Year: 2012

Max signs pact with France’s Auchan, to rebrand India stores

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August 13, 2012

Meghna Maiti, Financial Chronicle

Mumbai, 13 August 2012

Max Hypermarket India, part of the Dubai-based retailer Landmark group, has signed a franchisee agreement with French retailer Auchan group to develop the hypermarket business in India. The existing Max Hypermarket stores will be rebranded as Auchan, and the stores will operate under the franchise agreement.

Max, which is run by Landmark group, operates 13 hypermarkets in India. These stores will be rebranded in the fourth quarter of the current financial year. Max and Auchan plan to open 12-15 new stores annually across India, they said in a joint statement.

Viney Singh, managing director of Max Hypermarket, told Financial Chronicle that the deal would help the company strengthen its backend supply chain and processes. While the company has invested Rs 450 crore in the business, it is looking to invest around Rs 500 crore over the next three years, Singh said. “The synergies could be in every sustainable area. Auchan’s expertise in managing hypermarkets and our understanding of the Indian market will ensure we bring the best of value, choice and experience to our customers,” added Singh.

Saloni Nangia, senior vice-president at retail consulting division of Technopak, said, “At a time when economy is really slow, such partnerships would go a long way in boosting confidence.”

“Auchan is one of the largest retail groups in the world. This move indicates a commitment of the Auchan brand to the Indian market. In case FDI in retail comes through, the French major may directly invest into Max,” said Devangshu Dutta, head of consulting firm, Third Eyesight.

Philippe Baroukh, GM of Hypermarkets at Auchan group said that the new franchise partnership is a great opportunity for Auchan to enhance its brand in a high potential market.

“The Landmark group has aggressive growth plans for India, across various verticals, and we believe that Auchan are the right franchise partners for us, as we continue to set benchmarks in Indian retailing,” said Ramanathan Hariharan, director of Landmark group in a press statement.

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Pantaloon cuts Food Bazaar, eZone outlets in major rejig

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August 13, 2012

Meghna Maiti, Financial Chronicle
Mumbai,13 August 2012

Even as Pantaloon Retail India (PRIL) continues its expansion drive, post its deal to sell controlling stake in the Pantaloons format to the AV Birla group, Kishore Biyani CEO at Future group has embarked on a restructuring exercise to ride through the downturn.

While PRIL increased its space under management by 0.55 million square feet of retail space, during the quarter ending June, compared with the year-ago period, the flagship of India’s largest listed organised retailer has shut down two stores of its electronics retail chain eZone and 10 stores of its core format Food Bazaar, the company told analysts in a presentation last week.
Food Bazaar the supermarket format is a key component of Future Value Retail that brings in the lion’s share of the company’s revenues.

“Fresh food and grocery is a challenging format for most retailers. Biyani is trying to reduce the company’s losses by shutting down non-profitable sto­res,” said Harminder Sa­hni, managing director of Wazir Advisors.

In an analyst presentation, PRIL at the end of June quarter had a total operational retail space of 16.71 million square feet. “The company believes that in such challenging times, the focus has to be on areas like better inventory management, prudent cost management and more efficient store operations,” PRIL said in its quarterly result statement.

Devangshu Dutta, chief executive at Third Eyesight said that retailers should shut down stores located in wrong catchments, customers. “In such cases, the company should try to reform the stores. It’s sign of a healthy business,” he added.

Biyani’s eZone competes with Tata owned Croma and Videocon owned Next Retail, among others. The Food Bazaar unit has been facing increased competition from the Raheja owned HyperCITY; Reliance owned Reliance Mart and Super department stores amongst others.

Retailers in India have traditionally struggled to make a profit in the low margin food and grocery business as the fresh fruit and vegetables section has been their Achilles heel.

“During this period, the company focused as much on opening new stores in key locations as on improving store efficiencies. At a number of locations that weren’t performing up to the mark, the company decided to rationalise spaces either through shutting down non-performing sections of the store, conversion of lifestyle formats to value formats or full closure of stores,” said PRIL in the commentary of its results for its fourth quarter results announced last week.

PRIL’s gross space addition in the past 12 months was 2.37 million sq ft.

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Big Bazaar goes online in Mumbai

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August 2, 2012

Meghna Maiti, Financial Chronicle
Mumbai, 2 August 2012

If you are worried about the long queues at your neighbourhood Big Bazaar during the much-awaited Independence Day sale, help is at hand. For the first time the supermarket chain, is now coming to a computer screen across the commercial capital of Mumbai with the Biyani-led venture starting an e-tailing offering bigbazaar.com.

The e-tailing venture that promises home delivery of its merchandise across Mumbai could potentially do away with the drudgery of shopping on weekends and take care of the issue of long queues at billing counters on holidays and weekends. It will also allow the Biyani franchise to boost sales without adding real estate and salary costs, said industry experts. “Adding an online interface is the smartest thing to do at a time most retailers are going multi-channel,” said Saloni Nangia, senior vice-president at retail consultancy Technopak Advisors.

The biggest constituent of Kishore Biyani-owned Future Group will offer potential customers buy non-perishable products right from food and grocery to apparel save for fresh, dairy and frozen products, oil pouches, jams and sauces and loose cereals etc. The e-tailing venture has gone live just before the crucial Independence Day sale, which is one of the biggest revenue earners of Big Bazaar in the year. Big Bazaar will also offer cash on delivery option for this service, which is likely to give serious competition to kirana stores. For orders above Rs 500 in value, there is no delivery charge.

“When any company treats its online venture as just an add-on, it does not run very well. The company has to treat it as a different business environment with a clear model to succeed,” said Devangshu Dutta, CEO at consultancy firm Third Eyesight.

While the company’s online retail arm, futurebazaar.com is already operational; it has launched new initiatives in the e-commerce space such as SMS short codes, teleshopping proximity marketing through mobile phones. The initiative has helped Future Group, one of the first modern retailers to move into digital commerce in a big way. It will compete with portals such as eBay.com, Indiatimes.com and rediff.com as well as with websites of Shoppers Stop and Landmark, on the internet.

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Avoid impulse-buying while shopping premium brands at a sale

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August 2, 2012

Prashant Mahesh, The Economic Times

Mumbai, 2 August 2012

People may not love the rains, but monsoon sales are the favourite with most of them. It has almost become an annual ritual with people to shop for their favourite brands during the sale period that are otherwise too expensive to purchase. And the retailers are more than happy to cash in on this consumer frenzy.

Yes, it’s once again that time of the season to go on a shopping spree and pick up stuff at discounts varying from 10 to 90% on your favourite products… be it apparel, shoes, bags or watches. Some people may even want to buy presents to give their friends through the year for birthdays, reunions and so on, and this year is no different.

The economic slowdown hasn’t cast its shadow on the so-called season’s sales. Huge hoardings are visible at every busy traffic signal. But, one small nagging doubt: Is it a smart idea to shop at these sales? Sure, you save a lot of money, but does it make financial sense to shop as if there won’t be another sale in this millennium.

“Year-end sales are a great time to shop from a consumer’s perspective since you can get premium brands at a discount on such occasions,” says Ram Gudipati, Manging Director, Brand Harvest.

“Do not indulge in impulsive buying and avoid purchasing high-value items in a sale. Ensure that the sale is genuine and you get value in what you are buying,” says Devangshu Dutta, Chief Executive Officer, Third Eyesight, a consulting firm focused on retail and consumer products.

CHECK IF THE SALE IS GENUINE

There are many reasons behind an end-of-the-season sale. As a consumer, you need to understand if it works for you or not before opening the wallet.

“Due to the slowdown in the economy, manufacturers could not sell everything that they produced, resulting in a higher inventory, which they want to liquidate before the festive season sets in. A sale is one of the best ways to do it,” says Arvind Singhal, Chairman, Technopak Advisors.

“Styles and fashion change fast. In the case of apparel, designs could go out of fashion fast. Hence if a manufacturer has excess stock of a particular design, which he feels will go out of fashion, he would be better off selling it at a discounted price through a sale,” says Devangshu Dutta.

Of course, there is nothing wrong in both the above cases, as it is genuine and it could work in your favour, say experts. Then there are some retailers who play on consumer psyche, whom consumers need to be careful of. “Many retailers deliberately mark up a price of a product and then mark it down during the sale period,” adds Dutta.

So a product whose fair price is actually Rs 400 is marked up to Rs 800. A regular customer at the store is tricked into believing that it’s the best price and grabs the product in a sale on seeing a 50% discount.

Of course for a layman it is very difficult to distinguish whether a sale is genuine or not. However, if you use the brand regularly or visit the store regularly, it will be easier for you to judge whether the sale is genuine or not. You will be able to distinguish stores that use such tricks over ones that are genuine.

“Consumers should scan the market and check comparable products, which will give you an idea if the sale is genuine or not,” says Dutta.

EXERCISE CAUTION WHILE BUYING HIGH-VALUE ITEMS

While apparels or shoes are great to buy in a sale as they are low-value items, the same may not be the case with costly consumer durables or other high-value items.

Experts suggest consumers should be careful when it comes to buying a television, refrigerator or air conditioner during an year-end sale. Many a time the product may be available without the packaging or could have a dent or the paint would have peeled off and so on. While a minor defect may be ok, it is important for a consumer to check whether the company is ready to provide full-service and warranty for a product sold at a sale.

Many stores do not offer replacement for products bought during a sale. So in case of apparel and shoes ensure what you are buying fits you, since it may be difficult to replace the product otherwise.

BE A JUDICIOUS BUYER

Many of us just get tempted and buy all the things that are on sale, irrespective of whether we will use them or not. Experts caution against such impulsive buying. Spread your purchases over a period of time, rather than buying everthing in just one day, they advise.

“Buy a product only if you are going to start using it within the next two or three months,” says Aasheesh Mediratta, Director Sales, Fashionandyou. So if there is a “Buy two get one free” offer, see if you need three trousers or that many T-shirts.

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Retail’s Elves

Devangshu Dutta

July 30, 2012

The Indian retail sector’s sales are estimated at about Rs. 26 lakh crores. Of this, more than 80% of the product requirements are estimated to be met by small or mid-sized businesses. We don’t usually think about these myriad manufacturing and trading companies that make up the retailer’s supply chain. Large branded suppliers – multinational or domestic corporate groups – are still able to make their presence known, but most others remain largely invisible. Many of these fall not just into the small-medium enterprise (SME) classification, but in micro-enterprises, even cottage-scale. Not only do the large retailers source from SMEs directly, those small suppliers in turn work with other upstream SME manufacturers.

Chicken or Egg?

Most of us are inclined to view the growth of modern retail as a precursor to the growth of the SME sector. Actually the reverse is equally true, perhaps even more so. Without a robust base of suppliers having taken the initial risk of setting up better-organised manufacturing facilities and supply chains, modern retailers would not be able to set up their businesses in the first place. We may view modern retailers as the catalyst for this development; however, they are first beneficiaries of SMEs, and only after they achieve critical mass can they catalyse further SME growth.

For instance, through the 1950s and 1960s, as the American and western European economies grew with the baby boom, it was the growth of manufacturing entities and brands – most of them SMEs – that led the charge. As these SMEs consolidated their growth, modern retail chains actually rode upon this. Subsequently, of course, retail chains have put most of their suppliers in the shade in terms of overall size and profitability. Japan in the 1960s and 1970s, Taiwan and Korea during the 1970s and 1980s, and China during the 1990s and 2000s also saw similar manufacturing-led prosperity and consumption, although their growth was driven initially by exports to the west.

In India, too, the tremendous social and economic changes in the last two decades have encouraged a resurgence of the entrepreneurial spirit. The consumer sector is specifically attractive to entrepreneurs as something that is tangible, provides visibility of the business fairly quickly and can be communicated and positioned well within the entrepreneur’s family and social circle, an important driver.

The Rationale for Supporting SMEs

We tend to ignore the fact that India has a workforce estimated at over 750 million, and which is growing annually by 9-10 million. Most of these people will not be employed by the government, or in large organisations or in the much-feted service sector. Allowing for a declining active employment in agriculture, it is manufacturing, trading and retail by small businesses that is needed to keep the economic engine running.

It is also important to remember that growth of SMEs raises prosperity rather more equitably than other sectors. Widespread growing incomes lead to growth in consumption, supporting retail growth, which in turn can feed back into further growth of SMEs. There are enough significant examples of such economic growth worldwide, whether we look at economies such as Western Europe and Japan recovering from the ravages of war, or at the Asian tigers, China and others emerging countries who’s GDPs are not overly dependent on extractive natural resources.

Innovation is another reason to nurture SMEs. Consumer needs are changing more rapidly than ever before in India’s history, with rising incomes, and evolution of life styles and social structures. Small companies are better at foreseeing or at least reacting to rapid changes. Large companies compete on the basis of their sheer scale and aim to maximise returns from every investment made, but small businesses have no choice but to be innovative in some way simply to enter the market or to stay in business. Experimentation with products, business models, service level and commercial practices is what SMEs thrive on. Differentiation is what makes small suppliers attractive to retailers. With the technology and tools available today, we should expect ever increasing amount of innovation to emerge from small rather than large companies in the consumer sector.

Small suppliers also provide diversification of supply risk for individual retailers, as well as for the market overall. Concentrating on a few large sources has, time and again, proven to be a risky approach, whether it is due to the balance of power tilting unduly towards a specific supplier, or simply the risk of product not being available in case the dominant large supplier’s business is affected. A mix of small suppliers is more like a supporting cushion – a bean bag, if you like – which can be adapted and moulded more easily to changing customer needs.

The Role of Modern Retail

There are three areas in which modern retail can be a significantly more important partner for SMEs than traditional channels.

Firstly, modern retail stores are possibly the most effective route to launch new products, or even entirely new categories. As a platform they offer a more consolidated and effective way to reach a new product to consumers, and to gain visibility and acceptability quicker.

As a follow-on to this, due to their innate need to scale-up successful initiatives, a product and or a service proven in one store or region would typically get included in buying plans for the retailer’s stores across the country. This provides a quicker and more efficient scaling up opportunity than the small brand or supplier trying to reach myriad stores across the country on its own.

Third, whether it is quintessentially Indian brands such as Fabindia, or Indian products through international brands and retailers such as Monsoon, Gap, Mothercare, Ikea, Marks & Spencer, these are but a few examples of the access route for small Indian companies to major world markets. In fact, B. Narayanaswamy suggested in an article titled “Opportunity Lost is Gone for Good” (July 2012), that the Indian government should negotiate hard with retailers interested in investing in India to open supply opportunities to the retailers’ businesses globally, rather than putting minimum sourcing requirements for the small Indian business alone which only act more as a constraint than an enabler. The government has, in the past, used such opportunities to allow investment in the consumer sector while enlarging the playing field for Indian businesses – Pepsi is a case in point.

For some companies, modern retail is in fact a launch pad for wider ambitions, as they evolve into building brands themselves. Mrs. Bector’s has grown from a contract supplier to the likes of McDonald’s to launching its branded products not only in India but also in international markets targeting Indian expatriates. Genesis Colors went from being a Satya Paul licensee for ties to being the owner of the brand, and then further to being a partner for many internationally established premium and luxury brands who want to be part of the India growth story. Others become growth vehicles for larger businesses after being acquired by them, such as ColorPlus by Raymond, Fun Foods by Dr. Oetker (Germany) or Anchor by Panasonic (Japan).

Making Business Easier

India is one of the few countries to have a Ministry dedicated to SMEs. However, India’s SME sector is very far from competing effectively with SMEs in other countries.

The German Mittelstand employs more than 70% of Germany’s workforce and is acknowledged to be at the leading edge of technology and efficient business management. Other western European countries such as the UK and Italy also have vibrant SME sectors. All these countries have not only been competitive globally as exporters, but have also co-opted into the growth of industries elsewhere including the BRICs.

Three enormous obstacles stand in the way of the growth of India’s SMEs, as a huge amount of entrepreneurial energy is wasted tackling these areas. The government certainly has a large role to play in all, but one of these is also the responsibility of large corporate groups.

The lack of adequate infrastructure is arguably the most recognised obstacle, followed by compliances that can hold SME operations hostage under outdated laws, many of which have not been reviewed since India had an Empress! Entrepreneurs and businesses lose millions of manhours annually managing these two areas.

However, the one area in which not just the government but large retailers can play a role is in ensuring that SMEs are funded adequately. Bank sources in the form of term loans and working capital limits is only the start. The rest comprises of actual cash flow, much of which are limited by the long credit period demanded by retailers. Payment can stretch as far as 6-8 months, and include sale-or-return terms which squarely place the burden of funding the retailer’s business on the SME supplier. Unless we can mandate better payment practices, the boom of retail giants will be created using millions of dead or barely alive SMEs as building blocks. And what we don’t realise is that the retailers’ own health is also at stake, because lazy payment terms create a maze of poor practices, from product planning at head office all the way to the retail store. For instance, products that will not sell get stocked for short-term margin through placement fees, and block shelf-space and cash flow that affects other suppliers. Promptness of payment to SMEs must become a metric to measure the health of retail companies – after all, what gets measured gets tackled. And for the proponents of “Corporate Social Responsibility” – what better way to promote CSR and wide-ranging economic well-being than by ensuring the the smaller businesses in the ecosystem are not starved of the funds that are rightfully theirs!

SMEs are not just the foundation, but also the beams and pillars on which the glass and steel cathedrals of modern retail are built, and a vital indicator of the economy’s overall health. The sector needs to be tended to proactively and holistically, both by government and by large businesses, as an investment in India’s economic future. Perhaps we will even create some world-beating companies along the way.