Rashmi Pratap, The Hindu Businessline

Mumbai, 6 May 2016

When the 119-year-old Godrej group decided to go for an image makeover eight years ago, it roped in international advisory Interbrand for a valuation of its brand. The idea was to not just gauge the financial prowess of brand Godrej (valued at $3 billion by Interbrand in 2010) but also facilitate strategic decisions such as rejigging product portfolios and connecting more deeply with consumers. The valuation exercise and its diagnostics were a means to help grow the brand value.

On the other hand, for industrialist Vijay Mallya, the valuation of ₹4,100 crore for the Kingfisher Airlines brand served another purpose. The brand became the single largest collateral for loans exceeding ₹9,000 crore. That valuation, carried out by Grant Thornton in 2011, is now under scrutiny.

Mallya is certainly not alone in using a well-known brand to raise money. New Delhi-based LT Foods also used its Daawat rice brand to raise debt back in 2008-09.

As things stand, companies across sectors are opting for brand valuation to meet various objectives. The hospitality sector, including hotel chains and airlines, is using it to improve customer connect while the engineering sector focuses on intangible value creators like intellectual property (IP) and research and development. The biggest users, however, are the FMCG and consumer durables firms, which seek to unlock their brand portfolio and optimise marketing investment.

“Consumers today have far more choices and their attention is divided. Brands need to cut through this. Moreover, the cost of marketing is escalating and is a big consideration when introducing a new brand or extending an existing one,” says Shireesh Joshi, COO, strategic marketing group at Godrej. Brand valuation allows the company to assess the brand’s strength, both qualitatively and quantitatively, by putting a science behind it. This, in turn, impacts the company’s strategic decisions including international forays or acquisitions.

Parts of a brand

Brands include the names, terms, signs, symbols and logos that identify goods, services and companies. But brand value is not just a financial number. “It is a measure of several factors like loyalty of customers, the ability of a brand to keep offering newer products and technology, and the connect with consumers, who give it a premium,” says Ajimon Francis, India head and CEO for global brand consultancy Brand Finance.

“A brand is an image, comprising a bundle of promises on the company’s part and expectations on the consumer’s part that have been met. If a customer perceives a higher value in a brand, she will be ready to pay a premium for it,” says Devangshu Dutta, chief executive of consultancy Third Eyesight.

The UK’s Reckitt Benckiser knows this all too well. In 2010, it paid ₹3,260 crore to buy Ahmedabad-based Paras Pharmaceuticals, the maker of brands like D’Cold, Krack and Moov. The deal valuation was eight times Paras’s sales of ₹401.4 crore and largely attributed to the strength of the company’s key brands.

Interbrand MD Ashish Mishra says brand is a key factor in calculating the premium pricing in M&As. “Often, it is the latent potential of the brand that is driving this premium, through its ability to enter new markets and extend into adjacent categories. A broad skill set — combining market research, brand, and business strategy with business case modelling — is required to quantify the latent financial potential of the target brand,” he says.

Additionally, the brand valuation methodology can be used to complement the other processes involved in setting royalty rates. “By identifying the value created by a brand for its business, combined with an evaluation of the relative bargaining power of the parties involved, we can determine the proportion of brand value that should be paid out as a royalty rate in return for the right to exploit the brand,” he adds.

A case in point is the Tata group. Brand Finance had valued the Tata brand at ₹1.3 lakh crore in 2015. While Tata Sons, the brand’s owner, has not valued it, group companies have to pay royalty for using it. Under a 1996 agreement, Tata Brand Equity and Business Promotion companies using the Tata name directly pay 0.25 per cent of the annual revenue or 5 per cent of the profit before tax, whichever is less, as royalty. Companies using the brand indirectly pay 0.15 per cent of the turnover. The overall annual payout has now been capped at ₹75 crore.

Through thick and thin

While Mallya may have made the cleverest use of brand valuation, the Godrej group used it to the hilt to reposition itself and connect better with youth. It came up with the new proposition of ‘Brighter Living’ in 2008 and launched newer products like door cameras, air fresheners and personal repellents to target younger consumers. More importantly, the valuation exercise helped Godrej reinvent its design language. “For long, Godrej has been known to be a sturdy engineering brand and one of the important directions it needed to become much stronger was emotional attachment with its customer base,” says Joshi.

Over the last few years it has greatly focused on design across its divisions and offerings, be it Godrej properties, furniture or consumer products. “Great design, in addition to great function, ends up creating a great bond with consumers. The valuation exercise added scientific support to what people had been feeling all along,” he adds.

Not just in stepping up business, brand comes into play equally in shutting down unviable ones, as Raymond did with its Zapp! kidswear brand. Launched with much fanfare in 2006, the brand didn’t take off as the market was not ready to pay premium pricing (starting at ₹2,000) for kidswear.

“Brand valuation helps the management understand how a brand is moving along with other brands and whether it is able to keep pace. They can accordingly decide its future,” says Francis.

For a reliable yardstick

Despite the growing need for brand valuation, there is no standard methodology in use.

The ISO 10668 standard specifies a framework for brand valuation, including objectives, bases and methods of valuation besides sourcing of data and assumptions. It also specifies methods for reporting the results of such valuation. But it remains a voluntary standard as of now.

“It is globally accepted by large valuation firms as well as regulators and financial institutions. But following it is a subjective matter,” says Francis.

His firm, Brand Finance, follows the Royalty Relief method, which determines the value a company would be willing to pay to license its brand as if it did not own it. It involves estimating the future revenue attributable to a brand and calculating a royalty rate that would be charged for the use of the brand.

Mishra points out that Interbrand’s valuation model has three core components — an analysis of the financial performance of the branded products or services, the role the brand plays in the purchase decision, and the competitive strength of the brand. “These are preceded by a decision on segmentation and, at the end of the process, are brought together to enable the calculation of a brand’s financial value,” he says.

But what happens when a company that mortgaged its trademarks with financial institutions to raise funds goes bust?

“This (Kingfisher case) is a unique situation… When a trademark is used as an asset for lending, one of the disciplines which global financial institutions follow is a rigorous tracking of the profit-and-loss account and cash flows of the company. If the business faces a setback, the value of the trademark falls drastically,” says Francis.

It appears then that due care was not taken in the Kingfisher case. Whether banks will ever recover the money from Mallya is not known. But what is certain is that financial institutions will now be more careful in setting much store by mere brand power.

After all, like any other power, this is liable to fluctuate too.

(Published in The Hindu Businessline)

Viveat Susan Pinto, Business Standard

Mumbai, 5 May 2016

Fabfurnish.com, the online furniture retailer acquired by Kishore-Biyani-led Future Group, was relaunched on Thursday with a fresh campaign and a slew of deals. It marks a new chapter in the evolution of the group, which is best known for kicking off the modern retail revolution in India a decade ago.

However, when Biyani, 54, laid his hands on the Rocket-Internet-promoted company last month, it did come as a surprise. The Marwari businessman has been a fierce critic of the e-commerce business model in India, saying it is designed to lure consumers with discounts with little focus on profits. He had told Business Standard earlier that he was waiting for the bubble to burst before he would make his moves.

That moment appears to have arrived. Fabfurnish is his first acquisition but more such deals could be in the offing. “I am not closed to the idea,” he says. “I will do it selectively and ensure our investments make money,” he adds.

It is clear the lines between physical and virtual shopping are blurring for him. In a press conference on May 4, he said he plans to merge the group’s home furnishings business under HomeTown with Fabfurnish and subsequently de-merge it from flagship Future Retail.

The goal is to unlock value and make his home furnishings business a stronger enterprise in the face of increased competition. Once the online and offline arms are merged, HomeTown is likely to reach a turnover of Rs 1,000 crore within a year. It closed the last financial year with revenues of around Rs 750 crore.

The driving force

Biyani’s hybrid business model, also called omni-channel retail in industry parlance, is a compulsion, say analysts. With consumers today spread far and wide, brick-and-mortar retailers have been left with no option but to add an online leg to their offline operations in a bid to reach as many customers as possible, and quickly.

Biyani has been at work on an omni-channel presence for a year now, trying to create a seamless and consistent brand experience across his group’s retail channels: bigbazaardirect, futurebazaar.com and offine stores. Other retailers, including Reliance Retail, Aditya Birla Retail and Shoppers Stop, have also been working on creating an omni-channel presence in recent months.

“The endeavour is to reach more consumer touchpoints and ensure you are there while the action is on. The ultimate objective is customer acquisition. That will mean that you have to go where he or she is,” says Devangshu Dutta, chief executive, Third Eyesight, a consultancy firm.

A recent study by the Retailers Association of India and Mumbai-based data analytics firm Hansa Cequity says that nearly 74 per cent Indians shop across all channels including neighbourhood stores, modern trade outlets and online platforms.

The study also notes that a significant number of these consumers still prefer to touch and feel products before buying, implying therefore that an online-only model is not enough.

Domestic e-tailers have picked up this cue. The top three e-commerce majors -Flipkart, Snapdeal and Amazon – have all gone offline in the last six to eight months to ensure the “touch and feel” experience is provided to consumers.

Flipkart, for instance, has tied-up with brick-and-mortar retailer Spice Hotspot to provide access to its exclusive range of phones offline. Its fashion arm Myntra is in advanced talks to acquire brick-and-mortar chain Forever 21, which will allow it to stock its online catalogue offline.

The same goes for rival Snapdeal, which has initiated tie-ups with The Mobile Store and Shoppers Stop for mobiles and apparel, respectively. Amazon, too, is tying up with small retailers across the country in a bid to allow consumers with no internet access to shop online in these outlets. It is also setting up Amazon-branded stores offline.

Additionally, the top three e-tailers have pick-up stores offline where consumers who’ve purchased products online can get delivery of their goods.

Dutta says the online-offline retail marriage follows global trends. “E-tailers abroad such as Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK have all opened physical retail stores in recent years. This completes the picture in a sense and plugs gaps if any,” he says.

Social media to retail

Hybrid business models are not restricted to retail alone. Social media giant Facebook recently entered hyper-local services in India, offering everything from medical and repair to business and personal services. Apart from letting users to browse for these services, the initiative also allows them to leave reviews so that other consumers can make the right choice.

Tech giant Google, too, is on a similar adventure. In recent years, it has ventured into making wearable tech devices, mobile phones and is now piloting driver-less cars. This even as it strengthens its presence online with a suite of services from basic search to online advertising, email, chat, browsing and software for phones.

Harish HV, partner (India leadership team), Grant Thornton India, says that hybrid business models for these companies is a way to ring-fence themselves from competition by marking their presence in virtually every space.

This online-offline merger, he says, will mean that these firms will get stronger as they enter new areas. The world is indeed shrinking.

(Published in Business Standard)

Chaitali Chakravarty & Sagar Malviya, The Economic Times

Mumbai/New Delhi, 29 April 2016

Walmart, the world’s largest retailer, is interested in selling food products directly to Indian consumers both by setting up brick-and-mortar as well as online stores, but it will take a final decision after evaluating the policy guidelines that will be notified by the government, said the head of its India unit.

“The business of brick-and-mortar food retail stores and online sale of food products is of interest to us, but we have to evaluate the policy guidelines once they are notified,” Walmart India Chief Executive Krish Iyer told ET in an exclusive interaction.

The government announced its intention to allow 100% foreign direct investment (FDI) in ‘marketing of food products manufactured and produced in India’ in the recent Budget. The final rules will have to be approved by the Union Cabinet before they are notified. “Never in the Budget has the government taken so much interest in retail, and it is encouraging. 100% FDI in food marketing is a progressive step,” Iyer said.

“100% FDI in food marketing will provide better realisation to farmers and bring down prices of essential commodities,” said the India head of Walmart, which so far does not sell directly to consumers in India. It operates 21 cash-and-carry stores, with small retailers and businesses being its main customers. The retailer plans to open another 50 such outlets in the next three years.

The company sources its own brands — Members Mark and Right Buy — from within the country, something that sits well with the ‘Make in India’ initiative.

“Private label will be a huge differentiator in terms of bringing store footfalls. They are being made in India and benefit customers in terms of lower prices and better quality,” Iyer said, adding private labels will have an important role to play in food retail.

In-house brands account for 20-30% of sales and nearly half the profits of most retailers. With 60% of this coming from food alone, several Indian retailers are now present in more than a dozen food and packaged commodity product segments.

The Department of Industrial Policy & Promotion has moved a Cabinet note and industry officials believe that final rules will be approved in 4-8 weeks. They are hoping that besides brick-and-mortar stores, the government will allow online retailing of food products and will also expand the definition of food to include grocery.

Iyer, who joined the Indian unit of the world’s largest retailer two years ago, said food items along with home and personal care products would make the model more viable. Walmart had entered India a decade ago in a 50:50 cash-and-carry joint venture with the Bharti Group. This foray was seen as a first step by the US retailer towards eventually opening its own stores to sell directly to consumers, once government policy was suitably amended.

But the move to open up the retail sector to foreign investments got mired in political controversy. While the United Progressive Alliance regime eventually allowed 51% FDI in the sector, Bharatiya Janata Party has so far been opposed to allowing foreigners to open multi-brand retail stores in the country.

“Retail is a local business and it won’t work without local leadership or by following global templates. But given Walmart’s history, they would want to enter retailing alone as it will give them confidence on the expansion strategy as well as proper control,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. “Even if FDI is allowed completely, the caveats or riders will mostly support local business.”

Morgan Stanley expects the country’s food and grocery segment to become the fastest-growing category, expanding at a compounded annual rate of 141% by 2020 and contributing $15 billion, or 12.5%, of overall retail sales.

While most retailers get 55-60% of their sales from food and staples, general merchandise, personal and home products make up a bulk of their profit pool with net margins as high as 10-15% compared with food, which fetches 3-5%.

“Walmart can bring volume to Indian food retailing but they have to tweak their global model here. There is a huge gap between high-end food supermarkets and local food retailers which Walmart can bridge,” said Ruchi Sally, director at retail consultancy Elargir.

(Published in The Economic Times)

Richa Maheshwari, The Economic Times

Bengaluru, 15 April 2016

Paytm plans an aggressive expansion of its online travel business by branching out into rail, road, airline and tour bookings in order to drive more traffic to its portal that is largely payments driven.

The company has partnered services marketplace Ezeego1 for hotels and flight bookings and is also in talks with several airlines. The online player is also integrating the rail inventory of Indian Railway Catering and Tourism Corporation on its platform.

“It is becoming increasingly challenging for vertical players to drive traffic. Whereas, horizontal players like Paytm have been fairly successful in driving loads of it,” said Abhishek Rajan, head of travel marketplace, Paytm. The company is planning to invest around Rs 120 crore on its travel marketplace in the current financial year.

A horizontal player in the ecommerce space offers multiple shopping categories such as books, apparel, appliances and more on a single platform whereas, a vertical player specialises in one kind of offering.

Paytm will earn a commission for each booking made through its platform. The company launched its travel marketplace last year and has restricted to book buses and hotels. It aims to roll out adventure tours, inter-city cabs and overseas travel requirements such as visa application and money conversion by the end of this year.

As per a recent Morgan Stanley report, categories like payments, travel and taxis saw an increase in total fundraising from 12% in 2014 to 44% in 2015.

Last month, rival Snapdeal had integrated bus, flights and food delivery bookings on the platform to drive up its gross merchandise value. “Horizontals are looking at monetising their user base with a focus on GMV and repeat use cases. As the funding environment becomes tougher, growth in these metrics will stand out,” said an investor in of the top three ecommerce companies.

Paytm, however, is building a marketplace taking a cue from Alitrip, the travel marketplace run by its investor Alibaba in China. “Our intention is to continuously add new travel categories to the platform and drive organic growth without making large marketing investments,” added Rajan.

According to experts, the strategy can ring in higher margins, too. “These services won’t take up any extra cost in terms of physical space and there is no delivery cost too. Hence, these players will make better margin out of it while providing something new to consumers,” said Devangshu Dutta, CEO at retail consultancy firm Third Eyesight.

A report from the Internet and Mobile Association says that the total value of digital commerce stood at Rs 81,525 crore in 2014, of which Rs 50,050 crore, or over 60%, was accounted for by the online travel segment.

(Published in The Economic Times)

Financial Express

15 April 2006

BUSINESS CASE TO BE ANALYSED: Akash Paul was finding it hard to bet on the profitability of a proposed new venture when there was hardly any precedent of such a model in the country, which is one of the largest producers as well as biggest market for fresh produce.

The model proposed a value proposition based on quality, shelf life, size and hygiene. It stressed controlled post harvest process with procurement partnership with sales through distinct marketing channels to sell different grades at different prices in main cities to begin with. But most important of all was a new definition of an organisational set-up.

This could not be achieved without a wired system which connects everything from farm to fork and gives real time information to all decision-makers concerned. Executives would require a thorough diagnostic dashboard to understand produce health, supply issues, problem sources and market pulse continuously. Thus, investments in a mature enterprise solution with supply chain capabilities along with sound analytical tools were suggested. A customised solution for basic enterprise solution by an experienced IT vendor who understands the company and location would fit the bill.

Finally a solution from leading global enterprise resource planning (ERP) vendor was implemented. It took lot of time to train people on the processes and using on state of art systems. However, Mr Paul, was still wondering at the end of six months whether the venture will really break even at the end of the third year as projected.

Source: O P Wali, associate professor , IIFT

ANALYSIS BY DEVANGSHU DUTTA, Chief Executive, Third Eyesight
Most consumer, product-supply chains have evolved into fairly complex chains for two main reasons. Firstly, despite all the talk about removing intermediaries, there are still many people involved in the entire supply chain at different levels – for no reason but that they do add some value in the steps they are handling. Whether this is breaking of bulk, or handling of disparate products, shipping or storing goods, or providing bridge finance, each intermediary is in the chain because he has a role to play.

Secondly, and more importantly, product diversity has increased tremendously. Whether it is the number of brands available of biscuits, or the number of types of melons, or the package sizes of shampoos, the growing market has created more suppliers, more product segments and more variety for the retailer to handle.

With perishable items, a third factor gets added in: date of production and shelf-life. Clearly, even in a developing market like India which has lax regulation and low compliance, consumers are increasingly aware of perishability of products. And as companies grow in size and profile, their vulnerability to litigation also increases.

The retailer, who is the critical link between the consumer and the rest of the supply chain, must effectively manage not just the diversity and the perishability, but also communicate with and manage with the rest of supply chain. And given the nature of the complexities, Mr Paul’s business would have no choice but to implement an effective IT system that would keep the company’s executives clued into the information on as near-time a basis as feasible. For a company that is planning operations at a certain scale, even the opening of one store without the IT system would create a huge gap to overcome in subsequent growth.

However, the IT system alone cannot guarantee the success or failure, and certainly not the profitability of the venture. Technology may be seen as the easy quick-fix, or as the stick with which to drive process discipline. But to me it is the last link in a chain that begins with ‘People’ and leads to ‘Processes’. Without the right orientation, training and skills, effective processes cannot be created. Without effective processes, the best IT system in the world is, at best, very effectively enabling a bad organisation.

The advantage of an existing branded product is that it is more ready for roll-out than a bespoke (custom-developed) system would be. Not just would it take more time to create a bespoke solution, it would also require the involvement of senior management. Senior management time is a rare commodity in the best of times – in a start-up business, it is even more scarce.

There is also the premise that a branded IT product that has been implemented across other companies will have some amount of best practice built in. With the assumption that poor practices are not also built into the system, it might actually help the management to leap-frog the business learning curve.

On the other hand, Mr Paul may be paying for features and capabilities in the branded IT product that his fledgling business will not use for a long time. Customisation and implementation needs may also push the cost over the limit.

Therefore, the ERP system must be evaluated just like any other business investment or expense.

There must be a clear rationale for it, a very clear set of objectives and deliverables, and a well-structured programme and project plan for implementation. Like any other investment, it must also be evaluated for returns.