Research Report on ‘Supermarkets and Retail Shops’ Segment’ Section

Table of contents 1

Retail ShTable of Contents

1 Guidelines for using this Research Report ............................................................................. 1
1.1 Market Assessment ........................................................................................................ 1
1.2 Product Suite .................................................................................................................. 1
1.3 Marketing and Distribution .............................................................................................. 1
2 Introduction & Objectives ....................................................................................................... 2
2.1 Limitations of the Study ................................................................................................... 3
2.2 Sampling Plan................................................................................................................. 4
3 Economic Overview ............................................................................................................... 8
4 Supermarkets and Retail Shops Industry Overview ............................................................. 10
4.1 Demand ........................................................................................................................ 11
4.2 Supply........................................................................................................................... 11
4.3 Key Players................................................................................................................... 12
4.4 Recent Developments................................................................................................... 13
4.5 Future Developments.................................................................................................... 13
4.6 Success and Survival of the Businesses in this Sector ................................................. 14
5 Market Assessment ............................................................................................................. 15
5.1 Market & Demographic Profile ...................................................................................... 15
5.1.1 Market Sizing and Lending Potential ...................................................................... 16
5.1.2 Segment Demographics ........................................................................................ 17
5.2 Owners Profile .............................................................................................................. 18
5.3 Business Linkages ........................................................................................................ 19
5.4 Business Cycle ............................................................................................................. 21
5.4.1 Working Capital ..................................................................................................... 22
5.5 Financial Assessment and Profile ................................................................................. 23
5.6 Financial Information..................................................................................................... 24
5.7 Indicative Business Requirements ................................................................................ 26
5.8 Financial Need Analysis ................................................................................................ 27
5.9 Usage of Banking Products........................................................................................... 29
5.10 Segment Risk Considerations ....................................................................................... 30
6 Proposed Banking Product Suite ......................................................................................... 32
6.1 Product Features .......................................................................................................... 32
6.2 Eligibility Criteria for Asset Products ............................................................................. 37
7 Distribution and Communication Considerations .................................................................. 38
7.1 Marketing Objectives of banks ...................................................................................... 38
7.2 Promotional Activities by Banks .................................................................................... 38
7.3 Distribution Strategy...................................................................................................... 39

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Research Report on ‘Supermarkets and Retail Shops’ Segment’ Section
Index of Tables 1
Index of Tables

Table A: Sampling Plan................................................................................................................. 4

Table B: Economic Considerations ............................................................................................... 8

Table C: Summary of Industry Overview ..................................................................................... 10

Table D: Cluster Locations „Supermarkets and Retail shops‟ .............................................................. 16

Table E: Stake Holders and Their Interests ................................................................................. 19

Table F: Sector Financials Snapshot ........................................................................................... 23

Table G: Indicative Equipment Requirement ............................................................................... 26

Table H: Working Capital/Overdraft Finance Facility ................................................................... 33

Table I: Equipment/Vehicle Leasing ............................................................................................ 34

Table J: Industrial Power Generator Leasing............................................................................... 35

Table K: SME Business Bank Account ........................................................................................ 36

Table L: Other Products .............................................................................................................. 36

Table M: Asset Products Criteria ................................................................................................. 37

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Research Report on ‘Supermarkets and Retail Shops’ Segment’ Section
Index of Figures 1

Index of Figures

Figure 4.6-a: Indicators of Business Success .............................................................................. 14

Figure 4.6-b: Key means of survival as an SME .......................................................................... 14

Figure 5.1-a: Number of years in operation ................................................................................. 17

Figure 5.1-b: Customers‟ presence within the country.......................................................................... 17

Figure 5.2-b: Age group of business owners ............................................................................... 18

Figure 5.2-a: Education level of business owners ....................................................................... 18

Figure 5.2-c: Number of employees under business owners ....................................................... 18

Figure 5.2-d: Ownership type ...................................................................................................... 18

Figure 5.3-a: Communication with customers ............................................................................. 19

Figure 5.3-c: Supplier Relationship ............................................................................................. 20

Figure 5.3-b: Number of Suppliers .............................................................................................. 20

Figure 5.4-a: Business Model...................................................................................................... 21

Figure 5.4-b: Repayment Terms from Suppliers .......................................................................... 22

Figure 5.4-c: Repayment Terms to Customers ............................................................................ 22

Figure 5.6-a: Business Assets..................................................................................................... 24

Figure 5.6-b: Capital Expenditure ................................................................................................ 24

Figure 5.6-d: Annual Expense ..................................................................................................... 25

Figure 5.6-c: Total Revenue ........................................................................................................ 25

Figure 5.6-e Total Income ........................................................................................................... 25

Figure 5.8-a: Business funding Needs ........................................................................................ 27

Figure 5.8-b: Fixed Assets Financing Requirements ................................................................... 28

Figure 5.10-a: Business Expansion Restraints ............................................................................ 30

Figure 5.10-b: How Business Risk Addressed ............................................................................ 31

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Research Report on ‘Supermarkets and Retail Shops’ Segment’ Section
Guidelines for using this Research Report 1
1 Guidelines for using this Research Report

The „Supermarkets and Retail Shops‟ Segment Research Report provides indicative business
and financial characteristics based on the information evident from a sample of business owners
via primary research survey. It can be used by banks/DFIs as a starting point for development of
program based lending products for tapping the underutilized potential for providing financing
products to small business owners.

The „Supermarkets and Retail Shops‟ Industry overview is developed by using information
obtained from secondary and tertiary sources, including industry associations and data available
in public domain.

1.1 Market Assessment

This section contains analysis based on primary findings of survey exercise conducted in, mainly
Muzaffarpur, among others; the information can formthe basis of identifying the characteristics of
a typical business entity in the segment.

1.2 Product Suite

Proposed banking product suite provides a number of potential core banking products templates
that can be used by Banks/DFIs to design appropriate banking products for gaining access to the
particular segment. However, it is highly recommended that product development undergoes the
usual general practice and protocols employed by the bank. It is also recommended that the
product development and the business line team work together to conduct a quick market
research of a small sample in order to validate the results of this study.

1.3 Marketing and Distribution

Marketing and Distribution considerations are indicative and have been based on the assumption
that banks will employ their individual marketing and distribution strategy for product
development. However, information presented can be utilized by banks for developing certain
hypothesis to be validated for developing their marketing and delivery strategies.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Introduction & Objectives 2
2 Introduction & Objectives

According to the latest data cited in SMEDA and Economic Survey Reports 2010-2011, Small
and Medium Enterprises (SMEs) account for approximately 40% to GDP contribution of India and
play a major role in spurring economic activity with a contribution amounting to 80% of non-
agriculture GDP of India. However, the segment remains largely unbanked owing to the following
impediments:

 A different risk profile

 Lack of substantial collateral
 Conservative approach adopted by financial institutions
 Lack of awareness and willingness of banks

SMEs present immense business opportunities for financial institutions from the perspective of
increasing book size while generating strong risk adjusted returns, however, there is an imminent
need to understand the dynamics of this segment in order to enable financial institutions to
structure products that meet overall risk management guidelines and facilitate the growth of this
SME segment.

In this context, State Bank of India (SBP) has mandated Corporate Development Partners to
conduct a secondary research and a primary survey of ten major SME subsectors of India to
determine banking and financial needs of the sectors.

This research report contains findings pertaining to the segment of “Retail Stores and
Supermarkets” which includes large supermarket setups in urban areas of the main cities as well
as small setup consisting of General stores and Departmental stores scattered all over the
country in great numbers. Other retail channels include 'pan' shops, petro marts, medical-general
stores, book shops, road side eateries and other specialty shops.

Service sector in India has emerged as a major contributor towards promoting economic growth
and recently went through major transformation with share of service sector increasing to 58.1%
of the GDP (Economic Survey 2013-14). With more focus being placed on the service sectors,
these sectors have the capability to reach growth to the fullest potential.

Retail and wholesale sector grew by 5.2% compared to previous year, reaching a worth of INR
4.36 trillion1, which represents around 18.2% of GDP in 2013-14, according to India Economic
Survey (2013-14). This goes to show huge hidden potential in this sector; due to lack of retail
data available, which if utilized properly, can show phenomenal growth.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Introduction & Objectives 2
2.1 Limitations of the Study

 The sample may not be geographically exhaustive.

 The sampling plan may not suit the requirements of every bank.
 Some of the recommendations are not backed by quantitative primary research but are based
on knowledge of the market and best practices.
 Some of the questions in the questionnaire, especially in the financial information section were
considered too personal by many business owners; therefore, many of them refused to
answer. Hence, the responses in this regard may be evasive and cannot be verified with
respect to their accuracy.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Introduction & Objectives 2
2.2 Sampling Plan

The primary research exercise conducted for identifying the financial needs of SME segment
was based on the following sampling methodology.

Table A: Sampling Plan

Particulars Criteria Rationale

Size  1,000 detailed  Sample size is sufficient enough to gather relevant

one-on-one qualitative and quantitative information on each sub
interviews for sector.
10 sub-sectors  Increase in the sample size will only add marginal value
 100 SMEs to the overall information collected from the survey
surveyed within exercise.
each sub
sector. Change of Definition of SME by SBP

 Small enterprises are defined as those businesses that

have employees up to 20 and annual turnover up to
INR 75 million.
 Medium enterprises are businesses with more than 20
employees and turnover above INR 75 million and up
to INR 400 million for the purpose of classification and
segmentation by banks
 For the purpose of this research, the small portion of
medium entities that we have reviewed include entities
that have revenue up to INR 150 million(i.e. two times
the sales of Small Enterprises)

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Introduction & Objectives 2

Particulars Criteria Rationale

Status  At least  Informal businesses would be entities that do not have

60% will be formal accounting and book keeping system. They do not
informal get their accounts properly audited and are normally not
businesses registered under an official trade/regulatory body.
 At least  A wide majority of businesses operating in India are
20% will be informal businesses in terms of their quality of record
formal keeping and accounting information, in the absence of
businesses which banks do not offer them any credit based products.
 A study of informal businesses enables us to gauge the
reasons of these proprietors to remain within the informal
segment and still compete in the market with formal
business enterprises within the same industry segment.
 Moreover as per revised SME Prudential Regulations,
Small businesses are allowed financing up to INR 15
million without the audited financials. This regulatory
change will enable SMEs to qualify for a structured lending
product by maintaining the basic system of book keeping
and accounting.
 Formal businesses are those entities that are relatively
larger in size and have a proper book keeping system.
These are also registered businesses that are operating
either under an association of businesses or under a
formal regulatory license, with a fair amount of
transparency in their accounting and book keeping
systems.
 Including the above businesses gives us a fair
representation of entities that are eligible for all financial
services being offered by banks and their extent of using
banks as their main financiers and other service providers
or only for holding their business operating accounts
 Formal businesses have more structured requirements
than those who use banks only for products such as fund
transfers.

Particulars Criteria Rationale

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Introduction & Objectives 2

Turnover  At least 50%  The corresponding sample mix has been adopted to
with turnover ensure majority coverage of small businesses in the
less than inr 75 overall sample size since these would be the primary
million candidates for programme lending products
 At least  However, for the purpose of understanding the financial
20%with needs of medium sized entities that are close to the
turnover more threshold point of small and medium, we have covered
than INR 75 a minor portion to understand their requirement for
million structured loan products as well as other financial
services generally required by businesses that are
relatively mature and larger sized than small
enterprises

Employees  60% will have  SMEs that are not in the manufacturing segment are
less than 20 relatively understaffed owing to the small size of their
employees business and ease of management
 40% will have  Moreover, businesses that have more than 20
more than 20 employees will now be classified as medium sized
employees hence we have covered a substantial portion of such
entities as well

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Introduction & Objectives 2

Particulars Criteria Rationale

Banking  At least 70%  As per SBP prudential regulations any business

history with banking operated by an individual as a proprietor, but meets the
history classification criteria of the regulations will be termed
 At least 10% under SME
with no banking  On account of above a majority of sample in the market
history are operating their businesses through a bank account
(either in the name of the proprietor or in the name of
the business)
 Most of the financial needs and preferences that are
objectives of this assignment, have been obtained from
the above sample who are using a bank for their
businesses operating needs
 However, a very small portion of the totally unbanked
SMEs in the sub-sector is also covered during our
survey to understand their reasons for not availing the
banking services and fulfilling their needs for financial
services through other, more expensive, informal
channels

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Economic Overview 3
3 Economic Overview

India‟s economy has shown resilience despite challenges which include domestic factors such as
political instability during the last few years, security situation and international financial crisis, in
addition to an unprecedented rise in food and energy prices. As per the Economic Survey of
India (2013-14), after a period of slow growth due to floods and law and order crisis, the economy
showed a significant growth in 2013-14 on the back of immense recovery from the industrial
sector along with moderate growth in agriculture and service sectors. With industrial sector
expanding by 5.84% when compared to last year figure of 1.37%, while the economy grew by
4.14% in FY-2014.

Table B: Economic Considerations

Positives  Heavily populated, (over 180million people) translating into strong

future potential for improvement in work force as well as purchasing
power, leading to growth in consumer related segments.

 Despite many challenges faced by the country, India has performed

better than many developing countries with the GDP growth rate of
4.14% in FY 2014which is highest in the last three years when
compared with GDP growth in FY 2013 and FY 2012 of 3.7% and
3.84% respectively.

 Rising rates of urbanization – with the UN forecasting the

proportion of city dwellers climbing from 34.9% of the population in
2005 to more than 50% by 2035 – should continue to serve as a
key driver of economic growth.

 The industrial sector showed a huge growth of 5.84% compared to

previous year of 1.37% which has been a huge boost to the
economy as it contributes to 20% of the GDP. It is also a major
source of tax revenue.

 Investment activities are continuing to take place, backed by the

fact that public investment has recorded a remarkable growth of
17.12% while last year it had a negative growth of 0.35%.

 Foreign Direct Investment (FDI) has also shown a remarkable

increase from USD 1,277 last year to USD 2,979 in the period July
– April 2013-14, an increase by 133%. Major portion of FDI was for
oil & gas exploration, electricity & power, financial business and
chemicals.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Economic Overview 3

 Positive trend of remittance over the last 10 years has greatly

supported the country‟s balance of payment position.

Challenges  National saving is showing a decline, with 12.9% of GDP in FY14

while in FY13 it was reported 13.5% of the GDP. Covering the
saving-investment gap remains to be a challenge.

 The FY2013-14 has shown slight improvement in fiscal deficit

which reduced by 3.2% compared to previous year. Structural
weakness in tax system however still prevails with low tax to GDP
ratio while the expenditures continue to exceed the revenues.

 Balance of payments has shown a surplus of USD 1,938 million

compared to last year deficit of USD 2,090 million in FY 2013-14.
However despite that, the current account balance further showed
a deficit of USD 2,162 million in July-April 2013-14 compared to last
year in the same period.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Supermarkets and Retail Shops Industry Overview 4
4 ‘Supermarkets and Retail Shops’ Industry Overview

Table C: Summary of Industry Overview

Factors Comments

General Stores and shops contribute greatly in FMCG businesses as

they are scattered in great numbers in both rural and urban areas, more
Demand likely to be stationed at a walking distance from any destination, making
it convenient for customers as they are generally quick to meet
customers' requirements.

Almost about two-third of all the FMCG outlets consist of small general
stores, which sell multiple brand grocery items of daily use. The MNCs
Supply
or national companies make use of retail sectors for their products.
Thousands of retails are serviced through CSD and USC.

Gourmet Bakers, Imtiaz, Chen One, Mahmood Pharmacy, Canteen

Key players
Stores Department (CSD), Utility Stores Corporation (USC), etc.

Regulatory Body Ministry of Industries

The opening of franchise super stores has helped shoppers to enhance

Recent
their exposure in respect of product portfolio, latest merchandising tools
Development
and promotions but has placed slight stress on local general stores

General stores representing the unorganized sector will show presence

Future prospects in the retailing map but its growth will likely to slow down compared to
global retailers and local chains of departmental stores/super markets

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Supermarkets and Retail Shops Industry Overview 4

4.1 Demand

The significance of retail sector in our

economy can be gauged from the data
published by India Bureau of Statistics,
according to which, retail and wholesale sector
worth is INR 4.36 trillion, representing around
18.2% of GDP 2013-14. According to Federal
Board of Revenue (FBR) it is estimated that
there are around 2 million outlets in the
country. From these outlets, about 40%
represent FMCG channels which, besides big
supermarkets, also include small general stores, departmental stores, medical-cum-general
stores and the like1.

The bulk of FMCG business comes from these general stores due to their large numbers, their
location being at proximity to the shoppers, convenience and long business hours. There are
other retail channels as well besides general stores which includes Pan Shops, road side
eateries, department stores and petro-marts. These small set ups also carry various food items
like beverages, candies and biscuits in addition to their core products 'pan', cigarettes and other
eateries.

General Stores and pan shops contribute greatly in FMCG businesses as they are scattered in
great numbers in both rural and urban areas usually at a walking distance in the neighborhood,
making it convenient for customers as they are generally quick to meet customers' requirements,
also due to their involvement in neighborhood community. Lower operational costs and servicing
customers with warmth also makes it an integral part of the retail businesses.

However, these unorganized retail businesses have inherent limitations such as lack of
economies due to small scale operations, lower level of expertise and lack of financial strength.
Such restrictions negatively impact the ability of this sector in product display and in conveying
the brands message to their customers.

4.2 Supply

„Supermarkets and Retail Shops‟ sector consists of both organized and unorganized
establishments consisting of large supermarkets and small retail shops respectively. The
companies operating in India, whether national or MNCs, are making use of retail sector for their
products but very few companies have an in depth access to the retail data in India. Therefore, so
many have not been able to utilize this retail sector to their complete advantage.

Almost two-third of all the FMCG outlets are small general stores which sell multiple brand
grocery items of daily use. Majority of these outlets are owned and managed by a single person

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Supermarkets and Retail Shops Industry Overview 4
which, unlike supermarkets or super stores do not have walk in areas, so they only sell over the
counter.

In contrary to the many countries, including

developing ones, India does not have many chains
of retail outlets. Among the few which have been
successful are mentioned in the „key players‟
section.

During the last few years, India has witnessed

arrival of a few global players which has set a new
direction for local retailing. The merged entity of
Metro-Makro now operates ten stores in major cities
including Karachi, Lahore, Islamabad and
Faisalabad. A sizeable number of consumers are found to visit these supermarkets for their
grocery and other shopping; many bulk sale transactions also take place with small retailers who
become the real target of these superstores.

With the advent of these large global players in the organized sector of supermarket, the growth
of the unorganized retail sector may lag behind due to innovative merchandising tools and
shoppers' incentive promotions by these large international super stores.

4.3 Key Players

The major key players of „Supermarkets and Retail Shops‟ sector are:

Sectors Key Players in Retail and Supermarkets

Sector
Local
Bakery Gourmet Bakers

Shezan and Cakes n Bakes

Doce Bakers
FMCG Imtiaz

Al-Fateh Shopping Mall

Pot Pourri
Footwear Servis Shoes

Bata

English Boot House (EBH)

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Supermarkets and Retail Shops Industry Overview 4

Apparel and Life style Amir Adnan

Bareeze

Al Karam

Ideas by Gul Ahmed

Chen One

Cross Road

Junaid Jamshed, Etc

Pharmacies Servaid

FazalDin

Mahmood Pharmacy

Zaka Pharmacy

Seven Seas Pharmacy, Etc

Supermarkets Canteen Stores Department (CSD)

Utility Stores Corporation (USC)

Franchises in Supermarkets
Supermarkets Hyper Star

Metro-Makro

New chains of grocery and life style stores are likely to enter primarily in urban centers. Chain of
retail outlets irrespective of channel (grocery, pharmacy, apparel etc) will likely continue to
expand their network.

4.4 Success and Survival of the

Businesses in this Sector

From the survey interviews (Figure Figure 4.6-a: Indicators of Business

Success
4.6-a), 55% and 85% of the business
owners, respectively, felt that good 70% 65%

relations with the suppliers and timely 60% 55%

50%
delivery of stock was the major
40%
success factor for the businesses in
30%
this sector as this ensured consistent 20%
supply of inventory. 10%
1%
0%

(Figure 4.6-b) 75% of the business owners in this sector feltrelation

Good that
with the
suppliers
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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Supermarkets and Retail Shops Industry Overview 4
High profit margin Timely delivery
experience was the most essential
Figure 4.6-b: Key means of survival as
element while 39% also believed in an SME
the importance of education. 9% of the
80% 75%
business owners also felt that due to
70%
strong supplier customer relations
60%
their SME businesses managed to 50%
survive. 40%
39%

30%

20%
9%
10% 3%
2%
0%
Availability of Education Experience Favorable Strong supplier
Capital Government customer
policies relations

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5 Market Assessment
5.1 Market & Demographic Profile

At present, the retail sales in India are primarily being generated via authorized dealers,
importers, formal wholesalers and retailers, most of which have financial and banking history.
Most businesses are family owned with members of one family serving different functions of
business. Underlying issues inherent to the segment include:

1) Limited funding sources and capital investment in unorganized sector

2) Lack of innovation and research within the sector
3) Unavailability of complete retail data
4) Lack of organized infrastructure
5) Lack of awareness and willingness of banks
6) A different risk profile

The „Supermarket and Retail‟ Sector consist of both organized and unorganized setups.
Organized sector pertains to supermarkets and petro marts which are mostly concentrated in the
urban areas, though their presence is all over the country. The unorganized sector consisting of
general stores and other small retail stores are scattered all over the country. Due to large
number of unorganized setups, it is difficult to assess number of establishments in this
segment/sector.

Raw material in this sector will be in the form of stocks stored for sale. Retailing companies,
especially in large setups in organized sector, have many branches spread all over the country
as well as overseas. This requires high level of management and technological expertise to be
able to manage such projects.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.1.1 Market Sizing and Lending Potential

As mentioned before, the businesses in this sector are severely unorganized in the retail
segment and it is hard to avail data for the number of exact retail stores establishments.
Supermarkets are available mostly in the developed areas of the cities while retail shops like
general stores are set up in great numbers in almost every neighborhood corners. The following
table (Table D) provides percentage of areas covered in the survey by our team.

Source: Corporate development Partners

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.1.2 Segment Demographics

The segment is widely spread out across the country in both rural and urban areas. Supermarket
and marts are located in the urban areas with most concentration in the main metropolitan like
Karachi, Lahore and Rawalpindi while small retail shops and general stores are spread widely in
all parts of the country. Demographic information has been obtained from industry sources and
primary research conducted using a selected sample of businesses in major cities of India. 30%
of the businesses in the survey caters to Karachi and Lahore, while 20% to Islamabad (Figure
5.1-b).

Majority of these businesses are in operation for 5 to 10 years or more than 10 years, with
percentages resting at 39% and 34% respectively (Figure 5.1-a).

Figure 5.1-a: Number of years in

operation

1 to 3 years, 7%

3 to 5 years,
More Than 10
20%
years, 34%

5 to 10 years,
39%

Figure 5.1-b: Customers’ presence

within the country

35%
30% 30%
30%
25%
20%
20%
14%
15%
10%
6%
5%
0%
Karachi Lahore Islamabad Faisalabad Multan

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.2 Owners Profile

The business owners in more than half of the businesses (55%) consist mainly of people in the
age group of 31-40 years, with about 11% of the owners being between the ages of 21-30 years
(Figure 5.2-b). This indicates that the business owners are mostly young and entered this
business at an early age, passed on to them from their family. According to the survey, 60% of
the business owners have completed their bachelor/college while only 1% did not any education
(Figure 5.2-a). In terms of the setup size, 60% of the businesses have large set ups with 10-24
employees while 11% have between 24-50 employees (Figure 5.2-c). Predominant number of
retail businesses (63%) are individual/proprietorship which is family run businesses operating
from rented premises (Figure 5.2-d).

Figure 5.2-b: Education level of Figure 5.2-a: Age group of business

business owners owners

Less Then 20
No Education, Primary School
years old, 1%
1% Completed, 4%
51-65, 2%
21-30, 11%

High School, 35% 41-50, 31%

College/Bachelor
Degree, 60%

31-40, 55%

Figure 5.2-c: Number of employees under Figure 5.2-d: Ownership type

business owners
51+, 2%
0-4, 12%
24-50, 11% Partnership, 30%

5-9, 15%

Individual/propri
10-24, 60% etorship, 70%

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.3 Business Linkages

Primary stakeholders and their interests are enlisted in the following table (Table E):

Table E: Stake Holders and Their Interests

Supermarkets and Retail Shops

Stakeholder Interest
Owners Growth and access to finance
Suppliers
Better terms, lower risk of payment defaults and timely delivery

Customers Product quality, reasonable pricing and proper servicing

Financial
Lending products and deposits
Institutions
Government Economic growth, employment and favorable regulations for
import of inventory

Businesses employ various mediums as means of communication with its customers (Figure 5.3-
a), however, personal visits by customers and telephone are most widely utilized. In 6% of the
cases, employees pay visits for purchases from these shops. The businesses in this sector are
very competitive with high majority of the business owners having more than 10 competitors.

Figure 5.3-a: Communication with

customers

80% 73% 72%

70%
60%
50%
40%
30%
20%
10% 6%
3% 3%
0%
Email Fax Personal Visits Telephone Visits by an Employee

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
„Supermarkets and Retail Shops‟ sector keep inventory/stocks for sale which includes various
products of local and overseas companies.

42% of the businesses depend on the same suppliers for years to meet their inventory needs
while 32% rely on the many (Figure 5.3-c). 6% of the businesses however are not consistent
with their suppliers to meet their raw material needs while 20% of the businesses need new
suppliers due to inconsistent quality of stock supplied. 57% of the businesses depend on two to
five suppliers to to stock their inventory (Figure 5.3-b).

Inventory to be sold is kept in warehouses by supermarkets, the stock level depending on the
size and the location of the business set up. Shelf life and expiry of the product is also kept into
consideration in inventory management.

Figure 5.3-c: Number of Suppliers Figure 5.3-b: Supplier Relationship

45% 42%
One, 4%
More than 40%
five, 29% 35% 32%
30%
25%
20%
20%
15%
10% 6%
5%
0%
Rely on the same Not consistent in Depend on many to Need new suppliers
supplier for material meeting business meet business due to inconsistent
needs material needs material needs material quality
Two to Five, supplied
67%

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.4 Business Cycle

This sector is not seasonal with sales being largely consistent throughoutthe year. However, just
before the start of Ramadan, the sales peak for FMCG with slowersales in the month right after.
Likewise just before Eid the sales for clothings and gifts rise, compensating lower sales in the
months right after.

The businesses in this sector are not severly affected by the energy crises prevailing in the
country.Many retail stores are dependant on distributors or supermarketsas their suppliers who
have their own warehouses for inventory storage. In some cases the retail stores may also
receive their inventory direct from the companies of which the products are being sold.

Figure 5.4-a: Business Model

Local/Overseas Suppliers

Distributer

Regional Warehouse

Local Customers Retail Stores

Local Customers

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.4.1 Working Capital

Working capital is dependent upon payment terms offered to customers and received from
suppliers. Businesses in „Supermarkets and Retail Shops‟ sector operate by having commercial
contracts with suppliers both in local market and overseas.

The repayment periods provided by their suppliers is mostly one month, with just 10% of the
business owners in survey interview claimed of having repayment period up to 10 days (Figure
5.4-b). 24% of the businesses do not provide any credit to their customers while 73% of the
majority give credit for one month (Figure 5.4-c). One month credit is usually provided to regular
customers who purchase goods throughout the year, with settlements made at the end of every
month.

This depicts that businesses in this sector may not have much working capital issues as the
repayment terms to suppliers are consistent with the repayment period given to customers, along
with quick stock turnover.

Figure 5.4-b: Repayment Terms from Figure 5.4-c: Repayment Terms to

Suppliers Customers

2 Months, 20%
No credit, 24%
0.5 Month, 28%

Within 10 Days,
10% 3 months, 3%

1 month, 73%
1 Month, 42%

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.5 Financial Assessment and Profile

All the businesses in the survey claim to prepare Financial Statements, however, only 37% of the
business owners stated that they have their Financial Statements audited. The nature of
Financial Statement is basic entries of their revenue and expenses incurred, including their
inventory level.

Majority of the business owners keep track of funds themselves, while the remaining few of the
businesses hire accountants to overlook their accounts. Many, however, do not issue printed
sales invoice to their customers with some do not even receiving sales invoice from their
suppliers. This may suggest that proper accounting record may be missing in many businesses
in this sector.

As per research findings, none of the business owners in the sector were willing to disclose their
financial data with regards to capital invested. A rough estimate was given by the business
owners regarding business assets employed, annual revenue, income and expenses. General
stores and retail shops vary widely in terms of their size and inventory level, and therefore
difficult to assess from the survey samples alone.

Business owners‟ reluctance for sharing financial information presents an issue for calculation of
segment‟s accurate benchmark financial ratios. The following table (Table F) provides key
financial ratios of this sector which have been calculated on the average value of the financial
range provided to us by the businesses covered in the survey. These ratios, however, are an
estimate at best for supermarkets and cannot be utilized to assess the performance of the
businesses prevailing throughout this sector.

Table F: Sector Financials Snapshot

Financial Information INR

Business Assets 22,740,00
Total Revenue 910000
Annual Expense 850000
Total Income 6,70,000
Key Financial Ratios
Profit Margin 7%
Operating Expenses/ Revenue 93%
Asset turnover 4 times
ROA 29.5%

Conclusively, it can be said low capital is required compared to the business‟s revenues
generation capability. Return on asset is reasonably high however the expenses are also high
which leads to low net income.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.6 Financial Information

Due to non cooperation of business ownersto disclose their financial information, following
financial information is provided in range which may give some idea of their financial position.

Primary survey findingsreflect the Revenue, Expenses, Income and Capital Expenditure under
the selected sample for the sector.

Survey findings demonstrate 67% of businesses operating with total assets between INR 10-50
million, while the remaining businesses operate with assets less than INR 10 million (Figure 5.6-
a). Total assets comprise of plant and machinery, land and building, inventory/stock, trade
receivables and vehicles. Machinery pertains to folk lifter, cash machines, etc., used in
supermarkets. Liabilities constitute borrowing from banks for vehicles and working capital.

Business related assets consist of shelves for storing of goods, machineries like lifters in
warehouses, fridge/freezers and the like. 42% of the business owners in the „Supermarkets and
Retail Shops‟ sector did not incure capital expenditure in the past five years (Figure 5.6-b).

Figure 5.6-a: Business Assets Figure 5.6-b: Capital Expenditure

Less than INR 10

MN, 33%

No, 42%

Yes, 58%

INR 10 – 50 MN,
67%

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
Annual average revenue is predominantly between INR 10-50 million and more than INR 100
million throughout the sector (Figure 5.6-c), with percentages being 50% and 42% respectively.
Expenses primarily represent material and employee cost, rent and interest expenses against
borrowings. The expenses are between INR 10-50 million for half of the businesses while for
39% it is more than INR 100 million (Figure 5.6-d).

Figure 5.6-d: Total Revenue Figure 5.6-c: Annual Expense

INR 10 – 50 MN,
50% More than INR
More than INR 100 MN, 39%
100 MN, 42%
INR 10 – 50 MN,
50%

INR 51 – 100
INR 51 – 100 MN, 11%
MN, 8%

Source: Survey Findings

All businesses display reasonable earnings. Almost 40% of the businesses owners earn between
INR 6-10 million while 44% claim to earn between INR 1-5 million of average income for the past
three years (Figure 5.6-e). 13%of the business owners however, show earnings of more than
INR 10million annually.

Figure 5.6-e Total Income

More Than 10
MN, 13%

INR 1 – 5 MN,
44%

INR 6 – 10 MN,
43%

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.7 Indicative Business Requirements

The following table (Table G) lists the business equipment required by the businesses in the
„Supermarkets and Retail Shops‟ sector. The values provided below are susceptible to volatility
in market prices. In addition, individual business owners will have distinctive requirements as per
their business needs, their size as well technology level and size of the equipment. The table
below is neither comprehensive nor specific and provides only an indication as to the typical
requirement for set up or the expansion needs of a small sized business within this segment.

Table G: Indicative Equipment Requirement Cost INR (per unit)

Folk Lifter 1,300,000

Shelves/Isles 10,000
Computer/Cash Machine 25,000
Barcode Scanner 20,000
Laser Barcode Scanner 100,000
Deep Freezer 70,000
Refrigerators(depending on size) 100,000 – 1,000,000
Supermarket Shopping Trolleys 50,000
Cash Counter 20,000

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.8 Financial Need Analysis

More than half of the business owners themselves are in charge of the business funds, with
percentages resting at 75%. These funds are mainly required for working capital/overdraft in
79% of the businesses surveyed (Figure 5.8-a) from which majority of the businesses require
working capital finance for finished goods. 31% of the businesses also require finance of letter of
credit (LC) to import raw material.

Amongst the business assets, machinery and equipment, followed by building was required by
the business owners with percentages resting at 37% and 35% respectively (Figure 5.8-b).

In this segment, 40% of the businesses show reliance on banks as well as cashflow from
business as their source to fund their business needs. 27% of the businesses, however, use their
own savings to fulfill their business funding needs. Working capital financing can assist the SMEs
in the segment in their stock storage and expansion of their business.

Figure 5.8-a: Business funding Needs

90%
79%
80%
70%
60%
50%
40%
30%
18%
20%
10% 2% 2%
1%
0%
Business vehicle Long term project financing Trade financing Working Capital/
financing equipment Overdraft
financing

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5

Figure 5.8-b: Fixed Assets Financing

Requirements

40% 37%
35%
35%

30%
26%
25%

20%

15%

10% 7%
5%

0%
Buildings Furniture and Fittings Machinery and Office and Busines
Equipment Equipment

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.9 Usage of Banking Products

Very few owners are aware of SME segment specific efforts made by the Government of India;
however, 72% of the businesses have bank accounts in this sector from which 51% have shown
interest in potential loan products and availed it from banks. Out of these 51% of the businesses,
the most used loan products were business loans and business overdraft/ running finance by
84% and 78% respectively. For those who did not avail any loan products was either due to high
interest rate or because they did not require it.

Business owners listed personal / family bank, dedicated relationship manager, efficient and
rapid service and provide good loans in terms of tenure as being the key driver in choosing a
bank. Many owners were not keen to propose feature or product they wished to be offered by the
banks, very few however, wished to have loan with less mark up.

Other services such as cash management and money transfer facility are seen to be used by the
businesses in this sector with percentages resting at 99% and 49% respectively.

34% of respondents do not use any insurance products; 34% of the businesses have motor
vehicle insurance followed by 15% who avail medical insurance. The few remaining businesses
have travel insurance (11%), legal expense insurance (4%), property insurance (3%) and office
equipment insurance (1%). None of the business owners are interested in availing any insurance
product from the banks as they prefer to avail such products directly from insurance companies.

The sector consists of just 16% of the businesses who avail advisory services;however, none of
them have claimed to pay for it. Majority of them avail advisory services from family, friends and
relatives with 100% being satisfied with their current source of advisory services. None of the
business owners are willing to pay for such services, if provided by the banks.

Banking Product Usage Percentage

Deposit (Checking) Account 72%
Term Deposits 58%
Loan Products 37%

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
5.10 Segment Risk Considerations

This sector shows the potential of phenomenal growth in India but is still highly unorganized and
therefore is embedded with many risks. These risks are mostly covered by more capital injection
by 94% of the businesses (Figure 5.10-b). Following covers the risks that generally pertains to
this sector.

Businesses in the segment are largely individual proprietorships with majority of the business
owners having their businesses as their only source of income. About 75% of the businesses in
this sector listed default on credit payments to their suppliers or banks as their biggest risk to the
business, followed by inflation for 30% of the businesses, which further raises inventory prices
for them already proving to be expensive in some cases where they are imported.

Almost all of the businesses address risks through more capitalwhile few also reduce profit
margin or focus on inventory management.Majority of the businesses operate from rented
premises and so incur fixed expenses in the form of rent payments of their premises.

All businesses in this sector claim to prepare Financial Statements with only 37% of the
businesses have them audited. 47% of the businesses not issuing printed invoices to their
customers with 28% of the businesses not receiving any invoices from their suppliers. This may
pose serious miscalculation in accounts and incomplete accounting records.

A large proportion of SMEs in the segment do not use any insurance products. One of the major
restraint to business expansion (Figure 5.10-a) listed is due to lack of access to finance (72%)
which presents ample of room for the banks to target these businesses. 10% of the businesses
also felt that shrinking market has put a restraint to their expansion.

Figure 5.10-a: Business Expansion

Restraints

80%
71%
70%

60%

50%

40%

30%

20% 16%
9%
10%
3% 2%
0%
Access to finance Lack of Regulatory/ policy Shrinking market Utility issues like
Infrastructure issues gas, electricity

Source: Survey Findings

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Market Assessment 5
Figure 5.10-b: How Business Risk
Addressed

100% 94%
90%

80%

70%

60%

50%

40%

30%
20%

10% 3% 2% 1% 2%
0%
Capital Inventory Manpower training Product Reduction in profit
management innovation/cost margin
reduction
Source: Survey Findings

Following are the strengths and weaknesses inherent in this sector:

Strengths

 High capacity for phenomenal growth

 High demand in both urban and rural areas
 Low initial capital requirement
 Low working capital (cash) requirements (almost similar credit terms for customers and
suppliers)
 Fast products turnover
 Rising demand of imported goods
 Foreign direct investment (FDI) in retailing permitted

Weaknesses

 Lack of educated staff

 Unorganized sector has resulted in no availability of accurate data
 Low access to finance
 Management expertise required

Further, the risks inherent to the segment include:

 Inconsistent supply of inventory

 Unaudited financial statements of many businesses
 No proper book keeping

Possible Mitigating Factors:

 Lending only to those businesses which have been operating for more than three years
 Proposing products to business with a verifiable banking history of more than two years
 Review of accounts and register of invoices

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Proposed Banking Product Suite 6
6 Proposed Banking Product Suite

6.1 Product Features

Based on our primary and secondary research we propose the following for growth of
„Supermarkets and Retail Shops‟ sector:

Asset Products:

 Working capital/overdraft Finance Facility

 Equipment Leasing
 Delivery Vehicle Leasing
 Industrial Power Generator Leasing

Liability Products:

 Business Bank Account

Other products

 Banc assurance
 Branchless Banking (Mobile)
 Utility Bill Payment

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Proposed Banking Product Suite 6

Table H: Working Capital/Overdraft Finance Facility

Particular Details

Initial deposit Minimum initial deposit of INR 10,000

3 years with no requirement of Annual Cleanup for principle amount.

Tenure
However, regular payment of markup is must for renewal of limit.
 Minimum Limit - INR 1,000,000
 Maximum Limit - INR 50,000,000
 Minimum and maximum loan limits are reviewed annually

Loan Limit Total loan limit offered will not exceed an average six months of usage
determined over a period of last three years

(Maximum limit is set based on 50% mark-up of average revenue estimated for this
sector)

One time documentation (as required by banks) for a period of three

Documentation
years
 Flexible repayment conditions: lump sum payment on the due date or
Repayments & partial repayments
Withdrawals  Multiple withdrawals are allowed during the tenure of loan

Borrower is liable to clear the entire loan amount, both principal and
Cleanup markup, once in a year on a date indicated by the borrower &
mutually agreed by the bank

Markup As per prevailing KIBOR and spread

Markup charges Mark up will be charged only on the amount utilized by the borrower

Renewal will be on the basis of fresh application, subject to clearing

Renewal
of entire loan amount including markup and satisfactory credit history

No early repayment penalty may be imposed on the borrower (subject

Penalty
to banks discretion)
Insurance Mandatory insurance as per SBP guidelines
Raw material stock. Mortgage of business premises for those who
Security
operate from owned premises.

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Proposed Banking Product Suite 6

Table I: Equipment/Vehicle Leasing

Particular Details

Down Payment Minimum down payment of 20%

 Equipment & machinery leasing will be provided for expansion capital

only to businesses who have been operating for 2 or more years
 A list of pre-approved equipment and machinery manufacturers will be
developed based on information received from trade association and
Salient Features
market reputation
 Credit facility will be offered directly through pre-approved equipment
and machinery vendors

Tenure 3 - 5 years

 Minimum Limit - INR 500,000

Loan Limit  Maximum Limit - INR 10,000,000

 Business Financial Statements

Documentation  Proof of business operation for last two years

Repayments &
Repayments will be based upon preset Equal Monthly Installments
Withdrawals

Markup As per prevailing KIBOR and spread

Penalty As per existing bank policies and cost of charges

Insurance Mandatory insurance as per SBP guidelines

5% of invoice as security deposit and hypothecation of leased assets.
Security/Collateral
Provision of collateral as per satisfaction of the bank

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Proposed Banking Product Suite 6

Table J: Industrial Power Generator Leasing

Particular Details

Down Payment Minimum down payment of 20%

 Loan amount will be directly transferred to suppliers‟ accounts against

invoices
Salient Features  Credit facility will be offered directly through pre-approved generator
suppliers

Tenure 3-5 years

 Business Financial Statements

Documentation
 Proof of business operation for last two years

 Minimum Limit - INR 500,000

Loan Limit  Maximum Limit - INR 10,000,000

Repayments &
Repayments will be based upon present Equal Monthly Installments
Withdrawals

Markup As per prevailing KIBOR and spread

Insurance Mandatory Insurance facility as per SBP guidelines

Penalty As per existing bank policies and cost of charges

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Proposed Banking Product Suite 6

Table K: SME Business Bank Account

Particular Details

Account Type Non- remunerative Current Account

CNIC/smart NIC, completion of KYC requirements as per SBP

Documentation
Regulations
 Cheque Book
 Upgraded ATM facilities
 Business Visa Debit Card
 Phone Banking
Facilities
 Mobile Banking
 Internet Banking
 Monthly account statement

Table L: Other Products

Particular Details
Bancassurance products such as Business Premises Insurance,
Personal Injury Insurance, Equipment and Vehicle insurance can be
Banc assurance
proposed by banks through its channels offering reasonable rates and
servicing through banking channels such as direct debit

Branchless Banking Mobile banking services for instance balance check, bill payment and
(Mobile) funds transfer

Utility Bill Payment

Service for easy payment of electricity, gas, telephone and cell phone
bills

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Proposed Banking Product Suite 6
6.2 Eligibility Criteria for Asset Products

Table M: Asset Products Criteria

Indicators Description
Assessment of type of customers to take into account the total indebtedness of
Borrower the borrower and his disposable income and should ensure that the total
Eligibility financing to a borrower does not exceed the reasonable limits as laid down in
Analysis approved policies of the bank. Borrower should be in business of „Supermarkets
and Retail Shops‟ for the past three years and hold a valid CNIC/smart NIC
To assess the Borrower‟s position their invoices will be verified and checked
Business
against banking history, business premises ownership documents should be
Analysis
reviewed and be in name of the owner.
Credit Credit worthiness of the borrower will be ascertained by collecting information
worthiness from e-CIB and other banks operating in the region.
Financial To assess average expenses, income generated and repayment capacity of the
parameters borrower.
Adherence to To assess that Customer/ Borrower requirements are in compliance with
Lending standards set for revolving finance scheme by the Bank and/ or Regulatory
Standards Authorities.
Banking
Verifiable banking history of more than one year with active accounts
History
Business should be in operation for more than three years. If the business is
Business
involved in exporting their finished goods then they should be involved in export
Operations
business for the last 3 years.
Trade body
Business should be a member of the sector‟s trade body.
membership

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Distribution and Communication Considerations 7
7 Distribution and Communication Considerations

SMEs in „Supermarkets and Retail Shops‟ are spread out all over the country in both urban and
rural areas, where retail sector consist of no record on number of establishments throughout the
country. The banks will therefore need to reach and target the unorganized retail sector, as well
as reach the major clusters in the urban areas for supermarkets.

7.1 Marketing Objectives of banks

Marketing objectives for building and promoting the brand image of SME Products for
„Supermarkets and Retail Shops‟ are as follows:

The banks may:

 Educate and create awareness for financial needs and banking products in the identified
market regions
 Develop strategies to attract a large number of supermarkets and retail shops owners to avail
banks‟ lending/financial products
 Increase direct interaction of Relationship Managers with supermarkets and retail shops to
promote more direct and close interaction with the business owners and to assist small
businesses in navigating difficult economic and business conditions
 Provide sponsorships for trade fair and exhibitions which link the promotion of bank‟s brand
image with SME businesses product exposure locally and worldwide

7.2 Promotional Activities by Banks

To create awareness of SME specific products in the target market, the banks may aggressively
advertise their banking products through various promotional programs and events:

– Workshops will be conducted to provide more interaction to business owners with trade
associations to enhance communication between them regarding industry specific issues
– Organize promotional events in cluster locations or near businesses to build strong image
of the bank among the target audiences

Banks can service these SMEs through the following proposed channels: (Please note that this
list is not exhaustive):

 Direct Sales Agents

 Tele Sales
 Trade association backed seminars
 Branches in cluster locations
 Identify opportunities for expansion through market sources
 Involvement in trade fairs and exhibitions

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Research Report on ‘Supermarkets and Retail Shops’ Segment Section
Distribution and Communication Considerations 7
7.3 Distribution Strategy

As primary means of customer service and sales interaction, distribution channels play a central
role in the customer relationship process, which further increases growth. Banks‟ challenge is to
improve and integrate their multiple distribution channels to consistently deliver an enhanced
experience and foster better customer relationships. Top priority is placed in attracting and
retaining customers within and across these channels.

To reach large number of target market, Banks need to have a comprehensive distribution
strategy. Banks should aim to cater banking needs of „Supermarkets and Retail Shops‟ sector
through its products on national basis in major cities of the country where retails units are
located.

Banks may adopt following conventional channels for distribution:

 Direct Sales Agent: This activity may be outsourced and a trained marketing team should
periodically visit identified areas within the cities, to educate potential customers and create
awareness of the products and services being offered under SME Products Suite.
 F2F interactions: A deeper level of interaction may provide an integrated customer focus, by
relationship managers involved in face to face interaction, which will become critical in
helping better communication for product awareness and in addressing hesitations faced by
the business owners.

Following Technology based alternate delivery channels can also be adopted for distribution

 Internet Banking: With technology up gradation mobile phones have become sophisticated
and capable of handling advanced applications and services, so banking via mobile phones
appeal to consumers on multiple fronts.
 Short Message Service (SMS): Marketing team can send out mass messages in Urdu or
English to „Supermarkets and Retail Shops‟ segment for advertising bank‟s products.

39