E-tailers focus on services to drive sales during upcoming festive season 

Saritha Rai, Business Standard

Bengaluru, 29 September 2016

Walmart Stores is in advanced discussions to invest as much as $1 billion (Rs 6,647 crore) into Flipkart Online Services, as the two companies battle Amazon in the e-commerce space, according to a person familiar with the matter.

Walmart, the world’s largest retailer, would take a minority stake in Flipkart under the proposed agreement, the person said, asking not to be identified because the matter is private. Final terms of the deal have not been worked out and negotiations are still underway, the person said.

Flipkart’s most recent valuation was about $16 billion (Rs 1.06 lakh crore), according to research firm CB Insights. It is the largest online retailer in India, but its lead has been under assault as Amazon steps up investments in the country. Chief Executive Officer Jeff Bezos said in June he plans to spend another $3 billion (Rs 19,936 crore) in India to gain customers in the fast-growing market.

A deal with Walmart would give Flipkart additional capital to fight back and more expertise in battling the e-commerce pioneer. “If the deal goes through, the competitive intensity between Flipkart and Amazon will shoot up,” said Gautam Chhaochharia, the Mumbai-based head of India research at UBS AG.

The deal has potential benefits for Walmart too. Beyond any eventual financial return on its investment, Walmart would gain exposure to India’s expanding e-commerce market and have the opportunity to challenge Amazon on more equal footing than the US.

A spokeswoman for Walmart said she could not immediately provide comment. A Flipkart spokesman said, “It is our policy not to comment on rumours or speculations.”

India is the next big potential retail prize after the US and China, where foreign players have made little progress against Alibaba Group Holding.

India’s online market will expand at an average of 45 per cent annually in the next four years and reach $28 billion (Rs 1.86 lakh crore) by 2020, according to estimates from Kotak Institutional Equities.

Walmart had earlier established a retail joint venture in India with Bharti Group, which runs the country’s largest telecommunications operator Bharti Airtel. But the business failed to take off and Wal-Mart eventually sold its stake to its partner. If a Flipkart deal materialises, Walmart would be able to support its new ally with money and its decades of retail experience.

“With its main competitor Amazon getting aggressive, Flipkart needs a solid partner to bolster its operations with not just capital but also branding, logistics, sourcing and other retail experience, they won’t be able to pull it off with small partners,” said Devangshu Dutta, chief executive officer of the Gurgaon-based retail consultancy Third Eyesight.

Amazon has been gaining with major investments in infrastructure and partnership. The company has committed a total of $5 billion (33,227 crore) to the India market, including the latest pledge from Bezos. “They know how to work against competitor Walmart, they will know what to expect,” Chhaochharia said.

Walmart has been renewing its efforts to battle Amazon online. In August, it agreed to buy for about $3.3 billion and put founder Marc Lore in charge of the combined company’s online operations.

A tie up with Flipkart may prompt moves from other competitors in India. Alibaba has been funding, the third-largest competitor in Indian e-commerce, and has long considered the country a prime expansion opportunity as it seeks to generate half its revenue from outside China. But with Amazon and Walmart both stepping up investments, Alibaba may have to consider doing the same, either with Snapdeal or on its own.

In Alibaba’s most recent post-earnings conference call, Vice Chairman Joseph Tsai told analysts that India was a prized market where his company has investment in Snapdeal as well as an online payments service and mobile browser. “We’re very well strategically positioned in these emerging markets, and that’s the start of our international activity,” he said at the time.

(Published in Business Standard)

Big E-commerce deals stir up sector, support services

The Economic Times

New Delhi, 27 September 2014

Until the middle of this year, Noida-based website developer Manusis Technologies worked with about 50 clients a month. The number, the company says, has jumped tenfold since.
Two big deals in July changed the landscape for the nation’s online retail industry, while also offering more business to providers of support services ranging from website development and payment services to logistics.
Flipkart in late July said it raised $1 billion in fresh funding, valuing India’s top e-commerce company at $7 billion. A day after, Amazon, the global No.1, pledged $2 billion of investment in India. While these announcements reiterated the faith global investors have on ecommerce in India, they also led to a rush of investors and entrepreneurs to get a piece of the fastgrowing online retail market.
"We have seen a tremendous increase in the orders coming from the e-commerce industry," said Rajiv Kumar, founder of Manusis Technologies. "Today we are working on 500 clients every month and this has happened mostly after July and August."

The company has since July doubled staff count to 50 to meet new demand, and has rented additional office space.

A bulk of the new entrants into the e-commerce space is small entrepreneurs. One of them, Pooja Parikh, who launched her online jewellery business Azira jewels three months ago, says she wanted to do something of her own. "After the e-commerce giants raised such huge amounts of money, I got a boost and I took the plunge."

Online retail is still a tiny spot in India’s retail market of about $500 billion a year, but is growing at a quick pace. A study by retail consultancy Technopak predicts India’s e-tailing market will reach $32 billion by 2020 from $2.3 billion in 2014.

People want to sell all kinds of stuff online, says Ramesh Khemka, founder of Mumbaibased website developer Digi Shop. "Starting from plants to wall stickers to lamps, everything has buyers and seller in the virtual world." Digi Shop gets about 70 queries every month. Murali K of Eworld, a Chennai website developer, says he too has seen a jump in demand since July.

Ethnic Indian clothes and casual wear are favourite products but unusual products- such as pets – too are being offered online.

Payment gateway, PayU saw the number of its clients swelling 30% post-July to 11,500-odd merchants now. "Online buyers are increasing in numbers, who then want to buy more online which in turn leads to increased sellers," said Nitin Gupta, chief executive of PayU India.

Delhivery, which provides logistics services to the e-commerce industry, agrees. "Our clients have doubled since July of the previous year. And the queries for new business have doubled as compared to January this year," said co-founder Sahil Barua. The Gurgaonbased company recently raised $35 million to expand its network, fulfilment space and technology portfolio. Times Internet, part of The Times Group which publishes The Economic Times, is an investor in Delhivery.

Domain name registration is another area that has seen increased activity in recent times. BigRock, a company which helps businesses register their websites, however only partly credits the e-commerce sector for this. "While we have seen 10-15% growth in domain name registrations in July-August as compared to January-February this year, it would be difficult to attribute the growth entirely to the Flipkart and Amazon announcements," said Shashank Mehrotra, business head at BigRock.

Rajiv Sodhi, managing director and vice president of the local unit of Internet domain registrar and Web-hosting company GoDaddy, says ,"We only expect this to grow as a new generation of startups, entrepreneurs and e-commerce players build their businesses online."

With the huge growth that ecommerce has witnessed in recent times, analysts like Devangshu Dutta, chief executive of consultancy firm Third Eyesight, say there is scope for more players to come in.

But some also warn about the risks the space is fraught with, as only a few may have chances of making it big. They also see consolidation in the sector going forward.

(Published in The Economic Times.)

Dismal affair

Nevin John, Business Today

New Delhi, 25 September 2016 

When mall developer Phoenix Mills Co set up the Palladium Mall in 2010, the intention clearly was to position it as a luxury mall. With high-end brands such as Gucci, Tag Heuer, Michael Kors and The Collective setting up stores, the Palladium Mall promised to be the destination for high-end luxury shopping in Mumbai. However, luxury brands today probably occupy just a fraction of the retail space spread over 400,000 sq. ft. In fact, the financial capital of the country is yet to see a luxury mall. The country has just two luxury malls – DLF Emporio in Delhi and The Collection (UB City) in Bangalore.

How long will it take for India to create a luxury high-street like Madison Avenue and Fifth Avenue in New York? It is definitely a distant dream at the moment. Arvind Singhal, Chairman of management consulting firm Technopak, says that India doesn’t have the culture of luxury brands on high streets because of safety and security issues. That’s the reason why most luxury brands in India are housed in the shopping arcades of five-star hotels. The monthly rent of these outlets would be Rs 600 to Rs 1,000 per sq. ft, say industry sources.

With Indians increasingly travelling abroad, their awareness about luxury brands is on the rise. So, luxury shopping logically should happen at least in the metros. This means that luxury malls as a concept should work. So, why does India have just two luxury malls? “The luxury consumers are frequent overseas flyers and they really don’t care about buying here,” points out Rajneesh Mahajan, Executive Director, Inorbit Malls. Indians do indulge in luxury shopping, but it’s mostly overseas as it’s 30-40 per cent cheaper, largely because the import duties on luxury items are very high.

Moreover, luxury shopping in India until recently was fuelled by black money. Sales were affected after the government started monitoring expensive transactions, says Singhal of Technopak. In fact, a bulk of the luxury shoppers, according to a senior luxury branding consultant, prefers shopping for luxury brands in the comfort of their homes in order to avoid paying taxes.

However, considering the country’s projected GDP growth and rise in disposable incomes, mall developers are hopeful that the luxury market will also evolve. Retail industry consultants say that the Mukesh Ambani-controlled Reliance Industries plans to enter the luxury mall space either in Mumbai or Delhi. There were also reports that Mumbai-based Oberoi Realty and Maker Group were looking to build luxury malls in the city. But there is no clarity on when these will happen, if ever.

With growth of legitimate wealth in the country, Singhal of Technopak is optimistic about a robust luxury mall culture in the country. Still, setting up luxury malls isn’t going to be easy in an emerging economy like India. The cost of construction of a luxury mall is almost three times more than a regular mall, and while the returns are also higher, the fact remains that most Indians prefer doing luxury shopping abroad. It takes three to five years to build a luxury mall and the average cost for overall development (excluding the land cost) in Mumbai and Delhi is in the range of Rs 7,000-9,000 per sq. ft, compared with Rs 4,000-5,000 a sq. ft for a normal mall, say real estate developers. The rental for a luxury mall ranges from Rs 500 to Rs 1,500 a sq. ft per month, while regular malls charge much lower.

Devangshu Dutta, CEO of Third Eyesight, says that developers have to ensure a holistic experience for customers at luxury malls. “The collections should be the latest and the service should be ultra-premium. Pricing should be competitive, considering the higher import duty on luxury products.” The difficulty is in finding real estate at an ultra-posh locality for building the mall, he adds.

Today, most luxury stores in a mall like Palladium in Mumbai often look deserted. Clearly, given the challenges, developers will definitely think twice before launching luxury malls. 

(Published in Business Today)

E-tailers focus on services to drive sales during upcoming festive season

Ankita Rai, Financial Express
New Delhi, 25 September 2016

The upcoming festive season has e-tailers gearing up with a unique strategy: That of focusing on premium services to build up the momentum. The coming festive season is no longer just about discounts and deals, but also about which player succeeds in roping in the maximum customers towards its platform. 

No wonder that the launch of Amazon Prime in July saw similar competitive offerings from both Flipkart and Snapdeal, aimed at improving customer stickiness and reducing re-acquisition costs for lapsed customers. But remember that Flipkart First was the first mover in India in the premium loyalty services space, which didn’t find many takers.

By launching Amazon Prime ahead of the festive season, with a free 60-day trial, Amazon is looking to convince shoppers to try its premium membership programme. The reason: Customers who choose to subscribe to Prime at the end of the trial period will stay with the retailer beyond the Diwali sale. Also, it generates valuable customer data, which it can use to attract customers back. Industry experts think what works for Amazon in the US and other markets may not be true for India, at least for now, as Indians are still used to the idea of free shipping.

“For discount hunters, subscription doesn’t work. However, over the last two years, a premium segment of online shoppers has emerged, which appreciates good experiences and is ready to pay for them,” says Mrigank Gutgutia, engagement manager, RedSeer Consulting. “The premium one-day and two-day deliveries are around 5-10% of the total orders in e-commerce and a subscription service like Amazon Prime is likely to be restricted to this small subset of online shoppers — possibly only the top 5%.”

However, there is a catch here. “In India, the number of customers who subscribe to such services will be small, but the value per customer will be high,” points out Devangshu Dutta, chief executive, Third Eyesight.

Globally, subscription-based e-commerce services offer the customer increased value in one or multiple forms such as faster deliveries, assured availability, free content, etc, and charge the customer a fixed annual fee for the same. But Flipkart Assured and Snapdeal Gold are offering such services for free, with no aim of monetising them later. “Customer acquisition is expensive. Hence, a business needs to retain its existing customers to drive profitability,” says Pankaj Gupta, senior practice head, consumer and retail, Tata Strategic Management Group.

However, no matter how attractive the proposition of ‘free and fast’ shipping, it is not sustainable in the long run. As of now, customers see it as a freebie. “The free and fast shipping proposition seems more of a reaction to competitive pressure. At the end of the day, you also have to make sure the consumer stays with you,” says Pragya Singh, vice-president at retail consultancy Technopak.

(Published in Financial Express)

The man who stoked India’s voracious appetite for pizzas 

Richa Maheshwari, The Economic Times
Bengaluru, 21 September 2016

In 2014, Domino’s India sold 120 million pizzas, twice the number of burgers McDonald’s served in the country in the same year. The figures may have changed somewhat since, but India’s prodigious craving for pizza, especially with a generous helping of paneer or chicken tikka, remains unchanged.

The man who helped stoke this appetite for the Italian staple is Ajay Kaul.

In 2005, 52-year-old Kaul became the chief executive of Jubilant Foodworks, which owns the franchise rights for Domino’s in India, Nepal, Bangladesh, and Sri Lanka. From then on, he expanded the chain from just 93 outlets to over 1,062 stores across the country, making India the largest market outside the US for the American brand.

On Sept. 19, after over a decade at the helm, Kaul announced his departure. The precise reasons for the exit aren’t clear; in a statement, the company only said that Kaul wants to “evaluate and pursue opportunities” elsewhere. Kaul’s exit comes after a management rejig at the company was announced earlier this year.

Nonetheless, the move comes at a challenging time for Domino’s. The pizza chain is struggling to boost same-store sales (a measure of sales at stores open for at least a year) amid growing competition from stand-alone restaurants. After the news broke, Jubilant’s stock price plunged by over 8% on the Bombay Stock Exchange. Kaul will continue in his current role till March 2017.

Making pizzas mass

When Kaul, an Indian Institute of Technology-Delhi alumnus, took over Jubilant Foodworks, Indians had already been introduced to pizzas and burgers, thanks to local chains such as Nirula’s, apart from Domino’s, McDonald’s, and Pizza Hut.

But they still weren’t spending big on eating out or ordering in. In the early 2000s, Domino’s was still considered an expensive brand, especially among middle-income consumers.

Soon after, Kaul, who attended Xavier School of Management (XLRI) in Jamshedpur in 1989, realised that Domino’s needed to change the game by selling inexpensive pizzas.

In a 2006 interview with the DNA newspaper, Kaul said that while Domino’s was well-accepted among the higher-income and upper middle-income groups, its penetration was below satisfaction in the middle and lower-middle strata.

That’s why, between 2006 and 2008, Domino’s introduced the Fun-Meal pizza range at Rs. 45, and later the Rs. 35 Pizza Mania campaign that brought the price of a single serving of pizza (i.e for one person) down to less than a dollar. These campaigns “dramatically expanded the pizza category in India,” according to Kaul, outdoing Pizza Hut’s attempts at lowering prices.

Indeed, the rock-bottom prices paved the way for Jubilant to expand beyond metro cities to smaller towns like Bhopal, Madurai, and Belgaum. Gradually, it also expanded its India menu, adding cheese-burst pizzas, pastas, and desserts.

Kaul, who spent a decade working in logistics firm TNT Indonesia before coming to Jubilant, also bolstered Domino’s delivery service, promoting its “30 minutes or free” campaign.

The efforts paid off big time. In 2012, the chain hit 500 outlets across India and has doubled since. Today, Domino’s is much bigger in terms of number stores than McDonald’s or KFC. Pizza Hut, its biggest direct competitor, has only 450 outlets in the country.

“While pizza was already part of the fast-food mix, over the last 10 years or so, Domino’s India brought it to the forefront through its systematic and aggressive growth. Ensuring a flavour mix attuned to the Indian palate, penetrating into locations that were not previously serviced, adding dine-in to a brand that essentially had delivery-based DNA, were all part of this growth,” said Devangshu Dutta, CEO at consulting firm Third Eyesight.

Kaul also pulled off a successful Rs329-crore initial public offering (IPO) in 2010 and spearheaded the India entry of coffee and donut chain Dunkin’ Donuts through franchised rights in 2012.

For the year ended March 31, Jubilant Foodworks registered a turnover of Rs. 2,410 crore (US$362.2 million) and a net profit of Rs. 114.56 crore (US$17 million). That’s 33 times more than the Rs. 73 crore (US$11 million) clocked in 2005 when Kaul took over.

With Kaul’s impending exit, though, Domino’s finds itself in a spot of bother. Fast-food chains have been struggling lately as competition from newer brands and a general gloom in consumer sentiment hinder growth. Analysts reckon that the company will need solid leadership in an environment where the fast-food model is undergoing transition.

“In the last 3-4 years, consumer sentiment has been more muted. While inflation has been pushing costs and prices up, the consumer doesn’t have the same appetite for spending on eating out,” said Third Eyesight’s Dutta. “All QSRs are facing the impact but, clearly, Domino’s as a market leader is bound to show the effects of slowing growth more visibly.”

(Published in Quartz)

Five Star Chicken shuts 133 outlets in India in 5 months

Richa Maheshwari, The Economic Times
Bengaluru, 21 September 2016

Thailand-based quick service restaurant chain Five Star Chicken has shut down 133 outlets in India in the past five months owing to sluggish growth even as it seeks to push sales.

The chain, which recently rebranded itself as Five Star, now has 220 outlets in Kerala, Tamil Nadu and Karnataka, and an outlet each in Hyderabad, Goa, Pune and Mumbai, where it is testing the waters.

“We have shut down non-performing stores and slowed down our rate of expansion,” said Sanjeev Pant, senior vice president-food business. “While we were opening 10-15 stores in a month before, now it is down to three-four stores in a month,” he said.

The company is now looking at a new strategy to gain growth momentum as the Rs 6,000 crore quick service restaurant or QSR segment has been reporting single-digit or negative same-store sales growth for the past two years.

Other western-style QSR and coffee chains such as Pizza Hut, KFC and Barista have either shut down or downsized operations in the past year and a half because of consumers scaling back spends and increasing pressure on their profitability.

Owned by Charoen Pokphand Foods (CP Foods), Five Star Chicken is opening shop-in-shop stores in retail outlets, introducing private label packaged drinks and expanding its menu offerings.

The company, which entered India in 2012, has tied up with supermarket store Spar, Tata-led Star Bazaar and a few local bakeries to open six shop-in-shop stores. These stores will entail lower real estate cost than standalone stores and are expected to have a healthier footfall.

The Bengaluru-based company has launched two drinks, Masala Nimbu and Green Apple, to attract customers who are drifting away from high sugar concentrated drinks. Known for its non-vegetarian offerings, the company has also revamped its menu from 100% non-vegetarian to 40% vegetarian and 60% non-vegetarian.

“We are aiming to make the menu 50% veg and 50% non-veg to bring in our vegetarian customers and loyal consumers who don’t prefer eating non-veg every day,” said Rijoy Prabhakar, assistant vice president.

Experts said India is a different market than the home markets of such overseas chains, which is why often such brands take time to adapt to the local requirements. Besides, the slow growth in this segment is here to stay, they said.

“As the expenses are going up, these chains are finding it difficult to pass these on to the customer as Indians are discretionary spenders,” said Devangshu Dutta, chief executive of consultancy firm Third Eyesight.

According to a Goldman Sachs report, titled ‘The India Consumer Close-up,’ the QSR segment grew at 16% CAGR in the past decade and is estimated to grow over 20% annually over the next few years.

(Published in The Economic Times)

Foreign brands stick to franchise model in India

Sapna Agarwal, Mint
Mumbai, 15 September 2016 

Foreign luxury, apparel, and accessories companies that can own their own retail chains in India—the government allowed foreign investment in so-called single-brand retail in 2012—still continue to operate through local franchises and distributors.

Of the 28 apparel and accessories brands which have entered India since the country allowed 100% foreign direct investment (FDI) in single-brand retail, 23 came in through a franchise or distribution partnership, according to data from Third Eyesight, a retail consulting firm.

Under a franchise or distribution agreement, a global retailer partners with a local company. The latter pays a fee to the brandowner, and invests in marketing and launching the brand in India. In the last year, Gap Inc, Aeropostale Inc, Desigual, Rider and Ipanema have entered India through franchise agreements.

“Most companies do not see India as a strategic market, and tend to take lower-risk export-oriented approach through franchise or distribution relationships,” said Devangshu Dutta, chief executive officer, Third Eyesight.

Foreign investment into the business, regardless of the quantum, is an indicator that a company is making a serious long-term commitment to the country, since it brings along with it investment of management time and effort as well.

One exception is H&M Hennes and Mauritz AB. The Swedish fast fashion retailer, which has come in through the FDI route, will have 12 stores in India by the end of the year.

“The government’s decision to allow single-brand retailers to open stores by themselves came at right time,” Janne Einola, country manager, H&M India, said in an interview in August while explaining that the timing matched the company’s internal research which showed that India was emerging as a good retail market to set up shop.

India is the second-most attractive market for global retailers to expand after China, according to the 2016 Global Retail Development Index by consulting firm AT Kearney. According to the firm, India has, in the past couple of years, improved the ease of doing business. Clarity on foreign direct investment (FDI) regulations too have helped.

To be sure, the challenges remain. India continues to be a complex market for foreign retailers, where understanding dynamics at the local level is important as the country’s 29 states have the power to opt in or out of FDI reforms. Infrastructure bottlenecks, including archaic labour laws, complex regulations, high attrition rates and limited high quality retail space, remain important areas of concern for retailers, said the AT Kearney report, adding that still, the potential is vast as the country presents a $1 trillion retail market.

Meanwhile, even the firms entering the country through franchise and distribution partnerships have become a lot more sensitive to the challenges of doing business in India.

Many are working with their local partners to ensure that the products are right for the market, and also available at the right price. Products sold through franchisees may turn out to be costlier due to multiple margins (the brand owners, and the distributor’s).

“We are collaborating with our partners at every level— from store fit-outs to (product) assortment for India. Also, they sell to us at manufacturing cost which then allows us to price the goods at a globally competitive price in India,” said J. Suresh, MD and CEO, Arvind Brands Ltd, the franchise partner of Gap and Aeropostale in India.

In March last year, Arvind exited a franchise agreement with UK retailer Debenhams citing the chain’s steep pricing.

(Published in Mint)

Half a century and 55,000 artists later: Fabindia’s journey from rural crafts to high-end stores 

Suneera Tandon, Quartz
New Delhi, 12 September 2016 

The Platonic ideal

“Efficiency is doing better what is already being done.” – Peter Drucker, Innovation & Entrepreneurship: Practices and Principles

The practice

Research firm Gartner defines supply chain as, “…the processes of creating and fulfilling demands for goods and services. It encompasses a trading partner community engaged in the common goal of satisfying end customers.”

Sounds simple? But it hardly is. In fact, the supply chain can be one of the most complex structures in a business, piecing together design, development, sourcing, manufacturing, and distribution. It gets even more complex when it relies on rural India, which is scattered over 640,867 villages and are often hard to access. Fabindia, a chain of retail stores, has spent close to five decades scoping India’s hinterland to connect rural Indian artisans to urban shoppers. Here’s how they did it.

Fabindia began its India sojourn back in 1960 when John Bissell, who was first introduced to the country in 1958 while on a two-year grant from the Ford Foundation, decided to set up an export shop to sell home furnishings to overseas customers. Bissell, whose work at the foundation involved advising government-based craft organizations on handloom fabrics, spent a lot of time traversing the length and breadth of the country.

In 1976, the export house diversified into retail through a small store that sold leftovers from export orders in Delhi’s tony market of Greater Kailash. It took another two decades for retail to became the mainstay of the company’s business.

Fifty years later, Fabindia, managed by John’s son William Bissell, is a widely recognized global brand, known for handwoven and hand-made goods that connect some 55,000 artisans from the country to consumers worldwide. In the process, it has achieved two broad goals: to market the handloom tradition of India to the rest of the world and to provide sustained employment to artisans in rural areas.

The chain sells everything from handwoven saris, rugs, apparel, home d�cor, and organic food in its 220 stores across 83 cities in India, including eight stores in overseas markets such as Dubai, Singapore, Malaysia etc. It also retails its products online to 33 countries. For the fiscal year 2014-15, Fabindia had a turnover of Rs1,148 crore (approximately $170 million).
But behind the red and black Ikat-printed scarves, Kalamkari prints from south India, and block-printed Bagru fabric from north India is an extensive and complex supply chain that runs from villages across the country, covering a third of India’s over 650 districts.

The retailer has successfully taken its founder’s vision to enable social change at the grassroots level while engaging in a profit-making business for urban shoppers. It does this while building systems that encourage not just fair remuneration to India’s rural artisans, but also provides infrastructure, access to technology and systems, quality guidelines, and timely payments to these craftsmen. Fabindia also offers access to capital and raw materials to artisans working with the retailer.

As William Bissell puts it in a Harvard Business School case study: “It seems contradictory that we pursue both a social goal and a profit, but I believe that is the only way to do it.”

Through most of the ’90s and early 2000s, Fabindia grew as a retail chain expanding modestly in the country’s top metros.

Since the opening of the Indian economy through the economic reforms of 1991, Fabindia’s interaction with artisans scattered across the country has grown significantly (pdf). The complexity of the company’s supply chain is far different from that of a regular manufacturer that works through designated factories.
The company’s interaction with these artisans is very localized since it works with them through multiple associations. The retailer deals directly with individual artisans who work out of their homes and also with clusters of crafters and rural NGOs and organizations that have a crafts supply base.

In addition, the company uses its 11 production hubs across the country, which are basically aggregation points, to centralize orders and pair up vendors with artisans. Each hub has a number of field offices attached to it.

“The production hubs and field offices act as nodal points for interaction with the artisans that constitute the supply chain, which is one of the most unique in the world,” said Prableen Sabhaney, head of communications and public affairs at Fabindia Overseas.

While most artists have the skill and the craft, they don’t have the acumen to decipher fashion trends for the season. So Fabindia acts like a conduit between their crafts and the market.

At Fabindia, a large proportion of products carry some element of the handmade, which requires an ability to communicate with artisans and institute quality control as most artisans work largely in India’s hinterland. For instance, an 18-step process is required to create a simple pattern in Bagru print, a traditional form of block-printing using natural dyes perfected in the northern state of Rajasthan.

And the company has spent years putting processes to ensure newer collections reach the stores on time. Recently, the product range has become more diversified as well.

As for remuneration, Fabindia follows a bottom-up structure. It asks artists what it costs them in terms of—time, energy, skills, and raw material to hand-make a certain fabric or accessory and pays accordingly.

Analysts who track the sector believe that Fabindia’s unique model sets it apart from other domestic or export-focused handicraft companies purely because of the sheer volume of artisans it works with.

“In handicraft, there are several companies that have created substantial export-led supply bases, which tap into craft both from the rural artisans as well as those based in smaller urban centers,” Devangshu Dutta, chief executive at consulting firm, Third Eyesight said. 

“Among these, Fabindia has certainly had the most visible success in terms of size and brand profile domestically. Fabindia has achieved scale by working through artists, intermediaries and supplier companies who have acted as anchors in the rural communities,” said Dutta.

Sabhaney offers that challenges span from co-creating contemporary products while using traditional techniques to quality issues, since the products are created in environments that are very different from where they are finally used. The company also works hard to provide access to raw material and capital across many hard-to-access areas—and doing all of this at scale.

“The ability to do this and not lose anything in translation has been and will continue to be Fabindia’s strength,” added Sabhaney.

The takeaways

As the market evolves with e-commerce and the entry of foreign brands, which has altered consumer preferences and style-cycles, Fabindia knows it needs to quicken its response to these changes.

Not all of the innovations the company has tested remain. In a unique ownership structure created by Bissell, Fabindia set up supplier regional communities (SRCs), which were community owned companies, self-managed by a group of artisans, weavers and craft workers in a particular geography back in 2007. According to a case study by INSEAD (pdf), these SRC’s “offered artisans joint ownership of resources and access to common facilities. It also trained artisans and developed new handicrafts. The SRC allowed Fabindia to consolidate supply capacity instead of dealing with single-loom weaver units, and to implement a standard system for production and delivery control.”

The 2010 book, The Fabric of Our Lives reveals how production worked under the SRC model. A number of dedicated designers and sourcing officers worked closely with rural artists giving them design inputs in tandem with the latest trends in the market and order quantities through dedicated distribution centers in key villages. These designers worked with the weaver to develop samples. They were then shown by the designers that refer it to a product selection committee. The fabric was then approved and the cost price finalized. The quantity of fabric to be produced the first time was pre-determined by software based on a minimum stock requirement ratio and an order is given to the weaver to make the product. The weaver produced the requisite amount of fabric in a month and brought it into the distribution centers.

But the SRC model has now been diluted as the company looks more innovative ways to engage rural artisans.

In the company’s next vision plan, it is focusing more on cluster development that will basically help bring artisans up to speed with the processes and market trends.

“There are plans for a greater focus on the handloom and hand-craft sector,” Sabhaney said.

“There is a much bigger focus on the social aspect, there are going to be significant investments in developing clusters and bringing them up to what is required around the country,” she added.

(Published in Quartz)

India Opening Up to Commercial Greenhouse Farming

greenhouse cultivation

Horticulture production in India has been surpassing the production of food grains for many years. In 2014-15, the total production of horticultural produce was estimated by the Department of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture to be approximately 281 million tonnes as against 252 million tonnes of food grain production and 275 million tonnes of oilseeds.

Horticulture and floriculture have result in growing foreign earnings, and India’s domestic market is also growing. In fact the demand for many types of vegetables and fruits which are not native to India such as lettuce, broccoli, gherkins, as well as for exotic flowers such as orchids, gerberas, carnations, is soaring. These crops were initially being cultivated only for export, but are now being bought by the urban population within India as well, as a result of growing familiarity with other cultures, and shifts in cuisines and lifestyles.

Many of these crops require specific climatic conditions which are not available in all parts of India, hence, cultivating them in controlled environments is a preferred option. Other than providing them a hospitable environment, the yield of the crop can be significantly better and availability can be all-year round, providing better market prices in the off-season. Greenhouses can be used by farmers for years to grow and sell exotic vegetables and other high-value commodities. Moreover, greenhouses help reduce the expenditure on pesticides by warding off insects and pests, many of which are carriers of viral and other infections. There is, therefore, considerable merit to extending the area under this system of cultivation, for the benefit of both producers and consumers.

While greenhouses have existed for more than one and a half centuries in various parts of the world, in India use of greenhouse technology started only during 1980’s and it was mainly used for research activities. The commercial utilization of greenhouses started from the late-1980s and with the introduction of the Government’s liberalization policies and development initiatives, several businesses were set up as 100 per cent export oriented units. Now many progressive farming organisations and individual farmers are using varied levels of technology in order to control the environment in which agriculture is done.

Although, there is an upfront capital cost involved in the setting up of a greenhouse, the scale of the greenhouse and proper management helps in yielding viable results. Most of the greenhouse projects in India at this point of time are on landholdings of up to 1 acre. However interest is seen to be growing towards projects of larger landholdings. Capital costs per acre range from Rs. 15 lakhs for a basic green house with simple techniques to control temperature and humidity, to Rs. 1.5 crore for automated greenhouses with superior humidity and temperature control, more closely managed water and nutrient dispersal etc.

Protected cultivation is one the important interventions of the National Horticulture Mission. Various patterns of assistance in the form of subsidies (ranging up to 50% of the cost of setting up the structures) have been devised by the government to encourage farmers to engage with this form of cultivation.

To encourage cultivation of vegetables under controlled atmosphere, Punjab government has empanelled five firms to assist farmers to set up polyhouses and polynet houses in their fields. The state government will provide subsidy on the greenhouse structures erected by these firms.
In Khammam, Telangana, the Horticulture Department is readying two poly-house demonstration units to popularise greenhouse technology and help farmers take up cultivation of high yielding vegetables round the year under controlled weather conditions.

Projects have already been taken up in Telangana, Gujarat and Himachal Pradesh ranging from feasibility studies of green house facilities and distribution halls for grading, sorting and packing to designing and setting up of green houses for breeding of rice and other crops and cultivation of tomatoes, strawberries, capsicum, cucumbers and lettuce.

For higher end, larger scale farms, Indian growers are also exploring technology from Europe. For instance, the Netherlands is the traditional exporter of greenhouse grown flowers and vegetables all over the world. The Dutch greenhouse industry is one of the most advanced in the world, and has now also become a provider of technology and support for the development of greenhouse cultivation around the world. Advanced technology solutions include climate sensors, air treatment devices, and software support.

However, success doesn’t only depend on equipment. Organisations such as Koppert provide biological solutions for natural pest control, natural pollination and seed treatment, to not only improve the quality and yield of the produce, but also make it safer.

There are many Indian as well as international organisations providing greenhouse solutions ranging from materials, technology and project consultancy. In the coming years it is expected that India’s rich agricultural, horticultural and relatively newer floricultural expertise will get enhanced and further competitive with the adoption of greenhouse cultivation to feed the burgeoning global and domestic demand.

India Inc’s GenNext dreams digital 

Priyanka Pani, The Hindu Businessline

Mumbai, 6 September 2016 

Going digital seems to be the mantra for some of India Inc’s generation-next. Kavin Mittal, son of Airtel’s Sunil Bharti Mittal; Ananyashree Birla, the eldest daughter of Kumar Mangalam Birla, Chairman of Aditya Birla Group; Isha and Akash Ambani, scions of the Reliance Group, are spearheading various online and digital ventures.

The new generation not only wants to carve a niche for itself by getting into the online ventures but also plans to take on the digital biggies.

Harminder Sahni, founder of consultancy Wazir Advisory, said that “the trend clearly shows that the new generation wants to step out of the traditional businesses and create a separate identity for themselves. They don’t want to get associated with business that they don’t relate to, a trend opposite to what their parents did.”

While Isha Ambani played a pivotal role in the launch of fashion portal, Akash is deeply involved in RJio telecom venture.

Twenty-eight-year-old Kavin Mittal is the founder of messaging app Hike, which recently raised about $175 million from Chinese Internet giant Tencent at a $1.4-billion valuation.

Ananyashree Birla is coming out with her own luxury portal, CuroCrate, never mind that the Aditya Birla Group has a fashion portal Ananyashree, who started her first venture when she was 17, has declined to join her father’s $41-billion diversified conglomerate.

According to Devangshu Dutta, founder of advisory and research firm Third EyeSight, “The new generation has grown up in the age of Internet. They understand it better than their parents. Digital business, Internet of Things (IoT), e-commerce are moving rapidly in India and hence it makes sense for the GenNext to enter this space.”

But can the next generation compete with established players such as Flipkart and Snapdeal?

Arvind Singhal of technology research firm Technopak says “digital is the toughest segment as it has no entry barrier. Besides, even if you have enough money and infrastructure, one can fail as in this space all you need is agility, hunger to do something different and innovation.” 

(Published in The Hindu Businessline)