Mehak Sharma, Indiaretailing.com
New Delhi, 31 March 2016

While the new policy for foreign direct investment (FDI) in the fast-growing e-commerce sector has been welcomed by several lobby groups and offline retailers, experts note that a few implications of the new guidelines could leave some online players in a fix.

The Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, on Tuesday, allowed 100 per cent  FDI in online retail of goods and services under the marketplace model, but kept the inventory-based model of e-commerce out of its purview.

However, two conditions attached to the approval, in particular, could exert pressure on some e-tailers, as they will have to restructure their businesses to comply with the law. The first being that no one company or seller on a marketplace can now account for more than 25 per cent of the total sales generated on the site. Second, e-commerce entities operating a marketplace model can no longer influence the retail prices of goods or services.

“This will ensure that the pseudo marketplace models run by a few e-commerce companies will be forced to rationalise their pricing and discounts,” says Craftsvilla.com Founder & CEO, Manoj Gupta.

Commenting on the bar on retail price manipulation, CEO Third Eyesight, Devangshu Dutta, notes, “Buying market share through discounts is a game for the deep-pocketed, and aggressive discounting is also now explicitly in the Government’s cross-hairs. While the focus within e-commerce companies had already started shifting to smaller discounts, the new policy will force them to think harder and act quicker.”

In addition to this, the cap on seller contribution on total sales generated on an e-commerce marketplace site could also complicate matters for market leaders Flipkart and Amazon, experts point out.

Sellers like Cloudtail and WS Retail account for a major chunk of sales on Amazon and Flipkart, respectively. While Cloudtail is a joint venture between Amazon Asia and Infosys founder NR Narayana Murthy’s personal investment vehicle Catamaran. WS Retail was set up by Flipkart co-founders Sachin Bansal and Binny Bansal in 2010.

“Marketplaces such as Amazon and Flipkart have very large shares of their business being contributed by inventory sales from their own (‘arm’s-length’) entities. These companies will have to rethink their business mix and business structures to comply with the law. However, platforms that present a diversified merchant base would certainly have a clear path to invest further in India,” Dutta states.

Emails sent to Flipkart regarding the impact of these implications went unanswered, while Amazon India told Indiaretailing Bureau it is still studying the changes and would issue a press statement soon.

Even as e-tailers scramble to interpret and implement the new rules, investors feel that the latest policy announcement is a breath of fresh air for e-commerce firms that have been struggling to attract funding since the beginning of 2016.

“E-commerce players have already raised significant foreign funding. However, there are still many multi-billion dollar funds yet to be injected. With regulations in place, we can see a fresh infusion of funds in the market,”Managing Partner, Unicorn India Ventures Anil Joshi, tells Indiaretailing.

“E-commerce entities should now look to build a profitable ecosystem rather than revert back to old, predictable strategies,” Joshi asserts. “Currently, e-commerce accounts for a mere 2-3 per cent of modern retail in India and has barely scratched the surface. There is a huge market potential and demand, especially in tier-II and III towns that are still waiting for these companies to make an entry.”

(Published in Indiaretailing.com)

AFP/The Times of India
New Delhi, 30 March 2016

India has set rules for foreign investment in online marketplaces, allowing up to 100 percent overseas ownership and providing much-needed clarity as billions of dollars pour into the country’s fast-growing e-commerce sector.

The long-awaited rules permit full foreign ownership of sites that connect online buyers to sellers — similar to the model pioneered by Internet giant eBay.

However, foreign direct investment in “inventory-based” sites that sell their own stock is forbidden, the Department of Industrial Policy and Promotion said Tuesday.

In practice, India’s e-retailers already considered this to be the case, acting as technological platforms that connect buyers and sellers rather than selling their own products.

Even Amazon does not sell its own stock directly to shoppers in India. Despite the regulatory fuzziness, domestic marketplace sites such as Flipkart and Snapdeal have attracted billions of dollars in overseas investment.

“This announcement brings current business structures on the right side of the law,” Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy in Delhi, told AFP.

While the new rules will end much of the uncertainty, the government has also imposed restrictions that may cause headaches for some online retailers.

Under the new rules, a single seller can only account for up to 25 percent of sales, the department said.

This could cause problems for some of the big sites which, while technically marketplaces, are reportedly home to a handful of super-sellers that provide the lion’s share of their products.

Aggressive discounting wars by India’s Internet retailers may also be under threat, as the rules say they are not allowed to “directly or indirectly influence the sale price of goods or services”.

“There were no conditions (before) — now it looks like some of the players may have to restructure the agreements with their sellers to be compliant. It’s not very easy,” said Paresh Parekh, a tax partner in retail and consumer products at EY.

Some retailers welcomed the new rules, including Kunal Bahl. He founded Snapdeal, one of India’s biggest Internet shopping sites.

“Great to see the guidelines around 100% FDI in ecomm marketplaces. Glad the govt recognises and supports an industry transforming India,” he tweeted.

(Published in The Times of India)

Viveat Susan Pinto, Business Standard

Mumbai, 26 March 2016

Amritha K is a homemaker based in the central suburb of Ghatkopar here. Like most housewives, affordable grocery shopping is an important item to manage. She keeps a hawk’s eye on quality but never fails to bargain for that extra rupee of discount from the grocer. There’s a new Patanjali shop in her neighbourhood. “I’ve heard the products are of good quality and reasonably priced,” she says. “But, there is such a crowd there that I don’t know when I will be able to find the time to go there.”

This is a dilemma that confronts a number of middle-class households in India. Yoga guru Ramdev’s Patanjali Ayurved has presented itself as a credible alternative in fast-moving consumer goods (FMCG), compelling many to switch from age-old preferences and brands. “Herbal and ayurveda is one aspect of what Patanjali stands for,” says Aditya Pittie, chief executive officer, Pittie Group, a distributor of Patanjali products in modern and general trade. “The success of Patanjali has to do with its positioning on health. The fact that Swamiji (Baba Ramdev) is a yoga guru who has always canvassed for good health is not lost on people. This is what is helping sales.” 

To many, Patanjali Ayurved, which has targeted a Rs 5,000-crore turnover this financial year, is symptomatic of a trend sweeping the country today: The entry of babas into business. Whether consumer goods, lifestyle or entertainment, spiritual gurus are no longer averse to stepping into business – doing it confidently and even emerging successful.

A string of them

Take ‘Sri Sri’ Ravi Shankar, for instance. A recent report by brokerage Edelweiss says that Sri Sri Ayurveda, ayurvedic FMCG arm of Sri Sri’s Art of Living Foundation, is expanding into more categories and has begun to use mass media, point of sale advertising and push its digital presence aggressively through its app, e-store and via e-commerce portals.

Additionally, Sri Sri Ayurveda is looking to ramp up distribution of its products by taking it to 2,500 stores by 2017 from 600 stores now. The next leg will see it get into modern trade as well, talks for which are currently on, the report said. Future Group’s CEO Kishore Biyani said recently he was open to distributing Sri Sri’s products.

“Sri Sri Ayurveda has a wide range of products in personal care, diet supplements, food and accessories. It is planning to expand its presence into breakfast cereals, cookies, atta, oils, spices, ready-to-cook items and a range of organic staples for select markets. Though lagging Patanjali, it has the right ingredients to help grow the ayurveda space, posing competition to other consumer peers,” analysts Abneesh Roy, Pooja Lath and Tanmay Sharma noted in a report dated March 14.

While a detailed mail and calls to Sri Sri Ayurveda Trust elicited no response till the time of going to press, Devangshu Dutta, chief executive of consulting firm Third Eyesight, says the coming together of religion and commerce is not new. “If you look at the West, whether it is TV evangelism or other large movements, there is a whole system that has developed around it. A part of this involves the lifestyle of followers, which includes products and services. What we are seeing is an explosion of this in India.”

Tapping followers

Experts say the wave of babas stepping into business is linked to their larger and core ability to tap into a captive base of followers. It serves as the first line of defence for most of them before going mass. Take Gurmeet Ram Rahim Singh, chief of Dera Sacha Sauda, a Sirsa, Haryana-based organisation, estimated to have a following of 55 million across India and the globe (Sri Sri is larger at 370 million and Patanjali has 70 million followers worldwide).

Singh, popular in Punjab, Haryana and Rajasthan as a rockstar saint, burst into the national consciousness last year, when he directed and starred in two films – MSG: The Messenger and MSG-2: The Messenger.

While the first instalment is estimated to have grossed Rs 126 crore in box-office collections, MSG-2, according to Aditya Insaan, the Dera’s spokesperson, has entered the Rs 500-crore league recently. ” The objective was to convey a social message in an interesting and entertaining format,” he says.

The response to the first two instalments appears to have goaded Singh to direct and star in two more – MSG: Online Gurukul and MSG: The Warrior, to be released later this year. Additionally, Singh has taken the MSG franchise launching a line of eatables, cosmetics and grocery items this January. A singer, composer and lyricist, Singh also has a line of music CDs, speeches and discourses available for sale. Further plans include taking his consumer products into international markets and looking at means to leverage technology, Aditya Insaan said.

While revenues for both Sri Sri and Dera Sacha Sauda are not available, there is no denying the potential of the business ventures promoted by these organisations, experts say. 

“If marketed and distributed in an organised manner, these businesses have the potential to do what a Patanjali has,” Dutta says.

Kishore Biyani, chief executive officer, Future Group, who saw the trend coming, wasting no time to tie-up with Patanjali last year, says, “The customer is king. It is what he or she dictates that counts.”

OTHER GURUS IN FMCG SPACE

• Sadhguru Jaggi Vasudev: Popular with corporates for his spiritual discourses, Sadhguru set up the Isha Foundation in 2012. This has a commercial arm that sells food, personal care and wellness products. Has a strong presence in the south and is slowly expanding to the north in Delhi and Uttar Pradesh

• Bochasanwasi Shri Akshar Purushottam Swaminarayan Sanstha (BAPS): An institution that runs 800 Swaminarayan temples in India, US and UK, besides Akshardham temples in New Delhi and Gandhinagar, Gujarat. The institution manufactures and markets FMCG products under the BAPS Amrut brand, which is strong with its follower base.

• Aurobindo Ashram: A community based in Puducherry which considers spiritual thinker Sri Aurobindo as their guru. The ashram, which produced goods for its own consumption, has now stepped into the commercial market with incense sticks, soaps, candles, perfumes and furniture

Source: Edelweiss/Industry

(Published in Business Standard)

Raghavendra Kamath, Business Standard

Mumbai, 24 March 2016

Inside Select City Walk, New Delhi, where almost every brand that wants a piece of the great Indian consumption story has pitched its tent, a grand fight is in the making. 

According to industry insiders, here Zara’s 17,000 square feet store pulls in about Rs 10 crore a month, or around Rs 6,000 per square feet. H&M’s 25,000 square feet store makes Rs 12.5 crore a month, or about Rs 5,000 per square feet. 

Since neither label breaks down its country-wise numbers, these numbers, although not completely representative, are the closest reflection of their struggles in the country.

According to industry veterans, H&M has been faster off its feet. “Scoring point for H&M is that it is priced right for India while Zara is relatively expensive. Zara wanted to reduce prices but did not do so eventually,” said Dipak Agarwal, former CEO of DLF Brands which retails brands such as Forever 21 and Mothercare.

However the big challenge, for both, many believe would be stepping beyond the metros in their next phase of growth. And here H&M holds an edge unless Zara is willing to take a fresh look at its prices. Zara’s entry range (women’s wear) retails at over Rs 2,500, but H&M starts at around Rs 1,500. “H&M will definitely impact Zara’s sales in the medium term,” Agarwal said.

Price, partnerships, styles

Both Zara and H&M cater to the premium category, but a Delhi-based mall head said, “H&M will grow faster than other global brands given that it is more affordable, has no partners, and a balanced portfolio.” H&M refused to comment on whether it would outgrow others, but said, “We believe we have competitive prices, by having our own design and buying department.” Inditex Trent, Zara’s parent company refused to comment, but it has launched a budget chain to compete with the likes of H&M and other fast-growing discounters like Primark and Forever21.

Zara is also the first apparel brand to cross the $100-million mark in India where it has spent six years and built 16 stores. But its sales growth has slowed; according to the Trent annual report for FY15, it is down from 43 per cent in FY14 to 23 per cent in FY15.

H&M, on the other hand, is new to game. It has just two stores in India but its stores are turning in far better numbers according to sources in the malls it is present in. But as a source in Inditex Trent said, “It is easy to grow from Rs 25 crore to Rs 50 crore but to grow from Rs 50 crore to Rs 150 crore is really difficult.” Besides, given that 75 to 80 per cent of the market is unorganised and brands are growing by just tapping the switch from unorganised to organised, he believes there is enough space for new and old brands to grow.

H&M has a wider range of styles and targets a larger customer base too — it caters to women, men and kids unlike Zara which focuses largely on women although it does have a men’s line. Globally, according to a Reuters report, H&M has moved into Zara’s fast fashion space by offering everyday styles.

Devangshu Dutta, CEO, Third Eyesight, says both have distinct operational strategies. H&M partners with designers to create special lines under joint branding, whereas Zara maintains its own branding. “Zara has a far greater number of products in its annual range, and invests far more on product development. H&M spends a significant amount on advertising, which Zara mostly shies away from,” he says.

The road ahead

Both brands are at different stages of their India journey,  but are looking at non-metros. H&M’s next store will be in Bengaluru, followed by one in Noida, Mohali and Mumbai in 2016. It is looking at other cities as well and so is Zara.

However, the question is whether the premium brands will tweak their pricing strategies for small towns. According to the head of a Delhi mall, non-metros can absorb H&M as it is more affordable. “After you move out of South Mumbai or South Delhi, there will be more shoppers for H&M than Zara. That’s why after 17 to 18 stores, Zara is finding it difficult to expand,” he said.

However, in Mumbai, a senior executive with one of the leading malls said that all global brands struggle after four to five stores in metros, be it Zara or H&M. “It is not easy to expand in tier II and III cities for any international brand,” he said. Dutta however believes that both are marquee brands that, more than hurting each other, will help all brands by driving customers to malls. Even if they do, the fight for converting footfalls to transactions is going to be an arduous one.

(Published in Business Standard)

Aarefa Johri, Scroll.in
Mumbai, 22 March 2016

Even though milk and dairy products was the Chitale brand’s original business, the headlines remembered Bhausaheb as the “creator” of bakarwadi.

Technically, the Chitales didn’t invent the crunchy besan- and maida-based snack. It has been a part of traditional west Indian cooking, particularly Gujarati farsaan, for a long time. But without Bhausaheb Chitale and the rapid growth of India’s packaged food industry, bakarwadi may not have been as popular among Indians both in the country and abroad.

Today, packaged bakarwadi in multiple sizes is sold by many firms – Chitale and Haldiram’s perhaps the best known – but the story of their journey from household kitchens to grocery store shelves across the world began with the Chitale patriarch.

The Chitale story

Born in 1920 in a small village in Maharashtra’s Satara district, Bhausaheb Chitale began his career helping his father with their milk business in Pune. As he came into his own, Bhausaheb expanded and transformed the brand into Chitale Bandhu Mithaiwale, which sells a host of Indian sweet and savoury snacks.

“In 1970, a person from Gujarat introduced Bhausaheb to the bakarwadi,” said Indraneel Chitale, one of Bhausaheb’s grandsons. “But the Gujarati preparation was on the sweeter side. My grandfather thought of adding more spice to the recipe to cater to Maharashtrian tastes.”

The current form of spicy bakarwadi, with a hint of sweet and sour, was popularised by Bhausaheb and his brother Rajabhau Chitale, who died in 2010. The family business is now run by their sons and grandsons.

“The Chitale bakarwadis are just right in terms of flavour – they are spicy and crunchy and go well with both tea or beer,” said Rushina Munshaw-Ghildiyal, a food writer from Mumbai.

From hand-made to automation

In the 1970s, when Chitale Bandhu began selling packaged bakarwadi, workers in their Pune factories manually prepared up to 300 kg of the snacks a day. But with demand constantly on the rise, the company decided to automate the process.

“My father went to Europe and with the help of experts from Germany and Holland, designed a machine specially to make bakarwadis,” said Indraneel Chitale. “The whole process took four years.”

In 1989, the company introduced partial automation for bakarwadi production, and by 1994, the process was completely automated. Today, Chitale Bandhu has three such machines in Pune, which collectively churn out 850 kg of bakarwadi an hour. One of the machines is dedicated to supply only within Pune, where it is often sold out in the first half of the day itself.

“Fortunately we are able to sell everything on the same day as it is made,” said Indraneel Chitale, who claims that Chitale Bandhu is the only company that makes bakarwadi through a fully automated process. “Apart from the milk from our dairy, bakarwadi is actually our highest-selling product.”

Automation has also helped increase the shelf-life of bakarwadi and other Indian snacks so that they can be more conducive to export. “As Indian companies have scaled up, they have been able to adopt automated technologies not only for production but also packaging,” said Devangshu Dutta, chief executive of Third Eyesight, a consultancy firm. With better packaging, dry food products are protected from the elements and from decay. “It has enabled Indian snack manufacturers to find their way to customers in much more distant markets within and outside the country.”

(Published in Scroll.in)