admin
December 14, 2013
Vishnu Rageev R, Money Indices
New Delhi, December 14, 2013
An
empowered middle-class has been fuelling the growth of India all
these years, prompting multinational companies like Coca-Cola
India, fondly called Coke, to (re)strategise and relook at its
markets for a better share from the country’s continually
widening multi-billion dollar retail basket.
The company, which has seen six consecutive years of double-digit
growth, will settle with an additional investment of $5 billion
to deliver innovation, develop business relations and strategic
partnerships, uplift consumer experience, ensure product affordability,
and build countrywide brand loyalty in the coming years.
Some interesting times are in store for Coca-Cola India, as the CEO of its historic rival PepsiCo, Indra Nooyi, recently announced an investment of $5.5 billion in the country by 2020. The proposed investments by these two cola giants, estimated at $10.5 billion, will restore foreign investor confidence at a time when India’s growth story has been hit by economic turbulences, pushing it to a decade low.
“We are here to be successful,” said Ahmet C Bozer, Executive Vice-President, The Coca-Cola Company (TCCC), at an interactive session in Greater Noida, after the opening of Coca-Cola’s 57th bottling plant in India. “India would continue to flourish and our $5 billion investment plan is very well on track. We do not anticipate it to come down. Rather, it can be more. I see India emerging as one of the top five markets for TCCC by 2020.”
The non-alcoholic ready-to-drink beverage industry, which witnesses one of the largest investments in the country, has contributed significantly to the growth of allied industries. This industry is witnessing robust growth, driven by a combination of factors such as increased investments and innovations. Macro-indicators and the demographic dividends too favour robust growth for the beverage industry in India.
20 years of happiness
In 1977, George Fernandes, the Industry Minister in the then Janata Party government of Prime Minister Morarji Desai, issued an exit order to Coca-Cola. Although reasons for the exit order are still unknown, it was widely rumoured that the exit was ordered because the company was reluctant to share its secret formula with the government. However, India was too big a market to be kept off its radar forever.
“Our last two decades have been a journey of innovations, offering portfolio choices to consumers, contributing to the growth and development of the community and society in our own small way and playing a key role in bringing overall economic growth and development to India,” says Deepak Jolly, Vice-President, Public Affairs & Communications, Coca-Cola India & South West Asia. “Along the way, we have seen the acceptability of packaged beverages growing. Today, packaged beverages are a convenient and safe source of hydration, refreshment, and nutrition. Our lives are much easier with the pick and go options of packaged beverages, which have become a part and parcel of our everyday lives and count as good value-for-money options.”
Coca-Cola India has specifically been adaptive to the Indian environment. The company learnt quickly from their initial mistakes and tweaked its business model. Instead of worrying about competition, the company focussed on the consumer, which was an apt strategy.
“Over the last 20 years, Coca-Cola has made a genuine attempt to touch the lives of Indian consumers and be a part of their lives,” feels Jagdeep Kapoor, Chairman and Managing Director of Samsika Marketing Consultants Pvt Ltd. “Whether it is in terms of distribution spread or in terms of adapting to the Indian language in their advertising campaign, they have tried to be relevant to the Indian consumer through ‘Thanda Matlab Coca-Cola’ and the message of ‘Opening up Happiness’ and spreading indulgence through ‘Haan Mein Crazy Hoon’. Their focus on distribution, penetration and their aggressive ‘Prizing Sizing’ strategy has helped grow volumes and gain consumer acceptance.”
Coca-Cola India currently provides direct and indirect employment to over 1,50,000 people. The company provides extensive support to community programmes across the country through a series of Corporate Social Responsibility (CSR) initiatives focussing on education, health, and water conservation. ‘Support My School’ campaign is the company’s flagship CSR programme which has revitalised close to 200 model schools in India.
Quenching India’s thirst
For the Atlanta-based TCCC, a country of 1.2 billion people remains one of the last big frontiers as Indians on average consume only 12 eight-ounce bottles of Coke a year when compared with 230 bottles in Brazil and 92 bottles globally. Through horizontal expansion, the company is looking to increase per-capita consumption in India.
“The non-alcoholic ready-to-drink beverage segment has been growing at a compound annual growth rate (CAGR) of 13 per cent since 2009, and is one of the segments that have defied the economic slowdown,” adds Arvind Varma, Secretary General, The Indian Beverage Association (IBA). “We expect the country’s beverage industry to continue to grow in double digits in 2013, despite the recessionary trends being shown by most economies the world over, including the Indian economy.”
“We are working on a strategy to generate sales of our soft drinks across all seasons rather than just the summer,” adds Deepak Jolly. “We are working to de-seasonalise the business and want to make it a 12-month business. That means not just year-round marketing, but efficient distribution systems, reaching remote untapped markets, affordable pricing, innovative cooling solutions, and trade activation. Our spending will be in keeping with our brand plans, and our communication strategy will also be aligned to this business reality.”
“Yes, it is critical for Coca-Cola to tweak their existing business circus in India,” says Ramanujam Sridhar, Founder and CEO, Brand Comm. “India’s beverage market has evolved and is as promising as any foreign market. You might remember that earlier, beer was a beverage which was consumed only during summer. Today, there are customers for beer round the year. Coca-Cola also has to apply a similar strategy by creating occasions and moments in its customers’ mind so that they would come for it on a daily basis. Of course, it is a great brand.”
The company has introduced many revolutionary strategies over the last 20 years. It even introduced a few innovations like solar cooler, Vitingo, Minute Maid Nimbu Fresh, PET bottles, fountains, dispensers, etc.
Growing portfolio and volume
On October 24, 1993, Coca-Cola was launched in Agra. Since then, Coca-Cola India has taken rapid strides in the packaged beverage market, bringing two of the country’s largest soft drinks brands – Thums Up and Sprite – into its portfolio. Coca-Cola India is now one of the fastest growing brands, registering an 18 per cent volume growth during Q3, 2013.
“We have registered volume growth in India for the past 29 consecutive quarters, 19 of which have seen double-digit growth,” informs Deepak Jolly. “Over the last six years, Coca-Cola has delivered double-digit volume growth in India. Two of the company’s core sparkling brands – Sprite and Thums Up – are the country’s top-selling soft drink brands. Trademark Coca-Cola is one of our fastest growing sparkling brands and Maaza is India’s largest-selling juice drink. Kinley is the country’s largest retail packaged drinking water brand.”
Offering an unmatched portfolio of beverages, Coca-Cola India manufactures and markets brands like Coca-Cola, Diet Coke, Thums Up, Fanta, Limca, Sprite, Maaza, Minute Maid Pulpy Orange, Minute Maid Nimbu Fresh, Minute Maid Mixed Fruit, Minute Maid Apple, Minute Maid Guava, Minute Maid 100% Juice (Minute Maid Apple, Minute Maid Orange, Minute Maid Grape), Georgia, Georgia Gold, Kinley, Kinley Club Soda, and burn through a network of over two million outlets.
Seemingly, India remains among the top growth markets for the American multinational. Other major growth markets are Thailand with 18 per cent growth, Russia (8 per cent), Mexico (3 per cent), and Brazil (3 per cent).
Cola business of Coca-Cola
At the core of Coca-Cola’s business in India, as in the rest of the world, is its production and distribution network, called “Coca-Cola system”.
In India, the Coca-Cola system comprises a wholly-owned subsidiary of The Coca-Cola Company, namely Coca-Cola India Pvt Ltd, which manufactures and sells concentrate and beverage bases to authorised bottlers who use these to produce “our portfolio of beverages”, says Deepak Jolly. These authorised bottlers independently develop local markets and distribute beverages to grocers, small retailers, supermarkets, restaurants, and numerous other businesses. “In turn, these customers make our beverages available to consumers across India.”
The Coca-Cola system in India now operates 58 manufacturing plants, catalysing economic growth and providing employment, explains Deepak Jolly. “Coca-Cola, along with its bottling partners, has robust plans to capture growth in India with investments in innovation, expansion of distribution network, cold drink equipment placement, and augmentation of manufacturing capacity.”
The Coca-Cola system has already invested $2 billion in India between 1993 and 2011, refreshing and hydrating consumers more than 500 times per second. The company is also one of the largest buyers of sugar, mango pulp, and coffee beans in India.
Cola war
Coca-Cola and PepsiCo together dominate the market for carbonated soft drinks in India, where soda sales overall are estimated to total $1.05 billion. Coca-Cola enjoyed leadership position in carbonates in 2012, accounting for 60 per cent of the total value of sales, points out a study by Euromonitor. “Stronger distribution in the existing categories and entry in new markets in rural India helped the company retain its strong position,” says the study.
Coca-Cola and Pepsi are healthy and historic rivals and they would continue to be so, says Varma of IBA. “It is an ongoing market race all over the world wherever both these cola giants are present. India is not an exception. It is really difficult to say who is better than the other. India has enough room for both the companies to grow and multiply. The market would further open as they bring in more investments.”
Elections or no elections, PepsiCo’s India-born Nooyi said the firm would invest $5.5 billion by 2020 to more than double its capacity. “We are not guided by elections. We are guided by the potential of India. We are not waiting for any election results. We are investing in India for its economic story,” Nooyi had told recently after her meeting with Finance Minister P Chidambaram.
Pepsi had a head-start in India over Coca-Cola in its current avatar not only in terms of timing, but also in terms of distribution, reach, and product diversification (supported by Pepsi’s global M&A activity during the 1990s and 2000s), opines Devangshu Dutta, Chief Executive, Third Eyesight. “Pepsi has a larger proportion of non-carbonated beverages and a packaged snack portfolio that Coca-Cola lacks, which potentially provides a larger share of wallet to Pepsi and provides avenues for consumers who may be looking at relatively ‘wholesome’ options.”
Pepsi has 42 plants in India, including franchises. “India is a country with huge potential and it remains an attractive, high-priority market for Pepsi. We’ve built a highly successful business in India over the course of many years and we believe we’ve only scratched the surface. This investment is PepsiCo’s vote of confidence in India’s future,” Nooyi had said.
Coca-Cola’s growth will primarily be driven by rural areas, as urban areas are facing a degree of saturation, as well as shifting to healthier options, such as fruit/vegetable juice and bottled water. The company has equipped retail outlets in remote rural areas with solar coolers. Smaller pack sizes are also driving sales in rural areas whereas PET bottles are pushing sales in urban areas. However, the company does not have any immediate plans to get into ready-to-eat market.
Both – Coca-Cola and Pepsi – announcements (on investment) came on the same day and convey the underlying thrust of competition both the brands would engage in as they raise piles of money to stay ahead, avers Sridhar of Brand Comm. “Both the brands have good marketers and they must work for developing better connect and loyalty among customers. The pace at which they can travel into more rural areas with intriguing campaigns will ultimately decide the success rates.”
India is the largest market for Pepsi. It will continue to expand the range of foods and beverages in its portfolio. In India, it has eight brands that generate Rs. 1,000 crore or more in annual retail sales — Pepsi, Lay’s, Kurkure, 7UP, Slice, Mirinda, Mountain Dew, and Aquafina.
[Article continued below…]
admin
December 2, 2013
Vandana, The Week
Mumbai, December 2, 2013
Online
buying might be in vogue these days, thanks to a growing tribe
of youngsters shopping online. But there are old-schoolers, like
Srikant Bahal, who do not believe in virtual shopping.
The 36-year-old human resources manager at a private firm loves
his weekly rounds of malls. For Bahal, the touch-and-feel experience
is paramount while shopping. “One cannot judge the quality
of a product by just seeing it. Even though I buy movie and airline
tickets online, when it comes to products, touching is believing
for me,” he says.
However, when Titan started its online store this year, Bahal
gave it a try. He went to a nearby Titan store and shortlisted
some designs to gift his wife on her birthday. The designs were
available online, and he got a discount, too. Also, with the online
deal, he could avoid the hassle of shipping it to Tiruchirapalli
district in Tamil Nadu, where his wife stays.
Bahal has now made it a habit of checking out products at stores
and then clicking the “buy” button online.
Retailers in India are trying to catch customers through every means possible—online, offline, mobile and television. Multi-channel retailing is the buzzword. And traditional brick-and-mortar players such as Titan, Croma, Madura Retail, Fabindia and Vijay Sales have jumped on the e-wagon.
The growth potential, no doubt, is huge. A recent study by Delhi-based consultancy Technopak says the e-tail market is set to grow from $0.6 billion in 2012 to $76 billion by 2021.
Another major advantage of e-tailing is the wide geographical reach. Take, for example, electronics retailer Croma. Owned by Tata Sons, it is physically present only in 16 cities, with 95 stores. But Croma’s online store, just a year and a half old, covers 298 cities and towns. “Let customers decide which medium they are comfortable with, and we will try to be present there. Going online has opened India for us,” says Ajit Joshi, managing director and CEO, Infiniti Retail, which runs Croma stores.
Experts believe the trend will grow, courtesy real estate woes and high labour costs. Also, in comparison, the capital required to set up an e-tail venture is far less.
The biggest driving factor, however, is the increasing penetration of broadband and availability of browsing devices, including smartphones and tablets.
Alokedeep Singh, head of e-commerce, Titan Company, says sales
have gone up month-on-month, and doubled since it started. For
Croma, sales have gone up from Rs.30-40 lakh a week to about Rs.1
crore a week. Pizza chain Domino’s, too, gives a thumbs-up after
its online launch.
The e-tailing market being already crowded with start-ups selling
everything from toys to homes, traditional players are targeting
customers who are particular about the touch-and-feel experience.
Like in Bahal’s case, the customer can check out a product at a store and then order it online. They can also choose unique products which are not available at stores. Plus, the web sites guide customers on products through videos and chats.
However, unlike a pure-play e-tailer, there will also be integration issues for brick-and-mortar retailers moving online.
“Physical retail requires the supply chain to handle merchandise in bulk coming in from suppliers and smaller bulk going out to stores. In the case of online retail, while the incoming shipments are in bulk, the outbound consignments are to individual consumers, who may also return the merchandise [if not satisfied],” says Devangshu Dutta, CEO, Third Eyesight, a retail consultancy. “This needs operating structures and organisational orientation, flexible and varied enough to handle the wide range of merchandise volumes.”
Experts say that multi-channel retailing as a concept has only recently started gaining prominence across the globe. This has been possible because of an advanced mobile app ecosystem and smartphone penetration going up. India will need some time to catch up, they say. “Multi-channel retailing will be limited by a lack of a supporting ecosystem,” says Ankur Bisen of Technopak. “Right now, 3G access is limited to certain areas. Broadband penetration has gone up, but quality of internet access remains poor. Unless this sector improves, full-fledged multi-channel retail will not be possible.”
The global trend, however, is encouraging. Some of the top e-tailers in the US, for instance, are brick-and-mortar players such as Macy’s, Walmart and Tesco.
The e-tale
* Online retailing or e-tailing in India is set to grow from $0.6 billion in 2012 to $76 billion by 2021
* Traditional brick-and-mortar retailers account for 93 per cent of the market, while corporatised brick-and-mortar retailers have a share of nearly 7 per cent
* E-tailing is set to grow from the current 0.12 per cent market share to 5.3 per cent by 2021, when there would be at least 180 million broadband users in the country
* The e-tail sector could create 1.45 million jobs in the next decade
* The total volume of Indian e-commerce, including financial and travel services, touched $10 billion in 2012
* Some of the top players are Flipkart, eBay India, Snapdeal, Myntra, Amazon India and Jabong
(Edited version; sourced from The Week .)
admin
November 28, 2013
Raghavendra
Kamath, Business Standard
Mumbai,
November 28, 2013
India’s
retail sector needs no bigger testimony than the one it got from
the CEO of Britain’s largest clothing retailer Marks &
Spencer (M&S), Marc Bolland. On a recent trip to India, he
said the company has plans to make India its biggest international
market, outside its home market. In fact, India tops its list
of priority markets, ahead of China too.
The British retail chain, which has a joint venture with Mukesh Ambani’s Reliance Industries, plans to more than double its stores in the country and open some of world’s first sections, such as M&S Lingerie and beauty department in its stores in India.
However, M&S is not alone in its optimism over India. The government has cleared single brand retail proposals worth more than Rs 12,000 crore (nearly $2 billion) in the last one year.
The biggest among them is Swedish furniture retailer Ikea’s Rs 10,500 crore proposal. Others include Swedish apparel retail maker H&M’s Rs 700 crore plans and Decathlon’s Rs 700 crore plan. Since 2006, the government has cleared 60-70 proposals of single brand retail after the segment was opened to foreign investors.
International brands such as Zara, Marks & Spencer, Benetton and Tommy Hilfiger have reportedly grown at 20-50% on year-on-year basis in the last financial year, despite the slowdown in the economy. Clearly, shoppers are not cutting down spends on foreign brands. .
This is perhaps why global retailers have forged ahead with their India plans, despite the alleged red-tapism in India. Ikea is so bullish about India it pursued its India plans for the past couple of years, despite Indian government’s pointed objections on its applications at various points.
The furniture giant is expected to take three years before it opens its first store in the country. Even H&M, which has 3,000 stores globally, pursued its Rs 700 crore application to open stores religiously, despite government raising queries on mandatory local sourcing norms and brand use here. Swedish retailer H&M are yet to hear from the Foreign Investment Promotion Board.
Consultants say, global retailers are betting on the huge potential of Indian markets. According to AT Kearney’s Global Retail Development Index (GRDI) 2012, India is the fifth most favorable destination for international retailers. Of the total Indian retail market, 8% constitutes the organised retail and this segment is estimated to grow at a rate of nearly 30% by 2015, as against the overall retail market, which is forecast to grow by 16% in the same period.
“There are very few countries in the world which offer market potential the way India does. Some international brands may say conditions are not right and require huge investments, there are equal number of players which say they are not worried about these things,” said Devangshu Dutta, chief executive of retail consultant Third Eyesight, which works with global retailers.
However, FDI in multi brand retail is still stuck, as none of the big retailers — Walmart, Tesco, Carrefour — have not sought permission to open stores in India, despite the government allowing 51% FDI in multi-brand retail.
Though retailers such as world’s largest retailer Walmart, UK’s Tesco, French retailer Carrefour lobbied hard with the central government open up the multi-brand retail sector, none of them, it appears, are comfortable with stringent conditions put by the government for them to enter the retailing business here.
A retail consultant on the condition of anonymity said retailers such as Walmart, Tesco and Carrefour entered cash and carry segment with the plan that they will enter front end retailing in the country once that is opened for them but that has not happened.
While allowing 51% FDI in multi-brand retailing, the government put several conditions, including the 30% mandatory sourcing from small and medium enterprises. Central government also played it safe by leaving the permission to allow the international retailers to respective states themselves.
Despite the slight tweaking done by the governmentin August this year, global retailers have not shown interest. The government said foreign retailers are allowed to open stores in cities that have a population of less than one million as the 53 cities where they could set up stores. Overseas retailers can now source goods from SME firms, where the investment cap will be $2 million instead of the earlier ceiling of $1 million.
Says a senior executive from global retail chain: “I think for three reasons have made us stay away from India-policy restrictions, the political environment, and upcoming festival season globally,”
Many such as Rajat Wahi, partner, Management consulting at KPMG believe the uncertainty around multi-brand retail will continue till next year (elections) due to the challenges the segment faces on scale, supply chain challenges, exorbitant real estate costs, state-wise permits required and rule on 50% of FDI to brought in the first tranche. Single brand retail faces no such issues and will continue to invest in India.
(Sourced from Business Standard.)
admin
November 25, 2013
Raghavendra Kamath, Business Standard
Mumbai, November 25, 2013
As
French menswear brand Celio looks to become the sole owner of
its Indian business, it has drawn up plans to not just open more
stores, but make them look better as well. Celio, whose joint-venture
with Kishore Biyani’s Future Group is called Celios Future Fashions,
has got clearance from the Foreign Investment Promotion Board
(FIPB) to increase its India stake to 100 per cent in July this
year. Celio has already increased stake in the JV to 65 per cent.
It is planning to increase the count of both its standalone stores
and shop-in-shops, stationed at multi-brand retail chains (please
see box).
“Our aim is to expand this presence and make the brand more
accessible to customers. Along with the major metropolitan cities,
we aim to grow stores in tier II cities as well,” says Rajiv
Nair, chief executive, Celio Future Fashions.
CELIO IN INDIA – JV WITH THE FUTURE GROUP
CELIO WORLDWIDE
Not just footprint, Celio is also looking to refurbish its store design to bring them at par with its global presence. It has brought its design concept played out in its Via Del Corso (Rome) and Champs Elysees (Paris) signature outlets to India. So far, two standalone stores and one shop-in-shop have been redone. Nair says that the brand will look to upgrade the overall look to offer the same experience across the world.
The concept stores integrate technology and contemporary chic fixtures. The open and flexible layout and subtle colour scheme are geared to exude a premium feel.
Celio’s plans echo that of Britain’s apparel retailer Marks & Spencer (M&S), which plans to make India its largest market outside its home market and more than double its store count.
Its JV with Mukesh Ambani’s Reliance Industries, is looking to open large flagship stores in metros and supporting stores in neighbouring locations. It has already opened its new concept store in Bandra, Mumbai’s tony suburb.
Celio, however, will face a few challenges as it moves towards becoming the solo owner, say consultants.
“Any brand which is going direct has to connect with Indian realities, both on the customer and business side. Cultural, language and legal frameworks are different,” says Devangshu Dutta, chief executive of retail consultancy, Third Eyesight.
Adds Dutta: “The brand has to build both explicit and implicit infrastructure, apart from investing capital. Yet, for a customer it does not make any difference whether a brand is with an Indian partner or not.”
According to sources, Future Group provides strategic inputs such as market and product know-how, vendor negotiations and distribution clout to the JV. Celio would have to manage all of this on its own when it forges out on its own.
But an executive in the JV defends Celio’s decision, saying that the French brand has a full-fledged team in India and has sufficient expertise in all areas such as designing, sourcing and marketing.
Like M&S, Celio is increasingly sourcing more from India. In its summer-2014 merchandise, the brand has sourced 53 per cent of its requirement from India.
“This is a crucial step as it also helps us be flexible to respond to the market needs and helps us de-risk the dollar price movements,” Celio’s Nair says.
To differentiate, Celio is also looking to underline the simultaneous launches of its collections globally. “We are a very strong product-driven brand with major design capabilities in Paris and a strong sourcing office in Hong Kong, which enable us to bring the same product range (and at the same time) to over 70 countries. So, we offer the same range to the customers in India as we do in Paris, with minor adaptations on account of fits, colors and seasonality,” Nair says.
Third Eyesight’s Dutta says that local sourcing helps overseas brands to lower prices as they can by-pass import duties and logistic costs, and helps them with India-specific ranges.
Celio is close to EBITDA (earnings before interest, tax, depreciation and ammortisation)-level break-even at its stores and is expecting at company-level profitability soon.
” We have grown 17 per cent like- to-like this year in our own exclusive stores and we aim at a 25 per cent growth next year,” says Nair.
But the question is whether it sustainable as the economy weathers a prolonged slowdown and brands such as Arrow, Van Heusen, Louise Philippe rule the segment or not.
But Nair is unfazed. He says that Celio is one of few only-menswear brands which offers a full wardrobe and has design capability to match. “We are competitive in markets like France, Italy, Spain, eastern Europe where the competition is even more intense,” Nair says.
(Sourced from Business Standard.)
admin
November 15, 2013
Leonie
Barrie, just-style.com
November
15, 2013
Marks
& Spencer has so far failed to make much of a dent in the
Indian clothing sector since it first stepped into the country
in 2001. It currently operates 36 stores in there since forming
a joint venture with local conglomerate Reliance Retail in 2008.
But it’s easy to see why India appeals.
The Indian apparel and footwear market is valued at US$51bn and is the third-largest market in Asia-Pacific following China and Japan, according to data supplied to just-style by market research company Euromonitor International.
With a compound annual growth rate (CAGR) of 7.6% from 2012-2017, India is set to be one of the fastest growing markets globally – and by 2017 it is expected to have overtaken European markets such as Italy and France, with sales forecast to reach US$73bn.
"There is general consensus that India is an attractive market for new investment, especially for the world’s leading fast-fashion retailers," explains Magdalena Kondej, head of apparel research at Euromonitor.
International player
Shifting its focus from being a British retailer to an international player comes at a time when M&S is struggling in its efforts to stem a decline in its domestic clothing sales.
Earlier this month the company recorded its ninth consecutive quarterly drop in like-for-like general merchandise sales in the UK – which includes clothing and footwear – despite the much-publicised re-launch of its autumn/winter women’s wear ranges in September.
M&S, which currently has more than 770 stores in the UK and over 430 across Europe, the Middle East and Asia, plans to expand its store count in India from 36 to around 80 by 2016.
India is already its fastest-growing market in Asia – and the move to grow its store count there is a realistic one, experts say. But they also question whether India should be its top priority.
"Looking at per capita spending, an average consumer in India spends US$41 on apparel and footwear compared to US$200 in China and almost US$300 in Brazil," Kondej explains.
"Although the demand for international brands is there, it will take a while for both disposable incomes and consumer spending to catch up with other emerging markets. This immediately makes India a more challenging market to operate in."
She also highlights the state of modern retail development in India among the other hurdles it faces.
"Many recently opened shopping malls are currently struggling, and rents in Mumbai are one of the highest globally. Taking all this into consideration, it is quite surprising to see M&S putting India on top of their priority list," Kondej says.
Local sourcing
Plans by many international retailers to expand in India have been tempered by concerns about requirements to source 30% of their supplies locally. The Indian government imposed these conditions as part of efforts to open the sector up to foreign investment.
But sourcing locally has important benefits, allowing products to be tailored specifically for the Indian market "in terms of style [and] fit as well as to price points," according to Devangshu Dutta, chief executive of consumer products consulting firm Third Eyesight.
"A supply chain dependent on imports raises costs even further, potentially pricing the brand out of the market," he says.
It’s a point also picked up by Kondej. "This is a big deal because – outside their production hubs – the world’s leading fast fashion retailers are heavily dependent on imported merchandise. Both H&M and Uniqlo are now understood to be deferring their first store openings [in India], blaming exchange rate volatility."
She notes: "Gap in India arguably has an advantage over its rivals in that the company already operates a large sourcing base there.
"Any brand planning to embark on a big store network expansion in India would be comparatively well insulated from the devaluation of the rupee if they had localised production as well. For one thing, it would help M&S in developing a more tailored (country-specific) retail strategy and for another, it would provide protection against exchange rate volatility."
M&S highlights its sourcing operation in India and South Asia as crucial its expansion plans. Currently, 33% of its general merchandise products sold around the globe are made in the region, whilst 64% of M&S products sold in India are sourced from local suppliers.
It also says sourcing locally has enabled it to "stretch the seasons," by offering products like linen clothing – of which it sells over half a million pieces every year in India, accounting for 15% of sales – all year round.
Correct positioning
To succeed in India’s apparel market, M&S must get its positioning right and communicate this clearly to the consumer – issues that, worryingly, it also seems to be struggling with at home.
"Does it want to be considered a premium/aspirational brand with a focus on high quality apparel, or an affordable brand for the family with attractive price/quality ratio, or does it want to compete with the likes of Zara in the fast fashion segment?" Euromonitor’s Kondej asks. "It seems like the second option would be the best way forward for M&S in India given its product range and India’s family-centric culture."
Dutta also points out the a direct investment arrangement, whether through a joint venture or a wholly owned subsidiary, "creates more commitment on the part of the brand and also allows it to steer the business with a longer-term approach in mind."
Indeed, he adds, since moving into a joint-venture with the Reliance group, "M&S has committed to investing in larger stores, and also tweaking the product mix to suit its reading of the upper middle income consumers in India.
"While it is feasible to grow the business significantly in India, it needs to create a balance between seeking volumes and maintaining its premium ‘international’ positioning."
(Sourced from just-style.com.)
