Contact

Flipkart, Ola struggle to raise funds at peak valuations 

Alnoor Peermohamed & Raghu Krishnan, Business Standard
Bengaluru, 26 November 2016

Indian unicorns such as Flipkart and Ola are struggling to raise fresh funds at valuations higher than or equal their last funding round as investors see them ceding market share to global rivals such as Amazon and Uber in the country.

Both Uber and Amazon are flush with funds and are accused of receiving more favourable treatment by the local authorities, as they invest aggressively to dominate India, the last large open market globally.

Flipkart, the most valuable Indian startup and largest e-commerce marketplace in the country, has seen its value erode from a peak of $15.2 billion to as low as $9 billion. Analysts attribute the drop in value to missteps in running the company, but also to the growing competition from Amazon, which is running up higher losses to grow market share.

India’s other hot startup, Ola, too recently suffered a markdown in value by its largest investor Softbank, which attributed close to a quarter billion dollar loss to the drop in valuations of Snapdeal and Ola. Ola was last valued at $ 5 billion, but is looking at raising funds at 40 per cent less at $ 3 billion.

“Amazon and Uber are well-funded internationally and have no problem bring in funds as and when required. At no point in time are they being valued with respect to what’s happening in India, but in the case of Flipkart and Ola they need to raise money periodically,” said Harminder Sahni, Founder and Managing Director at Wazir Advisors. “I don’t think they can survive for too long if they are going to be egoistic about not raising money at a lower valuation. You can’t be smart and say you won’t do it, because then your company will disappear,”

Both Indian firms have been in talks with investors for nearly a year to raise fresh funds of as much as $ 1 billion, but with little success so far. While Flipkart, which now claims it be a bigger and mature company than a startup, is looking at hiring an investment banker to pitch itself to newer investors, Ola, which is being pushed to the wall by Uber, is resigned to accept fresh funds at 40 per cent lower valuation or at $3 billion from investors such as Softbank. A deal is yet to be finalised.

“The only option for them is to innovate and go back to their bootstrapping days. The alternate of succumbing to raising more money at lower valuations may put these companies in a vicious downward spiral, as current investors would feel cheated and end up extracting a heavy price in terms of lesser degrees of latitude that the promoters will enjoy going forward,” says D.V.R. Seshadri, Clinical Full Professor at the Indian School of Business in Hyderabad.

Both Ola and Flipkart need cash to battle rivals in the digital economy which has historically favoured just one player to control a disproportionate share of the market. This is true in the case of both e-commerce and ride hailing where the company which can continue to subsidise products and services for longer to customers and create more valuable for suppliers will win.

“In my mind it’s not a choice at all. Survival will always take precedence over valuation. If you survive, you might be able to build that valuation back, but if you try to hold out to get the right valuation, you might die in the process,” said Devangshu Dutta, Chief Executive at management consulting firm Third Eyesight. “The fact is that e-commerce has been in the past four to five years a business which is characterised by attrition. It’s essentially to raise more money so you can outlast the competition.”

(Published in Business Standard)

Food Grain Logistics:A Negleted Sector?

Food Grain Logistics sector is often considered as a neglected sector because of the constraints that the industry faces in terms of infrastructure, technology, transportation and storage. Every year, millions of tons of food grains get wasted due to inadequate number of reefer vehicles, poor handling strategies, lack of advanced technology to name a few. If we go by the facts, India is the second largest producer of horticulture products producing 48 million mt of fruits and 68 million mt of vegetables. India wastes as much as the total production of fruits and vegetables in the United Kingdom. There are different estimates on the quantum and value of this wastage due to lack of supporting infrastructure such as refrigerated storage and ransportation. Establishing proper and integrated cool chains will take out the seasonality and perishability from the agricultural produce, lower inventories, shorten lead time required for deliveries, quickly bridge the gap between demand and supply, and provide value-added services.In India a lot of food is lost and wasted due for growth in agri-business. In agriculture, logistic costs are greatly influenced by the bulkiness of the produce, seasonal demand and supply, and perishability of products. As the agricultural goods are generally bulky, most of their inland movement is through road transport while shipping is used for carriage across seas. The movement of perishable agricultural goods requires technical improvements such as reefer transportation for management of temperature and humidity. Appropriate road and sea transportation will have to meet this growing demand in an economic manner. The competitiveness will be greatly affected by the speed and economy with which cargo moves from factories to markets inland or ports and beyond.to lack of adequate infrastructure, however, a 2011 report by a UN body, FAO, puts wastage in fruits and vegetables as high as 45 per cent of produce (post-harvest to distribution) for developing Asian countries like India.Infrastructure and services are important

Challenges

Anurag Awasthi, Founder & CEO, Save Indian Grain stresses that the shortages can be examined under three heads, namely, storage loss, transit loss, and non-issuable / damaged food grains.

As per FCI’s data, the third category is negligible.

The factors contributing to the storage loss are:

  • Loss in moisture

  • Prolonged storage

  • Poor texture of gunnies, accentuated by use of iron hooks

  • Improper storage practices

The factors contributing to the transit loss are:

  • Multiple handling

  • Poor texture of gunnies, accentuated by use of iron hooks

  • Poor quality wagons

  • Enroute pilferages

  • Inadequate security at rail points, especially during night working and BG/MG trans-shipment

Other Major Challenges:

According to various case studies and government reports, the food grain logistics sector is facing many challenges such as inefficient price signals, limited reach of mandis, inadequate infrastructure for storage, etc.

1. Inefficient price signals: The Indian government has been buying almost onethird of wheat and rice produced in India through the Public Distribution System, but in other kinds of grains, fruits and vegetables (both being highly perishable), the role of the government is limited. This leads to Minimum Support Price being ineffective as both price signals and as insulators from the perspective of the larger agricultural population.

2. Limited reach of mandis: Also, this procurement system has failed to cover the entire country evenly (On an average a farmer needs to travel 12 kms to reach the nearest mandi and more than 50 kms in NE India) while according to the recommendations by National Farmers Commission, availability of markets should be within a 5 km radius.

3. Too many intermediaries, information asymmetry: The above mentioned problems have led to formation of long marketing channels, with multiple intermediaries, adding to the woes of the producers of perishable agriculture goods.

4. Inadequate infrastructure for storage: The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn

“Government of India has advised to frame policy/roadmap for construction of 100 LMT silos in next four years. It has also submitted that the High Level Committee constituted for re-structuring of FCI had recommended construction of silos for capacity 100 LMT. Subsequently, FCI had conducted an exercise with regards to the existing storage gap and requirement of silos for storage of wheat and accordingly, Ministry of CA, F&PD had decided that silos for capacity of 43.5 LMT silos will be constructed by FCI and state agencies”
Anurag Awasthi, Founder & CEO, Save Indian Grain

MT. Currently, public sector agencies like the FCI, Central Warehousing Corporations (CWC) and the various State Warehousing Corporations (SWC) have a storage capacity of 71 mn MT, while the private sector has close to 25 mn MT. To put the scarcity in perspective, food grain stocks held only by the government was 80 mn MT last year (peak) according to the FCI annual report. 5. Skewed distribution of capacity: Skewed distribution of this capacity is another issue, with North India having access to 60 per cent of the total storage infrastructure. The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn MT. 6. Lack of cold storage infrastructure: India’s current cold storage capacity at 25 MT is barely sufficient for 10 per cent of fruit and vegetables produced in the country. 7. Lack of collateral management options: Collateral management refers to financing of agricultural goods stored at warehouses, and is estimated to be a `3,500 cr opportunity by industry sources. Observing the same, Devangshu Dutta, Chief Executive, Third Eyesight reiterates, “Our storage capacity in public, cooperative and the private sector is about 109 million tonnes, which is short of the overall storage requirement. Moreover, instead of hermetically sealed or controlled environments, much of food-grain storage in India is still open to the elements and to pest infestations. This is true not only of the much-maligned government stocks of food grains, but also private storage and transportation. While many modern storage systems for food grains, including fixed installations like warehouses, indoor and outdoor silos, and flexible such as hermetic storage and silo bags have been introduced in India, they are sparingly used. It is ironic that while millions of Indians sleep hungry, we are not showing enough regard for proper handling and distribution of our surplus or buffer stocks.”
Special Care for Perishables
The concept of cold storage is not alien to agri-business in India. If we go by the facts, over the years, UP has seen a large scale development of cold storage for potatoes and potato seeds. Out of a total 8.7 million ton cold storage facilities presently available in the country, UP has a 48 per cent (4.83 mil lion ton) share followed by West Bengal (2.24 per cent). Western India has only 0.5 million ton capacity in which Maharashtra has a share of 0.35 million tons. Maharashtra has over 50 million cubic feet cold storage space in capacities ranging between 500 to 1000 mt per unit. Nearly, 80 per cent of this is privately owned. Cold storage provides location specific facility but is not linked in any manner across the country. Even though India is blessed with varied ecological conditions which enable growing of all types of fruits and vegetables throughout the year, efforts at boosting the exports of fruits like mango and grapes have gone down. Same is the status of floriculture exports when viewed in global context. In each of these and other similar cases, infrastruc ture has been the key bottleneck. For vari ous reasons there are few reefer ships calling on the Indian ports. Instead, the perishable cargos move inland as well as on sea in reefer containers on feeder services connecting to the hub ports. This adds cost to the exports, adversely affects their quality and reduces the competitiveness
Tech Power
Awasthi adds, “The solution is to develop an integrated software application linking overall production, demand, procurement and storage, keeping in view the associated regions and infrastructure available. The system will create most optimal location network of grain storage, minimising travel distance for storage as well as distribution. Such integrated software system is the key to building an efficient grain storage network. The financial institutions, technology, consumer markets and infrastructure move along with structure of society. The change of joint family to nuclear families has forced these to change from hub and spoke model to distributed architecture. Therefore, rather than one big bank, we now have thousands of ATMs; intelligence is stored in clouds rather than in one big computer; and home deliveries take care of our requirements, instead of one big shop. Similarly, the grain storage infrastructure architecture also needs to change. From several hundred big storage spaces, the architecture needs to move into several thousand small godowns close to farmers and distribution spots.” He continues, “The second intervention of technology is needed in the storage infrastructure itself. Today, new-technology steel silos and silo bags are available, whereby the life and safety of grain are enhanced multiple times by creating modified atmosphere of low oxygen and high CO2 . Through these technologies, one can create smaller storage of 2,000 tonnes per bag next to farmers, taking only 1/10th of an acre of land. It is the most chronic supply chain problem ever.”
Government Initiatives
Awasthi shares, “Government of India (GoI) has set up a High Level Committee (HLC) in August 2014 with Shanta Kumar as the Chairman, six members and a special invitee to suggest restructuring or unbundling of FCI with a view to improve its operational efficiency and financial management. GoI also asked HLC to suggest measures for overall improvement in management of food grains by FCI; to suggest reorienting the role and functions of FCI in MSP operations, storage and distribution of food grains and food security systems of the country; and to suggest cost effective models for storage and movement of grains and integration of supply chain of food grains in the country. The HLC had wide consultations with various stakeholders in its several meetings in different parts of the country. It also invited comments through advertisements in newspapers and electronic media. HLC would like to gratefully acknowledge that it has benefited immensely from this consultative process, and many of its recommendations are based on intensive discussions with stakeholders.”
Roadmap to the Future
According to Awasthi, Government of India has advised to frame policy/roadmap for construction of 100 LMT silos in the next four years. It has also submitted that the High Level Committee constituted for re-structuring of FCI had recommended construction of silos for capacity 100 LMT. Awasthi elaborates, “Subsequently, FCI had done an exercise with regard to the existing storage gap and requirement of silos for storage of wheat and accordingly, Ministry of CA, F&PD had decided that silos for capacity of 43.5 LMT silos will be constructed by FCI and state agencies. In view of the directions of the government, present strategy is to make a roadmap for construction of 100 LMT silos in next four years in a phase wise manner as the actual requirement of silos is dependent on existing storage capacity, stocks in central pool and the resultant storage gap. The Silo strategy is also dependent on the government policy with regards to Direct Benefit Transfer which was also one of the recommendations of the High Level Committee for restructuring of FCI. Already, the government is implementing the DBT Scheme on a Pilot basis in the UTs of Chandigarh, Puducherry, Dadra and Nagar Haveli. Thus, in case there is a change in the procurement and distribution policy under NFSA/TPDS, creation of capacity that might not be required with a financial commitment for 30 years will need to be reviewed and evaluated with regard to the financial implications of the same.” He adds, “In view of this, it has been planned to undertake construction of silos in a phase wise manner. A three phase approach has been adopted which ensures that if needed, we can have the creation of 100 LMT of silo capacity in four to five years and at the same time we have the flexibility to limit the construction of silos to capacity that is actually needed and financially viable.” Agreeing with Awasthi, Dutta concludes on a positive note by saying, “Although many private players are expressing interest in the area, more participation of the private sector is dependent on projects being modeled as viable businesses with timely returns and lower (or better managed) risk, as well as optimum capital and operational costs. Indigenous and traditional techniques also need to be improved, and affordable technologies need to reach the farmer. With the government’s push towards processing, changing consumer needs, and developing business interests in both domestic and export markets, the standards of storage need to improve dramatically. It is important to remember that, while food safety and hygiene standards may be applied to finished, packaged products, the quality standards that are finally achieved start getting determined from procurement and storage onwards. Other than private storage capacities, it is imperative that the government’s storage capacities are upgraded. The lakhs of tonnes of wheat, rice and other grains that get spoiled each year can literally feed millions. Not only will investment in modern storage will add percentage points to the country’s GDP, it will bring a mass of Indians closer to the basic dignity that they need and deserve.”

Food Grain Logistics:A Negleted Sector?

DOWNLOAD

Send download link to:

India’s Online Stores Go Back To Basics With Latest Brick & Mortar Trend

Suparna Goswami, Forbes India
Bengaluru, 22 November 2016

After a successful stint online, e-commerce companies in India are now venturing into a world they thought they would drive into extinction: the brick and mortar space. Lenskart (online eyewear shop), Zivame (lingerie e-commerce player), and Pepperfry (online furniture company) are among the players to have opened a physical store in India, a country where e-commerce spend is still less than 2% of total retail spending, according to a study by Deloitte.

This is at a time when every industry is trying to make its presence felt online. And e-tailers certainly enjoy some clear strengths. For instance, a web store is always up and available, its reach unlimited by geography. However, online firms have found it hard to grow beyond a certain number in terms of customer acquisition, which is making it more and more necessary to have a brick-and-mortar store along with online presence.

A physical store is a great brand building exercise since it has high recall value for a customer. “The brand experience that one gets in a store is incomparable as there is a touch and feel element to it. Also, stores are a good place to bring on board a customer who has never shopped online,” says Ankur Bisen, senior vice president at Technopak, a management consulting firm.

Of course, there are products that could be picked off a website with little consideration to the retail environment, like a pair of headphones or baby diapers. But some products such as clothing or jewelry have a touch-feel element where a physical retail environment can complement the product.

Case in point, online lingerie retailer Zivame which so far has opened eight stores across the country and plans to have 30 more by the end of March 2017. “Since we are in the lingerie space, we know for a fact that most women in India wear ill-fitted bras,” says Richa Kar, CEO of Zivame. “With only an online presence it was difficult for us to guide them. We piloted the concept in our office where many women walked in and expressed their concern surrounding the lingerie issues they were facing. This probed us to take the next step and establish Fit Studios across the country.” Kar believes this has helped the company attract customers who would be hesitant shopping online because of issues over fit.

India’s top online fashion portal Myntra has its own reasons to venture offline. It is confident that this is an important step in strengthening the online fashion segment. “Fashion is a touch and experience based category,” says Ananth Narayanan, CEO at Myntra. “In order to initiate more shoppers to try fashion online, we are looking at an omni channel distribution approach that allows us to create multiple touch points for customers.” The firm’s tech-enabled stores, which is expected to open in the next two quarters, will have digital walls to help customers navigate and browse products.

It’s a global phenomenon

The trend is not unique to India. Globally, players like Amazon, Birchbox and Bonobos in the U.S., Spartoo in France, Astley Clarke in the UK and Alibaba in China are all expanding beyond just the online space. Although Amazon is an established player in the global retail e-commerce market which is expected to reach $2.5 trillion by 2018, e-commerce still represents less than 10% of the global retail market. Hence, even for these global players, offline presence is inevitable if they wish to attract more customers.

Devangshu Dutta of Third Eyesight, a consulting firm focused on the retail and consumer products ecosystem, says online companies so far have presented themselves dramatically different from offline players. He sees this as a mistake. “I do not see online separate from offline. Customers may want to interface a brand at different places and hence it becomes imperative for them to provide a seamless experience.” For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online and have the product delivered at home. Consequently, companies need to make sure that the experience is uniform across channels.

Online and offline both are essentially aimed at expanding reach and engaging with shoppers in more customized ways, thereby providing convenience. This is an emerging trend which will play an important role for online retailers in the days to come, for those who choose to embrace the backwards step.

(Published in Forbes)

Desktop Vs. App: Which Strategy Is Best For India’s Businesses?

Suparna Goswami, Forbes India
Bengaluru, 15 November 2016

Last month, Grofers, one of India’s biggest online grocery delivery services, scrapped its app-only strategy to launch a working desktop site. Previously, their website had not supported purchases, opting in favor of a mobile-only system.

Similarly last year, Flipkart-owned Myntra — India’s largest fashion e-commerce marketplace — announced its plan to go app-only. The company said it was meant to improve personalization, as well as benefitting Myntra as users were forced to download the app. Competition would be pushed out as customers would be more captive in a specific environment and shopping around for discounts would lessen.

Similarly to Grofers, however, the move to adopt app-only backfired. Within a year, Myntra’s plan had to be rolled back and the company was forced to launch its mobile website again.

This has left experts wondering if India is ready for an app-only e-commerce platform. And as expected, “probably not” has been the popular sentiment from the e-commerce industry. For one thing, the most popular phones among Indians are feature phones, which cannot support apps and lack the advanced functionality of the newer smartphones. The percentage of smartphone users in the country is just 29.8% of total cell phone adopters. Even within this group, the majority own low-end smartphones which cannot support more than four or five working apps. This often leads to a high uninstall rate, which makes customer retention difficult.

So, if a company plans to go app-only, it risks missing out on a potentially wide market of customers, particularly in the likely event their app does not happen to be among the top four or five apps of choice for a user.

Additionally, an app-only model may have issues reaching consumers across the entire spectrum of platforms like Android, iOS or Windows, even if they do own a high-end smartphone. Albinder Dhindsa, founder at Grofers, admits the temptation is there to target app-only strategies. “In the beginning, a small business has only limited resources to work with,” he says. “In such cases, an app makes for an obvious choice to help reach out to a certain number of Indian consumers — for many of whom the mobile phone remains their primary device to connect to the internet. As a business grows, providing additional platforms makes sense and is feasible as well.”

That’s not to say that India isn’t ready for apps. Online travel, banking, education, food, healthcare, home services, payments — every sector is trying to woo users to their brand of mobile apps by offering freebies and discounts. India, along with China, is one of the world’s fastest-growing mobile app markets. However, many believe that an app strategy should not be an issue of “or” but “and”. Rajiv Mangla, Chief Technology Officer of Snapdeal, says that customers have heterogeneous shopping habits, hence it makes sense to have multiple access points. “We have seen cases where people purchasing high ticket items, especially over INR 10,000 (around $150), prefer a larger screen to view product details and requisite content,” he says. Also a factor in India, mobile internet connectivity is slow for most users. Customers might want to access the portal on a faster broadband-based connection, and a robust desktop platform ensures this is available.

Devangshu Dutta of Third Eyesight, a consulting firm focussed on the retail and consumer products ecosystem, is of the view that an app-only approach works best if the app is used frequently, with high customer loyalty or stickiness. “This way one can aim to become a default aggregator of a particular service, such as taxi-hire or ride-share, restaurant selection, news etc. But, I still feel an app with a narrow product/service range would generally be less viable than a website with a similar offering,” says Dutta.

Dhindsa concurs that though there are businesses which are app-only or near to app-only (with the app providing over 80% of their transactions), there is an equally strong move back towards the mobile website. “New features developed by Google browsers and UC Web make the overall experience good. There is browser notifications, faster loading time and smarter caching to minimize data usage and improve speeds,” he says.

Whether the future is app-only or if the web retains its relevance, it’s clear that many in India believe that the customer should still have the choice of how they want to interact with a business.

(Published in Forbes)

Buck up Amazon, Flipkart has found gold in Jabong 

Anita Babu & Alnoor Peermohamed, Business Standard
Bengaluru, 14 November 2016

Rocket Internet’s $70-million fire sale (the term for doing so at an extremely discounted price, usually under some compulsion) of Jabong has turned out to be a great deal for Flipkart.

The online giant has managed to turn around the fashion portal in four months, scoring a mark over rival Amazon.

It has even surprised Myntra’s chief executive, Ananth Narayanan, who also heads Jabong. He’d earlier found the customer overlap between the two brands, Myntra and Jabong, was no more than 30%. At the time of acquisition, Flipkart’s management had estimated this number to be 50-60%.

“Essentially, this is all extra incremental growth. While the fixed costs like supply chain have not grown dramatically, sales have grown,” said Narayanan.

In October, Jabong saw 50% growth in revenue and managed to become unit economics-positive. The loss-making company, on a downward spiral when Flipkart, pushed by investor Tiger Global, made a fell swoop and took ownership in three days, had once been in talks to sell out to Amazon at a value of $1.2 billion. By any stretch, Jabong was a steal for Flipkart and the recent success is icing on the cake.

“If they are saying the overlap between the customer base of the two companies is only 30%, then acquiring that set of customers is a one-time capital investment and they can milk that over the lifetime of the customer. Moreover, fashion is a category which is margin-friendly; so, it’s going to pay off faster than other categories,” said Devangshu Dutta, chief executive at consulting firm Third Eyesight.

The clean-up of Jabong has been fairly straightforward. The biggest cost-cutting measure has been utilising Ekart (owned by Flipkart) and Myntra’s in-house logistics networks. The company also slashed the discounts being offered by two-three percentage points and introduced its private brands, such as Roadster, on Jabong, yielding higher margins.

Prior to its acquisition, Jabong was one of the first third-party brands to utilise Ekart’s service, something that might have given Flipkart an insight into the brand, leading to its acquisition.

“Having two brands instead of one will help. I think  Jabong customers are a bit more fashion-forward than the Myntra ones,” said Narayanan. The difference between the two brands in terms of the customers they serve is what makes Jabong complementary to Myntra, he added.

With fashion being a category where spec-by-spec comparison is missing, it’s often easier to charge higher margins than in consumer electronics or even large appliances. Going forward, fashion is expected to power profits for e-commerce marketplaces, with Flipkart shoring up on brands to take on Amazon – the latter also recently made a splash in the space with its own private label.

Flipkart currently leads India’s e-commerce fashion segment. It, Myntra and Jabong claim to have two-third of the market.

“It is not a classic market share game, not about who wins the current market. I always think about the next five years; who captures more of the growth. That’s what we want to do with both the brands,” added Narayanan.

Today, both Myntra and Jabong serve a very similar mass-premium market. The company is working on changing that. While there will be more integration in terms of supply chain and sourcing, Narayanan has put together a team that will work on defining each brand’s space over two years.

Ultimately, in the next one year, Myntra’s goal is to turn around Jabong and help use the brand to propel itself toward profitability.

Myntra claims its profit has increased by 20 basis points this year alone, putting the company on track to become profitable towards the end of next year.

(Published in Business Standard)