T. Surendar, The Morning Context

25 March 2020

Standing on the porch of the Grand Hyatt Hotel in Mumbai suburbs, Diwakar Vaish, co-founder of Noida-based AgVa Healthcare, was trying to catch the attention of software industry executives. This is at the annual conference hosted by IT trade body Nasscom. Vaish’s stall was a side-show for startups to exhibit digital technologies in the healthcare sector.

On a cool, breezy February day, the atmosphere was nothing as grim you would expect in a hospital emergency ward. Vaish’s rig, comprising an iPad-like device on a short steel column mounted on wheels with dangling wires, was a cost-effective version of a ventilator used in critical care. There wasn’t much excitement about his solution, as few executives really understood the medical problem he aimed to solve.

Today, a robotic engineer by training, Vaish is super busy.

It is not easy to get him on the phone, as AgVa’s ventilator is suddenly in demand from all parts of the country. The company is running three shifts fulfilling orders, which have been pouring in since it became apparent that Indian hospitals did not have enough ventilators for patients rendered ill by the novel coronavirus.

Unwittingly, the need for ventilators has once again drawn attention to India’s medical devices industry or the lack of it. So much so that Anand Mahindra, chairman of the $17 billion Mahindra group, which has interests in automobiles, software and resorts, said that he was finding ways to manufacture ventilators in his factories. It isn’t easy putting together a ventilator, not when you are racing against time, but Mahindra is a hardy businessman with deep pockets, and maybe, just maybe, he will succeed.

In many ways, the Indian medical devices industry is an anomaly. India has a space programme, a nuclear programme, it is among the few countries that has developed patented medicines and a low cost version of anything from power turbines to trucks but when it comes to medical equipment, it fares poorly.

India is also the biggest supplier of FDA-approved drugs to the US, the biggest pharmaceutical market in the world. Even as the Indian market for medical equipment has grown at double-digit rates in the last five years to Rs 1 lakh crore, two-thirds of its needs are met by foreign companies such as Philips, GE Healthcare, Siemens and Abbott.

Import domination is all pervasive extending to even non-critical but common equipment like sonography machines, dentistry chairs and diagnostic equipment. Less than five Indian companies had revenue of more than Rs 500 crore a year and 90% were classified as small scale, with annual revenue less than Rs 10 crore. The biggest player in the domestic market is the Rs 1,300 crore Mumbai-based Transasia Bio-Medicals, which makes in vitro diagnostic solutions that are exported to Western markets too.

“For a long time, the government was the biggest buyer of medical equipment and they always preferred imported equipment. That meant that it was not lucrative for local entrepreneurs to invest their capital in the sector,” says G.S.K. Velu, managing director of Trivitron Healthcare, which makes and exports imaging equipment.

The proliferation of private hospitals in the last two decades also did not change things much. With well-entrenched foreign players and a liberal import duty structure to make available the best facilities in India, there were few local companies of scale who could invest big money to fend off competition. AgVa’s ventilators were priced at a fifth of the ones sold by the foreign competitors, yet it couldn’t make inroads into big hospitals. “It’s almost as if our cost was our barrier to sell. Being critical equipment, customers had a lot of inertia to even place test orders,” says Vaish.

Thanks to meagre domestic manufacturing. India also could not set standards of equipment specifications to suit the local needs. It had to tweak its own equipment standards to fall in line with those of foreign manufacturers. For example, in the US, defibrillators used to restore heartbeats by giving shock to patients had to last at least two shock cycles. But, in India, since access to hospitals and medical care was not as easy. patients arrive long after they have suffered heart attacks and Indian doctors use defibrillators for even 10 cycles at a time.

The local standards did not specify this need and as a result many imported defibrillators were not of much use in Indian conditions. “We still don’t have an act to regulate medical devices and it falls under the drugs category. Everything is still borrowed from the West,” says Aniruddha Atre, co-founder and director of Pune-based Jeevtronics Pvt. Ltd, which makes the world’s first hand-cranked defibrillator.

Trivitron’s Velu says that the share of locally produced medical equipment will increase within the next decade. This will be a combination of help from the government which will enforce more domestic manufacturing by overseas firms and increased entrepreneurship.

There is also a view that more global manufacturing will come to India, as firms de-risk their strategy of manufacturing everything in China. “In the past, when labour costs went up in the Chinese west coast, Indian garment companies were beneficiaries of increased orders even though other countries like Bangladesh and Vietnam too got a big share of it. The availability of labour and ability to scale up operations is something global players look for and to that extent India will always be an important outsourcing destination,” said Devangshu Dutta, managing partner at consultancy firm Third Eyesight.

The trend started even before the COVID-19 pandemic as companies in the US began to brace themselves for a trade war with China. For example, a US-based company has started sourcing Indian tyres at a 10-15% premium as it wants to diversify its risk from China. “India has witnessed a surge in mobile phone manufacturing. This is bound to increase the ecosystem in electronic manufacturing which in turn create ecosystems for industries like medical equipment,” says Sharad Verma, senior partner who oversees industrials at Boston Consulting Group.

The timing is also right for increase in local manufacturing, argues Verma. One of the important criteria for that is viable domestic consumption. It’s happened time and again in sectors like automobiles, mobile phones and more recently in manufacture of metro bogies after domestic consumption has reached a scale where it makes sense for companies to set up manufacturing facilities. “The industry is no longer small and the incidence of medical technology will only go up from here making it viable for even foreign companies to look at a manufacturing set up in India,” says Verma.

It will be interesting to see how it all plays out. The sector, so far, hasn’t seen much by way of private equity or venture investment. The most prominent one was an investment by a Morgan Stanley fund and Samara Capital in Surat-based Sahajanand Medical Technologies and Fidelity Growth Partners’s investment in Trivitron. But starting 2014, a government fund run by the Biotechnology Industry Research Assistance Council-incubated several companies who are slowly bringing their products to market. As some of these products hit home, especially in the wake of COVID-19, the action is definitely bound to pick up.

(published in The Morning Context)

Written By Saritha Rai

India’s largest online retailers including Amazon.com Inc., Walmart Inc.-owned Flipkart and Alibaba-backed fresh grocery delivery service BigBasket are facing severe disruptions and shutdowns, after authorities announced some of the strictest coronavirus-related restrictions in the world.

The country’s 1.3 billion people are in a three-week lockdown, sending many to scour the web for food and daily essentials. But unlike in China, where online fresh grocery services offered a lifeline during its Covid-19 outbreak, Indian authorities are stopping food trucks on highways, and shutting down warehouses and rice mills. They’re also preventing delivery and supply-chain workers from doing their jobs, sometimes through use of force.

Source: bloomberg

These value fashion retailer, however, must tackle pricing as well as infrastructure hurdles

Written By Devika Singh

The value retail market in India is estimated to be worth Rs 400 crore, according to industry experts

Having established a strong foothold in the tier II and III markets — which contribute over 75% to their revenues — value retailers such as V-Mart, V-Bazaar, 1-India Family Mart and Citykart are testing the waters in tier IV markets. According to industry experts, the value retail market in India is estimated to be worth Rs 400 crore, with organised players commanding merely 12.5% share. However, these players have seen robust growth in recent years on the back of their rapid expansion. V-Mart, for instance, grew its store presence from 108 in FY15 to 214 in FY19.

Value retail chains target customers at the bottom of the pyramid — typically those with monthly incomes in the Rs 10,000-25,000 range. The average bill size recorded by these players is Rs 750, while that of players such as Pantaloons and FBB is around Rs 1,800.

Tier IV towns are defined as towns with a population of 10,000-19,999. V-Mart has 40 stores in tier IV markets, 1-India Family Mart has 23, while V-Bazaar has eight stores. These players have set aside 20-25% of their new store budgets for tier IV towns for the next financial year. But these new markets have proven to be tough to crack so far.

Tailored for the market

To establish a presence in these newer markets, value retail chains have been altering their strategies. Citykart, for example, has cut down the size of its stores here. “Although the footfall is not low in these towns, the average bill size is lesser. Therefore, we opt for smaller-size stores and keep 20-25% lesser inventory here, compared to the tier II and III stores,” says Sudhanshu Agarwal, director, Citykart.

Meanwhile, 1-India Family Mart and V-Mart are customising their inventories for smaller towns to make products of lower ticket size, which see more traction, available. “We usually sell t-shirts priced at Rs 99-599, with 10 options in each category. In a smaller town, however, t-shirts costing Rs 599 don’t sell as much, so we keep limited options in that price range and offer more in the Rs 299 range,” says JP Shukla, CEO and co-founder, 1-India Family Mart.

V-Mart also plans its inventory for these towns keeping in mind the local festivals. The company keeps more ethnic wear products in these towns, compared to the larger markets, shares Lalit Agarwal, CMD, V-Mart Retail.

Since the reach of print media is limited in these towns, value retail chains usually engage in BTL activities. “We organise store-level activities like drawing, singing, dancing and fashion shows to develop direct contact with the customers,” says Hemant Agarwal, CMD, V-Bazaar Retail.

Some like 1-India Family Mart make use of small commercial vehicles, like Tata Ace, to organise fashion shows and dance performances, or to make announcements. “We also display our brand on e-rickshaws and tie up with small shop owners for co-branding, as these towns don’t have proper hoardings,” Shukla adds.

Teething troubles

Pricing is not the only challenge for these players in tier IV towns, experts say. According to Devangshu Dutta, chief executive officer, Third Eyesight, concentration of demand could remain a problem for retailers in these towns, since the population and their disposable incomes are lower.

“Managing these stores which are located deeper in the country is also a challenge. Keeping management and operations costs lean is fundamental to their success. The more they spread across smaller towns, the more difficult it becomes to keep it lean and efficient,” Dutta adds.

He suggests that following a cluster-based approach for expansion could help retailers target a similar set of consumers and keep costs low.

The lack of suitable real estate could throw a spanner in the works, cautions Rajat Wahi, partner at Deloitte India, as these players try to expand their presence here. “There are no malls or high streets in these towns; the companies have trouble finding good space and have to negotiate separate deals with property owners, set up parking spaces, etc. Therefore, cost could shoot up,” he adds.

Besides, experts say, the proliferation of e-commerce in this part of the country could be a real threat for these players in future.

Source: financialexpress

Chaayos and Chai Monk are selling more than 3.5 lakh cups every day between them. Still, it isn’t an easy market to crack.

Written By Nishant Sharma

The moment a customer places an order at a Chaayos outlet, an IoT-enabled brewer starts preparing chai that can be made to order in 80,000 different ways.

Called Chai Monk, the robot has reduced the time taken to make a cup by nearly a third to 2.25 minutes, Nitin Saluja, co-founder of the tea café chain, told BloombergQuint. “This not only helps maintain a consistent taste of the tea consistent, but also reduces waste and manpower.”

Reducing costs is crucial for the company as it competes in a nation of tea drinkers where for most people, chai outside home means sipping a milky and spiced black tea concoction at a roadside shop. Along with Chai Point, Chaayos has been trying to create a culture of tea cafes.

The bet was the size of tea market in India. According to the National Sample Survey Office data, Indians drink 17 cups of tea for every single cup of coffee. Tea Board’s data show nearly 80 percent of 1.35 billion kilograms of tea produced in India is consumed locally. And the tea retail, according to Euromonitor International, stands at Rs 18,000 crore, nearly 2.5 times that for coffee.

That’s only one part of the problem. Profitability is difficult even after scaling up as the fortunes of established coffee chains Café Coffee Day, Costa Coffee and Barista show.

The store count of Coffee Day Enterprises Ltd.’s Coffee Day, India’s largest café chain, fell by nearly a fourth over the previous year to 1,469 in the quarter ended September, with same-store sales declining nearly 4 percent. While the company’s debt burden led to the tragic suicide of the founder, profitability at the store level has remained elusive.

When CCDs and Baristas started, they were pushed as places of social gathering, according Arvind Singhal, managing director at the retail consultant Technopak Advisors. “The amount people spend (there) isn’t enough to be profitable,” he said. “There’s a reason food accounts for 50 percent of the revenue of cafes, which shows that there’s nothing like a coffee culture or tea culture here.”

How The Beverages Stack Up

Figures in Rs

That hasn’t deterred investors and entrepreneurs. The initial success of tea cafes has helped birth more than a dozen tea startups. Even salt-to-software conglomerate Tata Group launched Tata-Cha, a café-styled outlets that also deliver tea, in 2018—it’s second attempt at the format. And investors have ploughed nearly $150 million in them so far, according to data shared by Tracxn and BloombergQuint’s calculations.

Chaayos and Chai Point say they’re on their path to breaking even. Both, however, have taken a different strategy.

Chai Point

For Chai Point, average bill ranges between Rs 150 and Rs 200, rising annually 15-18 percent, according to Amuleek Singh Bijral, who co-founded the company in 2010. Outside the outlets, it has created a delivery-oriented demand. “Opening huge stores cannot be the only strategy.”

Chai Point tied up with nearly 2,000 companies to introduce BoxC.in, an Android-based IoT-enabled automatic tea and filter coffee dispenser. This is one of the company’s fastest-growing arms in less than three years, raking in more than a third of its revenue.

Bijral said 40 percent of their revenue comes from in-store sales, and the remaining from delivery. But that doesn’t mean it’s not scaling up. The company intends to add 70 stores to its count of 175 in 2020-21. The company is experiment with smaller store formats

And it’s looking at food for increasing revenue. Chai Point plans to become an all-day breakfast brand and is working on offering a croissant burger and egg parantha, apart from a menu that already offers poha, upma, samosa and sandwiches. While the company said that its foods segment contributes 18 percent to overall revenue, in-stores sales account for 35 percent.

Chai Point’s average monthly store sales stands at Rs 9-10 lakh, with average same-store sales growing 15-20 percent, according to Bijral. “Average sales per square foot is Rs 24,000-25,000,” he said. “These are all signs that shows business is here to stay.”

“Money to be made is real and devil is in the execution,” Bijral said, adding that the company is on track to report full-year operating profit in FY21.

Chai Point Keeps Lid On Expenses

Figures in Rs crore

Chaayos

Chaayos is betting the neo-café model, like Luckin Coffee of China—a unicorn that focuses on fast delivery, technology-driven retail and convenience.

Besides the automated brewer, it also gives users the option to use facial recognition to speed up ordering time. But the move has drawn flak over privacy concerns. Still, Saluja said, technology and data is helping the firm manage its inventory and reduce wastage to about 1.5 percent of sales from 4 percent.

The startup is also betting on food which Saluja said is prepared fresh at its 81 outlets. Customers have reposed confidence, he said, citing number. About 96 percent of transactions on the platform have a validated number, according to Saluja, and a repeat customer comes to Chaayos 3.8 times a month.

The average purchase ticket size of Rs 250 and while that may be less than CCD’s Rs 320 or Starbucks’s Rs 550, but the repeat is much higher, he said.

Chaayos’ Revenue Rises

Rs crore

Unlike coffee, tea isn’t a socially driven business, he said, citing that Chaayos clocks a fifth of its day’s sales by 11 a.m. “No one comes for social interaction early in the morning, people are coming because we’re able to replace the ‘Tapriwala’ (roadside vendor) or home tea.”

Chaayos is profitable at the store level, Saluja said, without sharing numbers. The same-store sales grew by nearly a fourth last year, he said. The tea startup aims to reach a store count of 100 by the end of fiscal and aims to open 300-400 in three to four years.

Saluja, summed up the opportunity saying that his outlets may not be the first choice for a meeting or a date. “But we’re going to be the second place where you’re comfortable and are going to come more often than once.”

Still, Devangshu Dutta, chief executive officer of retail and consumer consultancy Third Eyesight, isn’t that optimistic. “The business looks very profitable from outside because cost of goods is very small, but the other aspects are killing it, like real estate,” he told BloombergQuint over the phone. The whole vibe of being a hangout place is embedded in these formats, and the length of time is not in proportion with what people are buying, he said.

According to Dutta, it really comes down to having enough volumes and the portfolio of outlet needs to be looked at periodically. “You need to be ruthless about where they are making money and form what they are making money it to make it a scalable venture.”

Source: bqprime

Written By Alnoor Peermohamed & Rasul Bailay, ETtech

ETtech Illustration: Rahul Awasthi

Sales of smartphones, electronics, apparel, home appliances and furnishing have taken a beating due to the Covid-19 virus outbreak, as Indian consumers stay at home and cut back on discretionary spending in an already sluggish market.?

Several consumer brands, retailers and sector analysts told ET that demand has dropped palpably, except food and grocery sales, which are on the up due to uncertainties around stockouts and store closures as infections spread across the country.

Calling it an “unprecedented” situation, several executives and analysts said that a prolonged shutdown of retail stores would further affect the purchasing power of consumers.

“Right now it’s a lack of sentiment to buy, but if this doesn’t clear up by mid-April, it’s going to be a situation of inability to buy,” said a senior analyst at one of the leading global consultancy firms, who did not want to be named as he is not authorised to speak to the media.

He added that job losses are also likely in these directly affected sectors.

The chief executive of a global fashion retailer offered a gloomy outlook saying fashion companies are forecasting growth to fall 20% in the next fiscal year.

“That means next year we will see our growth go down 10% compared to 2019-20,” he said, requesting anonymity.

Large format brick-and-mortar retailers in the country have seen sales of discretionary items decline, while e-commerce marketplaces Flipkart and Amazon, where non-essential items make up over 70% of sales, are staring at a severe blow in the coming quarters, impacting their growth estimates, several people in the know told ET.

In the United States, most big retailers like Starbucks, Apple, Nike, have announced shutting of stores temporarily to fight the spread of infections.

In India, malls, restaurants, retail stores, and cinema halls, have been either shuttered across metros like Mumbai and Bengaluru, or have seen a drastic reduction in footfalls if currently operational.

“Retail sales are down by almost 50%, as 60% of malls and shopping centres are closed in India with more and more states initiating closure,” said an executive of a leading department store chain.

“At-home consumption would increase and sales of packaged food and staples have been rising already. However, there will be a temporary impact on discretionary products such as apparel,” said Kishore Biyani, founder & CEO, Future group, which runs Big Bazaar and Food Hall stores.

Categories such as fashion could bounce back sooner, several people told ET.

Seasonal purchases made before summer are also feeling the heat. A leading national electronics retailer said business has been minimal in the last few days.

Refrigerator and washing machine maker Godrej Appliances’ business head Kamal Nandi said the challenge is more in urban India due to the inflow of international travellers. “If the situation does not normalise by April, sales will be badly hit even if the summer is harsh,” Nandi said.

A senior executive of Reliance Retail said there was too much uncertainty, which if prolonged could reduce purchasing power of consumers.

Grocery sales spike

Sales of food and staples have, however, seen an uptick.

It is not a clear win for offline retailers that have been traditionally strong in this space, as ET reported on March 16, but online retailers such as Grofers, BigBasket, Amazon and Flipkart have got a leg-up in growing their grocery sales, as consumers jump to purchase items online in the relative safety of their homes.

However, given grocery makes up just 3% of e-commerce sales, an uptick in the category will not see the online sector gain much.

The uncertainty around how long the outbreak will persist has made it harder for analysts to pinpoint when growth could bounce back.

Satish Meena, an analyst with Forrester Research said, keeping in mind conservative estimates, growth in sales of discretionary items would rebound only by October or November.

Meena added that while growth estimates of the still nascent e-commerce industry were being lowered for 2020, the sector would still end up outperforming its previous year sales figures.

Growth in India’s e-commerce market began slowing last year with the market clocking sales of around $31 billion, a growth of around 35% year on year, which was down from almost 60% the previous year, according to analysts.

Even during the festive period in 2019, online sales grew by just 32% in 2019, compared to a 93% growth in 2018, according to Forrester Research.

“It’s a double whammy, because when you were stepping out to watch a movie, you ended up eating out and going to a couple of clothing stores. Now, given the current situation, people are avoiding going to public spaces and that’s hitting discretionary spending,” said Devangshu Dutta, Chief Executive at Third Eyesight, a consulting firm focused on the consumer goods industry.

(With inputs from Writankar Mukherjee in Kolkata)

Source: economictimes