Mihir Dalal, Nikita Garia, MINT
Bangalore, 17 July 2014

Online fashion retailer Fashionara.com has raised $7-8 million (around Rs.42-48 crore) from its existing investors Helion Venture Partners and Lightspeed Venture Partners and plans to increase its sales by three times to Rs.100 crore this fiscal year by expanding into new cities and increasing its product range.

Fashionara, a specialist online apparel retailer founded by former Madura Garments and Reliance Trends executive Arun Sirdeshmukh and e-commerce specialist Darpan Munjal, raised the money earlier this year, two people aware of the matter said. The company has now received roughly $15 million since it started out in 2012.

“We don’t play the discount game as aggressively as Myntra and Jabong but even then we are doubling sales every second quarter,” chief executive Sirdeshmukh said. “Unlike other sites, we’re not trying to convert people to online shopping; most of our customers, primarily women, are those who are already online but are looking for high quality fashion. We are focusing on personalized service, offering the latest fashion as well as convenience in shopping by boosting product discovery features on our site.”

Sirdeshmukh confirmed that the company had raised funds but declined to comment on the specifics.

Fashionara, which typically offers lower discounts than rivals such as Myntra and Jabong, is adding men’s footwear and accessories to its product assortment. Women account for a majority of Fashionara’s sales—up to 75%.

Investors have started showing an interest in e-commerce firms that cater to women shoppers, who are expected to significantly increase their online spending over the next few years. LimeRoad.com, another women-focused online retailer, raised $15 million from Tiger Global and others in May. Sites such as Myntra, now owned by Flipkart, are also trying to increase products for women.

Fashionara is expanding its delivery network to three new cities including Hyderabad, and will launch its mobile app within the next three months, Sirdeshmukh said.

The company is also managing the online businesses of some offline clothing brands and is selling their products and its own products on sites such as Flipkart, Amazon and Snapdeal, he said.

“We ourselves are building technology to allow third-party sellers to host their products on our site, which will happen some time this year,” he said.

Analysts said that smaller companies that capture “sizable” niche markets in online apparel retail may become acquisition targets for bigger firms such as Flipkart.

“Companies that have a differentiating factor, say they cater to a specific market segment or have a different product or a branding ability that the acquirer does not have, are good takeover targets,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. “If you as a smaller firm are looking at scaling up, then the big players that are well-funded would definitely eye the smaller ones that have a differentiating factor.”

(Published in MINT.)

The Economic Times

Mumbai, 15 July 2014

When global private equity (PE) fund New Silk Route paid Rs 100 crore to buy 80 per cent of Vasudev Adiga’s in April 2012, the idea was to take the Bangalore-based food chain national. Instead, this May, NSR and Vasudeva Adiga, the original promoter and a significant minority shareholder, ended up in Company Law Board.

Vasudeva Adiga alleges NSR was illegally trying to remove him as managing director, while NSR says the promoters were hurting the company by overstepping their operational brief and undermining the professional CEO. The Company Law Board has, for now, appointed an independent administrator to run the business.

An uneasy calm also prevails at Sagar Ratna Restaurants, the south-Indian food chain based in New Delhi. Here, too, the original promoters and a PE fund are locked in a conflict whose ingredients are similar to the Adiga’s-NSR spat. And, before Adiga’s and Sagar Ratna, there was Nirula’s, which was once the sole symbol of fast-food in Delhi, and PE fund Navis Capital.

These three failures to cook up a good deal in the restaurant business beg the larger question: do PE investors make bad chefs? The answer is both ‘yes’ and ‘no’. It’s a dichotomy that is rooted in the nature of the restaurant business and the players involved, and it flavours every aspect of that engagement.

ORGANISING THE UNORGANISED

PE has invested $500 million (about Rs 3,000 crore) via about 25 deals: for example, CX Partners in Barbeque Nation; TVS Capital in Om Pizza (Papa John’s) and Indian Cookery (Yellow Chilli restaurants); Sequoia Capital in Faaso’s; ICICI Venture in Devyani International (Pizza Hut, Costa Coffee and KFC chains); and Aditya Birla PE in Olive Bar & Kitchen.

Prudent investment metrics back PE’s thinking in grabbing pieces of the Rs 1,00,000 crore Indian restaurant industry. The industry is growing at a brisk 20 per cent a year. But, only about one-seventh of the industry is organised, says Technopak Advisors. And even some of that suffers from a hangover of its unorganised past, where cash deals were the norm, where contracts were a matter of spoken word and where much pivoted around the promoter.

It was in this complex concoction that restaurant promoters and PE shook hands. Promoters wanted PE capital to grow. And PE came in with the understanding that the path to that growth flowed through processes, standardisation and corporatisation — essentially, organising the unorganised. A critical factor in this transition is promoter buying.

“The promoters should continue to run the business and help ‘institutionalise’ it, from a promoterdriven company to a process-driven one,” says Ashish Bharadia, senior consultant at Mahajan & Aibara Consulting, a management consultancy specialising in hospitality and real estate. “The F&B (food and beverages) business is highly prone to leakages and wastages.

Therefore, in the absence of ‘promoter at the cash counter’, adequate systems need to be in place.” At both Sagar Ratna and Adiga’s, even as PE started improving systems, their relations with the minority promoters began to deteriorate. Officials of both sides in those two conflicts declined to participate in this story.

Both those deals have seen happier days. It was in 2010 that India Equity Partners (IEP) paid Rs 180 crore to buy 75 per cent in Sagar Ratna. The charges and counter charges followed.

Roshan Banan, who belongs to the original promoter group, says IEP is incompetent at running the business. “We have been observing that the business has been receding on many counts, including quality, customer satisfaction, franchisee satisfaction, profitability and growth of the business,” he wrote in a letter to IEP and its investors in August 2013. Further, he asked IEP to sell the business back to the promoters.

IEP alleges the promoters are violating a non-compete agreement and harming the Sagar Ratna business from the inside. Both sides have filed police complaints and are also fighting in court. The spat aside, according to a former official of Sagar Ratna who did not want to be identified, IEP under-estimated the unorganised nature of the business. “They could not manage the vendors and the suppliers,” he says. Then, he goes on to outline a challenge for every player. “A sizeable portion of the busi ..

GROWING IN A SLOWDOWN

Growth and value, the two outcomes that PE funds chase, have been the casualties. It’s making them anxious, more so since many of them entered when the economy was motoring along at 7-9 per cent growth and valuations were high.

According to Bharadia, timing is the main reason why PE has not made money. “Due to recession, eating out spends were the first to be cut, while key costs such as food, staff, rent and energy kept rising,” he says. “It proved to be a double whammy for the industry.”

Navis Capital picked up a controlling stake in Nirula’s for Rs 100 crore in 2006. The capital infusion saw the company turn profitable. But soon after, it started missing expansion targets, straining relations between promoter Samir Kuckreja and Navis.

“Till the time the business was turning around and the plans were in place, the PE fund was a happy investor,” says a former senior official of Nirula’s, on the condition of anonymity. “However, when the company missed targets, boardroom fights became common.” Navis forced Kuckreja out, bought out the remaining stake and, in 2013, sold the business to A2Z Excursions for an undisclosed amount.

Simultaneously, it also rushed to standardise food and processes, and corporatise contracts. “Expansion at a break-neck speed, bringing in a professional chief executive, did not work,” says a person with knowledge of the issue. Two years on, Adiga’s has 24 outlets, of which 21 are in Bangalore.

Devangshu Dutta, chief executive of Third Eyesight, a consulting firm focused on retail and consumer products, points out the dichotomy in play for quick-service restaurants (QSRs). They need standardisation of products and services to deliver a consistent consumer experience and to scale up. They also need an entrepreneurial hand. “For a PE fund, a minority stake model in QSRs can work well where a committed entrepreneur is already in place, and the fund can provide adequate capital and other support,” he says.

With investor interest in restaurant, fine dining and QSR companies remaining brisk as ever, this is an engagement that will define many of these deals.

(Published in The Economic Times.)

B2B event companies don’t often think about consumer spending as something directly relevant to their business. However, consumer trends can allow industry event and exhibition organizers to get an advance view of where the opportunities can lie in the future. In this Keynote address at UFI’s Asia Open Seminar in Bangalore, Devangshu Dutta shares his views about the key consumer trends in India, and the implications for the events and exhibitions industry.

(This presentation was delivered on 6 March 2014 in Bangalore, India.)

Arpita Mukherjee, Business Today
New Delhi, 8 July 2014

A day after world’s second-largest retailer Carrefour SA said that it will exit India by September end after shutting its cash-and-carry stores, RPG Enterprises Chairman Harsh Goenka tweeted that "the French can never understand India".

However, analysts say that too much should not be read into the company’s exit from India.

"Most global retail giants have struggled to successfully export their business model to new continents," says Arvind Singhal, chairman, Technopak Advisors.

He said the issue has nothing to do with the scope of the sector in the country and it is not a failure of government policy. The other global players in the sector are Germany’s Metro, American chain Wal-Mart and local players such as RIL’s Reliance Market.

Carrefour, since its entry in 2010, was not able to find a partner to expand its business beyond five stores.

"It has had a difficult time engaging with India over the last seven to eight years and could develop only a small cash-and-carry footprint without a partner," says Devangshu Dutta, Chief Executive, Third Eyesight. "We can debate on whether it was because they could not find any Indian partner whose motivations and profile matched Carrefour’s requirements or whether it was the operating conditions that it found difficult," he says.

Singhal adds the retailer, which operates more than 10,000 stores in 30-plus countries, has exited from several other countries in recent years, much like its peers Tesco and Wal-Mart. The French firm had moved out of markets such as Singapore, Greece and Malaysia.

The cash-and-carry, or the wholesale business in India is not easy to operate. Add to that the rules on local sourcing and state-wise restrictions on the operations, companies such as Carrefour are likely to struggle.

"It is important to remember that unlike Metro or even Wal-Mart, cash-and-carry is a very small part of the business for Carrefour globally," says Dutta. "Carrefour may have felt that it was ‘logical’ to disengage from India and instead focus on their other larger markets such as Europe since there are significant management challenges even in those geographies," says Dutta.

(Published in Business Today.)

Shipra Srivastava, Retailer
New Delhi, Issue dated July, 2014

It’s an industry which is not just based on creating a ‘hype’ for a product or service and senior advertising executives are also increasingly focusing on spreading awareness for a brand via a campaign based on a social cause. And, while this strategy has been effectively leveraged by a leading tea brand, but the awareness created amongst the target audience from this strategy has also led players like Coca Cola, Hindustan Unilever (HUL) and Tata Chemicals to adopt a similar strategy for products / brands in their portfolio.

As a result, Coca-Cola India recently launched a campaign Sahi Daam to educate consumers not to pay more than the maximum retail price (MRP) printed on its bottles, in a bid to curb this unlawful practice.

Marketing consultants also pointed out that consumers in tier-II and-III towns are very price sensitive, and with the emphasis on ensuring product availability at the correct price, it would help to enhance sales growth in this segment.

Striking a similar view, a Coca-Cola India spokesperson, said, “We are attempting to ensure the customer gets a fair deal.”

Similarly, Lifebuoy, which is a leading brand of HUL, had the ‘Jump Pump’ campaign in 1,500 government-run schools in Uttar Pradesh and Maharashtra that are part of the mid-day meal scheme, and it enabled water pumps to be easily operated. The FMCG major was attempting to improve hygiene standards amongst students before their meal.

Koshy George, General Manager – skin cleansing, HUL, said, “We have attempted to improve hygiene standards amongst children.”

Tata Salt, too, attempted to emphasise the health-related aspects for consumers via free blood pressure check-up camps organised in several cities.

A relevant message

Advertising experts stressed that a brand leveraging a social cause in its campaign needs to ensure that the message is relevant and at the same time ‘connected’ to its core attributes.

In addition, such campaigns also help to break the ‘clutter’, which has plagued the communication strategy of several consumer-related categories.

Suvadip Ghosh Mazumdar, VP at Leo Burnett, said, “A socially relevant message goes beyond a simple sales ‘pitch’ and if the campaign connects with the target audience, brands can gain considerably.”

Similarly, Devangshu Dutta of the consultancy Third Eyesight, stressed that a campaign should ensure a direct link between a brand and its ability to solve a particular problem facing society.

Clearly, helping society can also pay big dividends for brands.

(Published in Retailer – July 2014 print issue.)