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November 7, 2014
Sagar
Malviya, The Economic Times
Mumbai,
7 November 2014
Starbucks, the world’s largest coffee retailer, posted nearly
three times more per-store sales than established rivals in India
in its first full year of operations in the country.
Tata Starbucks, a joint venture between Starbucks and Tata Global Beverages, generated total revenues of Rs 95.42 crore in the year ended March 2014, according to its annual report filed with the Registrar of Companies (RoC) on Thursday.
With 43 stores until March, a back-of-the-envelope calculation shows that each Starbucks shop sold coffee, snacks and merchandise worth over Rs 2.2 crore last fiscal, significantly higher than the per-store sales of other coffee chains.
Amalgamated Coffee Bean, which runs the country’s top coffeehouse chain Cafe Coffee Day, hasn’t disclosed its latest financials yet. For 2012-13 it had revenues of 1,126 crore including income from its plantations business and sales through 1,400-odd cafes. That translates into not more than 80 lakh annual sales per store.
Starbucks’ per-store sales is, however, a tad lower than Jubilant Foodworks that runs over 752 Domino’s Pizza outlets and Dunkin Donuts and clocked sales of Rs 1,732 crore last fiscal, which means Rs 2.3 crore per outlet on an average.
While the company didn’t comment on financial details, a Tata Starbucks spokesperson said it is humbled by how Indian customers have embraced the Starbucks experience in the two years they have been in the India market. "We believe that over the long-term, India will be among the top 5 markets for Starbucks," said the spokesperson.
Starbucks currently operates 59 stores in the country and plans to close the financial year with 90 doors. Over last year, the coffee chain has more than trebled its authorised capital to 220 crore.
The company may not be able to keep up its high per-store sales as it opens stores in suburbs and towns where most consumers may find Starbucks pricey. Hence, it plans to open many stores that will nearly be three times smaller than its first few stores or half the size of average existing cafes.
"As they move from high traffic and high spends location, revenues or productivity of the stores will come down. Hence, per store sales might come down over the years once they open stores in smaller locations," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.
Profitability also remains a challenge. In FY14, Tata Starbucks’ loss at Rs 51.87 crore was more than half its total sales.
"They are in growth mode and will have to incur initial losses," Dutta said.
Starbucks, which opened its first India store in October 2012, had posted Rs 14.61 crore in sales for five months ended March 2013.
While its pace of expansion in India has been a record for Starbucks
in its 43-year-old history, Cafe Coffee Day has been opening new
outlets several times faster – the home-grown chain opened around
150 stores in the past 12 months, taking its tally to nearly 1,500
cafes.
(Published in The Economic Times)
admin
November 6, 2014
India has a rich culture and ecosystem of social enterprises, non-profits and many other social purpose organisations that serve the needs of many segments of society within a vast landscape. However, for a foreign investor looking for impact investing or other philanthropic opportunities in India, it can often prove to be a challenging journey. Devangshu Dutta (Third Eyesight/PVC Partners) and the Audrey Selian (Artha Platform) together provided a landscape overview of India, highlighted key challenges and pitfalls to look out for, and shared an insider view for international investors in this first part of AVPN’s India series.
admin
November 3, 2014
Sagar Malviya, The Economic Times
Mumbai, 3 November 2014
Online retail seems to be rapidly coming of age in India —
in the financial year ended March, Flipkart’s sales challenged
those of its nearest brick-and-mortar rivals, according to filings
with the Registrar of Companies, although the segments that they
operate in aren’t strictly comparable.
Meanwhile, the marketplaces operated by both Flipkart and Amazon posted losses. Amazon, which entered India a year ago, logged a net loss of Rs 321 crore while Flipkart saw this more than double to Rs 400 crore, according to October 31 filings.
Due to curbs on foreign investment in selling directly to consumers, Flipkart and Amazon run their websites as marketplaces. Hence, the figures relate to commissions from sellers and revenue from advertisements on ecommerce sites. In this respect, Amazon Seller Services posted revenue (commissions) of Rs 169 crore while Flipkart Internet, which manages the portal, had a total income of Rs 179 crore.
However, Flipkart India Pvt Ltd, the website’s wholesale arm, said sales amounted to Rs 2,846 crore in the year ended March, more than double the Rs 1,180 crore a year ago.
Rival Shoppers Stop posted revenues of Rs 2,713 crore through its 73 department chain stores that mostly sell apparel and lifestyle products.
On a consolidated basis though, including electronics chain HyperCity, sales amounted toRs 3,771 crore. The Kishore Biyani-run Future Lifestyle Fashion posted total income of Rs 2,743 crore from its department store formats Central and Brand Factory besides its own labels such as Indigo Nation and John Miller.
Amazon Wholesale didn’t disclose a comparable total. It posted a total income of Rs 1.4 lakh with a net loss of Rs 3.71 crore for the six months ended March. CEO Jeff Bezos had said previously that it exceeded gross merchandise sales of more than $1 billion within a year of launching in India.
Online retailers typically burn through cash as they battle to acquire customers by offering goods at cheaper rates.
"At this moment, most companies are building market share rather than having a phase of harvesting their business model. Lots of money is being spent on building share and cost of acquiring customers has certainly gone up since last year," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "In addition, online players are investing by building supporting infrastructure, which in turn affects profitability."
According to a report by consulting firm Technopak, the $2.3-billion e-tailing market is expected to swell to $32 billion by 2020 and account for 3% of the total Indian retail sector.
With Snapdeal reportedly posting a net loss of Rs 264 crore, the combined loss, along with Amazon and Flipkart, now stands at more than Rs 985 crore for the last fiscal.
Both Amazon and Flipkart didn’t respond to email queries. India’s largest online retailer expects to start making profits in a few years.
"With further expansion and emphasis on white-label products, your company has derived better margins which in turn shall help company to turn profitable in coming years," Flipkart said in its annual report.
Online retailers have been aggressive about winning customers through discounts but that has led to a backlash from traditional retail.
Flipkart’s Big Billion Day sale prompted brick-and-mortar store owners to lobby the government against what they said was predatory pricing. The government in turn promised to look into the policy regarding online retail.
A key reason for the surge in promotional activity was Amazon’s
entry with an intent to spread itself across many product areas
quickly in India, threatening the turf of market leader Flipkart.
The US company has announced it will invest $2 billion in India.
Flipkart has raised over $1.2 billion this year while Snapdeal
has received about $850 million, including funding from SoftBank
last week.
(Published in The Economic Times)
admin
October 31, 2014
Rashmi Pratap, BLink (The Hindu Businessline)
Mumbai, 31 October 2014
In the late ’70s, when power looms began to expand rapidly
in Ahmedabad, the worried owners of 74 composite textile mills
met a young man who had just completed his MBA from Mumbai’s
Jamnalal Bajaj Institute. The idea was to craft a survival strategy
as power looms were on a better footing — they did not have
unions and didn’t even need a licence to expand capacity.
The young man saw clearly that the answer lay in a new product
category that not only had global appeal but also resonated with
the new India.
And that’s how Sanjay Lalbhai, the scion of textile major
Arvind Ltd, entered the denim space. By 1987, Arvind had transformed
from a maker of dhotis, kurta-pyjamas and sarees to a denim manufacturer
supplying to the best of global brands. By the mid-’90s,
the company had become the world’s third largest denim-maker
with a capacity of 120 million metres.
Lalbhai, third generation in the business and currently its chairman
and managing director, has been constantly re-inventing the company.
This alone ensured that Arvind Ltd survived even as the rest of
the over 80 textile mills that existed in Ahmedabad 35 years ago
folded up.
“It is about constantly reimagining the company and looking
at the possible threats and the competitive framework. One has
to come up with newer strategies… An eye for those kinds
of details has kept the company going for so many years,”
says Lalbhai.
Terming the company’s decision to become a denim-maker a “bold move”, Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says it led to both ups and downs as denim is a very cyclical business.
“But they have been able to look ahead and not be held back by the past,” he says. That a small player in the fabric sector thought of becoming a global leader in denim shows a readiness to break from the past, adds Dutta.
Swadeshi origins
Arvind started out as Arvind Mills, founded in 1931 by three brothers (including Lalbhai’s grandfather Kasturbhai Lalbhai) just as Indians had begun burning foreign clothes inspired by Mahatma Gandhi’s Swadeshi and Civil Disobedience movement. Indigenous clothes were in demand and the company was poised to cash in on the opportunity.
More than six decades later, in 1992, Arvind brought to India Arrow, among the earliest global apparel brands arriving in the country.
The first outlet in Mumbai’s Girgaon Chowpatty area is a landmark of sorts even today. And 22 years on, Arvind has 16 global brands in its kitty, its relationship with each staying strong.
Contrast this with several other Indian joint ventures with global brands that routinely end in divorces.
“My grandfather taught me that absolute transparency and trust are most important in all relationships. Fairness in dealings and putting yourself in their shoes is a must. We have not had a single instance of misunderstanding with any of our partners,” Lalbhai says.
Even as it continuously signs up foreign players (GAP and Children’s Place being the latest), Arvind is assiduously growing its own 14 brands too, including Excalibur, Flying Machine, Colt and Ruggers. Lalbhai is preparing the company for yet another emerging opportunity: when per capita income in India crosses $2,000 and Indians start spending disproportionately on clothing. He estimates this to be true by the year 2020.
Dressed to succeed
World over the apparel category does well once per capita income crosses $1,500. India is nearing that mark and Arvind is “ well-poised to capture this emerging opportunity”.
The company also wants a foothold across categories and price points — men, women, children and undergarments, as also value, premium and bridge-to-luxury prices. This way it aims to cover most of the market. “We aim to be a $2-billion brand in retail in the next 10 years. We have growth plans for everything — from international and own brands to retail formats,” Lalbhai says.
To expand its retail footprint, Arvind is converting its Megamart stores (3,000-4,000 sqft) into Power Megamarts — 10,000-plus sqft outlets with international brands and no discounts.
“We have evolved from a discount brand (Megamarts were factory outlets) to a branded value player. So we are not discounting at all.”
As many as 38 Power Megamarts are up and running already, and Lalbhai is pleased with their profitability — 18 per cent earnings before interest and taxes. “As the old formats go down and new formats open, Megamart will start giving even better returns,” he says.
Projecting itself as a one-stop fashion house, Arvind is reaching out to customers through all possible means, including the online market, which it sees as essential to future growth. It now has a subsidiary, Arvind Internet Ltd, focused on e-commerce and led by Lalbhai’s younger son, Kulin.
“In e-commerce, we will come up with our own marketplace, where we will sell our entire collection besides a number of private labels and new brands. It is going to be a huge initiative,” he says.
Bespoke in business
Arvind’s online brand Creyate already offers customised styling solutions for shirting, suiting and jeans. The customer can personalise his clothes with a fabric, design and style of his choice. This includes fabric flown in from Paris and Milan. Customers can walk into a company outlet to give their measurements. If needed, a stylist will arrive at the customer’s doorstep for the measurements, armed with an iPad loaded with details of the products and fabrics available.
“The world is moving towards co-creating; you get involved in designing your own wardrobe, seated at a computer. It is a brick-and-click model where we have an e-commerce site as well as stores where one can feel the fabric and give measurements,” he says.
Launched in August, Creyate has had a fantastic response, says Lalbhai. “The sales are beyond budgeted numbers. We want to debug the whole thing and then scale up,” he adds.
Once a fabric is selected, it is flown in and the garment is custom-made at a factory set up in Bangalore under a joint venture with Japan’s Goodhill Corp.
Positioned in the premium category, Creyate shirts start at ?2,699 and suits at ?15,000. Industry analysts peg the margins beyond a profitable 15 per cent.
Arvind’s e-commerce team is a young one, with 26 as the average age, and they are busy setting up the back end for their online marketplace.
“We hope to launch it by August next year,” says Lalbhai.
Riding the brand wagon
Unlike most other Indian e-commerce players, he doesn’t want to rely simply on discounts.
“We are not looking at profitless topline growth. We are looking at a model that is profitable and satisfies the requirements of consumers. We will try and position this through service and differentiation.”
Branded garments typically have a profit margin of 15-20 per cent, and online selling further cuts costs such as real estate, sales staff and electricity among others. Arvind can easily attract online buyers as it retails a wide selection of brands, including Tommy Hilfiger, US Polo, Arrow, Lee, Wrangler, Calvin Klein and GAP besides its own brands, such as Flying Machine, Colt, Ruggers and many more.
The company’s fabric business and supply chain expertise will be added advantages. Arvind Singhal, chairman of Technopak Advisors, sees Arvind’s online effort as “a sensible move” owing to the demand for branded apparels.
“Already there is a massive growth in online apparel retailers like Myntra and Jabong. Going online will enhance the reach of Arvind brands, which are not readily available,” he says.
But Dutta of Third Eyesight cautions that in the rapidly evolving e-commerce space there is no guarantee of success. Currently, price-led e-commerce players are spending heavily on customer acquisition, losing money on almost every transaction.
“But I don’t think Arvind will follow that strategy. E-commerce has to be a value-added business, and for that pricing has to be sensible,” he says. Any successful strategy would involve foreseeing where the Indian customer is headed and what needs to be done to fulfil his or her needs.
The selling point
Currently, nearly two-thirds of Arvind’s revenues (expected to be over ?8,000 crore this fiscal) comes from its textiles business, which is growing at 10-15 per cent. Its brands and retail segment, however, is witnessing a higher growth of 35-40 per cent annually. “Moreover, we will be launching new brands. So our business volumes will grow multifold.
GAP itself could be a billion-dollar business in the next 10 years. It is a large opportunity,” says Lalbhai.
If its textile business grows at 10 per cent and brands and retail at 35 per cent, the latter could equal or outgrow textiles in the next 10 years, he predicts.
Alongside the growth, the company also has nearly ?2,800 crore debt on its balance sheet. Lalbhai is in no hurry to reduce it. The company’s growth is currently funded through internal accruals.
“What we are looking at is not reducing debt, but to constantly bring down the gearing ratio (debt to EBITDA).” Last year, the company’s operating profit was ?987 crore, while debt stood at around ?3,000 crore — a gearing ratio of nearly three. “We will try to bring it down to two,” he says.
This would involve increasing revenues as well as entering high-margin businesses. To that extent, Lalbhai’s retail strategy should help Arvind lower its debt in the next few years. If its past is anything to go by, Arvind will be busy reimagining its future success.
(Published in BLink, The Hindu Businessline)
Devangshu Dutta
October 29, 2014
(The Hindu Businessline – cat.a.lyst got marketing experts from diverse industries to analyse consumer behaviour during the last one month and pick out valuable nuggets on how this could impact marketing and brands in the years to come. This piece was a contribution to this Deepavali special supplement.)
Two trends that stand out in my mind, having examined over two-and-a-half decades in the Indian consumer market, are the stretching or flattening out of the demand curve, or the emergence of multiple demand peaks during the year, and discount-led buying.
Secular demand
Once, sales of some products in 3-6 weeks of the year could exceed the demand for the rest of the year. However, as the number of higher income consumers has grown since the 1990s, consumers have started buying more round the year. While wardrobes may have been refreshed once a year around a significant festival earlier, now the consumer buys new clothing any time he or she feels the specific need for an upcoming social or professional occasion. Eating out or ordering in has a far greater share of meals than ever before. Gadgets are being launched and lapped up throughout the year. Alongside, expanding retail businesses are creating demand at off-peak times, whether it is by inventing new shopping occasions such as Republic Day and Independence Day sales, or by creating promotions linked to entertainment events such as movie launches.
While demand is being created more “secularly” through the year, over the last few years intensified competition has also led to discounting emerging as a primary competitive strategy. The Indian consumer is understood by marketers to be a “value seeker”, and the lazy ones translate this into a strategy to deliver the “lowest price”. This has been stretched to the extent that, for some brands, merchandise sold under discount one way or the other can account for as much as 70-80 per cent of their annual sales.
Hyper-opportunity
This Diwali has brought the fusion of these two trends. Traditional retailers on one side, venture-steroid funded e-tailers on the other, brands looking at maximising the sales opportunity in an otherwise slow market, and in the centre stands created the new consumer who is driven by hyper-opportunism rather than by need or by festive spirit. A consumer who is learning that there is always a better deal available, whether you need to negotiate or simply wait awhile.
This Diwali, this hyper-opportunistic customer did not just walk into the neighbourhood durables store to haggle and buy the flat-screen TV, but compared costs with the online marketplaces that were splashing zillions worth of advertising everywhere. And then bought the TV from the “lowest bidder”. Or didn’t – and is still waiting for a better offer. The hyper-opportunistic customer was not shy in negotiating discounts with the retailer when buying fashion – so what if the store had “fixed” prices displayed!
This Diwali’s hyper-opportunism may well have scarred the Indian consumer market now for the near future. A discount-driven race to the bottom in which there is no winner, eventually not even the consumer. It is driven only by one factor – who has the most money to sacrifice on discounts. It is destroys choice – true choice – that should be based on product and service attributes that offer a variety of customers an even larger variety of benefits. It remains to be seen whether there will be marketers who can take the less trodden, less opportunistic path. I hope there will be marketers who will dare to look beyond discounts, and help to create a truly vibrant marketplace that is not defined by opportunistic deals alone.
