Chaitali Chakravarty & Sagar Malviya, The Economic Times

Mumbai/New Delhi, 29 April 2016

Walmart, the world’s largest retailer, is interested in selling food products directly to Indian consumers both by setting up brick-and-mortar as well as online stores, but it will take a final decision after evaluating the policy guidelines that will be notified by the government, said the head of its India unit.

“The business of brick-and-mortar food retail stores and online sale of food products is of interest to us, but we have to evaluate the policy guidelines once they are notified,” Walmart India Chief Executive Krish Iyer told ET in an exclusive interaction.

The government announced its intention to allow 100% foreign direct investment (FDI) in ‘marketing of food products manufactured and produced in India’ in the recent Budget. The final rules will have to be approved by the Union Cabinet before they are notified. “Never in the Budget has the government taken so much interest in retail, and it is encouraging. 100% FDI in food marketing is a progressive step,” Iyer said.

“100% FDI in food marketing will provide better realisation to farmers and bring down prices of essential commodities,” said the India head of Walmart, which so far does not sell directly to consumers in India. It operates 21 cash-and-carry stores, with small retailers and businesses being its main customers. The retailer plans to open another 50 such outlets in the next three years.

The company sources its own brands — Members Mark and Right Buy — from within the country, something that sits well with the ‘Make in India’ initiative.

“Private label will be a huge differentiator in terms of bringing store footfalls. They are being made in India and benefit customers in terms of lower prices and better quality,” Iyer said, adding private labels will have an important role to play in food retail.

In-house brands account for 20-30% of sales and nearly half the profits of most retailers. With 60% of this coming from food alone, several Indian retailers are now present in more than a dozen food and packaged commodity product segments.

The Department of Industrial Policy & Promotion has moved a Cabinet note and industry officials believe that final rules will be approved in 4-8 weeks. They are hoping that besides brick-and-mortar stores, the government will allow online retailing of food products and will also expand the definition of food to include grocery.

Iyer, who joined the Indian unit of the world’s largest retailer two years ago, said food items along with home and personal care products would make the model more viable. Walmart had entered India a decade ago in a 50:50 cash-and-carry joint venture with the Bharti Group. This foray was seen as a first step by the US retailer towards eventually opening its own stores to sell directly to consumers, once government policy was suitably amended.

But the move to open up the retail sector to foreign investments got mired in political controversy. While the United Progressive Alliance regime eventually allowed 51% FDI in the sector, Bharatiya Janata Party has so far been opposed to allowing foreigners to open multi-brand retail stores in the country.

“Retail is a local business and it won’t work without local leadership or by following global templates. But given Walmart’s history, they would want to enter retailing alone as it will give them confidence on the expansion strategy as well as proper control,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. “Even if FDI is allowed completely, the caveats or riders will mostly support local business.”

Morgan Stanley expects the country’s food and grocery segment to become the fastest-growing category, expanding at a compounded annual rate of 141% by 2020 and contributing $15 billion, or 12.5%, of overall retail sales.

While most retailers get 55-60% of their sales from food and staples, general merchandise, personal and home products make up a bulk of their profit pool with net margins as high as 10-15% compared with food, which fetches 3-5%.

“Walmart can bring volume to Indian food retailing but they have to tweak their global model here. There is a huge gap between high-end food supermarkets and local food retailers which Walmart can bridge,” said Ruchi Sally, director at retail consultancy Elargir.

(Published in The Economic Times)

(Published in the Financial Express, 10 May 2016)

In about 20 years, Café Coffee Day (CCD) has grown from one ‘cyber café’ in Bengaluru to the leading chain of cafés in the country by far.

In its early years, it was a conservative, almost sleepy, business. The launch of Barista in the late 1990s and its rapid growth was the wake-up call for CCD — and wake up it did!

CCD then expanded aggressively. It focussed on the young and more affluent customers. Affordability was a keystone in its strategy and it largely remains the most competitively priced among the national chains.

Its outlets ranged widely in size — and while this caused inconsistency in the brand’s image — it left competitors far behind in terms of market coverage. However, the market hasn’t stayed the same over the years and CCD now has tough competition.

CCD competes today with not only domestic cafés such as Barista or imports such as Costa and Starbucks, but also quick-service restaurants (QSRs) such as McDonald’s and Dunkin’ Donuts. In the last couple of years, in large cities, even the positioning of being a ‘hang-out place’ is threatened by a competitor as unlikely as the alcoholic beverage-focussed chain Beer Café.

CCD is certainly way ahead of other cafés in outlet numbers and visibility in over 200 cities. It has an advantage over QSRs with the focus on beverage and meetings, rather than meals. Food in CCD is mostly pre-prepared rather than in-store (unlike McD’s and Dunkin’) resulting in lower capex and training costs, as well as greater control since it’s not depending on store staff to prepare everything. However, rapid expansion stretches product and service delivery and high attrition of front-end staff is a major operational stress point. Upmarket initiatives Lounge and Square, which could improve its average billing, are still a small part of its business.

Delivery (begun in December 2015) and app-orders seem logical to capture busy consumers, and to sweat the assets invested in outlets. However, for now, I’m questioning the incremental value both for the consumer and the company’s ROI once all costs (including management time and effort) are accounted for. The delivery partner is another variable (and risk) in the customer’s experience of the brand. Increasing the density through kiosks and improving the quality of beverage dispensed could possibly do more for the brand across the board.

The biggest advantage for CCD is that India is a nascent market for cafés. The café culture has not even scratched the surface in the smaller markets and in travel-related locations. The challenge for CCD is to act as an aggressive leader in newer locations, while becoming more sophisticated in its positioning in large cities. It certainly needs to allocate capex on both fronts but larger cities need more frequent refreshment of the menu and retraining of staff.

An anonymous Turkish poet wrote: “Not the coffee, nor the coffeehouse is the longing of the soul. A friend is what the soul longs for, coffee is just the excuse.” There are still many millions of friends in India for whom the coffee-house remains unexplored territory, whom CCD could bring together.

Richa Maheshwari, The Economic Times

Bengaluru, 15 April 2016

Paytm plans an aggressive expansion of its online travel business by branching out into rail, road, airline and tour bookings in order to drive more traffic to its portal that is largely payments driven.

The company has partnered services marketplace Ezeego1 for hotels and flight bookings and is also in talks with several airlines. The online player is also integrating the rail inventory of Indian Railway Catering and Tourism Corporation on its platform.

“It is becoming increasingly challenging for vertical players to drive traffic. Whereas, horizontal players like Paytm have been fairly successful in driving loads of it,” said Abhishek Rajan, head of travel marketplace, Paytm. The company is planning to invest around Rs 120 crore on its travel marketplace in the current financial year.

A horizontal player in the ecommerce space offers multiple shopping categories such as books, apparel, appliances and more on a single platform whereas, a vertical player specialises in one kind of offering.

Paytm will earn a commission for each booking made through its platform. The company launched its travel marketplace last year and has restricted to book buses and hotels. It aims to roll out adventure tours, inter-city cabs and overseas travel requirements such as visa application and money conversion by the end of this year.

As per a recent Morgan Stanley report, categories like payments, travel and taxis saw an increase in total fundraising from 12% in 2014 to 44% in 2015.

Last month, rival Snapdeal had integrated bus, flights and food delivery bookings on the platform to drive up its gross merchandise value. “Horizontals are looking at monetising their user base with a focus on GMV and repeat use cases. As the funding environment becomes tougher, growth in these metrics will stand out,” said an investor in of the top three ecommerce companies.

Paytm, however, is building a marketplace taking a cue from Alitrip, the travel marketplace run by its investor Alibaba in China. “Our intention is to continuously add new travel categories to the platform and drive organic growth without making large marketing investments,” added Rajan.

According to experts, the strategy can ring in higher margins, too. “These services won’t take up any extra cost in terms of physical space and there is no delivery cost too. Hence, these players will make better margin out of it while providing something new to consumers,” said Devangshu Dutta, CEO at retail consultancy firm Third Eyesight.

A report from the Internet and Mobile Association says that the total value of digital commerce stood at Rs 81,525 crore in 2014, of which Rs 50,050 crore, or over 60%, was accounted for by the online travel segment.

(Published in The Economic Times)

Financial Express

15 April 2006

BUSINESS CASE TO BE ANALYSED: Akash Paul was finding it hard to bet on the profitability of a proposed new venture when there was hardly any precedent of such a model in the country, which is one of the largest producers as well as biggest market for fresh produce.

The model proposed a value proposition based on quality, shelf life, size and hygiene. It stressed controlled post harvest process with procurement partnership with sales through distinct marketing channels to sell different grades at different prices in main cities to begin with. But most important of all was a new definition of an organisational set-up.

This could not be achieved without a wired system which connects everything from farm to fork and gives real time information to all decision-makers concerned. Executives would require a thorough diagnostic dashboard to understand produce health, supply issues, problem sources and market pulse continuously. Thus, investments in a mature enterprise solution with supply chain capabilities along with sound analytical tools were suggested. A customised solution for basic enterprise solution by an experienced IT vendor who understands the company and location would fit the bill.

Finally a solution from leading global enterprise resource planning (ERP) vendor was implemented. It took lot of time to train people on the processes and using on state of art systems. However, Mr Paul, was still wondering at the end of six months whether the venture will really break even at the end of the third year as projected.

Source: O P Wali, associate professor , IIFT

ANALYSIS BY DEVANGSHU DUTTA, Chief Executive, Third Eyesight
Most consumer, product-supply chains have evolved into fairly complex chains for two main reasons. Firstly, despite all the talk about removing intermediaries, there are still many people involved in the entire supply chain at different levels – for no reason but that they do add some value in the steps they are handling. Whether this is breaking of bulk, or handling of disparate products, shipping or storing goods, or providing bridge finance, each intermediary is in the chain because he has a role to play.

Secondly, and more importantly, product diversity has increased tremendously. Whether it is the number of brands available of biscuits, or the number of types of melons, or the package sizes of shampoos, the growing market has created more suppliers, more product segments and more variety for the retailer to handle.

With perishable items, a third factor gets added in: date of production and shelf-life. Clearly, even in a developing market like India which has lax regulation and low compliance, consumers are increasingly aware of perishability of products. And as companies grow in size and profile, their vulnerability to litigation also increases.

The retailer, who is the critical link between the consumer and the rest of the supply chain, must effectively manage not just the diversity and the perishability, but also communicate with and manage with the rest of supply chain. And given the nature of the complexities, Mr Paul’s business would have no choice but to implement an effective IT system that would keep the company’s executives clued into the information on as near-time a basis as feasible. For a company that is planning operations at a certain scale, even the opening of one store without the IT system would create a huge gap to overcome in subsequent growth.

However, the IT system alone cannot guarantee the success or failure, and certainly not the profitability of the venture. Technology may be seen as the easy quick-fix, or as the stick with which to drive process discipline. But to me it is the last link in a chain that begins with ‘People’ and leads to ‘Processes’. Without the right orientation, training and skills, effective processes cannot be created. Without effective processes, the best IT system in the world is, at best, very effectively enabling a bad organisation.

The advantage of an existing branded product is that it is more ready for roll-out than a bespoke (custom-developed) system would be. Not just would it take more time to create a bespoke solution, it would also require the involvement of senior management. Senior management time is a rare commodity in the best of times – in a start-up business, it is even more scarce.

There is also the premise that a branded IT product that has been implemented across other companies will have some amount of best practice built in. With the assumption that poor practices are not also built into the system, it might actually help the management to leap-frog the business learning curve.

On the other hand, Mr Paul may be paying for features and capabilities in the branded IT product that his fledgling business will not use for a long time. Customisation and implementation needs may also push the cost over the limit.

Therefore, the ERP system must be evaluated just like any other business investment or expense.

There must be a clear rationale for it, a very clear set of objectives and deliverables, and a well-structured programme and project plan for implementation. Like any other investment, it must also be evaluated for returns.

Raghavendra Kamath, Business Standard

Mumbai, 15 April 2016

After a long gap, global investors are buying large retail properties for big bucks. 

While investors are buying them to build their portfolios, global retailers are acquiring properties to enter markets such as Mumbai.

A month after Singapore government-owned $100-billion sovereign fund GIC bought 50 per cent stake in Viviana Mall in Thane, on the outskirts of Mumbai, for over Rs 1,000 crore, US-based private equity (PE) firm Blackstone bought a one-million-square-feet mall being developed by L&T Realty in the Seawoods area of Navi Mumbai, said a source.

The deal is expected to be closed between Rs 1,200 crore and Rs 1,500 crore. Blackstone and L&T Realty executives could not be contacted for comments.

Late last year, Blackstone acquired two retail assets of Gurgaon-based developer Alpha G in Amritsar and Ahmedabad for around Rs 800 crore.

“Many global investors are looking to buy good mall properties. It will help them build portfolios in the country and help mall developers consolidate their projects,” said Susil Dungarwal, founder of Beyond Squarefeet Advisory, a mall management company.

Recently, DLF, the country’s largest developer, said it had sold its shopping mall in Saket in Delhi to its subsidiary for Rs 904 crore as part of its strategy to consolidate and monetise non-core assets.

Even big retail chains are not behind.

Swedish furniture firm IKEA is in talks to buy 350,000 square feet (sq ft) in Oberoi Realty in Borivali area of Mumbai for over Rs 900 crore, reports said on Friday.

Recently, IKEA signed up for a 26-acre land parcel in Navi Mumbai’s Turbhe area for Rs 214 crore from Tata group firm Rallis.

IKEA is the first retailer to enter the country after 100 per cent foreign direct investment (FDI) was allowed in single-brand retailing. The company is planning to invest Rs 10,500 crore in real estate to set up 25 stores in Mumbai, National Capital Region, Bengaluru, and Hyderabad.

Last year, it had bought 14-acre land parcel in Hyderabad.

Global buyers roll back into property Phonemaker Apple is said to be in talks to take 30,000 sq ft retail space at plush property Maker Maxity, in Bandra Kurla Complex  in Mumbai. The company is expected to set up one of its flagship stores in the property.

The rents in the complex hover around Rs 320 to Rs 350 per sq ft, one of the highest in Mumbai.   

An email to Apple did not get any response.

On Tuesday, The Times of India reported that Spanish retailer Zara had taken 50,000 sq ft of space in Hutatma Chowk in South Mumbai for Rs 2.5 crore rent.

Its rival H&M is aggressively opening stores. It opened 37,000 sq ft store in Mall of India in Noida recently after opening a store in Ambience Mall, Gurgaon.

It plans to open two stores in Mumbai in autumn.

“We see great potential for expansion and growth, both in metros as well as Tier-II and -III cities in India. Our expansion strategy is to always open at the best business location, and we look at many different options at the same time. The best business location is so important we would rather hold off from opening a new store and wait till the right location becomes available,” an H&M spokesperson told the Business Standard recently.

“Retailers such as Zara are not just anchors, they can be destination stores. Certainly IKEA is a full-day destination store. A larger store allows them to have a more comprehensive product mix and aims for a much larger share of the customer’s wallet than they would otherwise. Also, larger spaces would cost less per square foot, in terms of rental and operating costs,” said Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy.

(Published in Business Standard)