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September 16, 2024
Priyamvada C., Mint
16 September 2024
When the late George Fernandes, the industries minister in the short-lived Janata Party government of 1977, issued a diktat to multinational corporations Coca-Cola, IBM and AstraZeneca to dilute their stake in their wholly owned subsidiaries to 40% in favour of Indian shareholders, Coca-Cola and IBM chose to exit India. Later, during P V Narasimha Rao’s proliberalisation government in 1993, Coca-Cola returned. It bought out Ramesh Chauhan’s Delhi Bottling Company and Coolaid, the bottling companies of five carbonated drinks, in 1998.
With Coca-Cola India now said to be evaluating options to list its wholly owned bottling subsidiary – Hindustan Coca-Cola Beverages (HCCB), Mint explains the rationale behind companies considering such moves.
What caused the change in strategy?
Experts said there is a trend of consumer giants spinning off their units to optimise their balance sheets, go asset-light and focus on their core brands and business models. Coca-Cola India’s ambitions to list HCCB come almost a decade after rival PepsiCo’s bottler, Varun Beverages, listed on the local stock exchanges, yielding significant value for the Jaipuria family.
Unlike PepsiCo, Coca-Cola owns its bottling franchise, just as other MNCs including consumer goods major Whirlpool, ball-bearing specialist Timken, and tobacco giant BAT, who are keen to take advantage of the valuations that Indian investors give to well-run MNCs. Varun Beverages commands a market valuation of ₹2.09 trillion. Hindustan Unilever and Colgate-Palmolive (India) are examples of multinational companies that have listed in India.
Coca-Cola’s move is seen as a strategic attempt to yield significant benefits, including financial gains, risk mitigation and other exit opportunities. The Economic Times was the first to report on HCCB’s listing plans in May.
How does the parent company benefit?
Through such moves, the parent company can reduce exposure to risks associated with bottling companies, which include fluctuations pertaining to raw material, regulatory changes and local market conditions, said Alpana Srivastava, a partner at Desai & Diwanji. While spinning off bottling subsidiaries is more prevalent in the beverage industry, she said other fast-moving consumer goods and retail companies may explore similar strategies to optimise their balance sheets in the current environment.
Earlier this year, HCCB announced the transfer of its bottling operations in three territories in north India to streamline supply chains in the region. However, the bottler declined to comment on its IPO plans.
As part of the transition, the Rajasthan market will be owned and operated by Kandhari Global Beverages, which operates in parts of Delhi, Himachal Pradesh, Haryana, Punjab, Chandigarh, Jammu & Kashmir, and Ladakh.
The Bihar market will be owned and operated by SLMG Beverages Pvt Ltd, which runs bottling operations in Uttarakhand, parts of Uttar Pradesh, Madhya Pradesh, and Bihar. The Northeast market and select areas of West Bengal will be owned and operated by Moon Beverages Pvt Ltd, which operates in parts of Delhi and Uttar Pradesh.
What other factors motivate such spin-offs?
Besides providing liquidity for the bottler, listing may offer tax benefits such as reduced capital gains tax or more favourable transfer pricing rules and optimise the overall tax burden for both the parent company and the subsidiary, Srivastava explained. It may allow both entities to be valued more accurately based on their individual capacities in growth, risk profiles and capital intensity.
This comes in the backdrop of companies looking to make the most of a bullish stock market to unlock more value for shareholders by listing their manufacturing subsidiaries. It enables the companies to raise more capital, which can be used to strengthen their market presence and reduce debt, said Devangshu Dutta, founder of Third Eyesight, a management consulting firm. He said the core value generator for companies such as Coca-Cola and Pepsi are brands and marketing rather than manufacturing.
In April, private equity firm Lighthouse Funds invested ₹700 crore in Parsons Nutritionals, a contract manufacturer specialising in packaged foods, beverages, and personal care products, underlining investor appetite in this sector. Other co-investors include the International Finance Corporation, a member of the World Bank Group, Evolvence India, HDFC AMC’s Fund of Funds, and various family offices.
However, there may be legal considerations, too. While exclusive contracts exist, the bottler may have partnerships with other companies in its distribution portfolio, which may have to be reviewed and renegotiated. There may be regulatory compliance and other anticompetitive considerations when it involves such big entities.
Other instances of such moves
While there are fewer examples of bottling companies listed in India, this practice is more common globally. Coca-Cola has listed most of its bottling subsidiaries in other global markets such as North America and Europe.
While there is no shareholding between PepsiCo and Varun Beverages, there is an exclusive arrangement for Varun Beverages to bottle, use trademarks, distribute, market, and sell PepsiCo products across India. The beverage giant benefits from royalty and licence fees. Over the past year, Varun Beverages’ revenue rose 22% to ₹16,400 crore while its profit increased to ₹2,056 crore from ₹1,497 crore in FY22. As of Friday’s close, the bottler’s shares had gained almost 30% to ₹645.20 since the beginning of this year.
Any potential listing opportunity for HCCB may allow a staggered exit for Coca-Cola India from managing local operations, monetising its stake and participating in future licence fees and/or royalty arrangements, said Dhruv Chatterjee, a partner at Saraf and Partners. He added that there are indications in the retail and fast-moving consumer goods category of similar divestments. Coca-Cola India did not respond to Mint’s request for comment.
Ravikumar Distilleries is an example of a listed manufacturing company that has tie-ups with liquor companies Radico Khaitan, Shashi Distilleries and John Distilleries, in addition to manufacturing and marketing its own liquor products. Bengal Beverages is an unlisted bottler that manufactures and distributes non-alcoholic beverage brands under licence from Coca-Cola across categories such as sparkling soft drinks, juice and water.
What kind of contracts exist between the bottler and the parent company?
Many bottling plants are usually set up by companies as a joint venture with a local partner. The bottler procures the concentrate from the companies. About 14-15% of the concentrate cost goes to the bottler, which translates into revenue for the brand, according to a person familiar with such discussions who spoke on condition of anonymity. The company spends a part of this revenue on marketing activities that target mass audiences through television, radio and newspapers.
Depending on the terms of the contract, the bottler may be expected to spend a portion of its revenue on marketing through outdoor settings such as billboards, flyers, social media and events. The arrangement between a bottler and a company may be either a pure bottling arrangement (or contract manufacturing) or a bottling and distribution arrangement, where the bottler is also responsible for marketing, branding, and last-mile distribution.
How has the carbonated beverage market fared?
Market research provider Statista estimated that the carbonated drink market in India clocks about $2.4 billion in revenue and is expected to grow by 6.98% annually over the next four years. The volume consumed at home and other outdoor locations is likely about 4.2 billion litres this year.
In 2022, Parle Agro’s brand Appy Fizz and Coca Cola dominated with a 31% market share each, followed by Fanta, Pepsi, 7UP and Sprite, among others. Other brands such as Reliance-backed Campa Cola are expected to challenge the dominance of these companies.
Before Reliance acquired Campa for ₹22 crore in 2022, the soft drink had been launched by Pure Drinks Group in the 1970s. The group was behind the launch and distribution of Coca-Cola in 1949, before the US company was shunted out of the country in 1977.
Pure Drinks and Campa Beverages subsequently launched Campa Cola to fill the gap left by foreign soft drink companies in the country. However, Coca-Cola and PepsiCo re-entered the Indian market in the 1990s, throttling local competition.
(Published in Mint)
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September 12, 2024
By Richa Naidu and Dhwani Pandya, Reuters
London/Mumbai,12 September 2024
For years, the world’s biggest condom maker Reckitt Benckiser designed products and marketing to lure Indian men to its Durex brand. Now, it is pushing a growth strategy by betting on women and rural consumers.
India last year surpassed China to become the world’s most populous nation, but still fares poorly on the use of contraceptives. India’s government estimates only around 10% of men use condoms and for women, sterilization remains the popular form of contraception.
Social stigma surrounding sex – which some say stems from Victorian social norms established during British colonization – has for decades marginalized female pleasure in the Indian society.
But attitudes are changing and Reckitt is shifting marketing gears to take advantage of an upswing in condom use among Indian women – now a key target audience for Durex.
Around 9.5% of married Indian women cited using condoms during sex by 2021, almost double the use five years earlier, according to latest available government statistics. Among unmarried women, such use more than doubled to 27%.
Reckitt is reformulating products such as lubricants aimed at attracting women consumers, and has new marketing campaigns, Pankaj Duhan, Reckitt’s senior vice president of intimate wellness, told Reuters in an interview.
The Durex lubricants in India will use improved formulations to appeal to women and have been created after performing clinical studies to address concerns females face — 30% of Indian women experience some discomfort when having sex with their partner.
“We want to change this … That is why we are relaunching our lubes portfolio,” said Duhan. “The women tend to become a little bit more underserved consumer groups.”
The India condoms market is currently dominated by Mankind Pharma, which makes Manforce, followed by Reckitt and TTK Healthcare.
CHALLENGES
The British consumer goods firm faces some stiff challenges in its quest to carve out a lucrative slice of the female condom market and rural consumers, primarily with distribution and pricing – two areas industry watchers believe are key to success – but also in coaxing a still-largely conservative rural population to buy its products.
Moreover, competitors are making a pitch to women too, with Durex’s main rival and market leader Manforce tweaking its marketing — a recent ad stars a Bollywood actress talking about benefits of condoms and asking women to “go buy your own.”
“One challenge Reckitt may face is consistency of messaging,” said Devangshu Dutta, head of retail consultancy Third Eyesight, adding the company needs to figure out if it is targeting condoms for health, family planning, or pleasure as there could be different messaging for each type of shopper.
The growth opportunity is compelling – India’s condom market size is merely worth $210 million, compared to China’s $4.1 billion, but is forecast to grow at 7.4% compound annual rate between 2024 and 2030, according to Indian consulting firm 6Wresearch. The global market is worth $11.3 billion.
Growing the market will take some doing though, not least because of India’s vast size and millions of mom-and-pop stores require a widespread distributor network.
Currently, only about 10-15% of Durex’s sales in India come from rural areas, which is far more price sensitive than urban cities.
“Distribution is the big challenge simply because even though most consumer goods companies have made their way to all pincodes in the country, the question is maintaining availability at retail points,” said Dutta of Third Eyesight.
CHIPPING AWAY AT TABOOS
Sex education in the conservative country is also lagging, and there is a vast gulf between awareness and actual use of contraceptives.
Matt Godfrey, executive vice president for Asia Pacific at Monks ad agency, part of S4Capital, said marketing tweaks by the likes of Durex are a welcome change but condom use and sex education need to improve in India.
“There are significant societal and cultural aspects that need to be rapidly shifted to reverse the status quo,” he said.
In the eastern state of Odisha, for example, a small medical store of Sudam Padhan does not prominently display condoms as “people frown upon them”.
In India, it’s men who mostly buy condoms, but some like Pooja, a marketer in Mumbai, are trying to drive change. She made an “awkward” decision to buy condoms herself for the first time this year, saying “when I’m asking for a condom over the counter I am basically putting my health first”.
Still, in a telling sign of the somewhat taboo nature of the topic, the 31-year-old declined to share her last name as she is unmarried and feared societal admonition.
“An open conversation encouraging safe and responsible sex in India has been steadily progressing but needs to be continually supported” by brands including Durex, S4Capital’s Godfrey said.
Like many of its rivals, Reckitt has over the years largely focussed on Indian men, with many ads featuring women wearing skimpy clothes.
Rival Manforce Condoms features former pornstar Sunny Leone in videos, some labelled “EXCLUSIVE UNCENSORED”. Duhan said many of the condom ads “objectified women.”
But that’s changing. Durex earlier this year launched a risqué “Explorers Wanted” lubricants campaign in India which featured sensual shots of nude male body parts.
PRICING PAINS
Pricing is another big challenge, especially in stores in smaller towns and villages which are reluctant to stock condoms and lubes. Duhan said products have to be “extremely cheap” to sell in some rural areas, where many use free government-provided condoms.
Padhan, from the medical store in Odisha, doesn’t stock Durex “because they are costly and there’s no demand for them in rural areas,” and says most sales are of Ustad “Deluxe Condoms” made by a state-run firm.
Ustaad costs just 10 rupees (11 U.S. cents) for a pack of six. A pack of 10 Durex condoms starts retailing at around 250 rupees, with some priced above $6, and a similar pack of Manforce starts at $1.
But the smaller three-condom Durex pack starts retailing around 99 rupees, and Reckitt believes they will sell better in rural India.
“We are starting at the top (and) planning to get down to the rural areas,” Duhan said. “It’s a massive undertaking”.
(Reported and Published by Reuters)
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August 30, 2024
In a startup world, founders are typically creators first while investors see themselves as the monitors. Therefore, conflicts between the two are almost a default feature of a relationship that in effect funds a dream. From ‘off’ chemistry to differences of opinion to what some founders see as shackles on entrepreneurial freedom, the reasons could be any or a mix of all. Watch this discussion, with a mega-panel of intense start-up founders on the one hand and investors with VC funds on the other, addressing the pain points on Cash, Control, Creativity, Chemistry and Culture in a supercharged encounter. Session Anchor, Devangshu Dutta (Founder, Third Eyesight) reflected, “Those who have heard classical music jugalbandi or witnessed jazz musicians jamming will appreciate the creative tension, the give and take that was the thread throughout this discussion, reflecting the reality of the relationship between entrepreneurs and VCs.”
Watch the video
INVESTORS:
Ankita Balotia, VP, Fireside Ventures
Aashish Vanigota, Principal – Investments, IvyCap Ventures Advisors Private Limited
Bhawna Bhatnagar, Co-founder, We Founder Circle
Nitya Agarwal, VP-Investments, 3one4 Capital
Harmanpreet Singh, Founder & Managing Partner, Prath Ventures
Vamshi Reddy, Partner, Kalaari Capital
Zoeb Ali Khan, Vice President, Sauce.vc
D2C FOUNDERS:
Abdus Samad, Founder, Sam & Marshall Eyewear
Akshay Mahendru, Co-Founder & CEO, The Pet Point & Nootie
Malvika Jain, Founder, SEREKO
Nitin Jain, Founder, Indigifts
Puneet Tyagi, Egoss Shoes
Radhika Dang, CEO & Founder, The Good Karma Company
Rahul Aggarwal, Coffeeza
Udit Toshniwal, Founder & Director, The Pant Project
Vaani Chugh, Co-founder & Director, D’chica
Yash Kotak, Co-founder, Bombay Hemp Co.
Yashesh Mukhi, Co-founder, Chupps
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August 19, 2024
Ratna Bhushan, Economic Times
New Delhi, 19 August 2024
Close to a dozen small to mid-sized global cafes and restaurant brands have either entered India in the past two quarters or are in talks with local players at a time when large global chains are seeing sharp decline in same store sales and growth.
Mid-sized global chains are making investments even in a modest range of Rs. 20-30 crore to tap select cities and intend to keep store counts under about 30 to stay profitable on each store. This is in contrast to earlier times when cafes and chains entered India with mega deals and investment plans, executives said.
Belgian bakery Le Pain Quotidien, French patisserie chain Laduree, UK’s JD Wetherspoon and Frank HotDogs are among those to have inked collaborations with Indian partners, while newer homegrown ones such as Harley’s, Paper & Pie, abCoffee and First Coffee are expanding with first-time investors and mid-rung store rollouts.
“A combination of factors is driving this change of newer, smaller launches,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. “There are niches the newer chains are addressing as consumers’ choices evolve and get more specific. Also, there’s a broadening of a wealth base in India leading to mid-sized business houses having capability to invest and willingness to try out newer segments,” he said.
With the big-bang launches in food services drying up, there’s been a mushrooming of small deals that is expected to surge.
Bake & Brew, which has inked a master franchise agreement with Belgian bakery chain Le Pain Quotidien to re-enter India, is investing Rs 35 crore in the first year. “We’ll start in metros and may expand to smaller towns later. We also see potential in travel retail, airports and larger train stations,” Annick Van Overstraeten, chief executive of Le Pain Quotidien, told ET. Bake & Brew is backed by the Nalanda group with core business interests in automotive metal parts.
Earlier this month, the French patisserie chain Laduree said it was launching its cafe at Ritz-Carlton, Pune, in collaboration with CK Israni Group which has business interests in home decor and construction. Its Managing Director Chandni Nath Israni said in a statement that the CK Israni group planned to expand Laduree’s presence across other Indian cities.
Experimenting in newer cuisines is also driving the change. “Our decision to expand in India stems from a deep appreciation for variety and a passion for bold flavours. We see great potential in the Indian market,” said Benjamin Attal, founder of US chain Franks Hot Dog.
Smaller and newer homegrown chains, in contrast, are expanding, backed by mid-ticket investors and business houses, many of whom are foraying into food services for the first time.
Last week Brigade Group, a realtor, announced a partnership with specialty coffee chain abCoffee to set up six outlets within Brigade properties.
“We partnered with abCoffee to enhance the F&B offerings at our office parks. abCoffee is able to retrofit into operational buildings without requiring additional water or gas points,” Arvind Rao, vice president – commercial business, Brigade Group, said.
Specialty coffee startup First Coffee plans to open 35 stores by 2024-end “focused on delivery and minimalist store aesthetic,” according to a company statement, to sell flavoured coffees, cold brews and bubble teas.
(Published in Economic Times)
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August 10, 2024
Faizan Haidar, Economic Times
10 Aug 2024, New Delhi
Japanese apparel major Uniqlo’s sales growth in India slipped by more than half to a still-strong 32% last fiscal year while its net profit expanded by 25%.
The Indian unit of Asia’s biggest clothing brand posted a net profit of ₹85.1 crore for the year ended March 2024 with net revenues of ₹824 crore, according to its latest filing with the Registrar of Companies (RoC). Uniqlo India had posted a profit of ₹68.1 crore with sales of ₹625 crore in the previous year. Its on-year revenue growth was 69% in FY23 and 64% in FY22.
Uniqlo opened its first door in the country in September 2019, but lockdowns and other constraints during the Covid-19 pandemic delayed its store expansion plans. At present, it has about 13 outlets in the country. Overall retail sales growth rate across segments such as apparel, footwear and quick service restaurants (QSR) fell year-on-year every month in FY24, reflecting comparatively weaker consumer sentiment.
Last fiscal’s comparatively slower 4-7% growth rate sustained this year as well, with May and June seeing a 3% and 5% rise each, Retailers Association of India (RAI) recently said after a survey of top 100 retailers.
“The market was sluggish for the industry as a whole last year, and that will reflect in practice every brand P&L, whether Indian or international,” said Devangshu Dutta, chief executive of retail sector consultancy Third Eyesight. “However, any brand that is committed to the Indian market as a strategic market for its future growth will take the ups and downs in its stride,” he said.
“Uniqlo’s expansion plans now include store sizes that would be smaller both in the cities it is already present in and in newer cities, which should help it tap into the demand at operating costs that are appropriate to each location,” Dutta said. Inditex Trent, Spanish fast-fashion major Zara’s joint venture with Tata that runs 23 stores in the country, saw its revenue rise 8% to ₹2,775 crore last fiscal, significantly down from 40% growth a year earlier, according to Trent’s annual report. Its net profit fell 8% on year to ₹244 crore.
Over the past decade, global brands Zara and H&M have become market leaders in the fast fashion segment in India.
Uniqlo has said India is one of the most priority markets where consumers are increasingly shifting from ‘fast fashion’ to long-lasting essentials and functional wear. As the world’s second most-populated country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing western-style clothing.
Uniqlo is globally popular for functional basics like T-shirts, jeans and woollen wear, unlike fast-fashion rivals which are associated with designs that move quickly from the catwalk to the showroom.
(Published in Economic Times)
