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Vicarious Pleasures of Awards

We didn’t get an award, but got the chance to give one away — the Coca Cola Golden Spoon Award 2011 for the “Most Admired Foodservice Retailer of the Year: Cafés & Juice Bars” to Costa Coffee (Devyani International). Congratulations also to the other nominees: Café Coffee Day, Jus Booster Juice, Mad Over Donuts, Baker Street, and Coffee Bean & Tea Leaf.

 Presenting the Most Admired Food Service Retailer - Cafes and Juice Bars

Eric Oving (Larive), Virag Joshi (Devyani International), Devangshu Dutta (Third Eyesight)

PHOTO CREDIT: IMAGES MULTIMEDIA

Food Tech Holland Enters India

Images Food , March 28, 2011

The Indian presence of the Dutch supply chain cluster, Food Tech Holland, was formally launched by Ashok Sinha, Secretary, Ministry of Food Processing Industries, at the recently held Food Forum India 2011 in Mumbai.

The Food Tech Holland is a consortium of highly innovative Dutch companies operating in the food sector, providing hi-tech solutions along the supply chain. The technologies provided by the cluster provide its customers a strong competitive edge, resulting in better quality, productivity and efficiency. These technologies can be tailored to the specific needs in the Indian food market. The cluster’s intention is to increase the commercial involvement of Dutch companies in food processing and agro-logistics sector in India.

Sinha welcomed the initiative and encouraged the Food Tech Holland cluster companies to actively participate in the Indian supply chain, including the mega food parks that the government is promoting to create competitive and large-scale food production and processing in the country.

The cluster’s strength lies in its integral approach to the chain, including food processing, cooling techniques, logistics, distribution and food safety. Accordingly, the four areas include Vegetables & Storage (Rijk Zwaan, Tolsma, Kiremko, East-West), Bakery (Capway, Rademaker, Market Food Group), Meat & Processing (Hypor, MPS) and Cooling & Services (IBK Groep, Metaflex, RBK, Partner Logistics).

Some of these companies are already active in the Indian market. These include Metaflex, which is the first European manufacturer of special-purpose doors to set up a manufacturing plant in India, the seed companies East-West and Rijkzwaan (East West already employs around 200 people in its Indian facilities), vegetable storage technology company Tolsma and potato processing equipment company Kiremko.

The cluster is supported by governmental institutions as well as other public stakeholders such as the Dutch Ministry of Economic Affairs, Agriculture and Innovation (LNV), NL Agency, Netherlands Business Support Office (NBSO) and Wageningen University (WUR) and private organisations such as Larive.

The cluster’s launch in India was assisted by specialist consulting firm Third Eyesight, which works with leading consumer brands, retailers and companies in the retail supply chain.

Feeding the Golden Bird

During its history, the Indian subcontinent has been known as the “Golden Bird” for its natural and manufactured riches. In fact, long before the United States of America, India was the Land of Promise. (The irony, of course, is that Columbus also set foot on North America when he was actually trying to discover an alternative route to India.)

However, in the more recent centuries, India became an exploited golden goose which not only stopped laying golden eggs, but also almost appeared starved at different points in time.

The government’s thrust on infrastructure and industrialisation in the 1950s would have been a great base for economic growth, but the country had to wait another 4 decades to see a true boom, which only happened after the government began stepping back from excessive controls. Similarly, while the Green Revolution took India to self-sufficiency in grain and White Revolution made India the largest producer of milk, we are very far from the place where we can celebrate a boom in agriculture.

If anything, the recent economic boom is much more an urban and upper-income phenomenon, and that is creating some serious socio-economic fault-lines, about which I have expressed concern earlier. The growth of income inequality looks slower in the case of India than in the case of China, but that is only because India still has far too many poor people weighing down the decile averages.

My concern today is of a different nature: about the need to secure food and nutrition supplies for the burgeoning economy.

Over the decades, farm-holdings have steadily fragmented. With shrinking parcels, a farming family finds it increasingly difficult to create enough surplus produce to trade effectively. As farming becomes unattractive, the family looks at alternative, primarily urban opportunities to generate income, reducing the hands available to farm.

At the same time, economic shifts are causing increasing urbanisation, as concrete and glass takes over what used to be active farming land. Large cities such as Delhi (Gurgaon) and Bengaluru are prime examples, but the phenomenon is affecting smaller cities as well.

The demographic dividend to which we should otherwise look forward could, therefore, turn out to be a triple time-bomb, with:

  • reduced land availability for farming
  • a shrinking labour force for farming
  • a booming young population driven to building, manufacturing and service jobs, that needs to be employed and fed as its income goes up

The employment issue needs to be addressed by placing adequate emphasis on manufacturing (especially labour intensive products) and entrepreneurship, but without addressing agriculture, even this growth would unsustainable.

Also, India is at the inflexion point similar to where China was in the 1990s. The increasing income is leading to changes in food consumption. Not only is the overall consumption growing, the diet is broader and more balanced, as people are able to afford a greater variety of food. There is a growing consumption of milk, meat and poultry products, as well as processed foods (per capita of processed foods quadrupled from the late 1980s to the early-2000s). All of these require more inputs (land, feed, water, and fertiliser) per unit of food produced.

We may be tired of hearing this, but Indian farm productivity continues to be among the lowest in the world. For instance, India as the largest milk producing country is still only at about half the level of milk production per head of cattle, when compared to the global best. Similar comparisons can be made across the food supply chain.

There are three legs to create a change: technology, dissemination of information, and market demand.

There is an urgent for technology infusion across the chain, from seed to shelf. Technology doesn’t only mean tinkering with the genetic code (about which there are significant sensitivities). Traditional technologies that are centuries-old can be as effective, sometimes even more so, as technologies that come out of modern labs. If we can avoid taking a “fundamentalist” approach between modern and traditional, we will probably achieve much more, and faster in cultivating and harvesting more efficiently.

Information dissemination is vastly superior today, and with the convergence of internet and mobile technologies, not only is it possible to compile ever more information, but also spread it in regional languages very cost-effectively.

But these two alone will not be quick enough. The last, but possibly the most important leg, is market demand.

For obvious reasons, manufacturers and retailers are focussed on growing their brands, sales and driving per capita consumption. I would argue they also need to look equally critically and perhaps more urgently at the supply chain.

Without seeing the farmer and the processors as true partners in the supply chain, and ensuring them a productive existence, any victory on the market or brand-side will only be hollow.

As customers, retailers and brand manufacturers not only have the weight, but the sophistication to encourage development. Retailers and brands have the power to drive change. They must also assume the responsibility. A few of them have begun showing the way, but need support from many more. Urgently.

Group buying sites eye expansion

Business Standard, Mumbai March 20, 2011

BS Reporter

Group buying websites, mostly launched in the last one year, plan aggressive expansion as they see record traffic for their offerings.

Group buying websites put up deals offered by merchants on various services and products for a limited period, say for 24-72 hours and offer discounts of 30-80 per cent.\

However, there have to be a minimum number of people, between 5-20, before a deal can go live, when deals are made available. Offers are normally made on gyms, spas, restaurants, travel and so on in services and on various products. Websites get certain commission for the goods sold.

Delhi-based Snapdeal.com plans to to start its operations in 100 cities, up from the current 45, by the year-end, according to its Chief Executive Kunal Bahl. Bahl says the one year-old online venture is growing 150 per cent month-on-month and claims to have a 70 per cent market share among group buying websites. “Currently we have 350 employees and are adding 50 people every month,” Bahl says.

“These kind of websites make sense for India where consumers are value conscious. While consumers gain from these offers, it helps merchants to utilise their excess capacity and promote their services and samples,” says Guneet Singh, former director & co-founder, dealsandyou.com.

John Kuruvilla, Chief Executive and founder, Bangalore-based Taggle Internet Ventures, which runs eight month-old group buying site taggle.com, says, “The business has been exceptionally good. Traffic quadrupled in the last two months. We expect similar growth in the coming months.” Kuruvilla now wants to launch the service in 20 Indian cities in the next two years.

On March 15, 2011, Taggle launched the service in eight cities such as Ahmedabad, Pune, Delhi, Kolkata and others with products offering. The company wants to offer services in these cities shortly, Kuruvilla says. Currently, it operates in 10 cities. Other sites such as koovs.com, dealsandyou.com and groupon.in are also expanding their operations across the country.

Analysts say the group buying website space in India is expected to see a lot of action, with the entry of Chicago-based Groupon which bought Kolkata-based SoSasta.com early this year and launched its operations.

Groupon, one of the world’s largest group buying sites, was in the news last week for seeking a valuation of as much as $ 25 billion ahead of its initial public issue this year. The two-year old Groupon, which provides daily discounts online, now has 70 million users and reaches more than 500 markets in US, Europe and others.

However, the segment has its share of challenges too. “Since it is a relatively new model, the firms have to spend a lot on getting traffic on a consistent basis. Not everybody can get the returns on the capital employed,” says Devangshu Dutta, chief executive of Third Eyesight, a retail consultant.

Guneet Singh says hyper competition and wafer thin margins may pose additional challenges for the existing players. “Gross margins are between 10-15 per cent and firms have to factor in IT costs, people costs and so on. Most end up making negative net margins,” Singh says. “Most of group buying sites are clones of Groupon. Somebody needs to come out with a clear differentiator,” says Singh.

Retailer-manufacturer slugfest resurfaces

Business Standard, Mumbai March 18, 2011

Raghavendra Kamath & Viveat Susan Pinto

Cost pressure and conflict over margins see products of companies like Reckitt Benckiser taken off shelves.

The racks meant for toilet cleaners at Future Group’s Big Bazaar outlet in Lower Parel, Mumbai, are filled with Hindustan Unilever’s (HUL’s) Domex, Future’s own Clean Mate and other brands. The one missing in the segment is Reckitt Benckiser’s popular product Harpic.

The case is the same in the section meant for handwash liquids. Here, HUL’s Lifebuoy gets most of the space, then come Future’s Caremate, Colgate-Palmolive and others. Here also, Reckitt’s Dettol is missing.

“There are some issues between us and Reckitt. We are not stocking their products,” says a salesperson at Big Bazaar.

The margin “issue” between retailers and manufacturers has resurfaced big time — whether between Reckitt and Future or consumer durables giants and Tata group’s Croma.

After Reckitt wrote to retail chains saying it would cut their margins two per cent to offset the increase in input costs, Future Group held back purchases from the FMCG company, while others expressed their intent to follow suit.

A senior Future executive tries to play down the issue: “We believe we will be able to find a middle ground.”

Chander Mohan Sethi, chairman & managing director, Reckitt Benckiser, remained unavailable for comment.

Such fights are not new for Future Group. In early 2007, it had boycotted Pepsi’s Frito-Lay products over commercial terms, including margins. About two years ago, it had pulled Kellogg’s off its shelves at Big Bazaar outlets after the breakfast cereal maker refused to increase margins.

Though retailers as well as manufactuers agree that costs have gone up in the last one-and-a-half years, putting pressure on their margins, both the parties say the other side should work better on efficiencies.

“Manufactuers tend to pass on their inefficiencies in the supply chain by squeezing retailers’ margins. Many consumer durables and FMCG companies can do much better on this front,” says Vineet Kapila, chief executive officer, Spencer’s Retail.

Thomas Varghese, chief executive of Aditya Birla Retail, adds: “We are actually subsidising costs. If the cost of keeping goods is 24 per cent, many companies are giving only 16-18 per cent margins. Only those who give 27 to 28 per cent margins help us make some profits.”

But manufactuers have a different take on this. “Modern retailers should manage their costs better. While they are well within their rights in demanding higher margins, the point is whether it is acceptable. I think they need to manage efficiencies better,” says Ravinder Zutshi, deputy managing director, Samsung India.

Manish Sharma, director (marketing), Panasonic India, agrees: “Modern trade retailers typically have high overheads, since they are into providing a better consumer experience. Steep rentals, better ambience, hiring costs, training and development — all push up overheads. This puts pressure on margins.”

Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight says the conflict between the two parties is “inevitable”, given the increasing cost burden.

Modern vs traditional trade

Manufacturers and retailers also differ over the contribution of modern trade to manufacturers’ volumes.

The percentage of consumer goods sales coming out of modern trade in India is about 8-9 per cent for a manufacturer, while traditional trade contributes the lion’s share, at 87 per cent. The remaining 4-5 per cent comes from company-owned outlets.

Compare this with China, Thailand or the US and Europe. It varies significantly. In China, the contribution to sales from modern trade is close to 30 per cent. In Thailand it is a whopping 50 per cent, while in the developed economies of the West, including the US and Europe, it is close to 70 per cent of total sales to a company.

“Naturally, modern retailers there have better bargaining power,” says K S Raman, director of Videocon-promoted Next Retail, a durable and IT chain. “Typically, the margins commanded by modern trade retailers and traditonal retailers vary in these countries. You have different yardsticks for the two and different teams that manage the two distribution channels,” he adds.

While Indian companies are also beginning to understand the importance of having separate teams to service the two distribution channels, when it comes to margins, the relationship remains frosty between manufacturers and modern trade retailers.

Ajit Joshi, chief executive officer & managing director, Infiniti Retail, which runs the Croma chain of stores, says: “The issue of margins is a serious one. We all wish to make profits. And, if a retailer is helping the manufacturer achieve volumes, besides helping him save costs, why can’t some of those savings be passed on to us.”

Ashish Nanda, partner, Ernst & Young, says: “The moot point here for manufacturers is to view their channel partners as business partners. The trouble begins when the relationship becomes transaction-based, not collaborative.”

Next Retail’s Raman says: “With the bulk coming from traditional trade, modern trade retailers tend to get side-stepped.”

Though both modern and traditional retailers enjoy margins of 8-18 per cent in consumer durables, the increase in costs of the former has led to a squeeze in their margins, bringing them down to about 4-5 per cent.

“As you keep increasing market share, you will ask for more margins. The balance in power will shift from manufacturers to retailers,” says Varghese of Birla Retail. “For instance, in CDIT (consumer durables and information technology), the modern trade contributes 15-20 per cent,” he adds.

Spencer’s Kapila argues, since modern trade saves the manufacturer the need to pay for the wholesaler’s margins, promotion expenses, warehousing costs and so on — which adds up to 20-25 per cent of product costs — retail chains would be more than happy if manufacturers pass those savings on to retailers as margins.

“Discussions on margins is an ongoing process, which is going to continue for the rest of our lives. Today, throughput required for break-even is very high. That’s why margins have become critical,” says Raghu Pillai, chief executive and executive board member, Future Group, who looks after the consumer durables format. “It is not correct to say that modern retailers do not give enough throughput to manufacturers. In urban centres, retail chains are giving large volumes. If they are able to convince manufacturers, there is room for passing on some margins to retailers,” Pillai adds.

But not all manufacturers are on a collision path with retailers.

GCPL Chairman Adi Godrej said: “We have no plans to cut retailer margins. Though organised trade comprises 8 per cent of our total offtake, it is still small.”

Though Nitin Paranjpe, managing director, Hindustan Unilever, declines to get into specifics, he says: “We have excellent relationships with all our modern trade customers. There are challenges, but we work together to create value. This creates win-win opportunities for both us and them.

Indian retail sector to see fast expansion and consolidation

China Daily , Mumbai, March 16, 2011

Xinhua

The fledging retail sector in India will enter an expansion period and witness large-scale consolidation with increasing competition especially from international players, said a report by retail consultancy firm Technopak Advisors on Wednesday.

Technopak Advisors forecasts that there will be more movements of retailers to smaller cities and rural area and over 25 to 30 retail companies in India will post one billion U.S. dollars of revenues.

Speaking at Consumer Investment Summit 2011, Saloni Nangia, the senior vice president of Technopak Advisors said there could be some concrete steps by the government to lift the ban on foreign investment in Indian multi-brand retail businesses within 2011.

Saloni Nangia said there could be some consolidation of local retailers by foreign rivals after five to eight years of the opening-up of Indian multi-brand retail sector.

Now, India doesn’t allow foreign companies to open or hold share of multi-brand retail stores with single-brand retail business accessible so as to protect domestic employment. "We definitely will invest in retail sector once the ban on foreign investment is lifted," said Shankar Prasad, senior vice president with private equity company Everstone Investment Advisors.

Still, local retail companies also have big plans to grow and they have the advantage of knowing their customers better in the diverse Indian market, said Devangshu Dutta with Third Eyesight, retail consultants.

The most promising retail formats will be super-markets, specialty stores for large Indian cities and hypermarkets, cash and carry stores as well as category killer shops for the rest of India with more spacious settings, according to the report.

Convenience will be key for modern consumers who prefer "all-under-one-roof" malls and non-store shopping via the Internet, TV and others, the report said.

Retailers should not only pay attention to price, but also fashion, quality, convenience, service, experience, innovation and other elements to offer right "value" to customers.