admin
October 17, 2013
Sagar
Malviya, The Economic Times
Mumbai,
October 17, 2013
Barely
a week after the world’s top retailer Walmart ended its association
with Bharti Group, its British rival Tesco has moved a step closer
to entering the $450-billion Indian retail market with the Tatas
launching a neighbourhood convenience store format modelled on
Tesco Express.
Tesco Plc, the world’s third largest retailer, has a partnership with Tata Group’s Trent under which it provides back-end support and retail expertise to the Indian conglomerate’s Star Bazaar hypermarkets.
Tesco Hindustan Wholesaling, the Indian unit of the British retailer, supplies merchandise including some of its own labels, to 15-odd Star Bazaar outlets, sized anywhere between 40,000 sq ft and 80,000 sq ft and selling food and grocery to apparel to consumer durables.
The new format, Star Daily, is completely different. The first Star Daily outlet, opened in Pune last week, is just about 1,800 sq ft in size and stocks mainly fresh foods, groceries and essential items, a person aware of the store launch said. "Similar to a kirana store, Star Daily is kept open almost 15 hours starting at seven in the morning," the person added.
Both Trent Hypermarket and Tesco did not respond to an email query.
Globally, corner shops — such as 7-Eleven in Japan, Taiwan, Thailand and Singapore, Lawson in Japan and Oxxo in Mexico — are among the largest retailers in their respective markets, reflecting the growing business of small outlets in several countries despite the presence of international supermarket and hypermarket chains. Even Tesco runs more than 1,500 convenience stores averaging 2,200 sq ft in small shopping precincts in residential areas and countryside in the UK.
In India, ubiquitous kirana wallahs generate more than 90 per cent sales of consumer products industry.
Analysts say high sales volume will be the key to Trent’s success in the convenience store space. "The newer format can help them (Tatas) penetrate better catchment areas, but volume needs to be maintained to compensate for the higher overhead costs including real estate," Devangshu Dutta, chief executive at retail consultancy Third Eyesight, said.
So far, Trent Hypermarket has been relatively conservative in its retail expansion despite rivals adding hundreds of stores each year. In fact, it did not open a single Star Bazaar store last financial year, but managed a 21 per cent increase in total revenue to Rs 801 crore.
[ARTICLE CONTINUES BELOW]
admin
October 16, 2013
Raghavendra Kamath, Business Standard
Mumbai, October 16, 2013
Spencer’s Retail, part of the Sanjiv Goenka group, was looking to break even in financial year 2010-11. As the deadline passed, the retailer postponed the target by another 18 months to the second quarter of 2012, only to revise it again.
Now, Spencer’s hopes to turn profitable at the earnings before interest, depreciation, taxes and amortisation (Ebitda) level by December 2013.
Spencer’s is not the only company which has fallen behind its break-even target. Saddled with high overhead costs and low margins in a slowing economy, food and grocery retailers such as Sunil Mittal’s Bharti Retail, Kumar Mangalam Birla’s Aditya Birla Retail, and Tata group-owned Star Bazaar are struggling to turn in a profit.
Most of these retailers started operations between 2006 and 2007 or went on an aggressive expansion spree during that time. The only exception was Mukesh Ambani’s Reliance Retail which decided to go slower on opening stores. And that seems to have paid off. Reliance Retail, which started in 2006, posted a profit before depreciation, interest and tax of Rs 78 crore in 2012-13. In comparison, both Spencer’s and Aditya Birla Retail logged losses.
While these retailers saw their sales grow, they made themselves more vulnerable to economic downturns by expanding aggressively. At the start in 2007, retailers such as Bharti and Aditya Birla paid hefty rents to book whatever space was available to build scale and kick in efficiencies but when the slowdown struck in 2008-09, their stores could not sustain such rents. Many retailers leased large properties just because they were available, hoping they would return dividends. The rush to acquire retail space was such that the Bharti group used to pay Rs 6 to Rs 8 per square feet more than the other contenders and sign 30-year leases against the industry practice of 18-24 years.
Turning cautious
"Today, we have become realistic about store size. We will not book 6,000 square feet just because they are available at Rs 25 or Rs 30 a square feet," the then chief executive of Aditya Birla Retail, Thomas Varghese, had told Business Standard in an interview in 2010. Aditya Birla group insiders say the company also paid exorbitant fees to retail consultants to conduct market studies and chalk out strategies.
But as modest sales and expensive rentals made these stores unviable, retailers began to aggressively close stores or curb expansion. Aditya Birla has closed down over 150 supermarkets in the last four years, while Spencer’s wound up operations altogether in cities such as Pune to focus on profitability. Even Reliance Retail closed around 50 stores and downsized its employee strength.
The retailers have also been weighed down by the lack of a unified tax regime. Kumar Gopalan, chief executive of Retailers Association of India, which represents the voice of retailers, says local taxes are posing a big challenge for the companies. In the absence of goods and services tax (GST), retailers have to pay taxes in every state where the goods are moved. For instance, in Mumbai, retailers need to pay octroi, a local levy for goods transported into the city. That raises the cost as in the absence of GST, retailers prefer to set up multiple distribution centres instead of one unified centre. "Most retailers open their distribution centres with taxation as a factor and not according to ease of transportation," says Gopalan.
As things stand, there is no common formula to success in Indian retail. Arvind Singhal, chairman of management consultancy Technopak Consultants, says: "The biggest problem is that there is no single format which works for the entire country."
Mohit Kampani, chief executive of Spencer’s which is focused on hypermarkets, says: "Developing our compact hypermarket model took time; we got it going in earnest only in 2011-12."
Aditya Birla retail, which was initially focused on supermarkets, too has taken to the hypermarket model recently. Bharti experimented with different formats as well. Kampani says it took some time for companies to understand that grocery retail business works best in partnership with developers where retailers pay a share of their revenue instead of fixed rental amounts.
Singhal says there is a fundamental mismatch between costs and earnings as rents in India are almost double of what retailers pay abroad. He says ideally, hypermarket chains should pay 2.5 to 3 per cent of revenue as rent to make them viable; supermarket chains should pay 5 to 6 per cent of revenues and clothing retailers 8 to 9 per cent.
While most retail chains overshot these limits, they also faltered at another level. Sanjay Badhe, an independent consultant and former chief marketing officer at Aditya Birla Retail, says big retail chains did not understand what customers wanted and underestimated the clout of kirana stores.
"FMCG companies serve 14 million kiranas and they will not move to a new channel unless modern trade demonstrates efficiencies and through put," says Badhe. "Why would they allow retailers to take away pricing power?"
Badhe believes the break-evens have also been delayed because of frequent management changes that resulted in unnecessary strategic U-turns and discontinuity. Spencer’s saw two new heads within six years, Aditya Birla Retail saw similar changes at the top. First, CEO Sumant Sinha quit and the group replaced second CEO Thomas Varghese with Pranab Barua who came from Aditya Birla Nuvo last year.
"If you frequently change the leadership, there will be no continuity in business strategy and direction," he says.
Funding woes
Delays in foreign direct investment have proved costly too. Many believe that availability of low-cost foreign funds would have helped the retailers improve their operating profits by lowering the cost of finance. "Some of them built the business to attract foreign direct investment within a few years. That did not happen and this is dragging them down," says Devangshu Dutta, CEO of retail consultancy Third Eyesight.
While the government has allowed 51 per cent foreign direct investment in multi-brand retail, policy restrictions such as 30 per cent mandatory local sourcing have dampened the hopes of foreign retailers who are taking a slow, cautious approach to entering India.
"Most Indian retailers are not able to raise funds from foreign institutional investors and private equity funds. Domestic markets do not have that kind of depth, so funds come at a higher cost," says Technopak’s Singhal.
Retailers, however, are trying out new formats to turn the tide. Spencer’s is focusing on compact hypermarkets (25,000 to 30,000 square feet) in five chosen geographic clusters and growing its non-food component to improve profit margins. It is also building a centralised distribution system and evaluating franchisee model to reduce logistics costs. The retailer is also increasing the share of unique commodities in the food and beverage segment from about 5 per cent to 30 per cent.
Aditya Birla too is developing new strategies. It is conducting store-specific surveys and planning to offer customised products depending on the taste of the people in the locality. For instance, at its Mahadevpura store in Bangalore, which attracts a cosmopolitan crowd, it offers more non-vegetarian and bakery products, while at the Bull Temple store in the city where shoppers are mostly traditional Kannadigas, it stocks more puja flowers, rice and local fruits and vegetables.
Eventually, it is sales that will matter. As Singhal of Technopak puts it, "If the economy grows a bit faster and optimism returns, retailers will reach profitability in 15 months."
(Sourced from Business Standard.)
admin
October 11, 2013
Anjana
Pasricha, Voice of America
New
Delhi, October 11, 2013
After waiting for years to open superstores in India, the world’s biggest retailer, Walmart, has split with its Indian partner, delaying its ambitious plans to expand in the country. India opened the door for foreign retailers last year, but tough regulations are proving to be a deterrent, and virtually no foreign chains have come forward to invest in the country’s $400 billion retail sector so far.
After parting ways with its Indian partner, Bharti Enterprises, this week, Walmart said it will continue to run the 20 wholesale stores that the two companies operated jointly.
Although it has not “packed its bags”,the announcement indicated that the global retailer’s plans to open large supermarkets to sell directly to consumers in India have been put on hold.
That is because foreign companies cannot open retail stores without
an Indian partner, although they can own wholesale businesses.
Walmart was the most enthusiastic about the massive potential
in India, where the retail business is dominated by “mom
and pop” (small, privately owned) stores. It was expected
to be the first to crack the market after the government opened
the sector to overseas investors last year.
But a year on, there are virtually no takers in the supermarket sector.
Retail analysts say Walmart and other foreign investors have been discouraged by stringent entry conditions imposed on overseas retailers. The government imposed these to make the liberalization measure, which has sparked fierce opposition, more politically palatable.
Devangshu Dutta, head of retail consultancy Third Eyesight, cites one example of the kind of measures that are putting off investors: a rule that requires them to source 30 percent of their products from small and midsized Indian businesses.
“If you look at Walmart’s overall sourcing mix, a very large chunk of manufacturing happens in China and other Asian markets. India is growing, but it is quite a small fraction of their sourcing, which means they would need to take the time and effort to develop the Indian supply base to their standard,” said Dutta. “That takes time and it’s a dampener if you are looking at a quick start.”
Walmart’s Asia Chief Executive Scott Price has also cited
the sourcing rule as a “critical stumbling block.”
By opening up the retail sector, the government was hoping to
attract billions of dollars in foreign investments to shore up
India’s faltering economy.
But the head of the Retailers Association of India, Kumar Rajagopalan, said “too many clauses” are hampering such investment.
“That is putting in too many spokes in the wheel. Many of the retailers from overseas come in and see that there are 48 licenses to take in India. They don’t know how to handle so many licenses, how to take care of so many compliances,” stated Rajagopalan.
Analysts also said foreign retailers will probably wait until after India’s elections, scheduled to be held by next May, before making a decision on investing in the country. That is because the entry of overseas chains continues to be a politically charged subject, and there are worries about how any change in government may impact India’s retail policy.
(Sourced from Voice of America.)
admin
October 11, 2013
Raghavendra Verma, just-food.com
New Delhi, October 11, 2013
Wal-Mart’s decision to terminate its Indian joint venture with the Bharti Enterprises was not unexpected.
"The joint venture was like trying to run a three legged race with one leg of each partner tied together," Arvind Singhal, chairman at Technopak Advisors, tells just-food.
The two companies operated stores in India under the Best Price Modern Wholesale and Easyday banners. Wal-Mart will now take full ownership of the wholesale business, the US retail giant announced on Wednesday (9 October). For its part, Bharti will operate the consumer facing Easyday retail stores across all formats.
According to Singhal, many of the difficulties faced by the partnership were rooted in India’s foreign direct investment regulations, which were updated last year. "Not much progress has been made – if any – by Wal-Mart…because investments are needed in both the areas but Walmart cannot invest into the front end," he tells just-food.
India’s restrictions on FDI had been hindering growth for both Wal-Mart and Bharti, Singhal argues.
New Indian FDI regulations require foreign investment to be channelled into creating fresh capacity rather than purchasing or investing in existing front-end and back-end operations.
Devangshu Dutta, chief executive of retail consulting firm Third Eyesight, says this contributed to mounting tensions regarding strategy and operations. In particular, Dutta highlights that FDI regulations meant that "Bharti would not have achieved any sort of cashing out of its investment in favour of Wal-Mart in the future."
The split paves the way for Wal-Mart to step up growth in India, pundits suggest.
"Wal-Mart can now go ahead without having to worry too much about the compliance with Indian foreign direct investment rules like local sourcing and any restrictions on back-end and front-end investments as none of those conditions apply on the cash-and-carry business," Singhal notes.
The wholesale business stands to benefit from "the fragmented retail market and the myriad of small businesses in India" that "potentially provide a large customer base for the cash-and-carry business," Dutta adds.
However, he also warns that growth might be hard to deliver. "The business has been coasting for over a year without new openings that [had previously been] planned."
Dividing the business should prove beneficial for Bharti, because it will no longer face any restrictions on operating its supermarkets in opposition party ruled states, whose governments had been fighting foreign investments in organised retail. Singhal suggests Bharti might tap private equity financing to fund an expansion of its retail chain, arguing the breakup might help the Indian food retail sector grow.
Dutta says the supermarket chain stands to benefit from increasing branded food consumption and "issues related to the operating environment being tackled, such as the simplification of transaction taxes across states through the introduction of a common goods and services tax, and continued investment in transport infrastructure".
That said, the break-up could dampen investment sentiment in India.
India Ratings & Research director of corporate ratings firm, Deep N Mukherjee, observes that foreign investors are already wary because of recent cases involving breaches of the US’s Foreign Corrupt Practises Act that have involved Indian businesses.
India’s retail sector might contract in the two quarters to March 2014. "Higher consumer inflation and marginal nominal wage growth are expected to act as major deterrents for consumer spending," Mukherjee comments. "Lower operating profitability will continue," along with "higher funding costs and working-capital requirements, which are exerting pressure on operating cash flows of Indian retailers," he continues.
However there is a silver lining: "In the short-term, modern retail businesses certainly need to become smarter and leaner to sustain themselves, but in the long term, the trend is positive," said Dutta.
(Sourced from just-food.com.)
admin
October 11, 2013
Farah
Bookwala, Moneycontrol/CNBC TV18
Mumbai,
October 11, 2013
McCafé is the coffee-house chain owned by McDonald’s Corporation. It has a worldwide presence. Hardcastle Restaurants, the master franchisee of Mcdonald’s in Western and Southern India, will open the first McCafé outlet in India in Mumbai on Monday at SOBO Central Mall.
Hardcastle Restaurants is a 100% subsidiary of Westlife Development Ltd, a company listed on the BSE. Hardcastle Restaurants plans to set up around 100-150 McCafé restaurants over the next 3-5 years in metro cities of west and south India.
For Hardcastle Restaurants, McCafé represents a host of opportunities. Incremental revenues, a chance to enter into premium segments such as coffee and confectionary, and that too, without extra rental costs, as McCafé outlets will be located within existing McDonald’s outlets.
Typically, a McCafé outlet will be spread over 500 square feet within a 4,000 square feet McDonald’s outlet. The McCafé outlet will have an ambience of a premium café, and the company will spend nearly 30-35 lakhs per outlet on interiors and refurbishments. For customers, McDonald’s India believes, it is an opportunity to get the best of both worlds at the same location. McCafé will offer a menu comprising of beverages such as cappuccinos, lattes and espressos along with a selection of cookies and muffins.
Amit Jatia, Managing Director, McDonald’s India (west & south), says, “It not only provides another beverage option to our customer, but with their meal, if they decide to have a frappe instead of another carbonated drink, I think that is one option.”
But experts are skeptical of this possibility. McDonald’s is largely seen as a value meal chain and McCafé’s menu starts at upwards of Rs90. While beverages will range from Rs90 for a latte or cappuccino, frappes will start at Rs110. Arvind Singhal, chairman, Technopak Advisors says, “If the customer’s average meal size in terms of spending is in the range of Rs40-60, would that customer also be tempted, or some of those customers be tempted, to move into a separate area and pay Rs90 for a cappuccino? I would be very, very skeptical about this possibility.” This price positioning pits it against recent entrant, Seattle-based Starbucks. And Singhal feels, this puts McCafé at a disadvantage. Singhal says, “McDonald’s is certainly not seen as aspirational in the context of a premium pricing product. The same customer, would he be willing to consider McDonald’s a cheaper alternative to Starbucks? I certainly find challenges accepting this.” So, with high prices and a shop-in-shop format, experts feel McDonald’s will find it hard to create a mark either as a premium coffee chain or capitalize on McDonald’s value priced customers.
But other experts feel the wide food and beverage menu McDonald’s can now offer, at one location, gives it a leg up over other players. According to Devangshu Dutta, chief executive, Third Eyesight, “If the operating framework is right, it will allow McDonald’s to add revenues organically and also by nibbling away customers who may be going to other outlets by offering them a combination of meals which a neighbouring outlet will not be able to offer.”
(Sourced from Moneycontrol.com.)
