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October 9, 2013
Rashmi Pratap & Purvita Chatterjee, The Hindu Businessline
Mumbai, October 9, 2013
It
is the season of break-ups in the Indian retail space. In the
last two months, three joint venture partners have decided to
part ways in the market pegged at $520 billion.
The reasons range from regulatory issues to alleged misconduct
by one partner. But the real cause often is the distribution of
profits and control over business, which can lead to the end of
a partnership.
While there have been many instances of partners calling off
joint ventures in the past decade, the most recent ones are Bharti
Walmart, Di Bella Coffee and McDonald’s.
“Joint ventures are breaking up due to differences in the direction the business should take in terms of investments and scale,” said Devangshu Dutta, MD of retail consultancy firm Third Eyesight.
Why this happens is not difficult to fathom. Foreign firms need an Indian joint venture partner to study the market, put the back-end infrastructure in place, evolve store location strategy and get the multiple regulatory approvals.
Once all this is done and business is stabilised, future growth direction and profit division becomes a bone of contention.
DISTRIBUTION OF SPOILS
“If there is a business going on successfully, both parties want a larger share for themselves. “And who has contributed more to the business becomes a point of argument. Moreover, foreign firms want more control at some point in time,” says an analyst on condition of anonymity.
In the case of McDonald’s, the company has alleged that Indian partner Vikram Bakshi was not devoting enough attention to business, besides levelling other charges.
The case is now before the Company Law Board. “Joint ventures don’t work for a long time in India. In most cases, it is a marriage of convenience and at some point, differences of opinions are bound to arise,” said Arvind Singhal, Chairman of Technopak Advisors.
“In the case of Bharti Walmart, since 100 per cent FDI is already allowed in cash and carry, it would straightaway give Walmart control after buying out Bharti in the joint venture,” said Dutta.
Singhal said what also caused Bharti and Walmart to part ways was the regulatory fatigue the two partners were facing. “They (Bharti and Walmart) seem to have run out of patience. Doing retail business in fresh produce is increasingly becoming complex,” he said.
Despite promises, the Government has not scrapped the APMC Act, which allows only the State governments to set up markets for fresh farm produce.
Singhal said Indians usually turn a blind eye to harassment but in other countries, laws are far more stringent and the liability of the foreign partner could be much higher.
It is to protect themselves in their own country that they prefer to break-up the moment an allegation surfaces.
Whatever the reasons, foreign partners don’t usually leave India. They either go solo or find another partner to ensure that they don’t miss the action in one of the world’s largest consumer markets.
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October 7, 2013
Purvita
Chatterjee, The Hindu Businessline
Mumbai,
October 7, 2013
In the late 1960s, when televisions were still unheard of in India,
Nanu Gupta was busy setting up a store for consumer durables in
the heart of Mumbai. Having worked with an Usha International
distributor, he knew the nuances of the consumer durables business.
He decided to strike out on his own by selling the same sewing
machines and fans he had dealt with earlier.
Funds were limited and so was space. Gupta borrowed Rs 2,000 from family and friends to set up his first store in Mahim in 1967. To make room for customers, he had to keep a folding chair in the 40 sq ft store named Vijay Sales after his younger brother.
Gupta started off by taking goods on credit directly from manufacturers and paying them after sales. Direct purchases helped him save on dealer commissions and pass on the benefit to consumers in the form of prices lower than the competitors. The store was soon a hit and footfalls multiplied rapidly.
DOING DIFFERENTLY
The outlet now measures 40,000 sq. ft. and has become a landmark in the island-city. Vijay Sales is now run by the second generation with Nilesh Gupta (son of Nanu Gupta) as the Managing Partner.
“It was not easy to get customers as there was tough competition even in those days. We kept all the TV sets on at our stores unlike competitors, who switched them off. This was a way to attract customers to our stores,” says Nilesh Gupta.
“Today, we try to beat the competition by bringing in branded flat panel and plasma TVs even before companies start advertising the new models,’’ he adds.
Vijay Sales stocks its goods in nine warehouses that supply to all the 54 stores across Maharashtra, Gujarat and Delhi — the classic hub-and-spoke model. That helps it maintain optimum inventory levels, without over- or under-stocking any item, besides reducing warehousing costs. “Logistics is very critical to our business and we maintain individual distribution centres in every city,” says Nilesh Gupta.
What has also helped the firm do better than competition is its willingness to buy out the inventory MNC players are saddled with at a discounted price and charge consumers cheaper rates. “That helps propel sales,” he adds.
SCALING UP
Vijay Sales scaled up rapidly from 2006, sensing impending competition from biggies such as Reliance Retail, Croma. “Modern trade players actually challenged us to scale up and there were even some who wanted to buy us out. But that was the time we decided to expand our operations and entered new States,’’ said Gupta.
This expansion was not without its share of challenges. Being an unknown retailer in the northern market, there was the question of trust. “We asked consumers to call up just about anyone they knew in Mumbai to verify our credibility. That worked for us.” Outside Maharashtra, the firm is now better known as ‘Mumbai Wali Company’.
Devangshu Dutta, Managing Director of retail consultancy firm Third Eyesight, gives the company a thumbs up. “Vijay Sales has been able to transform itself, in a staged manner, from a family-run business to a modern trade format.”
The consumer durables business continues to run on thin margins, about three per cent of net sales, making it difficult for smaller players to scale up. But Vijay Sales does not want to exercise the franchise option to widen its reach. “We feel a franchise is unlikely to add any value to the business. The durable brands already have equity and the business will not be any different if it were to be run by a franchise,’’ says Nilesh Gupta.
PROFITABILITY
While the firm claims it has been making profits consistently (Gupta says they were profitable from Day 1), sustaining them could be difficult in the current economic environment. “Expenses are on the rise. Companies are reducing the margins but if the cost increases are passed on to the consumers, it will result in a massive slowdown. Also, the rising dollar has affected our import-dependent industry,’’ observes Nilesh Gupta.
Given the uncertain business scenario, Vijay Sales is not in a hurry to become a pan-India player.
But its ‘slow and steady’ approach will ensure that it doesn’t have to lament over expansion at a later date. “We are not in a hurry; we have been around for the last 46 years and would want to last many more years,’’ says Nilesh Gupta.
admin
October 7, 2013
Rohit
Nautiyal, Business Standard – The Strategist
New
Delhi, October 7, 2013
Thirty-year-old Ramesh Bhonsale, son of the owner of a big kirana
store in Nagpur’s Byramji Town, has become extra kind towards
his father’s customers lately. He often draws them into conversations
explaining at length that they can now order groceries online
and pay by cash. The delivery will be done within three to seven
days. While most of the loyal customers of Bhonsale senior have
heard his son out, a handful have placed orders on the tablet
by routing a small portion of their monthly grocery budget to
Ramesh’s new venture. In the following days, as more people in
the locality warmed up to this unique e-direct selling model,
Ramesh had to face his father’s wrath for poaching customers,
something he hasn’t intended doing.
The names have been changed but the story is real. This happened during Big Bazaar Direct’s (BBD) pilot in Maharashtra’s eastern region of Vidarbha. BBD is the brainchild of Future Group CEO Kishore Biyani who claims, "If it works, BBD will be bigger than Future Group’s flagship store Big Bazaar."
The big idea
Attention readers: This model has no precedence globally. So we were not sure whether it was direct sales or e-commerce. To decode this model, The Strategist met with a BBD executive after filling up the franchisee registration form on its website. At its heart, BBD is a franchisee-based model where the franchisees are expected to personally visit consumers and take orders. This will be done over a tablet which is integrated with the back-end to avoid discrepancy in product demand and availability.
Now the tablet has a catalogue with 1,000 deals (other than the ones available at Big Bazaar stores) on select products like groceries, electronics and furniture. As of now, no perishable items – such as fruits, vegetable and dairy products – are part of this catalogue. BBD’s catalogue on a franchisee’s tablet can be updated on a daily basis to reflect changes in the deals and prices. BBD can send training modules on the tablet from time to time to test the awareness level among franchisees.
To become a franchisee, one has to make an upfront investment of Rs 3 lakh. The break-up of this amount is like this: Rs 1 lakh is the refundable security deposit; Rs 1 lakh is the set-up charge for the BBD tablet, initial branding, a year’s training, launch material etc; the last Rs 1 lakh will be a franchisee’s e-wallet, which will be used for placing orders. The moment an order is fed into the tablet, the order value will be deducted from this e-wallet. The customer will get an SMS confirming the order immediately and the delivery will be done within seven days (maximum). The customer will pay the franchisee when she places her order and gets an SMS confirmation. There will be additional shipping charges if the total billable amount is Rs 500 or less.
Unlike brick-and-mortar stores, there will be no territory demarcation for franchisees while placing orders. For instance, a franchisee based in Nagpur (Maharashtra) can take an order for a customer in his network from Bhandara (Maharashtra). All she has to do is punch in the correct area code. What’s in it for the franchisee? The franchisee will earn commission ranging between 3 and 20 per cent on every product sold. While grocery items will earn her commission of 3 to 6 per cent, electronics and furniture fall under commission slabs of 3 to 7 per cent and 8 to 20 per cent, respectively. The total commission earned every month will be credited to the franchisee’s account by the 5th of the subsequent month. BBD’s relationship managers will support franchisees on matters relating to marketing and communication. BBD will also conduct knowledge seminars from time to time to educate franchisee on the various aspects of this new business.
(ARTICLE CONTINUED BELOW)
admin
October 7, 2013
Priyanka
Goilikeri, DNA (Daily News & Analysis)
Bangalore,
October 7, 2013
How about some white chocolate mocha or caramel macchiato? Not
really little-known names, but when they take pride in belonging
to one of the largest coffee chains in the world, the urgency
to try them out runs high.
At a time when every international brand is trying to gain a foothold in Bangalore, American giant Starbucks is expected to jostle with the likes of homegrown Cafe Coffee Day, and imports like Costa Coffee, Barista, Gloria Jeans and Coffee Bean & Tea Leaf; in a market where drinking kaapi has been a centuries-old tradition.
After opening 15 outlets in New Delhi and Mumbai, the chain is now eyeing a crowded coffee market, where other than the ubiquitous cafes, traditional long-standing outlets like MTR, India Coffee House and Vidyarthi Bhavan dot the landscape.
Armed with a pricing that is upwards of Rs110 for a 273 ml glass of coffee (minus taxes), with variations that can go beyond Rs200 for a larger container; the US giant looks confident of luring its clientele in a migrant-rich, expat-dominated city, with set of globetrotters who would have tasted the brand abroad.
“We don’t believe in waging a price war to win customers,” says Avani Saglani Davda, CEO of Tata Starbucks. Her mantra is simple—one coffee, one customer, one store at a time.
An outlet too many
Brand consultants feel that despite the clutter in the market, Starbucks will be able to carve out its own niche, simply on the basis of its image.
Though the pricing is on the steeper side, experts believe, consumers wouldn’t mind paying to savour a global brand. “The analogy lies in the contention that people have no problems paying for a Baskin Robbins or a California Pizza; even when cheaper alternatives are aplenty,” says an expert, adding that the customer profile for a Starbucks will be distinctly different from those who frequent stores for a quick filter kaapi.
Many customers are aware that the actual price of the coffee in any cafe is just 15-20 per cent of the overall price printed on the menu, say experts, with the balance accounting mainly for real estate, marketing, human resources, and overhead expenditure.
“But still enough, customers do pay since drinking coffee at a Starbucks is not out of necessity, but as part of their lifestyle where hanging out at such a place is considered cool,” argues Devangshu Dutta, CEO of consultancy Third Eyesight.
Coffee’s cool
Yes, the coolness factor does weigh in. For instance, techie Anirudh Gupta, who has frequented Starbucks in the US and is now awaiting its arrival in Bangalore, has this to say, “Abroad, people grab a coffee and head out to work. Here a cafe is more of a place to hang out with friends, or relax while working on the laptop. With Starbucks, the takeaway bit may become popular in India as well.”
Brand consultant Harish Bijoor believes the entry of Starbucks will lead to a caste system of brands in the cafe culture, “where Starbucks might end up being the Brahmin.”
Moreover, alongside the brand image goes the underlying premise that a product belonging to a global chain will be better, along with great ambiance and service, adds Dutta.
“Therefore, a much awaited debut in Bangalore will definitely draw in customers,” says Bijoor.
What happens to CCD?
Since the market is huge, the potential for new and existing players is equal. A study carried out by Bijoor reveals that going by the consumption trend, India at present requires 7,450 cafes. “There are 2,650 as of now. So the demand-supply gap is huge,” explains Bijoor.
And in Bangalore, which remains a Cafe Coffee Day bastion, the
entry of a US player is not really a threat. “The entry of
a new player won’t throttle. There is room for all,”
asserts K Ramakrishnan, president, marketing, Cafe Coffee Day.
Ramakrishnan feels that the chain has the necessary wherewithal, including its menu revision to include non-coffee drinks; and its formats like lounge, square, cafe and kiosk to cater to a mix of customers. And with 200 outlets across the city, “we are ever ready to service all types of customers with products that are sold across all price points,” contends Ramakrishnan.
Thus if Starbucks has its international image, Cafe Coffee Day has its numbers, feels Bijoor. “CCD has done a great job in capturing all the key locations in Bangalore. Finding the right locations will not be easy for Starbucks,” he predicts.
But experts feel that to ensure their top positions, cafe chains will have to provide customers with the same quality and service consistently across all their locations. According to Dutta, if there is any issue with the quality or service, “it can impact customer base.”
And, it will be the customers who will decide the fate of this brewing war.
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October 1, 2013
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