Where is the Love? In the Brand.

Devangshu Dutta

August 26, 2011

A few months ago, when asked to speak about value-addition at a food industry seminar, I decided, in a deviation from the usual discussion, to dissect the meaning of “value”.

Most people in industry focus on only one dimension of value-addition – the economic value added by processing and transforming food raw materials – virtually ignoring two other dimensions which are required for most of the (undernourished) population: calorific value and nutritional value (see “Perishable Value Opportunities”).

At the end of that seminar session, an agriculturist from the audience put forth a very pointed question: “What is the cost of the potatoes in a bag of branded chips that sells for Rs. 10? Or to put it another way, how much of the retail price actually goes back to the potato farmer?”

The question, of course, was completely loaded with angst on the economic imbalance between farm and factory, supplier and buyer, small and big, rural and urban. But it also underlined missed opportunities to capture economic value, which in turn accentuate the imbalances in growth.

Economic value can be added to food through improvement, providing protection, changing the basic product and through marketing. Improvement typically focuses on seeds, growing techniques and post-harvest areas for improved quality of harvests, disease resistance, better colours, size and flavour, possibly nutrition. Protection initiatives work across cultivation, harvest and post-harvest, storage, during processing, through packaging, while change is essentially focused on processing techniques (cooking, combining, breaking down and reconstitution).

There is a lot of work going on in the food supply chain to enhance the value captured closer to the farmgate. And, certainly, the “value-added” earlier is vital to maintaining and building value later in the supply chain.

However, what is striking is the fact that as we move downstream towards final consumption, the economic value captured as a price premium also increases dramatically.

So, as depressing as the multiplier may be to the farmer, on a kilo-for-kilo comparison, the bag of factory-fresh potato chips is priced many times higher than his farm-fresh potatoes. And, the maximum economic value is created, or at least captured, by the act of branding and marketing.

The Love is in the Brand

A short quiz break: can you recall the “most valuable company” in the world in August 2011, as measured by valuation on the stock market?

The answer is Apple. It is a company that physically manufactures nothing, but tightly controls the design, development, sourcing, distribution and, yes, branding of a group of products and services, whose fans seem to grow by the minute.

Of course, one can argue that Apple “produces” by the very act of designing completely new, highly desirable, products that are not available from anyone else, and that this is what provides the premium. But similar premium – which is due to branding and marketing, rather than proprietary products – is also visible in thousands of companies, across product sectors, including food. That sustained price premium is the sign that the consumer trusts and wants a particular brand’s product more than another one. There is a hook, a strong connect, due to which that consumer is willing to lighten her wallet just that much more.

In India, surprisingly, “value-addition” discussions in the food industry focus almost entirely on cultivation, storage and transformation through processing, virtually ignoring branding and marketing. In fact, branding is usually only discussed in the context of multinationals or some of the largest Indian companies. What’s more, most of the brands discussed are focussed largely in the area of processed food products that originated in the west.

Run these tests yourself. When you think of food and beverage branded companies who do you think of? And, when you think of food brands, what kind of products come to mind first?

The answer is that the brand landscape is dominated by products such as biscuits and cookies, jams, fruit and non-fruit beverages, potato chips, 2-minute noodles, confectionary products and food supplements, mostly from the portfolio of some of the largest companies operating in the market.

Of course, there are some alternative examples.

Aashirvaad and Kitchens of India present quintessentially Indian products (albeit from the gigantic stables of ITC which also has a multinational parent).

And, yes, there are cooperatives such as Lijjat, as well as home-grown mid-sized companies such as the Indian snack maker Haldiram’s, spice brands such as MTR and MDH, pickle brands such as “Mother’s Recipe”, rice brands such as Kohinoor and Daawat.

But, given the size of the Indian food market and the width and depth of Indian cuisine, shouldn’t there be more brands that are Indian and focussed on essentially Indian food products?

This is a tremendous opportunity – a gap – not just in the Indian market (among the largest and fastest growing in the world), but also globally.

The Hurdles to Branding

So, why aren’t there more Indian brands?

Let’s face it, for most companies, marketing fulfils one need: to communicate their name to potential customers. Most of them generally hope that if they do it enough, they would actually be able to sell more volume.

Of course, no one has been able to draw a straight line graph that correlates more marketing expense with higher sales.

Those are two self-destructive notions. Obviously, if marketing is an expense, then it must be minimised! And secondly, if it cannot be proven to be effective, why would you spend money doing it? For most people, branding is even fuzzier in that regard, in terms of what it is and what it achieves.

However, the picture changes when you look at marketing as an investment rather than an expense. As we evaluate any investment, there should be an expected return that should be quantifiable. Examples of Apple and other brands make it amply clear that branding and marketing, when done well, can certainly create quantifiable financial returns on the investment.

The second hurdle to branding and marketing is that they require consistency, which is not a strong point for most wannabe brands. They end up with too many messages to the consumer, or the messages keep changing and shifting. The company, the name, end up representing many things, sometimes everything, and eventually nothing.

The third, enormous, hurdle is the time needed to develop a brand with a decent sized marketing footprint and a deep relationship with the consumer. Most small and mid-sized companies, constrained as they are for resources, focus on areas that seem to offer more immediate returns, such as distribution margins or discounts, or even expansion of production capacity. Especially in the early years of the business, the benefits of branding and marketing seem to be too far in the future to be a priority for investment.

Due to these one of these reasons or a combination, many companies are unable to see their brands through to success. In fact, sadly, most companies do not last long enough to become owners of successful brands.

Even those who do achieve success and even market leadership, sometimes choose to cash-out on their success by selling their brands to larger competitors, rather than competing with the financial might of the giants (such as Thums Up being sold to Coca Cola; Kissan, Kwality and Milkfood being sold to Hindustan Unilever).

In the past, one of the other barriers in India was the hugely fragmented retail and distribution system, which essentially sapped energy, resources and focus for any company that wished to grow a brand across regions. In fact, one of the key lessons from the western markets is that the growth of brands has been closely linked to the expansion of retail chains. So, certainly, we should view the growth of modern retail in India as a platform for the emergence of regional, national and global Indian food brands.

However, there is a flip side to this retail growth. In the west, most retailers were focussed on running shops, and were content to leave product development and brand development to their suppliers, the national brands. These retailers began looking at private labels only as an additional source of margin well after they had gained scale, and even then they ventured rather carefully into the space. In India, on the other hand, private label is very high on the priority list of our nascent modern retailers, precisely because the effectiveness of that business model has been proven elsewhere and because there are such few national brands that have a strong, irrevocable connect with the consumer.

Should You Invest in Branding?

The short answer is to that question is: yes.

It doesn’t matter if you run a small company or start-up, or a more mature company. It doesn’t matter whether you are selling a consumer product directly, which is the most effective and most necessary playing field for building a brand, or an intermediate product or service where you can still achieve a premium within the trade.

If you are committed to selling only commodities, where your selling prices are determined only by the tug-of-war between supply and demand, government policies and Acts of God, then you wouldn’t be reading this article.

Since you are reading this, you should brand.

In the short to medium term, if you do the job well, your customers will pay you a premium. And in the mid to long term, financial investors looking to ride India’s economic growth are more willing to put their money in a company that has a recognisable hook and a trading premium over its generic competition.

The brand can be built on any platform for which there could be a discernible premium. This can be trust (quality, quantity), simplicity and convenience (prepared snacks and meals, pre-ground spices, flour instead of grain), or even novelty (fizzy coloured sweetened water, reconstituted potato “chips” so uniform in shape and size such that they fit into a cylinder). Organic, vegan, fair-trade – you take your pick of the platform on which to build the brand.

Possibly the strongest driver of premium and brand value is a properly maintained heritage. Some brands have a past, some of them even have a history, but very few have a heritage. If your business has a history, there is a heritage waiting to be discovered, and it is worth a lot.

Of course, this doesn’t mean that a brand should become anchored at a certain historical time point and expect to only milk its age. Heritage is always viewed in a cultural context and culture evolves over time, so the most effective brands maintain a link between the attributes of their past to their ever-evolving present.

As with most other things, it is good idea to start early. Take on board the lessons of branding early in the company’s life so that the foundation is strong, and the brand can grow organically. As a side benefit, strongly branded companies also have strong and cohesive organisation cultures, a fantastic defence during times of high employee attrition.

The Global Branding Opportunity for Indian Food Companies

One of the most important ingredients of a good brand is clarity of identity and origin.

Often we confuse identity with the name, the logo, fonts or colours associated with a brand. Yes, a brand’s identity is certainly indicated by these – as much as our name and our physical appearance indicate our identity. However, the identity itself is much larger; in fact, it is helpful to think of the brand’s identity as a personality. The personality gets expressed in many different ways, but is tied together in a definable manner and has some strong traits that define its actions.

There are clear statements that can be associated with effective brands, whether or not they have been expressed by the company or brand in any of its formal communications. For instance, some globally relevant Indian brands include Tata Nano (“frugal engineering”), the Taj Mahal (“timeless beauty”), Goa (“party”), Rajasthan (“royal exotica”), and Kerala (“bliss”).

(I am deliberately picking “global relevance” as a theme to keep in mind that there is, literally, a world of opportunity that we could be looking at.)

We find a high number of tourism-related brands in this list, because these are destinations that pull the customer in – as long as they are true to themselves and relevant to the context of the consumer, they will be successful.

More conventional consumer product brands, on the other hand, must work harder to fit into the consumer own context, especially as they move away from their geographical origin, their home market.

This is particularly true of food, which is widely divergent across geographies. Some products can be adopted into multiple cuisines, offering more easily accessible opportunities and potentially greater scale. Rice and generic spices fit the bill here. However, for most other food items, the context of the home country cuisine is vital. Therefore, the growth of food brands, not surprisingly, is linked to the expansion of cuisines across borders. It is partly driven by the movement of people, and partly by the movement of culture (television and movies being the most important in current times), mostly both together.

For Indian companies, there is certainly an opportunity to ride on the back of the Indian diaspora across the world. And now there is an additional opportunity: expatriates who spend a few years living and working in India can also help to carry the cuisine and its associated brands out.

Finished product brands such as Tasty Bite, Haldiram’s and Amul are good examples of diaspora-led expansion, where the original driver was to bring people of Indian-origin a taste of home. In fact, Amul has recently announced that it wants to set up a manufacturing plant for cheese and other dairy products in the US, to service the Indian-origin population more effectively. Should it be restricted only to that? Certainly not; availability, if supported well by branding, can help it to cross into other segments as well.

As the consumption of Indian food grows across ethnic lines, it is likely to drive the growth of Indian ingredients as well – a perfect vehicle for branded ingredient suppliers. What’s more, Indian recipe books could even specify Amul Cheddar Cheese, MDH Chaat Masala or MTR’s Dosa Mix as ingredients – they wouldn’t achieve a 100% hit rate, but it would certainly be significantly higher than zero!

There is an opportunity to capture economic value that branding offers, which is very often greater than any other process in the food supply chain. Remember two phrases made famous by Hollywood: “show me the money” and “show me some love”. In the business of brands, these are one and the same.

It’s worth asking: do we have the patience to live through the lifecycle of a brand, and can we commit resources to nurturing it? If the answer is “yes” to both, we are most likely to benefit from branding.

Here’s to more Indian food brands that grow within India and across the world.

(If you need support with growing brands, do connect with us.)

Paris Hilton to launch her brand at Shoppers Stop


August 26, 2011

Sagar Malviya and Sarah Jacob, The Economic Times

26 August 2011, Mumbai/Bangalore

Paris Hilton — American actor, singer, fashionista and great-grand daughter of Hilton Hotels founder Conrad Hilton — will spread her business empire to India next month by launching her handbags and fashion accessories.

The 30-year-old celebrity, who helped Chihuahuas become fashionable, will travel to India for the launch of her eponymous brand at Shoppers Stop, the department store chain’s MD and customer care associate Govind Shrikhande said.

Shoppers Stop will open Paris Hilton shop-in-shops across its metro stores. Paris Hilton built a brand around her celebrity lifestyle over the past few years. She has 17 product lines including fragrances, apparel, footwear, music albums, sunglasses, pet products, stationery, bedding and handbags.

Earlier this year, Hilton admitted to CNN that she earns upwards of $10 million a year without divulging the true extent of her earnings. If that was not enough, Hilton launched a Moto Grand Prix team called SuperMartxe VIP last year and plans to follow through with hotels and beach clubs.

Betting on her brand recall, Shoppers Stop will position the brand at a premium, targeted at the rich and upper middle-class consumer base.

"Paris Hilton’s personality may be aspirational for a consumer well under 30 years of age," says retail and consumer products consultancy Third Eyesight Chief Executive Devangshu Dutta.

Indore-based Brand Concepts will distribute Hilton’s bags in India. The company also distributes handbags by Indian designer Rocky S, which is largely retailed through Shoppers Stop. The American handbags and accessories brand, co-designed by Hilton and monogrammed with her initial and a crown, has 30 stores across 35 countries including Philippines, Bahrain and Malaysia.

It will add to Shoppers Stop’s handbags line such as Hidesign and Elliza Donatein, which are the largest selling brands. Analysts say it makes sense for Paris Hilton brand to first bring handbags and accessories.

"Accessories is the first category that consumers use to upgrade, either from the mass segment to the premium segment or from there to luxury," says management consulting firm Technopak Advisors Senior VP Saloni Nangia. "The brand here acts as the pull to draw consumers to upgrade faster," she adds.

The woman’s fashion accessories market in the country is estimated at 6,000-6,500 crore, growing anywhere between 8-20%. Branded goods account for 12-15% of this market, according to data from Technopak Advisors.

Other international brands in Shoppers Stop’s portfolio include infant products brand Mothercare and apparel brands Mustang and Austin Reed. It also operates stores for skincare brand Clinique and cosmetic brands Estee Lauder and MAC.

Indian Terrain looks at sourcing from the Americas

Devangshu Dutta

August 26, 2011

Indian Terrain Fashions’ plans to launch a ‘Made in America’ jeans brand using denim from a US mill made into jeans in Guatemala, is a move that bucks trends for brands sold in India. The move is an interesting twist in the growth story of a 10-year-old brand that was, until recently, a business division of the Chennai-based apparel manufacturer Celebrity Fashions. Celebrity’s notable customers include Gap, Nautica, Armani Jeans, Timberland, Dockers and Ann Taylor.

About five years ago, Celebrity had invested in growing its capacity by acquiring another exporter’s manufacturing facilities. However, Celebrity’s manufacturing and export business has been under pressure due to the difficult environment in its main markets, and last year Indian Terrain was demerged from its parent.

It now seems Indian Terrain is striking out on an independent path, with plans to launch a ‘Made in America’ jeans brand. Managing director Venkatesh Rajgopal says the company proposes to source the denim from an American mill and have the jeans manufactured Denimatrix in Guatemala, which also produces for brands such as Abercrombie & Fitch. According to him, Indian Terrain will use the same raw material as Abercrombie & Fitch, and “will be able to track every pair of jeans to the same cotton fields in Texas.”

The company’s competitors, both domestic and international brands operating in India, mainly buy denim products from within the country.

Denim is currently a very small part of Indian Terrain’s casualwear product mix which is largely sourced from its parent, Celebrity Fashions. The company is looking at launching the “mid-premium” priced brand in September that will not be “just about quality, but about offering a lifestyle.” Rajgopal estimates that denim has the potential to grow to 30-35% of the company’s business in three years.

The demerger of Indian Terrain from its parent company was carried out in 2010 with a view to achieving better valuation for the branded business and to provide additional liquidity to its founders and private equity investors. The company is currently present at about 80 exclusive brand stores and through 400 multi-brand retail stores, in eight cities, as well as in Singapore’s Mustafa Mall. It closed the financial year ending 31 March 2011 with sales of INR1.21bn (US$27m), and expects to grow its top line by 25% this year.

Its retail customers wait to see whether Indian Terrain will be able to effectively integrate denim into its core brand philosophy and grow to a third of the product range. However, for investors the critical question is this: after the demerger from the manufacturing parent and with product being imported from the Americas, will the brand business be able to maintain gross margins at the current levels of about 40% to 45%? Only time will tell.

Housewives to peddle Reliance retail wares; first such attempt in direct selling


August 17, 2011

Sagar Malviya and Pradeep Pandey, The Economic Times

Mumbai, August 17, 2011

Reliance Retail has begun door-to-door direct selling through housewives and housing societies to boost sales of its private brands such as Sudz detergent, Amara soaps and Healthy Life food items.

Its subsidiary Reliance Home Products has launched a ‘Home Club’ initiative on a pilot basis to sell products at consumers’ doorsteps at 30% discounts through members-primarily housewives-who will earn 10% of their sales amount as commission.

Since the past two weeks, executives of the Mukesh Ambani-owned company have been distributing brochures and price lists in several housing societies in Navi Mumbai asking them to join Home Club.

"I took membership two weeks ago and sold products worth Rs 1,500 to my friends. I earned Rs 150 for that and I think it’s a good deal for a person like me," said Devika Diwekar, a housewife staying at Gitanjali Housing Society in Navi Mumbai.

A Reliance Retail spokesperson said it’s too early to comment on the pilot project. "Reliance Retail undertakes pilots of models which are under active consideration. It will be premature to comment on any of these pilots," the spokesperson said.

Two years ago, the retail subsidiary of India’s largest private company tried selling its own FMCG and food brands through its outlets and kirana stores but failed to mop up enough sales.

"This is an attempt to sell our products at wholesale prices which could not only exhaust the inventory that has been piling up but also create a new sales channel," a Reliance official said on condition of anonymity.

Launched in 2006, Reliance Retail runs about 1,000 stores across formats in 86 cities. Its flagship retail format Reliance Fresh, a food and grocery supermarket, grew 20% last year with sales of 2,514 crore for 2010-11. It posted a net loss of 160 crore.

Reliance Home Products, which is responsible for sourcing, quality checks, branding, distribution and marketing of its in-house brands, clocked revenues of 28.43 crore during the same period, with a net loss of 5.08 crore.

The retailer’s new discounting sales channel comes at a time when most consumer product companies are increasing sticker prices across categories to negate margin pressure. Reliance private labels are priced 15-30% lower than national brands in their categories.

A discount of 30% will make them more attractive at a time when consumers seek more deals and bargain to deal with rising prices and a squeeze on incomes.

Experts say several retailers in developed markets such as the US are quite active in such multi-level marketing initiatives. "Retailers including US-based Best Buy sell products through multi-channels such as online and catalogue modes," Boston Consultancy Group Director Amitabh Mall said. "In India, direct selling is becoming a huge success as one doesn’t need physical infrastructure to do it," he added.

"The overall margins for private labels are significantly higher than national brand. So it will allow them to play with the pricing," said retail and consumer products consultancy firm Third Eyesight CEO Devangshu Dutta.

The country’s largest retailer, Future Group, has a number of successful private labels under its belt. But Reliance Retail is the first national retailer to try direct selling.

Looking for good bargains? Go online


August 12, 2011

Prashant Mahesh, The Economic Times

Mumbai, August 12, 2011

Be it a holiday package, dining at a star restaurant or getting a hair cut at a fancy salon, everyone wants a better deal (read huge discounts) these days. This has led to a mushrooming of internet sites that offers discounts on everything under the sun. There are 20-30 websites like snapdeal, taggle, sosasta, mydala, and so on, offering such deals to customers. "Consumers want to try new products and at the same time save money," says Anisha Singh, founder and CEO, mydala.com.

The way it works

Group-buying sites offer heavy discounts on a range of products and services that are in demand. This is how the economics works: Any organisation broadly has two kinds of costs – fixed and variable. In the case of a restaurant, for example, the fixed cost includes expenses on air conditioning and maintenance, salaries paid to staff, etc. The variable cost is that of food. Now, a new restaurant needs to popularise itself to attract new customers. It may have a 100-seat capacity, but there may be only 50-60 people, on an average, seated at the restaurant. As a marketing exercise to attract more customers, the restaurant gives promotional offers through websites.

"Generally, a discount is given in such a way that the variable cost is covered, which, in the case of a restaurant, is food," says John Kuruvilla, founder and CEO, taggle.com. So if a meal at the restaurant costs 300, it is offered at a discounted rate of 150 to attract customers. This 150 covers the food cost.

This creates a win-win situation for both the customer and the restaurant. A lower price attracts customers to the restaurant to try the service out, which they may otherwise not do. At the same time, it also gives business to the restaurant. The website, in turn, gets a commission for every customer who buys the deal. A customer who wants to buy a deal from a website is given a voucher after the payment is made. So when you buy a service for, say, 500, some websites insist that you pay the entire amount upfront. Some others may allow you to pay 100 for the voucher and pay the balance to the vendor when the service is provided.

The typical group-buying site goes live when a minimum number of customers buy the deal. Generally, websites give a commitment to vendors to get a minimum number of customers. For example, for a dance class deal, the merchant may insist on at least five customers. Once the deal is put up and five customers buy it, the deal goes live (it is on the website). However, some websites do not go by this minimum commitment. Once the deals are uploaded, any number of customers can buy them.

What’s on offer?

Almost all these sites offer deals on restaurants, salons and spas, dental check-ups, car cleaning, pest-control services and so on. Among the products they offer are electronic items and gadgets. Discounts could vary depending on the brand and category. In some cases, the discounts may be as high as 80-90%. As these sites pick up, new and exciting services get added.

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