Year: 2012

Suntory forms JV with Narang Group subsidiary to enter India’s non-alcoholic beverage market

admin

June 14, 2012

Sarah Jacob, The Economic Times

Bangalore, 14 June 2012

Japanese conglomerate Suntory, known for its whiskies and beers, has picked up majority stake in a subsidiary of Mumbai-based Narang Group to enter India’s non-alcoholic beverage market.

Suntory Beverage and Food Asia, which manages the M&A strategy and administration of group companies of the ¥1,802.8-billion (approx Rs 1.3 lakh crore) Suntory Holdings in Southeast Asia, has bought 51% stake in Narang Connect.

"The joint venture (Narang Connect is rechristened Suntory Narang) is focused on premium, healthy, coffee-based and carbonated beverages," Rahul Narang, founder and chairman of Narang Group, said.

This is the group’s second joint venture with a multinational, having partnered French giant Danone for Qua and B’lue water in 2010.

"In the next 3-5 years we will be a major player in India, right under Coca-Cola and PepsiCo, and the largest players in the premium beverage segment," Narang said.

He did not divulge the valuation of Narang Connect, which provides coffee solutions for the Horeca segment and markets Lindt chocolates, Illy Coffee and in-house brand Karma coffee in India.

Established in 1899, Tokyo-based Suntory is one of the oldest liquor firms in Japan. In India, it began marketing Hibiki blended whisky and Yamazaki single malt last year through a tieup with Radico Khaitan.

Suntory also makes brands such as Oolong tea, Boss coffee, recently-launched Espressoda and zero-calorie drink Pepsi Nex, which was created as part of its three-decade-old partnership with PepsiCo.

Narang said the venture will launch low sugar or vitamin-infused drinks priced around Rs 30-35 for a 330 ml bottle.

"We would look at creating localised products, which is where Suntory’s research and development and manufacturing expertise will come into play," he added.

Suntory Narang has begun locally manufacturing citrus-soda Orangina through third parties and will roll it out across markets by October. Brands CC Lemon and Boss coffee will be launched after that.

Independent manufacturing was not on the immediate horizon, but the company did not rule out extensions into food categories in the future. Narang has been named the executive chairman of the firm. Avik Sanyal has been internally promoted within Narang Group to the post of COO of the JV, which is targeting sales of 700 million Japanese yen, or about Rs 50 crore, in the first year of operation.

Narang Group has a distribution network covering around 1.5 lakh points of sale across India, Narang said. Having entered the beverage segment by distributing premium bottled water Evian and energy drink Red Bull in 2003, Narang struck a joint venture with Danone in July 2010.

Analysts say there is significant room for growth as the Indian packaged beverages market. "Although there is intense competition in the beverage segment in terms of retail and advertising, the Indian per capita consumption of branded drinks is still very low," Devangshu Dutta, chief executive at consumer goods and retail consultancy Third Eyesight, said.

The total value sales of packaged soft drinks (including on-trade and off-trade) was Rs 35,150 crore in 2011, up 21.4% from 2010, market research firm Euromonitor International said. It added that value sales will increase 19.5% a year to reach Rs 85,500 crore by 2016.

Narang has ruled out a conflict of interest between the two joint ventures. While Danone is focused on products in the still water segment, the Suntory JV will focus on the sparkling or carbonated drinks segment.

Instead, he said there are synergies between the two ventures. "This deal gives us scale and we can share support functions, logistics, warehousing and IT. This helps build the businesses for all and joint benefits of costs, including for Danone," Narang said.

---

Indian Retailers Retrench As Reform Hopes Dashed

admin

June 11, 2012

Nandita Bose, Reuters

Mumbai, 11 June 2012

India’s largest supermarket operator, Future Group, is having a clearance sale: its financial service business and flagship clothing brand are gone, and more deals are in the pipeline.

Six months after the government backtracked on plans to allow foreign retail giants such as Wal-Mart Stores and Carrefour to form joint ventures, cash-starved domestic chains are selling assets, shutting stores, and scaling back expansion plans.

It seems improbable that retailers could be in such trouble in India. They have the world’s second-largest population, increasingly affluent consumers, and limited competition.

But things are tough for supermarkets, a relatively new business sector in India, with every major chain losing money. The economy has lost momentum, compounding problems of high food inflation and low retail prices, and expensive real estate.

Foreign partners would bring experience, expertise and funds, but many in the industry do not expect a decision on foreign investment in supermarkets before elections in 2014.

"These companies have realised there is no point standing still and bleeding more, waiting for the government to act," said Debashish Mukherjee, partner and vice-president with consultancy AT Kearney.

Alternative Funding

With foreign investment ruled out, many supermarkets, which account for 70 per cent of organised retail in India, are looking to private equity investors or hitting up their billionaire owners for more capital as they continue to bleed.

"Foreign private equity firms are in talks with smaller businesses which are less capital intensive. So this option is ruled out for the big boys," said an investment banker who did not wish to be identified.

Last November, after years of delay, the prospect of a foreign partner appeared tantalisingly close for the domestic chains. India said foreign supermarket operators would be able to own up to 51 per cent of a joint venture.

Industry euphoria proved short-lived. Under pressure from ruling coalition allies, the government backtracked in an embarrassing reversal that has come to symbolise the inability of Prime Minister Manmohan Singh’s administration to enact reforms.

Indian traders and middlemen vehemently oppose allowing foreign chains into a $450 billion retail industry where 90 per cent of sales are made by informal "kirana" stores, which are generally family run.

Proponents argue the infrastructure and investment that can be brought by the likes of Wal-Mart would go far to ease crippling food inflation and a high rate of food spoilage.

"We are going cautious with our expansion plans," said Mark Ashman, chief executive of Hypercity, the hypermarket arm of Shoppers Stop, which, like many of its rivals, hopes to join forces with an overseas retailer once the rules change.

"If foreign direct investment was allowed, the appetite for expansion for us would certainly be higher," he said.

A Smaller Future

Future Group, controlled by Kishore Biyani, known as the father of Indian retail, recently sold control of its financial services arm Future Capital to private equity firm Warburg Pincus.

Future, which sells groceries under the Big Bazaar and Food Bazaar brands, announced the deal days after it sold a controlling stake in its flagship clothing brand Pantaloon. The two deals will wipe about $1 billion in debt from its books.

"Our intention is to exit from non-core businesses and focus on core retail business," a company spokesman said, adding Future Group aims to be debt-free by the end of the fiscal year in March 2013.

"Two recent deals are not the last ones from us."

Future is now in talks to sell a stake in its food processing and manufacturing business to Japan’s Lawson Inc, Japan’s No.2 convenience store chain, a source with direct knowledge said, adding a deal would be finalised soon.

Lawson spokesman Shin Ichikawa said the company was in talks with several potential partners about entering India, but declined to name them and said nothing had been decided.

Future Group also plans to exit its insurance joint venture with Italy’s Generali, although a possible deal is further off, said the source with direct knowledge who declined to be identified.

Scaling Down

As well as selling assets, Future Group, which operates more than 1,300 grocery stores covering 16.5 million square feet (1.5 million square metres) across its different formats, is also scaling down growth plans.

The source said the group will only open 2 million square feet of retail space this fiscal year, instead of a previously announced 2.5 million square feet (230,000 square metres).

Future is not alone. Aditya Birla Retail has shut 50 of its More supermarkets and is closing loss-making outlets in Mumbai, Delhi and Pune to focus on hypermarkets, a company source said.

The company, part of the Birla conglomerate, has also sought another Rs 300 to 400 crore from controlling shareholder Kumar Mangalam Birla, the source said.

Even mighty Reliance Industries, the conglomerate controlled by Mukesh Ambani, India’s richest man, has been unable to make money in retail after six years in the business and 1,300 stores.

Still, it has no plans for a foreign partner and is pushing ahead with expansion of its supermarket chains.

"Food and grocery retailers have been suffering in most of the major markets," said Devangshu Dutta, consultant with Third Eyesight.

"Many believed India to be insulated, but that’s not the case."

---

Anita Dongre creates designer labels for masses

admin

June 11, 2012

Abhinav Mohapatra, Pitch
Mumbai, 11 June 2012

The upper and upper middle class of the consumer segment does look where it is investing its money, even in the small things like apparels, but also wants to carry a style statement for the same. Eyeing an opportunity in the growing mass apparel market, Anita Dongre is bringing high street fashion to the mass consumer.

“As more Indian women step out to active working lives, they are looking for styles that draw upon Indian design influences and sensibilities, but are fresh, with cuts and silhouettes that are convenient to wear,” says Devangshu Dutta, Chief Executive, Third Eyesight. He also adds that the apparel market in India is far from saturated and in spite of the entry of international brands, there is ample scope for growth of Indian brands. “However, the challenge for design-based businesses in India is to create an organised structure that allows the business to scale.” Dutta adds.

Currently, Dongre’s brands’ retail presence is strong with 75 exclusive brand outlets and over 250 Multi Brand Outlets. She plans to expand her presence beyond Indian borders and fully transform into a global lifestyle brand. “We are looking to expand demographically, looking to expand to different continents.” Dongre shares.

Market segment must in fashion industry

In principle, for any successful business or marketing plan it is imperative to have a market segmentation strategy in order to understand who exactly the consumer/market is; and the fashion industry is no exception to this rule. Hence in order to expand her brand’s reach to various potential TGs, Anita Dongre categorised three kinds of probable consumer sets. Dongre explains, “We actually started with mid premium and mass segment and are now moving to offering a premium brand. We wanted to target all the segments and product the best in each. Our labels cater to various tastes and requirements and internally, we treat each brand as a separate unit when it comes to design, marketing and strategy.”

Her brand portfolio consists of high street Western wear label AND, Indo-Western fusion labels like Global Desi and IInterpret, Timeless bridal wear, Grassroot that caters to ethnic fashion and organic wear, and AD Man, which is her foray into menswear. Most of her brands have strategically occupied the shop in shop format in various lifestyle chains like Shoppers Stop and Pantaloons.

Though multi brand outlets sport many such designer brands which do create awareness for these products but also are not able to compete with mainstream brands such as Levis, Pepe, UCB and USI etc. Hence, Third Eyesight’s Dutta feels that the strongest brand is one that stands out as distinctive in a department store environment and also has the ability to support a stand-alone exclusive store. For that, the product range has to be both wide and deep, and the ‘handwriting’ of the brand must be distinct from its competitors, season after season. Dongre has hence kept the emerging fashion consciousness among men consumers and started an apparel line catering to the same. She adds, “We have also started small with Timeless and AD Man and are looking to take these two all over India.”

Explaining the fashion industry structure at apparel design segment, V Rajesh, retail subject matter expert says that there are three levels the top end, that have players like Rohit Bal who cater to specific targets and extremely niche category, at the next level there are these top end designers who have their own line of clothing and boutiques like Ritu Beri, and at the bottom there are those who are from the merchandising background and design for major retail outlets like Shoppers Stop and Lifestyle. Dongre fits all the three.

Hence, he adds that apparel is more a functional product with the change of trends and time the role of the designer who has a more hands on job also changes accordingly. “In addition, these affordable designers have a plus point, they have a craving to be unique and stand out. That is why they look for clothes that are affordable as well as have a signature design. The only minus point in that in India nobody has respect for intellectual property rights,” he adds. Thus, there is a lurking threat of imitation in the apparel market in India.

Affordable designer tag

Nevertheless, the retail expert thinks that today the mass segment obviously cannot afford apparel showcased in Lakme or Wills fashion week. Thus, if they get a chance of getting apparels by the same designer at a much affordable rate, it is a good proposition for both the consumer and the marketer.

Thus, the budding apparel entrepreneur has consciously kept the prices of her more popular brands AND and Global Desi between Rs 1,500 and Rs 4,000. Thus, the value for money proposition and a designer tag not only suit the pockets of her various TGs but also fills the aspirational need of the consumer.

In addition, according to brand expert and columnist Santosh Desai, Indians are bent up on value for money, they look at the price point and from that perspective there are many different designers to look at in today’s market. The Indians look at affordable apparels that have got the signature tags of these designers. “Therefore we see a balance being created between the seriousness of the designers and the price tag that comes with their signature apparels,” he adds.

Desai strongly feels that there is an overall need in the market today and there is a good opportunity for designer brands to flourish. As Indians look for originality that distinguishes them from the mainstream, these designer brands are changing their view from being on the top end of the pyramid to catering to the masses at the bottom too. “In the case of Anita Dongre, she has originality and distinguished design that attracts the market, also she has many brands running under one umbrella and a more than one line of apparel,” Desai sums up.

---

Modern retail: Small town India checkmates metros

admin

June 6, 2012

Priyanka Golikeri , Daily News & Analysis (DNA)

Bangalore, 6 June 2012

For IT professional Meena Sarma, living in Mysore no longer implies a small-town existence. The historical city has everything, from corporate parks and hotels to dazzling malls.

Being a shopaholic, she is glad that from salad dressings and Dutch cheese to the latest apparel and footwear brands, everything is available within reach, the precincts of her neighbourhood or office complex, just like in any other megalopolis.

A welcome change, says Sarma, as this was not the scenario some years ago. Earlier, we could shop only at neighbourhood mandis and local stores, she says. “As there were hardly any supermarkets and hypermarkets within easy reach,” she adds.

This meant stocking up on her favourite food and clothing brands during every visit to Bangalore. Nowadays, the 28-year old, who earns Rs. 35,000 monthly, prefers buying groceries and perishables from any of the organised outlets dotting her street.

At least thrice a week, she ends up making a trip to the supermarket, spending an average Rs. 200-300 per visit. In contrast, her visits to the local kiranas have come down to a trickle.
“Unless it’s a sudden realisation of oil or flour getting over at home, I don’t visit the provision store next door.”

Sarma likes the air-conditioned ambience, the discounts on MRP given on certain products, not to forget the spread of international savoury and dairy food.

Tier II towners like Sarma, who breeze into retail outlets twice or thrice a week, are a chief reason behind the surge in growth in modern trade in non-metros. Data by Nielsen show that tier II markets like Surat, Indore, Jaipur, Vizag and the like are witnessing rapid growth in modern trade (see table). Not only are these places registering strong double-digit numbers, but are often clocking more growth than established markets like Mumbai, Chennai and Kolkata.

Like the metropolitan shopper, tier II and III town shoppers also display the same purchasing power and willingness to buy a wider category of brands, say experts. Jamshed Daboo, CEO, Trent Hypermarkets, says there is a distinct trend towards shopping in a modern environment that offers a variety of local and international products. Trent has 15 hypermarkets measuring 35,000-80,000 sq ft, including those in small towns like Aurangabad, Surat and Kolhapur.

Others like Spar have outlets in towns like Coimbatore, Vijaywada and Mangalore spread across 35,000-40,000 sq ft.

Likewise, the Bharti Walmart joint venture also has a presence in tier III towns like Ludhiana, Guntur, Meerut, Agra, Amravati and the like. It operates 17 wholesale cash-and-carry stores spread across 50,000-100,000 sq ft in such places. “Often, breakfast cereals, canned food, jams and salad dressing are hot favourites with customers,” says Daboo, adding that all the stores stock products by British retailer Tesco – with which Trent has an agreement – and other international goods priced between `30-500 per unit.

Devangshu Dutta, CEO of consulting firm Third Eyesight, says tier II towns have done well for retailers primarily because rentals and other associated costs are lower while competition from modern trade is limited.

“But the challenge is to ensure there is repeat purchase and basket sizes are gradually upgraded with people buying more rather than splitting their baskets across stores,’’ says Amitabh Mall, partner and director, Boston Consulting Group.

The consumer basket is often split between stores as people still prefer to go to traditional stores for certain products. “Like buying rice from mandis or fruits and vegetables from the local sabziwalla,” says Mall.

Also, though stores in small towns exude optimism, at times the productivity is just marginally below those in metros, according to experts. General outlets in metroes spread between 80,000-1 lakh sq ft witness monthly footfalls exceeding 6-10 lakh. But in small towns, the picture is slightly different, as stores are smaller in size and population less.

Dutta says a small town may not be able to support a store more than 15,000-25,000 sq ft, even with a similar “one-stop-shop” offer.

Says Viney Singh, MD, Max Hypermarket India, “Our stores in small towns have an average footfall of 150,000 per month and this is growing at about 5%.’’

---

Lifestyle retail chains post weak same-store sales in January-March quarter

admin

May 30, 2012

Sarah Jacob & Sagar Malviya, The Economic Times

Bangalore/New Delhi, 30 May 2012

Sluggish demand has led lifestyle retail chains to post weak same-store sales in January-March 2012 and lower growth estimates for this fiscal.

Driven by new stores, most retailers clocked 20-30% sales growth in January-March. But same-store sales, or sales from stores that were operational last year, grew in single digits. Samestore sales are an important indicator of consumer demand and the health of the retail industry. Retailers don’t expect things to improve this fiscal as demand is subdued. The downturn began after Diwali, and the increase in the prices of essential commodities, lower salary increments, adverse macro-economic conditions and government inaction dented consumer confidence.

"We would have targeted double-digit like-to-like growth if the year looked better," said Govind Shrikhande, MD of department store Shoppers Stop. Shoppers Stop’s revenues grew 27% to Rs 621.35 crore in the January-March quarter, but samestore sales grew 10%. Volume growth contributed just 1% to the increase in same-store sales while price hikes made up the rest. "Prices have risen and imports are getting costlier. These developments start impacting consumer demand after a point," said Shrikhande.

Rival Lifestyle International, which operates stores under the Lifestyle and Max brands, said it clocked sales of over Rs 2,500 crore last fiscal and has targeted revenues of Rs 4,500 crore by 2013-14.

Demand Subdued in April-May

"The second half of last year was not good and it’s apparent in our bottom line," said Lifestyle International MD Kabir Lumba. He refused to divulge figures as the company is unlisted. "Given the current market conditions, we have lowered our growth estimates by around 10%," Lumba added.

Pantaloon Retail posted an increase of 7.6% in sales for the three-month period ended March 2012, but same-store sales rose just 3.6% – the lowest in 13 quarters. Retailers say demand is subdued in the first two months of the current fiscal as well. "The overall sentiment has been poor and it is reflecting even in May," said J Suresh, CEO of Arvind Lifestyle Brands and Retail. The 10% excise duty on branded garments last fiscal has impacted Arvind’s value format Megamart, which posted a growth of 11% in same-store sales during the quarter against an 18% increase in the year-ago period. However, its lifestyle brands business – which includes Arrow, US Polo and Flying Machine brands – grew 27% in the fourth quarter in terms of same-store sales.

Same-store sales have slowed down despite retail chains extending end-of-season discounts and advancing them by up to three weeks to liquidate inventory. "This helped them post higher sales on a sequential basis. However, margins of most retailers took a hit," said Sangeeta Tripathi, a senior analyst with Sharekhan. Margins were further squeezed by higher interest rates, fuel and real estate costs.

The slowdown in like-to-like sales has forced retailers to explore new strategies to drive sales. Shoppers Stop, for instance, is focusing on store events as well as new loyalty card schemes and has recently lowered prices of private label brands by 5%.

Experts say stores can boost sales by improving shelf displays and promoting private labels. "Significant work can be done to make the product on the shelf more compelling for the buyer, both in terms of merchandising and placement. Retailers can also differentiate by looking at their private labels not just as additional margins but as brands that fill a gap," said Devangshu Dutta, chief executive of retail consultancy Third Eyesight.