Reliance Retail to pick up Metro’s India biz for ₹2,850 crore


December 23, 2022

ET Bureau, Dec 23, 2022

Reliance Retail Ventures, a subsidiary of Reliance Industries and the holding company of the group’s retail businesses, signed definitive agreements to acquire German wholesaler Metro AG’s India business – Metro Cash & Carry India-for a total cash consideration of ₹2,850 crore.

As part of the deal, Reliance will get 31 large format stores in 21 cities as well as the realty portfolio that includes six store-occupied properties, 3,500 staff and Metro’s 3 million B2B customers, of which 1 million are frequent buyers. The deal is subject to regulatory and other conditions and is expected to be completed by March 2023, the companies said on Thursday. ET had first reported in its edition dated Oct 15 that Reliance is the frontrunner to acquire Metro’s India business.

Metro AG said in a release that the India business valuation implies a sales multiple of 0.6x based on sales in the year ended September and takes into account lease rental and other related liabilities of e150 million (₹1,320 crore). Metro India generated sales of ₹7,700 crore (926 million euros), its best ever, in the year ended September.

Metro expects a transaction gain of about 150 million euros and an earnings per share (EPS) gain, once the deal closes.

The move will help Reliance consolidate its presence in the B2B trade segment, which it calls new commerce and is among its next big growth drivers, intensifying competition with Udaan, Amazon and Walmart-owned Flipkart. Reliance owns and runs the country’s largest retail business. All Metro India stores will continue to operate under the Metro brand during an agreed transition period.

Reliance Retail Ventures director Isha Ambani said the acquisition of Metro India aligns with its new commerce strategy of building a unique model of shared prosperity through active collaboration with small merchants and enterprises.

“We believe that Metro India’s healthy assets combined with our deep understanding of the Indian merchant and kirana ecosystem will help offer a differentiated value proposition to small businesses in India,” she said.

Metro AG chief executive officer Steffen Greubel said it is selling a growing and profitable wholesale business at the right time. “Indian trade industry is currently experiencing strong consolidation and disproportionate growth in ecommerce, including the B2B segment,” he said. “Due to the market dynamics, a sizable investment would be required to further grow the business. Therefore, now is the right time to use the momentum and open a new chapter for Metro India.”

Metro said it aims for a leading market position in wholesale. Due to increasing market consolidation, accelerated digitalisation and intense competition, Metro India’s operations don’t fit Metro’s core growth strategy, it said. Abneesh Roy, executive director, institutional equities at Nuvama, said the price to sales ratio is 0.37, which seems fair, given the B2B segment is a low-margin business.

Reliance will gain a significant jump in revenue and established locations that it can expand or optimise under its own branding and formats, said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “The additional shelf space will also be very welcome for its own FMCG brands,” he said.

(Published in The Economic Times)

Metro AG global CEO Steffen Greubel hints at exiting India


December 20, 2022

Metro AG global chief executive officer Steffen Greubel said the company is at a “very advanced” level of discussions on its India business, suggesting for the first time that it could be looking at an exit from the country soon.

“We are very advanced in the process regarding India and are at a certain maturity level in the process. It’s too early to share any information, but we have discussed it greatly,” Greubel told analysts when asked if he is looking at a possible withdrawal from India and the status of talks. “We are very deep in the (sale) process in India,” he said last week while announcing annual earnings.

The German wholesaler grew its Indian business by 21% to $982 million during the year ended September, as per its latest annual report.

Last month, ET reported that Reliance had agreed in principle to buy Metro AG’s cash-and-carry wholesale India business for ₹4,000-4,500 crore.

Its unit Reliance Retail is already the biggest grocery retailer in the country with over 2,400 stores across formats while Metro operates 31 wholesale stores in India with seven of them on company owned land in prime locations. The company hasn’t publicly stated that it’s looking to leave India. Metro would be the second big international wholesaler retailer to exit India, if this happens. French retailer Carrefour wound up its India business in 2014 after struggling with sales for four years.

Globally, Metro is the world’s fourth-largest retailer by revenue. In India, it doesn’t sell directly to consumers and is an organised wholesaler or cash-and-carry operator that sells merchandise to local kirana stores, hotels and catering firms.

It decided to put the India business on the block as part of a global decision to exit the country due to heightened competition, a tougher regulatory environment and the lack of a level playing field between local and foreign retail companies, industry executives said.

Experts said the difficult European and global economic environment, regulatory restrictions in India, tough competition from domestic Indian groups and thin margins in the B2B business in India may have led Metro to focus on growing its core markets in Europe.

“Though India is, indeed, a long-term strategic market for companies looking at global growth, whether retail or B2B, not every business model from other geographies can be successfully transplanted or rapidly scaled in India, and Metro’s business footprint in India may be far smaller than they may have expected in the two decades of presence here,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. The choice to be present in different countries is always a dynamic one for global retailers and entry or withdrawal is driven by individual strategies, rather than solely on the merit of the market itself, he said.

“In September, the management board reported on the current status of the audit of strategic options for Metro India,” according to the annual report.

Overseas investment in offline trade has been a tricky issue, despite India allowing 100% foreign direct investment (FDI) in wholesale trade on a cash-and-carry basis. Metro was one of the first companies to enter the segment in India in 2003. Lobby groups representing small Indian retailers have accused overseas retailers of violating FDI rules, which the foreign companies have consistently denied. Some trade lobbies have complained to the government that a few global wholesalers have been flouting FDI rules by selling to consumers directly, which is not allowed as per current regulations.

(Published in The Economic Times)

A meaty challenge


December 12, 2022

Christina Moniz, Financial Express

December 12, 2022

This year has seen the entry of several brands into the plant-based meat category, from large players like ITC and Tata Consumer Products to newer brands like Licious. Mock meat, a growing trend especially in Western markets, is a plant-based protein processed to resemble and taste like meat. From vegetarian ‘chicken nuggets’ and sausages to meat-free ‘mutton’ seekh kebabs, most Indian players use ingredients like soya and jackfruit to mimic the texture and taste of meat.

The Indian vegan meat market is rather small currently — estimated to be around Rs 250-300 crore. But consider the potential: About 41 percent of respondents in India identified as either vegan, vegetarian, or pescatarian in a 2021 survey. A report by Wazir Advisors estimates that this category will grow 8-10 times to reach Rs 3,500 crore in 2026.

Looking from a global perspective too, this new category cannot be written off as just a blip. Worldwide, the consumption of such meat substitutes grew from 133 million kg in 2013 to 470 million kg in 2020.

While the projections are fantastic for this market, it is still very small within the entire food category, points out Sandeep Singh, co-founder of Blue Tribe Foods, a two-year-old start-up in this segment. What is needed to grow the category, he believes, is innovation. “The food items need to move beyond burgers and nuggets to appeal to the Indian non-vegetarian consumer. For example, someone needs to create a good chicken tikka masala or a good kheema to attract the Indian palate,” he explains. Earlier this year, star couple Virat Kohli and Anushka Sharma announced their investment in Blue Tribe Foods, a move that has boosted awareness for the brand and category, says Singh.

Variety & cost

Tata Consumer Products, which launched its vegan meat brand, Simply Better, in July this year is tapping into the trend of consumers moving towards healthier and sustainable lifestyle choices. Deepika Bhan, president, packaged foods (India), Tata Consumer Products, maintains that the market holds great growth potential. “Over 70% of the Indian population is flexitarian (consumes both vegetarian and non-vegetarian food). Surveys also show that over 73% of Indians today are protein deficient. These data points signify untapped potential in the plant protein segment. The consumer cohort, which is aware of the health and environmental benefits of plant protein, is likely to expand to a more diverse audience seeking to supplement their diet with alternate, plant-based meat,” remarks Bhan.

Cost is a factor hindering growth. Currently, the pricing for plant-based meat is 1.5 times the price of real meat products. “For premium consumers, price is not a challenge but to gain scale and reach the masses, pricing needs to be more attractive,” observes Devangshu Dutta, CEO, Third Eyesight. Indians have for decades consumed soya nuggets and products as a source of protein and as a meat alternative, but brands today are targeting urban consumers who are not price sensitive. “The consumers that brands are targeting are influenced by trends in Western markets and adopting veganism for ethical or health reasons,” adds Dutta.

Another consumption trend that is unique to Indian consumers is that there are around 100-odd non-meat eating days annually, on account of religious or cultural occasions. Meat and seafood company Licious is targeting these consumers on non-meat eating days with its newly launched vegan meat brand, UnCrave. Simeran Bhasin, business head, alternative protein, Licious, states that all brands in the category are still on a journey to improve their offerings . “Our plan is to create relevance before aiming to take a share in it. Eating is believing, and we want more of our consumers to sample our alternative protein offerings. So, we send samples of UnCrave along with Licious food deliveries to encourage consumption and drive brand awareness,” explains Bhasin.

While UnCrave is currently present in only four cities (Mumbai, Delhi, Pune and Bangalore), she asserts that there is a market for the brand in non-metros too and expects the brand to reach the top 20 markets by the end of the next fiscal.

(Published in Financial Express)

Shoppers Stop Plans ‘Value’ Stores to Lure More Customers


December 5, 2022

Faizan Haider, The Economic Times

New Delhi, 5 December 2022

Shoppers Stop is planning to open a value format to attract consumers opting for lower priced brands such as Tata Zudio and Landmark Group’s Max, two officials privy to the launch said.

The idea is to open stores on ty to sustain and the lines of Zudio and Max and capture a larger market especially in smaller towns,” one of them said. “The first store, sizes anywhere between 7,000 8,000 square feet could open in the next three months.”

Shoppers Stop is foraying in to the mass-priced segment after three decades of selling premium apparel and lifestyle merchandise. Experts said India’s consumption structure has been skewed in the past over a narrow base of richer consumers accounting for a large chunk of the overall market. However, as the economy is broadening across many more cities and the impact is reaching further down the income ladder, the opportunity for value-formats and value-brands is expanding.

“Shoppers Stop’s competitors have demonstrated mixed success in the mass segment. and servicing this segment needs merchandising agility to respond to varying customer preferences across markets, as well as the financial ability to sustain and scale,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “In the diversity of India’s market, scale alone isn’t enough to guarantee success.”

Shoppers Stop may open first few of its value format stores in tier 2 cities before taking them to metroci ties, people cited above said.

The company did not respond to the email query till press time on Sunday.

“The value format segment is growing and during Covid 19 we have seen consumption increasing in Tier-2 cities,” said Shriram PM Monga, cofounder at retail consultancy firm SRED.

“These cities also have grade A malls now, offering retailers quality space.” Tata Group firm Trent had earlier indicated that Westside accounts for 70% of its standalone business but Zudio, an affordable fast-fashion brand, has the potential to outpace the department chain due to the size of the opportunity in the value segment.

For Lifestyle International, its value brands Max and Easy Buy have already outpaced the department stores by sales – back in 2019 – indicating that consumers are increasingly seeking either lower-priced merchandise or opting for global brands such as Zara and H&M for fashion apparel instead of department stores.

Shoppers Stop has 296 stores spread across 3.8 million square feet, which include 91 department stores, 11 HomeStop home furnishing shops, 139 beauty stores, and 25 airport doors. It is on track to add 12 department stores and 15 beauty stores during this fiscal year.

According to Retailers Association of India (RAI), overall retail sales in October 2002 grew 15% year on year and by 19% when compared to pre- pandemic sales level (October 2019).

(Published in The Economic Times)

Global apparel companies bounce back in India in style


November 28, 2022

Sagar Malviya, ET Bureau

November 28, 2022

About half a dozen global apparel and lifestyle brands expanded anywhere between 30% and 70% to garner combined annual revenues of nearly $2 billion in FY22, reversing the performance from a year ago when Covid-induced curbs on mobility and business operations caused sales to shrink.

Sales of Swedish fashion retailer H&M expanded 49% while rival Zara reported a 61% increase in its topline. Japanese brand Uniqlo saw a 64% jump in sales while American denim maker Levi Strauss posted a 58% increase, latest filings with the Registrar of Companies showed. Dubai-based department store Lifestyle International, too, saw a 38% jump in revenues on a large base while German brand Puma expanded 68% despite being the biggest firm in the sporting segment.

“This is a combined impact of a rebound in industry-wide demand in India, a low base effect for some brands, and the visibility and mindshare advantage global brands have,” said Devangshu Dutta, founder of Third Eyesight, a strategy consulting firm.

Big Focus on Online Sales

“Global brands are aspirational not only for consumers but also for real estate developers. Perceived as anchor tenants, they get their choice of the best locations – this provides more impetus to their stores vis-a-vis Indian brands, which are shunted to higher floors in multi-level shopping spaces,” Dutta said.

The revenue surge comes at a time when most of these retailers are facing intensifying competition from both local and global rivals in an increasingly crowded market where web-commerce firms continue to offer steep discounts. Even multinational companies have upped their online focus and for some, web-based orders make up more than a third of their revenues.

For instance, Puma India’s online sales make up nearly half its total business, while for H&M the share is 42%.

Abhishek Ganguly, managing director, Puma India and Southeast Asia, said the affinity of young Indian consumers toward ecommerce is extremely high and that adoption of the online mode of shopping continues to accelerate even after the resumption of normal business operations.

“Consumers may have bought online for the first time during the lockdowns, but they have embraced ecommerce in their shopping journey,” said Ganguly.

“Almost half of our business is in the form of digital commerce today. Having said that, we are witnessing equally strong growth – both in our offline and online channels,” he said.

As the world’s second most-populated country, India is an attractive market for aspirational apparel brands as rising disposable incomes cause the consuming base of the pyramid to broaden further. The performance by global brands is also in line with the overall trend within the home-grown apparel and lifestyle segment, with Shoppers Stop, Tata-owned Trent and Aditya Birla Fashion & Retail also reporting smart performance rebounds, indicating a secular demand for discretionary products.

(Published in Economic Times)