Category: Press Quotes

Narayana Murthy inks joint venture with Amazon for e-commerce play

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June 28, 2014

Shilpa Phadnis, The Times of India
Bangalore, 28 June 2014

"Catamaran and Amazon Asia formalized a partnership in May to help offline sellers and SMBs in India to take advantage of the potential of the fast growing online customer base in the country. The partnership will focus, accelerate and scale the inclusion of SMBs into the digital economy," said the spokesperson of Taurus Business and Trade Services.

The JV entity will equip SMB sellers with online tools and help them gain a larger customer base for their existing merchandise that will increase revenues and footfalls for SMB retailers, the spokesperson said.

However, the nature of the JV is unclear—whether it’s to beef up back-end delivery operations or if it is a structure created to get into direct e-commerce. At present the government does not permit FDI in e-commerce. Some sources said the JV could be a backdoor entry to foreign players in the multi-brand space or it could even accelerate the partnership to spearhead offline store launches in the near future.

"Till the time FDI is allowed in e-commerce, it’s a barrier for any foreign company to set up an outfit. Some e-commerce players have side-stepped in some form or the other by having arm’s-length relationships with Indian partners," said Devangshu Dutta, CEO of retail consultancy firm Third Eyesight.

Last year, Catamaran Ventures exited from its Rs 200 crore investment in Manipal Global Education Services, selling its stake back to the promoters of the company. Catamaran has also invested in Gurgaon-based Hector Beverages that makes energy drink Tzinga. An email sent to Catamaran on how the entity is structured didn’t elicit a response.

(Published in The Times of India.)

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Thinking on their feet

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June 27, 2014

Rashmi Pratap, Hindu BusinessLine

New Delhi, 27 June 2014

That Pandit Jawahar Lal Nehru was a champion of the co-operative movement is well-known. But a little-known fact is that he extended the concept of co-operatives to not only banking, farming and sugar, but shoes as well. When one such shoe co-operative pioneered by him in Karnal (Haryana) fell on bad times in 1954, two brothers bailed it out. DP and PD Gupta retained the employees and converted the co-operative into a company. As giving customers the freedom to choose was a priority in the newly Independent country, the company was suitably named Liberty Shoes.

In the half-a-century that followed, the company thrived with its range of innovative products and soon became an aspirational brand. But when global winds of change swept the country, like most brands of its generation, Liberty began to feel the pressure. Archaic processes and a limited retail presence pushed it to the fringes of the industry by 2004. The brand is today frantically trying to make a comeback. But the question is: Can a 60-year-old company stay relevant in a market that now boasts the likes of international giants Nike and Reebok at one end and home-grown successes such as Relaxo and Metro Shoes on the other?

The CEO of Liberty Group, Adesh Gupta says the company has reoriented its approach to production, supply chain management and retail strategy. “We are no longer pushing our products to distributors and customers. The daily production is now interlinked with our previous day’s sale as well as customer feedback. That means, producing what is in demand rather than creating an inventory that could return to us after six months,” he explains.

And that, says Gupta, has been the company’s best-ever move in a decade. Its earlier strategy was successful but not sustainable, he concedes. “Retailers were not armed with tools to give us continuous feedback. We had legacy issues,” he says.

Piling troubles

Gupta, who took over as Liberty Shoes CEO in 2004, then met dealers once in six months, only to find out that most of the designs which he thought would sell had no takers. That meant piled-up stocks for the distributors and retailers, clogging the supply chain.

But he was in for even bigger trouble. In September 2005, Liberty Shoes signed a 49:51 joint venture with the then Kishore Biyani-owned Pantaloon Retail (now an Aditya Birla Group company). On paper, they were to open 45 stores in three years and target a turnover of Rs. 350 crore. In anticipation, Liberty increased capacity through new plants — two in Himachal Pradesh and one in Uttarakhand. “We added 60 per cent new capacity.” But the joint venture never took off.

“They (Pantaloon) promised us business worth hundreds of crores on paper. But it never came to us because they were sourcing from cheaper local brands in Agra despite their commitment to us. They would always ask us to supply at ridiculously low prices, usually half the MRP,” says Gupta. (An email to the Future Group went unanswered.)

Liberty, already battling an outdated supply chain and rising capital expenditure, was now saddled with extra capacity. The final blow came in the form of souring industrial relations. “In 2006, we had a huge strike, which we resolved in a day. A second one happened within a week and a third within a month,” Gupta recounts, laying the blame on politics. “We were victims of a political climate that disturbed the system,” he says.

On one hand, the company went on capacity and retail overdrive and on the other, it was hit by a strike. The result was that its takeoff crashed. Till 2008, it somehow maintained its topline, but the expenditure rose sharply and profitability vanished.

Treading a new path

Gupta decided to seek professional help. He recalls meeting consultants who wanted crores in return for coffee-table books that promised to tell him how to bail out the business. Finally, he approached the Vector Consulting Group, which is known for its Theory of Constraints. “They led us to work on the pull model, which means we just replenish the sold stock and there is no inventory. The reaction time is cut from six months to one day,” he says.

Liberty took four years to build this supply chain and system. “Till 2012, we were clearing dead stocks of our own stores and retailers through promotions or discounts. Now, if I sell 100 pairs in a day, I produce only 100 the next day. We are not working on a forecast model, we produce according to demand.”

While the back-end measures are in place, the company will have to double its efforts to increase customers and sales. “There has been a fundamental shift in the Indian market, as well as marketing strategy in the last decade. Young Indians are far more aspirational than they were 20 years ago, and that is a challenge for all brands of the previous generation,” says Arvind Singhal, chairman and managing director of the consulting firm Technopak. “Their communication and product strategy have to be in sync with social media, print and digital platforms.”

Brand strategy specialist Harish Bijoor concurs: “Social media is becoming so dominant and relevant that being there is a hygiene factor.”

The comeback Czech

Much like Liberty, yet another footwear brand is trying to create a buzz in the market to win back its customer base. Czech brand Bata has been in India for 84 years and is now working doubly hard to reinvent itself at all levels — products, retail reach and media campaigns. Last quarter, Bata spent Rs. 3 crore (0.6 per cent of revenue) on its 360-degree integrated marketing campaign ‘Where Life Meets Style’.

“Bata needs to reinvent its lifestyle positioning… (it) has dominated on the basis of its products and prices. But the price-and-product-generation has moved on, making way for a stylised generation, which is price-resilient. Bata cannot forever remain a bastion of lifestyle pricing,” says Bijoor.

Agreeing that pricing is no longer the dominant factor it once was, Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says, “Today there is a lot more competition, with international brands deepening their engagement with the Indian market. Even consumers are willing to spend on higher-priced products as long as it gives them an edge — whether in terms of looks or comfort.”

After suffering losses in the early 2000s, Bata began setting its house in order. Since 2005, it has been downing the shutters of small outlets and opening new large-format stores. It has remodelled stores and shut down bleeding properties. And in a major break from the past, it has extended its working hours, and stays open on Sundays.

But its masterstroke was the voluntary retirement scheme that nearly halved its staff strength from 9,631 in 2005 to 5,162 in 2012. Employees also had the option to move to K stores — a format that lets employees turn into franchisees, with a 7-8 per cent commission on sales.

“Bata in particular has been a comeback story in the last few years. They have updated the quality of retail ambience; the stores now look contemporary and the product range has expanded,” says Singhal.

The results are showing. The company’s net profit for the January-March 2014 quarter was Rs. 39.4 crore, with sales at Rs. 495.12 crore. In contrast, Liberty faces a long road ahead. While it is back to making profits (Rs. 4.27 crore) alongside rising sales (Rs.142.05 crore), these are modest in comparison with Bata during the same period. During FY14, its net profit was Rs. 13.21 crore, a third of what Bata made in just three months. And to think that at one time, around 2000, Liberty was considered the only real competition and threat to Bata.

For the young

Gupta is all too aware of the challenges. Liberty has 450 franchisee cash-and-carry stores and 100 company-owned outlets. “We opened 100 stores in each of the last two years. We want to add 50-100 stores each year, half of them franchisees and the rest company-owned,” he says.

With Rs. 1 crore as the average annual sales per store, Gupta is keen to hit the Rs. 1,000-crore target in the next couple of years. Side by side, the company has launched its online store and tied up with e-commerce players such as Flipkart and Jabong. And its focus is the youth. Says Gupta, “Liberty will never be a luxury brand. We’ll be a youthful, fashion-centric brand with affordability as a key criterion.”

(Published in The Hindu BusinessLine.)

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Uber launches cheaper brand UberX to compete with Meru, Ola Cabs

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June 26, 2014

Nikita Garia, Mihir Dalal, MINT (A Wall Street Journal Partner)

New Delhi, 26 June 2014

Cab services provider Uber announced the launch of its low-cost cab brand UberX in Bangalore, New Delhi and Hyderabad to directly compete with local rivals such as Meru Cabs, Ola Cabs and others.

Uber launched in India last August with its higher priced, luxury car service, UberBLACK that charged a minimum of Rs.250 per ride. Though the company, which accepts payments only through credit cards, reduced fares later, they were still at least 50% higher, on average, than those of rivals such as Meru Cabs and Ola Cabs.

UberX will offer a base fare of Rs.50, and also charge Rs.1 per minute and Rs.15 per kilometre. The charges will vary based on the city, but the fares are similar to those offered by local rivals.

Analysts said the move by Uber reflects the need for brands to offer lower-cost but so-called “value” products that Indian consumers typically prefer. Foreign companies such as Amazon, McDonald’s and others have had to approach India as a distinct market and “localize” their products and services to appeal to Indian shoppers.

“We are a cost and value-conscious country. Value is more than low cost,”said Devangshu Dutta, chief executive at Third Eyesight, a consultancy. “Our service expectations are very high. Any company which is looking at the Indian market whether it is a product or service company, has to modify its approach, adopt different strategies and tactics to make its Indian business a success.”

Despite launching a lower-priced service, Uber still misses out on a significant part of the market as credit card usage is low in India and a majority of customers still prefer paying cash, an executive at an Uber rival said.

“Uber has only a credit card-based mobile app and no call centres,” said Aprameya Radhakrishna, co-founder, of TaxiForSure.com. “You can only go for immediate bookings. So they will have limited reach in the market. Let us see how they perform once they get into the lower end of the market.”

Uber is running a promotional campaign to boost sales, where a first-time user can get Rs.500 off on the first UberX ride.

The Google Inc.-backed start-up that started its operations in 2009 is present in 39 countries. In India it offers its services in Bangalore, New Delhi, Hyderabad, Chennai, Mumbai and Pune.

Uber, which does not own cars, uses state-of-the-art technology to connect drivers with passengers through a mobile app.

The radio taxi market is moving towards an asset-light model where websites such as TaxiForSure.com lend their brand to drivers and cab operators in exchange for a fee. Meru, too, has become part cab operator, part marketer.

(Published in MINT.)

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Premji’s FMCG company a dragon in tiger economies

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June 25, 2014

Anshul Dhamija, The Times of India

Bangalore, 25 June 2014

Tech tycoon and Wipro chairman Azim Premji is a hidden dragon springing out an impressive fast-moving consumer goods (FMCG) story in Asia’s new tiger economies, knocking close on the heels of global powerhouses Unilever and Proctor & Gamble (P&G).

Billionaire Premji’s Wipro Consumer Care and Lighting (WCCLG) is now among the top three personal care companies in Malaysia and Vietnam and is gaining ground in China’s southern provinces. Sixty-eight-year old Premji — with personal wealth topping $15 billion — took the FMCG unit private through a de-merger of non-IT businesses, which are housed under Wipro Enterprises.

"Our internal estimates suggest that Unilever is number one in personal care in Malaysia followed by us. We are currently placed number three behind Unilever and P&G in Vietnam’s personal care market," Wipro Consumer Care & Lighting President Vineet Agarwal told TOI.

In Malaysia, which is among the top three South East Asian economies, Wipro enjoys market leadership in facial cleansers (27%), facial moisturizers (26%), fragrance (22%), talc (51%) and kids toiletries (60%)."We are also the number one with a 50% market share in halal toiletries," added Agrawal, a Wipro veteran who has overseen the company’s inorganic expansion globally.

Wipro Consumer generates more than 50% of its revenue from international markets through a string of acquisitions boosting its foot print across south east Asia, Middle East and Africa. In doing so, it notched up Rs 5,000 crore revenues in FY14, becoming the third largest India born FMCG major after Godrej Consumer Products (Rs 7,602 crore) and Dabur (Rs 7,094 crore).

WCCLG’s revenue grew 16 times from Rs 304 crore reported 13 years ago. It went past Marico’s consolidated revenue of Rs 4,686 crore in the last fiscal. India and international markets posted similar growth giving the Wipro unit 17% revenue growth and 11.4% expansion in operating profit.

"Wipro has been a successful consumer products company. However, the consumer business got lost in the shadow of its bigger and sexier IT business. The origins of Wipro are in consumer products and that is hidden in its name, which is an acronym," said Devangshu Dutta of Third Eyesight, a consultancy firm.

Wipro – Western India Products Limited was set in 1945 to manufacture vegetable and refined oils, which the company has exited from.

Over the last decade Wipro has spent more than $500 million acquiring international brands like Yardley, Woods of Windsor and Enchanteur among others. "Malaysia is our biggest international market for us followed by China, Vietnam, with Indonesia and Middle East almost at same levels. We are in all developing countries in Southeast Asia and want build in these countries," added Agrawal.

Santoor with revenues of around $240 million (roughly Rs 1,500 crore) is still the biggest brand in WCCLG portfolio, followed by Enchanteur ($130 million), Yardley ($50 million), halal brand Safi and skincare brand Bio-essence (at $50 million each). Enchanteur, Bio-essence and Romano (a male toiletry brand) are market leaders in ASEAN countries.

Agarwal is focused on improving the China show, an ambitious play which no other Indian FMCG company has dared till now. "We are buoyant on China because it’s a country that’s still developing, it’s a large market and if you can play your cards right you can make money there and expand," said Agarwal.

(Published in The Times of India.)

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Seven years on, retailers still see red

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June 22, 2014

Raghavendra Kamath, Business Standard

Mumbai, June 22, 2014

Aditya Birla Retail, which started operations in 2007 with the brand ‘more’, was looking to break even in FY 2013. The wish remains unfulfilled — still.

Spencer’s Retail, part of the Sanjiv Goenka group which started in 1990s and opened stores in the modern format in 2006, was originally looking at a breakeven in financial year 2010-11. After missing two fresh goal posts, the retailer now says it hopes to break even in the next couple of quarters.

Birla and Spencer’s are just two of “the many supermarket chains, promoted by big corporates during 2006-08, are still making losses. While Star Bazaar opened its first store in 2004, it began expanding only post 2006. Sunil Mittal’s Bharti Retail, Raheja-owned Hypercity, Tata-owned Star Bazaar are also yet to turn profitable.

Consultants said ideally, retail ventures should break even in five to six years, but the tough economic environment and some not-so-prudent decisions have put paid to any such efforts.

According to a recent report by Crisil, the top 10 food and grocery retailers such as Aditya Birla’s more, Bharti Retail, Raheja owned Hypercity, the food and grocery business of Reliance Retail, accumulated losses worth Rs 13,000 crore in FY 2014. Crisil estimated that these retailers have invested about Rs 19,000 crore.

According to the report, Avenue Supermarts, which runs D Mart stores and Future Value Retail which runs Big Bazaar and Food Bazaar, are the major retailers which are profitable. Crisil said Future had the first mover advantage and Avenue had a low cost model which helped them to break even.

So what is holding back these chains from being profitable?

Besides the competition from kirana stores and the inherent low margins in food and grocery retail, costs associated with people, property and supply chain seem to the major issues that posed challenges to the chains floated by corporates.

While the retailers did not respond to mails, consultants say they were doing many things to achieve faster profitability. Hypercity is reducing the sizes of stores from 1, 00,000 sq ft to 40,000-50,000 sq ft and increasing share of fashion which carries high margins. Star Bazaar is also halving store sizes of large format stores and coming out with mid-sized and small sized stores to achieve faster profits. Spencer’s is looking to open 80 stores and focusing on improving its supply chain.

Crisil says the losses of the top grocery retailers will mount by about 30% over the medium term and may peak in 2017. After that, half of the players will start break even. Apart from Spencer’s which is looking to break even this financial year, even Hypercity is looking at Ebitda level profits this year. Since the developers have deep pockets and they see potential in the retailing business, they will continue to invest in retail, it said.

Some say one of the major reasons for the failure to have a consistent strategy over the years is the many changes at the top. Sanjay Badhe, former head of marketing at Aditya Birla Retail, says Birla Retail has seen too many changes in management and operations. “They need clarity in management,” he adds.

While Birla made Sumant Sinha, the group’s M&A specialist as CEO when it launched the business, Sinha quit within one and a half years. Thomas Varghese was then made CEO but in 2012 he was shifted to the textiles business and replaced by Pranab Barua, who came from Aditya Birla Nuvo. Late last year, the retailer named Vishak Kumar, CEO of its both formats.

Reliance Retail has also changed its top leadership frequently. While it debuted with Raghu Pillai as CEO of value formats. He was replaced by Gwyn Sundhagul who came from Tesco, Thailand in 2010. In a major rejig next year, Reliance Retail named Rob Cissell, former chief operating officer of Walmart China, as CEO.

But retail consultancy Technopak Advisors chairman Arvind Singhal said Reliance was firm on getting the right people on board. “Some people worked and some did not. But now they have good team in place,” Singhal said, adding some retailers stuck to people who did not deliver or stuck for too long.

Dipankar Halder, CEO at PingStripe and former head of supermarkets at Bharti Retail believes that some retailers are making losses due to their top heavy organizations with costs that are disproportionate to their store level costs. “Successful retailers abroad pay very good salaries to store managers because they are the people who drive the sales. But here we get cheapest guy at stores and have number of presidents and vice presidents at top,” he adds.

Indian retailers had to deal with expensive properties while running their stores. Indian grocery retailers pay rents which are almost double of what retailers pay abroad. But the chains earn 2-3% net margins in food and grocery. Ideally, hypermarket chains should pay 2.5 to 3% as% of rents to revenues to make them viable and supermarket chains should pay five to six% as% of revenues.

“Once you build a high cost base that is created for rapid expansion, it is easy not to reduce it. The quickest option available then is to scale down operations,” said Devangshu Dutta, chief executive of Third Eyesight, a retail consultant.

Though retailers such as Aditya Birla, Reliance, Spencer’s expanded aggressively between 2006 and 2010 to build scale, most of them exited unviable stores.

Aditya Birla shut over 150 super market stores in the last five years while Spencer’s exited cities such as Pune to focus on profitability. Even Reliance closed 50 shops, and exited three formats —Reliance Kitchen, which sold modular kitchen furniture, Reliance Wellness, a beauty and lifestyle chain and Delight, its non-veg store.

There are supply chain issues as well. According to Badhe, retailers such as Star Bazaar and Aditya Birla’s More are still sorting out their supply chain issues and could see improvements soon while Reliance has got its processes right. Pingstripe’s Halder says many retailers make the mistake of not treating unbranded items such as fresh produce, and meat as a separate category.

“You buy products such as meat, fish and fresh produce from middlemen, obviously the store level profits will come down. The more you do it, you have to share the profits,” said Halder.

Kumar Rajagopalan, chief executive of retailers body Retailers Association of India, says that inability of retailers to build scale at state levels and local taxes are posing challenges to retailers to be profitable. “It is scale per state, or in many cases per city, and not scale per nation thanks to the cascading effect of taxation like local sales tax, local entry tax, etc. It takes time to build that kind of scale.” Rajagopalan states.

Though retailers such as Reliance Retail tried a ‘farm to fork’ strategy, it did not take off the way it wanted due to opposition in many states. “Most of them open their distribution centres according to taxation and not according to transportation,” says Kumar, adding ”once GST comes in, they can set up large DCs at one place instead of multiple DCs."

(Published in Business Standard .)