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Doing More With Less

Rohit Nautiyal, The Strategist – Business Standard
New Delhi, 30 June 2014

One fine Sunday morning, 29-year-old Nishant Malhotra woke up to non-stop message beeps from his smartphone. Irritated, he picked up his phone. The first SMS read, "Stop everything and start shopping: Get extra 40 per cent off only today; 900-plus products. Code WOW 40." While this offer came from Gurgaon-based online shopping portal Jabong, the next message he checked had information on a similar promotional offer running on fashion portal Myntra. There were myriad SMSes from a handful of other shopping portals urging him to make the most of his day-off from office. Malhotra, an avid online shopper, began his Sunday early but without a whimper of protest.

As the next phase of consolidation kicks in with Flipkart’s acquisition of Myntra, e-commerce companies realise that the one metric that will help them achieve growth is focusing on revenue per visit or RPV, which is a combination of the conversion rate on the website and the average order value. Mind you, this is one step ahead of the single-minded focus on conversion rate visible at the time when the e-commerce industry was still young. The smart ones know that while they could probably double their conversion rate by cutting all prices in half, this would likely have a negative impact on the bottomline by reducing the overall revenue generated. Watching revenue per visit ensures that the host site is increasing the rate of conversion without compromising revenue.

Leading e-commerce companies like Flipkart, Myntra, Jabong and FabFurnish already claim they are shipping around two to three and in some cases up to five products for each order received on their website. The whole idea is based on simple math really. Experts peg the cost of acquiring a customer by e-commerce companies has come down – at Rs 300, down from Rs 1,000 two years back – while the cost of servicing an order has gone up with an increase in manpower and infrastructure costs. Says Ravi Vora, senior vice-president, marketing, Flipkart, "There is enough noise about online shopping today and the best part is that each player is not required to put efforts separately to draw attention. Today more than 60 per cent of shoppers on Flipkart are repeat customers."

In such a situation what will separate the men from the boys will be the way a player clubs his offerings and services the last mile to make the whole process more efficient. Praveen Bhadada, senior director at Zinnov, believes, "Analytics will decide the prospects of growth for e-commerce players." In other words, how well a firm knows who its customers are, what they want and how to urge them to spend more every time they walk into an online store is key. And what will arm online store managers with this knowledge is customer data harnessed from the website and other sources and crunched and put in a shape that helps in customising each offering.

Discounts are juicier than ever

Coming back to the point on driving volumes by offering discounts, many players have a similar discount strategy: lure customers into spending a fixed amount of money by dangling the juicy bone of high discounts, sometimes up to 50 per cent. Now there are two ways of offering discounts. One is the old school general sale in which every consumer gets a fixed discount at a certain point in a given category. The other, and the more new way, is about creating different catalogues for different customers. To put it simply, a catalogue sale is an occasional deal available on a given assortment for a stipulated time period. For example on June 23 both Myntra and Jabong ran a discount deal of 40 per cent on a set of products compiled in one catalogue. Says Praveen Shah, co-founder and managing director, "When we give incentives to shoppers, the chances of repeat purchase go up significantly."

FabFurnish follows a variant of the ticket-size principle to design discounts and drive volumes. The company claims that currently the average number of items on a shopping basket is two/three. The baskets are divided as ‘furniture’ and ‘non-furniture’. While the average order size of a furniture basket is around Rs 10,000, non-furniture basket, which may include bed and bath, decor, lighting, kids and baby products etc – stands at Rs 3,500. In the last two years, FabFurnish has tweaked its discount strategy completely. If earlier it was offering discounts based on the ticket size -that is, the higher the ticket the bigger the discount – now it has fashioned lucrative offers on smaller ticket prices as well.

Alongside, it has chased this set of buyers relentlessly by improving its product recommendations. The principle of recommendation works like this: Apart from suggesting brands and offers, the site will also prompt other categories of products that a buyer could buy along with the original product on the list to avail of an extra discount. The results, the site claims, are as expected. About 30 per cent of the shoppers clicked on the recommendations and conversion rate went up by 20 per cent. Says FabFurnish co-founder Vikram Chopra, "If one does not put some constraint on the order value, the revenue will go down. Also, it is the best way of increasing the number of items per basket."

To drive volumes and cross-category impulse purchase, Myntra has been running what it calls ‘basket promotions’ for a year now. Says the company’s COO Ganesh Subramanian, "Picture a scenario in which a consumer has come on the website to buy two products. After making the selection her order value comes to Rs X. By adding one more product of lesser value, she will be able to claim a Y per cent discount on her order. In most of the cases we have observed the consumer ends up buying the third item." What he means is that in doing so the consumer usually experiments with a new category. Myntra claims the number of items per order has gone up by a count of three products in the last one year. Catalogues created for women have driven volumes for the company. Similarly Jabong has seen a big jump in sales by cross-selling accessories.

Getting the logistics right

As leading e-commerce companies exit the phase of customer acquisition to take on the challenge of customer retention, logistics will be crucial. Says Shah of Jabong, "When per-order value goes up along with the number of items, it is viable for us to pass on the savings to the customers." This is achieved by driving efficiencies in logistics.

Let us try and understand the math. The cost of delivering two items of the same size to the shopper’s doorstep will not be radically different from what it takes to deliver one unit. In this scenario, if the ticket size on a given order goes up by, say, Rs 1,000, an e-commerce company can log savings of up to 20 per cent on its delivery cost, say experts. How? Take just one element: call centre charges. When an e-commerce company outsources call management, it has to pay a certain amount. If the number of calls remain the same but the order value associated with a call goes up, it means same workload – and therefore the same fee – for the call centre but higher realisation for the e-shop.

While most online shopping companies that started off with an inventory-led business model have cut down heavily on stocking inventory and moved towards the managed marketplace model, order aggregation is forcing them to re-evaluate their strategies. Take this example. Suppose a customer in Chandigarh has demanded two products from a website that works on the managed marketplace model. If it has to source these two items from two different merchants located in, say, Surat and Delhi, it is unlikely that both the items will reach the customer on the same date. Add the shipping cost the e-commerce company incurs. Where does it leave loyalty and efficiency?

Subramanian of Myntra – the portal which hopes to be profitable by 2015 – says, the website tries to forecast as best as possible but yes, it doesn’t get it right 100 per cent of the times. "There is a gap between demand and forecast," he adds. "But our split order percentage is in low double digits."

But there’s a catch. Delivering more items per order will demand more investments from logistics partners. Says Sanjiv Kathuria, co-founder and CEO at e-retail delivery fulfilment company Dotzot, a DTDC company, "If the weight per shipment is 1 kg or more, we will have to look for a transport solution other than bikes." To leverage the network of DTDC and accomplish timely deliveries, Dotzot is planning to bring some of the best global practices in logistics to India. ‘Click and collect’ is one. As part of this, online shoppers will be able to pick up and return their orders at multiple booths set up by various players.

Aggregating orders is one answer. But the task is easier and faster for companies that stock a major portion of the inventory. With a number of promotions lined up during any given week Jabong has managed to increase the number of items per order by 25 per cent from last year. To service its biggest market of Delhi NCR faster, the company has opened four packaging centres in the NCR itself. In this way it is able to deliver within 20-24 hours of receiving an order.

In all this shopping portals are following in the footsteps of their brick and mortar predecessors. Devangshu Dutta, chief executive officer of specialist consulting firm Third Eyesight, sums up the trend succinctly: "E-commerce companies in India have to focus on the principle of low price needing to be supported by low cost. Global players like Amazon and Walmart have grown by offering lowest prices and keeping their operational costs low. Promotions drive repeat purchase that eventually make up for lost margins and this is no different for e-commerce companies."

(Published in Business Standard .)

Narayana Murthy inks joint venture with Amazon for e-commerce play

Shilpa Phadnis, The Times of India
Bangalore, 28 June 2014

Global e-tailing behemoth Amazon and N R NarayanaMurthy’s family office Catamaran Ventures have floated a joint venture to help small and medium businesses (SMBs) join the online bandwagon, taking advantage of a burgeoning number of online shoppers.

Cataraman holds a majority 51% in the JV — Taurus Business and Trade Services — that was incorporated in New Delhi in 2012. It has two active directors, Harish Bhardwaj and Kuldeep Singh Bisht.

"Catamaran and Amazon Asia formalized a partnership in May to help offline sellers and SMBs in India to take advantage of the potential of the fast growing online customer base in the country. The partnership will focus, accelerate and scale the inclusion of SMBs into the digital economy," said the spokesperson of Taurus Business and Trade Services.

The JV entity will equip SMB sellers with online tools and help them gain a larger customer base for their existing merchandise that will increase revenues and footfalls for SMB retailers, the spokesperson said.

However, the nature of the JV is unclear—whether it’s to beef up back-end delivery operations or if it is a structure created to get into direct e-commerce. At present the government does not permit FDI in e-commerce. Some sources said the JV could be a backdoor entry to foreign players in the multi-brand space or it could even accelerate the partnership to spearhead offline store launches in the near future.

"Till the time FDI is allowed in e-commerce, it’s a barrier for any foreign company to set up an outfit. Some e-commerce players have side-stepped in some form or the other by having arm’s-length relationships with Indian partners," said Devangshu Dutta, CEO of retail consultancy firm Third Eyesight.

Last year, Catamaran Ventures exited from its Rs 200 crore investment in Manipal Global Education Services, selling its stake back to the promoters of the company. Catamaran has also invested in Gurgaon-based Hector Beverages that makes energy drink Tzinga. An email sent to Catamaran on how the entity is structured didn’t elicit a response.

(Published in The Times of India.)

Thinking on their feet

Rashmi Pratap, Hindu BusinessLine

New Delhi, 27 June 2014

That Pandit Jawahar Lal Nehru was a champion of the co-operative movement is well-known. But a little-known fact is that he extended the concept of co-operatives to not only banking, farming and sugar, but shoes as well. When one such shoe co-operative pioneered by him in Karnal (Haryana) fell on bad times in 1954, two brothers bailed it out. DP and PD Gupta retained the employees and converted the co-operative into a company. As giving customers the freedom to choose was a priority in the newly Independent country, the company was suitably named Liberty Shoes.

In the half-a-century that followed, the company thrived with its range of innovative products and soon became an aspirational brand. But when global winds of change swept the country, like most brands of its generation, Liberty began to feel the pressure. Archaic processes and a limited retail presence pushed it to the fringes of the industry by 2004. The brand is today frantically trying to make a comeback. But the question is: Can a 60-year-old company stay relevant in a market that now boasts the likes of international giants Nike and Reebok at one end and home-grown successes such as Relaxo and Metro Shoes on the other?

The CEO of Liberty Group, Adesh Gupta says the company has reoriented its approach to production, supply chain management and retail strategy. “We are no longer pushing our products to distributors and customers. The daily production is now interlinked with our previous day’s sale as well as customer feedback. That means, producing what is in demand rather than creating an inventory that could return to us after six months,” he explains.

And that, says Gupta, has been the company’s best-ever move in a decade. Its earlier strategy was successful but not sustainable, he concedes. “Retailers were not armed with tools to give us continuous feedback. We had legacy issues,” he says.

Piling troubles

Gupta, who took over as Liberty Shoes CEO in 2004, then met dealers once in six months, only to find out that most of the designs which he thought would sell had no takers. That meant piled-up stocks for the distributors and retailers, clogging the supply chain.

But he was in for even bigger trouble. In September 2005, Liberty Shoes signed a 49:51 joint venture with the then Kishore Biyani-owned Pantaloon Retail (now an Aditya Birla Group company). On paper, they were to open 45 stores in three years and target a turnover of Rs. 350 crore. In anticipation, Liberty increased capacity through new plants — two in Himachal Pradesh and one in Uttarakhand. “We added 60 per cent new capacity.” But the joint venture never took off.

“They (Pantaloon) promised us business worth hundreds of crores on paper. But it never came to us because they were sourcing from cheaper local brands in Agra despite their commitment to us. They would always ask us to supply at ridiculously low prices, usually half the MRP,” says Gupta. (An email to the Future Group went unanswered.)

Liberty, already battling an outdated supply chain and rising capital expenditure, was now saddled with extra capacity. The final blow came in the form of souring industrial relations. “In 2006, we had a huge strike, which we resolved in a day. A second one happened within a week and a third within a month,” Gupta recounts, laying the blame on politics. “We were victims of a political climate that disturbed the system,” he says.

On one hand, the company went on capacity and retail overdrive and on the other, it was hit by a strike. The result was that its takeoff crashed. Till 2008, it somehow maintained its topline, but the expenditure rose sharply and profitability vanished.

Treading a new path

Gupta decided to seek professional help. He recalls meeting consultants who wanted crores in return for coffee-table books that promised to tell him how to bail out the business. Finally, he approached the Vector Consulting Group, which is known for its Theory of Constraints. “They led us to work on the pull model, which means we just replenish the sold stock and there is no inventory. The reaction time is cut from six months to one day,” he says.

Liberty took four years to build this supply chain and system. “Till 2012, we were clearing dead stocks of our own stores and retailers through promotions or discounts. Now, if I sell 100 pairs in a day, I produce only 100 the next day. We are not working on a forecast model, we produce according to demand.”

While the back-end measures are in place, the company will have to double its efforts to increase customers and sales. “There has been a fundamental shift in the Indian market, as well as marketing strategy in the last decade. Young Indians are far more aspirational than they were 20 years ago, and that is a challenge for all brands of the previous generation,” says Arvind Singhal, chairman and managing director of the consulting firm Technopak. “Their communication and product strategy have to be in sync with social media, print and digital platforms.”

Brand strategy specialist Harish Bijoor concurs: “Social media is becoming so dominant and relevant that being there is a hygiene factor.”

The comeback Czech

Much like Liberty, yet another footwear brand is trying to create a buzz in the market to win back its customer base. Czech brand Bata has been in India for 84 years and is now working doubly hard to reinvent itself at all levels — products, retail reach and media campaigns. Last quarter, Bata spent Rs. 3 crore (0.6 per cent of revenue) on its 360-degree integrated marketing campaign ‘Where Life Meets Style’.

“Bata needs to reinvent its lifestyle positioning… (it) has dominated on the basis of its products and prices. But the price-and-product-generation has moved on, making way for a stylised generation, which is price-resilient. Bata cannot forever remain a bastion of lifestyle pricing,” says Bijoor.

Agreeing that pricing is no longer the dominant factor it once was, Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says, “Today there is a lot more competition, with international brands deepening their engagement with the Indian market. Even consumers are willing to spend on higher-priced products as long as it gives them an edge — whether in terms of looks or comfort.”

After suffering losses in the early 2000s, Bata began setting its house in order. Since 2005, it has been downing the shutters of small outlets and opening new large-format stores. It has remodelled stores and shut down bleeding properties. And in a major break from the past, it has extended its working hours, and stays open on Sundays.

But its masterstroke was the voluntary retirement scheme that nearly halved its staff strength from 9,631 in 2005 to 5,162 in 2012. Employees also had the option to move to K stores — a format that lets employees turn into franchisees, with a 7-8 per cent commission on sales.

“Bata in particular has been a comeback story in the last few years. They have updated the quality of retail ambience; the stores now look contemporary and the product range has expanded,” says Singhal.

The results are showing. The company’s net profit for the January-March 2014 quarter was Rs. 39.4 crore, with sales at Rs. 495.12 crore. In contrast, Liberty faces a long road ahead. While it is back to making profits (Rs. 4.27 crore) alongside rising sales (Rs.142.05 crore), these are modest in comparison with Bata during the same period. During FY14, its net profit was Rs. 13.21 crore, a third of what Bata made in just three months. And to think that at one time, around 2000, Liberty was considered the only real competition and threat to Bata.

For the young

Gupta is all too aware of the challenges. Liberty has 450 franchisee cash-and-carry stores and 100 company-owned outlets. “We opened 100 stores in each of the last two years. We want to add 50-100 stores each year, half of them franchisees and the rest company-owned,” he says.

With Rs. 1 crore as the average annual sales per store, Gupta is keen to hit the Rs. 1,000-crore target in the next couple of years. Side by side, the company has launched its online store and tied up with e-commerce players such as Flipkart and Jabong. And its focus is the youth. Says Gupta, “Liberty will never be a luxury brand. We’ll be a youthful, fashion-centric brand with affordability as a key criterion.”

(Published in The Hindu BusinessLine.)

Uber launches cheaper brand UberX to compete with Meru, Ola Cabs

Nikita Garia, Mihir Dalal, MINT (A Wall Street Journal Partner)

New Delhi, 26 June 2014

Cab services provider Uber announced the launch of its low-cost cab brand UberX in Bangalore, New Delhi and Hyderabad to directly compete with local rivals such as Meru Cabs, Ola Cabs and others.

Uber launched in India last August with its higher priced, luxury car service, UberBLACK that charged a minimum of Rs.250 per ride. Though the company, which accepts payments only through credit cards, reduced fares later, they were still at least 50% higher, on average, than those of rivals such as Meru Cabs and Ola Cabs.

UberX will offer a base fare of Rs.50, and also charge Rs.1 per minute and Rs.15 per kilometre. The charges will vary based on the city, but the fares are similar to those offered by local rivals.

Analysts said the move by Uber reflects the need for brands to offer lower-cost but so-called “value” products that Indian consumers typically prefer. Foreign companies such as Amazon, McDonald’s and others have had to approach India as a distinct market and “localize” their products and services to appeal to Indian shoppers.

"We are a cost and value-conscious country. Value is more than low cost,"said Devangshu Dutta, chief executive at Third Eyesight, a consultancy. "Our service expectations are very high. Any company which is looking at the Indian market whether it is a product or service company, has to modify its approach, adopt different strategies and tactics to make its Indian business a success."

Despite launching a lower-priced service, Uber still misses out on a significant part of the market as credit card usage is low in India and a majority of customers still prefer paying cash, an executive at an Uber rival said.

“Uber has only a credit card-based mobile app and no call centres,” said Aprameya Radhakrishna, co-founder, of TaxiForSure.com. “You can only go for immediate bookings. So they will have limited reach in the market. Let us see how they perform once they get into the lower end of the market.”

Uber is running a promotional campaign to boost sales, where a first-time user can get Rs.500 off on the first UberX ride.

The Google Inc.-backed start-up that started its operations in 2009 is present in 39 countries. In India it offers its services in Bangalore, New Delhi, Hyderabad, Chennai, Mumbai and Pune.

Uber, which does not own cars, uses state-of-the-art technology to connect drivers with passengers through a mobile app.

The radio taxi market is moving towards an asset-light model where websites such as TaxiForSure.com lend their brand to drivers and cab operators in exchange for a fee. Meru, too, has become part cab operator, part marketer.

(Published in MINT.)

Premji’s FMCG company a dragon in tiger economies

Anshul Dhamija, The Times of India

Bangalore, 25 June 2014

Tech tycoon and Wipro chairman Azim Premji is a hidden dragon springing out an impressive fast-moving consumer goods (FMCG) story in Asia’s new tiger economies, knocking close on the heels of global powerhouses Unilever and Proctor & Gamble (P&G).

Billionaire Premji’s Wipro Consumer Care and Lighting (WCCLG) is now among the top three personal care companies in Malaysia and Vietnam and is gaining ground in China’s southern provinces. Sixty-eight-year old Premji — with personal wealth topping $15 billion — took the FMCG unit private through a de-merger of non-IT businesses, which are housed under Wipro Enterprises.

"Our internal estimates suggest that Unilever is number one in personal care in Malaysia followed by us. We are currently placed number three behind Unilever and P&G in Vietnam’s personal care market," Wipro Consumer Care & Lighting President Vineet Agarwal told TOI.

In Malaysia, which is among the top three South East Asian economies, Wipro enjoys market leadership in facial cleansers (27%), facial moisturizers (26%), fragrance (22%), talc (51%) and kids toiletries (60%)."We are also the number one with a 50% market share in halal toiletries," added Agrawal, a Wipro veteran who has overseen the company’s inorganic expansion globally.

Wipro Consumer generates more than 50% of its revenue from international markets through a string of acquisitions boosting its foot print across south east Asia, Middle East and Africa. In doing so, it notched up Rs 5,000 crore revenues in FY14, becoming the third largest India born FMCG major after Godrej Consumer Products (Rs 7,602 crore) and Dabur (Rs 7,094 crore).

WCCLG’s revenue grew 16 times from Rs 304 crore reported 13 years ago. It went past Marico’s consolidated revenue of Rs 4,686 crore in the last fiscal. India and international markets posted similar growth giving the Wipro unit 17% revenue growth and 11.4% expansion in operating profit.

"Wipro has been a successful consumer products company. However, the consumer business got lost in the shadow of its bigger and sexier IT business. The origins of Wipro are in consumer products and that is hidden in its name, which is an acronym," said Devangshu Dutta of Third Eyesight, a consultancy firm.

Wipro – Western India Products Limited was set in 1945 to manufacture vegetable and refined oils, which the company has exited from.

Over the last decade Wipro has spent more than $500 million acquiring international brands like Yardley, Woods of Windsor and Enchanteur among others. "Malaysia is our biggest international market for us followed by China, Vietnam, with Indonesia and Middle East almost at same levels. We are in all developing countries in Southeast Asia and want build in these countries," added Agrawal.

Santoor with revenues of around $240 million (roughly Rs 1,500 crore) is still the biggest brand in WCCLG portfolio, followed by Enchanteur ($130 million), Yardley ($50 million), halal brand Safi and skincare brand Bio-essence (at $50 million each). Enchanteur, Bio-essence and Romano (a male toiletry brand) are market leaders in ASEAN countries.

Agarwal is focused on improving the China show, an ambitious play which no other Indian FMCG company has dared till now. "We are buoyant on China because it’s a country that’s still developing, it’s a large market and if you can play your cards right you can make money there and expand," said Agarwal.

(Published in The Times of India.)

Seven years on, retailers still see red

Raghavendra Kamath, Business Standard

Mumbai, June 22, 2014

Aditya Birla Retail, which started operations in 2007 with the brand ‘more’, was looking to break even in FY 2013. The wish remains unfulfilled — still.

Spencer’s Retail, part of the Sanjiv Goenka group which started in 1990s and opened stores in the modern format in 2006, was originally looking at a breakeven in financial year 2010-11. After missing two fresh goal posts, the retailer now says it hopes to break even in the next couple of quarters.

Birla and Spencer’s are just two of “the many supermarket chains, promoted by big corporates during 2006-08, are still making losses. While Star Bazaar opened its first store in 2004, it began expanding only post 2006. Sunil Mittal’s Bharti Retail, Raheja-owned Hypercity, Tata-owned Star Bazaar are also yet to turn profitable.

Consultants said ideally, retail ventures should break even in five to six years, but the tough economic environment and some not-so-prudent decisions have put paid to any such efforts.

According to a recent report by Crisil, the top 10 food and grocery retailers such as Aditya Birla’s more, Bharti Retail, Raheja owned Hypercity, the food and grocery business of Reliance Retail, accumulated losses worth Rs 13,000 crore in FY 2014. Crisil estimated that these retailers have invested about Rs 19,000 crore.

According to the report, Avenue Supermarts, which runs D Mart stores and Future Value Retail which runs Big Bazaar and Food Bazaar, are the major retailers which are profitable. Crisil said Future had the first mover advantage and Avenue had a low cost model which helped them to break even.

So what is holding back these chains from being profitable?

Besides the competition from kirana stores and the inherent low margins in food and grocery retail, costs associated with people, property and supply chain seem to the major issues that posed challenges to the chains floated by corporates.

While the retailers did not respond to mails, consultants say they were doing many things to achieve faster profitability. Hypercity is reducing the sizes of stores from 1, 00,000 sq ft to 40,000-50,000 sq ft and increasing share of fashion which carries high margins. Star Bazaar is also halving store sizes of large format stores and coming out with mid-sized and small sized stores to achieve faster profits. Spencer’s is looking to open 80 stores and focusing on improving its supply chain.

Crisil says the losses of the top grocery retailers will mount by about 30% over the medium term and may peak in 2017. After that, half of the players will start break even. Apart from Spencer’s which is looking to break even this financial year, even Hypercity is looking at Ebitda level profits this year. Since the developers have deep pockets and they see potential in the retailing business, they will continue to invest in retail, it said.

Some say one of the major reasons for the failure to have a consistent strategy over the years is the many changes at the top. Sanjay Badhe, former head of marketing at Aditya Birla Retail, says Birla Retail has seen too many changes in management and operations. “They need clarity in management,” he adds.

While Birla made Sumant Sinha, the group’s M&A specialist as CEO when it launched the business, Sinha quit within one and a half years. Thomas Varghese was then made CEO but in 2012 he was shifted to the textiles business and replaced by Pranab Barua, who came from Aditya Birla Nuvo. Late last year, the retailer named Vishak Kumar, CEO of its both formats.

Reliance Retail has also changed its top leadership frequently. While it debuted with Raghu Pillai as CEO of value formats. He was replaced by Gwyn Sundhagul who came from Tesco, Thailand in 2010. In a major rejig next year, Reliance Retail named Rob Cissell, former chief operating officer of Walmart China, as CEO.

But retail consultancy Technopak Advisors chairman Arvind Singhal said Reliance was firm on getting the right people on board. “Some people worked and some did not. But now they have good team in place,” Singhal said, adding some retailers stuck to people who did not deliver or stuck for too long.

Dipankar Halder, CEO at PingStripe and former head of supermarkets at Bharti Retail believes that some retailers are making losses due to their top heavy organizations with costs that are disproportionate to their store level costs. “Successful retailers abroad pay very good salaries to store managers because they are the people who drive the sales. But here we get cheapest guy at stores and have number of presidents and vice presidents at top,” he adds.

Indian retailers had to deal with expensive properties while running their stores. Indian grocery retailers pay rents which are almost double of what retailers pay abroad. But the chains earn 2-3% net margins in food and grocery. Ideally, hypermarket chains should pay 2.5 to 3% as% of rents to revenues to make them viable and supermarket chains should pay five to six% as% of revenues.

“Once you build a high cost base that is created for rapid expansion, it is easy not to reduce it. The quickest option available then is to scale down operations,” said Devangshu Dutta, chief executive of Third Eyesight, a retail consultant.

Though retailers such as Aditya Birla, Reliance, Spencer’s expanded aggressively between 2006 and 2010 to build scale, most of them exited unviable stores.

Aditya Birla shut over 150 super market stores in the last five years while Spencer’s exited cities such as Pune to focus on profitability. Even Reliance closed 50 shops, and exited three formats —Reliance Kitchen, which sold modular kitchen furniture, Reliance Wellness, a beauty and lifestyle chain and Delight, its non-veg store.

There are supply chain issues as well. According to Badhe, retailers such as Star Bazaar and Aditya Birla’s More are still sorting out their supply chain issues and could see improvements soon while Reliance has got its processes right. Pingstripe’s Halder says many retailers make the mistake of not treating unbranded items such as fresh produce, and meat as a separate category.

“You buy products such as meat, fish and fresh produce from middlemen, obviously the store level profits will come down. The more you do it, you have to share the profits,” said Halder.

Kumar Rajagopalan, chief executive of retailers body Retailers Association of India, says that inability of retailers to build scale at state levels and local taxes are posing challenges to retailers to be profitable. “It is scale per state, or in many cases per city, and not scale per nation thanks to the cascading effect of taxation like local sales tax, local entry tax, etc. It takes time to build that kind of scale.” Rajagopalan states.

Though retailers such as Reliance Retail tried a ‘farm to fork’ strategy, it did not take off the way it wanted due to opposition in many states. “Most of them open their distribution centres according to taxation and not according to transportation,” says Kumar, adding ”once GST comes in, they can set up large DCs at one place instead of multiple DCs."

(Published in Business Standard .)

The Big Kick-Off

Vikas Kumar, Outlook Business

New Delhi, June 21, 2014

On Gurudwara Road in central Delhi’s bustling and crowded Karol Bagh market, it is easy to miss the nondescript, grey four-storey building that houses Aero Group’s corporate office. Entering the reception, you feel as if you have been transported to a trading house from the 1980s. The ageing paint and weathered wood paneling gives the sense of a company steeped in its past, nowhere close to the youthful and vibrant image of Woodland, the popular homegrown adventure brand it represents.

That is, until you step into the cramped but modern elevator that takes you up to the first floor. Here, gleaming workspaces, open layouts, wall cabinets whose doors cleverly double up as writing boards all give out a fresh vibe of a company gearing up for the future.

Clearly, Woodland is a brand that’s being refreshed for a new innings. The transformational process has been underway for some time now, says MD Harkirat Singh. “We needed to reinvent the way we do business, because if we didn’t change, somebody else would have come in,” he says.

Since its launch in 1992, Woodland has single-handedly built a small category — outdoor lifestyle — and grown it through a mix of sharply targeted advertising for its young buyers, community building and events and alliances with environmental organisations such as the World Wildlife Fund and the United Nations Children’s Fund. In doing so, it has cleverly straddled an expanding adventure gear market.

“Woodland connects with the outdoor lifestyle image without being dependent on it,” agrees Devangshu Dutta, CEO, Third Eyesight, a retail consulting firm.

Now, Singh and his team are upping the ante. Preparations have been underway for a couple of years: a new line of innovative products has been unveiled and the brand extended into specialised categories within the adventure and outdoors space. Take, for instance, shoes and garments used in mountaineering, trekking, cycling and equipment for rappelling. The idea was to address the needs of entry-level users and not necessarily professional climbers and trekkers to begin with. “Some products need safety approvals and we may not go for them right now,” points out Singh. For sourcing such products, it has tied up with global manufacturers. A few of these products have already been introduced, such as GoPro outdoor cameras and climbing stick sourced from an Italian company, and trekking umbrellas from a German supplier.

The initial response has been encouraging, prompting Woodland to work on a plan to introduce five to ten new products each year. “Right now, I am holding a Woodland shoe with Gore-Tex lining and a Vibram sole, which will cost you only Rs 8,000 a pair,” says Singh, who is down south visiting the company’s Kochi store. The point Singh wants to make is this: Woodland makes shoes that are comparable with global brands.

But old-time sellers such as Avinash Kamath of Mumbai’s Avi Industries haven’t heard of these yet. He remembers the company’s traditional range being perceived as rugged but bulky and unsuitable for climbing mountains. “Their shoes are 50% heavier compared with European brands,” he says. Started by his father in the ’70s, the business is run by Kamath, a seasoned mountaineer. Stores such as Avi, Adventure18 in Delhi and Cliff Climbers in Dehradun have been the go-to places for gear for professional or early mountaineers. They are also the key influencers for the category, which grows mainly by word-of-mouth. Kamath is pleasantly surprised when told about Woodland’s advanced range. “If they have such products, they should be promoting them.” It’s exactly what Woodland is trying to do with marketing and innovation.

Brand push

From selling shoes to adding apparel (extending into a more formal line of wear under the Woods brand), the Rs 1,000-crore group has come a long way from its origins as a supplier of finished leather uppers to footwear manufacturers across the globe. An impulsive decision to replicate a design that the Aero Group was manufacturing for an Italian client and test it in the Karol Bagh market led to the creation of a brand that is now available in 4,000 multi-brand outlets and boasts of 450 exclusive showrooms in around 200 cities. In the past few years, Woodland has been clocking 13% to 18% growth (see: On a firm footing), compared with 20% for the overall footwear and apparel market. But Singh is in no hurry to grow any faster. Though he wants the company, which earns 60% of its revenues from footwear, to be seen as a more entrenched and focused player in the outdoor wear and adventure gear business, which currently accounts for a negligible share of revenues.

The reason — the adventure sports market is gradually picking up pace in India on the back of corporate outbound programmes and a general sense of awareness through television. Trekking, climbing and rapelling have been most popular in that regard. It’s a category that barely existed among the most passionate of adventure lovers — trekkers, mountain hikers and climbing enthusiasts. “The outdoor category is a huge universe. We are addressing only a small part,” says Singh. And the company is doing that by creating awareness of the category, celebrating everyday heroes. Woodland’s brand ambassadors include people such as Loveraj Singh Dharmshaktu, an assistant commandant in the Border Security Force who has climbed Mt Everest five times; Planning Commission employee and ace endurance runner Arun Bhardwaj; Deeya Suzannah Bajaj, who at 14 was the first and youngest Indian to go kayaking in the Arctic Ocean in Greenland; and Archana Sardana, who is the country’s first woman B.A.S.E. jumper, skydiver and scuba diving instructor. Woodland, in fact, developed special gear — a flappy bird-like jacket — for Sardana for B.A.S.E. jumping, considered among the riskiest sports since it involves leaping off buildings and bridges with a small parachute.

Apart from using images and videos of these ambassadors and sharing details of their achievements on its website, Woodland also leverages them as field testers for its ongoing product development and design process. Dharmshaktu, who has been tapped for his feedback on a new range of jackets, has also been hired as a consultant for an upcoming adventure zone being created on the outskirts of Delhi. Located on a 100-acre property on the Faridabad-Gurgaon Road at the foothills of the Aravallis, Singh says the zone, which is likely to be ready in six months, will serve as an events hub to connect with its audience and demonstrate its newer range of mountain gear.

True to its Timberland-inspired positioning, Woodland has stayed consistent over the years about what it stands for — rugged, outdoorsy and for people with a desire to explore and seek adventure. Communication, too, has remained largely consistent with the brand’s core values. “Over the years, it’s been the most well-defined brand I’ve worked on,” says Tanul Bhartiya, senior VP at Lowe Lintas & Partners, the agency that’s been handling the brand since its launch in India, now under division Karishma Advertising. While Woodland’s advertising is largely print-centric, over the years, there has been a greater push towards digital marketing to stay connected with its target group — 18-24 year olds. The rethink process was kicked off four years ago, when Singh enrolled for a two-week Taking Marketing Digital course at Harvard Business School with Amol Dhillon, vice-president, strategy and planning. That led to a digital marketing push for the brand that continues over popular platforms such as Facebook, LinkedIn and YouTube. Woodland now has 3.2 million fans on Facebook and 6,000 followers on Twitter. Its in-house social media content team is currently working on a Woodland TV app for iOS and Android, and a quarterly digital adventure magazine modelled along the lines of Redbull’s Red Bulletin. “Brands have to be their own content creators,” says Dhillon.

All these initiatives assume importance as the larger market for adventure and sports goods opens up in the country.

Continued below…

 KISHORE BIYANI: The Man They Wrote Off

Two years ago, no one took Kishore Biyani seriously. His company, Pantaloon Retail, was seen as a one-man show. Biyani himself was regarded as unpredictable, and not a long-term bet. Today, he is the biggest retailer in India. In two years, Kishore Biyani has bounced back to become India’s largest retailer. Here’s how the maverick ignored conventional wisdom on retailing, and won.

By M. Rajshekhar

The makeover of 26, Residency Road is almost complete. On this Thursday morning, Bangaloreans walking down this tree-lined avenue slow down to stare at the megalith that has replaced the old Victoria hotel. It’s a sharp, new mall. The sort with escalators and huge grey metal flanks clamped to the walls outside.

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All around it, people are zipping around in what can only be termed as desperate hurry. Labourers are clearing the dirt from the cobblestones that surface the driveway. Nearby, a mason is relaying a slab at the fountain. Truckloads of merchandise are arriving. Most onlookers take all this in, correctly conclude that the store is about to open, and walk on.

Other, more observant, watchers notice a somewhat nondescript man sitting on a ledge between the fountain and the steps that lead up to the mall. He doesn’t seem to be doing much. Every few minutes, he pulls out a cellphone – one of three he carries – to ask about the latest election results, and how the stockmarkets are doing. For, on this Thursday morning, the final election results are being tallied, and it looks like the Congress might win after all. But there are more interesting sights that engage everyone’s attention, and the man escapes most people’s scrutiny.

That seems to be something of a running motif throughout Kishore Biyani’s life. Ask people who India’s largest retailer is, and chances are they will say B.S. Nagesh of Shoppers’ Stop or RPG Retail’s Raghu Pillai. And yet, it is Biyani who is the largest player in the Indian market today. This June, when he announces the 2003-04 results of his company Pantaloon Retail, his topline will be about Rs 650 crore. A clear Rs 100 crore more than RPG’s, the second largest player in the Indian market. Shoppers’ Stop is in third place with revenues of Rs 400 crore.

Back in 2002, when Businessworld last wrote about him, the ‘bania’ from Mumbai was in much the same position as the Congress Party was before the elections. No one took him seriously. Biyani hung around the periphery of the retail industry, which was dominated by personalities like the suave Nagesh, unlike whom, he was taciturn to the point of being tongue-tied. He fidgeted constantly during formal meetings, which made the task of carrying out any serious conversation with him quite an ordeal. Little wonder, he seldom received invitations to speak at industry seminars.

No one quite liked him either, because the man strongly believed – and said so bluntly – that his peers in the retail business were mere copycats. “Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing,” he would say to anyone who cared to listen. His search for the ideal model also meant that he took colossal risks – something that scared away most financiers used to dealing with more conventional businessmen. On top of that, Biyani made no bones about the fact that he liked to run a one-man show. “I use people as hands and legs. I prefer to do the thinking around here,” he once famously said. As a result, both professional managers and investors avoided him. And few people gave him any chance of succeeding.

Between then and now, a lot has changed. Biyani has moved centrestage. Today he has three highly successful retail formats: the Big Bazaar hypermarket; Food Bazaar, that straddles the food and grocery business; and his original Pantaloons apparel stores. The property opening in Bangalore is his fourth model, a mall called Central. By the end of next year, he expects to have 30 Food Bazaars, 22 Big Bazaars, 21 Pantaloons and four Centrals. Right now, he has 13 Food Bazaars, 9 Big Bazaars (the 10th is opening next week in Nashik), 13 Pantaloons and one Central. Between them, Biyani’s stores occupy 1.1 million sq. ft of retail space. By the end of next year, they will occupy 3 million sq. ft.

With the opening of Central, Biyani says his portfolio is complete. Even as his competitors like the Rahejas (who own Shoppers’ Stop) embark on new formats (food and grocery), Biyani says that his appetite for experimentation is now sated. “I will no longer try out newer formats. My focus will be to consolidate our operations.” Don’t take him too literally, though. What he means is that he will continue betting on new opportunities ranging from gold to car accessories, but not on quite the same scale as, say, his first Big Bazaar or his first Food Bazaar. Instead, he will concentrate on ramping up each of his four main formats.

Drawn by his growth, in the last two years well-known financial institutional investors like Goldman Sachs and Citigroup Global Markets have picked up stakes in his firm. And when the stockmarkets looked buoyant just a few weeks before the poll results, the Pantaloon stock was among the best performing on the BSE. It quotes at Rs 311 today, up from Rs 51.25 a year ago. Things are going so well now that Biyani has stopped talking about selling out to foreign retailers when they come in.

“Things have really fallen into place in the last two years,” he says. It is noon, and we are walking through the mall. Inside, the whole place is a mess. There are less than 30 hours to go before Bangalore’s newest and largest mall opens for business. And, so far, nothing is in place. The escalators are not working. The shelves are still coming up. The merchandise is still coming in. The stuff which has come in hasn’t been unpacked yet. Cardboard cartons, plastic sheets lie everywhere. And yet, there is something oddly relaxed about Biyani’s demeanour. He wonders about the stockmarket. Why is it rising? Can Manmohan Singh be the next PM?

Perhaps Biyani is in an unusually good humour because he knows that the chaos will settle down soon enough. Just like it has with his entire business. A big factor, he says, was Big Bazaar Mumbai. The format was a huge gamble, says Bala Deshpande, who served as ICICI Venture’s representative on the Pantaloon board. Around 2001, when the first Big Bazaar opened, Pantaloon’s topline was Rs 180 crore. The company needed money to expand, but had just Rs 4 crore of profits. The share price was low (Rs 18), so it could not have raised much from the bourses. Biyani would also have had to part with a lot of equity – his family and he hold 40% in Pantaloon today. Biyani took a Rs 120-crore loan that pushed his debt exposure to as high as 1.5. If Big Bazaar hadn’t worked, he would have ended with huge debts and a loss.

But, as it turned out, the store clicked. In week one, the first Big Bazaar store pulled in over a lakh customers, and did a crore in turnover. By the end of the first year, Biyani had opened three more Big Bazaars. Riding on the hypermarket, Pantaloon saw its turnover of Rs 286 crore (2001-02) climb to Rs 445 crore (2002-03). Investors began to take notice. They also became more comfortable with the idea of him being a maverick. Says Biyani: “Investors look for growth. And there are not many growth stories in Indian retail. Most companies are growing very slowly.”

   

It helped, also, that around the same time, Biyani began to pay a lot more attention to what the investors wanted. Says Deshpande: “As the new investors came in, they told him that he needed to delegate in order to grow.” And so, he went on a hiring spree. Biyani pulled in the head of Globus, Ved Prakash Arya, to handle operations; Jaydeep Shetty from Inox to create new brands; Sanjeev Agrawal to handle marketing; Kush Medhora from Westside to look after new store rollouts; Ambrish Chheda came in to look after Food Bazaar and handle business development; Bina Mirchandani came in to look after the merchandising; V. Muralidharan came in from Lifestyle to head Central…

Persuading the professionals wasn’t easy. Take Kush Medhora. Initially, he didn’t want to join. “I thought the company was unprofessional from the way the first few stores looked. I had also heard that the company was a one-man show.” But during the job interview, Biyani told him he wanted to abdicate everything except strategic planning and the selection of new locations. That helped Medhora make up his mind.

There is probably another reason why Medhora joined. He enjoys the adrenaline rush. His job, opening new stores, keeps him on the road for 220 days in a year.

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Ved Prakash Arya At Food Bazaar, Mumbai: Like the former head of Globus and current Pantaloons COO, many professionals are not averse to working with Biyani now

       

It is this frenetic pace that drew him to Pantaloon. “We will be (worth) Rs 5,000 crore by 2007,” he says. “Such expansion is fun. In a way, we are creating history.” Right now, he is running around – he is short of site engineers. His team has just one when it needs at least another three. He is also interviewing aspiring Big Bazaar store managers. In a break from regular retail recruitment, the company is hiring chartered accountants for store managers. Managing Big Bazaar is like financial tap dancing. The margins are slimmer. The business runs on faster stock turnarounds, and calls for a very different way of thinking from the other stores. And so, Pantaloon is looking for people with an eye for numbers. “Alternate Saturdays are holidays,” Medhora grins, “and so that is when we do our interviews.”

As the company grows by leaps and bounds, it is discovering all the advantages of scale. In everything, from raising finances to negotiating rates, the economies of scale kick in. To go from its current 1.1 million sq. ft of retail space to 3 million sq. ft by the end of 2005, Biyani estimates he will need an investment of about Rs 250 crore. Of that, Rs 32 crore has been raised through a convertible debenture offer made in November 2003. Another Rs 60 crore is being raised though debt. The current cash flows should take care of debt servicing without much problem. Meanwhile, the rapidly growing profits can be ploughed back to fund the expansion. The company has an EBITDA (earnings before interest, tax, depreciation and amortisation) of a little over Rs 65 crore. Right now, says C.P. Toshniwal, chief of corporate planning, “Our turnover is around Rs 650 crore. But by next year, the turnover will be Rs 1,300 crore. So, we will have an EBITDA of Rs 130 crore, all of which help fund the expansion.” In contrast, Shoppers’ Stop will throw up Rs 24 crore as EBITDA this year.

Interestingly, even as Biyani gets more cash from his business, at the same time, he is making that cash work harder. In the old days, he says, “I would have paid Rs 7 crore-7.5 crore for a 50,000-sq. ft store and I would have done an annual turnover of Rs 35 crore. Now, I spend about Rs 4 crore for a store of that size, and do a business of Rs 50 crore-60 crore.”

You can attribute that partly to the mall-making frenzy in this country. There is a shortage of anchor tenants in this country – at least ones that can pull customers in, and Biyani is exploiting that. Not only is he able to negotiate lower rentals, he has begun insisting that mall owners also develop the place for him. In the old days, he says, “We would buy the property, do the fittings and so on. Now, I just take a fully-appointed building from them.”
Day two. Kishore Biyani is standing on a scooter. The Businessworld photographer is trying to get some elevation into the photograph. From that unsteady perch, he is talking about why he thinks the best is yet to come for his chain. All his formats, he says, are seeing an interesting evolution.

Take Pantaloons. This is the brand that started Biyani’s transformation into a retailer. Back in 1997, Biyani was manufacturing two brands, John Miller and Bare. Both were struggling. Even though his products were good, and the pricing was competitive, high distribution costs and margins were making the whole business unviable. And so he decided to set up his own stores. That year, the first of these came up in Kolkata. At this stage, the plan was that the company would open another 2-3 such stores, no more. Recalls Kabir Loomba, who worked with Biyani as a chief operating officer (COO) in that period: “When the first store came up, we did not know when the second store would come up.” But the Kolkata store was an eye-opener. Biyani had been hoping it would do about Rs 7 crore in its first year. It did Rs 10 crore. Loomba feels this taught Biyani an important lesson: the Indian market was under-retailed. This was when the aggressive retail expansion started.

Over the years, Pantaloons has been through a few makeovers. And right now, it is getting another one. Biyani is junking the old positioning of ‘India’s family store’ and is planning to target the youth instead. His consumer insight is, like always, a shade radical: “Within a family, people were thinking and dressing and acting very differently. Which is why I believe studying Indian consumers by demographics and psychographics is a waste of time. We should look at communities: techies, metrosexuals, etc.”

   
    So, Pantaloons will now be about affordable fashion. (‘Fashion from Pantaloons’ is the new adline.) In the next two years, says Biyani, Pantaloons will be the Indian equivalent of Spanish fashion retailer Zara.

Internationally, in this business of fashion retailing, while the margins on individual garments are high, eventually, the margins are low. That is because the unsold stocks have to be liquidated through heavy discounting. For instance, it takes 90-120 days to design and ship, say, a new line of fashion merchandise. This means two things. One, the company will always be forced to order in lots of 90-120 days, lest it runs out of stock halfway. Two, if the fashion changes, the company is saddled with inventory which then has to be liquidated. Says Biyani: “If the margins on every garment are 50%, but I am going to sell half of them after a 12% markdown, my margins are already down to 44%.” And so, the company is trying to crash the time to market from 90 days to about 21 days.

Zara has a neat model that lets it launch new lines in less than 21 days. What made it possible is that it had its own factories. Biyani is doing something similar. Faster manufacturing, says Anshuman Singh, who looks after the supply chain, will let the company keep less inventory, which will make it more responsive to market changes while reducing the amount of stocks to be sold at a discount. At the same time, as fresh stocks hit the market faster, sales will rise. By becoming much more responsive, says Biyani, “We can up our margins by 5-6%.” Right now, he has brought the time lag down from 90 to 40 days.

But fashion tastes in India don’t change that fast. So the real question is: what will it take to drive disposability of clothes higher? According to retail consultant Devangshu Dutta, that is price. “Pantaloons will have to really bring prices down, by half or so. But that might create a problem between Pantaloons and Big Bazaar, for the latter is also based on apparel.”

   

 

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As it were, Biyani’s new strategy for Big Bazaar also centres on fashion, but with a volumes orientation. It will retail what Biyani calls commoditised fashion – blue jeans, white shirts. Biyani is planning to buy these in very large numbers, drive prices down, and sell. Take denim. Recalls Singh: “Pantaloons has jeans from Bare at Rs 695 and above. Newport, priced at Rs 599, was the cheapest pair of jeans in the market. So, we contacted Arvind Mills and asked if they could give us jeans at Rs 299 if we were willing to take 100,000 units a month.” That is where Ruf-n-Tuf came in. The brand had been discontinued when Pantaloon first contacted Arvind. From now on, it will be available only through Big Bazaar. There is a similar deal for T-shirts.

This will have to be a lean operation. Pantaloon will carry no stocks. They will lie with the manufacturer and replenished just in time. In businesses where there aren’t any large manufacturers, like plastics, leather, food technologies, Pantaloon is trying to engineer its own low prices. For ketchup, it has an in-house label for Rs 38 as opposed to an industry average of Rs 58 for the same size.

And then, there is the format that fascinates and worries Biyani: Food Bazaar. Right now, of the company’s topline of about Rs 650 crore, Rs 250 crore has come from Pantaloons, the apparel store, another Rs 230 crore from Big Bazaar and the rest (Rs 160 crore-170 crore) is contributed by Food Bazaar. Biyani worries that Food Bazaar is growing too fast. He says: “I could double the stores I have and still face no problem. But it is important to recognise that it should not be more than 30% of my topline.” (That is why, he says, “I have underplayed food in Big Bazaar.”)

        That flies in the face of conventional wisdom. Most retailers believe food is central to their retailing operations. If you look at the rival hypermarket format Giant from the RPG stable, 50% of its revenues come from food. In contrast, Biyani doesn’t want the share of foods to rise over 30%. He has a simple explanation: in India, cost of modern retailing is very high, and food doesn’t offer adequate margins. If cost of operations is 30%, food margins are just 12-14%. In contrast, apparel and non-food segments offer margins of 25-30%.

Part of his success is the ability to paint on a blank canvas. Incredibly, when Big Bazaar was conceptualised, he put in place a team of four people, including himself, none of whom understood the hypermarket business. And one of the first insights the team had was that all neighbourhood markets are the same – each of them has a bania, a dry cleaner and a chemist. “We knew we would have to create that same mix of the mandi in whatever new format we evolve.”

Or take Food Bazaar. “I am going to change the face of food retailing in India,” promises Biyani. Right now, he is working on a new focus for Food Bazaar. He calls it ‘farm to plate’ – essentially, a plank to improve freshness in the products. Boasts Chheda, the chief of business development: “The Ahmedabad Food Bazaar has a full-scale dairy set-up in place with a capacity to produce 1,000 litres a day. We make our own paneer and pasteurise milk. The company is also adding spice grinders and atta chakkis (flour mills).”

It’s an example of how earthy entrepreneurs think differently. Says Biyani: “It is obvious to everyone that what Indians prize most in their food is freshness. That is what I need to give my consumers. But most managers take that as a mandate to set up a cold chain in this country. But I wonder, why cannot I have a farm next to my store? Managers always complicate things. It is the MBA culture. B-schools teach you how to manage complexity, but I don’t think that is necessary. Life is quite simple.”

Central is a smart concept too. It is a seamless mall. In other words, while there are lots of retailers under one roof, the look and feel is like that of a department store, down to the unified billing centre. And yet, all the stocks are held not by Biyani, but by the partners. By the end of September, Biyani will add two more – a 210,000-sq. ft monster in Hyderabad, and a smaller one in Pune. A fourth one will come up by May next year. The four Centrals will do about Rs 360 crore in turnover in the first year.

To continue innovation, Biyani has a new businesses team. Newly constituted under the charge of former Globus manager, Anand Jadhav, it is trying to identify new businesses for the company. Says Jadhav: “In 4-5 years, same store growth might start to plateau. To keep that rate of growth intact, we are identifying new businesses we can expand into, or use to replace less profitable ones.” Right now, Jadhav and Biyani come up with the ideas and Jadhav’s team sees how each of the areas can generate a topline of Rs 100 crore in two years. So far, he has zeroed in on footwear, music and car accessories. His mandate: to launch 3-4 business ideas every year.

Talking about managing innovation brings us to contrast Biyani and Nagesh. Nagesh believes Biyani will have to give up on gut-feel soon. “Gut-feel is not consistent. He will just confuse his managers terribly. There is no doubt in my mind that Kishore will have to go in for tech-driven answers.”

    In many ways, the two are poles apart. Nagesh is extremely systematic. He gets systems in place and then scales up very fast. Biyani works the other way around. He believes in growth first, and that problems can be fixed along the way. As the Indian market evolves, it will be interesting to see who has the better retailing organisation. The scientific Shoppers’ Stop, or the serendipitous Pantaloon. It will also be interesting to see how Pantaloon retains its founder’s intuitive spirit even as the professional managers and systems take root.

It is a little after 6 p.m. The diya is lit. The ribbon is cut. And the mall opens for business. A lot of employees are hanging around, all eager to see how the mall does. Medhora is standing, grinning, near the entrance. “Five days before the store opened,” he tells me, “A tenant called to say he could not get any cabinets for his counter. We had to run to find carpenters. We got the cabinets just in the nick of time.”

The mall begins to fill up. The first glitches reveal themselves. The public address system is not working too well – the speakers are too high. And then, a few minutes after the mall opens, the power fails. The lights dim. The escalators stop moving. Opening glitches, shrugs Biyani.

The Tarapur plant: As Biyani plans to reposition Pantaloons as a fashion store, he plans to crash the time to market to three weeks. It helps that he also makes clothes

   

Postscript: Less than a week later, half the Pantaloon managers were back in Bangalore ironing out some of the bugs.

Postscript two: Another week later, I call Murali, the head of the mall. Business is good, he reports. Getting close to 15,000 people on weekdays and 25,000 on the weekends.

   

(With reports from Irshad Daftari)

Article from BusinessWorld, 14 June 2004

 

Beyond the Hinterland

Rashmi Pratap, The Hindu Businessline

Mumbai, June 13, 2014

In a market where homegrown and multinational companies alike make a beeline for the hinterland, here’s one that has boarded a bus to urban India after becoming a household name in villages. Jyothy Laboratories has meticulously targeted rural consumers to grow its brand into the country’s fifth-largest in the fast-moving consumer goods category.

Every month, truckloads of Ujala fabric whitener and detergent, Maxo mosquito repellent coil and Exo utensil cleaner arrive at the doorstep of retailers in lakhs of villages, saving them precious time and transportation costs. The goods are also sold on credit, which is a major draw for rural retailers such as Gyaneshwar Kadam of Ajang village in Maharashtra’s Dhule district. “We are always short on working capital. Credit is a big help. Even our buyers prefer to pay after they get their wages. So I don’t stock products of distributors who don’t give me credit,” he says.

This, then, is the story of thousands of retailers who now swear by Jyothy Labs products. “In rural India, we have the first-mover advantage. Since we went to villages first, gave them respect and credit, we get trust in return. Big companies don’t give credit, but I ensure my distributors do it. The moment you give credit, people become your patrons,” says Ullas Kamath, joint managing director of Jyothy Labs, best known for its Ujala fabric whitener.

City shops beckon

The company’s products are available through 2.9 million outlets, and it supplies directly to one million of them. Now, as it readies to spread into every urban nook and corner, it has re-jigged some strategies. To begin with, it has added more products to its line-up.

“When you are in business, you want to spread your risks as well as product portfolio. And that’s what we have done,” says Kamath.

The company acquired 50.9 per cent in loss-making Henkel India, a subsidiary of Germany’s Henkel AG, for ?60.73 crore in March 2011. With that it attempted to improve its rural-urban sales mix. Before the acquisition, 65 per cent of its Ujala sales came from rural India. “Now it is 50:50 from urban and rural. That is how Henkel has helped. They have distributors in urban areas and that network has improved our reach,” Kamath says.

Earlier, retailers and stockists in urban areas were reluctant to take on Jyothy Lab’s products. “Along with Henko (Henkel’s detergent brand), we are able to push other categories too like personal care and liquid mosquito repellent. And people are accepting it.”

Villagers buy more

“In rural India, the consumption per family might be small but the number of families is so large that it outgrows urban India,” says Kamath. His assumption is not without basis. Rural spending at ?3.75 lakh crore far outstripped urban consumption at ?2.994 lakh crore during 2009-12. Rural consumption per person exceeded the urban equivalent by 2 per cent, according to CRISIL and data from the National Sample Survey Organisation.

But for a national presence, Jyothy has to look beyond rural India. “In moving to urban India, there will be more opportunities than challenges. Migratory population in cities is humongous. And their needs are more like those of rural consumers — whether it is the kind of products or even the price they are willing to pay. If a company can ensure a good supply chain across large cities, it can grab a substantial chunk of the market,” says Devangshu Dutta, chief executive at consulting firm Third Eyesight.

Jyothy has accordingly made changes in its management structure. Its top team now has 17 people, including the CEO, S Raghunandan. Each brand head operates in a silo. “We have brought in a new management team to grow the categories. We give them enough money to spend on a brand and understand the reasons behind their performance or non-performance.”

The gamble seems to be paying off. Raghunandan, an FMCG veteran, has helped the company restructure and cut the distributor margin from eight per cent to six per cent.

Advertising and sales spend has increased by 65 per cent to ?135 crore in FY14. “Brand expenditure continues to pay returns over a long period of time,” says Kamath. He points out that even when MNCs advertise, they not only grow their own brands but also create new categories. “Everybody’s brand grows as people know a product exists and then they compare similar products.”

Global dream

Jyothy Labs is looking to launch newer products and re-launch some others. “We should be in at least two more categories in a few years. The aim is to be among the top three players in each category,” Kamath says.

That does not appear to be daunting. Henkel can still buy a 26 per cent stake in Jyothy Labs by 2016. That would give Jyothy the financial muscle to take on the biggies. Moreover, an equity partnership with Henkel should allow it to hop onto the German company’s wide international network and ride into emerging markets.

But until then, Kamath and his team are busy marking the miles and the milestones on the road to urban India.

(Published in The Hindu BusinessLine .)

India: Landslide election heralds optimistic business climate

Pia Heikkila, for the International Bar Association

Mumbai, June 11, 2014

The unprecedented victory by Narendra Modi in the world’s biggest democratic elections in India has created what can only be described as a wave of optimism, with many hoping that the country’s economic and business climate will now take a similarly dramatic turn for the better.

Foreign investors are watching closely in the hope that the country’s new Prime Minister is able to move swiftly to implement much needed change.

This optimism isn’t without foundation: there have already been promises to make India more investor friendly and resolve ongoing issues plaguing several foreign companies.

Core supporters were amongst the business and enterprise classes, thanks to the visible changes achieved in the state of Gujarat where Modi was the Chief Minister for the last 12 years.

Akil Hirani, managing partner of Indian law firm Majmudar and Partners and Vice-Chair of the IBA Asia Pacific Regional Forum, said the Modi has already shown potential for turning the country back onto a growth path. ‘Changes were achieved in Gujarat in terms of better roads, greater electricity connectivity and foreign investment. With a resounding majority, the government is well poised to bring about the same changes nationwide,’ Hirani says.

The ‘Modi Wave’ was born out of widespread frustration at corruption scandals and India’s inability to sustain growth. To show that Asia’s third-largest economy is open for business and on the right track, action is needed quickly. ‘Steps such as making the tax environment more friendly, working towards a time bound implementation of the Goods and Services Tax, cleaning up the balance sheets of state-owned banks, are needed initially,’ says Hirani.

But there needs to be more than words and promises: movement in a consistent direction over a long period is vital for the country’s economic success.

‘Modi has specifically mentioned that governance needs to build further on what has already been built so far. Sustained economic progress is not feasible if inconsistent or even mutually opposing policies are adopted […] Momentum for equitable development takes a long time to build in a country the size of India,’ says Devangshu Dutta, the Chief Executive of Indian management consultancy company Third Eyesight.

India’s tax battles against foreign companies have been attracting headlines and raising concerns with potential investors for some time: uncertainty about taxes and regulation in India has discouraged companies from expanding into the country. There are a considerable number of examples. Vodafone has been fighting a multi-billion tax bill through courts in connection with its 2007 purchase of the Hong Kong based Hutchinson Whampoa’s India operations. Nokia is another well-known case: the Finnish company is alleged to have wrongly claimed exemptions for software imports and is taking its legal challenge against a judgment of the Delhi High Court to India’s Supreme Court.

The list goes on: Royal Dutch Shell, General Electric and Microsoft are just few of the household names that are fighting tax cases in India.

Companies have now begun seeking assistance from bilateral pacts and pursuing international arbitration. But help may be on its way as Subramanian Swamy, widely expected to take a key policy role in the new government, announced recently that his top priority will be to change tax regulation, which experts agree could aid India’s return to economic growth.

‘They should repeal the retrospective amendment that was introduced after the Vodafone decision,’ says Vivek Kathpalia, partner at the Mumbai-based law firm Nishith Desai Associates and a member of the IBA Asia Pacific Regional Forum. ‘This will send a very positive message to the world that India is open for business and that there exists regulatory certainty.’

Kathpalia added: ‘The other is the introduction of the Goods & Services Tax. The government has said that they will try and build a consensus for this amongst all the states of India. Once implemented, this alone will add around two per cent to India’s GDP.’

India’s new Government has promised it will try to create a level playing field for all investors by limiting bureaucracy. ‘Modi’s aim is to have more governance and less government, and to this end, he has reduced the number of ministries and ministers in his government. In addition, he seeks accountability, responsiveness and results from his team members, which will benefit everyone,’ says Hirani.

India also needs more foreign direct investment (FDI). The previous government did introduce a slew of economical reforms, such as changes in the banking and retail sectors that were hailed as successes. But, in order to achieve a steady flow of FDI, the government needs to implement further reforms, and not just focus on the stock market performance. ‘They have understood that for India to creep back to a growth rate of 8–10 per cent, development is the only solution,’ says Kathpalia.

The new government’s upcoming budget will be closely watched and may give indications of what’s to come. ‘The stock markets, though not a perfect barometer of real change, have displayed positive market sentiment,’ says Kathpalia.

(Published on IBAnet.)