Indian Institute of Management

Ahmedabad IIMA/MAR0325(D)

FoodWorld (D):
Design of MIS

1. Introduction

Mr. Ganesh Chella, VP (Retail) of RPG was thinking about the meeting which he just had
with Mr. Mohapatra, President and Chief Executive, Retail Business Sector of RPG. It was
January 1999. They were reviewing plans for the coming financial year, especially in terms
of better store level management. They had discussed the performance of the FoodWorld
stores over the past year. The data on the sales and overall margin figures for the various
stores had given them an overall measure of performance, but it did not give them enough
information on the various underlying factors contributing to this performance. Mr. Chella
was concerned about how FoodWorld could devise a system that would provide them with
quick access to information and aid in monitoring and control of store performance.

FoodWorld was a division of Spencer’s, the retailing company under RPG enterprises. RPG
was one of the top business houses in India, with a sales turnover of Rs. 65 billion in 1996-97.
RPG had entered into the retailing business with the acquisition of Spencer & Company in
1989. They were the first serious players in India to get into organised retailing in a big way.

2. Understanding the Organisation

Based on a study of retail chains world over, it was felt that the retail format should be
‘mass’ based rather than ‘niche’ based, since it offered greater growth potential. With the
strategic intent of entering the mass market, the Company entered the organised food
retailing industry under the brand name of FoodWorld.

The first FoodWorld store was launched on May 9, 1996 in Chennai. New stores were
opened at regular intervals, until the current tally of 19 (six in Chennai, eight in Bangalore
and five in Hyderabad). The supermarket format was selected to offer the following:

• Value based on price and quality,

• Choice through self-service from a spread of merchandise and
• A better shopping environment.

Prepared by Achin Gupta, Anurag Parikh, G Raghuram, Bibek Banerjee and Abraham Koshy (Achin
and Anurag were PGP II students at Indian Institute of Management, Ahmedabad during 1998-00). It
is based on inputs by Mr. Ganesh Chella, VP-Retail of RPG, the cases FoodWorld–A, B & C written by
Professors Abraham Koshy, G Raghuram and Bibek Banerjee, of the Indian Institute of Management,
Ahmedabad (IIMA) and the study “Retail Sales Data: The Hidden Treasure,” by IIMA faculty.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion.
Cases are not designed to present illustrations of either correct or incorrect handling of administrative
problems.

Copyright  2000 by the Indian Institute of Management, Ahmedabad.

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The group had made an investment of Rs. 65 crore in the FoodWorld venture so far. The
turnover during 1996-97 was Rs. 21 crore, 1997-98 was Rs. 42 crore and was estimated to be
Rs. 87 crores in 1998-99. The gross margin on this turnover was 16.7% in 1996-97, 18.4% in
1997-98 and was estimated to be 20.5% in 1998-99.

All the stores had broken even, individually, within a few months of start and made a
contribution towards regional and corporate expenses. The store operating expenses as a
percentage of sales reduced over time as seen in Exhibit 1. This figure was higher during the
first year, thus reflecting higher start-up costs. Within store operating expenses, salaries and
wages accounted for about 2.5% of sales. In the future, salaries and wages, rent and
depreciation were expected to increase as newer and more expensive properties were
acquired. FoodWorld as a business enterprise was still in the red. This was typical of large
retail start-up businesses where a critical number of outlets were necessary before profits
showed up. Infact, the business was still viewed as being in the ‘project phase,’ and expected
to breakeven only after 40 stores.

The key focus at FoodWorld was to maximize traffic through the stores. Turnover of the
stores could be increased by competitive pricing and promotions including discounts. Apart
from increasing turnover in each of the stores by leveraging on the large store network, it
was imperative to increase margins to ensure sustainability and growth of the enterprise.
Ensuring good margins required appropriate sourcing and negotiating with the suppliers
for better margins. Lower costs required efficiencies in the regional distribution system that
FoodWorld had in place.

In this context, the merchandising function (what specific products/brands to offer and
whom to source from) and the distribution strategy (how to organise the logistics of supply
to the stores) gained significance as critical success factors. The vendor selection was
common to all stores in a region and done by the regional office. Within the stores, inventory
management and display planning were critical to ensure availability and visibility.

3. Merchandising Function

A study of the customer preferences highlighted the following customer expectations in

terms of considering the store for food purchase: product range, variety for choice in a given
product, freshness, availability and reasonable price. In response to this, FoodWorld decided
to make available all items which a household shopped for on a daily, weekly or monthly
basis. The merchandising and display strategy was to be geared towards increasing the size
of bill value (purchasing basket) for each customer.

The merchandising offer was formed from staples, processed foods, beverages, non-food,
health and beauty, perishables, and hardware and home appliances. These were divided
into 49 categories with the following category descriptor: destination, strategic (routine),
convenience and speciality, depending upon essentiality of the product in the customers’
purchase basket and the frequency of purchase. A category-wise description of items is
given in Table 1. The categories were further subdivided into about 270 subcategories, to
enable sourcing, keeping in mind the range of products available from suppliers. The total
number of stock keeping unit (SKUs) was more than 5000.
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Table 1: Category Descriptors

Destination Strategic Convenience Speciality

Width High High High High/ Med
Depth High Low Low Low
Price Aggressive, Key Aggressive, Value MRP MRP
SKUs added for margins
Tactical High Medium Medium Low
usage
Examples Cereals, Oil, Biscuits, Pickles, Noodles, Canned food, Pet food, Batteries,
Pulses, Flour Baby food, Health Cosmetics, Hardware and Paper goods
and Beauty Home Appliances
Source: FoodWorld-B

For each of the sub-categories, average margin and turnover figures were analysed. Most of
the sales came from branded non-perishables. Revenue share and margin spreads of the
main items are given in Table 2. The top 1000 SKUs accounted for 70% of the revenues.
However, the perishables and non-branded repacked SKUs (about 100) were expected to
witness the highest growth with higher than average margins.

Table 2: Revenue Share and Margin Spread

Item Revenue % Margin spread

%
Perishables 15
Branded
Frozen 10-20
Dairy 4-10
Unbranded
Bakery 30
Fruits and vegetables 25
Repacked items (company 10 5-20
branding)
All others 75 15

Source: FoodWorld-B

4. Layout and Operations

The stores followed a policy in which destination category components of a purchase basket
were typically in the far end of the store to attract customers’ right into the store. A bay with
six shelves had around 18 running feet and could accommodate 45-70 facings of SKUs,
depending on SKU dimensions. An SKU may have one to three facings based upon the sales
volume and desired visibility. The typical number of bays and SKUs based on the type of the
store are given in Table 3. Each store, depending on its specific floor plan, had a
‘planogram,’ which specified in detail the category-wise layout across the various shelves
and bays. The ‘planogram’ was developed based on an analysis of the local requirements
and was expected to be followed religiously.

An important decision was: which SKUs to display in which bay, by understanding the
customer search process in seeking out SKUs Even though a fixed location for an SKU
facilitated the repeat customers to quickly access their requirements, clever clustering of
4 of 12 IIMA/MAR0325(D)

SKUs depending on promotions, and the customers’ basket of purchases helped in

increasing sales of some SKUs.

Table 3: Store Details by Type

Store Trading No. of Example location Typical no. of No. of

type area stores bays SKUs
(Sq ft)
A 6000+ 2 MG Road (Bangalore) 120+ 6000
Mount Road (Chennai)
B 3000+ 9 Himayatnagar (Hyderabad) 80-95 4500
Gandhi Nagar (Chennai)
C 2000+ 8 Jaynagar (Bangalore) 65-75 3000
Marredpally (Hyderabad)

Source: Food World-B

The number of checkout counters (tills), staff assignments, assignment of tills for different
types of customers (large/small volume, cash/credit), were also decisions of significance.

Another area of concern for store operations was ‘shrinkage,’ i.e. the losses due to theft. This
figure could be as high as 1.5% of sales and was a continuous challenge to the management,
who were targeting a figure of no more than 0.5%.

5. Supply Chain Strategy

Among all the challenges, Mr. Chella felt that the one relating to managing the supply chain
was going to be critical. The key elements of FoodWorld’s distribution strategy were:

Creation of a Regional Hub: Three regional hubs at Chennai, Bangalore and Hyderabad
catered to state-wise requirements. 90% of the items were supplied through these
warehouses and the remaining directly to the stores.

Replenishment Frequency: The ideal servicing expected by the stores from the warehouses was
daily, while the supply frequency was twice a week. (Hardware and general merchandising
items were treated as exceptions. No stocks were kept in the warehouse. They were to be
indented and ordered as required.)

The request for stocks made by the different stores on the warehouse or the direct supply
servicing them was called the indent. Most SKUs could be indented twice a week on
nominated days, for which supply was made from the warehouse after a gap of one day.
The nomination of days was to achieve synchronisation at the warehouse level. Exhibit 2
shows a warehouse pick list based on an indent from a store.

Each SKU in a store had two specific attributes that helped indenting, namely minimum
base quantity (MBQ) and supply unit factor (SUF). The MBQ was determined as follows:

MBQ = (120% of highest sales achieved per month)/4

The rationale behind this was to ensure enough stocks even if there was a surge in demand
and no supply from the warehouse for one indent. The indent quantity was determined after
a physical verification of store stocks on nominated indent days, as follows:
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Indent quantity = (MBQ – Physical Stock) in multiples of SUF

The SUF took into account the smallest number of units of an SKU that could be
conveniently supplied to a store by the warehouse, typically based on the pack sizes coming
in from the supplier.

The average stock turns per year were 12 in 1997 and expected to be higher in 1998. For most
SKUs, the shelf space volume was kept less than the MBQ in order to enable frequent
replenishment and to provide a sense of fullness of the shelves.

A random examination of records gave a 20% stock out figure. As explained by the store
manager, the true stock out was only 10% since some of the items had been discontinued,
but had not yet been deleted from the company records.

The indenting process was being automated, so that stock levels would be obtained based
on the electronic point of sales (POS) data (Exhibit 3). It was desired that the indent
quantities be automatically generated. The management also wanted to get information on
some key indicators like stock out percentage etc to be generated through this automation
process, which would enable better inventory management.

FoodWorld felt that the number of SKU's they were dealing with was too large. A
rationalization effort focussed on reducing the high-end subcategories/SKUs, low volume
SKUs and the depth (number of variants) was considered essential to reduce the maximum
SKU count to 3000. However, this exercise also required specific indicators in order to make
an informed decision. Although this decision had immediate importance, such information
was also required on an ongoing basis to enable continuous alignment of the items carried
with the changing trends in the market.

There were some complaints about the non-availability of many products. But, as a store
manager pointed out,

“Everyone recognises that our stores’ offerings are a lot better than the available alternatives. We
believe that they find the ‘self-selection’ format to be almost a liberating experience. FoodWorld’s ‘no
questions asked’ returns policy has gone a long way towards building trust and loyalty.”

6. Pricing and Promotion

FoodWorld’s strategy was to offer the cheapest prices in certain key SKU’s in the ‘staples’
category. The top 15 branded SKU’s were also deliberately priced below the MRP and
highlighted in the store. There was Mega Price promotions on at least two SKU’s every
month, coupled with quantity discount savings for ‘food’ SKU’s. Mr. Mohapatra observed,

“Most manufacturer’s have readily come forward to help design specific promotions and offers for
FoodWorld customers that improve both the ‘Value for Money’ and the ‘Pleasure of Shopping’ for
essentially mundane things like rice, dal and pickles! FoodWorld has managed to sustain a level of 25-
30 promotional offers every month, month after month, and this looks likely to increase.”
6 of 12 IIMA/MAR0325(D)

7. Insights from Consumer Surveys

A consumer survey had been conducted in early 1996, before the opening of FoodWorld
stores. The objective was to understand the needs and values of customers while shopping
for items of daily necessities. The survey was large scale, and spread across selected metro
cities, mini-metro cities and small towns. Several useful and interesting insights resulted
from this survey.

The housewife was the prime decision-maker on purchase of provisions. She regarded
provision shopping as a chore due to the monotony and routine nature of the purchases.
Most of the consumers purchased provisions on a monthly basis, usually at the beginning of
the month. In addition, they also made two or three need based purchases during the
month. On an average, they spent Rs. 1000-1500 on the monthly purchase occasion and close
to Rs. 200 on additional purchases. About a tenth of the market consisted of ad hoc buyers
for whom four or more purchase occasions a month were the norm. Their expenditure on
buying provision items was similar to that of the monthly buyers. They patronized more
number of shops than monthly buyers. Usually, their preferred outlets were closer to home.
In fact, walking to the shop was observed more among ad hoc buyers. More often than not,
their purchases were less planned when compared with the monthly buyers.

A consumer (household) survey was conducted in April 1998 among 500 sample households
within two km. of the location of two of the early FoodWorld stores in Chennai. It came out
that purchases were usually made by a household member, and most often by the
housewife. On most occasions, consumers walked to the shop for making purchases.
However, use of two-wheeler and automobiles were also significant. On most occasions,
monthly purchases were a planned activity. In fact, most shoppers went for their purchases
armed with a list of items.

The research also provided some insights into consumers’ shopping habits and benefits that
they were looking for from shopping (Exhibit 4). The housewife’s major purchase period
was the first week of the month. Shopping from supermarkets still accounted for only a
small portion of all the shopping done by her. She considered going to the supermarket as a
pleasure trip and an outing. Usually, she did this activity along with one or two friends in
the late morning hours after completing her household chores. For vegetables, fruits and
meat, she preferred her traditional outlets because she believed that supermarkets were yet
to offer the choice and price value she was looking for in these products. For groceries, she
shopped around to check prices before she “settled down” to the value (price, quality) that
she was comfortable with. For branded items, she knew that such “checking around” really
did not matter. Buying from a popular store ensured freshness of stocks, not necessarily
price. She preferred to buy emergency items from the friendly neighbourhood grocer.

Further understanding of the customer was possible by an analysis of the transaction level
POS data. Analyses of the distribution of the sales value per bill, day-wise and time-wise bill
counts and value are given in Exhibit 5. Mr. Chella felt that a lot more such analysis was
possible.

Mr. Chella was considering a proposal from a group of students from the Indian Institute of
Management, Ahmedabad for the development of an MIS package for FoodWorld. The
students had promised that the proposed MIS would provide necessary indicators to enable
better store level monitoring and control by the management.
 7 of 12 IIMA/MAR0325(D)

Exhibit 1: Performance Trends

Year 1996-97 1997-98 1998-99 1999-00

Actuals % of Actuals % of Projected % of Projected % of Sales
(Rs. Sales (Rs. lakhs) Sales (Rs. sales (Rs.
lakhs) lakhs) lakhs)
Sales 2088 100 4233 100 8665 100 12957 100
Gross margin 349 16.7 778 18.4 1774 20.5 2786 21.5
Store operating
expenses
New Stores 96-97 266 12.7 444 12.2 *
New Stores 97-98 126 21.8 *
New Stores 98-99
Subtotal 266 12.7 570 13.5 1408 16.2 2119 16.4
Warehouse/ 134 6.4 310 7.3 437 5.0 494 3.8
Regional office
expenses
Corporate 96 4.6 88 2.1 95 1.1 104 0.8
operating
expenses
EBIT -147 -7.0 -190 -4.5 -166 -1.9 69 0.5
New stores 7 4 10 12
opened during the
year
Total stores at the 7 11 21 33
end of the year
Source: Company Records

Note: * Until January 1999, store operating expenses as a percentage of sales for the
stores opened in the years 96-97 and 97-98 was 9.1% and 12.5% respectively.
8 of 12 IIMA/MAR0325(D)

Exhibit 2: Warehouse Pick List for a Store

Report No.: 111 Store No.: abc

Date: x/y/z Store Name: aa

No. Item Category: Tea/ Coffee Stock Qty Indent Qty Picked Qty
Code
Sub-category: 2301 Ground Coffee
Indent No: [630633]
1 190016 Brook Bond Green Label Coffee 212 24 24
2 190020 Brooke Bond Café 100g 125 12 12
… … … … … ...
… … … … … ...

Sub-category: 2302 Instant Coffee

Indent No: [630634]
1 190007 Brook Bond Bru Instant Coffee 0 18 0
2 190008 Tata Kaafi 200 gm 58 6 6
… … … … … ...
… … … … … ...

Sub-category: 230X ABC

Indent No: [630xyz]
1 … … … … ...
2 … … … … ...
3 … … … … ...
4 … … … … ...
… … … … ... ….
Source: FoodWorld-B
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Exhibit 3: POS Data Being Captured

Item Files Campaign Files

Bill Date Product Code
Bill No. Campaign Start Date
Bill Time Campaign End Date
Product Code Cost
Cost MRP
MRP Selling Price
Sold Value Campaign No
Quantity

Product Files Group Master

Product Code Group Code
Product Name Group Name
MRP Items in Group
Group Code

Source: Retail Sales Data: The Hidden Treasure

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Exhibit 4: Consumer Survey

(All figures in %)
Frequency of Purchase
General FoodWorld
Weekly 4.6 22.0
Fortnightly 9.5 13.3
Monthly 62.3 32.0
Whenever need arises 23.7 32.6
Source: FoodWorld-C

Week of Purchase
General FoodWorld
I 61.2 53.5
II 16.2 17.8
III 3.8 10.7
IV 16.0 17.8
I & III 2.1
II & IV 0.9
I&V 1.7
Source: FoodWorld-C

Purchasing Budget
Rs General FoodWorld
750-1000 7.9 28.2
1001-1500 14.6 24.2
1501-2000 11.5 11.9
2001-2500 26.6 15.8
2501-3000 20.2 8.5
3001-3500 14.2 1.1
Rs. 3501 and above 4.4 10.1
Source: FoodWorld-C

FoodWorld Customer Rating

Highly Dissatisfied Average Satisfied Highly
Dissatisfied Satisfied
Quality of products 0.77 1.55 15.20 50.70 31.60
Availability 0.52 4.20 16.80 58.90 19.40
Range of products 0.00 0.52 11.70 60.04 27.60
Service 0.78 1.82 10.96 43.60 42.80
Ambience 0.00 0.27 5.20 50.13 44.38
Home delivery 2.60 28.00 15.70 36.80 15.70
Billing time 3.97 14.80 38.72 38.19 4.25
Price-staples 1.08 29.30 52.80 15.90 0.72
Price-vegetables 3.70 35.90 47.90 11.60 0.74
Special offers 0.00 6.60 62.20 28.80 2.20
Source: FoodWorld-C
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Exhibit 5: POS Data Analysis

Distribution of Sales Value per Bill (for all stores)

Sales Value per Bill Sep 98 Oct 98

Rs. No. of Bills Value (Rs.) No. of Bills Value (Rs.)

0-50 110007 2645129 119621 2905118

51-100 58035 4275871 65682 4845502
101-200 53735 7715989 61871 8896475
201-300 27859 6958110 31124 7715302
301-400 18249 6317111 22166 7647255
401-500 10819 4836058 12659 6564194
501-600 7334 4019287 8477 4633950
601-700 5361 3475249 6140 3976960
701-800 3724 2787718 4486 3355344
801-1000 5337 4766904 6232 5569892
1001-1200 3234 3528240 3891 4251001
1201-1500 2886 3859919 3531 4727690
Above 1500 4442 12333548 5376 14178749

Total 311022 67519133 351256 78357432

Source: FoodWorld-C

Store A: Hourly Aggregates (Sept 98)

Bill Count % Value % Value/Bill

9-10 53 0.2 4,319 0.1 81.5

10-11 794 2.3 116,298 1.6 146.5
11-12 1,825 5.2 361,808 5.0 198.3
12-13 2,897 8.3 599,051 8.4 206.8
13-14 3,197 9.1 684,303 9.5 214.0
14-15 3,289 9.4 593,466 8.3 180.4
15-16 2,512 7.2 483,317 6.7 192.4
16-17 2,821 8.0 549,480 7.7 194.8
17-18 3,309 9.4 625,198 8.7 188.9
18-19 4,152 11.8 831,014 11.6 200.1
19-20 4,644 13.2 969,726 13.5 208.8
20-21 4,101 11.7 962,877 13.4 234.8
21-22 1,486 4.2 379,027 5.3 255.1
22-23 21 0.1 9,766 0.1 465

Total 35,101 7,169,650 204.3

Per day 1,170 238,988
Source: Retail Sales Data: The Hidden Treasure
12 of 12 IIMA/MAR0325(D)

Store A: Day-wise Hourly Aggregates (Sep 98)

9-12 12-15 15-18 18-21 21-23 TOTAL

Days 22
1,933 6,827 6,166 9,345 1,085 25,356
Bill Count % 7.62 26.92 24.32 36.86 4.28
Mean 88 310 280 425 49 1,153
Weekdays 318,703 1,302,862 1,109,674 1,960,549 263,248 4,955,036
Value % 6.43 26.29 22.39 39.57 5.31
Mean 14,487 59,221 50,440 89,116 11,966 225,229
Value/Bill 164.87 190.84 179.97 209.80 242.62 195.42
Days 4
437 1,551 1,524 2,128 287 5,927
Bill Count % 7.37 26.17 25.71 35.90 4.84
Mean 109 388 381 532 72 1,482
Saturdays 87,043 333,872 352,429 4999,664 92,164 1,365,172
Value % 6.38 24.46 25.82 36.60 6.75
Mean 21,761 83,468 88,107 124,916 23,041 341,293
Value/Bill 199.18 215.26 231.25 234.80 321.13 230.33
Days 4
302 1,005 952 1,424 135 3,818
Bill Count % 7.91 26.32 24.93 37.30 3.54
Mean 76 251 238 356 34 955
Sundays 76,680 240,086 195,891 303,404 33,381 849,442
Value % 9.03 28.26 23.06 35.72 3.93
Mean 19,170 60,022 48,973 75,851 8,345 212,361
Value/Bill 253.91 238.89 205.77 213.06 247.27 222.48
Days 30
2,672 9,383 8,642 12,897 1,507 35,101
Bill Count % 7.61 26.73 24.62 36.74 4.29
Mean 89 313 288 430 50 1,170
Total 482,426 1,876,820 1,657,994 2,763,617 388,793 7,169,650
Value % 6.73 26.18 23.13 38.55 5.42
Mean 16,081 62,561 55,266 92,121 12,960 238,988
Value/Bill 180.55 200.02 191.85 214.28 257.99 204.26
Source: Retail Sales Data: The Hidden Treasure