By Justine Doody

The Indian call centre has become an international cliché. Its employees are young, educated, English-speaking and compared with their compatriots, well-off – and their disposable income, along with that of the rest of India’s fast-growing middle class, is driving extraordinary growth in the country’s consumer goods market. Retail sales in India were worth US$455 billion in 2008, making up 38% of the country’s GDP, which leaves plenty of room for growth when compared with developed markets, and that growth is well under way: in spite of recession troubles in 2008, the retail market grew by an annual average of 11.4% valued in US dollars between 2004 and 2008.

The people responsible for this boom are a new breed in India. Liberalisation of India’s economy in 1991 gave rise to the economic success story that the world has marvelled at – and as the economy grew, a new middle class grew up alongside. The Indian middle class has more than tripled in size in the last 20 years, and today numbers between 150 and 250 million people. And like the population as a whole, the middle class skews young: around half of India’s population is below 30 years of age.

Thinking global, buying local
Raised on Western TV and media, many of them English-speaking, these young up-and-comers should make natural consumers of Western brands. But Synovate’s research shows that instead of aspiring to owning the latest international must-haves, India’s consumers are happy with their home-grown products.

In a Synovate survey, 68% agreed that locally manufactured brands are just as good as international brands, with only 13% thinking that international brands were significantly better than local brands. And for these consumers, buying Indian is not just a matter of quality comparison – 56% of those surveyed said that if a local and international brand were of equal quality and price, they would prefer to take home the local brand. Given the choice of equally good products, only 27% would favour international brands.

It wasn’t always so. Between the exit of most multinationals during India’s self-sufficiency drive in the 1960s and their return after 1991, people looked at Western brands with covetous eyes. Synovate India’s Executive Director Paru Minocha says ‘There used to be a fascination for “west” and “foreign” goods. Fifteen or twenty years ago, one cherished and sparingly used even a shampoo a visiting relative from US would bring. Besides the origin, the feel of the product was very different – right from the packaging, sensorials etc.’

But times have changed. The quality of local offerings has improved, leaving less to make international products stand out. And even as the standard of Indian products has risen, so too has the self-assurance of the Indian buying public.

Gunjan Bagla, Managing Director of Los Angeles based consultancy, Amritt, Inc. and author of Doing Business in 21st Century India, says: ‘In 2009, eighteen years after liberalisation began, Indian consumers no longer carry vestigial prejudices for or against “imported” brands. They want the best product for their needs and desires. Subway sells sandwiches because they are good, not because they are American. Titan sells watches because they are good, not because they are American. Indian consumers will buy a Nokia phone with Reliance service not thinking of Finland or India as opposed to say a Vodafone (UK) service with Samsung (Korea) handsets.’

Poised to play
While recession has cut a swathe through the economies of the West, India has come out comparatively well – the country remains the fastest growing major economy in the world after China, and average annual growth is set to be 7.8% between now and 2012. For India’s emerging middle class, many of whom are too young to remember the days before liberalisation brought economic development, the country’s achievements are a fact of life, and the future is something to be cheerful about. As many as 91% of those surveyed by Synovate were proud of what the country has achieved, with 82% agreeing that India has a bright future and 85% considering the country to be innovative.

This national optimism is not rooted in political satisfaction – of all the criteria offered in Synovate’s survey on factors important to Indians’ lifestyles, political stability ranked the lowest with respondents, with family, education and health topping the list. The Indian middle class is largely disengaged from politics. Their personal aspirations are professional, not political, and they see the country’s influence on the world stage coming through its industry; national pride is fuelled not by nuclear testing or by regional dominance but by the success of new Indian multinationals like Tata and Reliance. Incidents like the purchase of British prestige car-maker Jaguar by Tata in 2008 have fed this new economic self-confidence: in this new order, the former colony feels ready to take its place alongside, or even eclipse, the former imperial power. 

Paru Minocha says ‘There is a strong sense of pride and a conviction that we are poised to become significant players (if not leaders) on the global map. And this reflects in consumer buying behaviour.’ If today’s Indian cultural pride is based not on political but on economic triumphs, it makes sense that it should be expressed not in political but in economic solidarity. As India begins to see itself as a peer of the other major players in the world economy, its new self-confidence comes out in satisfaction with Indian goods, whose quality, like the country’s, is seen to be a match for any international competitor.

Foreign affairs
Some foreign brands have managed to get Indian buyers to take them to heart. In among the local brands that scored highly in Synovate’s studies on brand image, McDonald’s, Pizza Hut, Coca-Cola, Pepsi, Nokia, Sony and Samsung all found favour with Indian consumers. However, counter-intuitive though it might seem, the greater availability of Western goods could possibly have driven desire for them down. Paru Minocha says that the once ubiquitous yearning for Western items ‘has started changing primarily due to access to these products via product launches in India. So the products one desired from abroad, like a Sony in electronics, Pantene in shampoos, Lancôme for cosmetics, Kit Kat in chocolates and so on are now very available in India, and that lust for the West has decreased.’ At the same time, local brands are being measured against the competition and bearing the comparison. Devangshu Dutta, Chief Executive of India based consultancy Third Eyesight, says ‘expressing a desire to buy local brands if the international brands are of equivalent quality and price does have something to do with pride in local manufacturing. But more than pride, there is a fundamental confidence being expressed in the strength of locally manufactured brands.’

While the lure of the West has paled a little, the line between international brands and local brands can sometimes be blurred in local perception. Although Hindustan Unilever is majority-owned by multinational Unilever, it has existed in India since 1933, and its products like Lux and Pears soap are ingrained in the national consciousness, routinely topping lists of the country’s most trusted brands. GlaxoSmithKline’s Horlicks, popular in India since the 1930s, is the country’s leading health food drink, and the country provides the brand with its biggest market worldwide.

Adapt or die
But for those Western brands without a long history in India, how can they make headway among the new Indian consumer class? Paru Minocha says ‘it is clear that they cannot just rest on their origin as a selling point. The consumer is clearly seeking value and would demand customisation.’ The Western brands that have met with success in the Indian market mostly have one thing in common – they have adapted their core offering to meet the particular requirements of the Indian consumer. McDonald’s, facing the challenge of making a beef-centred business work in a country that has historically held cows to be sacred, branched out into vegetarian fast food like the McAloo Tikki Burger and the McVeggie. Pizza Hut found a winner with their Tandoori Pizza. But both companies held onto the less tangible elements of their global success: attributes like efficient customer service, air conditioning, cleanliness and quality ingredients are as welcome in Bangalore as they are in Boston.

Synovate’s research shows that customisation is key to getting a foothold in the Indian market. Providing a product for each price point is one way in which companies can take into account the country’s national specificity, and in the country that came up with the ‘one-lakh car’, the US$2500 budget auto launched by Tata in 2008, tapping the low end of the market can open up big opportunities for companies. Nokia, the country’s mobile handset market leader, has launched a range of low-cost mobiles to go along with its high-end offerings, so as to meet the needs of as many of the country’s consumers as possible. Single serving packs of soaps and snack foods are aggressively marketed by companies like Hindustan Unilever and Nestlé, who find the smaller size and cheaper price attracts consumers who would otherwise steer clear of their product lines. Gunjan Bagla says ‘International companies need to appeal to uniquely Indian values and messages to achieve volume in India. You can sell to a few Indians because of Japanese or American appeal. But Levi’s make Spykar jeans for Indian ways of buying. Tropicana sells juices in India for India’s unique needs. The global reach of international brands brings quality, consistency and scale. Local formulation and prices brings sales volume in India.’

To court the Indian consumer, international companies need to embrace flexibility. Devangshu Dutta says ‘global brands that have made themselves relevant to broad segments of their audience have done so not by diluting their international appeal, but by adapting it to the local customer’s needs.’ Well aware of their country’s progress, India’s new consumers expect respect and acknowledgement from the world, and from the international companies that want their business. Recognising and adapting to the individual character and requirements of the rising middle class can be seen as a way of paying tribute to the worth of the Indian consumer – and to make progress in a market that by some measures almost equals the entire US population, international companies might find themselves remembering that the customer is always right.

By DEVANGSHU DUTTA, chief executive, Third Eyesight

Since the most recent “mall boom” that began in 1999, with the launch of Ansal’s Plaza in Delhi and Crossroads in Mumbai, much has been written and said about organised retail, the growth of the middle class, and virtually every alternate person you meet professes to be an expert in retail.

What is not acknowledged is the fact that fashion retail began to get modernized many decades ago, with the authorized dealerships of textile companies such as DCM, Bombay Dyeing and Raymond. Among footwear companies, Bata also organized its network of Bata and BSC outlets. Food companies such as Spencer have operated as chains even before RPG changed the name to Foodworld, and now back again to Spencer. So, the new revolution is only a stage in the 50-year evolution of the retail business in India.

So, why the sudden interest? Third Eyesight believes there are multiple reasons creating a “tipping point”.

INDIA AT A TIPPING POINT

One of the key factors in creating a self-fulfilling growth cycle is the development in the economy that has seen sustained high rates of growth for the last one-and-a-half decades. This has created a virtuous loop of increasing salaries and increase in disposable income deeper into the population, and this is spreading beyond just the big cities.

Secondly, billions of dollars and thousands of crore of investment are being poured into real estate, removing the bottleneck of good sites for new retail stores, and creating a platform for brands to roll out their chains.

Thirdly, companies that began growing the larger formats of retail, such as department stores, in the early 1990s, have begun to reach critical mass. Retailers such as Shoppers’ Stop and Pantaloon today provide multiple points of launch for new brands.

Fourthly, and possibly the most important among these factors, is the growth of the young consumers. They were born after the advent of colour television in 1982, have known more choice than the earlier generation, and are just entering the workforce amidst soaring salaries, with a freer attitude towards spending than their parents.

These factors are providing an unprecedented platform for retail growth in general – very much like the United States andEurope in the 1950s – and for the fashion retail market, it  is a tremendous opportunity to rejuvenate.
 
THE MARKET OPPORTUNITY

People from within the industry, as well as analysts, provide estimates of the total apparel market that vary widely, between Rs 90,000 crore and Rs 120,000 crore (US $20-27 billion). Annual growth rates also vary, estimated overall at 13-15 per cent, but depending on the product category, from 5 per cent in mature categories to 30-50 per cent in categories that are just emerging.

Given the overall economic growth rate and development of the consumer base, if a retailer has a strong brand and distinctive product offer, individual companies are able to gain annual growth rates that outstrip the overall market many times over.

The opportunity has attracted the attention of both Indian and international companies, and, increasingly, also of the export community in India.

Among Indian companies, Liberty is credited with the launch of the first ready-to-wear shirt brand in the 1950s, and Raymond with the first ready-to-wear trouser brand in the 1960s. Exporters such as Intercraft (with brands like FU’s), also tried their hand, as did corporates such as Indian Organic Chemicals through the launch of “Little Kingdom” stores. Thereafter, several other brands launched, most of which have faded into the lost pages of history.

Among the survivors have been Raymond (through their chain of around 300 stores and a clutch of brands), as well as relatively new entrants like Madura Garments (originally a part of the UK-based Coats Viyella, now wholly owned by the Aditya Birla Group) and Arvind (formerly a licensee and now a jointand venture partner for the US-based VF Corporation).

For all the talk of organization, the apparel market remains highly fragmented. For an idea of just how fragmented the market is, look at the top two players: Madura Garments and Arvind Brands. If we assume a market size of Rs 90,000 crore (US $20 billion), the largest player, Madura Garments, only has 0.7 per cent of the market, while the second largest, Arvind Brands, holds a 0.5-per-cent share.

In the context, differentiating between “branded” and “unbranded” players is no more than an academic exercise.

The market is wide open – more open than it has ever been – and the opportunity is ripe for new companies to enter.

A quick look at a table of some of the largest companies among fashion retailers and brand distributors includes companies like Raymond, which has invested cash from divestment of unrelated businesses into launching or acquiring new brands, as well as upstarts such as ITC, who launched their first Wills store just about five years ago. Among the companies that are of a respectable size, most have spent between 10 and 15 years nurturing the brand – these include Mohan Clothing (Blackberrys) and ColorPlus among brand owners, and Shoppers’ Stop and Pantaloon, who have moulded themselves into constantly evolving retail models.

INTERNATIONAL BRANDS

Indians have known international brands in apparel and footwear for as long as those brands have existed, courtesy the historical British linkages, the erstwhile Indian royalty who were among the biggest customers for brands such as Louis Vuitton, as well as the mass brands that made an early entry (such as Bata).

During the late-1980s and through the ’90s, several international companies entered the Indian market, initially through licensees or franchisees (with exceptions such as Littlewoods, who set up their own — and only — Indian store in Bangalore). Some of these companies are beginning to show greater interest in India – and also a desire to exert more control over the growth of the brand in this strategic market. Companies such as VF (owners of Lee, Wrangler, Vanity Fair and Healthtex) have converted their interests from licenses to joint ventures, while Benetton has gone from a license relationship in the first five years (until 1993), to a 50:50 joint-venture, and then to a 100-per-cent subsidiary in 2005.

In the last couple of years, especially with India being in the press, interest among international brands has grown to a new peak, and this is now manifested in the growing list of brands available in the market.


In early 2006, the government allowed foreign investment again in the Indian retail sector. Depending on who you speak to, this is a complete non-event, or at the other extreme, it is a vital step. The details are the subject of another article, but one could say that while this is not an earth-shattering change of policy, it is an important step in the further evolution of the market, and we will see the evidence within the next 12 months.

WHO DARES, WINS!

It is clear that the Indian market is going through a phase that is unprecedented in its recent history, and the opportunity exists for existing producers of garments (including exporters), Indian companies from other sectors, international brands, as well as individual entrepreneurs, to create a brand presence from scratch or grow their existing business.

The qualifying factors for entry into the contest are the desire to create new brands, and deep pockets to sustain investment in branding and market-building.

However, the success factors to win in the contest are higher drive and enthusiasm to take the hits that will invariably come, an ability to tap the consumer’s sense of adventure and differentiation, the talent to develop a product-service offer that is distinctive, and a pool of common sense to minimize the losses during the initial period of investment, which may be months or years.

With all the challenges that retail offers, to those who have the courage to venture in, let’s say, “happy retailing!”
 

TIMES NEWS NETWORK, PANAJI, 8 September 2006

Goa, once a haven for holidaymakers looking for a break, is now set to zoom up top retailers’ charts. The union territory
will soon see an influx of major brands, with real estate giants. Not surprisingly, land prices are ready to shoot through the roof.

Goa is going through a ‘revamp’ with companies buying large spaces in its cities with ‘vast potential to grow’ to set up malls and shopping arcades. Builders like Gera developers, Parasvanath and DLF (all first time entrants to Goa) plan to develop offices-cum-shopping malls.

In addition, many branded retailers are mulling exclusive showrooms here. As a result, land value has shot up with average prices of Rs 2,500 to Rs 3, 000 per sq ft having doubled. In places like the capital Panjim, prices have increased five-fold. Land prices are expected to rise further in the next ten years.

“The Goa market is expanding very fast, much beyond our expectations,” says Sudipta Sen Gupta, senior general manager (marketing), Cafe Coffee Day (CCD), which now plans to shift its regional head office for Karnataka and Goa from Mangalore to Goa.

The company, which had initially planned to stay open only for the nine tourist months (late September to May) has received ‘tremendous response from locals’ with sales increasing to 175% of national sales. CCD plans to open more outlets, apart from setting up bases en route to Goa at places like Karwar and Hubli.

Subway too has decided to add six more outlets to its existing one at Baga beach — a stark contrast to a few years back when coffee giant Barista shut shop soon after opening in Goa. The hosting of International Film Festival (IFFI) since December ’04 has created a ‘brand image’ for Goa, say market analysts, adding Goans are brand conscious. So, no time is wasted in ‘educating people about various products’.

IFFI, which brought the state’s only two multiplexes, has created a movie-going culture. Says Manoj Bhatia, CEO, Inox Leisure, “Flexible pricing and attractive schemes has helped sales move from 600 to 800 patrons to over 5,000 on weekends.”

Goa has the highest per capita income in India along with English speaking cosmopolitan set-up that allows people to experiment, thereby making it attractive to businessmen. In addition, the state government’s initiative to start SEZs is expected to move a large chunk of high-spending Indians from large cities to Goa.

Amar Yadav FMCG head of Vishal Mega Mart that recently opened the state’s only retail mall is overwhelmed by the response. “The spending capacity is very high here, we plan to open one more mall in south Goa,” he adds. Market analysts feel that influx of domestic tourists to Goa is driving the state’s growth story (18 lakh Indians visited Goa last year).

Indians’ familiarity with brands, coupled with lower land rates than big cities is attracting investors. But Devangshu Dutta, chief executive, Third Eyesight, feels investments into smaller places is a natural trend since expansion in larger cities has reached near saturation.

Mall Mania, Mall Madness – alliterate as you will – it’s a phenomenon that is certainly taking over the newsprint, airtime and, quite possibly, your neighbourhood.

A study published in 2005 estimated that by 2007 over 360 shopping centres would be operational around the country, with approximately 90 million square feet. A meagre increase of 0.08 sq. ft. in per capita shopping space doesn’t seem like much in a country of a billion-plus people.

But most of it is concentrated around the big cities – Delhi and Mumbai account for more than half of the total space projected, with the other metros and mini-metros such as Bangalore, Pune, Hyderabad etc. taking the total up to 90% of the space.

One may argue that money (real estate development) is only following the money (consumers) – after all, there are more consumers and higher incomes in these major urban centres.

But why would mall developers expect Delhi’s consumers to suddenly switch en-masse to shopping in Gurgaon, where 6 malls are already active in a short distance of about a kilometre, 3-4 more under hectic construction in the same area and several more scattered around that suburb? Or why do Mumbai’s developers expect people to drive several kilometres from the suburbs on a regular basis to the centre of town to grace only their shopping centre? It is only such expectations that can explain the gold rush mentality that is overpopulating certain areas with shopping centres and malls.

While per-capita availability of A-grade shopping real estate looks really low, in certain areas we foresaw oversupply, with developers thinking in terms of “property” rather than as retail space managers.

Most shopping centre developers have carried out only cursory studies on the customer catchments that their tenants will be expected to live-off. As a result, conversion of footfall into sales is low for the tenants, except for food-courts, which are benefiting from the window-shoppers rounding off a day or an evening of roaming the malls with a meal. There is a lack of differentiation in product and service offer between the shopping centres and, with nothing distinctive on offer, repeat visits and – more importantly – repeat purchases are a challenge.

Developers in smaller towns seem to be following the same model, scaling up space or scaling it down based on the capital cost vs. expected capital gain and tenancy income. They are pitching for much the same brands as tenants as the developers in the bigger cities.

There is competition for customer traffic between the shopping centres and large stores (such as Mumbai’s newly opened Hypercity, across the street from InOrbit Mall, both developed by the Rahejas), between the shopping centres and the traditional high street, and between large format stores and speciality malls.

For the most part shopping centre development in India in the recent years has been seen as an aspiration to be fulfilled – hence, the most important factors have been the size of the shopping centre, quality of fixtures, marquee tenants who can provide the glamour or the legitimacy). The focus has been more on the “positioning”.

The business will begin maturing and will begin taking developmental leaps forward when centres are seen as commercial infrastructure to be planned with the end-consumer in mind, and to be serviced over a certain lifetime.

Until then, we can look forward to announcements of many hundreds of shopping centres, the launch of a few hundred, and the conversion of many of those into uses other than as shopping centres within a few months or years of their launch. And for investors also it might be a game of Roulette rather than Patience.

MUMBAI: The Rs 39,000-crore Aditya Birla Group has appointed global consulting firm, McKinsey & Co to chalk out the company’s retail rollout plans. Sources suggest that McKinsey has been given the responsibility to strategise on the entry strategy for the group. McKinsey is to study the opportunities in the sector and advise on plans to launch a chain of fashion-led outlets and hypermarkets.

The Aditya Birla Group recently became the third major business house to announce its foray into organised retail. Mukesh Ambani’s RIL and Sunil Mittal’s Bharti Enterprises have also joined the bandwagon to enter this lucrative and fast-growing sector.

Analysts suggest that new and existing Indian companies are planning to scale up at a fast pace before the imminent entry of foreign players is allowed in the sector.

McKinsey has already built a strong retail practice and is also working with Future Group (formerly Pantaloon Group), while KSA Technopak is working closely with Reliance. Other consultants like, AT Kearney, Ernst & Young, PwC and Third Eyesight are also said to be working with new and incumbent players.

Aditya Birla Group has also formed a senior management team that is exploring these opportunities. Sources suggest that the group plans to invest more than $1bn in the sector and Group CFO, Sumant Sinha has been given the responsibility to raise funds for this foray.

The company is also actively hiring people from sectors like retail and FMCG. Apart from recruiting some key people from ITC and Godrej, the company is said to have roped in Shoppers Stop’s head of HR, Vijay Kashyap and head of operations, Sanjay Badhe. The company spokesperson however declined to comment on anything related to its retail plans.

Sources said that the group’s retail plans will be led through the company’s apparels and textile subsidiary, Madura Garments. The Rs 620-crore Madura Garments owns and markets Louis Philippe, Van Heusen, Allen Solly and Peter England through company franchisees and third-party outlets.

It also runs an exclusive chain of stores selling products of German fashion major Esprit. It is expected that these operations will be further scaled up in the first phase. Madura Garments also supplies to international brands like Marks & Spencer’s, Tommy Hilfiger, Polo and Ralph Lauren.

It has recently passed a shareholder resolution to transfer this export contract business out of the company.

“The group is already present in telecom, IT and IteS and the entry into organised retail is part of the group’s strategy to further expand into sunrise sectors. Historically, the group business portfolio has been loaded in favour of the commodities businesses,” said an industry analyst.

By Shuchi Vyas, The Economic Times – August 29, 2006