Nupur Anand, Daily News & Analysis (DNA)

Mumbai, October 6, 2012

The buoyancy in retail stocks is unlikely to last, experts would have us believe.

The sector has been upbeat since the government gave its go-ahead last month to 51% foreign direct investment (FDI) in multi-brand retail and 100% FDI in single-brand retail.

Retail stocks have gained anywhere between 7% and 36% in the past three weeks.

However, analysts believe poor earnings will poop the party.

Brokerage CLSA said in a note earlier this week that September quarter earnings will remain tepid for the sector with players like Shoppers Stop and Pantaloon expected to report up to 43-74% decline in profitability.

The key worry is same store sales growth (SSSG), which refers to sales logged by a retailer’s existing stores during a certain period vis-a-vis the corresponding period a year ago. In short, therefore, the reference is to stores that have been open for at least a year.

According to CLSA, SSSG has been hovering in low single digits for leading formats and is even negative for some.
Other experts corroborate the claim.

Devangshu Dutta, CEO of retail consultancy firm Third Eyesight, in fact, feels any huge improvement in same store sales growth is unlikely. “The business is still under pressure, margins continue to remain thin and it is unlikely that the festive season will be able to fuel growth for the retailers.”

Sales growth for the 14 listed retail players has slowed from 23% in the September 2011 quarter to 10% by the June 2012 quarter.

For a retailer, a healthy SSSG in the current economic scenario would be 14-15%, said Arvind Singhal of Technopak.

But going by analysts, most retailers won’t reach this figure in the coming 2-3 quarters.

Blame it on inflation and dampened consumer spirits.

An extended period of discount sales this year has also nibbled on margins, bringing down overall profitability even though volumes have improved, Dutta pointed out.

This is likely to reflect in the retailers’ balance sheets soon.

To be sure, separate consumer surveys by BluFin and Assocham have found that consumer sentiment continues to remain subdued and is unlikely to improve in a hurry.

Also, in August, rating agency Fitch had revised the outlook for the retail sector to negative from stable for the second half of this fiscal.

In the midst of all this, a slowing SSSG could wreak havoc on retailers’ bottomlines, to put in mildly.

Priyanka Pani, The Hindu Businessline
Mumbai, October 5, 2012

“We have done a soft launch in some geographies and have got a very good response. We will look at a national launch early next year,” said Ashish Dixit, Chief Operating Officer, Madura Fashions.

The kids apparel market in India is likely to reach Rs 80,000 crore by 2015 from the current levels of Rs 38,000 crore, said industry body Assocham in a report last November. Besides, Indian players such as Liliput, Gini and Jony, and international retailers such as Zara Kids, United Colours of Benetton, Burberry are also trying to capture the market here.

Allen Solly is currently available with online retailers such as Jabong and a few others. The kids brand will soon be made available at all company outlets. At present, there are 140 such retail outlets.

“It does make sense for large-scale players to enter the kids segment, either by creating a new brand or even extending existing ones, given the long-term proposition in the market. In the next 25-30 years, a large section of the population will be below 10 years. With rising incomes, expenditure on a child’s clothes increases as he outgrows them quickly,” said retail consultant Devangshu Dutta at Third Eyesight research firm.

Early this year, knitwear brand Monte Carlo also entered this segment.

Allen Solly, despite being a male brand, has been able to strike a chord with corporate women. Their women’s range accounts for 25 per cent to the annual sales turnover. The firm has also unveiled a new brand identity with a new logo, a revamped store look and new advertising and promotion.

Vishal Krishna, Businessword

Bangalore, September 29, 2012

It is an early Monday morning and Sandhya Ram is busy preparing a presentation. But at the back of her mind are thoughts about her kitchen supplies, and what to cook for dinner. Sandhya needs provisions in a hurry so she turns to a grocery retailing website — it is convenient and the order comes right to her door. “I am a PhD student, and a mother. My husband is a consultant. We have no time to shop, and shopping for groceries outside takes time and energy,” says Sandhya, who is also a teacher and research assistant at a business school in Bangalore. Sandhya and many others like her are just the kind of customers that online grocery retailers plan to tap. At least 20 such businesses have opened up in the past year, and most of them are based in Bangalore.

But there is many a slip between the cup and the lip. Online grocery retailing has not had a good run in other countries, barring the likes of Tesco and Walmart that have spent years getting their supply chains and technology right. “When it comes to start-ups, the easiest piece to create is the technology involved for a great user interface to attract the customer,” says Devangshu Dutta, CEO of retail industry consultancy Third Eyesight.

There are, however, other challenges in grocery retailing — sourcing, maintaining consistency in service and products, and keeping operational expenses in control. But there are bigger problems.

One, the business needs money to survive in the long run. The scale that many of these businesses have is limited to the top 10 major cities and their affluent populations. Two, a majority of Indian consumers is yet to experience shopping online. Of the 8-10 million Indian women working in the formal sector (according to the National Institute of Public Cooperation), it would be difficult to assume how many of them actually shop online. But the online grocery business’s survival will ultimately depend upon women as decision-makers.

This business may be easy to enter, but longevity is another ball game, and the entrants are still learning the rules.

The Right Direction?

After taking orders online the previous day, the five-member call centre of Towness.com dispatches the packing order to the delivery team. The next day, 20 trucks leave a 20,000-sq. ft warehouse in Peenya, Bangalore, with cartons of jams, lentils, rice, wheat and pickles from FMCG brands, including ‘Town Essentials’. “I have been running a B2B business for 10 years and that gave me enough experience to dabble in the B2C business with private labels,” says Amar Krishnamurthy, MD of Town Essentials. Thanks to private labels in lentils, jams and pickles, the B2C business gives him higher margins and he also has more control over the working capital cycle. Usually, say analysts, margins in the online retailing business are only as high as 8 per cent, and that too if one manages the supply chain efficiently. But if private labels are the main business, margins can be significantly higher.

“There is enough business within Bangalore and I am improving my website experience to get more orders,” says a confident Krishnamurthy, adding that his B2B business, which supplies to over 200 hotels and restaurants, funds the online arm and manages its delivery too. Towness.com gets about 45 orders a day. “I do my own sourcing of all the commodities, fruits and vegetables because I believe in maintaining consistent quality if the customer has to come back to shop at the website,” he says.

In another part of Bangalore, 20 Omni vans leave a mandi in Whitefield for a 6,000 sq. ft warehouse, from where Bigbasket.com takes its products to three hubs across the city and delivers groceries. “The ability to gauge demand is the key to success in this business as you do not want to end up with too much inventory,” says Hari Menon, who co-founded Bigbasket.com with Vipul Shah. Menon adds that every online grocery retailer has to operate multiple spokes supported by a large hub if this business has to succeed. Bigbasket.com has 20 trucks and claims to handle over 400 orders a day. To support large orders, it is moving to a 30,000 sq. ft warehouse that will also be its central hub. “In this business you have to meet a 100 per cent fill rate for the customer. If you do not have the product he or she likes, you have lost one customer,” says Menon. The company has raised $10 million from Ascent Capital, and is currently the only business in this segment to have external funding.

Nupur Anand, Daily News & Analysis (DNA)

Mumbai, September 28, 2012

Infiniti Retail, Tata Sons’ wholly owned subsidiary that runs Croma consumer electronic goods chain, has acquired Australian major Woolworths Wholesale’s Indian arm for around Rs 200 crore.

The acquired company has been a supplier to Infiniti for six years.

Ajit Joshi, CEO of Infiniti Retail, said, “Once the deal is complete, we will merge Woolworths Wholesale India into Infiniti. We will also take their employees under our wing. With this buy, the total funding by Tata Sons in Infiniti has touched Rs 700 crore.”

The acquisition gives Infiniti full control over its back-end operations.

The sale is part of Woolworths’ global restructuring plan.

Ramnik Narsey, chairman of its India unit, said. “With our decision to exit the consumer electronics specialty store sector in Australia and New Zealand, we have decided to sell the wholesale business in India to Infiniti.”

However, experts said there may be other reasons that may have brought about an end to this partnership.

“The partners had been bickering for a long time now and so this exit doesn’t come as a total surprise,” said an industry expert on the conditions of anonymity.

Analysts also believe that armed with the knowledge about the Indian market, Woolworths may consider looking at entering India in the different segment or the front-end at a later stage. Apart from consumer electronics, the company is also present in other categories such asfood & grocery, liquor, petrol and general merchandise.

Analysts said with government opening up the retail sector for foreign direct investment many earlier joint ventures and deals between Indian and foreign players are set to change as foreign companies now have more options.

Devangshu Dutta CEO of retail consultancy firm Third Eyesight, said, “It is likely that in terms of single-brand retail the foreign partner may look at buying out their JV partners. Hectic activity in the retail segment in terms of new partnership and business formats is on the cards.”

Infiniti Retail currently operates 73 Croma and 12 Croma Zip stores in India.

Nupur Anand & Priyanka Golikeri, Daily News & Analysis (DNA)

Mumbai/Bangalore, September 27, 2012

FMCG companies are dusting off their strategy of selling products in small sized packs to prop up falling sales in the discretionary food segment.

Volumes in the discretionary category have dropped 2-7% in the first six months of this year, though sales of essential food items have stayed firm.

As a result, a host of products such as noodles, biscuits, chocolates and other snacks are increasingly being made available by companies in small sized packs, or sub-Rs 10 price points, to lure consumers who have cut spending due to the ongoing economic slowdown.

Smaller packs have been successfully used by FMCG firms to tap the rural and bottom-of-the-pyramid segments.

PepsiCo, Nestle and ITC areamong those which have launched products in the psychological price points of Rs 2, Rs 5 and Rs 10.

Analysts said when volumes are threatened it is a sound strategy to increase the focus on the sub Rs 10 price point.

“In a slowdown, consumers, especially those from the bottom of the pyramid, might not mind spending Rs5 or Rs 10 for a pack of noodles or chips, but will surely feel the pressure if they have to shell out Rs50 for a larger pack,” V Srinivasan, research analyst, Angel Broking, said.

Even premium products such as oats are now available in the quick-to-go Rs 10 pack.

PepsiCo, a major player with Quaker Oats, has products in in different flavours. These smaller packets are not only available in the neighbourhood departmental store but at even big retail chains.

“Sub-Rs 10 is the psychological price point for any product otherwise perceived as expensive. Packs in this category are not just meant for the rural and semi-urban segments but also for the urban consumer. Packs containing say just five biscuits or lesser quantity of chips are often consumed by people while travelling,” said Devangshu Dutta, CEO of retail consultancy firm Third Eyesight

Abneesh Roy, analyst with Edelweiss Securities, said apart from helping in expanding consumer base and footprint, this strategy will help the companies in tweaking grammage.

Companies can reduce weight on products that are priced below Rs 10 and go for non-standard packs, which allows them to defer price hikes, he said. For instance, recently Nestle reduced grammage for Maggi Noodles from 80 gm to 75 gm for a Rs 10 pack, effectively leading to a price hike of 7%.

Rikesh Parikh, vice-president, equities, Motilal Oswal Securities, said that strategy works to their advantage as for the same price, they can sell a slightly lesser quantity of the product.

After the packaging norms kick in from November 1, companies will have to sell products only in standard packs. However, these rules are not applicable on price points below Rs 10.