Year: 2014

Alibaba’s Jack Ma needs India as much as India needs him

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November 27, 2014

Devjyot Ghoshal, Quartz India
27 November 2014

The founder of e-commerce giant Alibaba and China’s richest man, Jack Ma, is in India after apparently being swayed by the persuasive powers of prime minister Narendra Modi to come and do business in the subcontinent.

And expectedly, his visit to New Delhi has got India’s fledgling e-commerce industry rather excited. Alibaba, after all, is one of the world’s largest internet companies and raised an astounding $25 billion in its initial public offering (IPO) this September.

Yet, Ma and Alibaba need India just as much as India need the Chinese e-commerce behemoth.

For one, India has been a strong sourcing destination for Alibaba for some years now. The company established a customer service operation (PDF) in Mumbai in 2010, when it was adding over 30,000 new users to its Indian base of 1.45 million small businesses (as of June 2010).

In 2010, India was the largest supplier market outside of mainland China for Alibaba.com and the second largest buyer market.

“Indian small businesses are savvy and they understand the advantages that the internet can bring to them both in domestic and foreign trade,” David Wei, the CEO of Alibaba.com had said.

Four years on, Indian vendors on Alibaba still comprise the second largest group of sellers after the Chinese.

Size does matter

After its record IPO, “Alibaba is looking for growth opportunities across the globe,” said Arvind Singhal, chairman of retail advisory firm Technopak.

For Ma, India’s geographical proximity to China, a sprawling manufacturing sector and unorganized distribution make it an ideal market to expand Alibaba’s core business-to-business (B2B) model, said Singhal

India already permits 100% foreign direct investment in B2B e-commerce—but the fastest growing e-commerce market in Asia is being led by business-to-consumer (B2C) focused firms.

With the country’s e-commerce market projected to grow to $6 billion in 2015, a 70% increase over 2014 revenues, according to Gartner, the size of India’s marketplace makes it important for Alibaba. “The sheer numbers do create a momentum,” said Devangshu Dutta of Third Eyesight, a retail consulting firm.

India’s interest

Indian e-commerce firms could have an interest in Alibaba’s arrival for one of three possible reasons, according to Singhal.
First, as a potential joint venture partner to benefit from Alibaba’s size, expertise and financial clout. India’s largest e-commerce companies are still only a fraction of Alibaba’s size, and there is much to learn from a company that can sell goods worth $1.8 billion in 60 minutes.

Second, domestic firms may be seeking a strategic investment from Alibaba, along the lines of what Softbank has been doing in India lately. Masayoshi Son—Softbank chief, Japan’s richest man and an early investor in Alibaba—poured in over $600 million in Snapdeal late last month.

And finally, investors in Indian e-commerce companies might want to pull out as the marketplace heats up and look to sell their stakes to the likes of Alibaba. “The competitive intensity might get too much,” said Singhal.

(Published in Quartz India )

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Golden Triangle

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November 26, 2014

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Now over the hill, a Future for Nilgiris

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November 24, 2014

Raghavendra Kamath, Business Standard

Mumbai, 24 November 2014

When quizzed on whether Nilgiris, the south India-based supermarket chain recently bought over by Future Consumer Enterprise, would be rebranded or not, Future Group chief executive and founder Kishore Biyani says, "Not at all, we bought it for the brand." There had been speculation, with the acquisition in the works from earlier this year, that the chain might be rebranded as KB’s FairPrice, which is a small grocery chain.

In a way, Biyani would relate to Nilgiris. If he was an apparel manufacturer who made it big in retail, the Nilgiris-founder, Muthuswami Mudaliar, was a milk supplier who went on to set up one of India’s earliest modern retail chains.

Today it has 140, mostly-franchisee stores in Karnataka, Tamil Nadu, Kerala and Andhra Pradesh. Though Mudaliyar used to supply milk and other dairy products since 1905, the first store of the chain was set up in Brigade Road in Bengaluru in 1936. Intially, the chain started by selling milk and bakery products that the women of the owner-family would pack and decorate themselves. But once Mudaliar’s son, Chenniappan Mudaliar, came back from the US after studying its supermarkets, the look and feel of the stores, from merchandise to supply chain, changed. Groceries and vegetables were added to the spread and Nilgiris became the first self-service supermarket in the country.

Susil Dungarwal, founder of the mall management consultancy, Beyond Squarefeet, and a customer of Nilgiris since childhood, says it was the first chain to import cook and bakeware and Indianise them: "It invested a lot of money in standardising the supply chain and cooking styles in its merchandise spread". Nilgiris is also credited for being the first supermarket chain to import point of sale machines for billing, when it was still unheard of.

Need for Actis

It is said that the fourth generation of the promoter family was unwilling to take up the supermarket business, when the earlier generation, comprising Chenniappan, would arrive at their flagship Bengaluru store in the wee hours of morning and leave only after the last customer stepped out. By the time Reliance Retail and Bharti stepped into the field, the family was sorely lacking in the management bandwidth required to match their scale, despite the headstart it had in India’s strongest region for modern trade. What was earlier a progressive chain, found itself without the professional touch and systems to attract the right talent.

The Nilgiris’ promoter family sold off 65 per cent of its stake in the holding company, Nilgiri Dairy Farm, to UK-based private equity (PE) firm, Actis, in 2006 for $65 million (Rs 300 crore). Nilgiris had 30 stores.

The PE firm brought in a professional management, expanded the stores with new plans for store and shelf lay-outs and inventory management systems. To contemporise and freshen up the chain, Actis brought in health foods such as flavoured yogurt and increased other product variety such as eight different kinds of bread from just white bread earlier.

Feuding partners

But within a year, the tie went sour. Actis started looking for offloading some of its stake through an IPO. When it did not happen, it started looking for buyers in other PE funds and retailers. It eventually held talks with international retailers such as 7-Eleven and Tesco in late-2012, but they were spooked by the lack of clarity in FDI norms, valuation and the reluctance of the founder family to sell any more shares. There were also disagreements over expansion plans, with the family opposing large-format stores measuring 2,000-3,000 sq-ft. The latter went to the Company Law Board when Actis floated a Rs 35-crore rights issue and withdrew it only after Actis acceded to reverting to the smaller stores of not more than 1,000 sq-ft and promised to bolster its private-label bakery and dairy business (the original product lines of the chain). So, the scalabilty was shot for a lucrative PE exit.

Advantage lost

Bijou Kurien, former chief executive of Reliance Retail, says the contemporisation was not enough, "When others were already selling masala milk and smoothies at supermarkets, Nilgiris stuck to plain assortments in a category it began with." Biyani says that he would launch new dairy products and explore how best to cross-sell products from other chains of the acquiring company, Future Consumer Enterprise (such as Green Apple, KB’s Fairprice ) in Nilgiris and vice-versa.

Before Biyani bought Nilgiris for Rs 300 crore, it was on the block for almost two years with a price-tag of Rs 600 crore. The obvious benefit of Nilgiris, which clocked Rs 765 crore in FY-14, would be to expand Future Group’s negligible southern presence. Though it runs around 230 Big Bazaar and Food Bazaars, south India houses only a fifth of the count.

Devangshu Dutta, CEO of retail consultancy, Third Eyesight, says, "India’s practices in modern retail evolution began in south India with Spencer’s in its first avatar and Nilgiris. The control of bakery and dairy by retail chains (in-house brands) was learnt from Nilgiris. It still has the trust of old-timers, but newcomers to southern cities have been won over by its competition."

Nilgiris still stocks nearly 6,000 products with low supply chain costs and a robust franchisee model. With its own manufacturing in dairy and bakery, around 26 to 27 per cent of its revenues come from private labels, that could prove profitable if Biyani can turn around the chain.

(Published in Business Standard )

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Big is Beautiful

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November 23, 2014

Manu Kaushik and Arpita Mukherjee, Business Today
New Delhi, 23 November 2014

“Large e-commerce sites generate more traffic and therefore we tend to focus more on them,” says Nagpal. On October 6 alone, Flipkart’s Big Billion Day, a discount carnival intended as a tribute to the flat number 610 in which Sachin and Binny Bansal set up the company in 2007, Nagpal sold 11,000 items on the site.

Nagpal, who has nearly 15,000 product varieties and an online stock of 1.5 lakh products, says that even in terms of listings and catalogue he is biased towards large players. “At the end of the day, I have limited inventory and bandwidth. I will put my efforts behind the big names.”

He is not the only one to think like that. In January this year, electrical equipment maker Havells India started selling its 700 products online through tie-ups with Amazon, Naaptol, Pepperfry and Indiatimes. The company quickly realised that the large ones, with their scale, gave more for less. In October, Havells sold 3,000 pieces to these websites out of which 2,500 went to Amazon India. “We have just started selling online and we are still testing this channel. A bigger e-commerce company can help us in understanding the market better,” says a Havells spokesperson.

Likewise, consumers, too, are moving towards the biggies. In Pune, 28-year-old Mohua Mandal was shocked out of her wits when her father’s customary Diwali gift this year, a saree, was delivered to her by Flipkart. Kolkata-based Santosh, Mohua’s father, found it the most convenient way. The choice was vast and the discount deep. And there would be no need for him to find a courier to carry the saree from Kolkata to Pune.

Santosh, a retired railways professional, is hardly the kind that listens to punk rock on headphones and makes online purchases in coffee shops. But the sustained advertising blitzkrieg by the big e-commerce players first made him curious and then a convert.

“There was a tangible decline in footfall and transaction [in malls and offline stores], which was attributed by retailers to the whole e-commerce shebang,” says Devangshu Dutta, CEO of consulting firm Third Eyesight.

According to industry body Gartner, the e-commerce market stands at $3.5 billion, which is expected to reach $6 billion in 2015, a 71 per cent growth.

Experts attribute the growth this year to the publicity around the growing e-commerce market, deep discounts and the ease of purchase. This, along with a one-upmanship battle raging between the big guys – Flipkart, Snapdeal and Amazon – a lot more willing customers are joining the online consumer base.

However, this growth is hardly even. The likes of Flipkart, Snapdeal, Amazon and eBay are taking away the lion’s share of it. Small and niche e-commerce firms such as Infibeam, Naaptol, Tradus, and a plethora of others, seem to have lost ground due to inadequate money power.

eTailing India estimates suggest that the pie this festive season was gobbled up mostly by Flipkart, Amazon, Snapdeal and eBay. While there are no official estimates, the Big Four have together cornered 70 per cent of the e-tailing market, averaging out the sales during the festive and non-festive seasons.

Starting with the Big Billion Sale on October 6, when it sold products worth $100 million in 10 hours and saw a billion hits on the website, Flipkart had a dream run in the month. If traffic is a good proxy to measure sales, Flipkart was far ahead of the others on that day. However, according to Internet agency SimilarWeb, there were 16.4 million visits on Flipkart on October 6. For smaller ones like Homeshop18 and Lenskart, the numbers were merely 543,056 and 120,852.

Other small outfits disagree with him. Naaptol, Homeshop18, Mydala and Infibeam say they, too, have grown well. Mydala claims its sales rose 60 per cent during the festive season. “We are not spending anything close to what they are spending,” says its Co-founder and Chief Technology Officer, Ashish Bhatnagar. “We cannot make that big marketing push. Not just because they have deep pockets but also because we do not believe this will give us return on investment.”

Homeshop18 says it wouldn’t be squeezed by the march of the e-commerce biggies because most of its revenues come from television. “The web audience is evolved and can do its own online research. Television audience is different; you need to hold their hand,” says Vikrant Khanna, Chief Operating Officer, TV Business, Homeshop18.

The smaller firms also say that profitability is supreme for them. Infibeam Founder and CEO Vishal Mehta says size is important, but so is profitability. “Those who have the largest market shares will not necessarily be the last men standing.” Infibeam, he says, broke even last year and expects profits this year.

The small outfits say they benefit from the rub-off of the advertising campaigns of the big players. “We see huge traffic whenever big players advertise,” says Sanjay Sethi, Co-founder and CEO, ShopClues.com, an online marketplace.

Advertising spends by e-commerce players this festive season in the week leading up to Diwali were 40 to 60 per cent higher, says ad retargeting company Vizury. Take the case of Snapdeal. A 10-second spot on Sony’s game show KBC costs around Rs 6 lakh, and Snapdeal has gone in for an in-show integration, with a Snapdeal-branded question, for which it would be paying a premium of 25 to 30 per cent.

ShopClues, with much less money to play with, decided to stay away from the print and TV advertising frenzy. As compared to around nine to 12 per cent of the top line for large players, ShopClues spent around 6.5 per cent on marketing in the festive season. It confined itself to a small awareness campaign.

Gaurav Gupta, Senior Director, Deloitte India, says the smaller players will continue to get squeezed. “It requires a large amount of capabilities to become a large player: building brand, product catalogue, offering competitive prices, and customer experience. In all these areas, large players clearly have an advantage.”

Experts believe in specific categories such as fashion, those other than Jabong and Myntra clearly lost out on the discounts battle.

The small players, many of which thrive in niche segments, will face more heat because the big ones have followed them there. Flipkart acquired Myntra this year to widen its apparel offerings. Snapdeal sells furniture, an area that was so far the domain of mainly FabFurnish and Pepperfry.

However, FabFurnish Co-founder Vikram Chopra is unfazed. “The experience that players like us can offer is unmatched. You need specialised experience in running a furniture business online. Walmart sells furniture in its store, but people still go to Ikea.”

That they do, but the moneybags have veered largely towards the big e-commerce players in India. With the recent round of investment of $627 million from Japan-based SoftBank, which it announced on October 28, Snapdeal has now raised about $1 billion from investors such as Temasek, Myriad, Tybourne, and Blackrock.

Flipkart has also raised substantial sums from investors such as Tiger Global, Accel Partners and Morgan Stanley. Then there are the Indian arms of the global biggies Amazon and eBay.

Experts say that e-commerce in India is in a habit forming stage and money will have to flow – in advertising and discounts – to lure more consumers, and bring them online more frequently. That is why investors do not mind punting on the promising ones like Flipkart, which many have taken to calling India’s Amazon, and Snapdeal, its close rival.

The question is, for how long will they continue to pump in money without worrying about profits? For the smaller ones, it is the opposite: how long will they make do with claims of profitability, without worrying about funding?

Additional reporting by Arunima Mishra and Taslima Khan.

(Published in Business Today)

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A degree of style

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November 21, 2014

Pradipti Jayaram, Hindu Businessline
Bangalore, 21 November 2014

Why do these institutions, which don’t have campuses in India, sell their wares here? According to Srinivasa Rao, Head-Marketing, Lifestyle International Pvt Ltd, UCLA-branded goods are popular and are doing very well in terms of sales. “Based on our experience, over the last two years, we feel that this category has good potential and will continue to grow,” he adds.

“University gear began as a means to inculcate a feeling of belonging, fellowship, and college pride among those associated with the university,” says Devangshu Dutta, Chief Executive at consulting firm Third Eyesight. He believes this feeling extends not only to current students, but their families, as well as alumni and their families. “For the more ‘desirable’ campuses the pull even extends to customers who have no direct connection with the university,” he adds.

For Ankit Kapoor, a New Delhi- based high school student, if he could get his hands on some university merchandise in India he would surely buy it. “Harvard and Oxford have an awe-inspiring reputation in India. Many prominent Indians have studied there. I hope to study at either of them, too, one day,” he adds.

“The University of Oxford enjoys a worldwide reputation and could be considered to be as famous as luxury brands such as Louis Vuitton and Ralph Lauren in terms of brand awareness,” says Chris Evans, managing director of Oxford Ltd, the university’s commercial arm, to a news agency.

“We launched UCLA’s gear in India when we realised that collegiate wear, growing in popularity, was an under-serviced category. There is a substantial section of the upwardly mobile urban population that patronises such collegiate wear, as it offers a relaxed wear option with a premium appeal and helps them connect with the institution’s brand,” says Lifystyle’s Rao.

Slice of the pie

In India, the number of current and past students of these foreign universities and their families is too small to form a target group, says Third Eyesight’s Dutta. “The addressable market, therefore, must include consumers without a direct connect, a group that any other international brand is also targeting. Many fashion brands already use faux university logos on their graphic t-shirts, sweatshirts and jackets, as a design feature. So it is reasonable for genuine university merchandise to aim to get some of that business,” he elaborates.

However, he believes that it is the pricing, availability and visibility that will determine the success of such college gear, as it does for any other brand.

According to a recent article in BusinessLine, the apparel range of Oxford University will be placed in the “mid-to-premium range” and categorised in the affordable luxury segment.

“The job of a brand is to create an additional pull, perhaps, provide a price premium or extra margin to the brand. At this time, it’s an open question whether the college logo will pull consumers in the same way or more than an established premium fashion brand, if the college merchandise is priced at par or higher than competing fashion brands,” he adds.

Better visibility

What about alumni of these institutes who wear their foreign education as a badge of pride and revel in the exclusivity it confers? Are they indignant that a mere piece of apparel can smooth over the difference, even though it’s only in appearance?

Rahul Advani, a Singapore-based musician and University of Oxford alumni, says it’s a positive trend and that more people, irrespective of their association with the University, should have greater access to such merchandise. He believes it will contribute to further enhancing the reputation and prestige associated with the universities, and can possibly help attract and increase funding and donors “which universities in the UK need, given the recent cuts in government funding”.

“The more that people know about Oxford, the better,” he adds.

Having said that, don’t these universities’ brands, like all brands, run the risk of over-exposure? For the answer to that one, stay tuned…

(Published in Hindu Businessline)