Written By Sagar Malviya, ET Bureau

MUMBAI: The Indian unit of Walmart said it could leverage Flipkart to cross-sell each other’s private brands, use the expertise of the e-commerce firm in technology and analytics, and in turn, help them with grocery retailing.

“Currently, we are selling our private brands only in our stores but don’t see any reason why we can’t sell it outside our stores. With Flipkart, there is an option,” said Krish Iyer, chief executive at Walmart India. “Flipkart is a platform and there are sellers on it, and when you talk about grocery, it’s about getting the right sellers to complete the mix. They are very good at technology, analytics and customer relationship management.”

For Walmart India, private brands — Right Buy and Member’s Mark — account for roughly 6-7% of its overall sales unlike its Bentonville-based parent that gets nearly a third of its revenues from own labels in the US. India allows 51% FDI in multibrand retail, while 100% FDI is allowed in cash-and-carry wholesale ventures that sell grocery and other products to business entities such as neighbourhood stores.

Technically, Walmart cannot sell its own brands directly to end consumers, or list it directly on Flipkart’s platform. However, their private labels are already being sold at kirana stores which have to buy them from Walmart’s Best Price wholesale stores.

“As long as there’s a reseller involved, there should not be any legal issue. Walmart can also set up another company just for these FMCG brands and list it at Flipkart but there could be complications,” said Devangshu Dutta, chief executive at consultancy firm Third Eyesight. Private labels are mostly priced much lower than branded products because of substantial marketing and distribution savings.

Retailers make up for lack of media marketing through instore promotions and prominent display, and in the bargain, earn higher margins than national brands. Flipkart, too, is present in a host of private label categories across electronics, appliances and accessories under Billion brand name while Myntra’s portfolio of own brands includes Roadster, Dressberry and Anouk, among others. Walmart clarified that both companies have a separate team and the benefits will not accrue immediately. “Nothing is going to happen in the next 2-3 months.

It takes time and needs a lot of planning and good execution to get the benefit in the short to medium term,” said Iyer, after opening its 22nd store in the country in Ludhiana, and sixth in Punjab where it opened its first door nearly a decade ago. With brick-and-mortar retailer Walmart buying an online firm, several retailers have been eyeing cross-channel deals. Walmart, in India, generates nearly half its sales from outside its cash-and-carry stores. “It’s all about omni-channel — any time and anywhere concept because the customer wants to shop that way,” said Iyer.

Source: economictimes

Written By

KOLKATA: Witzig Advisory Services, that acquired More supermarkets from Aditya Birla Retail, has officially confirmed that Amazon has invested in the facility support backend company, adding that the deal is compliant with India’s retail FDI norms. Amazon too confirmed its investment in Witzig.

“Samara Capital and Amazon have agreed to co-invest in a facilities support and management and value added services company called Witzig Advisory Services Pvt Ltd. We confirm Witzig has agreed to acquire the grocery retail chain More,” said Paurush Roy, director, Witzig, in an emailed response. “We will ensure Witzig complies with all applicable laws and regulations.” Roy is also managing director at Samara Capital.

A spokesperson said Amazon will enhance its services portfolio, and meaningfully invest in and create opportunities for skill development and job creation through this investment in Witzig. “Both Samara and Amazon see significant growth potential in facilities support and management and valued added services in the coming years,” the spokesperson said. However, analysts say a deal of this size in a market like India will be subject to scrutiny, more so when there is so much opposition to multi-brand retail FDI.

Devangshu Dutta, chief executive at retail consultancy firm Third Eyesight, said the deal is likely to be scrutinized on two fronts — impact on online and offline retail competition diversity, and from the foreign investment regulations standpoint. “Structure of the deal could be open to interpretation on the compliance side, though legal brains would have surely ticked all boxes before signing, as in the Walmart-Flipkart deal, to ensure it’s compliant,” he said.

An industry executive said since Witzig is majority 51% owned by an Indian entity which is Samara Alternative Investment Fund (AIF) and Amazon will hold minority 49%, Witzig will be considered as an Indian entity as per FDI laws. Samara AIF will be considered as a domestic vehicle since it is sponsored and managed by Indians whereby the percentage of foreign corpus in it won’t make a difference as per regulations. “As a result, a downstream investment by Witzig, including the acquisition of More, will be FDI compliant,” the executive said. Another person, asking not be named, said Amazon participated in the deal through its investment arm, Amazon Overseas Holdings Inc, and not the flagship e-commerce entity Amazon-.com Inc to avoid regulatory roadblocks in approval. He said Amazon will also keep distance from the board, management team and will not be involved with operations at More.

Roy said Witzig will focus on skill development, vocational training and contribute towards employment generation with respect to facilities support, management and other value added services such as installation, housekeeping, engineering support, electrical technicians, service staff, plumbing technicians for business customers. The two persons said the application for regulatory approval to Competition Commission of India will clearly mention the core areas of operation of Witzig, how Amazon is just a minority investor in it and it is majority owned by a domestic entity, and that Amazon will not be involved in running More.

Dutta, however, says even if Amazon doesn’t take active operational interest or a board position in More right now, it is definitely a long term deal for them, and they may do both when regulatory conditions are conducive. For the moment, Amazon Seller Services, which owns and operates the Indian online marketplace amazon.in, and More will strengthen their ‘seller’ business relationship since More is already a seller for over a year in its hyperlocal food and grocery platform, Amazon Prime Now, the two executives said.

Amazon will expand Amazon Prime Now keeping in mind More’s store network apart from other factors and there will be omni-channel capabilities for both Amazon and More, the executive said. More will roll out a ‘click and collect’ service whereby consumers can order from Amazon.in and get the package collected from the More store, one executive said. “The offline expansion of More store network will also keep in mind Amazon’s ambition, but that won’t be the only deciding factor since the business will be run independently,” he said.

Another executive said since Amazon’s FDI approval is only in food retailing, it is difficult to make food retailing successful exwithout a strong presence in grocery since shoppers buy both together. “Herein More will play a role,” he said. Samara-Amazon is retaining the entire management team of More — chief executive officer Mohit Kampani, chief operating officer Sashi Gumma, chief merchandising officer Sumit Chandna, chief financial officer Girdhar Chitlangia and chief marketing officer Apeksha Gupta. ABRL’s managing director Pranab Barua will join as a director on board of Witzig.

Source: economictimes

Written By Writankar Mukherjee & Sagar Malviya, ET Bureau

KOLKATA | MUMBAI: The Aditya Birla Group is selling supermarket chain More to Witzig Advisory Services, owned by Samara Alternative Investment Fund, in a deal that will eventually see Amazon picking up a 49% stake, according to people with knowledge of the matter.

The deal pegged at about Rs 4,200 crore will give the online giant access to more than 500 physical outposts across the country, albeit indirectly. The Witzig-Samara end of the transaction was made public in an exchange filing on Wednesday. RKN Retail, which owns Birla’s retail venture along with Kanishtha Finance and Investment Pvt, told the BSE that the board had approved the sale of its entire shareholding in

Aditya Birla Ltd (ABRL) to Witzig. ABRL, Samara and Amazon didn’t respond to queries sent by email.

“Amazon will initially buy 35% in the retail chain from Samara AIF and will raise it to 49% over time,” said the people cited above. Since Samara AIF is sponsored and managed by Indians, it will be considered a domestically controlled vehicle as per law, irrespective of the percentage of foreign corpus, and compliant with the rules on overseas investment in retail, said one of them.

It took more than a month for the legal teams of all the parties involved to arrive at the complex deal structure, said the people cited above.

Aditya Birla Group chairman Kumar Mangalam Birla told employees about the plan in an email.

“In order to achieve full potential, ABRL needs a strong balance sheet and continued large investments.

Keeping in mind the group’s capital-allocation priorities and ABRL’s needs, I believe that at this stage, it serves the best interests of the business to opt for an external investor,” Birla told staff in his communication, which ET has seen.


Keeping in mind the group’s capital-allocation priorities and ABRL’s needs, I believe that at this stage, it serves the best interests of the business to opt for an external investor,” Birla told staff in his communication, which ET has seen.

“Towards this end, we have decided to accept an offer from Samara Capital for acquiring the business. This transaction is subject to necessary regulatory approvals.”

“Since the backend company where Samara and Amazon are investing has no restriction on FDI (foreign direct investment), there is no problem,” one of the executives said. This means the company won’t need to seek approval of individual state governments to operate More stores, which is a requirement under multi-brand retail foreign direct investment (FDI) rules, the person said.

India allows 51% FDI in multibrand retail, while 100% FDI is allowed in cash-and-carry wholesale ventures that sell grocery and other products to business entities such as neighbourhood stores.

Amazon will continue the marketplace model for its online food and grocery sales since India does not allow overseas investment in inventory-based ecommerce. ET broke news of the More-Samara deal ahead of the announcement in its online edition on Wednesday, having first reported on Amazon’s role in the transaction on August 20.

Experts said the acquisition will help meet Amazon’s aspiration to be a bigger player in the $400-billion food and grocery market, a segment that has failed to translate into a big online business as most Indian consumers still prefer buying items of daily used from kirana stores.

“At the moment, it looks like a Samara play but Amazon is looking at it from a long-term view. For Amazon, India is a strategic market and there are obviously synergies in terms of omni-channel presence,” said Devangshu Dutta, chief executive at consultancy firm Third Eyesight. “The retail market will gradually move away from traditional trade and there will be an overlap between consumers for modern trade and online channel.”

The latest deal also represents Amazon’s escalating battle with US rival Walmart that bought a majority stake in online firm Flipkart for $16 billion in May this year. Globally, both companies have been dabbling in cross-channel acquisitions — Amazon acquired grocery chain Whole Foods for almost $14 billion as well as launched checkout-free Amazon Go store in Seattle last year.

Walmart has been on a similar shopping spree — acquiring 100% of Chinese ecommerce business Yihaodian in 2015, having picked up a 51% stake in 2012. It acquired Jet-.com in a $3.3-billion buyout, followed by a strategic alliance with JD.com in 2016. Last year, it added Moosejaw, ModCloth, Bonobos and Parcel to further consolidate its online-offline strategy.

More’s stores will be critical for Amazon’s omni-channel strategy which is intended to widen and deepen its footprint in food and grocery retail through its platform, Amazon Prime Now. Prime Now is currently limited to some areas of Mumbai, the National Capital Region, Hyderabad and Bengaluru.

Amazon, through the foreign portfolio investor route, acquired 5% in department store chain Shoppers Stop for about Rs 180 crore in September last year.

The fourth-largest supermarket chain owner in India after Future Group, Reliance Retail and D’Mart, ABRL has about 575 More branded supermarkets and hypermarkets, covering more than 2 million sq ft of retail space. In FY18, ABRL posted its first positive earnings before interest, taxes, depreciation and amortisation (EBITDA) at Rs 1 crore.

Revenue for the fiscal year was about Rs 4,400 crore, an increase of 5% from a year ago. Net loss narrowed to Rs 490 crore in FY18 from Rs 644 crore in FY17. The deal will effectively wipe out the entire debt on ABRL’s books — Rs 4,000 crore as of March.

After its takeover, the Samara-Amazon combine plans rapid expansion of the More chain, which has been stalled due to ballooning debt, said the people cited above.

The idea is to set up 100-150 stores every year, mostly neighbourhood supermarkets and a few hypermarkets.

The target for the current fiscal is to add 90 stores, one person said. Samara-Amazon will stick to the current management team.

Pranab Barua, who was the director for apparel and retail businesses at the Aditya Birla Group, will become a director of the acquired entity, while Mohit Kampani will continue as CEO.

After acquiring Trinethra Retail about a decade ago, Aditya Birla Group merged it later with ABRL. The group has also restructured its retail business by carving out the apparel-making Madura Fashion & Lifestyle division from Aditya Birla Nuvo Ltd and merging it with the listed Pantaloon Fashion and Retail Ltd. This reorganisation created the country’s largest branded apparel company by sales and number of stores.

Source: economictimes

Deal estimated at ₹4,500 crore; ends retail dream of Kumar Mangalam Birla

Written By PRIYANKA PANI

A worker stacks food packets inside a retail outlet at a shopping mall in Kolkata August 12, 2014. India’s core consumer price index was estimated to have risen 7.4 percent in July from a year earlier, in line with the 7.4 percent rise in June, according to a Reuters snap survey of three analysts on Tuesday. REUTERS/Rupak De Chowdhuri (INDIA – Tags: BUSINESS FOOD)

Kumar Mangalam Birla’s dream of making it big in the retail segment has ended with Aditya Birla Group selling off its struggling supermarket chain — More — to US online retail giant Amazon and Indian private equity firm Samara Alternative Investment Fund.

While the deal size has not been disclosed, market experts are pegging it at about ₹4,500 crore, making it one of the biggest deals in the offline food and grocery segment.

Birla had launched the venture in 2007 with plans to set up a network of 1,000 stores. But just over a decade later, Aditya Birla’s retail ambition has been abandoned owing to competition from e-commerce players. According to company insiders, the lack of a long-term strategy also hindered growth for Aditya Birla Retail, which reported a loss of ₹644 crore in FY17.

With debt climbing to ₹ 6,573 crore for the retail venture, Aditya Group has been trying to sell More for the past few years.

Under the deal signed on Wednesday, Witzig Advisory Services Pvt Ltd, owned by Indian private equity firm Samara Alternative Investment Fund, is the lead buyer with 51 per cent stake; Amazon has acquired 49 per cent. Amazon has also acquired a substantial stake in More’s back-end company RKN Retail, according to sources. Amazon declined to comment.

More, formed in 2007 with the acquisition of South India’s retail chain Trinethra, is India’s fourth-largest food and grocery chain with over 500 stores. It competes with other affordable retail chain networks such as Reliance Retail, DMart and Future Group.

The deal frees the Aditya Birla Group to focus on other key businesses including cement, finance, telecom, and metals.

Group Chairman Kumar Mangalam Birla, in a mail to his top management, a copy of which BusinessLine has seen, said, “ …ABRL needs a strong balance sheet and large investments. Keeping in mind the Group’s other allocations and priorities and ABRL’s need, I believe that at this stage, it serves the best interest of the business to opt for an external investor.” The existing management would continue to drive the business, he said.

Experts view this deal as a great exit for the Aditya Birla Group. It also signals a consolidation in the $400-billion food and grocery sector. Other players in the segment are Godrej Natures Basket, Star Bazaar and online players such as BigBasket and Grofers.

Arvind Singhal, founder of retail consultancy firm Technopak, said, “The deal frees up equity for Aditya Birla and also poses a threat to other small retailers, given Amazon’s interest in food and grocery.”

Amazon India has been ramping up its food and grocery business with Now and Pantry and might use More’s offline channel to retail its private labels and also use the network to serve as a pickup and delivery point for its customers, said Devangshu Dutta, founder of retail consulting firm Third EyeSight.

“This deal can’t be treated as a watershed moment in the retail segment at the moment but can lead to a consolidation in mid term given the number of regional and smaller players and entry of newer brands in the market,” Dutta said adding that More’s large customer base would help Amazon get insights into the purchase behaviour in the smaller towns, where More’s store are present.

Source: thehindubusinessline

Written By Simon Mundy

Clamp down on aggressive discounting and bulk-buying to test groups’ strategies

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As Indian ecommerce gained momentum in recent years, some local observers wryly cheered the generosity of overseas investors subsidising the shopping of cash-strapped Indian households.

They were referring to a crucial factor behind the sector’s take-off: sweeping price discounts fuelled by huge streams of overseas funding. Analysts said the discounting was pursued at a scale rarely seen in other markets — reflecting the difficulty of attracting millions of often sceptical first-time Indian customers, as well as the scale of the perceived opportunity.

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But this strategy is under threat as India’s government clamps down on aggressive discounting by groups such as Amazon and local rival Flipkart, which are accused by local lobby groups of hurting small businesses and squeezing out competitors. The crackdown will test the strength of the Indian ecommerce sector as well as its attractiveness as a destination for foreign investment.

New Delhi is this month expected to publish its first comprehensive ecommerce policy. In a preliminary draft in July, seen by the Financial Times, the government proposed restrictions on discounts and bulk-buying by companies associated with foreign-backed online marketplaces.

This has caused unease among foreign investors, who complain of an excessive focus on the demands of small businesses, a powerful political constituency. “It’s an over-reach by the government,” said one person with direct knowledge of US tech groups concerns. “There is a clear bias against foreign companies.”

When India began opening its economy to overseas investment in the 1990s, it banned foreign-owned companies from running shops selling multiple brands, to protect small local retailers from an influx of supermarkets. In 2016, with ecommerce taking off, New Delhi said foreign investment in online shopping sites was allowed, provided they functioned only as virtual marketplaces matching outside buyers and sellers — and did not fund discounts or sell goods themselves.

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I can’t identify an Indian ecommerce company that offers a challenge to Amazon or Flipkart

But Amazon and Flipkart — which was backed by foreign investors and recently bought by Walmart — found ways to sidestep these rules, using subsidiary companies to buy in bulk and fund discounts. By explicitly banning these practices, the new draft policy would force a significant change in how these companies operate. 

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“The government will now be properly implementing the previous policy — giving it teeth,” said one person who took part in private consultations on the policy.

The restrictions on pricing could affect momentum in a market that has been growing rapidly but remains small by global standards: online retail spending in India grew about 30 per cent last year to $21bn, according to Forrester Research.

But the proposals have been welcomed by local lobby groups, which have complained that the ecommerce discounts amount to anti-competitive, predatory pricing. The Confederation of All India Traders said the new policy’s proposed creation of a dedicated ecommerce regulator will prevent online marketplaces from manoeuvring around the rules.

Amazon’s use of subsidiaries to offer large discounts has been “the single biggest killer of small businesses in this country,” said Sandeep Aggarwal, founder of online marketplaces ShopClues and Droom, adding that India would have done better to adopt from the start “a digital policy similar to China’s”.

Mr Aggarwal and other local technology entrepreneurs have called for more protection for Indian start-ups from giant US competitors, arguing that Chinese government protection helped to foster a powerful group of tech companies that are increasingly prominent on the international stage.

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Most analysts now view India’s ecommerce market as a two-horse race for dominance between Amazon — which has committed at least $5bn of investment to India — and Walmart, whose $16bn takeover of Flipkart was the biggest ever in the sector.

“I can’t identify an Indian ecommerce company that offers a challenge to Amazon or Flipkart,” said Devangshu Dutta, head of retail consultancy Third Eyesight.

  More serious competition, he added, could come from an expansion into online shopping by large offline groups. Both Reliance Industries — which is making a huge bet on digital services through its Jio subsidiary — and the Tata Group have recently held talks with Alibaba on a possible ecommerce joint venture, said a person with direct knowledge of the discussions.

Whether or not the discount crackdown fuels competition in general ecommerce, analysts say it should help create opportunities for online retail sites focused on niche markets, and boost earnings for the merchants who sell on Amazon and Flipkart.

For the sector, ending its fixation with discounts would be an important step forward, argued Sandeep Murthy, a partner at Mumbai-based venture capital firm Lightbox.

“It’s just stupid business practice to be selling products this way,” he said. “People need to come to that realisation and deliver useful products or services that consumers are actually willing to pay for.”

Source: ft