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December 13, 2011
Sharleen
D`Souza & Raghavendra Kamath, Business Standard
Mumbai,
December 13, 2011
After the UPA regime’s move to suspend its decision on foreign
direct investment (FDI) in multi-brand retail, the industry is
turning nervous about the prospects of single-brand retail as
well. More so, since the government has yet to notify a Cabinet
decision raising the foreign investment level to 100 per cent,
from the current 51 per cent, for single-brand retail.
It was on November 24 that a Cabinet meeting gave its nod to both moves. After that, the Centre, on December 8, formally put on hold its decision to allow up to 51 per cent FDI in multi-brand retail, succumbing to mounting pressure from its allies and Opposition parties. True, an announcement followed that there was no suspension on the decision on single-brand retail. Yet, with the government coming under attack from the Opposition parties on several issues, the industry is now fearing a delay in the notification of the pertinent decision. UK-based fashion retailer French Connection says it has not yet sensed a clear direction over the approval of the FDI in single-brand retail. “There is a huge debate and uproar on FDI in multi brand, but no one seems to talk about single-brand,” notes Nidhi Dua, the firm’s country manager.
The national body of retailers has taken a wait-and-watch policy. Says Kumar Rajagopalan, chief executive officer of Retailers Association of India: “Until the notification is out, our fingers are crossed.”
Third Eyesight, which works with national and international retailers, says many of these chains are “frozen” with regard to their plans. “This is because of uncertainty on the policy front,” notes Devangshu Dutta, chief executive of the retail consultancy. “Only if there is clarity can you take an appropriate route. Here, you are stuck in a limbo; it’s unproductive for everyone,” he adds. “There must be political clarity on this.”
Swarovski India also notes there is no clarity from the government at the moment. “It is a little too premature to pre-empt,” notes Sukanya Dutta Roy, its director (consumer goods business). “We all hope that FDI in single-brand retail passes through.”
Prominent among the firms keen on India entry are Sweden-based home products company Ikea, US-based GAP, UK’s Arcadia group and Italy’s Prada. Those already having a presence in this country include the UK’s Marks & Spencer and Spain’s Zara.
Technopak Advisors says the government, in a larger sense, is not taking any decision on any front. “Why would any investor want to invest in a country where economic, political and policy matters are going from bad to worse?” asks Arvind Singhal, chairman of management consultancy.
However, the government seems confident about pushing the changes in single-brand FDI norms. “The decision remains; it has been approved by the Cabinet,” says a senior official. “There is no change on that front. We are in the process of notifying the rules soon. I don’t see this going anywhere.”
As for the policy riders, the condition of 30 per cent sourcing from the small-scale sector will kick in the moment foreign equity exceeds 51 per cent in single-brand retail. But a senior executive from management consultancy says the government can make the conditions even more stringent to pacify the critics of retail FDI.
With inputs from Nayanima Basu
(Read: "Debate on FDI in Retail — More Heat than Light")
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December 12, 2011
Sarah
Jacob & Chaitali Chakravarty, The Economic Times
Bangalore/New
Delhi , December 12, 2011
Reliance Industries, a $50-billion-plus oil and gas giant, will
enter the fast-food business with its own brand next year, opening
yet another front to do business directly with India’s growing
young population after retail and 4G wireless services.
Mukesh Ambani has roped in Rishi Negi, COO of multiplex operator Fame India, which is partly owned by his younger brother Anil Ambani, to develop a quick service restaurant (QSR) concept within 3-4 months, two senior Reliance executives said.
Negi will spearhead Reliance’s entry into a segment that is growing at least 25% a year and where international brands such as McDonald’s and Domino’s jostle to introduce Indianised cuisines to take on popular local chains such as Jumbo King and Saravana Bhavan.
Reliance is exploring a scaleable model like McDonald’s and Domino’s, complete with a standardised menu and express delivery, the executives said. It plans both independent outlets and presence in food courts.
"The company is looking at anything suitable for Indian palate, be it Chinese, Italian or Indian cuisine," one of them said. The Reliance Industries spokesman declined to comment. The executives said the company has zoomed in on Delhi, Mumbai and Bangalore as the tentative locations to launch the business.
"With a hypermarket format already attracting a large number of consumers, it makes sense to bundle in food as well," one of the executives said. The company has already experimented with a fresh bakery at its hypermarkets, Reliance Mart.
The move is in line with Mukesh Ambani’s aggressive moves to build businesses for the country’s consumer class, dominated by demanding and aspirational youngsters. His retail arm, Reliance Retail, operates around 1,146 multi-brand outlets across the country through chains such as Reliance Fresh, Reliance Super and Reliance Mart.
Also, Reliance Industries is the only pan-India licence holder to offer 4G services, which can provide internet connection at more than 100 mbps.
The company, which paid Rs13,000 crore for the licence, is expected to launch 4G data services within a couple of months at justRs10 per GB, or almost one-tenth of current 3G charges-an offer the Facebook generation may find hard to resist.
Negi is coming in with some experience in the restaurant business. He was the COO of Pizzeria Restaurants, which operated Pizza Hut a few years ago, and was food & beverage manager at Taj Coromandel, the Taj Group’s 5-star hotel in Chennai.
His task is to help Reliance get a foothold in the booming organized restaurant business in the country, which is estimated at Rs7,000-8,500 crore and is expected to grow to Rs28,000 crore by 2015, according to data published by the National Restaurant Association of India and management advisory firm Technopak last year. But experts warn that it’s not an easy business.
"There are plenty of break points where consumers can be dissatisfied or where a loss of margins is possible," says Devangshu Dutta, chief executive of retail planning consultancy Third Eyesight. "If a chain can get its delivery model right, the returns will be strong," he adds.
Ashok Bajpai, partner at Morris Street Advisors, a firm that is partnering the entry of international food brands, says, "It’s meant for companies who have the appetite to sink money in the initial years into brand building as profits begins to show only after 3-4 years."
Bajpai earlier headed Pizza Hut’s delivery business. While Reliance Industries will not have a problem with sinking money into the business, it will run into some formidable competition with every established company scaling up and more lined up to enter the business.
Most big international chains including McDonalds, KFC, Pizza Hut, Subway, Quiznos, Costa Coffee, Country Chicken and Taco Bell are already here, while others such as Starbucks, Dunkin Donuts and Pizza Express are all set to open shops here. Then there are numerous local chains, small and big. They are all attracted by India’s burgeoning middle class that increasingly eats out not just for entertainment but also as a necessity because more people live independently or in nuclear families and work long hours.
These youngsters, always pressed for time, rush to the nearest fast food joint for a quick grab or get it delivered to their workplace or home. "As consumers begin to travel, they tend to look for standardisation as it offers some sense of security. They know what to expect, which is why chains work," says Dutta of Third Eyesight.
That is a long-term growth trend that Reliance like many others would want to feed into, say analysts. Some Indian entities such as Amit Burmanowned Lite Bite Foods and Amul owner Gujarat Co-operative Milk Marketing Federation too have entered the restaurant business recently. Private equity firms have been upbeat on the sector.
India Equity Partners recently bought South Indian restaurant chain Sagar Ratna Hotels for Rs180 crore, while ICICI Ventures invested around Rs250 crore in RJ Corp’s Devyani International, which operates KFC, Pizza Hut and Costa Coffee.
Besides multi-brand chains, Reliance Retail owns specialty stores such as books and music chain Time Out, footwear chain Footprint, department store Trends, consumer durables chain Digital and home decoration through brand Living.
admin
December 10, 2011
Pragya
Singh
Outlook,
December 10, 2011
Single-brand retail OKed: as long as those UPA feet don’t
grow cold. With plans for raising FDI in single-brand retail from
51% to 100% getting the green signal, albeit with possibly more
riders, all is not lost for India Inc. Single-brand retailers
span the entire gamut of Indian consumer demand, from the luxury
segment that includes the likes of Louis Vuitton and Fendi, going
right down to mid-range consumer brands and sports outfitters
such as Nike, Reebok, Marks & Spencer, H&M, Office Depot
and Hamleys.
These firms can now either look to Indian shores expectantly, and some may even reconsider existing tie-ups to go it alone. “Single-brand retail, like a Nike or Adidas, will not directly compete with small kirana or independent stores. Hence, the attention of the party has been focused on preventing entry of multi-brand foreign companies,” says the CPI(M)’s Prosenjit Bose.
The biggest beneficiary of this segment will be the rapidly growing cash- surplus consumers seeking ‘luxury goods’. Next in line to benefit will be the millions of school-pass young workers, anxious for jobs with an address more chic than “chacha’s dukaan”.
On growth prospects, Devangshu Dutta, of retail consultancy
Third Eyesight, says, “Carefully select the market segment
as in the last 10 years many segments have matured, meaning that
growth will not be as fast and wide as it was.” Still,
be ready to welcome global biggies like home solutions major Ikea,
which is among those that have been eyeing the Indian retail market
currently worth about $450 billion.
(Read: "Debate on FDI in Retail — More Heat than Light")
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December 10, 2011
Vishal
Krishna
Businessworld,
December 10, 2011
The government blinked. After battling the political opposition
for about two weeks, the government backed down from introducing
a policy allowing foreign direct investment (FDI) in multi-brand
retail.
The expectations of corporate India and the people at large were belied; you could hear the collective whoosh of disappointment. Then came some repressed anger, especially among captains of industry, at the political wrangling over what many of them see as a policy that is in the public interest.
Others were cynical. “It was expected,” says Shrinivas Rao, CEO (Asia-Pacific) of Vestian Global, a real estate advisory. “The geopolitical risk is large; big box retail will wait and watch for positive vibes from the states.” But from all indications, it might be a long wait, and we will probably see little.
“It was clear that when the Cabinet said yes to 51 per cent foreign investment in multi-brand retail and 100 per cent in single brand retail, it didn’t quite mean an all-clear to accelerated development of modern retail in the country,” says Devangshu Dutta, CEO of Third Eyesight. But, he says, the debate is not over. The states have the power to let foreign-owned retail businesses operate within their boundaries, so local and regional political parties have an impact on retailers’ expansion strategies.
The political skittishness revolves around three factors: the interests of ‘small’ farmers and the wider farming community that might get squeezed by big, organised retail; the mom-and-pop stores that will give way to large supermarkets and job losses; and, the middlemen that proliferate in the retail business.
Food For Thought
Food accounts for more than 70 per cent of all retail trade,
and fresh agricultural produce is a big chunk. On an average,
about 190 million tonne of fruits and vegetables are produced
each year; farmers get about a third of the price realised from
the customer. In organised retail markets, that number is about
two-thirds.
Letting in FDI in building backend infrastructure — cold chains and logistics — would improve farmer’s realisations. Yet, there are just over 5,500 standalone cold storage facilities, 80 per cent of which hold one vegetable: potatoes. Government statistics have put the waste of produce — including foodgrains — in the absence of cold chains and storage at 18-20 per cent.
In the absence of organised retail — which would grow if there is FDI in the backend because domestic companies lack both the technology and the financial capital to build it — the share of SMEs in manufacturing has fallen from nearly 35 per cent in 1999-2000 to less than 30 per cent in 2009-10. In both cases, the case for allowing FDI in retail seems self-evident; yet, it has not been made possible. Some of it has to do with state politics; the powerful agricultural produce marketing committees (APMCs) seem to be a stumbling block. The APMC Act and middlemen play an influential role in shaping FDI policy.
For years, retail trade has been a shock absorber; part-time agricultural labourers, laid-off factory workers and migrants have found employment in retail trade. Even skilled labour has found refuge there.
Take the textile workers of Mumbai: after the strike that closed down Mumbai’s textile factories, workers found jobs in the street food industry of the metropolis, many becoming entrepreneurs, thriving in their new-found vocations.
Here’s the takeaway: what most miss is that a huge part of employment in retail trade is not visible, but nevertheless exists, even if not captured in the official employment statistics. FDI in retail could help change that, as technology and practice bring the reality to the fore.
What Foreign Retailers Think
Companies such as Walmart, Tesco and Carrefour that have been waiting for progress on the FDI policy for retail have been rather quiet. Metro Cash & Carry, a wholesaler, has indicated it won’t enter the front end of the retail business.
But the disappointment is tangible. “Direct and in-time sourcing is the key for the success of modern retail,” says Viney Singh, CEO of Spar Hypermarkets, a retail firm. “The time is right, and any political delays will not be good signs for the global investing community.”
Allowing FDI in the backend would have resolved supply-chain problems to some extent. “Retail helps local manufacturing, creates jobs and drives product to market faster,” says Mark Ashman, CEO, HyperCity Retail India.
“The proposed FDI policy presents retailers with an unprecedented opportunity to expand into Tier-2 and Tier-3 cities,” says Pankaj Renjhen, managing director (retail services), Jones Lang LaSalle India. A report by his firm says that the entry of large retailers into non-metros would catalyse consumer demand.
“It is a missed opportunity, which would have created over 10 million new jobs in three years, curbed agricultural wastage, benefited farmers with better remuneration for their produce and brought down prices of many commodities for consumers,” says D.S. Rawat, secretary-general, Assocham.
Bleeding Indian retailers such as Provogue and Koutons could have sold out. Kishore Biyani’s Pantaloon has over 1,000 stores and getting a partner with the capital would reduce the debt burden.
“People were keen on FDI because of the valuations created with so many stores with a loose backend being ready; people scouting for foreign buyers would have made money after all these years,” says Akash Gupt, executive director (tax and regulatory services), PricewaterhouseCoopers.
Foreign investment could change the way India retail firms function. But for now, most proponents of the policy will have to swallow their disappointment and hope that the government gets its act together enough to put it back on the agenda: the sooner, the better.
(Read: "Debate on FDI in Retail — More Heat than Light")
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December 2, 2011
Indrajit Basu
China Daily Asia Pacific, December 2, 2011
Some predict it will herald a consumer revolution in the huge
retail sector, some forecast doom for countless small traders
and farmers.
The country’s business and political class has been divided down the middle ever since the central cabinet decided to throw open the retail sector to foreign investors.
While the industry calls it a “landmark decision”, the United Progressive Alliance (UPA) government is feeling the heat, both from outside and within. Opposition parties as well as some key UPA allies demand an immediate rollback, or else they threaten to paralyze Parliament.
Thousands of small traders, farmers and retailers are holding protest rallies across the country fearing that foreign retailers could deprive them of their livelihood.
After almost a decade of foot-dragging and consensus building, the Indian government approved a plan to let foreign investors hold a 51 percent stake in multi-brand retail. The plan also allows foreign investment cap to be raised to 100 percent from 51 percent for single brand retail operation.
Besides allowing global retailers like Walmart, Carrefour, Tesco and IKEA to sell directly to Indian consumers, the relaxed FDI norms will enable fashion brands such as Gucci, Mango, and Zara to open exclusive stores.
That apart, the move would help several troubled organized local retailers to raise money by selling stakes to foreign investors.
“We are absolutely thrilled and have been waiting for the day,” said Gregg Mowins of IKEA in a statement while Raj Jain, chief executive of Bharti Walmart, the 50:50 wholesale joint venture between Walmart and Bharti Enterprises, said the move is “fine”.
Kishore Biyani, the founder of Pantaloon, India’s largest local retailer, predicted the sector could attract as much as $10 billion in 5-10 years. According to him, it’s the “beginning of second generation reforms”.
It is predicted that the burgeoning middle class in Indiawill help the sector generate over $450 billion in annual revenues. Analysts say the 400 million strong, and growing rapidly, middle-class Indians, will transform the sector to a $675 billion behemoth in five years.
The new policy could bring many indirect benefits too. Commerce and industry minister Anand Sharma has said opening of multi-brand retail will not only bring down inflation, the resultant inflow of foreign funds may also help Indiafinance the current account deficit.
“It will also unfold immense employment opportunities for rural youth and make them stakeholders in the agri-business chain from farm to fork,” Sharma said in an open letter.
Nonetheless, with many issues and agendas at play and conflicting views emerging, the issue may be generating “more heat than light”, says Devangshu Dutta, chief executive of Third Eyesight, a consulting firm.
Already all opposition-ruled states, and some UPA allies are against the move. Even some Congress-ruled state governments in Haryana and Kerala are wary of the possible consequences of global retail giants Walmart and Tesco doing business in their states.
“We have no evidence that it will be beneficial for small businessmen,” said Amit Mitra, the finance minister of the state of West Bengalwhich is ruled by key UPA ally, Trinamool Congress.
Admittedly, there will be winners and losers.
According to Dutta, losers will include simple intermediaries and low-value wholesalers who have a diminishing role in a better-connected economy. However, he adds, “The fact is that most of them would anyway be losing in absolute or relative terms to the large Indian retailers over the course of the next few years; it would be naive, even dishonest, to suggest otherwise.”
According to an academic, liberalization of retail is good news, but the government must put in place a few complimentary measures.
“FDI in retail’s biggest hurdle will be infrastructural issues like lack of suitable supply chain, lack of real estate availability, high power cost, etc.,” says Professor Arpita Mukherje of National Council of Applied Economic Research.
First, Indiamust scrap the Agricultural Produce Marketing Committee Act, which denies farmers and buyers the freedom to buy and sell freely and empowers a group of middlemen, she says
“Besides, there are strict conditions in the policy as well,” says Mukherjee.
According to the policy, global retailers must invest a minimum of $100 million upfront (of which half must go into back-end infrastructure) and source at least 30 percent of their products from small domestic industries or village craftsmen.
The government, too, will have the first right to procure farm products.
“Retailers across the world are bleeding; it remains to be seen how foreign retailers react to these conditions,” says Mukherjee.
Dutta feels there will be a period of “wait and watch to see how the new policy affects India’s retail. It will take a while to build momentum”.
Likewise, BS Nagesh, vice-chairman of Shoppers Stop, another major local retailer, says FDI in multi-brand retail will help only those looking at divesting their stakes or those looking for partners.
Meanwhile, the Ministry of Commerce and Industry on Nov 28 reviewed the sourcing clause to mandate a minimum 30 percent sourcing “from Indian micro and small industry having capital investment of not more than $1 million”.
In a desperate effort to pacify the opposition, the ministry also added that the clause was changed, “to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology upgrade and income generation”.
Earlier, the policy had said, “Thirty percent sourcing is
to be done from micro and small enterprises which can be done
from anywhere in the world and is not India-specific.”
(Read: "Debate on FDI in Retail — More Heat than Light")
