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)

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)

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)

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.

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 Ajio.com, 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 Abof.com. 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)