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ARMEN GRIGORYAN, MATTHEW HILAMEN, JEFF MAROTTA, MICHAELA SCHMID AND MEAGAN SHADDOCK India Costco Case Study.

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Presentation on theme: "ARMEN GRIGORYAN, MATTHEW HILAMEN, JEFF MAROTTA, MICHAELA SCHMID AND MEAGAN SHADDOCK India Costco Case Study."— Presentation transcript:

1 ARMEN GRIGORYAN, MATTHEW HILAMEN, JEFF MAROTTA, MICHAELA SCHMID AND MEAGAN SHADDOCK India Costco Case Study

2 Business Model Costco Wholesale Corporation began business operations in Seattle, WA in 1983. Costco stock is traded on the NASDAQ Global Select Market under the COST stock ticker. Costco operates membership warehouses in which high quality merchandise from a broad range of categories are offered at lower prices than other retailers

3 Business Model – Key Features Warehousing Storing inventory just above the sales floor results in reduced handling of merchandise and thus lower labor costs due to less time handling and stocking merchandise. Turnover Costco generally sells merchandise before it is required to pay vendors and takes advantage of early payment discounts. Distribution Costco buys a majority of their products directly from manufacturers and distributes it either directly to the warehouse or to a depot for consolidation and then to the warehouse, generally within 24 hours. This maximizes freight volume and handling efficiencies, which reduces costs associated with multi-step distribution processes.

4 Business Model – Key Features Marketing Costco limits marketing and promotional activities to new warehouse openings, occasional direct mail to prospective members, and direct marketing programs to members including The Costco Connection magazine, coupon mailers, weekly emails and handouts. This reduces marketing expenses and thus increase the profit margin. Short work week Costco operates on a seven day per week, 69-hour work week. This shortened work week reduces labor costs.

5 Business Model – Key Features Ancillary Businesses Located within or adjacent to Costco warehouses, business such as the food court, gas station, pharmacies, one-hour photo, eye care centers, hearing-aid centers, car washes, and print and copy centers provide additional services and merchandise to keep shoppers coming back and to increase profits. Electronic Commerce Costco.com offers products not usually found in Costco warehouses, which gives customers more shopping options. Direct Buying relationship Costco works directly with manufacturers and buys products in bulk, which reduces costs and cuts out distributers. Also, Costco has relationships with multiple suppliers, so there is no risk of disruption of business if a supplier is unable to provide the merchandise Costco requires. Competitors Competition for Costco is related to prices, quality and selection of products, locations and member services. Competitors of Costco include other warehouse club locations like Wal- Mart, Sams Club and BJs Wholesale Club as well as regional retailers and wholesalers like supermarkets, supercenters, general merchandise chains, specialty chains, gas stations and e-commerce businesses.

6 Costco Customer Value Statement What makes Costco a better place to shop? High Quality Merchandise Costco strives to offer the best quality merchandise at lower prices than competitors. They limit purchasing in each product line to fast selling items, sizes and colors. To this end the carry less products per warehouse than competitors and offer Kirkland Signature® and Costco Wholesale® products, which are their own brands. Prices Due to the direct relationship with supplier, efficient distribution, high turnover rate, low storage and handling costs and other aspects of the business model, Costco is able to keep prices lower than competitors. Membership Membership to Costco helps to increase customer loyalty and to provide additional revenue. Three types of membership include Business, Gold Star and Executive membership. Membership provides entrance into Costco warehouses as well as discounts and special offerings on products.

7 Economy - Indias GDP At the end of 2011 Indias GDP was $4.463 trillion. India ranks number 4 out of 226 countries for GDP in 2011. Below is a graph of the United States GDP and Indias GDP over the last 3 years.

8 Indias Inflation Indias inflation rate is relatively high at 6.8% in 2011. Indias inflation rate ranks it as number 154 in the world. The United States inflation rate ranks at number 57 in the world comparison chart.

9 Indias GDP Growth rate Indias growth rate in 2011 was 7.8% which is a good growth rate placing India at number 15 in the world. The United states growth rate was much lower at 1.5% placing it at number 172 in the world rating. China continues to have a steady growth rate over the last 3 years, compared to US and India.

10 Indias Foreign Reserves India has strong foreign reserves ranking at number 24 with the rest of the world. On December 31 st 2011 Indias Reserves of Foreign Exchange and Gold was $345.8 Billion In 2009 Indias Foreign Reserves were $91.86 Billion. Indias cash on hand supply is good.

11 Indias GDP per Capita India has a very low per capita GDP. In 2011 the per capita was $3700, comparing to the US at $48,1000 per capita. This means that most of Indias population does not have enough money to purchase goods, in turn something like Costco probably would not do well in India, unless it was in wealthy region.

12 Currency Stability in India The Indian Rupee exchange rate over the last 12 months is 47.83. In the last ten years the average exchange rate of the US dollar to the Indian Rupee was 45.83 Based on the trends over the last 12 months and the last 10 years, it seems that the rupee is fairly stable.

13 Economy Conclusion India has a strong growth rate and has been consistently growing over the last few years. Although there is a strong growth rate in India, the per capita GDP shows that things are not spread evenly and most areas are not wealthy. Costco probably would not have great success in India right now, but may when the per capita GDP raises.

14 Government - Ruling party & leader President: Smt. Pratibha Devisingh Patil Held office since July 25, 2007 Has been politically involved in Indian government since 1967 1st woman elected into office Vice President: Mohammad Abdul Aziz Ansari, elected: August 11, 2007 Prime Minister/ Head of Government : Dr. Manmohan Singh

15 Stability of Government Sovereign socialist secular Democratic Republic Parliamentary system of government Indias main threat is China byy also other Asian countries form a threat against Indias growth.

16 Getting money out of India There is a wide variety of banks and coporations to help get money out of India at a national level for companies and entreprenuers. -IDBI: Industrial Development bank of India -IFCI: Industrial Finance corporation of India - SIDBI: Small industries bank of India - IVCF: Venture capital funds specializes in services that increase the financial needs of commerce and trade in India

17 How easy is it for foreign companies to compete? Cultural shock is the main problem for foreign companies. Indian culture compared to western culture is compltely different. To be successful one needs to convince them of your company and its importance. Before 1991- India implemented protection policies against its foreign comptetitors to allow for Indias companies to expand and grow Today- India highly influences foreign companies to be involved in their countries

18 Tariffs and Import Barriers Follows the Harmonized System implemented by the 1985 Customs Tariff Amendment Act. Agricultural tariffs range from 30-40% with strong anti-dumping measures. non-agricultural tariffs have dropped below 15% and have no quantitive restrictions. Due to Costcos low profit margins, they might face financial challenges with exporting agricultural goods to India, while non-agricultural goods will show no ill affect.

19 Member of World Trade Organization Active member since January 1, 1995. Disputes filed against India by the US regarding import restriction on agricultural products. Played a major role in doha negotiations. Indias global trade has increased from 15-35% of their GDP since joining the WTO. Currently negotiating with third world countries to offer them duty-free importing and exporting.

20 Level of Corruption Police ranked highest with judiciary and land administration in a close second. Fake combat missions Re-selling of government property Government hospitals are ranked high due to medicines not being easily available. Black money(black market) Estimated that Indians have over $1.4 trillion in offshore Swiss accounts. Indias black market economy is roughly 50% of the countrys GDP(approx. $640 billion).

21 Acceptance of Imported Products No import licenses required for capital products declared as free importable Import license required for precious stones, livestock, selected chemicals, and pharmaceuticals. Duties can range from 5-40% Given that about 70% of Costcos daily sales are food based, there should be no import issues or barriers for their products, only duty charges will vary.

22 Local Competition India is one of the largest food service countries with over $30 billion spent at restaurants in 2011 alone. Street vendors deliver fresh foods to your door. Most street vendors and local markets already operate on low profit margins. 10/1000 residents own a motor vehicle. Costco will have to determine different strategies to adhere to Indias lifestyle.

23 Seaports 14,500 km of waterways Strategically located on the Arabian Sea and the Bay of Bengal. Large merchant Marine fleet – 29 th in the world.

24 Airports India ranks 23 rd in the world in number of airports with 352 – 249 of which have paved runways. All major cities have access to airports making air freight a viable shipping option.

25 Roads and Rail System India has the 3 rd largest road system in the word and the 4 th largest rail system.

26 Infrastructure - Telecommunications India has recently deregulated and liberalized telecommunications laws and policies and is thus one of the fastest growing markets for telecommunications in the world. Recently installed one of the worlds largest domestic satellite systems, the Indian National Satellite System (INSAT)

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32 Limited area of availability is marked in red and available in green.


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