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Tata Group set to crowdsource ideas for new watches, maybe even cars

Devina Sengupta & Jochelle Mendonca, The Economic Times

Mumbai, 16 December 2015

Consumers could have a say in the watch or even car produced by the Tata Group as its companies strengthen social media and digital platforms by crowd sourcing ideas.

Titan, which sells watches and spectacles, will be among the first to start asking consumers for detailed inputs in the next few months. The plan may be replicated across consumer-facing units such as Trent and Tata Motors.

Such companies use listening tools based on social media feeds to manage brand and reputation, said a data analytics partner at one of the big four accounting and consulting firms that’s working with Tata on the plan. Titan and other Tata group firms are taking this to a new level, the person said.

Consumer feedback will be used to inform product design and service delivery, said the partner, who didn’t want to be named.

Crowd sourcing is a way of getting ideas and feedback from a large group of people, primarily those who are online, rather than from employees and suppliers.

"Titan is already doing it for some of its brands," the company said in an email.

More companies are looking at this to increase engagement with customers. Over the last two years, they have been resorting to crowd sourcing to identify features and product names. Sony decided to use the method to choose the name of its new speaker range last year, while McDonald’s asked UK customers to suggest recipes for its menu.

Tata MotorsBSE 2.05 % is no stranger to such exercises.

"We involve our audience in all our new launches, by creating content and communities built around their interests which resonate with the values of the car," a spokesperson said in an email. "Crowd sourcing and social play a key role in our awareness campaigns as we recently saw in the Zica name unveil campaign, where a multi-city scavenger hunt fuelled by digital was used to reveal the name." Zica is the latest model in the Tata Motors range.

Lifestyle and retail company Trent did not respond to queries.

Unfiltered inputs mean the management team can quickly connect with what the customer is seeking.

"With growing internet penetration, the ability to aggregate such inputs has expanded dramatically while the costs have dropped," said Devangshu Dutta, CEO of retail consulting firm Third Eyesight. "Certainly, it also makes the business and the brand more approachable and friendly, if done right.

It also helps provide a different perspective.

"Businesses can get locked into familiar strategic analyses and predictable behaviour and crowd-sourced ideas can provide perspectives that may be way outside the management team’s conventional thought processes,” Dutta said.

Tata group chairman Cyrus Mistry has been focusing on digital over the past few years and all group companies have been asked to get more consumer centric.

ET reported earlier that the conglomerate had mandated customer-facing businesses to appoint chief digital officers to improve their offerings. Former Citigroup executive Deep Thomas was named head of customer analytics in February.

The new push is in line with the group’s aim to become one of the top 25 global brands in the next 10 years and double its total market value to $350 billion. The group’s total revenue stood at $108.78 billion in the year to March.

The Tata group is expected to launch its ecommerce venture in December based on the marketplace model, similar to that of Flipkart, Amazon India and Snapdeal. It will offer both Tata and non-Tata products, mainly related to electronics and lifestyle.

(Published in The Economic Times.)

Jabong FY15 sales cross Rs 1,000-cr mark, discounting leads to three-fold loss

Sagar Malviya, The Economic Times

Mumbai, 15 December 2015

Lifestyle online retailer Jabong crossed the Rs1,000 crore sales mark in the year to March, doubling its revenue from a year ago but deep discounting has led to a nearly threefold increase in the net loss.

Xerion Retail, which runs Jabong, posted a loss of Rs 43.6 crore on sales of Rs 1082.9 crore, as per a Registrar of Companies filing. A year ago, it had sales of Rs527 crore with a net loss of Rs16.6 crore. Sales of the company, incorporated four years ago, amount to a third that of Shoppers Stop, India’s largest department store chain started 25 years ago.

India’s ecommerce market is set to rise to $103 billion by FY20 from $26 billion now, according to Goldman Sachs. At this stage of evolution, online retailers have to go through years of operating losses, given high initial investments as well as the incentives they provide in the form of discounting to attract consumers online. At the same time, several online retailers are said to be getting more circumspect with discounts as they seek to shore up their balance sheets.

Jabong, which was started in a one-room office at Golf Course Road, Gurgaon, in December 2011 is now part of Global Fashion Group portfolio, a subsidiary of German online business developer Rocket Internet. Both key cofounders Praveen Sinha and Arun Chandra Mohan quit this year amid speculation that the company is on the block. A week ago, Sanjeev Mohanty joined Jabong as CEO and managing director from Italian fashion brand Benetton.

"Jabong is transitioning from a startup to a professionally managed profitable ecommerce business. We are putting together a strong leadership team," he told ET. "Our focus will be on more and more curation, building unique assets and increasing assortment."

High growth and losses are par for the course at ecommerce companies, an expert said.

"There is a management churn issue but it is more difficult to bring losses down if you have to show high growth trajectory," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "For Jabong, loss is not a problem as long as they have enough cash on the balance sheet and there is constant product injection in its portfolio to excite consumers."

India’s biggest homegrown ecommerce companies Flipkart and Snapdeal are flush with cash as overseas investors in the two companies look to get a piece of a market that’s set to surge further. Amazon India too has indicated that it may exceed the $2 billion that CEO Jeff Bezos had pledged to spend last year, with sales growing more rapidly than expected. In comparison, Jabong has raised about $100 million from a consortium of investors including Swedish investment giant AB Kinnevik and Rocket Internet.

Myntra, owned by Flipkart, and Jabong were considered the leaders in the fashion category, but Amazon India is gradually getting aggressive with the segment consistently among its top three. During the festive season, Amazon saw its fashion segment grow fivefold from a year ago.

Apart from this, most lifestyle product makers are either shying away from offering heavy discounts for their wares or giving price-offs for old merchandise, something that goes against Jabong’s business model of offering fast fashion or the latest collection.

Hence, the online retailer has launched over a dozen global brands such as Dorothy Perkins, G Star Raw, Tom Tailor and Bugatti Shoes exclusively for India that also helps them earn higher margins. Just two months ago, Jabong helped British brands Topshop and Topman enter Indian market through its platform.

"We are focusing on growing the ‘just-in-time’ marketplace model where we don’t hold inventory risk," said Mohanty. "This is helping us create efficiencies and de-risk a lot of our business, while allowing us to expand the number of vendors and substantially increase the number of products listed on our platform, which now stands at close to 400,000 SKUs (stock-keeping units). We also continue to increase our assortment to offer more choices to visitors on Jabong."

(Published in The Economic Times.)

Brand Salman gets legal boost

Bindu D. Menon, The Hindu Businessline
Mumbai, 10 December 2015

Brands riding on Bollywood heartthrob Salman Khan are heaving a sigh of relief with the Bombay High Court overturning his conviction for a 2002 hit-and-run case. Brand watchers point out that the verdict will only increase his standing among brand owners.

In May, a lower court had convicted Khan of culpable homicide and sentenced him to five years in jail for driving over and killing a man sleeping on a pavement. But the appeals judge ruled there was not enough evidence.

Khan tweeted that he accepted the ruling with ‘humility’.

But the biggest relief is undeniably for the brands he is associated with. According to celebrity management firms and brand consultants, the mass hero has as much as ?200 crore riding on him.

Khan endorses over 10-12 brands including Thums Up, Being Human, Revital, Wheel, reality show Big Boss, men’s innerwear Dixcy Scott and PNG Jeweller.

Film analyst Komal Nahata points that currently there is about Rs. 100 crore riding on his films.

“Salman Khan’s stand is vindicated. His upcoming film Sultan is slated for release in 2016 and has about ?100 crore riding on it. Brands which were previously considering exiting him as a brand ambassador will reconsider their decision.”

According to Shailendra Singh, Jt. MD of Percept India, “Salman’s brand was already flying high. Now it will skyrocket. The emotional connection of the fans, the box office and the brand was hugely backing Salman’s freedom and now they have got it. It is also interesting that it has come at a time when the three Khans (Salman, Shah Rukh and Aamir) are finally getting along.”

Echoing the sentiments, Jagdeep Kapoor, brand guru and founder of Samsika Marketing, noted: “Brand consultants will see how they can cash in only Salman Khan’s appeal to take their brand’s credo forward.”

As per industry sources, brands pay anywhere from Rs. 5 lakh and Rs. 5 crore per endorsement to Salman.

Picky MNC brands

Asked how MNC brands which are picky about their celebrity choices will react to the verdict, Devanghshu Dutta, CEO, Third Eyesight, said: “The arena we are playing in is largely driven by emotions and brands would also reconsider their decision. Indian companies are flexible in their approach but it is MNCs which are picky. Cases will not make a significant improvement in brand ambassador’s selection”.

(Published in The Hindu Businessline.)

Myntra considering offline experience zones in the next 12-18 months

Richa Maheshwari, The Economic Times

Bengaluru, 8 December 2015

Mobile application-only fashion retailer Myntra has tentative plans to roll out offline experience zones in the next 12-18 months, its chief executive Ananth Narayanan said. "We don’t have any immediate plans, but I think next year we will do it. This is something we are debating on," said Narayanan.

With this development, Myntra will be joining e-commerce companies such as its parent Flipkart, Zivame, Pepperfry and Firstcry which are opening such stores to provide customers with a touch-and-feel experience of products as part of a strategy to stand out among fast mushrooming online sellers.

"The idea is to maximise availability for your target consumers," said Devangshu Dutta, CEO of Third eyesight. "With these developments, the divide between online and offline is becoming artificial," he said.

[You may also be interested in reading "The Next New Thing: A Retail Store"]

Myntra has also launched a fashion network for brands and consumers on its mobile app in order to boost its sales and consumer engagement as it inches towards profitability.

"Our overall unit economics are getting closer and closer to profitability. The firm will break even in 2016," said Narayanan.

The Bengaluru-based company is currently clocking gross merchandise volume at a rate of over $500 million (about Rs 3,335 crore) annually, a growth rate of about 66% over the previous year. It is now trying to get to a GMV runrate of $1 billion (Rs 6,670 crore) by May-June next year. Separately, on the Myntra app platform, brands can now make a page, track their performance on dashboards and create content and start marketing campaigns.

"If they (brands) have a large community, then they don’t have to spend anything. But if you are a small brand and want to build up a community, then you may want to spend money with Myntra," said Shamik Sharma, chief technology officer at Myntra.

Customers, on the other hand, will be able to view personalised feeds, upload pictures, seek opinions of friends and experts. Recently, Myntra partially relaunched its mobile site to enable social sharing features of the app. According to the company officials, the brand has over 7.6 million active consumers.

According to an April 2014 report by venture capital firm Accel Partners, Indians bought fashion products worth $559 million online in 2013 and the figure may increase to $2.8 billion by 2016. Online retailing in India grew 56% annually between 2009 and 2014. Etailing in India is expected to swell to $6 billion (Rs 37,200 crore) in 2015 from $3.5 billion last year, a recent PwC report said.

[You may also be interested in reading "The Next New Thing: A Retail Store"]

(Published in The Economic Times.)

IRCTC earns Rs 20,000 crore from online sales till March; revenue nearly double of Flipkart

Sagar Malviya, The Economic Times

Mumbai, 27 November 2015

Revenue from online ticketing on Indian Railway Catering and Tourism Corp crossed the Rs 20,000-crore mark during the year to March 2015, nearly double the turnover of India’s largest online retailer Flipkart.

IRCTC generated Rs 20,620 crore, or nearly $3 billion, through online ticket sales in the last financial year, up 34 per cent from a year ago when it sold tickets worth Rs 15,410 crore. But unlike loss-making marketplaces, IRCTC posted profit after tax of Rs 130 crore, up from Rs 72 crore in the previous year.

"Bulk of the sales may be attributed to IRCTC’s rapid growth in e-ticketing which has been due to its interface and setting up of a very robust process. Capacity enhancement was done to book 7,200 tickets per minute as against 2,000 tickets per minute in the existing system," said Sandip Dutta, public relations manager at IRCTC, which set a record in April when it booked 13.4 lakh etickets on a single day. That compares with 27 tickets a day when it began in 2002. In fact, 55 per cent of all rail tickets sold are booked online.

The government-owned portal posted a 19 per cent increase in income at Rs 1,141 crore, which mainly includes service charges on tickets, sales of Rail Neer water, onboard catering services and licence fees from outsourced catering vendors.

This is similar to online marketplaces where sales don’t include actual goods sold but instead count commission from sellers and revenue from advertisements on their ecommerce sites. IRCTC’s combined income from commissions on ticketing, travel and tourism was Rs 670 crore, a tad higher than Flipkart’s turnover of Rs 659 crore earned from shipping fee and selling commission on its ecommerce portal.

By having a monopolistic position, higher web traffic and sales, IRCTC can attract several brands on its portal, feel experts. "A large part of the Indian population trusts IRCTC and brands across consumer, food and tourism can use it to advertise or sell their products on the portal," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.

Since IRCTC doesn’t compete with any of the online marketplaces in India, Amazon has partnered the rail portal for two years with an annual guarantee of Rs 18 crore a year. India’s ecommerce market is expected to breach the $100-billion mark by FY20, triggered by increasing internet usage, discounting and investment by online retailers, according to Goldman Sachs that has revised its previous estimate. The majority of an upward revision of 27 per cent is contributed by the e-tail segment, which is estimated to reach $69 billion by FY20.

ET View: Expand the IRCTC Menu

There is a huge potential to capitalise on the large and fast-growing cash-flow. The Railways now need to visualise IRCTC as a major-league online retailer, and not merely for rail tickets. IRCTC needs to be positioned as a huge online market place, bringing together buyers and sellers for myriad goods and services. It needs to leverage its expertise in bringing individually ordered food for passengers to provide doorstep delivery for a wide variety of goods and services. The Railways need to explore stock market listing for IRCTC.

(Published in The Economic Times.)

Artisans see fortunes improving as online players like Craftsvilla, Amazon, Flipkart remove need for middlemen

Richa Maheshwari, The Economic Times
Bengaluru, 20 November 2015

Four years ago, about 500 out of 600 operational handloom silk weavers in Katoria village of Banka district in Bihar had shut shops amid a demand slump and dwindling profits. "It was an exceptionally bad year for us. Many left for Mumbai to look for jobs and youngsters were not keen on taking forward the legacy," recalls Mohammad Izzaz, a weaver whose family too had stopped making Banka silk a year later.
That was then. Today, Izzaz and several other handloom artisans in his village are back in action, weaving Banka silk sarees and dress material for the booming ecommerce market. "One and half years back, on an average, we would earn about Rs 30 per day. Today it has increased to Rs 300 to Rs 400," says Izzaz, 25, who supplies to Indianroots.com and indianartizans.com.

Currently hundreds of Katoria residents are migrating back to the village and weavers say around 150 otherwise mothballed handlooms have restarted in the last one year.

Similar stories of revival in interest are emerging from traditional handloom clusters across the countrybe it Paithan in Maharashtra or Phulia in West Bengal, both known for their handwoven silk sareeswith ecommerce companies such as Amazon, Flipkart, Snapdeal, Jaypore and Craftsvilla giving them a new lease of life by helping them to reach out to customers all over the country as well as abroad.

Leading ecommerce firms have already tied up with nearly 7,000 weavers to sell their products on their platforms and the number is growing keeping with rising demand.

Amazon India, which launched a craft store before its festive sales last month, has enlisted about 90 weavers and recorded a threefold surge in demand during the festive season, its category leader Mayank Shivam said.

India accounts for 95% of the world’s handwoven fabrics and, according to the textile ministry’s estimates, handloom weaving provides employment to more than 4.3 million weavers and allied workers in the country.

But, with powerlooms and branded products sweeping the consumer markets with cheaper products and newer designs, the handloom industry has been going downhill over the years, forcing many weavers in several traditional handloom hubs to migrate to other regions and professions to earn their livelihood. According to a labour ministry report, employment in the handloom/powerloom sector declined by 11,000 as of March 2015 from a year earlier.

With the entry of ecommerce players, artisans can hope for a revival in their fortunes as they get direct access to consumers around the world and that too without having to deal with middlemen.

In June, Snapdeal partnered with Himachal Pradesh government to launch a ‘special ecommerce zone’ to facilitate sale of local handicraft and other products while Flipkart has launched ‘India Art House’ to push traditional fashion.

Mumbai-based Craftsvilla, which has around 150 artisans supplying art and craft to them, is working towards creating its own private label where base-level weavers and artisans will make products exclusively for them. "A lot of the traditional handwoven designs have become old-fashioned," said Manoj Gupta, founder of Craftsvilla. "We need to contemporise it for our young shoppers. Thus, we are hiring NIFT designers to become the voice of ethnic designs," he said.

The online industry is not only helping weavers expand nationally but they are also proving a window of opportunity to sell their products in the global market. That means the sellers don’t necessarily depend on seasonality.

Rahul Narvekar, CEO of Indianroots.com, said the portal gets most of its orders from abroad, adding that it sold a handwoven stole worth Rs 19 lakh in Malaysia a few months back.

Manish Ramakant, a weaver of Paithani silk sarees, said his business has grown by 40% last year on the back of online orders from abroad. "Demand for Paithani sarees is the highest during the wedding season; rest of the months, we remained unemployed. However, online international orders now ensures work round the clock today," he said.

With the newfound markets and vigour, Ramakant, 39, has now ventured into home decor and has started interacting with buyers and designers through Whatsapp.

Experts point out that ecommerce players help handloom weavers overcome their biggest challenge: easy and quality access to consumers.

At present handloom products are mostly sold through central and state government emporiums. "The emporiums, run by bureaucrats, are not well maintained. Hence, there is hardly any good retail outlet for artisans," said Arvind Singhal, chairman and managing director of consultancy firm Technopak.

Devangshu Dutta, CEO of retail consultancy firm Third Eyesight, said the government should get out of retail business. "Business is not a government’s job. Its job is to run the country," he said. "The supplier, distributor and the consumer make an ecosystem. Hence, this has to be individual and business-led. I think the government should get out of the way."

Also, with most ecommerce players dealing directly with traditional weavers, artisans are earning better margins that would otherwise go to middlemen.

"I was affected by middlemen. Now, for the past one-and-half years I have been working directly with designers and online companies. I have cut down nearly 60% of middlemen," said Asif Ansari who makes Maheshwari sarees. This has helped the weaver from Maheshwar in Madhya Pradesh improve his margin to 35%-40% from earlier 15%-20%.

However, the world of ecommerce is not without any tension for handloom weavers. Fear of duplication and lack of awareness among consumers are among the main issues weavers face in the online retail space. This sometimes force them to cut down their margins.

What is applicable to Katoria’s Banka silk weavers is applicable to any other industry or trade facing challenges of demand. One of the problems facing many quality traditional sectors is the absence of information about such products, especially luxury or niche items as well as non-traditional art and craft. This is where online retail, which doubles as shop and catalogue, can be helpful. If online companies resurrect traditional sari production, they can certainly do the same for artwork and handicrafts that need to find their markets which are probably just waiting ‘to be told’ that they are there to be procured.

(Published in The Economic Times.)

An Indian yoga guru is building one of the country’s biggest consumer goods companies

Manu Balachandran & Madhura Karnik, Quartz India

New Delhi, 18 November 2015

First he became the face of yoga in India. Now, he is taking on major global consumer goods companies with products ranging from herbal tea and fruit juices to toiletries.

Baba Ramdev—born Ramkrishna Yadav—seems poised to give some of India’s biggest consumer goods makers a run for their money with his ayurvedic, made in India products. Patanjali Ayurved Ltd, a company that Ramdev founded in 2006 along with his confidante, Acharya Bal Krishna, has emerged amongst India’s fastest growing fast moving consumer goods (FMCG).

And Ramdev is piggybacking on prime minister Narendra Modi’s Make in India campaign to promote his goods. All the products that Patanjali manufactures have a “Made in Bharat” label.

This week, Patanjali launched a noodle brand to compete with Nestle’s Maggi, which is now back in Indian markets after a brief ban. While India’s food regulator, FSSAI, maintains that Patanjali’s noodles don’t have necessary approvals, the company is all set to start sales in the coming weeks. Ramdev’s company is also planning to take on global sportswear brands like Nike and Adidas by introducing a yoga-wear collection.

In January, Aditya Pittie, chairman of the Pittie Group, which is a distributor for Patanjali’s products, told the Times of India newspaper that the company was expected to cross the Rs2,000 crore mark in the 2015 fiscal. If these estimates are true, the eight-year-old firm has already overtaken brands like Emami—an old name in India’s FMCG sector.

Quartz was not able to independently verify these figures as India’s Registrar of Companies does not have information for the 2015 financial, yet. Patanjali Ayurved did not respond to an emailed questionnaire from Quartz.

Rocketing revenues

Patanjali’s phenomenal growth trajectory is making big retail chains in the country sit up.

Although the company has a massive presence across India trough franchisees—its products are available in over 177,000 retail stores—it is now tying up with retail behemoths to reach a wider audience.

In October, Ramdev entered into a partnership with the Kishore Biyani-owned Future Group for promotion and distribution of its products. Future Group is one of India’s largest retail groups with presence in more than 95 cities.

“Our effort is to promote swadeshi and give a tough fight to MNCs,” Ramdev told reporters after announcing the alliance with Future Group. The 50-year-old yoga teacher added that Patanjali will also launch new products like pasta, oats, muesli and juices to cater to India’s growing middle class that is developing a taste for western flavours.

For the current fiscal, the firm is looking to target revenue of Rs5,000 crore.

Headquartered in Haridwar, Uttarakhand, Patanjali was found in 2006 with a paid-up capital of Rs41 crore.

“At its own claimed revenues of Rs5,000 crore in this financial year, it will be among the top five FMCG companies in the country. With its recent announcement to enter more product categories—yoga apparel, baby and children’s nutritional foods etc.—it is poised to enter the top three in the next two to three years if its current spectacular growth rate continues,” Arvind Singhal, managing director of Technopak, a management consultancy, told Quartz in an email. “With that size, it will certainly be a formidable competitor to several established brands and companies such as HUL, Nestle, ITC Foods, and GSK to name a few,” he added.

A report from international brokerage, CLSA, in August said that Patanjali’s core strength is its mass appeal.

“The plans are even more interesting as the company is now looking at ‘traditional’ ways to expand and targets to more than double the top line in coming years,” the report said. “While competition must be keeping its fingers crossed, all we can say is—‘Wish you were listed.’”

Brand Ramdev

The company usually refrains from spending big money on advertising and marketing, which is an important driver for brand creation.

Typically, an FMCG firm in India spends about 10-15% of its revenues on advertising while Patanjali had negligible spending and “relies mainly only on endorsement by Baba Ramdev and his disciples and instructors,” according to CLSA.

Much of the promotions also happen during yoga sessions conducted by Ramdev. The yoga guru also depends heavily on followers who are popular celebrities such as wrestling champion, Sushil Kumar, to endorse products during these yoga programs.

And according to CLSA, Patanjali has the potential to reach out to more than 200 million who are directly or indirectly linked to his yoga programme.

This year, as the company looks to take on some of India’s biggest FMCG companies, Patanjali has also roped in advertisingagencies, McCann and Mudra to run a brand new campaign. The company has already roped in one of the country’s biggest film star, Hema Malini, to endorse a maida flour free biscuit.

Challenges persist

Born in 1965 to a poor family of farmers, Ramdev, along with his friend Acharya Bal Krishna, started taking yoga lessons and travelling around on bicycles to clients’ homes to perform religious ceremonies in the late 1990s.

Today, Ramdev’s empire in Haridwar alone spans a hospital, an ayurveda medical school and research institution, a food park and a cosmetics manufacturing unit. He also reportedly purchased an island in Scotland worth £2 million to set up a wellness centre.

However, there could be some bumps in Ramdev’s smooth ride in the FMCG sector—especially with his new products such as noodles.

“In the growing market for ready-to-cook packaged food, a new entrant would struggle to create visibility and initial demand,” Devangshu Dutta, CEO of Third Eyesight, a retail consultancy, told Quartz in an email.

“The other aspect to keep in mind is that while a lot of food and nutraceutical products resonate easily with the Patanjali brand, instant noodles seems completely counter-intuitive under this brand’s umbrella. How much consumers will support this new launch remains to be seen,” he explained. [See "From yogasan to ayurved to noodles" for a fuller analysis.]

Meanwhile, before launching the noodles, Ramdev who never tasted them, ate noodles for “several days,” Bal Krishna told the Business Standard newspaper. Patanjali can only hope that its customers take to their product with the same gusto.

(Published in Quartz India.)

From yogasan to ayurved to noodles, the Patanjali Group’s growing momentum

The Patanjali Group has created an Indian FMCG giant in a very short span of time on the back of a three-pronged strategy:

  1. The enormous brand awareness that can be attributed to the very high visibility of Baba Ramdev, across a variety of media and issues,
  2. Wide and deep market penetration through a large network of outlets and distributors across the country, and
  3. Pricing itself below the benchmark competitor in each product area in which it is competing.

Over time, the group has also invested in improving its manufacturing and packaging infrastructure to bring itself on par with well-established competitors.

The group has clearly focussed itself on the mass market, and Patanjali Group’s products become a “go-to” for customers who are more price-sensitive than brand-loyal. This definitely creates pressure on established brands in each of the product segments where the group is now present.

In the growing market for ready-to-cook packaged food, a new entrant would struggle to create visibility and initial demand. However, with the momentum of the Patanjali brand behind it, the group’s new product — instant noodles — has a fighting chance.

I must say, though, that the immediate opportunity would have been bigger had Maggi also not just relaunched in the market. The other aspect to keep in mind is that while a lot of food and nutraceutical products resonate easily with the Patanjali brand, instant noodles seem completely counter-intuitive under this brand’s umbrella. How much consumers will support this new launch remains to be seen.

This 2-4 minute noodles story is still cooking. Keep watching the pot!

Giant takes a wholesale bite

Rashmi Pratap, The Hindu Businessline

Mumbai, 13 November 2015

Chetan Sharma, the owner of Raj Rasoi food court in Agra, cannot stop gushing about the one-stop-shop from which he sources nearly everything needed for his restaurant — from the furniture and groceries to decorative pieces and cutlery. Shopping on alternate days, he saves up to ?3 lakh a month at the over 60,000-sqft Best Price, owned by the world’s largest retailer, Walmart.

In Andhra Pradesh, every Sunday evening, Sambasivarao visits the Best Price outlet located about 45 km from Vijayawada. It is here that he buys the home appliances, furniture pieces, confectionary, cereals and a range of other items that he stocks for sale at his Sri Krishna Best Sale supermarket. The advantage: huge savings in transportation costs and a range of products unmatched by the other wholesalers and dealers near him.

After waiting more than seven years for the elusive government nod for foreign direct investment (FDI) in retail, American giant Walmart is now focusing its energies on the likes of Sharma and Sambasivarao. It has found its mooring in the cash-and-carry wholesale format — where FDI up to 100 per cent is permitted.

Walmart’s target clients include kirana or mom-and-pop store owners, small traders, hoteliers and caterers in a wholesale market that is pegged at $300 billion.

Krish Iyer, who took over as President and CEO of Walmart India after the company called off its joint venture with Bharti Enterprises in late 2013, says, “Growth here (in India) is driven by domestic private consumption and not exports. With the current business model of cash-and-carry, where we sell to business members, we believe there is a great potential with the fairly low penetration of modern retail.”

India will buy

Globally, by 2020 the mom-and-pop-store business is expected to grow by $800 billion, of which $140 billion will be in India, according to industry estimates. “It is an attractive market. We have established a good business model and are happy with our current performance. That makes us bullish about investing further in India,” says Iyer.

He had to virtually rebuild Walmart India after the company was involved in a lobbying controversy, followed by massive staff exodus in 2012-13. “I think it wasn’t challenging (to get moving again), but we needed a focused approach… cash-and-carry was the logical choice.”

Efforts to grow the company’s customer base include a strong digital strategy. “I believe that a vast majority of sales even in brick-and-mortar stores is digitally influenced. We have rolled out a B2B (business-to-business) website where members can check the products or place orders on the Web or call us at the store and make enquires while placing an order.”

More interesting is the company’s hand holding strategy for store owners, which seems to be bringing in loyal customers. For Sambasivarao’s store, for instance, Walmart sales executives helped plan the layout, product category sequencing and even trained store employees on standards for display and audit. “Our business development associates go to shops and hotels to sign up new members,” says Iyer. Members are enrolled within a 20/40-km radius of each outlet to ensure that customers do not have to spend more than 30-40 minutes in commuting.

Moreover, small businesses like Sambasivarao’s are saving a lot of money by using Walmart’s transportation services. For each carton of products, Walmart charges ?11 for transportation, including loading and unloading. “Other distributors and wholesalers charge Rs. 35 per box,” says Sambasivarao. All he has to do is go to the Best Price outlet with a list of items. “The staff pack and ready the items in 25 minutes and I am out of the store in less than an hour. Moreover, the pricing is transparent,” he says.

Cost advantage

For hotelier Sharma, the biggest draw at Walmart is the availability of fresh fruits and vegetables at the most reasonable prices in Agra. “The prices are at least 15-35 per cent lower than market rates. Moreover, they have discounts and periodic promotional offers. Overall, I save Rs. 2.5 lakh a month. Plus, I don’t have to roam around Agra in search of quality products,” he says.

So, how is the retail giant able to offer this pricing advantage? By investing in and maintaining a robust supply chain, says Walmart India’s Vice-President and Head of Corporate Affairs, Rajneesh Kumar. “What works for us is the direct-to-store model. All the suppliers we work with, such as Nestle, Coke and even SMEs, supply directly to Walmart outlets. We undertake joint business planning to make sure that the fill rate [inventory’s ability to meet demand] of the product is good.”

Apart from an annual planning exercise, a Walmart team interacts regularly with the companies to iron out issues on a real-time basis. “Our software, Retail Link, provides suppliers with the information they require around replenishment,” says Kumar.

To strengthen its supply chain, Walmart is moving to procure directly from farmers in all the states where it operates. So it stocks apples from Himachal Pradesh, onions from Nashik, sweet lime from Telangana and a range of vegetables from Punjab and Uttar Pradesh.

“We source directly from farmers to get fresh produce at the right price, so that our members can pass on the savings to the end-customer,” Kumar says. In Hapur, Lucknow, Telangana and some areas of Maharashtra, Walmart is working with irrigation companies and introducing best agricultural practices to farmers. Yet, farmers are free to sell to other regions and retailers and Walmart does not enter into any exclusive tie-ups with them.

As it works overtime to get the backend right, Walmart’s store expansion rate has been slow — 21 stores across India. Iyer explains that the company requires about four acres to build a 50,000-60,000-sqft store. “That takes time. Acquiring real estate is a time-consuming activity in terms of legal requirements and due diligence,” he says. Walmart has leased most of its properties, but Iyer says the company is prepared to buy land also, if an opportunity arises.

Battle for every store

Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says Walmart has a model that works, but not necessarily everywhere.

“It requires a certain type of real estate, which is not easily available in metros and big cities.” That perhaps explains why the giant is focusing on tier 2 and tier 3 cities.

“The penetration of mom-and-pop shops and traditional stores continues to be higher in tier 2 and tier 3 cities. They are attractive opportunities and make sense,” says Dutta.

Walmart aims to add at least 50 stores to its portfolio by 2020.

But can a new player compete effectively with the likes of Metro Cash and Carry, which has been around since 2003, or a local giant like Reliance? “Yes,” believes Iyer. “We have our own membership data and we know what a member would want in Punjab or UP or Telangana. By understanding these preferences and basing the decision on this customer data, we are able to meet the specific needs of buyers,” he says.

Dutta agrees: “At the end of it, retail is a very local business. And it is dependent on how well you address the customer segment in a given geography. Just being a large or established retailer nationally or globally is no guarantee for success. It ultimately comes down to fighting each store battle independently.”

And how well-armed Walmart is will become apparent in the next few years.

(Published in The Hindu Businessline.)

Cheer for cos like Apple, Rolex as government eases local procurement guidelines for single-brand retail

Rasul Bailay & Shambhavi Anand, The Economic Times

New Delhi, 11 November 2015

In a major leg-up for global brands such as Apple and Rolex, India has relaxed a mandatory local procurement condition for high-tech companies and allowed mass brands including IKEA to comply with such sourcing norms from the day their first store opens rather than from when the first tranche of investment is made.

The government on Tuesday also allowed foreign single-brand entities to sell products through online channels provided they have permission to sell through brick-and-mortar stores.

The relaxation in foreign direct investment norms is set to cheer companies including Apple, which was earlier expected to source 30 per cent of its products locally. ET had reported earlier this month that Apple had sought relaxation of the sourcing norm to set up stores in India, while IKEA wanted more time to meet the requirement.

"It is seen that in certain high technology segments, it is not possible for retail entity to comply with the sourcing norms. To provide opportunity to such single brand entities, it has been decided that in case of ‘state-of-art’ and ‘cutting-edge technology,’ sourcing norms can be relaxed subject to government approval," according to an official notification on Tuesday.

"To start counting the time to comply with the 30 per cent local sourcing norm from store opening will support brands in building long-term sustainable supply chains that are good for India, good for the businesses and will enable better prices to the Indian customers," an IKEA India spokesperson said in an email. "Today’s decision will allow the Indian IKEA customers to interact with the brand IKEA in the same way as all IKEA’s global customers."

The policy changes will pave the way for single-brand retailers such as Swedish clothing company Hennes & Mauritz to tap India’s growing ecommerce business.

"FDI policy on the SBRT (single brand retail trading) provides that retail trading, in any form, by means of e-commerce, would not be permissible. It has been decided that an entity which has been granted permission to undertake SBRT will be permitted to undertake ecommerce activities," the latest policy paper said.

Proposals of companies including Tommy Hilfiger and Furla were stuck with the Department of Industrial Policy & Promotion for years because they had planned to set up their own stores and sell products through franchisees, which wasn’t allowed. Now, such companies can engage in both wholesale trading – which is needed for sales through franchisees – and retail trading as long as it follows the norms for both segments.

"Fantastic relaxation. Different companies have different business models. For south India, franchisee works and north India, may be you want to own your own stores and eastern side you wanted to do wholesaling because wholesalers were not good. Earlier, you could not do all that. Now the same entity can do all these activities and keep the business arms separate," said Baljit Singh Kalha, a partner with Titus, the law firm that assists IKEA, Furla and H&M.

Indian manufacturers with foreign investment that are controlled by Indians can now sell their products through online channels provided they make 70 per cent of the output and source the remainder from local companies.

This has been a long-standing demand of ethnic products retailer Fabindia, which has FDI and wanted to sell online. Earlier, such companies could sell online only if they manufactured 100 per cent of their products in-house.

"This is a great Diwali gift from the government to the retailers. What they have done is provided a major boost to ‘Make in India’ and also the ministry has recognised the fact that retail will operate across multiple channels. This will be a huge fillip to ‘Make in India’ as companies like ourselves manufacture 70 per cent of the products ourselves," said William Bissell, managing director of Fabindia.

"There are several changes for companies in the retail sector. For instance, the domestic sourcing requirement has to be reckoned from the opening of first store and not from the first day of operations. Technology-oriented products and high-end luxury brands may be able to skip the domestic sourcing norms completely, subject to case-to-case approvals. Another opening is for indigenous brands to receive foreign investments that can enable them to strengthen their operations," said Devangshu Dutta, chief executive officer of retail consultancy Third Eyesight.

(Published in The Economic Times.)