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Biba brothers split; new firm in offing

MUMBAI, 28 December 2010, MINT (A partner to the Wall Street Journal)
Sapna Agarwal

The Bindra family, the owners of Biba Apparels Pvt. Ltd, which owns a popular women’s ethnic wear brand of the same name, is on the verge of splitting, said a person directly involved in the development, who did not want to be identified till the details are made public.

Sanjay Bindra, 45, will sell his stake for around Rs 75 crore in an all-cash deal, added this person.

Siddharth Bindra, 36, confirmed that Sanjay Bindra was exiting the business and added that he would be buying his brother out. He declined to speak about the specifics till the transaction is complete.

The Kishore Biyani-promoted Future Ventures India Ltd owns an 18% stake in Biba that it acquired in 2006 for an undisclosed amount. The Bindras own the rest of the privately-held firm. The individual stakes of Sanjay and Siddharth aren’t known; privately-held firms do not have to disclose their shareholding pattern.

Biba, founded 22 years ago by the brothers’ mother Meena Bindra, ended the year to March with revenue of Rs 180 crore and, according to the person cited in the first instance, will end the year to March with revenue of around Rs 200 crore.

Meena Bindra started the business in 1988 with a bank loan of Rs 8,000, selling ethnic wear from home. Sanjay joined the family business in 1994 and Siddharath, in 2002; soon after the firm started film merchandising, creating special clothing lines for Bollywood films.

Biba’s clothing is available in 100 retail outlets across 25 cities, according to its website.

Sanjay Bindra is still on the board of Biba Apparels but he has already started work on his new company, which is likely to sell ethnic-wear apparel under the brand “7 East”, the person cited in the first instance said.

“The company will be launched by mid-March with 18 stores and 60 shop-in-shop stores. The 7 East brand will look at tie-ups with designers such as Manish Malhotra, known to style Bollywood celebrities, and other international designers,” he added.

In 2009, the market for domestic apparel was worth Rs 1.54 trillion and is expected to reach Rs 4.7 trillion by 2020, according to India Textile and Apparel Compendium 2010 published by Technopak Advisors, a retail consulting firm.

It is a highly fragmented market with few significant brands such as Biba, Ritu Kumar and private labels from retailers such as Trent Ltd’s Westside and Future Group’s Pantaloons.

The organized apparel market is expected to grow from 14% at the end of 2009 to 40% by end of 2020, said the report.

Unlike the Western market, customer preferences for Indian ethnic wear vary across the length and breadth of the country, making it difficult for brands to establish themselves nationally, said Devangshu Dutta, founder of retail consulting firm Third Eyesight, explaining why very few brands have succeeded.

Biba brothers split; new firm in offing

MUMBAI,
28 December 2010, MINT (A partner to the Wall Street Journal)
Sapna Agarwal

The Bindra family, the owners of Biba Apparels Pvt. Ltd, which owns a popular women’s ethnic wear brand of the same name, is on the verge of splitting, said a person directly involved in the development, who did not want to be identified till the details are made public.

Sanjay Bindra, 45, will sell his stake for around Rs 75 crore in an all-cash deal, added this person.

Siddharth Bindra, 36, confirmed that Sanjay Bindra was exiting the business and added that he would be buying his brother out. He declined to speak about the specifics till the transaction is complete.

The Kishore Biyani-promoted Future Ventures India Ltd owns an 18% stake in Biba that it acquired in 2006 for an undisclosed amount. The Bindras own the rest of the privately-held firm. The individual stakes of Sanjay and Siddharth aren’t known; privately-held firms do not have to disclose their shareholding pattern.

Biba, founded 22 years ago by the brothers’ mother Meena Bindra, ended the year to March with revenue of Rs 180 crore and, according to the person cited in the first instance, will end the year to March with revenue of around Rs 200 crore.

Meena Bindra started the business in 1988 with a bank loan of Rs 8,000, selling ethnic wear from home. Sanjay joined the family business in 1994 and Siddharath, in 2002; soon after the firm started film merchandising, creating special clothing lines for Bollywood films.

Biba’s clothing is available in 100 retail outlets across 25 cities, according to its website.

Sanjay Bindra is still on the board of Biba Apparels but he has already started work on his new company, which is likely to sell ethnic-wear apparel under the brand “7 East”, the person cited in the first instance said.

“The company will be launched by mid-March with 18 stores and 60 shop-in-shop stores. The 7 East brand will look at tie-ups with designers such as Manish Malhotra, known to style Bollywood celebrities, and other international designers,” he added.

In 2009, the market for domestic apparel was worth Rs 1.54 trillion and is expected to reach Rs 4.7 trillion by 2020, according to India Textile and Apparel Compendium 2010 published by Technopak Advisors, a retail consulting firm.

It is a highly fragmented market with few significant brands such as Biba, Ritu Kumar and private labels from retailers such as Trent Ltd’s Westside and Future Group’s Pantaloons.

The organized apparel market is expected to grow from 14% at the end of 2009 to 40% by end of 2020, said the report.

Unlike the Western market, customer preferences for Indian ethnic wear vary across the length and breadth of the country, making it difficult for brands to establish themselves nationally, said Devangshu Dutta, founder of retail consulting firm Third Eyesight, explaining why very few brands have succeeded.

S Kumars goes in for branding rejig

Business Standard, Mumbai,16 Dec 2010

Raghavendra Kamath

The apparel & textile major now wants separate strategies for each of its brands.

Last month, S Kumars Nationwide (SKNL) invited pitches from advertisement agencies for its brands. The purpose: repositioning of the brands that include Reid & Taylor and Belmonte. The company has already finalised two out of five pitches from the shortlisted agencies and wants to complete the entire process by January.

But the move surprised many as the brands are already in clear price segments with little overlap. But Ashesh Amin, director of the textile and apparel major, thinks a lot more can be done. “SKNL’s apparel brands have grown big and we operate in different segments. There are some overlaps between fabrics and apparels in case of some labels,” Amin says. For instance, Reid & Taylor and Belmonte sell both ready to wear (RTW) and fabrics.

SKNL is in almost all segments of textiles: fabric, RTW and home textiles. It retails half-a-dozen brands in the RTW segment and a handful in fabrics, which are across price segments.

Within RTW, the company sells Stephen Brothers in super premium, Reid & Taylor in premium, Belmonte in mid-price segment and World Player in economy and retails Reid & Taylor, Baruche, Belmonte and SKumars in fabrics.

So what does Amin propose to do to break the clutter? Apart from setting up an integrated supply chain and focusing on designs and merchandising, Amin wants to launch individual strategies for each of his brands.

The strategy will decide which cities to target, what type of communication to adopt for each brand, which type of events to be associated with etc.

SKNL has already carved out 10 strategic business units such as home textiles, luxury suitings and so on and half-a-dozen chief operating officers (COOs) to manage the RTW brands.

Retail consultants agree with SKNL’s strategy. “Any company with multiple brands has to be very clear about how they segment their brands. Otherwise their own brands end up cannibalising each other,” says Devangshu Dutta, chief executive, Third Eyesight, a business consultancy.

For instance, he says Madura Garments has clearly segmented its brands such as Louis Philippe, Allen Solly, Van Heusen from the beginning and Arvind had a clarity in terms of denim products such as Lee, Flying Machine which are addressing different segments.

But Susil Dungarwal, founder of Beyond Squarefeet, a mall management firm, says SKNL is yet to find its niche in retailing. “A lot of people have left them and as exits happen, the perception of growth plans also change,” he says.

The new branding strategy is also important for SKNL as it is looking to diversify its portfolio and launch new brands at different price points.

For instance, the recently launched economy brand ‘World Player’ is a new focus area, says Amin. The mass brand, in the prices range of Rs 129-Rs 499, could become a Rs 100 crore brand in 12 months and “Rs 1,000 crore in four to five years”, he adds.

Out of 622 districts in the country, the company wants to be in 520 districts in the next 18 months. It has already covered 130 since the launch, he says.

Currently, Bollywood superstars Amitabh Bachchan and Shahrukh Khan are the brand ambassadors of the company’s Reid & Taylor and Belmonte brands.

“We will continue to have a strong brand ambassador-led strategy, but that is not the only thing in our brand campaigns,” says Amin.

SKNL is also gearing up for the launch of its premium casual brand KRUGER which is designed in Italy. The launch is expected in March. Initially, the company is looking at 10 outlets. The company is targeting a business of Rs 100 crore from KRUGER in the first three years, he says.

With a price band of Rs 999 to Rs 4999, it will compete with brands such as Tommy Hilfiger and ColorPlus, consultants say.

“While these brands operate independently at the front end, they will strategically integrate at the back-end,” he adds.

Amin says the new strategy is backed by the economics of the business. He says brands are growing 200 per cent in terms of revenues compared to last year. The company wants to increase the share of RTW to total sales to 25 per cent in FY 2011 and 40 per cent in the next two years, from 11 per cent in FY 2010.

The company is also planning to take Reid & Taylor to the US in the next six to eight months and develop designs suited for that market as part of an overall expansion programme. SKNL posted net profit of Rs 77.89 crore and sales of Rs 1,211.42 crore in the quarter ended September 30, 2010.

Time’s up for MRP?

Indiaretailing.com,15 Dec 2010

Payal Kapoor

The MRP, or the maximum retail price, of a product plays an important role in the customer’s purchase decision. It tells them the maximum amount they need to spend to buy a product.

The rationale behind printing the MRP on products is to protect the consumer from being overcharged by retailers. No doubt, the MRP does its job well in informing consumers about the ‘fair price’ of a product, but it fails to give retailers the much-needed flexibility in determining the price based on various factors – services offered, location of the store, among many others – that determine the actual cost of a product for a retailer. So, is the concept of MRP still relevant? And, will withdrawing the MRP be beneficial for the stakeholders, mainly retailers and consumers?

In a poll question asked by IndiaRetailing – ‘Should MRP be withdrawn from product categories to allow headroom pricing?’ – 83.29 per cent of the respondents said “No”, while only 16.36 per cent said “Yes”. The remaining 0.35 per cent, however, opted for “Can’t Say”.

But what do experts thinks about the MRP?

“The rationale behind the MRP being mentioned on the packaging [of a product] is to avoid consumers being fleeced by ‘unscrupulous’ retailers. I don’t see that rationale disappearing until there is much greater price transparency in the market, or more consolidation and structure,” says Devangshu Dutta, chief executive, Third Eyesight.

On whether the MRP affects the flexibility of a retailer to sell products at a price lower than the maximum retail price, Dutta’s answer is a firm “No”. He reasons: “This doesn’t affect the flexibility of retailers to sell at prices lower than the MRP. If a retailer wants to work with dynamic pricing, for specific promotions, or to promote sales on a particular day or time, it has the freedom to do so by selling below the MRP. Obviously this flexibility will be more in private label merchandise, or with categories where there is enough margin play.”

Zahir Laliwala, CEO, SportXS, also supports the MRP and says, “It brings transparency in the system. The MRP needs to stay for the consumer’s benefit.”

Siddharthan Sundaram, director – retailer services, The Nielsen Company, however, does not agree with Dutta or Laliwala. He says, “If the government withdraws the MRP, it will create competition among suppliers and manufacturers and this will ultimately help consumers to buy goods at a competitive price.”

Supporting the withdrawal of the MRP, Sundaram says, “I strongly believe it will help all stakeholders, particularly consumers.”

T S Ashwin, MD, Odyssey India Ltd, is of the opinion that the MRP makes it difficult for retailers to manage margins, “as they can’t charge anything beyond the maximum retail price printed on the product”.

Explaining his stand, he says, “When we take up outlets in airports or five-star hotels, the cost of operation is much higher and internationally it is an accepted practice to charge more in such outlets. But in India, we cannot do so due to the MRP. This again impacts our margins.”

Giving the example of Odyssey, he says, “We are a category where over 80 per cent of products are with an MRP. Though there is VAT, the rates are different in each state for the same product. This makes it very difficult to manage margins, as we cannot charge anything beyond the MRP. Not always can we get the vendors to bear the additional cost due to differential tax rates. Also transferring stocks from one state to another becomes a problem due to the same issue. We lose on margins as well as the vendors don’t reimburse.”

He further says, “With VAT coming in, the concept of MRP should be done away with and retailers be allowed to fix their prices based on the market demand, etc [and other factors].”

Clearly, there are strong arguments both in favour of and against the MRP. While some believe the MRP is necessary to protect the consumer, others strongly feel that ‘flexi-pricing’, where the power to decide the price of a product lies with the retailer, will help retailers offer a better deal to customers. Now, the big question is: can we try giving retailers a chance to fix the prices?

Streak of regional colour

RETAILER, December 2010 issue

Varun Jain

National and international brands are yet to make deep inroads into the country’s regional markets, where lies a huge opportunity. The regional markets in the country are dominated by the regional retailers. But national and international retailers are trying to get better of them and are now modifying their offerings to suit the regional tastes and preferences. The result has been very encouraging and more brands and FMCG companies are likely to get into this practice.

Companies like Godrej, LG, Barista and Future Group among others have already started micro-localising their offerings in order to munch away market share in ever growing regional markets. Future Group, which recently introduced their private label brand called Ektaa in the food category, is giving customers more options to choose from their cultural-specific staples and foods. Godrej Consumer Products, with a popular soap brand Godrej No.1, offers sandalwood fragrance for its consumers in the southern part of the country, and a green lemon fragrance for its North Indian markets. Barista Lavazza introduced 100 per cent vegetarian cafés in Ahmedabad, while LG is planning to launch their new range of microwaves which will have fish curry on its auto menu for the eastern markets, and upma and vada for the South Indian markets. Even Nestlé, which will be setting up its first R&D facility in India, is looking to introduce region specific food products. Many others are following suit.

In every market, micro- localisation is important. “If you look at smaller countries like Germany or UK, they have a lot of diversity as well. There are markets within a market and the retailers do make an effort to offer locally relevant products. In a country like India, with diversity in cuisine, values and cultures, it is absolutely important for retailers looking for scale to go for micro-localisation. There may be segments that are homogeneous across the country but those segment could be far smaller compared to what they can reach otherwise”, feels Devangshu Dutta, Chief Executive, Third Eyesight.

It is imperative to keep pace with the changing preferences of the customers with their changing lifestyle. “LG’s ‘India Insight Products’ have been well received by the Indian audience as they are customised and designed as per their specific requirements based on LG’s extensive research and development”, opines Rajiv Jain, Business Head, Home Appliances, LG India. He further adds that this is the step forward towards localisation strategy and the company is expecting an equally rewarding response from the consumers post the launch of customised auto-cook menus for different regions. Based on local insights, the initiative is going to change the way Indians cook various dishes in their kitchens.

Sanjay Coutinho, CEO, Barista Lavazza, the Italian café chain, which has introduced idli and kanda poha at some of their outlets and offering complete vegetarian menus at the outlets in Ahmedebad, keeps his point forward, “If you look at Ahmedabad, out of mere experimentation, we turned cafés there to full vegetarian and it worked for us and are doing extremely well. India is very diverse, and hence it becomes very important for the brands to understand and respect this diversity and the different sensibilities. That is the main reason we work close with the communities”.

“Urban and rural markets have specific needs and requirements. We take care of that”, says Antonio Helio Waszyk, Chairman and MD, Nestlé India. “We introduced rice noodles keeping in mind the rural audience”, he further adds, Nestlé’s decision to establish an R& D centre in India will be an additional competitive advantage in the future as it will help accelerate the company’s growth and contribute towards reducing nutritional deficiencies in India.

According to Dutta, there has to be a deep understanding of the market.

With more and more brands focusing on micro-localisation, it is definitely important to understand the needs and demands of the consumers as every region differs in terms of their culture, demographics, and food habits which ultimately requires products/services to be customised according to their own necessities, suggests Jain of LG.

Also, one should have enough clustering and enough scale at the local level. “One should be able to address the single consumer’s demand. The fact is that for most retailers it is impossible. So, there is a need to cluster, need to build scale,” suggests Dutta to the retailers who are going into regional territories. Regional brands by their very nature will understand the local market better because the brand is based there. They have that instinctive understanding of the surroundings. They connect with the local market which is far stronger and powerful, and national brands will have tough time to replicate that understanding. That becomes a big challenge. On the other side, a regional brand may not have the same scale that of a national brand.

For now the prospect of national brands being a threat to regional brands is still a few years away. At the moment, it is an unequal competition, but national brands are trying to become more competitive locally.

(This is an edited version of the original article.)

Bumpy road for luxury retail

Retailer, December 2010

Varun Jain

Recently, 150 all new glittering Mercedes Benz cars rolled out of the company’s premises to be delivered to Aurangabad Group in Aurangabad, a small town of the country. The group consists of top industrialists, businessmen and professionals. Bookings for US-made Harley-Davidson cruiser bikes, expensive luxury and sports sedans from Mercedes-Benz, BMW, Audi and Porsche have hit the roof, with some dealerships experiencing shortfall in vehicle supply.

The fact that luxury in India is growing fast is quite evident. Luxury retailers from across the globe are thronging India, where they see a lot of potential for luxury retailing. But since there are other problems like that of real estate and government policies, the growth rate has not been what the retailers would have wanted to and hence the expansion is taking a hit.

What is the potential in the Indian market?

Luxury exists in India though its numbers may not be the same as of some other markets. "China, for instance, has far more millionaires, and a middle class which is larger than India’s. Luxury brands are not only bought by the wealthy people, it is bought in different ways with different products", opines Devangshu Dutta, Chief Executive, Third Eyesight. He further adds, you may not be able to afford an Armani suit but maybe you can buy a bottle of perfume. You buy into a brand.

And it’s growing, maybe not as fast as the luxury retailers would have want it to be, but yes, with the economy growing in income and wealth, and the number of rich and the middle class growing, the scenario is bright. In the mature markets, growth has plateaued and the Indian middle class with minimum income of around Rs1 million per annum and who loves to get the taste of luxury, this market is the one which is highly under penetrated, will give the luxury market in India huge fillip, feels Neelesh Hundekari, Principal & Head – Luxury & Lifestyle Practice, AT Kearney India. Indian luxury market is currently estimated to be at 4.76 billion in USD and has a latent demand of 3-3.5 billion USD, which is ready to be tapped.

The industry believes that there is a huge potential for luxury retailing in India but it will take some time to mature and be ready to be exploited by the retailers. The market matures with the availability of brands and the increasing numbers of consumers buying and using luxury brands. Since luxury brands started coming to India only recently, it is expected that it will take some time before the market matures. Consumer maturity and market maturity are interrelated. "Consumers will evolve and will make markets evolve in tandem. There is always a certain lag, wherein sometimes the market is ahead of consumers and sometimes consumers are ready but market is not. My belief is that by 2020 Indian market will be a serious luxury market for all global luxury brands. The basis for saying that is by 2020 Indian economy will be as big as Chinese and Japanese economy today. China and Japan are very large and serious luxury markets and are expecting that India will follow that path," suggests Harminder Sahni, MD, Wazir Advisors.

Infrastructure not up to the mark

For the international luxury brand, real estate and infrastructure have been a major problem. For them the location of their stores and the manners in which they present themselves to their customers and their target consumers, are the most important part of their businesses. They will never compromise on that.

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Walmart: Back To The Front

Business World,11 Dec 2010

Vishal Krishna

Sundar Ramamoorthy, managing director of the Rs 36-crore Nitsun Garments in Tirupur, knows precisely how fast his “George” brand of T-shirts is moving in the five Bharti Walmart Best Price cash-and-carry stores and the 111 Bharti Easy Day stores on any given day. He only has to log on to Retail Link, Walmart’s proprietory software linking up vendors with its stores (and those of Bharti’s Easy Day stores) to find that out. As one of Bharti Walmart’s 2,000-odd approved suppliers, Ramamoorthy has been given his own log in id and password for Retail Link, and checks not only how goods are moving in particular stores, based on five days’ sales data for his product, but also other things such as payment schedules. This is to help him plan his production schedule and match despatches with Walmart’s needs.

Meanwhile, Bharti Walmart’s logistics vendor is slowly getting used to the concept of “appointments”. That means the retailer’s warehouses in Banur in Punjab and Palwal in Haryana will accept shipments from specific manufacturers only on specific dates and times, all of which are frozen in advance. The suppliers to the retailer adhere to exact schedules and they have allotted spaces in warehouses. The warehouses, in turn, log on to the Walmart network to check replenishment schedules of the five cash-and-carry stores and the 111 Easy Day stores. By keeping track of the data, the warehouses ensure delivery is never in excess of demand, and that no inventory is piled up. The trucks leaving the warehouse are coded and sealed and can be opened by only the store managers — a first in Indian retail.

“We want to be ready when FDI opens up; it will allow us to scale up front-end operations,” explains Raj Jain, CEO of Bharti-Walmart Best Price Cash-n-Carry, and the man in charge of putting in place Walmart’s supply chain systems and procedures in India. “We know the importance of technology,” says Rajan Mittal, chairman, Bharti-Walmart. Two years after it entered India, Walmart works feverishly to perfect its back-end systems, even while it waits and waits for FDI in retail to be relaxed so that it can open its own stores and sell directly to the consumer. For now, rules allow Walmart only to operate in the cash-and-carry segment. This is not something Walmart considers its core business globally. In every other country it operates in, Walmart sells directly to consumers.

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Walmart's India presence through its Cash n Carry operations WALMART’S EXPANSION PLANS

Investing more than Rs 500 crore for cash and carry business

To open 10 more cash and carry stores Bharti to invest Rs 9,000 crore for a total of 140 front-end stores

Retail Link, proprietary software, to be shared with all suppliers

To build an automated 400,000 sq. ft warehouse in two years

To make Indian suppliers globally compliant in the same period

Of its five cash-and-carry stores, three are in Punjab, while Rajasthan and Madhya Pradesh have one each. It plans to invest Rs 500 crore more in the next five years to open 12 similar stores by 2015 — if the retail FDI rules are not changed that is. Meanwhile, partner Bharti, whose Easy Day stores are spread mostly in six north Indian states, is investing Rs 9,000 crore, and sources say it will set up 200 more stores by 2015. Easy Day stores cannot account for more than 25 per cent of Walmart’s India turnover currently, to comply with cash-and-carry rules.

But in a way, the cash-and-carry business allows Walmart to get its systems in place to conquer the market when it is allowed full freedom. Walmart’s strength in the US, and now globally, has been its famed supply chain management systems that allows it to purchase goods and sell it to the consumer at prices lower than its rivals can. It has perfected a system that grinds its opponents to dust. It has consistently worked on processes of its vendors, while investing heavily in technology to maintain perfectly balanced inventory, good quality at the lowest possible prices. It plans to do the same in India.

The problem that Walmart faces here is it has to train vendors both to maintain quality as well as follow its processes. This is difficult as most other organised retailers do not follow such systems. Most retailers, sparing Shopper’s Stop, don’t share real time sales trends with vendors. Big home grown retailers are chary of sharing much data with their suppliers. Neither do they believe in interfering or working on the vendor’s own processes as long as the quality is acceptable and the price is right. Walmart believes in doing both. It insists on studying vendor’s processes to see how quality can be improved, while squeezing out wastages and bringing down costs so that it can buy at lower prices.

Bharti’s front-end Easy Day stores are integrated with Walmart’s Retail Link and each warehouse knows what has to be supplied at the store back end level. The category level supplies are based on a real time capture of five-day-average sales data. The data reaches the supplier and the warehouse through the software. “This allows us to track almost everything in the store and cut inventory wastage,” says Andrew Levermore, CEO of Easy Day. The benefit Walmart offers its vendors — many of who are small-time entrepreneurs until they tie up with Walmart — is big volumes and access to markets they would otherwise not be able to reach.

“Earlier I had a market only in Punjab. Now, I can distribute my products to the entire northern region thanks to Walmart,” says Rajan Arora, managing director of A-Plus, an aggregator and supplier of pulses and wheat. This Rs 45- crore firm draws 10 per cent of its net profits from Best Price Cash-n-Carry. Walmart sources say this supplier would be their preferred one in the north as the economies of scale made sense for him to be price competitive in the region.

There are others whom Walmart allows to supply across the country. For example, take Nigger Agro, the Rs 54-crore firm that makes juices and sauces. “I have signed an agreement with Walmart for supplies worth Rs 25 lakh a month,” says Satbeer Nigger, managing director of Nigger Agro. He adds Walmart allowed his firm’s name to be branded on the packaging although it was a private label. This allowed him to do business with other retailers.

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While it demands low prices from its vendors, Walmart ensures that they are paid on the dot so that their cash flows are not affected. This is a big lure for many vendors who had dealt with retailers demanding long credit cycles, and even then don’t pay in time. “Walmart is big in China, and we are building our base here; there is no reason to delay payments when they are part of our system,” says Jain of Bharti-Walmart. “I supply my own brand of noodles to several others. I have not had payment issues with Walmart,” says Ankur Malhotra, managing director of the Rs 60-lakh Nikky Traders.

But the biggest draw to become a supplier for Walmart is that if a vendor does exceptionally well, he can hope to supply to even global Walmart stores. These are the suppliers that Walmart considers the very best in class. Amit Goradia, managing director of the Rs 200-crore Jewel Consumer Care, is one such vendor. He was given the onerous task of making toothbrushes for Walmart in the US. Its private label ‘Equate’ was something that Goradia’s firm had to work upon quickly. The company now gets 20 per cent of its sales from Walmart. “I had started the toothbrush business 20 years ago to keep my wife busy. Now it has grown big thanks to us meeting the compliance requirements of Walmart,” says Goradia.

On a similar vein, Seetu Sewani of the Rs 10-crore Nitai Clothing says she learnt how to cut wastage to create value from Walmart. “I was designing clothes for a long time and I didn’t know I was wasting garment,” says Sewani. After saving more garment from tailoring, she was able to deliver more and increase margins. She will soon be supplying to the UK’s Asda stores, which Walmart bought a decade ago. “It is all about compliance when it comes to Walmart,” says Chandan Vij, managing director of the Rs 100-crore Harisons and Harlaj in Panipat. Being a veteran supplier of Walmart for the past 25 years, he supplies home-furnishing textile through Bharti-Walmart in India. “We are extremely picky about whom we choose as our vendor,” says Jain. “But once a vendor is approved, he gets a good deal.” Vendors whom BW met concur the difference in Walmart’s treatment.

So far, Walmart has only managed to test its supply chain systems in a fairly limited area — and with largely non-perishable goods. All its cash-and-carry stores are in northern states; the Easy Day stores are also in Delhi, Uttar Pradesh and Haryana. Its first store in the south will open soon in Mysore, and then it can test how well its supply chain works when stretched across the country.

The other hurdle lies in fresh fruits and vegetables, which form 30 per cent of Walmart’s turnover (only in cash and carry) here. It works with 600 farmers in Punjab to source vegetables and fruit for the cash and carry and Bharti-owned stores. Though Walmart works with farmers, Indian laws do not allow it to engage in large scale contract farming as it does, say, in the US. This could prove troublesome once laws allow it to go straight to the consumer. So far, the segment has been the Achilles heel of many retailers, including Reliance Retail.

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The Edge, And The Challenges

Should Walmart’s slow but methodical progress worry home-grown retail majors such as Pantaloons, Aditya Birla Retail, Reliance Retail and RPG Retail? It would seem ridiculous. After all, lobbying as well as political sentiments have prevented retail from fully opening up to FDI. Global giants such as Walmart and Carrefour can only operate in the cash-and-carry segment here. Also important is the fact that Indian retailers have built significant operations, while Walmart’s presence is still small in the country.

Scope for growth of modern retail in India

But a few analysts feel home-grown chains have spent much time in getting their front end operations correct and in building brands, but they have neglected building supply chain systems that can stand the onslaught of Walmart. Kishore Biyani’s Pantaloons, for example, has a bigger vendor base — over 3,000. But it has not integrated them with its own sales capture data. Even though it has its own logistics company, Future Logistics, analysts feel it lacks the sophistication of Walmart’s logistics.

Biyani is yet to integrate his 22 warehouses, vendors and the 1,000-plus stores in one seamless network. Biyani refused to comment for this story, though sources say his possible tie up with French retail chain Carrefour could see the Future group adopt similar strategies.

“Indian retailers focus on reconciliation of stock and don’t let us know how much is the actual demand,” says a supplier. Reconciliation of stock in retail means that retailers do not know how much should be supplied to each front-end store. Orders are based on consolidation of all stores combined. It is ordered by a central team sitting out of corporate offices. Analysts say some Indian retailers order more and send back excess stock. The supplier then has to bear the brunt for inventory.

“Retail business in India is complex due to diverse consumer tastes that not only vary from one state to the other, but also within a state,” says Pravin Adik, senior analyst of global retail at Data Monitor. He says technology and certain other practices help Walmart boost efficiency. The processes include automated distribution, computerised inventory systems, sophisticated barcode technology, hand-held computers, cross-docking, significant customer ties, handing over benefits to customers through lower prices and providing choice of products.

The other chain that does supplier management is Shoppers Stop, where store sales data are captured with vendors so that they know what to order and when. “This brought us out of the bad spell in 2008. Investment in our own technology has helped us build the business to what it is today,” says Govind Shirkande, CEO. He adds the firm’s customer loyalty programme can study two million members.

Analysts say Tesco, which has a tie up with Tata’s Star Bazaar, is already working on a plan to handhold vendors and integrate stores. Tesco’s first cash-and-carry will hit India early next year. Large retailers such as Spencer’s and Aditya Birla More too have access to warehouses and work with farmers, but they focus on building the front-end side of the business. The little known Namdhari Fresh, a seeds firm in Bangalore, has been able to integrate the entire supply chain too. It owns more than 300 acre farmland and has three cold rooms. But it works with retaliers in the UK to supply baby corn, chillis and red peppers. The group is quiet in India, with some 15 stores around Bangalore; 30 per cent of its Rs 200-crore turnover comes from retail.

An Uneasy Future For All
About four years ago, several analyst reports called for a coherent effort to cut costs because of a multiple supply chain in India. “There are distributors and sub distributors in India who add to the cost; cash-n-carries and retailers will eventually bypass them and offer discounts to consumers,” says Pinaki Ranjan Mishra, national leader of consumer practice at E&Y. He adds that Indian retailers have focused on building the front-end brand because of India’s supply-side problems. It is a very different business model, which has its merits, he notes. Rightly so, as Indian retailers could not work with farmers and the primary driver of the retail business for attracting customers to the store was food.

Constraints such as corporate houses not being allowed to hold more than 11 acres of farmland, being disallowed to contract with farmers in some states was too hard to crack. Even if some got permission, they have to pay a mandi cess of 4-5 per cent of the cost of the total produce sourced. Now, that is why Walmart has focused itself to working with 600 farmers in Punjab only and not in other states, where the government encourages cash-n-carries.

What does this mean for foreign retailers, even if FDI opened up? Walmart will still have to contend with the Agriculture Produce Marketing Committee (APMC) Act not being amended in each state. So, its front-end stores will still have to source from mandis and will not have an edge over kiranas to mark down prices. Also the APMC Act specifies the rules and regulations for contract farming and has been the trump card of chief ministers to win elections in a bad year.

Analysts say much of the complexities are exogenous, which retailers can’t control directly. “The remedy is to plan, set up and manage supply chain, distribution and logistics efficiently to cut operational costs, which will give them control over margins in the short term,” says Devangshu Dutta, CEO of Third Eyesight. “They have to adopt strategies to build close ties with customers and position themselves well in the demanding and price sensitive market.”

Globally, Walmart believes in the supply side of the story to be a winner in the long run. Analysts add that there needs to be a convergence of the back end and the store front as consumption would be large over the next decade. “FMCG firms have built the supply chain in India through the cluster-based approach. They tied up with vendors on the supply side and the wholesale side in every state,” says Sanjay Badhe, a retail consultant. Maybe Indian retail could have lost less money if such an approach was consistent. Indian retailers have got it right with products, but they have not been able to understand technology to map customers and manage inventory. Reliance Retail, with more than 900 stores, got it right in categories such as milk (longer shelf life), but failed in fruit and vegetable. Spencer’s got the customer segmentation right, but failed to generate sales as the 3,000-sq. ft super market stores could never compete with kirana stores. Now, it is down to 250-odd stores; it had shut down 200 stores. Then, Aditya Birla’s More too shut down 100 unviable stores and opened another 100 quickly. With 630-odd stores, it has stopped expanding and is now increasing vendor base from 45 currently to 100 for its private label.

Of course, the retail industry in India is still a work-in-progress. Walmart is pursuing one end of the Indian retail puzzle, while most Indian retailers are focusing on the other end. The great battle will start when the FDI rules are finally relaxed. Till then, Walmart is content building up its backend and perfecting its systems.

THE GAME-CHANGER
‘Modern Retail Will Not Kill Kiranas’

Bharti Group believes retail could be a game changer for India only if foreign direct investment kicks in. Bharti-Walmart chairman Rajan Mittal speaks to Vishal Krishna.

You connect back end and front end with technology. It is uncommon. How did it happen?
When we tied up with Walmart, our goal was to learn from them, as retailing is their life. Technology is important; it tells you what is really happening in the store. Retail is a business of thin margins and you should know about the costs incurred. Walmart’s motto is to “save money – change lives”. And that is possible with understanding customer needs through technology. From our telecom experience, we understand that the customer is very price sensitive, and with our partners in retail we hope to understand how we can do it in retail.

FDI in retail is yet to happen completely. What are the losses from the delay?
You cannot build supply chains overnight, it will take five years (to build it) and five more years to perfect it. At least 60 per cent of the logistics in developed countries is operated by third partiesa for retail. Here, large logistics companies will not operate as there is no scale. We talk about food shortage and wastage in our country; this can all change when FDI opens up. Retail will create jobs at every level — for high school drop-outs and also at management levels. The government should look at the debate differently. Modern retail will not kill the kiranas. In developing economies such as Brazil where they opened up to FDI 20 years ago, modern retail is only 20 per cent now. FDI makes the chain efficient and will benefit the whole ecosystem.

Will the Agriculture Produce Marketing Committee (APMC) Act impact retail in India?
States in our country should be progressive and must understand that agricultural needs ideas now more than ever. Gujarat and Punjab have been proactive in allowing corporate farming or even contract farming for large scale efficiencies in making the land yield better quality produce. So APMC Acts should not become impediments to retail or any industry that wants to work on large scale farming that will benefit the economy.

How do you see modern retail pan out in the country?
We are a young industry, and we need more people in this market to become large retail companies. It is not about one player changing retail. This is a national cause, modern retail will benefit all in the long run.

This article originally appeared in Businessworld, (Issue Dated 20 Dec 2010.)

Perishable Value Opportunities

This article is based on a presentation at the 2nd International Summit of Processed Food, Agribusiness and Beverages, organised by the Associated Chambers of Commerce (ASSOCHAM) and supported by the Ministry of Food Processing, Government of India. The presentation was made to a mixed audience of retailers, manufacturers, farmers, government functionaries and service providers, and rather than provide answers, the objective was to raise questions that were not being discussed.

The old saying goes: where there are issues, there are opportunities. By that standard, the perishable commodities supply chain offers plenty of issues and, hence, opportunities.

Part of the problem, or opportunity, is that there are so many steps between the farmer and the consumer, so many hands through which the produce passes, especially in the case of India. With every step in this supply chain, there is the potential of waste and deterioration with time, and on the flip side, there is also an opportunity to add value and improve.

Misalignment on Motivation

One core issue, at the heart of most problems with the perishables supply chain, is widely different perspectives and the lack of alignment.

For instance, there is competition at the basic level between cities and villages. But there is even misalignment between the development needs of ever-growing cities that are taking over neighbouring agricultural lands, and the need to feed people living in those very cities. Similarly, the motivations for small sustenance-driven landholders are different from those of the wealthier farmers with large holdings. And, of course, within the supply chain, the tug of war is between consumer vs retailer, retailer vs brand, brand vs producer.

This is but natural in any economy, even more so in India whose rapid growth is widening the already existing gaps and intensifying the inherent disconnects.

Misalignment on Value

However, there is also another significant potential misalignment, of which we need to be keenly aware. This is in the very definition of value.

Given that we have been discussing “value-addition” as a driver for the food supply chain, I think we also need to understand that the word value has various connotations and implications, depending on who we are speaking about. Each throws up different challenges, and needs to be dealt with differently.

In my mind, the three aspects of value related to the food sector are:

  • Calorific
  • Nutritional
  • Economic

The complication is that these three aspects address three very different audiences in society.

For a large part of India’s population, simply providing adequate calories is the main problem. For this chunk of people, not only do we need to have more productive land under use, we need to maximise the output from each piece of land, and ensure that the productive output reaches the population that needs it the most. Within that, there are several social, political, logistical and economic challenges to tackle: clarity of land-holding, availability of arable land to agriculture rather than non-agricultural uses, unit area productivity with efficient use of other resources, safety during transportation and storage, and distribution at prices that are affordable.

Nutritional value is the next step up: packing more nutrients into each gram of produce and delivering the right mix and balance is a critical issue for consumers who get enough calories, but can benefit hugely in physical and mental health through the quality of the nutrition they are taking in.

In pushing up both calorific and nutritional value, we also run into two entirely different debates.

One is whether genetic modification (GM) is desirable. The argument against GM foods is that we shouldn’t tamper with the most basic building blocks of biology, because we don’t understand the implications completely. The powerful argument for GM is that it is a must, to ensure that we have enough and ever-improving food available to a growing population.

The second debate is about organic produce. The organic camp believes strongly that organic is better, nutritionally superior. The other side argues that organic delivers no clear demonstrable increase in either calories or nutrition, and instead pushes production down and prices up: a recipe for complete disaster in a growing country.

But most interesting to me is the fact that in most industry platforms such as this, when we speak of “value-addition”, it is neither calorific nor nutritional value that is being targeted, but only economic value.

Obviously, companies are profit-driven by their very nature, and if calorific or nutritional value does not deliver economic value to them, they will not focus on those aspects. For that reason, most companies engaged in or being encouraged to participate in the food supply chain do so through food processing: the transformation of the basic produce into a manufactured packaged product with higher economic value per gram. A thinking consumer may be tempted to ask, am I getting proportionately better food (especially more nutrition) for the extra unit value that I am paying for orange juice (as compared to oranges), ketchup (as compared to tomatoes) or chips (when compared to potatoes)?

My concern is that such a deep misalignment in the definition of value can cause a huge amount of friction and potential politicisation, especially if only one aspect of “value-addition” is constantly in focus.

Misalignment on Losses

I’d also like to briefly comment on another aspect of value: losses.

We’ve all come across the much-quoted “fact” that in India 30-40% of the agricultural produce is wasted. That’s incredible! A country otherwise so frugal pushes a third of its valuable food into the gutters? Can that really be true?

I have not come across any authoritative study that clearly demonstrates that India actually wastes that much food.

Of course, there is wastage due to improper harvesting, lack of post-harvest processing and gaps in the storage and transportation infrastructure. But that figure, depending on what product and part of country you pick, varies hugely and the overall average is nowhere close to the 30-40% figure.

Overestimating the size of the problem leads to overestimation of the opportunity, and that misdirects investment. I think the correct way to look at the issue is not just in terms of value-lost, but in terms of opportunity lost. There is certainly an opportunity for farmers to grow their incomes by ensuring that better agricultural and post-harvest techniques are followed. If harvesting products at the right time, chilling the produce at the farm immediately, adequate sorting and grading, or even the simple act of washing can lead to higher prices for the farmer, I’m all for it.

The opportunities we are missing may be bigger than the waste that we imagine.

The Drivers of Value

Obviously, the technological, political and business mandate changes dramatically, depending on where we want to focus on building value. Is it to increase, improve, protect or change the produce? Are we going to focus on the seed, on growth, on harvest and post-harvest, on processing, on storage, on packaging or marketing.

Given the diversity of the questions, I think the discussion on value should also include – openly – a widely inclusive group. Obviously large corporate retailers, brands and producers, and the various arms of the government would be part of the discussion, but the table should also have room for farmers of every hue, technology innovators that address not just aggregated large land-holdings but also small farms, and platforms that encourage both ultra-modern and traditional knowledge, both from within India and outside.

By focussing on an over-simplified view of “value-addition”, we risk not addressing fundamental issues. In fact, we could be losing sight of humongous opportunities.

In the food supply chain, we are dealing with a product that is perishable; given our economy’s rapid transformation, the opportunities are perishable, too. We should get cracking.

(To download the PDF of the presentation, please click here.)

Airtel’s new logo comes in for severe criticism

Economic Times, New Delhi, November 28, 2010
Ravi Teja Sharma

Airtel is a fairly new brand and is prepared to go through the works. Also, Sunil Mittal still may not be listening to dissenting voices from the public. But why did Airtel decide to rebrand? Mohit Beotra, head of brand and media at Bharti Airtel explains: "We are at a significant stage of evolution at the moment. This brand is now going to be visible on two different continents. This will signal our readiness to change." He adds that the new logo, which has a lower case font in a sharp contrast to the earlier upper case bold fonts, is younger and more dynamic. "We also wanted to be seen as a more humble brand and so the lower case lettering."

Loyal consumers are not buying the idea. Over the years, a number of international brands that have changed their logos have retained uppercase typefaces.

In October, when Gap changed its decades old logo to "a more contemporary, modern expression", it attracted a huge amount of criticism from people on Facebook and Twitter. People wanted to blue box logo back. The result: Gap announced on its Facebook page that it was going back to its old logo.

"The logo has to communicate the brand," says Devangshu Dutta, chief executive of Third Eyesight. Gap’s change in logo was a sudden, drastic one and that was unacceptable to consumers. If we look back at successful logo changes, the majority have been incremental changes, a case in point being the changes Shell made to its logo-9 times over 100 years. "Of course a brand has to change but an increment change makes it more acceptable with consumers," says Dutta.

A logo can create a connect or disconnect with consumers. "With Airtel’s new logo, it certainly seems like a case of disconnect," says Harish Bijoor, brand domain-specialist and chief executive officer of Harish Bijoor Consults.

With these sudden changes, companies run the risk of alienating customers. "Companies that update their logos in conjunction with corporate evolution will be building trust and staying fresh in the minds of consumers as long as the changes are subtle instead of staggering," says Prathap Suthan, national creative director at Cheil Communications.

Some of the best brands in the world have very distinctive logos. If a logo isn’t distinctive, it will not stand out in the crowd. Airtel’s new logo, as many of the tweets and facebook comments point out, looks like a mix of two logos-Vodafone and Videocon. Many comments pointed out that the new logo looks like an inverted Videocon logo.

"Rotating by an angle of 135 degrees will make it look like Videocon logo too," says Nitesh on techbits.co.in.

The new logo, with its new typeface, surely does look young and vibrant, says Bijoor, but it doesn’t have the consumer connect that the old logo did. "It’s too soft. It could merge rather seamlessly into the FMCG space but then Airtel is not an ice cream," he says.

Today, all telecom logos are starting to look alike. Instead of differentiating, Airtel chose to merge into other brands with this new logo. It chose to use the colour red that Vodafone already uses. Does it have anything to do with the fact that the new Airtel logo was designed by London-based agency, Brand Union? The agency also also designed the Vodafone logo.

"And with mobile number portablility just round the corner, it certainly doesn’t seem to be a very good move. For anybody sitting on the fence about using Airtel’s services, it is a nudge to move out," says Bijoor.

In most cases a new logo enhances the brand. "While negative comments in the case of Airtel that we are seeing won’t impact the value of the brand, it won’t enhance it either," says Madhukar Kamath, group CEO and managing director, Mudra Group.

But the new logo with its international appeal is expected to work in newer geographies that Airtel is entering. "A graphic or a symbol is better translated across cultures and geographies," explains Dutta.

The amount of heat generated by this new Airtel logo has really surprised Kamath. "This in a way means that Airtel has a strong equity with people and because of the change they are responding aggressively. There is a strong degree of emotional connect and people are quite concerned." But while there is a great degree of concern, one isn’t seeing too many people on the other side-people who like the logo, which is a problem.

Interestingly, both Kamath and Dutta agree that the first time they saw the new Airtel logo, it didn’t connect.

Another example of dramatic change in logo was that of Videocon that changed in 2009. Abraham Koshy, professor of marketing at the Indian Institute of Management at Ahmedabad explains that brands should change drastically only when there is a very compelling reason. Videocon had that compelling reason. It needed to shake off its old world image and take on multinationals that were ruling the market.

When a brand is doing well and you change drastically, there is a chance that the consumer with a strong brand affinity, as in the case of Airtel, feels offended. "The risk is higher with drastic changes for strong brands," says Koshy. He also points out that a change in branding also needs to show in the actions of the company. Actress Gul Panag’s tweet a few days ago drives this point clearly-Airtel shouldn’t sit pretty and bask on its current glory, but work towards improving its service.

(This article originally appeared in The Economic Times on November 28, 2010)

Britannia, Marico, PepsiCo spot a big opportunity

Economic Times, Bangalore, November 3, 2010
Sarah Jacob

Breakfast is the most important meal of the day. Certainly for several packaged food companies , if not for everyone.

Call it the breakfast war, the scramble to serve the first meal of the day is getting busier with companies such as Britannia, Marico, PepsiCo, Kellogg India and MTR Foods offering more and more options to meet Indian consumers’ rising demand for quick-fix food.

Britannia Industries, which already occupies share of the breakfast table with bread, butter and cheese, is making early moves in the ready-to-cook breakfast meals segment, an official said.

One of the country’s largest biscuit makers, Britannia is conducting trials of packaged products such as buttermilk oats and sweet multi-grain porridge under ‘Healthy Start’ brand, and is also toying with traditional Indian options such as upma and poha, an industry official said. "Healthy Start is being positioned as an umbrella brand for Britannia’s plans in the breakfast space," the person said on condition of anonymity. The brand may be rolled out in Bangalore this year.

Britannia is one among several companies looking to cash in on a surge in demand for quick-fix breakfast options in urban areas where the number of double-income families and working professionals are rising and consumer lifestyle and food habits are changing. These products are targeted specifically at urban, working people and, hence, there is no price undercutting or margin pressure, helping the industry grow in double digits, in volume and value. Industry players estimate the branded breakfast foods market in India at around Rs 500 crore, offering enough room for new entrants. There is a ready market for such products.

A breakfast habits study conducted by Kellogg India last year revealed that at least one in three Indians and more women than men skip breakfast daily. Young girls and children were also opting out of the meal several times a week, the study said.

Packaged food companies spot a big opportunity here. "It is easier for consumers to adopt ready-to-cook meals for breakfast as against other meals because of the need for convenience," says Vidur Vyas, marketing director-Foods, PepsiCo India.

"This consumer is also gravitating towards healthy options while looking out for affordability per serving ," he says, adding that Quaker Oats appeals to the Indian habit of consuming dalia (broken wheat).

Also, the urban lifestyle is changing in line with the western world. "The Indian consumer today is more in tune with the lifestyle of western countries due to growing business travel and media exposure, which has been reflected in apparel and now in food as well," says Devangshu Dutta, chief executive of Third Eyesight, a retail and consumer products consulting firm.

At the same time, there is a good demand for ready-to-cook traditional breakfast. "Morning is the most high-pressure time of the day, particularly for the woman of the family. The adoption of ready-to-cook product is on the rise because she does not feel like she is compromising on the traditional breakfast," says Sanjay Sharma, CEO of MTR Foods, which sells instant breakfast mixes such as rava idli, dosa and uthappam.

The Rs 250-crore company, owned by Norwaybased Orkla Brands, said its breakfast segment sales increased 25% last month and that it expects the contribution of breakfast mixes to its revenues to double to 20% in three years.

In recent months, Marico too entered this segment with Saffola Oats and cereal maker Kellogg India launched Heart to Heart oats to cater to Indian preferences of a hot breakfast.

All this explains Britannia’s move to enter the segment. Analysts tracking the sector say the breakfast meals category would be a natural extension for the likes of Britannia as it provides multiple areas of synergy for the company.

"It would give the company greater sourcing flexibility for inputs such as milk powder and sugar , with volumes giving it the capacity to withstand seasonality," says Anand Ramananthan, manager at KPMG Advisory services. Besides broadening its portfolio with trade, on the demand front, it would help Britannia occupy greater mind space in the healthy foods segment, he says.

Incidentally, quick-service restaurant chain McDonald’s , which enjoys strong equity in the breakfast meal space globally, has also identified the gap in the breakfast market. Its chicken Mexican wrap, muffins and hash browns offering is being rolled out across Pune and Bangalore, beyond Mumbai and New Delhi, in two years. "With 200 restaurants in the country today, we are accessible to the on-go-consumer today," said Amit Jatia, Managing Director McDonald’s India (west & south).

(This article originally appeared in The Economic Times on November 3, 2010)