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The Foreign ‘Curry’ Challenge In India

Ekta Sharma Verma, Franchise India/Retailer
New Delhi, 30 August 2014

Commencing a new restaurant biz or an outlet in India usually comes with a lot of challenges for entrepreneurs. But the challenges and dares are more when you replicate a foreign brand’s model in India. So, what are the challenges that the far-off food brands see while foraying in India. Let’s talk to experts from the F&B sector and know more on this.

As per Third Eyesight, a consulting firm – The number of international brands continued to grow each year at a steady pace until the early 2000s and took off exponentially thereafter. It is growing with each year passing. The brands prefer mostly franchise route for entering India. However, few also choose licensing and JV’s. Fast food is not a new concept in India. With roadside shops, chat places and other easy pick eatables, Indians have always been very well aware of the offerings. But with the entry of McDonalds, KFC, Pizza Hut, Dominos and many others in the Indian market, whole scenario changed. Indians have loved the westernisation of Indian fast food. Like a tikki in a burger with a little twist is now recognised as Aloo patty.

Another brand, The Chocolate Room is an Australian brand and entered India via the franchise route. Chaitanya Kumar, Chief Managing Director, The Chocolate Room opines: “Indian franchisors are very eager to get franchise partners for their brand. But once they get an investor, most of the franchisees face problems in inadequate awareness of brand, training, communication, quality and customer service standards. Lack of franchisor’s follow up’s and support to the franchisees results in rumors about the brand in the market place. Few of the major challenges for the restaurants here are fragmented market, operational challenges, real estate, manpower and supply chain.”

License intricacies and challenges to run a resturant

In India, obtaining the requisite licenses, e.g. health license, food safety license, police license, No Objection Certificate (NOC), from the fire department and the state pollution control board, and so on is a major obstacle hindering the smooth operations of a restaurant. The process is not centralised as yet and requires filing applications with individual stakeholders, which involves a lot of paperwork and is a time-consuming activity. The licenses required to start a restaurant are the same throughout India, except in some states like Maharashtra. A player needs approximately 12-15 licenses just to open a restaurant. In comparison, the licensing requirements internationally are not as intricate as in India.

As a result of globalisation and consequently diminishing trade barriers, our economy has opened new avenues of opportunities. With these opportunities, comes a great deal of challenges that threaten the success of business. Multinational brands on entering a new market, sometimes strive to create a competitive advantage over local established brands. There are a lot of challenges that an international food service brand faces when entering a market like India. According to Manpreet Gulri, Country Head, Subway Systems India Private Limited: “some of the major challenges are adapting to the local taste and preferences, developing familiarity with ethnic differences and abiding by them, operating under the legal framework of the market, establishing a connect with the consumers, keeping with the brand value and maintaining standardisation in the systems and also a few challenges related with the supply chain.”

Engaging the local customer

A major challenge for an international Quick Service Restaurant (QSR) brand is to engage the local consumer. Keeping in view the local preferences, Subway has adapted to the local palate by introducing vegetarian and non-vegetarian offerings such as Chicken Tandoori and Paneer Tikka. For a sensitive market like India, vegetarian and non-vegetarian service counters are kept separate as far as possible. Another challenge is to have a system in place wherein standardisation of the products and their quality is ensured throughout the market which is why, Subway franchisees are supported by locally-based Development Agents and their staff that provides additional business expertise. This helps in running the operations smoothly.

Gulri of Subway adds: “In food service industry, there are no set formulas or shortcuts to excel in the business. An idea that works for other countries might not work in India. The key to gain an edge over the established home-grown brands is: Research – Adapt – Innovate.”

To conclude, in order to create and sustain a global competitive advantage, multinational companies today need a systematic approach to research, renew and enhance their core capabilities before entering a new market. Localisation strategies like competitive pricing, store expansion, delivering value for money products and engaging with the consumer can help one operate successfully under such circumstances.

Other major challenges for restaurants in India:

  • Rising Food Cost– Inflation in food prices which have gone as high as 20 per cent as compared to the last fiscal. This compels the players to keep revising the menu and prices.
  • Fragmented Market and Increasing Competition– The unorganised nature of the industry creates challenges of unclear format segmentation, varied consumer options for eating out and the lack of best practices for food services outlets. This makes it difficult for the players to engage and retain consumers.
  • Manpower Issues– The Indian hospitality industry is highly labour-intensive, but the availability of trained chefs, managerial staff and other support staff is low. According to a study by the ministry of tourism, the current supply of skilled/ professionally trained manpower is estimated to be 9% of the total manpower requirement. Given this shortfall of quality manpower and the industry’s high attrition rate of 20-25%, the cost of labour is high. Players therefore have to invest in the in-house training programmes.
  • Real Estate Issues– High real estate rentals and costs, and labour costs impact store profitability. For a food services outlet, real estate (rentals) is the second major cost component after raw materials and accounts for 12-15% and sometimes even 20% of total revenues. Further, labour costs are also high in India. People get low salaries, productivity is low, and thus there is a requirement for more employees. The high labour and real estate costs, coupled with the high service tax on property, are exerting pressure on store profitability and consequently deterring the growth of food services outlets.

(Published in Retailer.)

Uber may have to tweak payment model in India

Nikita Garia, MINT

Bangalore, 26 August 2014

San Francisco-based Uber Technologies Inc. may be forced to change its business model, which relies on cashless transactions, after India’s central bank on Friday issued a notification that will reduce the convenience associated with the taxi booking app.

The Reserve Bank of India (RBI) on Friday said Uber and other companies that offer app-based purchases cannot allow customers to pay with their credit cards without a two-step authentication process. Customers have hitherto simply had to enter their credit card details at the time of signing up with Uber. Every ride was automatically charged to the card without any further verification.

RBI has given all such businesses time till 31 October to comply with the regulation. In late July, the Association of Radio Taxis (ART) had written to the central bank that Uber was storing credit card details of customers in its server and deducting fares without the two-step authentication, which involves entering the CVV (Card Verification Value) number and password.

Uber will now have to offer payment modes such as cash or mobile wallets and even consider installing credit card machines in every car, analysts said.

“Uber right now has only two options in front of it. One, exit the country. Two, tweak its business model which is not a very lucrative option,” said Anand Ramanathan, associate director at KPMG.

Uber did not respond to phone calls and emails sent by Mint seeking comment on RBI’s regulation.

In an interview in May, Uber’s general manager in Bangalore said that the company is “working on adding more options for customers to use Uber by staying cashless”.

Uber, which started its India operations in August last year, is present in 10 cities, which makes India second only to the US in terms of number of cities covered. It began operations in 2009 and is present in 44 countries. It allows payment only by credit cards in all these countries.

Moving to a different model of operation will not be easy for Uber as it will force the company to make significant investments and expose it to risks that it hasn’t had to take in any of its markets yet.

“The cash model will definitely add to costs. The logistics of cash management is not part of the Uber model,” said Devangshu Dutta, chief executive at Third Eyesight, a consultancy. “For managing cash, Uber will have to open cash collection centres which will create challenges at the services level.”

Besides cash, Uber’s other options include adding a mobile wallet to its app. A mobile wallet can be recharged by the customer using a payment gateway and the user can add money via credit card, debit card or net banking, all of which require a one-time password and CVV number.

“This will however work opposite to a credit card where user gets 45 days to make a payment. With a mobile wallet, the user will have to store money beforehand,” said Prashanth Rao, director at KPMG. The users will then have to think whether it is a good option to keep the money blocked in Uber’s wallet, Rao added.

Uber’s competitors in the Indian market largely work on a cash-based model. However, rival companies TaxiForSure, Meru Cabs and Olacabs are evaluating mobile wallets to ease transactions. Meru Cabs already has a card machine installed in each of its cars that customers can use to pay either via credit or debit card. Meru Cabs also has an app-based payment system that allows customers to enter their credit card details once. The details are saved but the customer has to enter the CVV number and password every time a transaction is made.

“We will be launching our mobile wallet in the next 15 days for which we have partnered with a payment processing company,” said Siddhartha Pahwa, chief executive officer of Meru Cabs. Pahwa, who is also the secretary of the Association of Radio Taxis, said that RBI’s regulation now brings everyone on a level playing field.

The global payment model of Uber works in a similar fashion across countries and the company is not known to change its model.

RBI’s move could possibly have one advantage for Uber: it may potentially increase its customer base. “If Uber moves to a cash model, it can work in its favour in the medium to long term. With cash, Uber can target a larger market. However, it is definitely a setback for now,” said Ashish Jhalani, founder of consultancy eTailing India.

(Published in MINT.)

A Double Topping For Growth

Meghna Maiti, Outlook Business
Mumbai, 22 August 2014

The first customers were the British in pre-Independence Delhi, who queued up at Kwality in Connaught Place’s Inner Circle for a cupful of Iqbal Ghai and Pishori Lamba’s hand-churned ice cream. As the years went by, even as Kwality and Gaylord restaurants became renowned for their food, it was the ice cream sold under the same brands that was the real commercial success — so much so that Kwality became generic for ice-cream for several generations of Delhiites.

The association with Kwality ended in 1998 when Ravi Ghai, Iqbal’s son and the second-generation businessman in the family, sold all marketing rights to Hindustan Lever (HLL) — but, by then, there were so many extended family-run offshoots and copycats that HLL allegedly had to buy the rights to the brand multiple times. Still, the Ghais’ connection with ice cream has continued — their Graviss group of companies has been the exclusive master franchisee for Baskin Robbins ice cream in India since 1993. There’s also a joint venture with the US-based Rich Products to make non-dairy toppings for the bakery and food service industries.

Last year, Graviss quietly stepped outside its comfort zone into the frozen yoghurt and meat business. The company acquired two Mumbai-based start-ups, 6th Street Yogurt and Meats and More, in January and May 2013, respectively, for undisclosed sums. While 6th Street Yogurt is aimed at the youth and health-conscious, Meats and More is positioned as a neighbourhood delicatessen store catering to everyday needs related to fresh and frozen meats and assorted snacks. “It’s an experiment that dovetails perfectly with Graviss’ existing portfolio,” says Sanjay Coutinho, a long-time Graviss hand who rejoined the company in 2012 as CEO after a brief stint as CEO of Barista Coffee. “The acquisitions have helped us synergise since all businesses are in the food and beverages space. 6th Street Yogurt forms part of the group’s resolve to tap into the growing quick service restaurant (QSR) space, positioned as a deli store catering to nuclear families. Through Meats and More, we are tapping into the growing specialty organised retail category,” he explains.

Catching A Trend

It was in the summer of 2011 and Asif Rizvi, who was then working as a sales executive with Hewlett Packard, was strolling down the historic Sixth Street in Austin, the nerve centre of the Texas city’s entertainment district, when the idea of getting into the frozen yoghurt business struck him. Rizvi shared the idea with his childhood friend, 26-year-old Zeeshan Kazi, who was a marketing manager with brand consulting firm DY Works back in Mumbai. A year later, the duo set up the first outlet of 6th Street Yogurt in Mumbai’s Kemp’s Corner in February 2012. By the time the company sold out to Graviss the following year, it had opened six more outlets, all of which offered yoghurt with toppings, smoothies, waffles and parfaits ranging from Rs 59 to Rs 280 with an additional Rs 25-35 per topping.

Meats and More, on the other hand, is the brainchild of Jai Kacherla. The store had a very low-key launch in May 2011 in Powai, a central Mumbai suburb, before expanding to Oshiwara in July 2013. It sells a variety of fresh, frozen, imported and exotic meats such as rabbit, quail, turkey, salmon and emu, as well as breads and salad dressings ranging between Rs 150 and Rs 2,400 per kg.

While the company is looking at high street locations for 6th Street Yogurt, residential locations will be the catchment area for Meats and More. Over the next year, the company plans to open five more yoghurt stores, investing around Rs 20 lakh per store on rent and fit-outs. It will spend an additional Rs 30 lakh on advertising and promotional activities. It is also experimenting with a café format, where customers will be served coffee and sandwiches in addition to yoghurts.

Meats and More, too, will add three more stores by 2015, spending Rs 20-25 lakh per store. “All these expansion plans will be financed through internal accruals,” says Coutinho, adding that the company does not need external funding. He declines to share financial details but according to filings with the Registrar of Companies, Graviss Foods reported a revenue of Rs 71 crore and PAT of Rs 2.65 crore in FY13. Expansion after this initial company-financed push will be through the franchise route, which is familiar territory for Graviss — 524 of Baskin Robbins’ stores in India are run by Graviss. With the two new businesses, Graviss is now aiming at a top line growth of 15% in the current fiscal. But then growth won’t come easy.

Sizing Up The Potential

Working in niche categories is always a challenge, something that Coutinho too acknowledges. “We have the mom-and-pop cold storages and unorganised markets to tackle for Meats and More. We are trying to understand the customers in residential areas around our stores,” he says. The meats business has to grapple with lack of awareness among customers and novelty of the concept but the potential is impressive.

In the case of yoghurt, the domestic market is estimated at around Rs 1,000 crore, comprising organised packaged yoghurt, its varieties and packaged drinks, and growing 20% per annum, according to Technopak. Not surprising then that there are several frozen yoghurt chains in Mumbai, including Pinkberry, Cocoberry, Yogurtbay, Let’s Go Froyo, Sugardaddy, Yoforia and Kiwi Kiss. But given that players like Sugardaddy and Let’s Go Froyo have already shut shops, is the city big enough to sustain so many yoghurt chains?

Devangshu Dutta, CEO of retail consulting firm Third Eyesight, feels that Graviss will have to differentiate itself from competitors in the yoghurt ice cream and meat spaces as consumers slowly warm up to exotic ventures. “To make a mark, Graviss will have to snatch away market share from the likes of Cocoberry, London Dairy or Haagen-Dazs,” adds Dutta.

So, how does Graviss plan to tackle the situation? “It’s still a nascent category. We want to get the model and the back-end right,” says Coutinho. To begin with, the staff is being trained in the art of selling and other soft skills and surprise audits are being conducted for accurate feedback. The other aspect that Graviss wants to focus is on the look and feel of stores, a marked change from the dingy and crowded neighbourhood abattoir and poultry shops. “We want people to walk into bright, well-lit stores that have a youthful and fun look and feel,” he adds.

In the case of frozen yoghurt, Coutinho is ready to experiment a bit more with the brand. “As we are investing more and increasing consumption points for our new brands, the 6th Street Yogurt brand will soon broaden out,” mentions Coutinho. To begin with, 6th Street Yogurt’s menu has been expanded to include flavours such as cranberry and green apple, and co-founder Kazi has come on board as vice-president, business development. “While the company has just piloted ice-cream roll cakes, it plans to come out with ice cream beverages too,” says Coutinho.

Meanwhile, the company is also working on building the brand and educating customers through social media and local store marketing. Since 6th Street Yogurt targets young customers, it has partnered with a design consultancy, DY Works, for creating new brand identities for both companies. For 6th Street Yogurt, DY Works suggested a brand core of ‘medley of good times’. “6th Street Yogurt stands for new experiences and tastes, where friends could connect over indulgent servings of frozen yoghurt. The strong, focused brand essence helps establish its unique place among consumers in a category of big players,” says Alpana Parida, president, DY Works. Similarly, Meats n More will work on the ‘sommelier of meats’ proposition, to showcase the wide variety. “The brand is strategically placed to occupy a middle ground. It offers superior hygiene and quality compared with traditional butcher shops and stands out in comparison with supermarkets through its personal connect and customisation options,” Parida adds.

Since the meat business in India is largely unorganised, Coutinho believes the challenge is more about sensitising customers about the hygiene factor. “People are often not willing to pay a premium for clean and well-packaged meat,” points Coutinho. Hence, while the company is investing in understanding its customers around the residential areas in which its stores are located, it is also trying to woo them with a hygienic and fresh ambience in its stores, home delivery services, etc. With the new look and feel, the company believes this meat business concept will resonate with working couples that are always on the run.

While the potential sounds huge, the going will be far from easy for Graviss. According to Crisil Research, the QSR market is expected to double to around Rs 7,000 crore in 2015-16 from Rs 3,400 crore in 2012-13, driven largely by store additions. However, during this period, same-store sales growth is expected to decline considerably due to intensifying competition in tier 1 cities, coupled with the economic slowdown. Harish Bijoor, CEO of Harish Bijoor Consultancy, says, “Graviss’ two new businesses are more of modern retail and high street brands. Their success will depend on Graviss’ ability to pump in more money so as to create a bigger brand pull out of these two local entities.”

Coutinho is not too perturbed about the future of the two new brands. “These are still early days for us to get the business model right. Our approach is to create entrepreneurs through a franchisee-led model by giving them the flexibility to go full throttle, the way I have in growing the business,” sums up Coutinho. Whether that leeway results in another winner beyond Baskin Robbins for the Ghais will only be evident in the time to come.

(Published in Outlook Business .)

The cooked-up story

Rashmi Pratap, The Hindu Businessline
Mumbai, 22 August 2014

It was the peak of summer and Sahil Gilani was craving Indian food as he had been travelling overseas for several weeks. Dosa was what he wanted, and it was not easy to find in Central London. After asking acquaintances, he arrived at the food court of the department store Selfridges on Oxford Street. This was among the city’s handful of eateries serving the fermented crepe. Gilani ordered a dosa and found it tasted all too familiar. He asked the waiter how it was made but the latter didn’t know. Gilani asked to speak to the chef. After demurring initially, the chef revealed his secret — he had been using the Gits brand of ready dosa mix for close to a decade. Gilani, in turn, revealed his secret — he was the director of Gits Foods.

Even at home in India, Mumbai-based media professional Ajita Srivats uses MTR Ready to Eat (RTE) palak paneer and chana masala to whip up a meal whenever the family chooses to watch cricket on TV over the weekend, instead of eating out. And when she gets home late from work, the MTR ready meals help her fix a quick dinner.

With trained chefs and domestic help in short supply, restaurants and households are turning to ready meals to serve authentic Indian food quickly and economically.

An RTE meal simply has to be heated and eaten. The choices range from gravies and dals to parathas, theplas, biryanis, vegetables, and even sweets like gulab jamun and halwa. In India the main manufacturers are MTR Foods, Gits, Maiyas, ITC’s Kitchens of India and Delhi-based Haldiram’s.

Feeding desi tastes

While the aroma of fresh idlis, upma and stuffed parathas still rule the Indian home, MTR rava dosa and Gits dal makhni are rockstars in kitchens outside the country. For Indian RTE food companies, the overseas market is the money-spinner.

Gits has been selling its instant mixes (ready to cook or RTC) for over four decades in 40 countries outside India. In 2000, it launched RTE foods as well. Today, a majority of the buyers for its Parsi dhansak, Gujarati undhiu, Punjabi kadhi, Mumbai pav bhaji and moong dal halwa are in the US, UK, Australia and West Asia.

“When we entered the RTE meals segment, we used the same distribution channels we were using for our RTC items. RTE helped us enter international chain stores abroad, which were reluctant to stock the RTC products,” says Gilani. Around 80 per cent of the revenues for Gits RTE meals come from exports and that is growing at about 50 per cent every year. The numbers are doubling, in fact, in some countries, says Gilani.

Even the Indian market for RTE meals is poised for rapid growth, predicts the market research firm ValueNotes.

The heat-and-eat food industry in India, valued at Rs. 237 crore in 2014, has been growing at a CAGR of 18 per cent for the last three years. On the back of rapid urbanisation, rising disposable income and improved retail infrastructure, it will be a Rs. 640-crore industry by 2019, according to ValueNotes.

But that is still a few years away. Currently, MTR Foods gets four-fifths of its revenue from exports. “The Indian housewife is not yet ready to outsource her meals. She wants solutions, but wants to cook,” says Vikran Sabherwal, vice-president (marketing) for MTR Foods.

Wooing the locals

The slow growth is also attributed to prevailing perceptions about RTE meals. When first introduced in India in 1987 by the Pune-based Tasty Bites Eatables, ready foods were thought to last long because they contained artificial flavours and preservatives. The products were rolled back within a year. In 1998, the company was taken over by US-based Preferred Brands International. Today, it is a strong name overseas but does not sell in India even though the products are made at its Pune plant.

Tasty Bites might be uninterested in India, but many other players are hungry for it. Delhi-based Haldiram’s, which sells everything from namkeens to sherbets and chips to bhel-puri, entered the RTE segment about four years ago. “We already had a good understanding of the overseas market when selling our snacks and sweets there. We studied the growing demand for Indian meals and launched our range abroad,” says AK Tyagi, vice-president (FMCG business) at Haldiram’s group.

While exports are the mainstay for its RTE foods, the company is also selling them under the Minute Khana brand name in the national capital region. “We will expand to other areas in the domestic market as and when demand improves,” he says.

That, however, first calls for a change in perception. “We are trying to do that. The moment the perception about RTE foods changes, growth will be good,” says Gilani.

To win customer trust, Gits offers free sampling and collects feedback regularly. “We keep refining recipes until a customer is unable to distinguish between home-cooked food and our RTE food,” he says.

Gilani’s father, RH Gilani, joint managing director at Gits Foods, personally tastes every batch at their Pune plant. “We make small batches of around 50-100kg to ensure good quality and consistency in taste,” he says. The average batch size in the RTE industry is around 150kg.

The package deal

Research is also on to develop recipes that taste right and have long shelf-life. A little-known fact is that it is not preservatives but retort packaging technology that helps keep the food fresh.

In retort packaging, food is undercooked, packed in metal-plastic pouches and heated at 116-121 degrees Centigrade. This kills existing microorganisms, and the sealing prevents the entry of new microbes, thereby extending the shelf-life of most foods to as long as 18 months.

Today, even freezing technology is catching up. Haldiram’s has introduced frozen meals, which taste better and last longer. Freezing slows food decomposition as any residual moisture turns into ice, which inhibits bacterial growth. The can is refrigerated at minus 15 degrees Centigrade, says Tyagi. “We are also exporting frozen sweets,” he adds.

Ready attraction

Within India, distinct user categories are emerging. “I am not yet bullish on in-home usage but outside of home, when people travel and have no access to freshly cooked meals, they rely on RTE,” says Sabherwal.

So the main user groups are working women, youngsters staying away from family for study or work, and overseas travellers.

“The strong factor driving consumption is convenience — rising income and changing lifestyle are a part of it. It may be used just once a week or fortnight, but the sheer number of consumers makes India an attractive market,” says Devangshu Dutta, chief executive at consultancy firm Third Eyesight.

In large cities, consumers grappling with long commutes and work-hours often sign on tiffin services, hire a cook, or eat out. RTE foods present them yet another option.

“Some companies have grown rapidly in the space. You don’t need to be a national player, all you need is deep penetration within your chosen geography to be available on the shelf,” he adds.

Yet another factor affecting demand is the pricing of the food items. “If you look at cooking a meal from scratch as against eating out or opening a packet, the pricing can make a lot of difference. If pricing is higher than what the market can bear, then they will become niche products with limited consumption,” Dutta says.

As things stand, RTE food manufacturers are trying to keep a tight leash on costs. A 300-gm packet of MTR palak paneer is priced Rs. 75 while alu methi comes for Rs. 65. While this pricing may find takers in metros, the rest of India may baulk at it.

So, until convenience trumps pricing and perceptions, RTE foods will continue to satiate mainly the hungry desi souls overseas.

(Published in The Hindu Businessline.)

Gap inks franchise agreement with Arvind Lifestyle Brands

Sapna Agarwal, Mihir Dalal, Mint
Mumbai/Bangalore, 22 August 2014

Gap Inc., which sells brands such as Banana Republic, Old Navy and Piperlime, has signed a franchise agreement with Arvind Lifestyle Brands Ltd, a unit of Arvind Ltd to enter India.

The agreement will be formally announced on Friday.

After the Indian government allowed 100% foreign direct investment (FDI) in single-brand retail in September 2012, a handful of companies including H&M Hennes and Mauritz AB and Swedish furniture retailer Ikea announced that they would enter the Indian market on their own.

However, a majority of global retailers prefer the joint venture and franchise route to launch operations in India.

In 2013, eight of the 10 new international fashion brands that launched operations in India entered the country through franchise or distribution partnerships, according to research by Third Eyesight, a consulting firm.

“Franchising is seen as a lower-risk, arms-length model that allows brands to maintain control on products and the supply chain, which are important to maintain consistency, while keeping minimal involvement and investment in the market itself. On the downside are added costs due to low margins and potentially different operating philosophies between the franchiser and franchisee,” said Devangshu Dutta, chief executive officer (CEO), Third Eyesight.

Gap operates both company-owned stores and franchise stores around the world. The retailer has company-operated stores in the US, Europe, Hong Kong, China, Japan and Taiwan. Gap ended fiscal 2013 with 3,164 company-operated and 375 franchise stores around the world, it said in its annual report.

The decision to enter India through the franchise routes comes after almost a year of discussions. In November, Mint reported that the two companies were in discussions for a possible joint venture agreement for the Indian market. Arvind is also a supplier of denim to Gap.

“When you come to a new country with a credible partner, it does not matter what kind of an agreement it is,” said Arvind Singhal, managing director, Technopak Advisors Pvt. Ltd, a retail consulting company.

It is often seen that brands that view India as a strategic market have been moving towards equity investments through joint ventures or subsidiaries, which allows the brand more control or influence on the business, and also reap the returns, Dutta said.

For instance, clothing brand Ed Hardy made its first entry in 2007 with a franchise agreement with Mumbai-based Wadhawan Lifestyle Retail Pvt. Ltd.

In 2011, the brand was acquired by Iconix Group, which is a partner to over 20 brands. In 2013, the group formed a joint venture with Reliance Brands Ltd to launch and manage its fashion and lifestyle brands in India.

On Thursday, Arvind Lifestyle Brands also announced a franchise agreement with The Children’s Place, the largest children’s speciality apparel retailer in North America. Arvind aims to become the country’s largest kids wear retailer.

“In the next five years we will invest Rs.150 crore to scale The Children’s Place to 50 stores,” said J. Suresh, managing director and CEO, Arvind Lifestyle Brands. He is optimistic that the company will become a dominant kids wear retailer.

With The Children’s Place label, Arvind will directly compete with higher-priced kids wear brands Mothercare and Benetton Kids.

The company, which also sells other kids wear brands including US Polo Assn. Kids and Elle, plans to increase its kids wear sales to more than Rs.700 crore from Rs.150 crore over the next three years, said Suresh of Arvind Lifestyle Brands.

“Kidswear is a very large market but very fragmented and dominated by local (companies). We hope that with this format we should be able to get a good chunk of the local market,” Suresh said.

(Published in MINT.)

Now, combo offers for e-devotion

Reghu Balakrishnan, Business Standard
Mumbai, 20 August 2014

Online prasad and virtual aarti are passe. To secure a bigger chunk of the spiritually-oriented, e-commerce sites in the religious segment are now going beyond commoditised services.
So, ready yourselves for combo offers tailor-made for your kind of devotion. OnlinePrasad, the largest player in this sector, has launched a combo offer for devotees of Lord Krishna. Goonjan Mall, founder, OnlinePrasad, says the site has increased its catchment area from four temples to 50, as devotees are no longer happy with prasad from the Mathura temple alone and want prasad from all leading Krishna temples in India.
During Janmashtami, OnlinePrasad launched a ‘two-plus-one’ scheme, which provided prasad from the Vrindavan, Dwarka, Srinathji, Puri Jagannath, Pandharpur Vitthala and Goverdhan Giriraj Dharan temples.

The company’s Zevotion brand accounts for about a third of the e-commerce site’s revenue. Launched six months ago, it offers rudrakshas and idols. Mall says Zevotion is India’s first devotional brand.

Another popular site, Saranam.com, offer services that combine astrology and pujas. It offers analysis of horoscopes, as well as pujas, depending on various planetary positions, on an annual subscription basis. It has a monthly customer base of about 4,000 to 5,000. Such devotion has a material aspect, too. The site charges $2,750 (Rs 1.6 lakh) a year for this service, Talisman, which includes pujas, homams, consultation and shipping charges.

"In the recent past, we have seen a lot of interest from non-resident Indians who are unable to do pujas every month at their favourite temples in India. The ‘Talisman’ package will help them with pujas according to their planetary positions through the year, with delivery of prasad to their doorsteps," says Mahesh Mohanan, founder of Saranam.com.

The site also sells rudrakshas, and claims these are value-added through pujas. Launched in Chennai in 1999, Saranam.com plans to launch travel services to various temples across the country soon. When money comes in, can private equities be far behind? OnlinePrasad plans to raise a second round of PE funding and is engaged in talks with various firms. Expansion plans include those for product launches under Zevotion, scaling up temple reach, logistics, and promotion & marketing. A year ago, OnlinePrasad raised angel funding from GrowthStory (an investment company founded by Krishnan Ganesh and Meena Ganesh) by divesting 35 per cent stake.

Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy, said, "The market related to religion and spirituality will always see growth, as customers are unlikely to cut expenditure, even in a downturn." He added these sites could gain significant margins by selling products and services, as these weren’t standard and varies from sites to sites. In India, temples have seen good growth in annual revenue.

Last year, Tirupati Devasthanam in Andhra Pradesh earned revenue of Rs 2,260 crore. Annual revenue of other religious sites such as the ShirdiSaibaba and Siddhivinayak and Puri Jagannath temples, as well as the Vaishnodevi shrine, stands at Rs 100-1,500 crore each.

(Published in Business Standard.)

Arvind to launch online apparel business

Mihir Dalal, Mint
Bangalore, 19 August 2014

Retailer Arvind Ltd will start an e-commerce website that will sell personalized or customized shirts, trousers and suits under the Creyate brand, in a move that illustrates the growing popularity of online shopping.

Arvind will also launch a fully-fledged e-commerce site that will sell all its owned and licensed brands, including Flying Machine, Arrow and Tommy Hilfiger, next year, executive director Kulin Lalbhai said. The company hopes to generate sales of Rs.1,000 crore over the next three years from its e-commerce business, he said.

“As physical (organized) retail was in the nineties, we see e-commerce as the next big thing. We are convinced that a large part of the consumption will move toward e-commerce. As a company which wants to be the largest player in brands and fashion, we feel e-commerce should be central to our vision,” Lalbhai said.

Arvind has formed a separate unit called Arvind Internet Ltd, headed by Tejinder Singh, a former executive at Times Internet. Arvind Internet has hired more than 40 executives, mostly from e-commerce firms such as Flipkart and Times Internet.

Arvind was planning to launch an online personalized apparel retail business within the next three months, Mint reported on 10 June.

Retailers such as Shoppers Stop, MobileStore, Croma and Spencer’s Retail have been talking up their strategy of integrating their stores with their websites and trying to make e-commerce a crucial medium of sales. Online retail is worth $3.1 billion, or 10% of the organized retail market, and is estimated to grow to $22 billion, or over 15% of the organized retail market, in five years, according to a November 2013 report by brokerage CLSA.

The growth of online retailers such as Flipkart and Snapdeal has hurt offline retailers, as customers have been lured by attractive discounts and the convenience of home delivery. Many retailers had asked brand manufacturers, who are also suppliers to online firms, to persuade e-commerce sites to reduce their discounts.

These steps are unlikely to work as analysts say e-commerce has become too large a medium for brands to ignore and the best approach for offline retailers would be to make a serious attempt at having some kind of an online business.

"The biggest difference between running a traditional retail business versus an e-commerce site is the pace at which you have to make decisions," said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. "In e-commerce, things such as inventory management, merchandising, pricing, promotions, etc., have a much shorter life span and a company has to be very fast on its feet to manage these things. Even customer acquisition costs are significantly higher in e-commerce, and logistics management is a complex problem. All this shows that it not easy for a traditional retail business to make a transition into e-commerce."

On its part, Arvind is launching Creyate in international markets, such as the US, as well as in India. The brand will also launch stores in 15 cities within the next year. These will be equipped with state-of-the-art technology to allow shoppers to customize all aspects of shirts, trousers and suits, such as material, sizes and features, Arvind’s Lalbhai said.

The website, which will be called Creyate.com, and the stores will take about 12 days to deliver products initially. Arvind has set up a separate factory for the Creyate business.

(Published in MINT.)

How exclusive alliances with online retailers help brands like Xiaomi and Motorola

G Seetharaman, The Economic Times

New Delhi, 10 August 2014

It turns my stomach. It’s a bad customer experience," says Michael Adnani, vice-president of retail at Flipkart, about its website crashing on August 5.

The third batch of 15,000 Xiaomi Mi3 phones, of which Flipkart is an exclusive seller, had been lapped up in all of two seconds. The site had also gone down on July 22, when the first bunch of Xiaomi Mi3 phones were sold in under 40 minutes, and on May 14 when Moto E went on sale on the site. Flipkart has sold over a million units of Moto G, Moto E and Moto X, all available only on its portal, since February, and 35,000 units of Xiaomi Mi3 which saw ten times as many people pre-registering for the first two flash sales (the figure for August 5 is not public yet).

Partnering with brands to be their exclusive sales partner seems to be the flavour of the season for e-commerce companies. Amazon, the world’s largest online retailer, earlier this week announced that it would be the sole seller of Microsoft’s interactive entertainment products in India, including the latest version of its gaming console, Xbox One, which will be available on September 23, and for which Amazon has started taking pre-orders.

Amazon had in July inked a similar agreement with Samsung for its Galaxy K Zoom phone, and with low-cost Indian mobile handset maker Karbonn a month earlier for its Titanium Hexa. But given the might of brick-and-mortar stores, most of these brands might find it difficult to completely ignore them in the long run. Organized retail, after all, is 20 times as big as online retail, and even with the rapid growth of the latter, will be nearly five times as large in 2020.

Turning Point

While brand exclusivity is not new to e-commerce firms — and certainly not to retailers — the trend has snowballed since the success of Motorola’s partnership with Flipkart to make a reentry into India. Motorola, which Google bought for $12.5 billion in 2011 and sold to Chinese computer-maker Lenovo for $2.91 billion in January this year, while retaining most of its patents, has since edged past Nokia to become the fourth largest smartphone maker in India. According to Counterpoint Technology Market Research, in the April-June period, Motorola’s market share was 4.3%, behind Samsung’s 25.3%, Micromax’s 19.1% and Karbonn’s 5.9%.

Adnani says while Flipkart had exclusive tie-ups with companies before, the Motorola partnership was the first one where the exclusivity applied to the brand’s entire portfolio, including accessories like phone covers. "Discussions with Motorola started about 90 days before the launch of Moto G on February 6," he says. He adds that higher margins are not the reason for these exclusive partnerships."We are able to plan the products as we see fit for the Indian consumer."

Saloni Nangia, president of Technopak, a consultancy, says it would have been difficult for Motorola to create a conventional distribution network for Moto G. Exclusive partnerships may entail promotion by the e-tailer.

"From the brands’ point of view, the big win [of an exclusive partnership] is the huge amount of visibility they get because it is in the interest of the ecommerce partner to provide that extra push," observes Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy.

Tony Navin, senior V-P of electronics at Snapdeal, says a brand could save 8-20% by taking the online-only route.

For e-tailers, Dutta adds, exclusive partnerships are a way to create differentiation. "In the past 2-3 years, their growth has come from discounting which is not sustainable." If a portal is the only seller of a product, consumers cannot compare prices on different websites and even at retail stores.

Having said that, Indian e-tailers would do well to learn from some unsavoury fallout of exclusive partnerships abroad.

The Flip Side

When American singer Beyonce launched her selftitled album only on iTunes late last year, Amazon and supermarket chain Target refused to stock CDs of the album.

Back home Nilesh Gupta, managing partner of Vijay Sales, an electronics store chain, says he has no option but to play hardball with companies sometimes. "If two out of a company’s 10 products are doing very well, and they are both exclusive to an online retailer, I will tell the company to take the other eight online too." When renowned literary agent Andrew Wylie, who represents Philip Roth and Salman Rushdie, in 2010 announced that e-books of classics like John Updike’s Rabbit series and Vladimir Nabokov’s Lolita would be available only on Amazon, publishers protested saying they owned the electronic rights to those books.

Talking of books and exclusive deals, Rupa Publications has signed an exclusive agreement with Flipkart to take pre-orders and sell bestselling author Chetan Bhagat’s upcoming book, Half Girlfriend, available from now to a month after its October release. Kapish Mehra, MD of Rupa, says Flipkart is only the exclusive online partner and that the book would be available at physical bookstores from the day of its release. "Everytime you do something innovative and different, it gets people talking. We saw it with the announcement itself, which generated a lot of buzz," says Bhagat.

Riding the Boom

The online retail market in India is expected to grow from just $2.3 billion, or 0.4% of the country’s overall retail market in 2014, to $32 billion, or 3% of the retail market in 2020. In the same period, the share of organized brick-and-mortar stores is set to rise from 8.4% to 14% (unorganized retail will still dominate).

While Motorola is used to selling at physical stores, four-year-old Xiaomi sells only online and did not want to alter its strategy in India. "We save a huge amount of margin by selling online which we then pass on to customers. Also, we don’t do promotions because the customer ends up paying for it," says Manu Jain, head of Xiaomi India. Xiaomi Mi3 is priced at Rs 13,999. "We chose Flipkart as an exclusive partner because of their technology and their track record in delivery and solving customer problems," says Jain. Flipkart was recently valued at $7 billion in a $1-billion fund-raising round.

Exclusive partnerships have now gone beyond mobile phones, with Myntra, which Flipkart bought in May, bagging the exclusive rights to SuperDry footwear and accessories collection, and Amazon being the sole launch partner for Whirlpool’s KitchenAid appliance range. Among the most prominent brands, Amazon now has Xbox One in its ‘exclusive’ portfolio.

Anshu Mor, director, interactive entertainment business of Microsoft India, said unlike mobile phones the market for gaming consoles in India is underdeveloped: "There is not enough awareness on what all you can do with a console. We have not been able to address that offline, and the youth audience we are targeting is natively digital." He adds that Microsoft chose Amazon as it was still in "market creation mode" and hence wanted to have just one partner to drive a concentrated effort in creating awareness about the product. Kumar says Microsoft and Amazon look to tap 6 million potential users of high-end console gaming.

Xbox One retails for Rs 39,990. While the Indian gaming industry is set to double in size to Rs 4,200 crore by 2017, the share of consoles will likely slip from 50% to 45%, thanks to the increasing popularity of mobile gaming. Globally, investors have been calling for Microsoft to junk Xbox, owing to its struggle against market leader Sony PlayStation.

The Online Advantage

Among the aces up the e-tailers’ sleeve is the data they have on purchase patterns by demography and geography. "If an exclusive launch is doing well in the north and not in the south, you can devise deals and promotions accordingly. In offline sales, that data will take a few days to come while here it is immediate," says Navin. What is common to brands like Motorola and Xbox is that they are trying to establish or restablish their presence in the market.

"Any e-tailer who is pragmatic would not expect long-term exclusivity. As a brand scales up and becomes more desirable, it has no option but to be available across multiple channels," says Dutta.

Exceptions to this could be brands like Xiaomi which are resolutely web-only. "If someone doesn’t have access to the internet today, they can just use their smartphone," says Amit Boni, general manager for India at Motorola Mobility.

However, Gupta of Vijay Sales feels Motorola’s smartphones should also be available at retail outlets soon, to which Boni says, "As of now this is an exclusive partnership. We would continue to sell our products through Flipkart in the foreseeable future." But, he also says that Motorola expects to have its products "widely available".

Even as more and more people, even in smaller cities, get comfortable with buying online, brick-and-mortar stores continue to grow and wield no small influence.

While several luxury brands have spurned online platforms in favour of the actual store experience, brands whose USP is their attractive pricing and who rely on volumes may have to reach customers through as many avenues as possible.

(Published in The Economic Times.)