Agarwal, MINT (A Wall Street Journal Joint Venture )
May 26, 2011
Major Brands (India) Pvt. Ltd, the local franchisee for fashion apparel and accessories brands such as Mango, Aldo, Charles & Keith and Nine West, will form a joint venture with French womenswear retailer Promod.
This changes the existing franchise agreement between the two. Both firms will raise their investment in the brand locally, said Kamal Kotak, country head, Major Brands. Promod will hold a 51% stake in the venture and Major Brands the rest.
India has nine Promod stores, and contributes less than 3% of the brand’s global revenue. The venture will set up 40 stores in the five years, with contributions from the region expected to account for 15-20% of Promod’s global revenue, Kotak said.
The venture will also explore opportunities to raise sourcing from India for Promod’s global operations of more than 900 stores. It may also consider price cuts in India.
In the past, brands such as Marks & Spencer and Ermenegildo Zegna have changed from franchisee operations to joint venture partnerships. Both the brands have tied up with Reliance Retail Ltd. Marks and Spencer, which entered India in 2001, also cut prices by around 30% and started sourcing from the country when it formed its venture with Reliance Retail in 2008.
In the past three-four years, the business model has changed for such businesses, said Devangshu Dutta, chief executive officer, Third Eyesight, a consulting firm focused on the retail and consumer products sector.
“Earlier in the 1990s, the preferred route to enter India was (being a) licensee as import duties were high,” he said. “Then, in the last decade, it changed to franchise, and in the last three-four years, it’s a joint venture as India becomes a strategic market for global marketers.”
Major Brands has 80 stores and a portfolio of 10 brands across women’s fashion, footwear, accessories and kids apparel, Kotak said.
“By 2015, the company plans to have 500 stores and revenue of Rs.1,000 crore,” he said. For fiscal 2011, the firm’s revenue grew 40% to Rs.200 crore. Kotak declined to give details on profit made by the privately held firm.
“Over the next 12 to 18 months, we will add four-five new brands to our portfolio,” said Kotak, who is in talks with some 10 European and US brands that are looking at an India presence. He didn’t name any of them.
Major Brands launched its apparel brand Queue Up late last year. It will launch kidswear brand JFK later this year. On average, the investment for a 1,500 sq.ft store is Rs.80 lakh to Rs.1 crore.
“In next 12 months, we will invest Rs.50 crore for expansion,” said Kotak. The capex will come from promoters’ equity and bank debt.
Earlier in the year, Spanish brand Mango appointed DLF Ltd as another franchisee as it sees opportunity for growth. Mango, which contributes close to 25% of Major Brands’ revenue in India, has tripled the number of stores and turnover in the past five years. “We believe that India will be within our top 10 countries in terms of turnover in 2015,” Daniel Lopez, managing partner and deputy general manager of Mango, said in an email. Globally, Mango has 1,400 stores and a revenue of €1.27 billion.
Krishna , Businessworld
May 21, 2011
Six years ago, when B.S. Nagesh, the then managing director of Shoppers Stop (SSL), started mentoring Govind Shrikhande to become the next head of the company, the world was a different place. SSL, which revolutionised organised retail more than a decade-and-a-half ago, ruled. Competition from new kids on the block — Westside, Lifestyle and Pantaloon Retail — was little, while the company’s healthy profits were simply the icing on the cake.
Nagesh had the luxury of taking things slow. As the company catered to the premium segment of society, it made sense to set up shop only in the right demographic areas, and get the fundamentals of the concept right.
However, things changed before long. Future Group’s Pantaloon opened its 40th standalone store, while SSL was still at its 24th. Then SSL was hit by global recession — buyer sentiment dipped, and in 2008-09, it posted losses of Rs 65 crore. Consumers downgraded purchases, which affected SSL’s profits more than its rivals’ who catered mostly to comparatively lower-income groups. Shrikhande, who took over as managing director of SSL from Nagesh in July last year, now had a loss-making company on his hands, and it was time to introspect.
Even as he stuck to higher-value brands, Shrikhande took a relook at everything else — from rentals to marketing costs. The result was that operating costs fell from Rs 400 per sq. ft in 2008 to Rs 100 per sq. ft in 2010-11. “The company has since reworked the business model. It has control over its working capital expenses and is low on debt,” says Shrikhande.
Next on the hitlist was high inventory costs. SSL earlier worked on the buy-out model of sourcing — merchandise was bought from brand owners at factory price and SSL solely managed the inventory. This meant that it was stuck with unwanted stock and incurred huge inventory costs when sales fell — also a big reason behind recession taking such a toll on SSL. In 2009, Shrikhande introduced the consignment model, where vendors manage inventory, while SSL picks up only those items that sell in the store. Nearly 80 per cent of the revenues now come from the consignment model.
“Top apparel retailers have succeeded this year because they have been managing their merchandise better. Controlling cash outflow from inventory has helped them make a comeback,” says Pinakiranjan Mishra, national leader for consumer practice at Ernst & Young (EY).
The comeback translated into SSL posting net profits of over Rs 75 crore in 2010-11. In the March quarter, its topline grew by 60 per cent to reach Rs 662 crore, though net profits were down to Rs 7 crore. In comparison, Trent’s Westside grew 34 per cent and posted net profits of Rs 14 crore for the same period. Pantaloon, which follows a July-June year, posted net profits that was only 2 per cent of the Rs 1,032 crore turnover in the third quarter.
(Click image to view enlarged version)
SL also enjoys a low debt-equity ratio of 0.69 and an interest
cover of 10.51 times (that is, it has sufficient cash to pay interest
on debt). It also has a healthy debt service coverage ratio (DSCR)
of 1.63 (that is, there is enough cash to run the business after
paying off interest and debts). If the DSCR falls below 1, a company
has to dip into promoter funds to pay off debts.
The Counter’s Open
SSL is now back in the black and Shrikhande wants to ensure that it stays there. He has built a strong analytics team, which helps make sense of the data collected from stores. The data is used to predict customer behaviour and select merchandise accordingly. It also helps the company tell brands the kind of merchandise they ought to stock with SSL. This lowers inventory costs and increases margins.
The company also has a revenue-share agreement with brands where they work on a shop-in-shop model, within the store. The inventory risk is shared and SSL benefits from increased revenue if the brand creates enough churn. For example, says 42-year-old customer Bandana Narwal, a self-confessed SSL fan: “Shoppers Stop has more international brands that connect with my work profile and lifestyle.”
The company’s loyalty programme, First Citizen, has over 2.5 million members and analysing their buying patterns helps promote sales. “This allows us to plan our offers and discounts, and target consumers better since 80 per cent of our sales happen because of the loyalty programme,” says Vinay Bhatia, vice-president of marketing.
SSL, which has over 700,000 fans on Facebook, uses the social networking site to promote new styles. In fact, it even has plans of making a mobile app, though that is still some time away.
An area in which SSL lags and which Shrikhande is now concentrating on is private labels. At present, private labels form only 25 per cent of SSL’s total sales, compared to over 80 per cent for Pantaloon, Trent and Lifestyle.
Devangshu Dutta, CEO of retail consultancy Third Eyesight, maintains that private labels should form a large part of the offering as their margins are at least 60 per cent of the retail price. They also attract more customers.
“I shop a lot at SSL, but I prefer Lifestyle because of
their private labels, which fit my monthly budget of Rs 3,000,”
says Rekha Sebastian, a 23-year-old MBA graduate who has recently
begun work in an HR company in Chennai.
Starting Something New
While Nagesh’s strategy was to go slow, Shrikhande is in a hurry. The total number of SSL stores has risen from 24 in 2008 to 38, with six added in 2010-11 itself. SSL now controls 2.3 million sq. ft of retail space, up from 1.3 million sq. ft just three years ago. What’s more, in the next 30 months, SSL plans to take the total number of stores to 60, covering over 3.6 million sq. ft, with an investment of Rs 442 crore, most of which will come from internal accruals.
Of course, competitors, too, are expanding. Lifestyle plans to have 58 stores in three years, from 28 now. Pantaloon, too, is gunning for a similar number, up from 50 stores. In terms of size, Pantaloon has about 15 million sq. ft now, SSL 2.5 million sq. ft and Trent Westside about 2 million sq. ft. The companies plan to spend about Rs 500 crore each over the next five years on expansion.
At stake is the Rs 60,000-crore organised apparel market. The size of the entire Indian retail industry, say experts, is $400 billion. According to EY, organised retail is about 6 per cent of this pie, of which apparel retailers make up 50 per cent. “I expect organised retailing to be around 10-12 per cent in five years. Our business opportunity is growing within this pie,” says Shrikhande.
Although investment and the store count for SSL is similar to its competition’s, execution plans are different. While retailers such as Pantaloon and Lifestyle are increasingly focusing on Tier-2 towns, SSL aims to stick to the top eight or 10 cities including Pune, Bangalore, Hyderabad and the four metro cities. “We will open in Tier-2 cities, but since 75 per cent of the sales come from metros and Tier-1 cities, we have decided to increase our presence here,” says Shrikhande. SSL will open nearly 80 per cent of the new stores in the top 24 cities.
“Our target customer is a family; we are building business
around them,” says Shrikhande. On the cards is expansion
of its hypermarket format, Hypercity, which has nine stores now
and is yet to break even. The company operates large format stores
(55,000-100,000 sq. ft). SSL will use most of its internal accruals
to open 17 more such stores over the next two years at an investment
of Rs 100 crore. The number of Crossword bookstores is likely
to increase from 65 to 110 in three years, and that for Mac —
a high-end cosmetics joint venture with Estee Lauder — from
17 to 30 by 2014.
One part of the plan is also to expand its cash-guzzler, Home Stop, a home décor store on the lines of Pantaloon’s Home Town, to six stores. In 2009, when there were only four Home Stop stores, expansion was put on hold. “Furniture retailing slowed down two years ago, but we see it picking up again,” says Shrikhande. The company plans to invest Rs 60 crore on this.
Over the past few years, SSL has moved into speciality retailing also. Today, it has 25 Mothercare stores, a maternity and infant care store that started out as an exclusive franchise agreement with Mothercare UK. It has also made a foray into airport retailing and runs duty-free stores at the Bangalore international airport under a joint venture with the Nuance Group. The company is even looking at the entertainment sector and has bought 45 per cent stake in an entertainment and gaming outfit called TimeZone.
Shrikhande sure has his hands full.
(This article appeared in the Businessworld issue dated 30 May 2011.)
Businessworld, May 20, 2011
The buzz at Dabur is Real this summer. It has just roped in Zlata Creative Design, a brand consultancy from Down Under, and spent close to Rs 18 crore to give a booster shot to its two fruit-juice brands — Real and Real Active. Krishna Kumar Chutani, vice-president for marketing at Dabur, says fatigue was the trigger: “Consumers have been looking at the same juice packs for over 10 years now.” It has also added Real Fibre for that nutritious zing.
Now, there’s nothing to beat nimboo-paani (lemon juice) when it comes to matters of thirst. But Real’s market share is juicier than its rivals. Elara Capital puts it at 52 per cent. Right behind Dabur is PepsiCo’s Tropicana at 35 per cent. The remaining is shared by others such as Coca-Cola’s newly launched Minute Maid juice, Parle’s Saint Juices and some local brands that are still warming up. (This market share is for the juices/nectar category only — beverages with 25-85 per cent pulp concentrate.)
On The Shelf
Sure, the thirsty swig more cola. It packs more than a fruit-punch in the annual Rs 10,500-crore beverages mart. The fruit-based beverages market is much smaller at about Rs 2,000 crore. Fruit juice sales come in at a shade over a third of this at Rs 750 crore. But fruit beverage is seen as the next big squeeze. It is growing at a healthy clip of 25 per cent year-on-year as against carbonated beverages that is growing at 22 per cent per annum.
The bet is on the growing pool of the health-conscious that believes fruit drinks are the real big chill. Godrej’s Nature Basket, which caters to the higher end of the market through its 13 retail outlets, has witnessed a 4:1 sales ratio between fruit and aerated drinks. It also vends high-end imported juice brands from the US and South Africa such as Ceres, Pfanner and Florida, priced anywhere between Rs 125 and Rs 250 for a litre as against Real and Tropicana, which fall in the range of Rs 85-Rs 90. “Consumers are more than willing to pay for these brands. Juices have constantly outdone other drinks. It is an obvious market preference where our health-conscious consumers opt for juices,” says Mohit Khattar, managing director at Godrej’s Nature Basket.
Homi Batiwalla, director-juice and juice drinks at PepsiCo, would like some of that business come his way. “Fruit drinks are the next big thing and we are constantly investing in better technology to get the best out of this market.” PepsiCo might have held back from repricing Tropicana this year, but it has tweaked the way it hawks its mango drink Slice, which will now be sold — the only one at that — at three price points. You still get to gulp down from the 200 ml tetra-pack; there’s also a bigger-gulp 350-ml Slice priced at Rs 22. PepsiCo has also upped the price of its 500 ml bottle by Rs 3 to Rs 28.
For Spar, a chain of 14 hyper-markets run by Max Hypermarket India, a consumer tilt towards fruit beverages is the trend. “The sale of fruit juices and fruit-based drinks market is twice that of carbonated drinks. The demand for fruit drinks category has been growing steadily at say around 10-12 per cent annually,” says Viney Singh, managing director of Max Hypermarket India that also sells mango juice under a private label. “We also house a few regional brands such as Cocojal, a range of flavoured coconut drinks, and Sip On, local mango and apple drink that is sold only in Mangalore.”
It also helps that a sipper is born every minute. For most consumers, the lines are fuzzy. Juice, fruit nectar or fruit beverage, it is the pulp that matters. If what you drink contains a generous 85 per cent or more fruit pulp, it can be called juice. It is fruit nectar if there’s 25 per cent to 85 per cent pulp; and it is just a fruit-based drink if the pulp is at 25 per cent. To most consumers, it does not seem to matter though — as many just want to have a ‘healthier’ or more ‘natural’ option than carbonated, synthetic drinks. “The concentration of pulp does drive up the price. You get the sense that it is a more wholesome product. But I think the perceived benefits of having a ‘natural product’ remain attached to products all along the price curve,” says Devangshu Dutta, CEO, Third Eyesight.
Mother Dairy, too, wants to get a few more sweet drops out of its Safal brand. It will now come in 200 ml plastic bottles with a new look. Pradipta Sahoo, head of horticulture business at Mother Dairy Fruits & Vegetables, says the company will look at how consumers reach out to the shelves. “We will tailor our range to future market trends.” Safal’s range is distributed and sold through 1,000 exclusive outlets in the Delhi National Capital Region and Bangalore.
Then you have Unilever’s Kissan. It has farmed out Kissan Soya Juices in three new flavours — apple, mango and orange. Safal makes it clear that it is not juice; its nectar. You will be forgiven though if you mistake Pepsico’s Slice to be pure mango juice!
Points out Dutta: “Package graphics or point-of-sale collateral does not make the distinctions any clearer for consumers.”
If it is true, it is a great way to juice your way to the bank.
(This article originally appeared in Businessworld.)
Delhi , May 2011
If one has to look for a classic case of excellent branding without spending a penny on advertising, Spanish fashion brand Zara will surely fit the bill.
Inditex (Zara’s parent company) has formed a 51:49 joint venture with the Tata Group’s retail business, Trent and opened the first Zara store in India in May 2010. The brand made a big bang entry in the Indian fashion battleground. More than 500 women visited the first store (in Select Citywalk mall in New Delhi) within the first few hours of its launch. Going by reports, the store clocked sales of Rs 90 lakh on the first day and around Rs 1.25 crore on the opening weekend. At present, estimations suggest that the Zara stores in Selec tCityWalk (New Delhi) and in Palladium Mall (Mumbai) have monthly sales of approximately Rs 4-6 crore.
However, when we quizzed Inditex about its sales, the company didn’t disclose the information citing it confidential. According to Technopak Advisors, Zara was also instrumental in generating 30-40 per cent more footfalls in malls where it opened. So much so that, few stores near Zara in the Select Citywalk mall have noted 20 per cent higher footfalls, since Zara’s opening.
Zara’s core target group globally is the mid-market. In India,
the brand is looking at a share of the upper middle class’ wallet.
If we go into the background, Zara, the Spanish fashion brand has been a huge success because of its fast affordable fashion model which translates into latest fashion clothing at a reasonable price for its core target consumers, worldwide. This model is hugely led by the two Ps – Product and Place and strongly complemented by competitive pricing. However, promotion is one P where Zara doesn’t puts a lot of energy.
Zara’s model is simple: It takes two weeks for a design (mostly runway knock-offs) to move from designbook to the store. It also has 11,000 styles in one year and changes the inventory in store even twice a week. In sharp contrast, it takes four to eight months for any other fashion brand to produce a fresh design and place them in stores and usually there are 4,000 new styles every year.
This model has helped Zara offer its customers widest range of
choices across the globe. The brand is adopting a similar approach
in India too. Zara’s offering worldwide is focused on luring consumers
through combination of latest trends, good design, high quality
and affordable prices in a constantly renewed collection. Monica
Laliwala, Managing Director, Xsis Promotions says, "Zara
works on the impulsiveness of youth and that is why the fast fashion
model and this strategy has worked really well for the brand across
So if you walk into a Zara store on a monthly basis, chances
are low that you will find the same designs you saw last time.
The company spokesperson comments, "Zara is applying to Indian
market the same way of understanding fashion business that has
supported its expansion to 78 countries until now. With our first
stores opened in India, we are learning about Indian customers
tastes." The brand takes into consideration the opinions,
preferences and concerns of the Indian customers through sales
figures, orders of the stores and daily dialogue with store managers.
"Our store staff is specially trained and motivated to be
able to catch’ this information, being always open to listen to
the customer and to transmit his/her comments to the designers.
Of course the information we receive from our Indian customers
is being taken in mind by our designers," adds the spokesperson.
Zara follows a central distribution model where all its merchandise
is shipped to different parts of the world from its distribution
centre in Spain. The same model is applied in India too. This
ensures that the quality of product remains the same as in any
other global market, however, it puts some pressure on the costs
because of high import duties. That’s the reason why Zara’s pricing
turns out to be premium in India as against its ‘affordable fashion’
pricing globally. In contrast, most of the international brands
operating in India now are relying on local sourcing. So far,
the premium pricing has not hurt the brand in the country but
some experts are of the view that Zara may need to keep an eye
on that front to build successful and sustainable business here.
However, Devangshu Dutta, CEO, Third Eyesight, a research firm, feels that in terms of pricing, it is meaningless to directly compare the mid-market segment in India with what is mid-market in Europe, when the income and spending standards are so different. A brand has two choices: either to be consistent in its pricing, or to change its merchandise and shift pricing downwards to fit into the very different Indian mid-market. "If pricing is kept consistent with European markets, then direct translation of European pricing into Indian rupees immediately places all mid-market brands into the premium segment. On top of that, high import duties ensure that there is less margin to manoeuvre on the retail price," he adds.
According to Peshwa Acharya, marketing & retail expert (currently Marketing Head Reliance Communication), location has played a key role in the success of Zara in the country. "It has clearly chosen the locations where its core TG, that is the upper middle class, is surely present. That’s the difference between Zara and Mango (both are Spanish brands). Zara has chosen only premium locations for its store while Mango has opted for a mix of both," he says.
Another noticeable thing about Zara that has left many marketing
suits surprised is that the brand doesn’t advertise at all. When
quizzed, the company responded, "We do not advertise, as
we believe that our product and our stores must speak themselves
and satisfy customers’ expectations. We don’t envisage any kind
of promotion and Zara doesn’t work with celebrities in any country."
So much so that the brand hasn’t got even a specific marketing
budget for Indian market.
The brand is still testing the waters in the country with a handful of stores and the response so far has been overwhelming. So far, it is present in Delhi and Mumbai and plans to open stores in Mumbai, Pune and Bengaluru in 2011.
The success path – Segmentation, Targeting and Positioning
Result- What the brand achieved
(This article appeared in the May 2011 edition of Pitch
The Economic Times, May 15, 2011
Beaten on its home turf Delhi, the $1-bn Mother Dairy is crafting a new strategy to win back its base and go national. But the pre-reforms milk co-op faces a unique constraint: a social mandate that means it can’t cut costs or hike prices with the same freedom as competitors.
When you don’t have bottom-line pressures, when you are a virtual monopoly in an industry where new big competitors find it difficult to enter, what do you do? Most company managers would sit back, contented to see the business inch ahead. Till the day they are jolted to find their home base under attack.
Mother Dairy Fruits & Vegetables, a company with a billion-dollar (Rs 4,200-crore) turnover, knows exactly how it feels. It has just been there. For this quiet, staid company, it has been a rather turbulent 14 months.
Last year, the Rs 10,000-crore Gujarat Cooperative Milk Marketing Federation (GCMMF) that markets Amul beat Mother Dairy in the branded packaged milk, Mother Dairy’s main business. And that too in Delhi, Mother Dairy’s home base. It hadn’t seen anything like this in its 35 years of existence.
Heads rolled—its CEO and MD resigned first. By now, the company has seen three top-level reshuffle, has anointed its second head in 14 months and is now busy preparing an aggressive plan to give Mother Dairy the new push.
GEARING UP FOR CHANGE
With a new head, a new goal and a new strategy, Mother Dairy is putting together a new plan to put itself back in the game. By 2014-15, the company wants to almost double its revenue and headcount to Rs 10,000 crore and 9,000, respectively. This will come on the back of an aggressive business expansion. Heavily focussed on the national capital region (NCR), which contributes 75% of its revenues, it hopes to expand to India’s top 20-30 cities, with a focus on the south and west and generate 35% of its revenues outside of NCR.
To meet these targets the company is planning to widen its product portfolio with a bigger thrust on value-added products like ice cream, fermented milk and fruit-based drinks even as it explores new areas like frozen ready-to-eat offerings. "There is a need for accelerated change. A need to become consumer focussed. The work has begun," says Nagarajan S, managing director of Mother Dairy. A graduate in dairy technology and an Indian Institute of Management, Ahmedabad alumnus, Nagarajan honed his skills over two decades in Nestlé, Cadbury and Philips.
It may not be too late. Health and wellness as a product category is witnessing robust growth. Companies of all kinds—Nestlé, Kraft Foods, HUL, ITC and even PepsiCo—are just beginning to get their act together in India. With rising income, the average Indian’s consumption basket is changing—health and wellness products are grabbing a bigger share. For Mother Dairy, Amul’s wake-up call was well timed.
All old companies have a legacy issue. Mother Dairy was born in another era. Created as a subsidiary of National Dairy Development Board (NDDB) in 1974, it was part of Operation Flood to support dairy farmers and boost milk production.
By the 1980s, it became a household name collecting milk from dairy farmers and retailing it in Delhi. From just milk, it slowly expanded its portfolio to ice creams, curd, etc and also expanded beyond Delhi. Dairy product is a difficult business because of short shelf life and complex logistics. And that’s a major reason why the sector is largely dominated by home-grown firms like Amul and Mother Dairy.
So Mother Dairy maintained its form and grip on Delhi, India’s largest dairy market. But it paid a huge price as it was slow in expanding to other markets and introducing newer products, unlike its hungrier and bigger rival Amul. Take ice creams for example. Mother Dairy launched it in 1995, almost a year ahead of Amul. But an aggressive Amul went national and soon became the top brand.
Amul’s foray into Delhi further exposed its problems. The Anand-based firm launched its packaged milk in Delhi in 2005 and last year it overtook Mother Dairy. This is when Amul is more expensive—Amul Gold (full cream) sells at Rs 36 a litre against Mother Dairy’s Rs 33, which was revised to Rs 35 on Friday. Says RS Sodhi, the managing director of GCMMF: "We found gaps in the market. Our better quality and taste helped."
Amul, with its own cooperatives, sells fresh milk in Delhi. But Mother Dairy procures milk from other cooperatives. This led to both quality and quantity issues. To make up for the shortage, Mother Dairy mixed fresh milk with milk produced from powdered milk—impacting taste. Mother Dairy says it is now fixing the problem. The recombined milk, which three years back could constitute up to 40% of total production, will be negligible this year, assures Nagarajan. It is moving fresh milk over longer distances (from Saurashtra for one) and scaling up its own procurement network – that has helped.
Availability of Mother Dairy products has also been an issue. Stocking is a perpetual problem. "It [Mother Dairy] has such a good distribution channel [in NCR]—it has not made great use of it," says Rajan Chibba, managing director, Intrim Business Associate, a retail consultancy firm. Mother Dairy’s archaic supply, logistics and poor forecasting tools were to blame. Nagarajan says stocking is a combination of capacity and inventory management parameters. Work is now on to improve both.
Mother Dairy recently rolled out SAP implementation to link its 11 plants, 45 distributors, 16 packaging locations to track and monitor movement of its products. Its fleet is now equipped with radio frequency identification (RFID) tags. "From milk receipts to their quality, test results and stock status, all data is now available real time," says Annie Mathew, the company’s chief information officer.
Supported by a supply chain consultant and weekly reviews, and enabled by a four-week forecasting tool on SAP platform, Nagarajan hopes "better qualitative and quantitative data will improve stocking". All this is critical as Mother Dairy plans to expand into newer markets and more products.
NEW MARKETS, NEW PLANS
Last year, Mother Dairy finalised its five-year roadmap. Geographical and portfolio expansion was high on the list. Based on it, in the first round it plans to focus on Mumbai, Bangalore, Hyderabad and by 2015 it hopes to be present in India’s top 20-30 cities.
So far its foray outside has had some success. In Mumbai, where it retails through multi-brand outlets, it claims it is the No. 2 in the packaged-curd segment in three years. "Once the decision is taken they are great at execution," says Chibba.
So what worked? "We cannot offer lucrative trade discounts, so we try to differentiate our product on quality," says Munish Soni, deputy general manager (marketing). On the one hand, their 29-member research and development lab in Delhi—the best in the country, says the company—helps churn out products that are suited to not just Indian but regional tastes. On the other, a manufacturing strategy is helping serve the market better.
Its curd plant is within Mumbai city limits, unlike say Danone’s, which sources from a plant 300 km away. This helps Mother Dairy serve fresher curd. From lassi to chhach, Mother Dairy today produces 3 million litres of dairy products every day and it expects to grow that business at a compounded rate of 30-35%.
The company is also laying a bigger thrust on value-added, high-margin products such as fermented milk drinks like Nutrifit. Its fruit-based Safal drinks are being re-launched in handy, attractively designed, take-away plastic bottles, instead of glass bottles. In ice creams, over the last three years they have enhanced their premium range in tubs from Indian classic, fruits and western classic and even a sugar-free variety. It now contributes 10% of their unit sales. Today they have over 50 different varieties of ice creams, including candies and cones.
Alongside, the company is overhauling its HR process. With 4,000 employees, including 2,500 workers (most of them unionised), it functions like a cooperative. While a driver’s remuneration could be as high as Rs 50,000 a month, officers’ salaries are low by industry standards. "We can never pay the market rates but we are working to re-align our people with our new ambitions," says its human resources head Saugata Mitra. It is casting its net wide to induct fresh talent and is hiring 60-70 fresh graduates annually to beef up the sales team.
Induction of senior managers from outside has made the leadership team younger. The average age of its top 20 leaders has come down from around 54 years five years back to 45 years today. Training programmes for senior and mid-level sales and marketing executives have been rolled out. Nagarajan and the top team are holding regular townhall meetings to update staff on new initiatives and align them to new goals across operations.
BUT WHERE’S THE MONEY
Unlike Mother Dairy, most modern companies address the matter of profit and margins head on. On a turnover of Rs 4,200 crore, the milk-maker barely makes any profit. Set up by government-owned NDDB, farmers’ and consumers’ welfare are its priorities. Hence its hands are tied. In early May when Amul raised its milk price, Mother Dairy could not as promptly. Its fresh fruits and vegetable business barely makes any money but with its procurement directly from marginal farmers it is a justifiable business.
To tackle competition and make profits, a typical MNC cuts costs. At Mother Dairy, around 85% of the price earned from consumers is paid back to farmers as procurement price. So there is little capital to play around with. The only way it can make a little more money is by improving operational efficiency, building scale, expanding into newer markets and focusing on value-added products.
Does a liberalised India need a barely profitable Mother Dairy? "Yes it does," says Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy firm. There is a phase when the market grows rapidly and competition multiplies. Consolidation follows even as big retailers enter the fray. They bring down input prices by pushing producers and make the supply chain efficient with some gain for consumers. It has happened in mature markets and it will happen in India too. "Companies like Mother Dairy will have a role to play in keeping balance between producers and the market," Dutta says.
That means Nagarajan and his team will face even greater pressure to expand, capture new territories and deliver more efficiencies.
May 7, 2011
Billionaire NRI Micky Jagtiani, chairman of the $3.8-billion Dubai-based Landmark Group, has not forgotten his roots. Whenever he visits his corporate office in Bangalore, he is generally driven around in a Hyundai Accent — a sedan meant more for the aspiring manager than the multi-millionaire. This low-key businessman is reported to have said that he wants to open a small retail shop in India and retire. Actually, he now has quite a few retail shops in India. From a single retail outlet in Bahrain in 1973, Jagtiani’s retail empire comprising a host of brands such as Home Centre, Lifestyle, Babyshop, Shoe Mart and Max, is today spread across 15 countries including Spain, the Gulf and China. But making it big in India is what Jagtiani has always dreamt of — and that dream is finally coming true. Having played it safe for over a decade (the first Lifestyle store opened in Chennai in 1999 and there are only 28 outlets), Lifestyle International is now ready with massive expansion plans.
Lifestyle International, whose turnover is expected to grow to Rs 1,998 crore in 2011, up 55 per cent from Rs 1,286 crore in 2010, plans to spend Rs 725 crore — through a combination of debt and equity from the parent company — on store roll-outs over the next three years, and is set to take on big retailers such as Shoppers Stop (SSL) and Future Group’s Pantaloon head on. It hopes to have 58 Lifestyle stores by 2014 up from the 28 now. In comparison, Pantaloon has 50 stores now, while SSL has 38, and both plan to add about five stores every year.
Expansion of its Home Centre brand — a home décor and furniture store, similar to SSL’s Home Stop and Pantaloon’s Home Town — is also on the cards. As is the plan to increase the number of Max stores — an apparel and footwear private label that has been hived off into a separate brand catering to the value segment where price points do not exceed Rs 1,000 — from 48 to 75 over the next two years.
“We have differentiated from our competition and want to bridge the gap in every segment and price point,” says Kabir Lumba, managing director of Lifestyle International in Bangalore. While the competition focuses on the premium or the discount segments, Lifestyle aims at the middle-income executive. For Lifestyle, price points are a differentiator and this is why it has focused on expanding in Tier-II towns such as Coimbatore, Cochin and Durgapur.
Spot The Difference
Lifestyle aims to be different from competition in private labels, by turning them into stand-alone stores. While no other retailer has done this, Lifestyle has successfully created a chain of Max standalone stores. Kishore Biyani’s Future Group has the most private labels, but has no private label brand store yet. It converted some products into brands, though, such as its Lombard brand of menswear.
“Converting private labels into brands is a great strategy. But opening them as individual stores is risky and needs time,” says Govind Shrikhande, SSL’s managing director. Globally, Max is a $750-million business for the Landmark Group and has 150 stores, 45 in India.
Max sources its designs from West Asia and shares the vendors of the global team. It has 120 dedicated vendors in India. “The Max brand addresses the value segment. We launched four stores between 2006 and 2008. That time we did not know how successful it would be,” says Vasanth Kumar, executive director of Max Retail. Max is now a private-label cash cow with Rs 380 crore in sales in 2010-11. “The plan is to hit Rs 1,000 crore in three years,” he says. (Article continues below the graphic…)
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Lifestyle International also hopes to build its Home Centre business. At present, Home Centre has 12 standalone stores and 13 within the Lifestyle stores. Although it generates a turnover of Rs 300 crore, the margins are low with only 3 per cent net profit. It involves maintaining a large warehouse of almost 100,000 sq. ft in Chennai, to maintain inventory. About 65 per cent of the stock is imported and to manage inventory better, the company is now planning to operate furniture in flat packs or knocked down units, which can be transported to the customer’s house. Other retailers such as SSL’s Home Stop (four stores) and Pantaloon’s Home Town (10 stores), too, follow this strategy.
However, the furniture business takes about five years to break even and constantly struggles against competition from the unorganised sector. Globally, Home Centre generates a $1.5- billion business but the Indian operations broke even in 2011 because bulk buying happens from the Bahrain office. Lifestyle will spend Rs 100 crore to expand this business.
“The margins come from stocking those items that customers
come to replace, such as crockery or bed linen,” says P.
Rajkumar, president of Home Centre and Baby Shop. “Managing
the frequency of replenishment and opening stores in profitable
regions is the key,” says Pinakiranjan Mishra, partner and
national leader for consumer practice in Ernst & Young.
Finding The Sweet Spot
Lifestyle’s slow and steady pace has helped it maintain margins. In 2008, when recession hit, big retailers such as SSL and Pantaloon suffered huge losses. But Lifestyle continued to thrive as it had only 15 stores, while SSL and Pantaloon together had over 60 and had to stall their expansion plans.
“Lifestyle has made profits from the beginning, though its allied retail businesses — Home Centre and Max — were yet to break even,” says N. Sundararaman, president of group finance and corporate affairs at Lifestyle International. Earlier, too, Lifestyle maintained a tight control over its inventory to ensure it was not stuck with unwanted stock. While SSL was following the buy-out model — stocks are bought in bulk, increasing inventory cost and leading to loss of cash — Lifestyle followed the part-consignment and part-buy-out model, with the latter amounting to 65 per cent. “We had control over what brands gave us. We chose what we thought would sell. This gave us growth when the market was down in 2008,” explains Lumba.
Adds Abhishek Malhotra, a partner at Booz and Company: “There are various business models in retail, and apparel is the most organised of the lot. Still inventory management is the key to the success of the business.”
Lifestyle’s debt-to-equity ratio, according to company sources, stands at 1.15, which is higher than peers such as Tata-owned Trent, Future Group’s Pantaloon and SSL, all of which have debt-equity ratios of under 1.
Lifestyle has added 1.5 million sq. ft in three years taking the total to 2.6 million sq. ft. It will add another 2.5 million sq. ft in two years, with stores of 35,000-50,000 sq. ft size. But this is still smaller than 8 million sq. ft under Pantaloon’s apparel format, the largest in India.
Organised apparel retailing is a Rs 60,000-crore business and is growing at 30 per cent year-on-year.
“Last year, 25 international brands came to India,” says Devangshu Dutta, CEO of Third Eyesight, a Delhi-based retail consultancy, adding that franchises are opening around malls and in clusters where retail growth is high.
One of the tasks for retailers is to fill these gaps with private labels.
“We have a large database of 2 million customers and we are using this data to plan better promotions,” says Lumba. Apparel retailing is so urban-centric that predictive analysis has become important. Analysts add that the next five years will see additional investment in apparel retailing and tie-ups with foreign brands. Lifestyle, for instance, exclusively sells Chanel.
“In retail, it is all about control. By control I mean you need to be in grips with what stock a store needs and doesn’t need,” says Lumba. “People don’t know what designs they want. They perceive things at sight and we as retailers need to cater to that impulse purchase.” This is the reason for Lifestyle’s success, he says.
But retailing is complex. Then again, the idea is to induce a buy. Lifestyle seems poised to create a multiplier effect of this concept. At least, it will bear testimony to Jagtiani’s belief that retailing is about giving value to the consumers.
(This article originally appeared in the Businessworld issue dated 16 May 2011.)