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February 15, 2024
An insightful must-watch discussion, moderated by Devangshu Dutta (Founder, Third Eyesight), with venture capital fund managers, investors and entrepreneurs in retail on what factors attract investors to retail businesses.
The panelists included Vikram Gupta (Founder & Managing Partner, IvyCap Ventures), Amar Nagaram, (Co-Founder, Virgio), and Vikram Gawande (Vice President, Growth, Blume Ventures).
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January 29, 2024
Economic Times, 29 January 2024
High aspirational value, rising disposable incomes in non-metro markets, premiumisation, and social media boosting brand awareness have led to international retail brands growing at a fast pace while desi brands go easy on expansion.
Global brands such as Zara, H&M, Bugatti Fashion, La Vie en Rose, Adidas, Nike, West Elm, Starbucks, Uniqlo and Marks & Spencer are fast finding favour with Indian buyers. A significant propeller of their growth is small towns where buyers, willing to spend more, are getting more brand conscious.
According to CBRE, about two dozen international brands entered India in 2023 and expansion by global brands that are already present in the country have fuelled the demand.
Videshi retailers make more space
The retail sector recorded an all-time high leasing in 2023, taking 7.1 million sq ft across eight cities, an increase of 47% from last year despite large retailers slowing down on store expansion. A prominent factor in the growth was international brands. Retail leasing by international brands was almost 25% in 2023 compared to 14% in the previous year, ET has reported.
Canadian lingerie retailer La Vie en Rose made its debut in India in partnership with Apparel Group India and launched its first store in Delhi-NCR in July 2023 and later expanded in Pune and Bangalore. Similarly, Rimowa, a German luxury luggage brand, entered India through its partnership with Reliance Brands and opened its first store in Mumbai.
Other notable expansions by international players include French fashion & apparel brand Bugatti Fashion and the American furniture brand West Elm opening their stores in Pune, and American lingerie brand Victoria’s Secret opening stores in Hyderabad and Pune.
Making inroads into small towns
Three dozen big brands entered tier-II cities in the first nine months of 2023, as demand from smaller cities continued to be strong even after the pandemic. A good number of those were global brands.
Brands such as H&M, Marks & Spencer and GAP have entered cities like Indore, Mangalore, Patna, Ranchi, Mysore, and Coimbatore, according to data by CBRE. “India’s first retail REIT has encouraged developers to aggregate and upgrade their existing facilities, apart from developing new malls. Moreover, domestic and international fashion brands are looking to expand in non-metro cities, fueled by a well-aware and well-travelled consumer set,” Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India, has said.
Desi retailers turn cautious
While international brands are expanding at a strong pace, desi retailers are turning cautious. India’s top retailers have significantly slowed down their store expansion this fiscal year, after opening a record number of outlets last year, ET has reported based on their latest investor disclosures. The top five retail chains – Reliance Retail, Titan Company, Avenue Supermarts that owns DMart, V-Mart Retail and Shoppers Stop – together opened 44% fewer stores in the first three quarters through December compared with a year earlier.
Top industry executives attributed the slowdown in store expansion to more focus on profitability when consumption had not picked up the way it was expected to and as most of the new markets are already filled up with two-four retailers, leaving little room for more outlets. It appears global retail brands are less vulnerable to these pressures.
Global brands buck the trend
Top global apparel and fast fashion brands appear to have struck a strong chord with young customers, racking up sales growth of anywhere between 40% and 60% in FY23, bucking the trend in a market where the overall demand for discretionary products slowed down, ET has reported based on latest filings with the Registrar of Companies.
For instance, Swedish fashion retailer H&M and rival Zara reported a 40% increase in its topline while Japanese brand Uniqlo saw a 60% jump in sales. American denim maker Levi Strauss and British brand Marks & Spencer posted a 54% increase. Dubai-based department store Lifestyle International, too, saw a 46% jump in revenues on a large base. These brands garnered combined annual revenues of nearly $2.6 billion, more than double compared to FY21 when it was $1.1 billion all put together.
“With consumers getting brand conscious, global brands have a natural advantage. There is a distinct aspirational momentum for international brands that carries them through. Also they can sustain having unsold inventory and discounting better than smaller peers,” Devangshu Dutta, founder of Third Eyesight, a strategy consulting firm, told ET recently. “Also, these brands have not yet reached saturation point in terms of network and hence can invest further to widen their reach.”
Even as international brands are aggressively adding more physical stores, the revenue surge was also led by brands’ shifting focus on ecommerce, which now accounts for more than a quarter of their sales, even as they face intensify competition from both local and global rivals in an increasingly crowded market where web-commerce firms continue to offer steep discounts. Over the past two years, sales growth for most retailers have been price-led, reversing the historic trend when volumes or actual demand drove a bulk of the sales.
The fashion retail segment has been struggling with a demand slowdown since January last year due to inflationary headwinds. The overall retail growth slowed down to 6% in both March and April, increasing marginally to 9% in August and September before falling slightly to 7% in October and November, according to the Retailers Association of India.
(Published in Economic Times)
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January 26, 2024
Sagar Malviya, Economic Times
Mumbai, 26 January 2024
Hindustan Unilever and United Spirits together present a study in contrasts that seemingly reinforces the current purchasing trends in India’s consumption sector. At the country’s biggest consumer-goods and alco-bev companies, respectively, premium brands are flying off the shelves, but mass-priced products remain relative stragglers.
“At the premium and luxury ends, they (consumers) are continuing to spend, continuing to experiment, continuing to do repertoire drinking, especially experimenting with the white spirits, drinking at home,” Hina Nagarajan, managing director at Diageo-controlled United Spirits, told investors in a post-earnings call. “However, Middle India, or the value-oriented consumer, is actually cutting down on the number of occasions (to spend) to manage their money.”
The maker of Johnnie Walker and Smirnoff posted a 12.4% volume decline in the mass-priced segments, while pricier prestige and above categories saw a 10% growth during the December quarter. The Indian unit of the world’s biggest distiller said it expects this trend in purchasing behaviour to continue over the next couple of quarters.
At Hindustan Unilever, the country’s biggest consumer company by both sales and market value, the story isn’t vastly different. The FMCG bellwether said its premium portfolio expanded more than two-and-a-half times the mass segment over the past few quarters.
This trend was seen even in the rural areas that make up nearly half the annual sales at the maker of Dove soaps and Glow & Lovely skin creams. Pricier products now constitute a third of Hindustan Unilever’s total sales. “In rural areas, there are people who can afford and spend money, and hence, the premium portfolio in has also grown well – like it has grown in urban parts of the business,” Rohit Jawa, managing director, Hindustan Unilever, told investors after the December-quarter earnings. “We have always seen that essential and discretionary are the two realities of (the) rural (market).”
Incomes & Business Cycles
This dichotomy in purchase decisions appears to be a function of income disparity and is market-agnostic, experts believe. For instance, rural India that accounts for nearly 40% of the overall FMCG market saw a noticeable drop in demand for a year due to inflation and erratic monsoons. Cities, meanwhile, appear to be at the vanguard of overall consumption demand across categories as urban incomes, typically linked to organised sectors of the economy, are more resilient to business cycles and promise better protection against broader inflationary pressures. “Even if the consuming class, mainly upper and middle class, saw an impact on their incomes, it is still not significant to affect their discretionary spends,” said Devangshu Dutta, founder of Third Eyesight, a strategy consulting firm. “There is a buffer available for higher income growth and it will hit them later in any economic downturn. At present, it is felt in the lower-income segment.”
Over the past decade and a half, consumer companies expanded sales by pushing both pricier and affordable products. Companies still have budget-friendly options in their portfolio, but lower incomes, especially in rural areas, appear to have dented purchasing power at the budget end of the market. “The real pressure on the wallet is on the lower side, where we do see upgrades are not happening from country liquor to either the popular category or the lower end of prestige,” said Nagarajan at United Spirits.
(Published in Economic Times)
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January 8, 2024
Yash Bhatia, Afaqs
8 January 2024
In the 10th episode of Zerodha co-founder Nikhil Kamath’s YouTube podcast series, WTF, Aadit Palicha, co-founder, Zepto, says that consumer goods are the fastest-growing category for its quick commerce business. Initially, quick commerce brands just focussed on serving impulse grocery needs, but now they have changed their way to serve regular planned purchases too.
Major players like Zepto, Blinkit, Swiggy Instamart, and BBNow are expanding their offerings in gifting, makeup, ready-to-eat, baby care, pet care, meat, poultry and more to cater to a wider range of consumer needs and preferences.
Through our interviews with brands like Bombay Shaving Company, Bevzilla and Plum, it is evident that Q-comm business contributes approximately 10-25% of online revenue for different brands.
Also, according to a report by Redseer, the Q-comm market is expected to reach almost $5.5 billion by 2025. The report highlights, that these platforms can up their game by going beyond just grocery and extend their offerings to other consumables, electronics, newspapers and more.
It shows that quick commerce players would focus on other categories to reach this milestone. But, are brands ready for it? If yes, how is their strategy different for this model?
Aditi Handa, co-founder of The Baker’s Dozen, an artisanal bakery, states, “In our category, once the customers figure out a product in the physical store, then they tend to buy again on the quick commerce platforms rather than visiting a store. It works well in our category, as there is no need to touch and feel the product.”
Baker’s Dozen makes 60-65% of its online sales on Q-comm platforms.
Devangshu Dutta, founder of Third Eyesight says that quick commerce has spread across various product categories and he believes, “It is driven more by buzz than customer needs. Unless we meet a core demand with a large consumer market, there’s no sustained road to profit.”
Deepti Karthik, fractional CMO, SuperBottoms, says, “In the diaper category, there are a lot of unplanned purchases. We target customers who’re buying other products, and eventually get trails from them.”
She points out that a lot of gifting happens in the quick commerce segment. “Gift packs can be a great solution our brand can leverage.”
She predicts that for the baby-care brand, quick commerce will contribute 3-5% of overall revenue, led by gifting as a category.
Apart from the reduced delivery time, is there a reason that customers are opting to shop on quick commerce platforms?
Handa answers that two factors work in favour of Q-comm platforms: discounts and convenience. “As these players are expanding their portfolio, customers will find more reasons to go on these apps.”
Is the quick commerce business driven by celebrations?
India is renowned for its diverse festivities. Quick commerce platforms capitalise on this by selling event-related or topical assortments. For instance, they offer flutes for Krishna Jayanti, Ganesha idols for Ganesh Chaturthi, Christmas decorations for the holiday, decorative items for Diwali, and gold and silver coins for Dhanteras.
These platforms are also curating special web and app pages for such occasions, even for regional festivals like Chauth Puja. In 2023, Blinkit curated a specific page dedicated to the wedding season.
Karthik states, “The major business of this sector is driven by consumables and FMCG products. On special occasions, e-commerce brands used to curate specific products, which Q-commerce is now doing. The market share of the other modes is now being taken by the quick commerce players on festivals. That’s why every e-commerce is looking to launch its version of Q-commerce, like Amazon Fresh by Amazon, and BBnow by Big Basket.”
Handa believes differently and states that quick commerce is not taking up the market share of any other modes. “Currently we’re buying more than what we need. Quick commerce is creating some new markets, and people are spending more money as it is easy to spend now.”
Will Q-commerce take over e-commerce?
As the country embraces digital commerce, the battle between e-commerce and Q-commerce is intensifying. While e-commerce has a well-established presence with a vast user base, Q-commerce offers unmatched speed and efficiency. As Q-commerce players foray into other categories, will they take over e-commerce?
Ritesh Ghosal, former chief of marketing at Croma believes that Q-comm will not replace e-commerce. He says that Q-commerce will only be a successful mode for urgently needed products like trimmers, headphones etc.
Handa predicts, “In our category, Q-commerce will replace e-commerce purely based on better service. The only advantage that e-commerce holds is a variety of stock keeping units (SKUs). Like, some products will have a presence in e-commerce only like English Cheddar cheese, it will not be there in Q-comm, a customer can only get it through e-commerce.”
She says that quick commerce also provides a fast way to experiment with new products.
Kartik, says e-commerce will always be at the main stage for the brand and believes Q-commerce will be an incremental business for them.
She has observed that in quick commerce if a product gets listed, it starts to sell faster and gets a quick start as compared to the e-commerce route.
Challenges
While the benefits of quick commerce are evident for customers, these players in the backend face a lot of challenges including warehousing, labour expenses, and, most importantly, the orders are low-value, therefore the margins are less.
Balasubramanian Narayanan, vice president, of Teamlease services points out that the consumer preferences and buying patterns in the quick commerce segment evolve rapidly, making data collection and analysis a crucial aspect.
“Balancing data collection with user privacy is a key challenge. The data insights can help to create personalised experiences, predict demands, and improve operational efficiency. But this can be a challenge in this mode.”
Handa says in quick commerce, the biggest challenge is the stock keeping unit (SKU) mix, SKU selection is critical.
“Brands like Amazon, and Flipkart allow a plethora of SKUs, while quick commerce just allows a limited number, due to limitation of warehouse space and delivery time. The SKU selection by the brand becomes a critical aspect.”
In the physical realm, shelf presence plays an important role in reaching customers, in the online world, optimising the online presence is crucial to get the customers’ attention. She highlights that in quick commerce, the fight is to be at the top of the search bar.
“To be at the top, the brand should generate organic sales, secondly it’s about keyword bidding. A keyword that would search customers to find the product from the brand. The brand pays quick commerce players for this.”
Ghosal also agrees with this and states, “In the Q-commerce arena, most searches are by category rather than by brand. The brands have to tick more boxes in terms of categories/searches so that customers tend to look at them.”
(With additional inputs: Ruchika Jha)
(Published in Afaqs)
admin
December 7, 2023
Sharleen Dsouza, Business Standard
Mumbai, 6 December 2023
Godrej Consumer Products is test marketing its liquid detergent under the brand name ‘Fab’ in South India. While this is not the company’s first move in detergents, the launch is expected to give it a bigger play in the category, especially with a competitive price point of Rs 99 a litre. The company already has Godrej Ezee for winter wear wash.
Some other fast moving consumer goods (FMCG) companies are also entering new categories which are allied to their current businesses. Companies are chasing low-penetrated categories which offer high growth both in terms of revenue and margins, according to analysts.
For instance, Parle Products, known as a biscuits manufacturer, has re-entered the wheat flour (atta) market. Earlier in 1996, it had launched packaged wheat flour but exited the segment as the demand failed to pick up. “Now, the demand is much higher for packaged wheat flour,” Mayank Shah, senior category head at Parle Products, told Business Standard while explaining the re-entry into the category. The company already procures wheat flour in bulk for biscuits and therefore packaging and selling it also makes sense for us, Shah pointed out.
Known for its snacks and namkeens, Bikano Bikanervala Foods has entered the Indian spices category under the sub-brand ‘Swad Anusar’. It came as a natural progression for the company.
“The top masala companies have either established or expanded their position in the sector over the past year, which is believed to account for up to 36 per cent of India’s entire Rs 70,000 crore spice industry,’’ Manish Aggarwal, director, Bikano, Bikanervala Foods, said. The remaining 64 per cent of the market is disorganised. ‘’We believe it’s the right time to invest in the spices category and foresee growth in this dynamic segment,” Aggarwal added.
The brand is already established in people’s mind and these companies already have distribution in place, according to Rajat Wahi, partner at Deloitte India.
“As long as these are adjacent categories, the company can easily leverage the existing distribution and also target new customers. These categories are typically low penetrated categories which offer high growth and are fragmented due to regional brands being present, thus giving them a better opportunity to enter these categories,” Wahi said.
Brand expert Devangshu Dutta, founder at Third Eyesight, also believes that companies can easily use their existing distribution strength while expanding into related categories. “There has been a broad-based consumer growth over the years in these categories. Also, large companies find it difficult to grow after a point when present only in a certain categories,’’ Dutta said while explaining the significance of group synergies in launching new products.
(Published in Business Standard)
