Priyanka Golikeri & Nupur Anand, Daily News & Analysis (DNA)

Bangalore, 22 August 2012

Now, macroeconomic woes are impacting even quick service restaurants (QSRs), the 150-3,000 square feet neighbourhood dine-in / takeaway food joints that serve up your pizzas, burgers and rolls.

For, the slowdown, it has been found, is changing consumer behaviour and their eating patterns: footfalls are lower and bill sizes smaller. From 350-500 people per day, QSRs are seeing a 10-15% drop in footfalls, said a senior official from a pizza-pasta chain.

Moreover, from two to three visits per week, the frequency of customer visits has dropped to once a week or once in ten days. This is spooking QSRs which have been growing at a fast clip of late.

“What used to be a weekend family eat-out routine is now happening every fortnight,” said Krishna Kumar, CEO of Curries Hospitality which runs a chain of sandwich and pasta joints.

Rising inflation and negligible pay hikes have weakened customers’ propensity to spend on discretionary goods, say experts.

“When there is no hike in salary and the cost of every commodity only goes up, people cannot think of spending Rs400-500 every second day on quick bites,” says the official from the pizza chain. People might eat out, but instead of ordering for a large pizza with cakes and soft drinks, a person might restrict himself to a medium- or small-sized pizza minus the cake, he says.

Kumar says growth this fiscal will range between 12% and 13%, much lower than the 18-20% seen last year.

QSRs account for 18% of the $74 billion informal eat-out sector which includes restaurants that serve traditional Indian snacks like idli, dosa and chaat, as per estimates by market intelligence provider Euromonitor.

QSRs are the most difficult segment in the food market, says Harminder Sahni, MD of retail consultancy Wazir Advisors.

“Players need to get several factors, including delivery and supply chain, right to crack the market. Competition from other organised players having a big brand pull is another challenge.”

Devangshu Dutta, CEO of retail consultancy Third Eyesight, says players are cautious in the wake of the correction witnessed during 2009-11. “It is not that outlets are closing down. But cooking at home is much cheaper than eating out.”

Nevertheless, QSR chains have their expansion plans intact. Dutta says this is because rentals have dipped and advertising costs have corrected. “Players are taking the opportunity to cement their position. They are cashing in on e-commerce and changing their menus to make it more region- and city-specific than earlier.

These chains are also reducing entry price points to attract more customers.”

Amit Jatia, vice chairman of McDonald’s India, says the company will invest Rs500 crore and add over 150 outlets by 2014 in the west and south regions that he oversees. “We have not seen any significant slowdown in demand and are seeing double-digit growth.” McDonald’s currently has 135 outlets in the two regions.

Likewise, Kaati Zone, the rolls joint, will add 30-35 outlets by March 2013 to its current 32, says CEO Kiran Nadkarni. It will also consolidate in existing markets like Mumbai, Bangalore, Coimbatore and Hyderabad. “QSRs cater to mass markets and are less expensive than fine dining. Hence, they are immune from downturn.”

Kumar says Curries will add 25 outlets to Crusty’s 79 this year in places like Mysore, Chandigarh, Nagpur and Lucknow.

Nupur Anand, Daily News & Analysis (DNA)

Mumbai, 21 August 2012

Retailers are bleeding. The ‘sale’ season whose duration has been stretched of late, has pushed brands and retailers to despair, in spite of shoppers’ frenzy. The sale season in its present form is unsustainable, retailers say.

Traditionally, seasonal sales used to start in August. Last year, they were advanced to July to give shoppers additional time to indulge. This year’s sales started in June.

“‘Sale’ was originally introduced to boost sales. But this prolonged sale and deep discounting are not a good strategy. Retailers need to take stock and devise a way out of these frequent sales now,” says Arvind Singhal of Technopak, a retail consultancy firm.

Companies and retailers may get hurt as quality-conscious customers who may not be bargain-hunters, are likely to stay off markets during the sale duration. And bargain-hunters are likely to behave likewise after the discount season, leading to subdued demand for long periods.

So, the consequent demand-supply mismatch leads to huge inventories which, in turn, necessitate longer sale periods. Companies are now trying to correct this phenomenon by preempting inventory pile-ups.

“Companies need to and are trying to get their demand forecasts right to avoid pile-ups and to maintain profits,” says Sanjay Vakharia, director at Spykar Lifestyles.

What this can mean for customers is a shorter sale period and fewer, and lower, discounts.

“The companies may take a couple of quarters more to get their stock pile-up right. Consumers can then say goodbye to these three-month-long sales,” says Abhishek Ranganathan, analyst at MF Global.

Devangshu Dutta, CEO of retail consulting firm Third Eyesight, thinks consumer demand has been subdued this year, and is unlikely to change any time soon due to the dampened consumer sentiment and dismal macroeconomic scenario.

“Companies are not going to repeat their mistake of a making wrong demand forecast,” says Dutta. “To check the mismatch between anticipated demand and actual demand, companies are reducing the time between orders and deliveries. With this, they will have less stock to clear at the end of a season and this will possibly lead to shorter discount sales.”

This is a much-needed change, say retailers. “Besides brands, malls organise their own discount sales to increase footfalls. Long promotional offers are bleeding companies. The retail industry is finding this sale frenzy unsustainable,” says the CEO of an apparel-and-retail chain.

Retailers are also worried about changing consumer behaviour and expectations. These days, shoppers wait for the sale season to start before they step out with cash/ cards to buy. Given frequent sales, the wait to buy stuff at half the cost is never too long.

Up to 70% discounts are another worry for the industry. “We are forced to offer deep discounts as everyone else is doing so. We don’t have a choice,” says Sanjay Bindra, director at Seven East, an ethnic wear brand.

Retailers acknowledge that sales and discounts attract consumers to retail spaces like malls that would otherwise wear a deserted look. But such footfalls, they bemoan, have come at a huge cost to them.

Meghna Maiti, Financial Chronicle

Mumbai, 13 August 2012

Max Hypermarket India, part of the Dubai-based retailer Landmark group, has signed a franchisee agreement with French retailer Auchan group to develop the hypermarket business in India. The existing Max Hypermarket stores will be rebranded as Auchan, and the stores will operate under the franchise agreement.

Max, which is run by Landmark group, operates 13 hypermarkets in India. These stores will be rebranded in the fourth quarter of the current financial year. Max and Auchan plan to open 12-15 new stores annually across India, they said in a joint statement.

Viney Singh, managing director of Max Hypermarket, told Financial Chronicle that the deal would help the company strengthen its backend supply chain and processes. While the company has invested Rs 450 crore in the business, it is looking to invest around Rs 500 crore over the next three years, Singh said. “The synergies could be in every sustainable area. Auchan’s expertise in managing hypermarkets and our understanding of the Indian market will ensure we bring the best of value, choice and experience to our customers,” added Singh.

Saloni Nangia, senior vice-president at retail consulting division of Technopak, said, “At a time when economy is really slow, such partnerships would go a long way in boosting confidence.”

“Auchan is one of the largest retail groups in the world. This move indicates a commitment of the Auchan brand to the Indian market. In case FDI in retail comes through, the French major may directly invest into Max,” said Devangshu Dutta, head of consulting firm, Third Eyesight.

Philippe Baroukh, GM of Hypermarkets at Auchan group said that the new franchise partnership is a great opportunity for Auchan to enhance its brand in a high potential market.

“The Landmark group has aggressive growth plans for India, across various verticals, and we believe that Auchan are the right franchise partners for us, as we continue to set benchmarks in Indian retailing,” said Ramanathan Hariharan, director of Landmark group in a press statement.

Meghna Maiti, Financial Chronicle
Mumbai,13 August 2012

Even as Pantaloon Retail India (PRIL) continues its expansion drive, post its deal to sell controlling stake in the Pantaloons format to the AV Birla group, Kishore Biyani CEO at Future group has embarked on a restructuring exercise to ride through the downturn.

While PRIL increased its space under management by 0.55 million square feet of retail space, during the quarter ending June, compared with the year-ago period, the flagship of India’s largest listed organised retailer has shut down two stores of its electronics retail chain eZone and 10 stores of its core format Food Bazaar, the company told analysts in a presentation last week.
Food Bazaar the supermarket format is a key component of Future Value Retail that brings in the lion’s share of the company’s revenues.

“Fresh food and grocery is a challenging format for most retailers. Biyani is trying to reduce the company’s losses by shutting down non-profitable sto­res,” said Harminder Sa­hni, managing director of Wazir Advisors.

In an analyst presentation, PRIL at the end of June quarter had a total operational retail space of 16.71 million square feet. “The company believes that in such challenging times, the focus has to be on areas like better inventory management, prudent cost management and more efficient store operations,” PRIL said in its quarterly result statement.

Devangshu Dutta, chief executive at Third Eyesight said that retailers should shut down stores located in wrong catchments, customers. “In such cases, the company should try to reform the stores. It’s sign of a healthy business,” he added.

Biyani’s eZone competes with Tata owned Croma and Videocon owned Next Retail, among others. The Food Bazaar unit has been facing increased competition from the Raheja owned HyperCITY; Reliance owned Reliance Mart and Super department stores amongst others.

Retailers in India have traditionally struggled to make a profit in the low margin food and grocery business as the fresh fruit and vegetables section has been their Achilles heel.

“During this period, the company focused as much on opening new stores in key locations as on improving store efficiencies. At a number of locations that weren’t performing up to the mark, the company decided to rationalise spaces either through shutting down non-performing sections of the store, conversion of lifestyle formats to value formats or full closure of stores,” said PRIL in the commentary of its results for its fourth quarter results announced last week.

PRIL’s gross space addition in the past 12 months was 2.37 million sq ft.

Meghna Maiti, Financial Chronicle
Mumbai, 2 August 2012

If you are worried about the long queues at your neighbourhood Big Bazaar during the much-awaited Independence Day sale, help is at hand. For the first time the supermarket chain, is now coming to a computer screen across the commercial capital of Mumbai with the Biyani-led venture starting an e-tailing offering bigbazaar.com.

Customers who purchase goods through the site are promised delivery at their homes within three business days for a convenience charge of Rs 50 per order if the value is under Rs 500. “We just launched the e-tailing venture and are experimenting with what products to offer through the portal and how much to charge etc. It’s still in the experimentation stage and learning’s will be gleaned before we scale this beyond the city,” a top Future group official who requested anonymity told Financial Chronicle.

The e-tailing venture that promises home delivery of its merchandise across Mumbai could potentially do away with the drudgery of shopping on weekends and take care of the issue of long queues at billing counters on holidays and weekends. It will also allow the Biyani franchise to boost sales without adding real estate and salary costs, said industry experts. “Adding an online interface is the smartest thing to do at a time most retailers are going multi-channel,” said Saloni Nangia, senior vice-president at retail consultancy Technopak Advisors.

The biggest constituent of Kishore Biyani-owned Future Group will offer potential customers buy non-perishable products right from food and grocery to apparel save for fresh, dairy and frozen products, oil pouches, jams and sauces and loose cereals etc. The e-tailing venture has gone live just before the crucial Independence Day sale, which is one of the biggest revenue earners of Big Bazaar in the year. Big Bazaar will also offer cash on delivery option for this service, which is likely to give serious competition to kirana stores. For orders above Rs 500 in value, there is no delivery charge.

“When any company treats its online venture as just an add-on, it does not run very well. The company has to treat it as a different business environment with a clear model to succeed,” said Devangshu Dutta, CEO at consultancy firm Third Eyesight.

While the company’s online retail arm, futurebazaar.com is already operational; it has launched new initiatives in the e-commerce space such as SMS short codes, teleshopping proximity marketing through mobile phones. The initiative has helped Future Group, one of the first modern retailers to move into digital commerce in a big way. It will compete with portals such as eBay.com, Indiatimes.com and rediff.com as well as with websites of Shoppers Stop and Landmark, on the internet.