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June 7, 2023
M. Sriram and Aditya Kalra, Reuters (MUMBAI/NEW DELHI)
June 7, 2023
Starbucks is revamping its strategy to lure Indians, including children, with smaller, cheaper beverages as it looks to expand in small towns amid a fierce challenge from domestic startups in one of its fastest-growing markets.
Among the first foreign coffee brands to enter tea-loving India, the U.S. giant has taken almost 11 years to open 343 stores, in contrast with private equity-backed chains Third Wave and Blue Tokai that opened about 150 in the last three years.
“As you grow in size, you need to get new consumers,” said Sushant Dash, the chief executive of Starbucks in India, adding that the chain’s “pricing play” would help shatter a perception that it is expensive.
The company has launched a six-ounce drink, “Picco”, which starts at $2.24, and milkshakes for $3.33 as part of its revamp to target affluent Indians who prefer smaller servings.
Starbucks plans to open more stores in smaller towns, said an industry source, who spoke on condition of anonymity.
Both its new offerings are unique to India and unavailable in China, Singapore and the United States.
India’s small but fast-growing specialty tea and coffee cafe market is worth $300 million and set to grow 12% each year, Euromonitor estimates. Canada’s Tim Hortons and Britain’s Pret A Manger are also expanding, but have only a handful of outlets.
“Excessively large portion sizes are an American phenomenon,” said Devangshu Dutta, head of retail consultancy Third Eyesight.
“Indian consumers are value-conscious. If adjusting portion sizes down to what is more normal helps make prices accessible, that’s a double win.”
He was among the analysts who felt the move by Starbucks, operating in India in a joint venture with Tata Group, could further boost its sales, which hit a record $132 million in fiscal 2022/23.
Although Starbucks still dominates in India, rivalry is fizzing in the capital, New Delhi, and the technology hub of Bengaluru, where many Third Wave cafes are often as crowded as Starbucks outlets.
“We’ve lost 30 cups a day to them,” said a barista at a Starbucks shop in Delhi that sells 7,500 drinks a month, referring to a Third Wave that opened nearby months ago, but already sells 3,700.
Starbucks has faced homegrown challengers elsewhere, most notably in China, where its 6,200 stores service the biggest market outside the United States.
There, in just the last five years, Luckin Coffee has used discounts to lure customers to its 10,000 mostly pickup or delivery stores.
Bet On Chai
In India, where Starbucks has added domestic touches to its offerings over the years to boost their appeal, it is now stepping up that game, just as global giants McDonald’s and Domino’s have done.
It estimates that just 11% of Indian homes drink coffee, as opposed to 91% drinking tea. Hot milky tea, or “chai” as it is known in Hindi, is sold at roadside stalls by the hundreds of cups each day for as little as 10 rupees (12 U.S. cents).
Starbucks, which offered for years just one milk chai “latte” made with tea syrup, has launched “Indian-inspired” tea offerings laced with spices and cardamom, both favourites in many Indian homes, which start at 185 rupees ($2.24).
The drinks were introduced to attract those who do not drink coffee and shun Starbucks, said Dash, adding the company would retain its focus on coffee and not make chai a primary offering.
The launch of smaller, cheaper beverages in India indicates Starbucks may have seen “a decline in traffic related to a pushback” on higher prices, said Chas Hermann, a U.S.-based restaurant consultant and former Starbucks executive.
Competition, Small Cities Push
In May, people lured by a one-for-one offer queued in a street outside the first Starbucks store in the western city of Aurangabad, a YouTube video showed in scenes reminiscent of when it first opened in India.
But its rivals are catching up and a price war has begun.
Soon after Starbucks’ May launch of $3.33 milkshakes, designed to attract children, Third Wave launched its own range, a fifth cheaper at $2.71.
In Bengaluru, startup investors and founders hold meetings in Third Wave outlets. It has more than 40 stores there, exceeding the 35 of Starbucks, data from real estate analytics firm CRE Matrix shows.
Third Wave’s chief executive, Sushant Goel, said he planned to add 60 to 70 stores every year, with a focus on big cities. He saw Starbucks’ cheaper, small-sized drinks as a response to competition in “an incredibly price-sensitive market”.
Matt Chitharanjan, chief executive of Blue Tokai, said it had “seen success in converting customers from Starbucks”, partly because of lower prices.
While Dash said he was undeterred by competition, Starbucks recognises the threat, although privately.
In one lease deal for a Bengaluru mall reviewed by Reuters, Starbucks inserted a “cafe exclusivity” clause barring the mall owner from allotting space on the same floor to rival “premium” brands, including Third Wave and Blue Tokai.
“Going deeper into smaller cities, beyond the metros, is the only way to grow,” said Ankur Bisen, head of retail at India’s Technopak Advisors.
(Reporting by M. Sriram and Aditya Kalra; Additional reporting by Anushree Fadnavis in New Delhi, Varun Vyas and Euan Rocha in Bengaluru, Miyoung Kim in Singapore, Sophie Yu in Beijing and Hilary Russ in New York; Editing by Clarence Fernandez)
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May 26, 2023
Chloe Cornish in Mumbai and Eleanor Olcott in Hong Kong, Financial Times
May 26 2023
India’s biggest company Reliance Industries is seeking to dominate the country’s $10bn online domestic fashion market, striking a deal with Shein that will allow the rapidly growing Chinese retailer to return to the world’s most populous nation.
The retail unit of billionaire Mukesh Ambani’s petrol-to-telecoms conglomerate will tie up with Shein three years after India banned the online retailer’s app in its attempt to freeze Chinese companies out of the local market in retaliation for border clashes that had left at least 20 Indian soldiers dead.
“We can confirm Shein’s partnership with Reliance Retail and have no additional comment at this time,” said Shein, declining to answer questions about the structure of the deal. Reliance did not respond to queries about the partnership, which was first reported by the Wall Street Journal.
The addition of a low-priced offering gives India’s biggest listed company by market capitalisation an important boost in its battle to dominate the country’s growing online fashion retail market, which was worth $10bn in 2022, according to analyst estimates.
As part of the licence agreement, which was recently approved by the government, Shein will receive a percentage of profits generated from its fast fashion sales in India, people familiar with the deal said, while Reliance will help Shein build a supply chain with India’s garment industry for global exports.
The move into Indian sourcing comes as Shein diversifies its supply chain outside the coastal province of Guangdong in southern China, where it has 8,000 suppliers, mostly located in the garment hub of Panyu. Pandemic-era supply chain bottlenecks, rising labour costs in China and geopolitical tensions between Beijing and Washington have propelled multinational companies, including Apple and clothing retailer Mango, to migrate parts of their supply chains out of the country.
Shein, which does not sell in China, has been seeking to distance itself from its home country. Last year, it made its Singapore arm the de facto holding company, rapidly expanding its workforce there and shifting some of its operations from its China headquarters in Nanjing.
Shein will seek to minimise delivery times by having more manufacturing centres around the world. India, meanwhile, hopes to benefit from multinationals’ “China plus one” movement, a strategy that seeks to avoid investing only in China and aims to diversify supply chains to other countries.
Reliance has signed agreements with international luxury brands ranging from Balenciaga to Burberry, catering to India’s small but growing demographic of super-rich consumers. In addition, it has nearly 13,000 bricks-and-mortar stores across the country selling affordable apparel.
“Reliance’s other international brand partnerships are more premium, being luxury or designer brands,” said Devangshu Dutta, chief executive of consultant Third Eyesight. “India is still a relatively low per capita income economy. The bigger opportunity is in brands which are euphemistically called value brands, and that’s where Shein is positioned.”
For Shein, access to the Indian market will allow the company to boost sales as the pace of its expansion in Europe and the US begins to lose steam, according to people briefed on its growth figures.
The Financial Times reported that in a recent presentation to investors, Shein forecast that gross merchandise value — the total value of merchandise sold on its platform — will almost triple by 2025 to $80.6bn compared with the figure last year.
The lofty revenue projections come ahead of a much anticipated initial public offering, which promises to be one of the largest listings of a Chinese-founded company in years.
In fashion ecommerce, Reliance lags behind Myntra, one of India’s oldest ecommerce players, which merged with Walmart-backed Flipkart in 2014. Myntra accounts for around half of the online fashion market in India, according to Satish Meena, an independent ecommerce analyst based in Gurgaon.
“Myntra is the nucleus” for online fashion, said Ankur Bisen, senior partner at retail consultancy Technopak Advisors, adding that its “cohort” of shoppers is primarily young and urban. “With the Reliance and Shein partnership, they would like to get into this cohort and break the monopoly of Myntra,” Bisen said.
Meena estimates that Reliance’s ecommerce fashion business Ajio has about 4 per cent of market share, while Bisen put Ajio among the “long tail” of ecommerce fashion ventures behind Myntra. Reliance’s JioMart online shop also sells clothes, alongside groceries and electronics.
“If you look at Reliance as a company, it’s about dominance and it’s about long term,” Dutta said.
(Published in the Financial Times)
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May 24, 2023
Shambhavi Anand, Economic Times
New Delhi, May 24, 2023
Retailers and shopkeepers will soon not be allowed to seek phone numbers of their customers while generating bills, according to a diktat by the department of consumer affairs, a senior government official said.
Taking the numbers of customers without their “express consent” is a breach and encroachment of privacy, said the official, without wanting to be identified.
The official added that such a move will be classified as an unfair trading practice defined as any business practice or act that is deceptive, fraudulent, or causes injury to a consumer.
Most large retailers mandatorily take down buyers’ phone numbers while generating the bill for their purchases and use them for loyalty programmes or sending push messages.
The move has come after the department received several complaints from consumers about retailers insisting on getting their phone numbers. This will be communicated to all retailers through industry bodies representing retailers soon, the official added.
While the implementation of these new rules may require some adjustments and initial costs for retailers, it is seen as a necessary step towards protecting consumer privacy and ensuring fair business practices in the retail sector, said experts.
While retailers will have to rework their systems in case this becomes a regulation, this won’t stop them from asking for phone numbers of consumers as their loyalty programmes run on these numbers, said Devangshu Dutta, founder of Third Eyesight, a retail consultancy firm.
He added that retailers also use numbers for sending e-invoices and so this could have a cost impact and environmental impact.
(Published in Economic Times)
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May 16, 2023
Viveat Susan Pinto, Financial Express
May 16, 2023
The country’s top two organised retailers, Reliance Retail and DMart, are shifting focus to the large but fragmented pharma retail market in India in their quest for growth. The Rs 2-trillion domestic pharma retail industry is largely dominated by mom-and-pop stores, much like the fast-moving consumer goods market and kiranas.
On Saturday, Avenue Supermarts, which runs the DMart chain of stores, said it had set up a new subsidiary called Reflect Healthcare and Retail to launch pharmacy shop-in-shops. Reliance Retail, on the other hand, proposes to step up the launch of offline pharmacy stores under Netmeds, the e-pharmacy company it acquired in August 2020. Netmeds is now a subsidiary of Reliance Retail.
The plan with Netmeds, according to persons in the know, is to open around 2,000 standalone pharmacy stores in the next few years. Reliance Retail already has around 1,000 shop-in-shop pharma stores across Reliance Smart Bazaar and Smart Point outlets.
During Reliance Industries’ fourth quarter earnings call last month, Dinesh Taluja, chief financial officer of Reliance Retail, said standalone pharmacy stores by the company would be positioned as destinations for pharma and wellness products. The aim, Taluja said, was to leverage omni-channel capabilities to serve customers better.
DMart, on the other hand, has launched one pharmacy shop-in-shop in the Mumbai Metropolitan Region (MMR) for now. But the future plan, according to industry sources, includes rolling out at least four to five more of such outlets in the MMR region in the next few months.
“While e-pharmacies are a growing concept, there is a large population out there that still prefers to go to a nearby pharmacy or medical store to purchase drugs or medicines prescribed or buy over-the-counter products,” said Devangshu Dutta, founder and chief executive of retail consultancy Third Eyesight.
“The number of organised retail chains in the pharma space in the country are limited. This presents an opportunity for organised players like DMart and Reliance Retail to expand their presence in the market,” Dutta said.
Apart from Apollo Pharmacy, which is India’s largest omnichannel pharmacy chain with over 5,000 outlets, the organised pharma retail space in India largely has regional chains or popular standalone outlets within cities catering to a captive market, say experts. So, organised retailers such as Reliance Retail and DMart can disrupt the market if they begin growing their presence.
Analysts at brokerage firm Kotak Securities, however, see DMart’s foray into pharma retail as a pilot programme, which could be scaled up in the future. “This is another pilot that is expected to boost footfalls in DMart’s brick and mortar business using existing store infrastructure,” they said.
(Published in Financial Express)
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May 6, 2023
Gargi Sarkar, Inc42
6 May 2023
With one of the largest consumer bases in the world, the Indian retail industry is on a constant upward spiral, thanks to the increase in the purchasing power of Indian consumers and the ever-increasing ecommerce adoption.
Notably, this has helped segments like online beauty and personal care (BPC) sustain and grow faster than the players in the offline space.
According to industry experts, the online BPC market has been growing in the range of 20% to 25% annually, compared to the offline segment at around 8% to 10% a year. According to a IMARC Group report, India’s BPC market size reached $26.3 Bn in 2022 and is expected to reach $38 Bn by 2028, growing at a CAGR of 6.45% between 2023 and 2028.
Notably, in their endeavour to capture this opportunity, new players are entering the BPC space, and the existing ones have started to scale their omnichannel presence.
The newest entrant in the space is Reliance Retail. The retail major forayed into the BPC market with its omnichannel platform, Tira, earlier last month. Along with launching its app, Reliance Retail also opened its flagship Tira store in Mumbai.
It is crucial to note that existing marketplaces like Nykaa and Purplle, and D2C brands such as SUGAR Cosmetics and Mamaearth, too, have started expanding their offline footprint, after scaling up their online presence.
Similarly, offline retailers such as Loreal India, Sephora, and Hindustan Unilever’s Lakme have increased their focus on expanding their online presence via direct-to-consumer websites.
Given that Reliance’s Tira has entered the market with an omnichannel playbook, piggybacking on its parent’s cash reserves, it becomes all the more important to understand what impact it will have in the long run on the existing players and industry dynamics.
According to the industry experts that Inc42 spoke with, the beauty and personal care market offers more than enough opportunities for multiple players to grow, due to multiple favourable factors.
“The BPC segment remains one of the fastest growing categories in consumer retail because the penetration of beauty products has remained relatively low. With increasing awareness, and more disposable income, the BPC segment has witnessed decent growth. Now, since the segment is growing, there is a scope for multiple players to grow. That is why some of the big players have entered into the market,” Ashish Dhir, EVP (consumer and retail), 1Lattice said.
Despite Dhir’s optimism, it is pertinent to note that Nykaa saw some initial pressure on its share prices and overall stock performance with the launch of Tira. Brokerage firm Macquarie said that the entry of new players such as Tira could exacerbate the problems for Nykaa at a time when the competition in the segment is already tough.
In the past, Reliance’s entry into the fashion ecommerce space with Ajio impacted leading existing players like Myntra. Now that we already have an example from the past, coupled with a falling will to spend due to factors like rising unemployment and inflation, it will be interesting to see how Nykaa performs under such pressure.
How Tira Could Threaten Nykaa & Ilks Dominance In The Beauty & Personal Care Space
It is no wonder that Reliance Retail will look at disrupting the market to emerge as a market leader as it has done in every segment.
Compared to sectors such as apparel and telecom, the BPC segment is different, and it is not very easy to scale here the way Nykaa has done over the years, according to Karan Taurani, SVP Research, Elara Capital. He noted that many other players in the past tried to scale but failed.
“Nykaa has emerged as a winner due to several factors such as a superior consumer experience on the app, trustworthiness, and product variety. Currently, the product delivery time is also lesser on Nykaa compared to Tira, although the latter could improve it. Moreover, Nykaa has created a network of influencers over the years, and its approach on social media is very different,” Taurani added.
He, however, highlighted that there will be an initial consumer churn as some customers will try Tira as well, and whether the new venture, Tira, can retain all these customers will depend on the consumer experience it provides.
As per Taurani, marketplaces like Nykaa will see some sort of pinch in terms of demand but will not have a significant impact until Tira offers a differentiated experience. Right now, Tira has very few differentiating factors.
However, we should not forget that Reliance Retail is experienced in building brands and has the heavy financial backing to scale in the offline segment.
Given that many players do not have much experience in the offline segment, they may see a visible impact facing the retail giant in the offline BPC space.
It is important to note that Nykaa’s consolidated net profit fell 70.7% year-on-year (YoY) to INR 8.5 Cr in the December quarter of the financial year 2022-23 (FY23), despite the festive season.
In addition, Mumbai-based beauty ecommerce startup Purplle’s net loss almost quadrupled to INR 203.6 Cr in the financial year 2021-22 (FY22) from INR 52 Cr in FY21.
An optimistic Dhir, however, likes to believe that Tira would only increase the competition in the segment and would not impact the profitability of its rivals, at least in the near term.
Will D2C Beauty & Personal Care Brands Face The Heat?
Along with conglomerate-backed large players such as Tata Cliq and online marketplaces, there are several Indian startups and brands such as mCaffeine, Mamaearth, Sugar and Minimalist, which are looking to capture a big chunk of the ever-increasing BPC market pie.
According to an Inc42 report, BPC will remain one of the fastest-growing D2C segments between 2022 and 2030, growing at a CAGR of 27%.
Talking about Tira’s impact, experts said these (aforementioned) D2C brands will not see any major impact due to two factors.
“Firstly, these brands will have similar arrangements with Tira as they have with Nykaa. Secondly, these brands have created a loyal customer base for the products they offer and they have their recall,” Taurani said.
“While deep-pocketed companies can spend their way into buying the market share, all brands need to be prepared for the long term. Also, for these brands a clear positioning be crucial to stand out, not just in their product and service mix but also the overall customer experience specific to their target audience. This would also give opportunities to several beauty and personal care brands to profitably serve niches that may be too small for the larger companies driving for the market, “Devangshu Dutta, the founder of Third Eyesight, said.
Also, Nykaa and Purplle have a portfolio of private labels, which includes skincare brands such as Dot & Key, Earth Rhythm, and Good Vibes, among others. Hence, it will not be surprising if Tira launches its private labels or acquires small brands to grow its portfolio.
As brands like Dot & Key, and Good Vibes are already direct competitors to these D2C beauty brands, a new player can pose more challenges for them.
What Else Could Work In Tira’s Favour
“Our vision for Tira is to be the leading beauty destination for accessible yet aspirational beauty, one that is inclusive and one that harbours the mission of becoming the most loved beauty retailer in India,” Reliance Retail’s executive director Isha Ambani said at the time of launch in April 2023.
When Reliance entered new segments like telecom and fashion ecommerce with Jio and Ajio, respectively, many of the existing players struggled to sustain in the segment as the Mukesh Ambani-led conglomerate scaled up quickly, thanks to its strong financial position. Hence, it will work as the biggest favourable factor in the beauty and personal care space as well, industry experts believe.
Tira is also expected to lure customers with big discounts. “For Tira, a big chunk of revenue will initially go towards marketing and customer acquisition, at least for the first couple of years, as it is a new brand. More than marketing, Reliance will look at discounting more prominently. Reliance will try to give higher discounts compared to other players,” Taurani said.
He added that Reliance has some expertise in building new platforms, such as Ajio, and a rich talent pool and strong brand exposure.
While players like Tata Cliq, Purplle, and Myntra’s beauty segment have tried to scale up in BPC, none of these players has seen significant growth. Hence, the market consists of one large player, making it easier for a deep-pocket player like Tira to carve its positioning quickly and create a duopoly with Nykaa.
At the time of Tira’s launch, the company said that the brand would offer a curated assortment of the best global and home-grown beauty brands. In terms of its offline play, Reliance Retail can leverage partnerships with global beauty brands and suppliers to get better deals. As it is looking at an omnichannel play at an entry stage itself, it may be able to gain market share from smaller beauty retailers, especially in bigger cities.
The Tira offline store will have the latest beauty tech tools such as virtual try-on to create customised looks and a skin analyser that will personalise and assist consumers in making purchasing decisions based on their needs, the company said.
On the luxury side, Reliance Retail is also directly targeting the market which has higher margins and could eat into the margins of Nykaa easily. It must be noted that Nykaa’s Luxe is still in its infancy.
While it is true that Tira will increase the competition in the BPC segment, it is not likely to rewrite the industry’s future over the next couple of years. Tira currently has very few differentiating factors in both the online and offline segments. Additionally, in the offline segment, Tira has opened only one store while Nykaa already has 141 physical stores across 56 Indian cities, as shared in its Q3 earnings report.
Even though there are glaring differences, some industry experts see Tira’s journey to be the same as that of Nykaa, going ahead.
(Published in Inc42)
