Over the past five years, legacy players have made a slew of investments in D2C startups. 

Marico has acquired men’s grooming brand Beardo, beauty brand Just Herbs and breakfast brand True Elements. Similarly, Emami acquired vegan cosmetics brand Brillare Science and grooming brand The Man Company. It recently picked up a minority stake in nutrition company TruNativ. Colgate-Palmolive and Reckitt both hold minority stakes in Bombay Shaving Company, whereas Wipro Consumer Care has invested in The Ayurveda Company. ITC has invested in baby and mother care brands Mother Sparsh and Mylo.

Devangshu Dutta explained the reasons behind the trend of larger FMCG companies acquiring D2C brands.

June 28, 2022

Edited by Surabhi Shaurya, India.com

The blanket ban on single-use plastic items from next month poses a challenge to cool beverages such as Frooti, Real, Tropicana and Maaza. Earlier, beverage company Parle Agro, which owns Frooti and Appy had also urged the government to extend the deadline to implement the ban on plastic straws by six months. For the unversed, the government’s ban on single-use plastics, including plastic straw, is going to be effective from July 1, 2022.

Calling the government’s decision a ‘hasty ban’, Parle Agro had said it will ‘negatively impact’ overall businesses of the industry players in the FMCG (Fast Moving Consumer Goods) and beverage segment. “While Parle Agro endorses the government-led ban on the use of plastic straws, our plea is to postpone the implementation of the injunction by six months,” the company had said in a statement.

Amul Urges Environment Ministry to Postpone Ban

Besides, leading dairy firm Amul has urged the environment ministry to postpone the ban imposed on plastic straw by one year due to lack of adequate availability of paper straws in the domestic as well as international markets. “We have written a letter to Environment Secretary on the proposed ban on single use plastic straw,” Gujarat Cooperative Milk Marketing Federation (GCMMF) MD R S Sodhi had said last month.

GCMMF markets its milk and other dairy products under Amul brand. “The plastic straw in our butter milk and lassi is attached to tetra pack. It is part of primary packaging. So we have urged the Environment Ministry to include it as part of Extended Producer Responsibility (EPR) and recycling,” Sodhi said.

Amul needs 10-12 lakh plastic straws daily. Besides, Sodhi said, the company has urged the ministry to provide local industry one year to set up dedicated facilities for producing paper straws. “Paper straws are not available in domestic market. We don’t have capacity. We are not getting paper straws in international market,” he added.

Why Are Beverage Makers Worried?

To ensure a smooth transition to environment-friendly options like the paper of PLA straws, non-alcoholic beverage makers would require at least 6-8 months.

Parle Agro said that India produces and sells around 6 billion packs of paper-based beverage cartons with integrated plastic straws per annum. The available capacity to provide alternatives like biodegradable PLA straws or paper straws by a local Indian manufacturer is 1.3 million units per day, which is much less than the actual requirement.

“Packaging companies will need to invest in the right infrastructure to accommodate the changes which will require time to ensure the alternative is appropriate and cost-effective, especially during inflationary times,” the company said in a statement, adding that currently, there is no local manufacturer who can accommodate the demand.”

How Will Ban Impact The Sale Of Cold Beverages

The supply chain of beverages sold in small tetra packs will be disrupted with the blanket ban. Moreover, the beverage makers might have to incur heavy import and logistics costs as they import paper straws to replace plastic straws.

Speaking to Moneycontrol, Devangshu Dutta, CEO of retail consulting firm Third Eyesight said, “The companies have to look at alternative solutions, which may increase the costs. It will be challenging for the companies to pass on the increase in cost to the consumer as it may dampen demand, especially given the fact that these products are priced at low price points to target a certain consumer cohort.”

Full list of items to be banned from July 1:

1. Earbuds with plastic sticks
2. Plastic sticks for balloons
3. Plastic flags
4. Candy sticks
5. Ice-cream sticks
6. Polystyrene (Thermocol) for decoration
7. Plastic plates, cups, glasses, cutlery such as forks, spoons, knives, straws and trays
8. Wrapping or packing films around sweet boxes
9. Invitation cards
10. Cigarette packets
11. Plastic or PVC banners less than 100 micron
12. Stirrers

Written By Mukherjee, ET Bureau

Top listed retail chains such as Aditya Birla Fashion & Retail, Avenue Supermarts and Tata-owned Trent are going to lead store additions through the next financial year, as they double down on expansion after the pandemic, company executives and analysts said.

As per a recent report by ICICI Securities, 16.7 million square feet of retail space would be added by eight large, listed retail chains between FY21 and FY24 as compared to 8 million square feet added in the preceding four years of FY18-21. These companies also include Titan, Bata, V-Mart, TCNS and Shoppers Stop.

The buoyed sentiment comes after the recovery of retailers to more than their pre-Covid levels in the last two quarters, and is also driven by pentup demand, strong sales despite increasing prices and expansion into small-tier towns, the report said. There has been an expansion of the market which is happening along with a consolidation, said Devangshu Dutta, chief executive of consulting firm Third Eyesight. “Not all locations might turn out to be viable, but in every expansion cycle there are boom and bust. And the bust is not as big as the boom. Right now, we are in the expansion cycle,” he said.

Aditya Birla Fashion & Retail managing director Ashish Dikshit told analysts recently that the company would expand rapidly since plans were held up in the last two years due to the pandemic, with faster growth for fashion business, ethnic wear and inner wear. The company, which had raised ₹2,195 crore from GIC Singapore, intends to invest ₹600-800 crore for expansion in the next couple of years.

“…we continued to believe both in the long-term growth potential of the market and intrinsic strength of our brands and we feel now the time is to accelerate to catch up on what we have not done over the last 12 to 18 months and I would go back almost till the beginning of the Covid period from 18 to 24 months where some of our growth initiatives have held back,” said Dikshit.

As per the ICICI report, Avenue Supermarts would add 7.5 million sq ft during FY21-24 for the DMart stores as compared to 3.9 million sq ft added in FY18-21. Aditya Birla Fashion & Retail would add 3.1 million sq ft as compared to 1.2 million sq ft in preceding four years, while, among others, Trent would add 2.7 million sq ft (vs 1.5 million sq ft), Shoppers Stop would add 0.8 million sq ft (0.2 million sq ft) and Bata would add 0.7 million sq ft (0.2 million sq ft).

India’s largest retailer, Reliance Retail, too has accelerated expansion plans including taking its stores into new geographies, Gaurav Jain, head of strategy and business development told analysts recently.

Source: economictimes

Written By Suvashree Ghosh, Bijou George, and Sankalp Phartiyal

It was a contentious plan to repay overseas bondholders in full that brought what would have been India’s biggest retail deal to a grinding halt.

Debt-laden Future Retail Ltd.’s offshore bondholders — a relatively smaller part of the creditor pool — were promised 100% payment in the rescue offer from billionaire Mukesh Ambani, according to people with knowledge of the matter. Indian lenders were asked to take a haircut of as much as 66%, the people added, asking not to be identified discussing confidential information.

The unequal treatment led to the move last week, when the local banks rebuffed the $3.2 billion offer from Ambani’s conglomerate. Reliance Industries Ltd. announced the purchase plan in August 2020 but struggled to complete the transaction in the face of legal challenges mounted by Amazon.com Inc., which argued it had the first right of refusal contractually.

Bank of India and State Bank of India, the main bankers to Future Retail, didn’t immediately respond to emails seeking comment on reasons for voting down the deal. Representatives for Future Group and Reliance also didn’t immediately comment.

State-run lenders risked probes from federal agencies if they accepted these discriminatory terms, they said, explaining their preference now for a court-mediated insolvency process where bids are called in and there’s no risk of them being accused of cutting a bad deal. Bank of India has already requested an Indian court to initiate the process.

Hard-Nosed Decision

The hard-nosed decision by Indian banks has pushed the teetering Future Retail, which ran one of the nation’s largest retail grocery chains before the pandemic struck, one step closer to bankruptcy. Future Retail is almost certain to default on its $500 million bond coupon payment due July 22, S&P Global Ratings said Tuesday, while downgrading the company’s ratings deeper into junk territory.

The lenders’ action has also taken the wind out of a tortuous two-year-old litigation between Reliance and Jeff Bezos-owned Amazon — the e-tailer had started arbitration proceedings in Singapore to block the deal — but left the door open for Ambani to snag these retail assets, possibly at an even cheaper price, under the bankruptcy process.

“Reliance and other parties could be eligible to bid for its assets by submitting their resolution plans” even if Future Retail ends up in bankruptcy, according to Satwinder Singh, New Delhi-based partner at law firm Vaish Associates Advocates. “This would also lead to moratorium on any or all ongoing arbitration proceedings against Future.”

While the local lenders were agreeable to the deal when it was first announced, a lot changed in the past year or so, the people said. While the Amazon lawsuit dragged on, the asset value eroded and the pandemic worsened the cash crunch at Future Retail that began defaulting on its debt repayments.

Secured Indian lenders were promised recoveries ranging between 34% to 88% of the total $4 billion in dues and even those payouts were staggered over seven years, the people said.

Bloodless Coup

Reliance dealt a body blow to the Kishore Biyani-led Future Group in February when it quietly began poaching employees and taking over rental leases of hundreds of stores earlier run by Future Retail and Future Lifestyle Fashions Ltd. Ambani’s bloodless coup prompted Amazon to suggest settlement talks on the bitter dispute and alarmed Future’s investors and lenders who worried about asset-stripping.

Reliance’s unexpected takeover of Future’s stores eroded bankers’ confidence in the deal as it stripped off value from the chain and potentially could erode Reliance’s offer terms.

The out-of-court truce talks between Amazon, Future and Reliance collapsed soon after the store-purchases were initiated, the companies informed India’s top court on March 15. Amazon will continue with its arbitration proceedings against Future Group in Singapore, according to a person familiar with the matter, who asked not to be identified as the deliberations are private.

“A major turning point was when Reliance physically took over Future’s stores, which turned it into a no-holds barred situation,” said Devangshu Dutta, head of New Delhi-based retail consultancy Third Eyesight. “Before this the battle was being fought in courts and across the negotiating table. But at this point it moved over to the real business.”

Source: bloomberg

Writankar Mukherjee & Sagar Malviya, Economic Times

Kolkata / Mumbai, March 28, 2022

The war for instant grocery delivery is going to intensify with Reliance Retail entering the segment with its JioMart platform. The company will start the trial in next 2-4 days in Navi Mumbai for ‘JioMart Express’ which will sell and deliver around 2,000 stock keeping units (SKUs) in a few hours, two senior industry executives aware of the plans said.

Reliance has plans to take instant grocery sales to over 200 cities and towns where JioMart is currently operational by end of next quarter and double the reach in next few months to make it India’s largest instant grocer. The company will also tap its network of kirana stores for such fulfillment, apart from its own chain of grocery stores, the executives said. It is testing a separate app for express grocery deliveries as well as integrating it into the JioMart platform.

The plans of India’s largest brick-and-mortar retailer to enter quick commerce is to further grow its e-grocery business and Reliance will compete against Tata-owned Big Basket which will launch it in April, Zomato-funded Blinkit, Swiggy’s Instamart, Walmart-owned Flipkart Quick and Zepto. Earlier this year, Reliance had led a $240 million funding round in quick commerce hyperlocal firm Dunzo owning the largest 26% stake.

“JioMart Express will utilize Dunzo in the markets where it is strong like the metros as well as its own delivery fleet. JioMart Express can be quickly scaled up since Reliance has onboarded lakhs of kiranas under its B2B programme ‘JioMart Partner’ who buys the merchandise from Reliance and sells through the JioMart platform,” an executive said.

An email sent to Reliance Retail remained unanswered till Sunday press time.

Devangshu Dutta, chief executive of consulting firm Third Eyesight, said Reliance needs to ensure that it is in the right catchment which has a high concentration of demand, low competition and keep supply centres close to it to make instant grocery service profitable. “Margin contribution is low in grocery and hence apart from these there could be a higher focus on high margin products in the assortment,” he said.

To be sure, quick commerce is not new for Reliance Retail. It has been delivering orders in less than three hours placed through Reliance Digital online or app for smaller consumer electronics such as mobile phones and laptops. “However, order volumes are going to be much more frequent in grocery, and hence it would need a robust backend and delivery fleet,” an executive said.

While the pilot in Navi Mumbai will start with 1-3 hours delivery time, Reliance will progressively reduce the delivery time to match the industry standard of 45 minutes to an hour and will also expand the range. According to researcher RedSeer, India’s quick commerce market is all set to grow 15 times by 2025 reaching a market size of close to $5.5 billion. Online shoppers in the metros have been using quick commerce for their unplanned and top-up purchases.

(Published in Economic Times)