Reference no: EM133031448

BaloyAssess Baloy distinctive competencies and discuss how the company can use the distinctive Walk into a Baloy store and one will notice the no-frills set-up of what is supposed to be a grocery outlet. But it is this void of fancy fittings, yet functional stores that form the core of Baloy Sdn. Bhd.'sbusiness model, bringing a new grocery shopping experience to Malaysians by going back to basics.

Baloy, which is a play on the local term baloi (value for money), just started operations in 2019."Cutting out unnecessary costs and being efficient in our operation are the fundamental elements that help make our business model unique, and we are able to pass on these savings to our customers inthe form of cheaper than average market prices for daily essentials and basic food products. Our online portal for grocery shopping will be the main platform to reach out to our customers. We alsooffer our members cheaper prices of at least 20% and incorporate loads of incentives akin to a digital marketing and e-commerce mix on the online platform," says co-founder and director Dan Lim.The retail grocery sector is a dynamic space and the landscape has seen many changes in the past few years. While some traditional formats are slowing down, others such as technology-driven retail andhybrid stores are emerging trends. Baloy's bare-bones stores are merely a mix of such new trends.

Lim sees Baloy more as a retail and financial technology company rather than a bona fide grocerystore operator. For example, its retail stores are not meant to be the main point of sale. Instead, they mainly serve as the pickup points and avenue to increase the footprint of its member recruitmentcentres. Lim says the idea for a new retail model came about when he realised the difficulties and  exorbitantcosts involved in bringing a new product to the market. He hopes to make Baloy a platform that provides people access and convenience to daily essentials and personal needs at truly affordableprices, thus creating a new market space. "Besides, we also make it a point to support local manufacturers and suppliers, with more than 40% of our products currently sourced from localmanufacturers, while majority of the foreign brands are those which have local manufacturing operations, meaning the products are produced here in Malaysia," he says.Currently, much of the retail grocery sector is operated by established brands. For example, the hypermarket scene in Malaysia is dominated by foreign-owned brands, namely, Tesco, Giant andAeon Big. While large hypermarket operators like Tesco and Aeon Big do operate using software and offer online purchases, Baloy's more direct local competitors are neighbourhood grocery stores,which target households looking for easy access to daily essentials within their vicinity. However, the business model and cost structures of these conventional retailers are not designed to operate as lowpricedpick up points, says Lim.

AI-powered retailKeeping costs low is key for Baloy. This means cutting down wherever possible. For example, each store only needs an average of two workers, compared to an average of six in some of the biggerconventional neighbourhood store operators. The company will mainly rely on technology to fill in the gaps of its operations as it angles to be a pioneering retail tech firm in Malaysia. Most of its effortsto grow revenue and customer reach will be done through artificial intelligence (AI) aided marketing and customer relation management (CRM). "Our plan is to use IT and AI to help customers makeinformed decisions when shopping or looking for daily necessities to buy. The projects that we are working on, such as the new AI-powered 'shopping lens', are set to make online shopping evensmoother.

Very soon, we will have AI incorporated into our POS systems and our staff can identify customersby name and even help make suggestions on what they need based on past purchasing trends with the help of algorithms," says Lim.Baloy makes money from membership payments instead of sales, shares Lim. Members, in turn, enjoy a 20% lower rate for their online purchases. Meanwhile, sales from its discounted merchandiseare used to cover its operating costs. Baloy is also enhancing its website, backend systems and logistics support like warehousing to enable delivery services in 2021. Its target market segments willbe the lower- to mid-income households, which form the largest market base with more than 80% of Malaysia's population.Its membership currently stands at more than 6,000 but Lim expects the number to increase exponentially once Baloy finalises talks for a strategic tie-up with several cooperatives. "We areexpected to have access to thousands of their members that can provide additional leads for membership recruitments," he says.Growth plans The company currently has 43 outlets and aims to hit 100 stores by the end of 2020. It is targeting upto 500 stores within the next three years, with an average of around seven to eight new store openings per month. Lim also says that the plan is to increase Baloy's stock keeping units (SKUs) to includefrozen food items.

Besides increasing its store count, Baloy's growth will also be supported by a new franchise systemthat the company will be rolling out in October 2020, says Lim. He believes Baloy's unique customer recruitment model will allow new investors to earn a part of its shared revenue. Lim acknowledgesthat attempts to make a difference in the retail industry is not easy given the low margin nature of the business. However, Baloy's business model appears to be working, he says, noting that it has turnedprofitable even though the first store was opened less than six months ago.

As part of its expansion plan, Baloy is looking to raise up to RM25mil in an ongoing Series A round.Talks with investors started in April 2020 and are ongoing. The funds will be raised mainly via new share placements to new investors. Lim and two other partners are currently the majorityshareholders.

Source: Adapted from Goh, C.H., 'No-frills retail experience', viewed on 18 October 2020,<https://www.thestar.com.my/business/business-news/2020/09/19/no-frills-retail-experience>.

Competencies to their advantage in the retail and e-commerce industry. Provide examples to support your answer.