermarkets’ customers are family consumption groups with both value as well as aspirational needs. They range from the affluent segments to the pure value-seeking segments. The majority of customers belong to the 25+ age group. There is a healthy mix of demographics and age groups that visit the stores.
What is the location strategy for your stores – malls or high street?
Generally speaking, most options for hypermarkets in India have mainly been in malls, so we have also gone with the same location strategy. If there were options to be in standalone situations or even create a shopping complex with us as the main anchor, we would always explore the same. We look forward to innovative partnerships with the developer community in finding the best ways to make sure we provide a “convenient” shopping experience.
Tell us about the merchandise and product range at your stores.
Food and grocery, fresh categories, FMCG, home furnishings and home ware, general merchandise and apparel are key categories around which we have built our stores over the years. Our brands are leaders in all the categories we serve and they also include numerous SMEs and MMEs who have have brought great products to life.
What are you doing to encourage smart and young manufacturers, and SMEs at your stores?
We make special efforts to reach out to small scale / self help group, help them develop their packaging, educate them on statutory requirements, bring them to life and open them up to the modern retail world. We have a range of “branded specialty foods”, which helps us to bring all the local delicacies and their makers to organized retail. We handhold and nurture the local partners; help them in aligning with a strategic logistic partner, thus enabling them to offer their ethnic specialties to our customer base.
How important it is for retailers and brands to work collaboratively?
When the partnership is for mutual benefit and the final aim is to excite and engage the customer, it is but the only way to success. My personal experience over the years has always convinced me that collaboration leads to huge success. We have already started work on this phase of our relationship building with great vigour and I believe my merchant teams will come up with amazing solutions and ideas for our customers. I also believe this extends beyond product to technology, HR, marketing, property, formats and fixtures. One of the most important areas to be impacted is product availability, which is still a big challenge.
What is SPAR’s assortment like?
We offer a wholesome assortment covering fresh produce, fish & meat, staples, consumer packaged goods, home and living products, and more. SPAR Hypermarkets are planning to off er a wider range of products by adding new categories such as home furnishing, wooden handicrafts, kids’ toys, health and wellness products, among other newer categories.
What is your strategy for merchandise display and management?
Our strategy is to develop solid partnerships with vendors who have the same beliefs, values, innovative spirit and, above all, the ability to bring great products to life. Pursuing this strategy normally takes care of putting together an exciting merchandise display.
What is the price range for products at your stores? Which price band is the most popular?
A hypermarket has multiple roles to play: from offering a monthly shopping basket to an aspiring consumer’s need fulfillment to encouraging impulse buying, etc. We ensure that we are the No.1 choice for our customers in value, which is a combination of price and product. We will never try to be the lowest on price by selling cheap products and losing our customers’ trust. At our stores, both the low price points and high price points are selling well provided it is value for money.
What is your current category split?
Our mission has always been to be a hypermarket that is known for value and differentiation. Food, grocery and consumables have a higher share and drive our frequency while general merchandise, home and apparel play a different role. We are regularly reviewing all our categories to look for new and fun areas to expand into, innovative ideas to recreate what we already have and, of course, maintain high standards in what does well. Health & Wellness, Convenience Lifestyle, Food Theatre, My Home, Millennial and Fresh are all the areas we are looking to bring differentiation within.
Which are the new and emerging categories?
Food concepts, health & wellness range, organic, OTC, beauty, skin care – these are the new and emerging categories. The aspiration levels of customers are going through an upward evolution. More and more customers are becoming aware of themselves, what they consume, the impact on health and the world. And this is changing the way they look at their lives and what they consume.
Do you have any tie-ups or collaborations with brands for category insights?
Our own Landmark Rewards loyalty programme is a gold mine and wealth of information that helps us develop our categories. We intend to use this in the appropriate manner along with insights from our brands to fine tune and develop a better product and assortment. We work with brands across the country and with farmers who we see as our partners.
What is your private label strategy?
We engage with our shoppers to better understand their expectations from the product with regard to quality, packaging and value proposition. The aim is always to gain their trust through delivering quality products at great prices. We invest heavily on gaining more control over the end-to-end product development process to ensure quality and consistency. Our private brand strategic intent is also to improve the buying margins and boost operating income, but this is only possible through sustainable and long lasting relationship with our shoppers built over time through trust in the products we offer under Private Label. Therefore, the core to our private brand strategy is building trust, through delivering great quality at great value.
In which categories do you have PLs?
A natural progression of acceptance of private label products is from household products to food to personal care products, i.e., the further it is to the body the more approving is the consumer of a private label product. Confidence and trust in private brands is first built through functional products, moving on to products that are more emotionally appealing. At SPAR, we have a ready wide range of private label products in various categories: staple foods, bakery, fresh produce, organic, home furnishing, general merchandise, breakfast cereals, home hygiene, home needs, fabric care, beverages, paper products, puja needs, disposables, snack, ready & prepared foods, and a few personal care products as well.
What kind of margins do these give you compared to national brands?
At SPAR, the private label portfolio contributes significantly in elevating category margins. This margin advantage over national/other brands varies from category to category. It is least in staple commodities and peaks in general merchandise and home furnishing product lines. However, the real advantage is not the higher margin as compared to national/other brands through cyclic transactions. It is in building that relationship of trust with our shoppers. That’s when the real potential is unlocked. In categories where national brands have a play, private label shares for us go as high as 65 per cent. Overall, it varies from single digit in more complex product categories to 95 per cent in more commoditised categories.
What is your pricing strategy for PLs?
This is one of the most critical decisions to make in private label. In general, private label products are priced lower than national labels. This is because private label products have long carried a reputation of being a “cheap” alternative, and therefore have a weaker brand value. Hence, often private labels are priced just below the national brand to keep their prices competitive. We adopt a policy strategy of pricing it right, i.e., delivering great quality while still offering a price advantage to shoppers. In the branded portfolio, we deliver an average of 20 per cent price advantage over benchmark/leading brands, while delivering equivalent quality, which is established through regular in-store sampling exercise.
What are you doing to promote your PLs?
Private label portfolio is managed in a manner most brands do – through an integrated marketing approach. We not only promote private brands with brand-level (strategic) promotion support but also employ a lot of tactical mechanics on a regular basis. While temporary price reduction promotions are most commonly used, print and social media marketing is becoming more prominent. Constant engagement with customers is the key objective and promotions become an easy route to achieve that. Special displays at prominent (high visibility) locations, preferential mother bay space allocation, placement right next to benchmark brand (forcing comparison), cross merchandising, tying up with other brands to promote private labels, compare & save talkers, are some of the usual tactics for promoting private label. We also have private label focused events, which help create higher awareness and increase penetration.
What is sales turnover of PLs?
Overall, the contribution of private label sales in our portfolio is just starting to grow. However, the opportunity that exists is immense. What we have achieved today is only a small fraction of the potential. The immediate focus is on reaching out to more customers with a growing presence in new product categories and fulfilling shopper needs through a stronger value proposition offered by private brands. We are aggressively working towards doubling our private lable sales in the next two or three years and then taking it beyond.
What has been the growth in this category?
The growth in private label portfolio has been phenomenal. This high growth trend should continue for private brands considering the small base we are currently at in India. We are looking at emerging categories to further fuel this growth. At SPAR, we have grown by more than 60 per cent over the previous year, same period. Growth is not only coming in from new product introductions but the existing line of private label products is also showing strong progress. However, this is nothing in comparison to the opportunity available to us.
Which new products would you like to introduce in this category?
Today’s extremely busy consumers are not only looking at shopping regular basket items but are also looking at solutions from retailers. We see “convenience” shopping as a big opportunity. Health & Wellness is again a very promising segment. As a consequence of the sedentary lifestyle most of us lead these days, pursuing an “active life” has become a quest. We identify ourselves contributing significantly in this space by offering a range of products and solutions to our shoppers. Home improvement/enhancement is yet another prospective domain available, where we can do a lot more than what we have witnessed yet in the space. Our efforts are going to be more focused towards building a range where the customer is experiencing a gap today. It could be food or home product or could be a local/ regional/ national brand.
Have you developed some kind of a programme for pushing private label sales?
Store loyalty programme is part of a comprehensive customer relationship strategy. We, however, see the private label strategy itself as a means of building customer loyalty. Hence, we are currently not focusing on using this for promoting private label aggressively. Instead, we are investing heavily on the quality of private brands and growing into more and more categories. There is no better way to push private label sales but to let the private label products speak for itself through quality at great value.
What are you doing to rope in more quality suppliers for different categories?
Quality is an expectation and a mindset. It is not optional. Once we ensure that our supplier base understands this as a condition of doing business, they also begin to see the value in it for their own organisations. If we can raise the bar across the industry, it will help the entire ecosystem. Our merchandising merchandising teams do periodic road shows to engage, educate and work with our vendor partners with regards to delivering great quality to our customers. Our buying teams are continually looking at ways to help our customers live better. They are constantly on the lookout for better, newer and more innovative products. They are continuously visiting relevant fairs in India and overseas, and collaborating with quality vendors to bring in the most exciting offerings for our customers. Our range is therefore constantly evolving. As part of our vendor development programme, we help small time vendors get their process certified by ISO 22000,
ISO 9001, etc, and upgrade their standards. We also provide customer inputs and feedback to vendors and help them have a better focus on quality standards.
What is your current supplier base and at what rate is it growing?
Our supplier base is growing at the rate of five to six per cent per annum. It is likely to grow at a faster phase as we open new stores. We are planning another three stores within the next six months. So the stability of our vendor base is extremely important to us from a long-term perspective. While we do add on vendors continuously to ensure innovation and freshness in our offerings, we also ensure that our core range is consistently in stock and that we build a long-term relationship with our supply partners.
How do you ensure that suppliers stick to quality standards and efficiency norms?
The selection of vendors with a proven track record is the first imperative. We are constantly working side by side with our vendors, guiding and training them on various aspects of supply chain, labeling and packaging, legalities of the trade, quality standards, etc, so that they are in sync with all the demands of the retail trade, and with SPAR standards. This is particularly critical for small and medium scale vendors. We also create joint business plans with all our important trade partners so that they are fully aligned with our growth plans and promotion calendar. We have very clear expectations and quality standards by SKU and category.
What is the extent of your direct sourcing?
We do direct sourcing in categories like leafies, seasonal fruits, vegetables, rice, pulses, etc. In our Home & Living categories, most of the sourcing is direct, including the imports.
Are there specific product categories where direct form of sourcing is a better approach?
We start with the approach that we would want to source all products directly. Apart from the obvious cost benefit, there are advantages of better control on quality, better visibility on supplies and collaborative partnerships at the point of origin. However, sometimes, for smaller volume categories or products, it is better to consolidate a larger number of products from various sources through an intermediary so as to not take the risk of overbuying. Wherever processing is not required, we procure directly from farms. Direct sourcing is better wherever there is a quality and price arbitrage. As the organisation grows, it makes financial sense to move more and more towards direct sourcing.
Have there been occasions when you went for a course correction?
The upstream supply side is always where the makeover first happens. The biggest makeover that I have been part of were within the four walls of the store. It is important to ensure that we have the right teams and supervision in place, apart from having a clear logistics process both to stock and restock. And above all, there’s the need to have the right kind of technology to ensure that 15,000 to 25,000 SKUs in a hypermarket are available to customers. Assuming that the upstream logistics is set and in place, an ill managed downstream processes can cause five times damage to the bottom line.
What is your policy on employee allocation for managing store operations? How do you ensure their training and development?
The size of the team depends on the revenue of each store. We are always excited that we are able to provide employment in the communities we serve. But, more importantly, we intend to provide a viable and respectful career to many. We are going to innovate and bring key expertise from our communities into our stores – for Fresh or Apparel or Home, or other categories. As we expand, we will focus not on quantity but quality. We also intend to continue to make our stores a great place to work and develop careers for women. We are proud that we already have two women store managers running our top stores. We intend to continue this focus as part of our commitment to our communities. We will not set any percentage and numbers to this but will make this a sustainable part of our value system.
What initiatives have you put in place at SPAR India to create a great workplace?
At SPAR, we have taken specific steps to engage, develop and retain our employees. One of our flagship programmes – Sammaan – has helped honour 7,500 instances of great employee behaviours in under a year. The store employee incentive programme – Lakshya – ensures that employees get into an entrepreneurial mindset and are able to sell more and earn more. This year, we have designed a major people development initiative by creating frontline managers in stores – almost 100 of them – over a structured career mobility programme called Pragati. Employees organise and run their own engagement programmes on the shop floor.
The business-centric approach of our HR practices helps create a differentiator. We have recently launched an idea and innovation forum called Majlis in which the store manager interacts with the employees for ideas and ensures their implementation, which has a positive effect on customer experience in the store.
Our monthly employee townhall is an interactive forum to highlight the progress of the company, celebrate the “Most Valuable Player” awards and, most importantly, have fun as well. Parichay, our employee referral scheme, has been designed to encourage an employee get a higher referral fee for referring and selection of a female employee. As for our store management team, we have designed a simulation-based learning intervention with KnolSkape, which is one of the best in the industry. Our future store leaders are developed in conjunction with the ‘WE School of Management’.
Our internship programme Sankalp has attracted students from some of the best B-schools such as TAPMI, NMIMS, among others. All these initiatives are aligned to our vision, which is to drive business through people by way of their engagement, development and retention.
How are you making use of technology to serve customers better?
The evolution of the technology has enriched customer experience. Mobile point of sales solutions are now “must-have” technologies. Customers can use in-store self-help technologies, such as price checkers, self-checkout payment lanes, and information kiosks, among other services when they shop. SPAR Hypermarkets believes that social media will heavily influence shopper decisions and will play a much bigger role in retail decision making. While SPAR Hypermarkets is using social media towards connecting with customers on marketing campaigns, it believes that social is also going to be a great place to dip into for product development.
How do you see technology panning out for the retail industry?
Convergence of online and offline models is the need of the hour. Instead of being competing business models, these two sectors will evolve into a single retail entity – that happens to have both online and offline applications. There will be a redefinition of the in-store experience. Stores of the future will no longer be transaction factories; rather, they will provide shoppers with value-added learning and entertainment experiences. So you could say the future of retail will be a marriage between tradition and technology. We regularly reach out to our internal and external customers / stakeholders to understand their pain points and come up with technological solutions to overcome the same. We think of our store as a hub of innovation. Technology drives almost every step of our retail experience. Going forward, some of the initiatives planned would be around IOT with beacons & sensors, mobile e-commerce, social networks as shopping platforms, digital in-store, among other similar measures.
Which technology initiatives at SPAR would you like to highlight?
SPAR Hypermarkets is working on a host of technology solutions to make our stores an exciting place for employees and partners. Among the actions being rolled out are:
Farmer Connect Programme: SPAR Hypermarkets is building relationships with the farming community towards educating farmers on new methods and new technology for improvement of in-farming processes. Th e fact that SPAR has access to worldwide best practices from the global farming community also helps to add value to the farmer connect programme. SPAR also adds value in terms of consistent sourcing and pricing advantages for the farmer. And most importantly, it builds a partnership between the farming community towards better merchandising and customer engagement.
Health and Wellness: Helping customers to live better. SPAR Hypermarkets is taking the health and wellness space very passionately. It is looking at enriching the lives of customers by bringing in interactive and innovative ways to educate them on living in a healthier manner. SPAR is venturing into partnerships with leading healthcare brands and professionals, building a complete programme for customers with a health and wellness zone.
Food Theatre: SPAR Hypermarkets believes in throwing a lot of fun for customers around food. India is such an exciting country with so many different cuisines, which change every few hundreds of kilometers. The food theatre at SPAR Hypermarkets seeks to tap into this richness by bringing the foods of India to life. It will also feature a chef d’ jour and a canvas for upcoming chefs to innovate and ideate on new treats for customers. The food theatre will also serve as a launch pad for brands to introduce and test new products.
Are you doing anything special to beef up your presence in e-commerce / Omnichannel?
E-commerce is another “format” of retailing, so that will continue to evolve, but the key is to be aware of all the potential options that are in front of us. Brick and Click will always co-exist and evolve together to create new spaces. We would like to embark on a slightly different path of how to best utilise the Omnichannel space and make it a feasible and logical extension of our physical stores.
A lot of key technology partners are engaged within, exploring this entire space, and we hope to continue to lead with innovation that will surprise and delight our customers. We have recently entered the Omnichannel space. This channel would complement our brick and mortar business and leverage store infrastructure.
Omnichannel will help us to increase the reach of our stores within defined geographies. Th is would help us connect with digital
age customers and allow all customers to shop with SPAR from the convenience of their home or office. Th e emphasis is on service at the doorstep of customers, a great user experience when shopping on the website, range & availability, freshness of products (vegetables, shelf life of perishables, meat, fi sh & poultry, etc.) and partnering with affiliate brands to provide unique products and deals. Our focus will be on fresh categories: fruit & vegetable, fish & meat, staples, bakery, HMR, etc. We will also be focusing on health & wellness, baby care, etc. We are very excited, having just rolled out www.sparindia.com in Bangalore.
In your company, where do you see the most need for OC solutions?
We are exploring this as a complete white space with no pre-conceived notions. We have different locations, with different demographics, customer requirements, traffic and customer density, diversity, etc, and therefore see opportunities across the board. Therefore, understanding what our customers want from each category, from each of our locations and at what frequency will help us come up with different OC solutions. We have a few “small innovations” already in the works, which we are piloting and will roll out in the next few months.
What degree of integration your company has carried in the realms of technology, customer analytics and back-end supply chain and logistics? What are the challenges in achieving such integration?
We have been doing a lot of work on the upstream supply chain processes and continue to do more work. Overall, we will continue to look for opportunities to drive our overall efficiency and profitability. The focus will be on teams, process and technology. The major challenge that the retailers, especially in the hypermarkets space, face is to improve the sales and margins in a highly competitive environment. Controlling operational costs is also one of the biggest challenges that any retailer faces. Since hypermarkets typically run on extremely low profit margins, the need for a lean and efficient operation is critical. Some of the other challenges faced by retailers all across the board are with regard to the optimisation of supply chain, better demand forecasting, rapidly changing customer preferences, reducing lead times and inventory holding, multi-system integration, etc. We are addressing these challenges by leveraging cutting edge technology solutions, which are helping us in optimising the inventory positions, increasing stock turns, reducing stock-outs and shrinkages and improving the overall supply chain operational effi ciencies in the dynamic retail business. We have implemented Oracle Retail ERP solution, which provides a holistic view of the entire retail operations on a real time basis and helps business to take informed decisions.
From your experience, what have been your major learnings with respect to supply chain and logistics issues in retail?
This is the backbone of any retail organisation and so it is critical that we have in place a great end-to-end solutions and not just be good at parts of the supply chain system. In a lot of organisations some individual parts work well even as others are broken. That is why supply planning and inventory management is the heart and soul of a great supply chain system. It is critical that inventory levels of stores are optimised to sales and not to other factors. If the inventory can maximise sales, then the support supply chain factors can make an impact.
Secondly, in India, it is important to understand and review supply models like Direct to Store and Distribution Supply Network periodically. The fill rates and role of distributors have a huge impact on the success of retail operations, which depend on getting all these factors right. Getting the ratios right on all these parameters is crucial: too much either way can be a problem and affect product availability, cause customer dissatisfaction and impact profitability. The key is to try to build strong network partnerships, which can ensure the right product to be at the right place at the right time.
Which promotional activities you keep carrying at your stores. What impact do these have on your business?
We have to constantly keep delivering a different role at different times of the month and different months of the year. There are numerous activities around the monthly shopping basket: Festivities, Home & Living, and weather related promotional activities such as summer and winter events. We have had a lot of success with our theme-based events and are determined to create some very fun events for our customers in the years ahead.
What measures have you taken with regard to ATL-BTL and other activities?
The focus has always been to excite customers and keep engaging with them in a fresh and innovative manner. Campaigns such as Wednesday Fresh and SPAR Monthly Shopping were developed to target weekday and weekend visits. Attractive off ers along with an eff ective communication was planned between print advertising, leafl ets and in-store communication. Th e monthly basket and fresh plus top-up was ensured with these two action plans. We had to create new concepts to keep the customer to our store and to make SPAR a store of preference for all the household needs. For example, we rolled out Sparkle India during the Diwali period, which was an emotional campaign to connect with families. October Loot and Great Store Robbery were both big sale periods and December promises a dedicated month for Christmas celebrations. All of the above have had a positive response from customers and a very positive impact on the business.
What challenges do you foresee in the future for hypermarkets in India?
The focus of hypermarkets in India should be on equal weightage on Food and Home & Living off erings, with store sizes of 40,000 sq.ft.. Smaller formats of about 15,000 sq.ft. could be connected to these large format stores. The understanding is that the format that can capture the essence of the Kirana stores in its service and connect with customers can be the real winner in the future. Urban India has been a difficult market for organised retailers to tap into. Retailers are still trying to figure out how “deep” their hypermarkets can go into dense cities, and the neighborhood stores just don’t have enough products or variety to draw in customers. As urban India remains a coveted market for organised retailers, the “compact hypermarket” could be the answer.
How do you plan to take on competition? Any specific strategy by way of refining assortment design for individual customer groups, devising a more competitive price policy and developing services for a more comfortable shopping experience?
We understand our competitor’s strengths and customer proposition. We need to compete within first, by understanding who we are, our proposition for the customer and then relentlessly driving and striving for excellence to that goal. Our core strategy is then to innovate within that space and surprise our customers time and time again. We want to be known as the “Innovation Hub” in the next few years and this is across all the verticals of our business….Merchandising, Supply chain, Store operations & formats, HR & Marketing. The objective is to offer a fast, fun and friendly shopping experience for our customers.
To conclude this wonderful interaction, tell us about your future roadmap and expansion plans?
SPAR Hypermarkets has been gradually building up presence over the last couple of years. We have recently opened our 18th store at Hyderabad in October 2016 and will now look at increasing retail space by 30 per cent over the next 12-18 months.