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Nestle India buckles, pulls Maggi noodles

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June 6, 2015

Bureau, Financial Express

Mumbai, 6 Jun 2015

In a belated attempt to salvage its reputation, Swiss FMCG major Nestle on Friday decided to recall its Maggi instant noodles from the market to end the ensuing confusion in the minds of consumers, which it said did not provide a conducive environment for the product to be in the market at this point of time.

The company’s group CEO Paul Bulcke flew down to India and addressed a crowded press conference to reiterate that its products are safe to consume and that it applies the same quality standards and the same food safety and quality assurance system everywhere in the world. “We felt unfounded reasons resulted in confusion and the trust of consumers was shaken,” Bulcke said.

Though sales of Maggi in India account for roughly 0.005% of Nestle’s global revenue of almost 92 billion Swiss francs ($98.6 billion), Bulcke acknowledged that the recent developments had damaged its brand and the company was in for a long haul. “If you have confusion there is something wrong with communications. That’s why we are sitting here,” he said.

However, the company’s troubles do not seem to end. Even as Bulcke’s press conference was on, the food safety regulator, Food Safety and Standards Authority of India (FSSAI), ordered the company to recall all nine approved variants of the instant noodles from the market, terming them “unsafe and hazardous” for human consumption. It ordered it to stop further production, processing, import, distribution and sale of the product with immediate effect. It even said that Nestle launched the Maggi Oats Masala Noodles without approval and, therefore, ordered its recall as the company did not undertake a risk and safety assessment for the product. The regulator also said that Nestle violated labelling regulations on taste enhancer MSG and ordered the company to submit compliance report on its orders within three days.

After reports of presence of mono-sodium glutamate and lead in excess content in some samples surfaced in Uttar Pradesh around two weeks ago, till Thursday five states — Delhi, Gujarat, Tamil Nadu, Jammu and Kashmir and Uttarakhand — had banned its sale pending tests in government laboratories. Major retails chains as well as small eateries had also withdrawn the products from their stores and menu. However, with the FSSAI’s order on Friday the company’s woes are expected to increase and the crisis may get prolonged.

Referring to the reports of high lead content in tests by certain government laboratories, the Nestle global CEO said that the company needed to find out the methodology adopted by the government’s test centres. Denying that the company added MSG in Maggi, Bulcke said that MSG was found in the product because of natural ingredients like groundnut oil, onion powder and wheat flour which contain glutamate naturally. However, to remove any confusion the company has decided to remove from now on the “Contains no MSG” labelling.

While analysts welcomed the recall of Maggi by Nestle, they questioned the delay in doing so and even clashing with the regulator and denying the problem for weeks. “If you ask me, everything that Nestle has done is wrong. In this day and age of social media, you cannot question the government and consumers,” said Arvind Singhal, chairman of retail consultancy Technopak.

“Nestle India should have given higher priority to the interest of the consumer and should have done a nationwide recall right at the beginning instead of confronting the situation. In this case they have managed to lose trust of their consumers. Nestle India needs to understand that a brand lives on the trust of the consumer,” Devangshu Dutta, chief executive at Third Eyesight said.

(With inputs from Sharleen D’Souza in Mumbai.)

(Published in Financial Express.)

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Amit Agarwal Leads Amazon India As Online Retail Is Taking Off

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June 4, 2015

Saritha Rai, Forbes Asia
Bengaluru, 4 Jun 2015

“Is it big? Check. Can we add significant customer value? Check. Can we generate significant cash flow? Check. India ticks all the boxes for Amazon,” Agarwal explains in conversation. Yet the man described by colleagues as a detail-oriented machine knows his work is cut out for him. “Everything is nascent in India–the seller ecosystem, the logistics, the payments … . We have to connect the dots on a massive scale that involves hundreds of cities, thousands of sellers and millions of products.”

After two years the irrepressible global retailer has made noteworthy progress. It has partnered with 25,000 merchants of all hues, down to home entrepreneurs in little-known towns hawking fragrances and pet food. On its platform it offers 22 million products in thousands of categories ranging from gourmet foods to organic gardening supplies and minor coffee brands.

In its Indian home base, Bangalore, it is pioneering ties with select neighborhood stores, or kirana as they are called, to deliver everyday items like sodas, spices and shampoo within four hours. This has won over shoppers like Sudeepta Banerjee, a businesswoman in the Whitefield suburb, who buys everything from art supplies for her daughter to curtains for her home on the platform. “The variety is good and the customer service is great; I am not going elsewhere in a hurry,” she says.

Yet, despite the loyalty of such buyers, India at not yet $2 billion in yearly gross volume is still tiny for Amazon compared with its home U.S. market. “The country cannot contribute significant revenues to the parent for at least five more years,” said Gautam Chhaochharia, head of research in India at UBS and lead author of the recent report, “Is India in an e-commerce bubble?” The report says India’s e-commerce sales could exceed $50 billion by 2020 from $4.5 billion in 2014.

By contrast, analysts put China’s online retail trade at $460 billion but reportedly find Amazon, even with a dozen warehouse hubs and thousands of employees, to have only 2%. The market is dominated by domestic giants, Alibaba’s Tmall and JD.com.

India’s potential is too large to be ignored, and Amazon has a fighting chance despite domestic rivals having some years’ head start. It is distinguishing itself as a huge repository even as rivals focus on discounting, says Devangshu Dutta, chief executive of retail consultancy Third Eyesight. “Their recent mesmerizing ‘aur dikhao’ [show me more options] marketing campaign portrays a limitless store to match Indians’ compulsive aur dikhao buying behavior,” says Dutta.

Its rivals, however, shoot holes in Amazon’s customer-focused strategy. “We believe that focusing on sellers yields higher rewards and creates better value for both sellers and buyers,” said Rohit Bansal, COO of Snapdeal, which has 150,000 merchants selling 12 million products, including items produced by entrepreneurs in one of the world’s largest slums, the Dharavi neighborhood in Mumbai.

Amazon will not comment on its competitors. But it is trying to crush them with a three-pillared strategy–low prices, wide selection and fast delivery, says David Abikzir, chairman of Nymex Consulting in Bangalore. “In two years it has done what its competitors took seven years to do.” What none of them has done is make a profit.

The heart of Amazon India’s operations is within a high-rise called World Trade Centre in the obscure Yeshwanthpur neighborhood in northwest Bangalore. Out of his 19th-floor office there, Agarwal and his core team plot moves to tame homegrown rivals like Snapdeal, backed by SoftBank, and Alibaba’s Alipay-backed Paytm.

But the global retailer’s biggest challenge in the cutthroat market is Flipkart, launched seven years ago by two Amazon alums and dubbed, then, the Amazon of India. Flipkart’s backers, a who’s who of sector investors like New York’s Tiger Global, South Africa’s Naspers, the Qatar Investment Authority and Yuri Milner’s DST Global, are keeping it well-funded to chase furious expansion.

Last year, though, while on a visit to India, Bezos trumped a $1 billion Flipkart funding announcement. Decked in Indian wedding gear, he swung Bollywood hero-style from a festooned truck, posed for cameras and handed a $2 billion check to the India unit.

India had “surpassed” his expectations by hurtling past the $1 billion sales mark within 12 months of launch, the fastest billion anywhere in the world for Amazon, said Bezos. “We’ve never seen anything like this.”

There are two takeoff points for Indian e-commerce. First, in a landline-starved country, a dramatic smartphone price drop is making Indians take to their devices at a frenetic pace. This is enabling online transactions like never before, connecting traders in southern India to customers in Kashmir 2,000 miles away and the other way around.

Meanwhile, with branded brick-and-mortar retail only accounting for a minuscule 7% of total sales, online platforms are filling a breach. “In a country that, by its very nature, is entrepreneurial, if you take away the friction from the system, magical things can happen,” says Agarwal.

“There was virtually no e-commerce in India even six years ago, but it has now reached a tipping point,” says Rajan Anandan, managing director of Google India. “For many people outside India’s eight big cities, e-commerce will offer the first access to a truly wide range of products and brands,” he predicted. Sure enough, during Amazon’s Great Indian Summer Sale in early May, smartphone-toting buyers in unheard-of places ordered lacy nightwear, foreign makeup brands and gourmet Mexican and Thai ingredients. “India is an aspirational market, but would a Godrej Nature’s Basket [the country’s biggest retailer of gourmet foods] have the courage to open outside the biggest cities?” asks Agarwal. Orders quintupled, and many small merchants catapulted into the million-dollar (in revenues) club. “Our vast selection of products is our biggest differentiator,” says Amit Deshpande, Amazon India’s director of seller services.

Despite India’s rudimentary logistics chain, the international e-tailer offers timed deliveries for appliances and overnight, same-day and even Sunday deliveries in 100 Indian cities. Agarwal recounts that Diego Piacentini, a Seattle-based boss of global consumer business, ribs him, “You can’t even estimate the time it takes to get from the airport to the office and you’re offering guaranteed delivery to customers!”

At the delivery end each big online retailer in India innovates in remarkable ways. Flipkart has tied up with Mumbai’s hoary lunch carriers, the dabbawallas, for last-mile delivery. It is contemplating experimenting with delivery drones in rural India. Amazon won’t be left behind; it’s using postmen, gas stations and local shopkeepers.

The parent’s financial heft may ease some of the pressure on Amazon India, and Agarwal has his own know-how from years of directing international operations in Seattle: “My team worked to bring sellers on to the Amazon platform–there was no notion of a marketplace back then; my team invented the ‘marketplace’ to be a single, seamless experience for sellers.”

In India, Amazon has 2.5 million cubic feet of warehouse space in 11 “fulfillment centers” across nine Indian states, where 700,000 SKUs, or distinct items from books to plants, are stored. Agarwal says, “We look at this operation in a manufacturing sort of way–traders bring in the ‘raw material’ while we manage the variables both on the supply and the demand side.”

But this is India and the items could arrive on bicycle, by foot or by truck. Defect-checking, storing items in dusty, humid or extremely hot conditions, handling movement among India’s 29 states–all make for what Agarwal calls a “mind-boggling operation.” Technology helps: For instance, when sellers sign up, algorithms chart their risk profile.

Regulatory and tax issues are uniform vexations. In the southern state of Karnataka, where Bangalore is the capital, Amazon is threatening to shut down its hub after the government slapped several of its vendors with a $9 million tax arrears notice. Brick-and-mortar retailers, like Kishore Biyani of Future Group, are asking how e-commerce’s “platforms,” which they say are only different in name, are allowed foreign investment when foreign direct investment in retail is otherwise very tightly regulated.

Amazon is famously willing to endure red ink as long as there is consistent growth in the market. It has $2 billion in capital to run through in India in the next few years. “The bulldozer has deep pockets and has forced its competitors to raise further rounds of overseas funds,” says consultant Abikzir.

None of the market stress is showing on Agarwal’s boyish face yet, not even the undoubtedly irksome fact that the biggest fight is with Flipkart, set up by the former Amazon pair. Instead, the executive points to Amazon’s customer-centric flywheel: Great customer experience leads to more traffic, in turn attracting more sellers and leading to a better selection, which then leads back to happy customers. “It is all about transforming the way India buys and the way India sells,” offers Agarwal. Bezos wouldn’t say it less grandly.

(Published in Forbes Asia.)

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Puma clocking sales as much as leader Adidas despite its late entry into the country

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June 2, 2015

Shambhavi Anand & Richa Maheshwari, The Economic Times

New Delhi, 2 Jun 2015

Puma, which made its India debut in 2006, said it posted sales of Rs 766.75 crore in the 2014 calendar year, inching closer to companies such as Adidas and Nike that entered the country earlier.

The company has built on the advantage it took of a gap in the market when Reebok India took time out to deal with an alleged fraud in 2012 "I would not deny that the competition’s weakness was an opportunity that we grabbed," said Abhishek Ganguly, managing director of the German company’s local unit, in an interview. Among the measures it took was stepping up engagement with Reebok’s biggest vendor, Rishabh Sports Station. Around 300 of Reebok’s 900 stores were shut by parent Adidas as it sought to take stock and relaunch the brand.

This allowed Puma to fill the gap in the market created by Reebok’s absence. It also won the trust of Reebok’s vendors by utilising their capacity.

"Puma reacted to the vacuum that was created suddenly by Reebok’s misfortune. They were able to win over some of the vendors whose capacities were lying unutilised," said an executive at one of the suppliers that works with both Puma and Reebok. Reebok franchisees that approached Puma for a possible tieup were carefully evaluated. Puma was conservative with its store opening strategy.

"We did not convert… stores (where) we already had a store in that market or they were at undesirable locations," said Ganguly.

"In terms of franchisee management, we focussed on long-term sustenance of our stores and never opened multiple stores in the same location. We have always believed in quality distribution and not in over distribution. In some ways, we had the late-mover’s advantage and we learnt what not to do. So while others focussed on just opening stores, we put our energies in improving our customers’ experience in our stores."

"They’ve focussed on product design, and the brand is clearly at a premium position through its pricing. They’ve been able to connect well with the younger consumer on the desirability plank," said retail analyst Devangshu Dutta of Third Eyesight.

The Bangalore-based company also created open sandals and flipflops exclusively for the Indian market. "We sell over 5 million pairs of these every year," said Ganguly.

Among the competition, Nike India posted a loss of Rs 47 crore for the year ended March 2014, according to a filing with the Registrar of Companies (RoC). The company entered India two decades ago. Despite its troubles, Reebok posted a net profit of Rs 14.5 crore, while Adidas made a profit of Rs 136.9 crore.

According to internal numbers, Puma made a profit of Rs 29.09 crore in calendar 2014.

"We have grown over 13% in 2014 as compared to 2013 in terms of same-store sales," Ganguly said. Puma has 340 stores, of which 40 are run by the company. Product prices range from Rs 1,599 to Rs 15,000.

The entry level price has come down substantially in the last few years and so have discounts. Puma will boost its online presence in the coming months. It will also act as a market place for its franchisees. They are currently barred from selling on marketplaces such as Flipkart, Amazon and Snapdeal in a bid to curb any heavy online discounts. The company currently conducts business on those marketplaces directly.

(Published in The Economic Times.)

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Bansals troll each other on Twitter on tech talent

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May 29, 2015

Priyanka Pani, The Hindu Businessline
Mumbai, 29 May 2015

In response Sachin Bansal wrote on Twitter, “Don’t blame India for your failure to hire great engineers. They join for culture and challenge.”

The WSJ report said that Snapdeal was scouting for talent across the globe and even considering setting up a software developing centre in the US. Taking a dig at Snapdeal, Flipkart’s Bansal said, “It’s fashionable to say everything is bad in India. Hire from anywhere. I’m disagreeing with the statement that India lacks good engineers.”

Not taking things lying down, Rohit tweeted back, “Talking about culture, Snapdeal happened to be rated top 10 places to work in India, in case headline hunters missed this.” Earlier this month Housing CEO and founder of Zomato were taking pot shots at each other on social media. So are these entrepreneurs staging such online fights to be in the news?

Devangshu Dutta of consultancy firm Third Eyesight said social media was an integral part of this generation’s line of communication and expression. “May be the expression is blunt, quicker and gets amplified faster than it did in the past,” he said.

Image hit

Harish Bijoor of Bijoor Consultants is of the view that brand image gets affected by such squabbles. “Squabbles reveal character. Going public with a fight is washing dirty linen in the public for ostensible private benefit. In reality, nobody gains.”

Last year, Snapdeal had taken a dig at Flipkart’s big billion sale after the mega online sale by the Bengaluru-based company flopped.

(Published in The Hindu Businessline.)

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Hyperlocal: The new inclusive retail model

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May 28, 2015

Mehak Sharma, Indiaretailing.com

New Delhi , 28 May 2015

Grocery e-tailing — once not an in-favour category with Indian e-tailers — is gunning for growth with startups and existing players eyeing an online shot. For some though, it’s an exploration of the genesis of what really matters in retail.

Several startups are currently focusing on pulling in the unique advantages of neighbourhood pop-and-mom stores into a technology-driven delivery model. These are structured around linking kirana stores with customers through mobile apps and online portals, creating an online marketplace for these stores at a time when traditional retailers are finding the online retail model difficult to comprehend.

Enter the ‘hyperlocal’. The aim is to provide consumers convenient access to their favourite kirana stores, and for these stores to become more technologically organised.

"The hyperlocal model is really the culmination of 50-60 years of learning," explains Devangshu Dutta, CEO, Third Eyesight. "After years of large chains offering fairly standarised merchandise mixes to customers across geographies, we are now at a stage when startups are aggregating the mom-n-pop experience through technology."

Last year, e-commerce giant Amazon launched a similar service, called KiranaNow, to ensure quicker and faster delivery of everyday-need consumer products through neighbourhood kirana stores. Some others, including Grofers, LocalBanya and PepperTap, are also working on the same format.

"Our market research showed that consumers in large numbers buy a lot of basics from stores in their neighbourhood. But fulfilment of a requirement within a timeframe as desired by the customer is a gap area in online retail, and we decided to address this issue by developing an app to meet this need," says Saurabh Singla, a young IIT-graduate, who is also the CEO of Gurgaon-based hyperlocal startup, LazyLad.

Lazy Lad, which started operations in four Indian cities about a month ago, is banking on online technology, especially mobile applications, to bring smaller brick-and-mortar grocery stores under their fold with the objective of expanding and streamlining the grocery market in the country.

Where most startups see a huge potential in this model, some grocers are skeptic on the deliverables of the online hyperlocal. Manoj Satia, MD, Direrect2u Retail, a Mumbai-based grocery retailer, says, "There is no sustainable model by which a grocery e-tailer can monitor the deliveries by kirana stores. How will they determine if the deliveries are made on time? This could pose the biggest challenge in the success of hyperlocal format."

WHY HYPERLOCAL?

The market opportunity for the hyperlocal model in the food and grocery business is huge, which is attracting many fresh start ups. Groceries account for 65% of the consumer’s wallet spending, and if this category takes off online, there could be an upside to the growth of e-commerce, which is expected to touch anywhere between $48 billion and $60 billion by 2020 from $4.47 billion last year, UBS Securities said in a report on e-commerce released earlier in April.

Dutta points out that neighbourhood stores have a clearer and sustained understanding of local tastes and shopping preferences, which large scale chains — with their centralised systems and ‘distance’ from local customers — do not possess. "The hyperlocal is really how businesses were run decades ago; albeit in new packaging, it is really a back-to-the-basics model."

And how sustainable is this model? According to Dutta, the growth of new hyperlocal-centric ventures will depend on two factors: the robustness and scalability of the technology infrastructure, and the success it achieves with both consumers and retailers. "If the model is not successful in neighbourhood A — from both consumer and seller point of views — it is unlikely to scale to somewhere else."

Interviews by Sanjay Kumar and Nupur Chakraborty

(Published in Indiaretailing.com.)