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No Foreign Hand, For Now

By VISHAL KRISHNA

Businessworld

Issue Dated 30 June-06 July 2009

If you were hoping to see a Wal-Mart store in your locality soon, you may be disappointed. The government has made it clear that it is against the idea of 100 per cent Foreign Direct Investment (FDI) in front-end multi-brand retailing. “The Congress government has come to power by supporting the farmer, the middleman in mandis and the kirana store. Now aiding modern retail will be the last thing on their mind,” says a Mumbai-based retail analyst, who did not want to be named.

Even if front-end retail stays domestic, most companies are struggling to become profitable. And it is not just about the money. For the moment, the retail industry continues its search for cash and hopes to keep expansion plans going despite heavy losses. Kishore Biyani’s Pantaloon Retail hopes to add 2 million sq. ft by the end of this year. Similarly, Aditya Birla Retail has just announced plans to add another 150 stores.

“The quandary lies in getting FDI, which is needed to service a large presence through an efficient supply chain strategy,” says Ajay D’Souza, head of Crisil Research in Mumbai.

For suppliers such as fast moving consumer goods (FMCG) companies, only 5 per cent of their sales is through organised retail, the rest is through kirana stores.

“The distribution system in India is largely built by FMCG companies to support the kirana network, where wholesalers remain strong,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy firm in New Delhi.

Modern retailers also burnt their fingers trying to source fresh food directly from farmers. “People can go to (their neighbourhood) kiranas and get their vegetables at the same price as that offered in a retail store, so food did not become a driver in retail stores,” says Pinakiranjan Mishra, partner and national leader for retail at Ernst & Young in Mumbai.

Building a supply chain has not been a strength among organised retail players, and so it is back to sourcing from the vegetable mandi.

And that is perhaps what FDI in retail can do: bring in outside expertise on building and integrating supply chains with the attendant quality and pricing that will persuade consumers to go into supermarkets.

But politics intervenes. The inability to source directly from farmers is constrained by land ownership laws that stand in the way of farm aggregation. “Firms cannot aggregate land from farmers to create a farm-to-fork connect,” says a finance ministry official who did not wish to be named. “The government fears that if companies own large tracts of farm land, then they would be able to command food prices and production.” And let us not forget the voter base that mandis and kirana stores represent.

For the moment, the FDI hopes of organised retailers seem to be quashed.

BREWING KNOWLEDGE

BHANU PANDE
The Economic Times, DELHI, 22 June 2006

For a man from Dehradun who ran a family-owned bookstore called English Book Depot, it’s been quite a journey to the point where his Book Café chain now has tie-ups with retailers like Café Coffee Day, Nirula’s, Barista and Subway. Sandeep Dutt, who’s effectively used co-branding and co-location strategic tie-ups to set up a 20-store book retail chain, says, “We are in the business of brewing knowledge.”

He’s observed that there are many consumers – aged anywhere from 15 to 40 – whose need for leisure and a great place to browse through books, isn’t being met adequately in the existing book retail scenario. “They find it difficult to get good books, and look for a place to spend their leisure hours if they do find them,” he explains.

That’s the need gap Book Café wants to fill. Dutt is certain that by concentrating on this single segment in various locations, his chain will be able to deliver a significantly superior experience. “Selling within espresso bars and other such co-locations that have a footfall of over 100-plus customers in a day will help achieve growth in book sales,” adds Dutt.

As a first move, he set out to sell a tempting retail model of sharing common premises with a co-retailer, while building nationwide franchise operations. What began as an experiment in Dehradun with Barista is now being replicated in Ludhiana, Chandigarh, Jaipur, Delhi, Lucknow, Kanpur, Agra and other cities in North India.

At every meeting, Dutt highlights the fact that sharing common retail space (with clearly demarcated sales areas) reduces expenses considerably in terms of cost of search, negotiation and property development. “It offers tremendous leeway to pick up strategically-placed properties, which single retailers would otherwise find prohibitively expensive,” says Dutt.

And it helps that co-retailers tap a common audience. For instance, a tie-up with Café Coffee Day helps Book Café dip into the pockets of those who walk in for coffee. In return, a bookshop adds value to the customer’s plain vanilla coffee experience. “Café reports sale growth of 50-100% by adding a book shop,” beams Dutt. Besides, existing book shops with a café added have reported sales zooming up by 200%.

It seems to be an attractive proposition: “We are opening at six more locations in four months,” declares Dutt. But some warn that this strategy might lead to the dilution of the Book Café brand. According to Devangshu Dutta, CEO, Third Eyesight, a Delhi-based retail consultancy, placing the book store at the back of the food store may not be a smart move. “There’s no Book Café branding upfront,” he adds.

“The brand may be subsuming itself with that of its co-retailer and that may not be a good idea in the long run.”

To counter that secondary status, EBD is simultaneously rolling out standalone Book Cafés, through franchisees. “The co-locational strategy has not only given us a quick and cost effective entry, but also the confidence of going it alone,” says Dutt.

Dutt has also chalked out plans to satisfy partners who want exclusivity or brand sync – while willing to share location. For instance, two coffee chains (let’s say, Barista and Café Coffee Day) may want to share premises with a bookstore, but not necessarily the same brand. The company is working on a portfolio of book retailing brands – such as Kitab Café, along with the current Book Café.

So far, even though many stores are yet to break-even, the chain has logged a turnover of Rs 2.5 crore for the year 2004-05. Dutt says that the average break-even time frame is about 18 months. Each outlet is doing about Rs 1.5 lakh per month, with a few even touching Rs 4 lakh. Book Café wants to hit some 330 small format stores (300-500 sq ft) in five years and 20 large format (1,000-1,500 sq ft) stores in four years.