Nupur Anand, DNA – Daily News & Analysis
Mumbai, October 26, 2013
Happy hours, a concept limited to liquor, is finding its way into quick-service restaurant and cafe chains.
Dominos, the pizza chain, is giving buy-one-get-one free offer, while fine-dine restaurants such as Blue Frog in Mumbai are offering 50% discount during lunch time.
Costa Coffee has also been running a happy hour programme post 7 pm.
Devangshu Dutta of Third Eyesight said though this concept originates from bars, other retailers are also increasingly using it to drive footfalls.
“No doubt there is a slowdown and consumer sentiment has been dampened. Retailers generally use the happy hour concept during a low footfall period.”
In fact, Dominos has been witnessing the slowest growth ever since it got listed in 2010.
Since there are very few players in the quick-service restaurant space which are listed, experts believe that Dominos growth story can explain the entire industry’s scenario.
Santosh Unni, CEO Costa Coffee, said they have come up with the happy hour promotional offer to increase the coffee drinking hour. "Typically after seven consumers don’t have coffee. With this, we are aiming at extending the hours by giving them a value for money offer." He said with the promotional scheme, business transaction during that time has trebled.
The domestic quick service restaurant business, estimated to be Rs 3,400 crore in 2012-13, has been struggling with slowing growth in the past one year.
To provide more value offerings to the consumers, restaurants have been coming up with low price point products or increased discounts and promotions.
Experts said such promotions are going to continue and even intensify.
(Sourced from DNA.)
Agence France Presse
Mumbai, October 23, 2013
Centre One shopping mall on the outskirts of Mumbai is gloomy
and bereft of customers, even during India’s annual festive and
wedding season when retailers traditionally cash in.
"Business is dull, usually weak," said one bored-looking fashion salesman.
The shopping centre’s empty look is no exception. In the past decade, supermarkets and malls have spread across India’s large cities and towns, fuelled by fast economic growth and excitement about middle-class buying power.
A "Malls in India" report released by Images Research last month found 470 shopping centres were operational this year, up from just 50 malls in 2005, and expected to soar to 720 by 2016.
"But over 90 percent of India’s malls are struggling," said Susil Dungarwal, founder of Beyond Squarefeet, a mall management and advisory firm based in Mumbai. "Just 15 of these can be counted as running successfully."
India’s middle-classes with their rising disposable incomes have long been considered a dream for mall-builders. The country’s retail sector is set to grow at an annual rate of 16 to 19 percent, reaching 56.8 trillion rupees ($901 billion) in 2016, the Images Research report shows.
The government has also relaxed foreign investment rules in a bid to attract international supermarkets and boost the economy through retail.
But Dungarwal and other analysts say the majority of India’s shopping centres are struggling with a potent mix of high real-estate prices, bad planning and sluggish demand as the economy slows.
When it opened in 2003, the 150,000-square-foot (14,000-square-metre), three-storeyed Centre One was billed as the first world-class mall in Navi Mumbai, a satellite town that is filled with apartment and office towers. But competition from larger, better-designed malls such as Inorbit and Raghuleela, which sprung up nearby later, drew the crowds away.
In the last year alone, Mumbai suburbs have seen the Milan Mall and the City Mall shut down, while others such as Evershine and Mega Mall are struggling to stay afloat, analysts say.
India’s slowing economy, with growth at a decade-low of 5.0 percent in the year to March 2013, has put a firm dampener on spending. But other factors are compounding the troubles at the tills. Over the past decade, builders and developers have rushed to build without paying sufficient attention to what a mall requires to survive.
Until recently, most ignored the so-called "catchment" area, analysing the geographical area from which a mall attracts most of its visitors, experts say. In the northern Indian city of Gurgaon in Haryana state is the hyped "Mall-Mile" — a vast stretch of nearly a dozen shopping malls, built almost one after another. "Not all of them are working out," said Devangshu Dutta, chief executive with retail consultancy Third Eyesight, adding that they were all chasing too few shoppers.
The oversupply of malls means many have empty space: about a fifth of Centre One lies bare and so does up to 75 percent of the Dreams Mall in Bhandup, an eastern suburb.
Mumbai’s Atria, once a packed mall, now has "For Rent" signs coming up and looks deserted, with low footfalls owing to "bad designing, causing people to miss stores," Dungarwal said. Another nearby mall, Sobo Central, is unable to draw the crowds as it does not offer a food court nor a multiplex.
"People do not go to a shopping mall to shop. They go there for the experience, to hang around," said Dungarwal.
India’s real estate is amongst the steepest in the world, and Kishore Bhatija, owner of Inorbit Mall, said costs have risen by 300 percent in Mumbai, which is 50 times more than markets such as Delhi, Bangalore, Chennai or Kolkata. Retailers are therefore facing the double whammy of spiralling real estate prices and sluggish sales.
They also face growing competition from online retailers such as Flipkart, India’s answer to Amazon, which hand-delivers goods to the front door for minimal cost. Shoppers can buy with the click of the mouse, with no need to battle traffic jams or India’s punishing weather.
"Malls will have to do everything to drive footfalls. They will have to make sure there is enough excitement to attract people," said Dutta from Third Eyesight.
(Sourced from The Times of India.)
Sagar Malviya, The Economic Times
Mumbai, October 17, 2013
Barely a week after the world’s top retailer Walmart ended its association with Bharti Group, its British rival Tesco has moved a step closer to entering the $450-billion Indian retail market with the Tatas launching a neighbourhood convenience store format modelled on Tesco Express.
Tesco Plc, the world’s third largest retailer, has a partnership with Tata Group’s Trent under which it provides back-end support and retail expertise to the Indian conglomerate’s Star Bazaar hypermarkets.
Tesco Hindustan Wholesaling, the Indian unit of the British retailer, supplies merchandise including some of its own labels, to 15-odd Star Bazaar outlets, sized anywhere between 40,000 sq ft and 80,000 sq ft and selling food and grocery to apparel to consumer durables.
The new format, Star Daily, is completely different. The first Star Daily outlet, opened in Pune last week, is just about 1,800 sq ft in size and stocks mainly fresh foods, groceries and essential items, a person aware of the store launch said. "Similar to a kirana store, Star Daily is kept open almost 15 hours starting at seven in the morning," the person added.
Both Trent Hypermarket and Tesco did not respond to an email query.
Globally, corner shops — such as 7-Eleven in Japan, Taiwan, Thailand and Singapore, Lawson in Japan and Oxxo in Mexico — are among the largest retailers in their respective markets, reflecting the growing business of small outlets in several countries despite the presence of international supermarket and hypermarket chains. Even Tesco runs more than 1,500 convenience stores averaging 2,200 sq ft in small shopping precincts in residential areas and countryside in the UK.
In India, ubiquitous kirana wallahs generate more than 90 per cent sales of consumer products industry.
Analysts say high sales volume will be the key to Trent’s success in the convenience store space. "The newer format can help them (Tatas) penetrate better catchment areas, but volume needs to be maintained to compensate for the higher overhead costs including real estate," Devangshu Dutta, chief executive at retail consultancy Third Eyesight, said.
So far, Trent Hypermarket has been relatively conservative in its retail expansion despite rivals adding hundreds of stores each year. In fact, it did not open a single Star Bazaar store last financial year, but managed a 21 per cent increase in total revenue to Rs 801 crore.
[ARTICLE CONTINUES BELOW]
Raghavendra Kamath, Business Standard
Mumbai, October 16, 2013
Spencer’s Retail, part of the Sanjiv Goenka group, was looking to break even in financial year 2010-11. As the deadline passed, the retailer postponed the target by another 18 months to the second quarter of 2012, only to revise it again.
Now, Spencer’s hopes to turn profitable at the earnings before interest, depreciation, taxes and amortisation (Ebitda) level by December 2013.
Spencer’s is not the only company which has fallen behind its break-even target. Saddled with high overhead costs and low margins in a slowing economy, food and grocery retailers such as Sunil Mittal’s Bharti Retail, Kumar Mangalam Birla’s Aditya Birla Retail, and Tata group-owned Star Bazaar are struggling to turn in a profit.
Most of these retailers started operations between 2006 and 2007 or went on an aggressive expansion spree during that time. The only exception was Mukesh Ambani’s Reliance Retail which decided to go slower on opening stores. And that seems to have paid off. Reliance Retail, which started in 2006, posted a profit before depreciation, interest and tax of Rs 78 crore in 2012-13. In comparison, both Spencer’s and Aditya Birla Retail logged losses.
While these retailers saw their sales grow, they made themselves more vulnerable to economic downturns by expanding aggressively. At the start in 2007, retailers such as Bharti and Aditya Birla paid hefty rents to book whatever space was available to build scale and kick in efficiencies but when the slowdown struck in 2008-09, their stores could not sustain such rents. Many retailers leased large properties just because they were available, hoping they would return dividends. The rush to acquire retail space was such that the Bharti group used to pay Rs 6 to Rs 8 per square feet more than the other contenders and sign 30-year leases against the industry practice of 18-24 years.
"Today, we have become realistic about store size. We will not book 6,000 square feet just because they are available at Rs 25 or Rs 30 a square feet," the then chief executive of Aditya Birla Retail, Thomas Varghese, had told Business Standard in an interview in 2010. Aditya Birla group insiders say the company also paid exorbitant fees to retail consultants to conduct market studies and chalk out strategies.
But as modest sales and expensive rentals made these stores unviable, retailers began to aggressively close stores or curb expansion. Aditya Birla has closed down over 150 supermarkets in the last four years, while Spencer’s wound up operations altogether in cities such as Pune to focus on profitability. Even Reliance Retail closed around 50 stores and downsized its employee strength.
The retailers have also been weighed down by the lack of a unified tax regime. Kumar Gopalan, chief executive of Retailers Association of India, which represents the voice of retailers, says local taxes are posing a big challenge for the companies. In the absence of goods and services tax (GST), retailers have to pay taxes in every state where the goods are moved. For instance, in Mumbai, retailers need to pay octroi, a local levy for goods transported into the city. That raises the cost as in the absence of GST, retailers prefer to set up multiple distribution centres instead of one unified centre. "Most retailers open their distribution centres with taxation as a factor and not according to ease of transportation," says Gopalan.
As things stand, there is no common formula to success in Indian retail. Arvind Singhal, chairman of management consultancy Technopak Consultants, says: "The biggest problem is that there is no single format which works for the entire country."
Mohit Kampani, chief executive of Spencer’s which is focused on hypermarkets, says: "Developing our compact hypermarket model took time; we got it going in earnest only in 2011-12."
Aditya Birla retail, which was initially focused on supermarkets, too has taken to the hypermarket model recently. Bharti experimented with different formats as well. Kampani says it took some time for companies to understand that grocery retail business works best in partnership with developers where retailers pay a share of their revenue instead of fixed rental amounts.
Singhal says there is a fundamental mismatch between costs and earnings as rents in India are almost double of what retailers pay abroad. He says ideally, hypermarket chains should pay 2.5 to 3 per cent of revenue as rent to make them viable; supermarket chains should pay 5 to 6 per cent of revenues and clothing retailers 8 to 9 per cent.
While most retail chains overshot these limits, they also faltered at another level. Sanjay Badhe, an independent consultant and former chief marketing officer at Aditya Birla Retail, says big retail chains did not understand what customers wanted and underestimated the clout of kirana stores.
"FMCG companies serve 14 million kiranas and they will not move to a new channel unless modern trade demonstrates efficiencies and through put," says Badhe. "Why would they allow retailers to take away pricing power?"
Badhe believes the break-evens have also been delayed because of frequent management changes that resulted in unnecessary strategic U-turns and discontinuity. Spencer’s saw two new heads within six years, Aditya Birla Retail saw similar changes at the top. First, CEO Sumant Sinha quit and the group replaced second CEO Thomas Varghese with Pranab Barua who came from Aditya Birla Nuvo last year.
"If you frequently change the leadership, there will be no continuity in business strategy and direction," he says.
Delays in foreign direct investment have proved costly too. Many believe that availability of low-cost foreign funds would have helped the retailers improve their operating profits by lowering the cost of finance. "Some of them built the business to attract foreign direct investment within a few years. That did not happen and this is dragging them down," says Devangshu Dutta, CEO of retail consultancy Third Eyesight.
While the government has allowed 51 per cent foreign direct investment in multi-brand retail, policy restrictions such as 30 per cent mandatory local sourcing have dampened the hopes of foreign retailers who are taking a slow, cautious approach to entering India.
"Most Indian retailers are not able to raise funds from foreign institutional investors and private equity funds. Domestic markets do not have that kind of depth, so funds come at a higher cost," says Technopak’s Singhal.
Retailers, however, are trying out new formats to turn the tide. Spencer’s is focusing on compact hypermarkets (25,000 to 30,000 square feet) in five chosen geographic clusters and growing its non-food component to improve profit margins. It is also building a centralised distribution system and evaluating franchisee model to reduce logistics costs. The retailer is also increasing the share of unique commodities in the food and beverage segment from about 5 per cent to 30 per cent.
Aditya Birla too is developing new strategies. It is conducting store-specific surveys and planning to offer customised products depending on the taste of the people in the locality. For instance, at its Mahadevpura store in Bangalore, which attracts a cosmopolitan crowd, it offers more non-vegetarian and bakery products, while at the Bull Temple store in the city where shoppers are mostly traditional Kannadigas, it stocks more puja flowers, rice and local fruits and vegetables.
Eventually, it is sales that will matter. As Singhal of Technopak puts it, "If the economy grows a bit faster and optimism returns, retailers will reach profitability in 15 months."
(Sourced from Business Standard.)
Much has been written about the various relationship break-downs that have happened in the Indian retail sector in recent years. The biggest, most recent high profile ones are between Bharti and Wal-Mart and the three-way conflict playing out at McDonald’s. Other visible ones include Aigner, Armani, Jimmy Choo, and Etam, while Woolworth’s faded away more quietly because, rather than being present as a retail brand, it was mainly involved in back-end operations with the Tata Group.
I think it’s important to frame the larger context for these relationship upsets. Most international companies, non-Indian observers as well as many Indian professionals are quick to blame the investment regulations as being too restrictive, and being the main reason for non-viability of participation of international brands in the Indian consumer sector.
However, India with its retail FDI regulations is not the only environment where companies form partnerships, nor is it the only one where partnerships break up. Regulations are only one part of the story, although they may play a very large role in specific instances. In most cases, FDI regulations are like the mother-in-law in a fraying marriage: a quick, convenient scapegoat on which to pin blame.
Many of the reasons for breaking up of partnerships can be found in the reasons for which they were set up the first place. The main thing to keep in mind is that the break-down is inevitably due to the changes that have happened between the conception of the partnership to the time of the split. The changes can fall into the following categories, and in most cases the reasons behind the break are a combination of these:
According to Third Eyesight’s estimates, more than 300 international brands are currently operating in the Indian retail sector across product categories, if we just count those that have branded stores, shop-in-shop or a distinct brand presence in some form, not the ones that merely have availability through agents or distributors.
Of these, about 20 per cent operate alone, while other others work with Indian partners, either in a joint-venture or through a licensing or franchise arrangement. The relationships that have broken up in the last decade are only about 5 per cent of the total brands that have come in, and in many cases the international brand has stayed in the market by finding a new partner.
So there’s life after death, after all. And my advice to those who’re feeling particularly defensive or pessimistic because of a few corporate break-ups: take time for a song break. Fleetwood Mac (“Don’t Stop”, “Go your own way”) or Bob Dylan (“Don’t Think Twice, It’s All Right”) are good choices!