Nupur Acharya, The Wall Street Journal

Mumbai, September 27, 2013

On the back of a surprise increase in a key interest rate last week, India’s central bank dealt another blow to banks this week by asking them to stop encouraging credit-card use with misleading “zero interest” payment plans.

While credit card issuers have been working with retailers to offer special no interest offers for years, the Reserve Bank of India said the plans were misleading as they often have hidden costs.

The banning of this standard promotion could prove to be a dampener for banks and consumer product manufacturers ahead of the festival season that begins in less than ten days.

Zero interest payment plans have become popular in the last couple of years with most big electronics and consumer durable stores offering them. The trend spread when smart phone and tablet manufacturers introduced them to push up the sale of their expensive devices.

While the drawn out payment plans for the purchases had no interest, they often included a processing fee. Meanwhile consumers that bought the products using the plans sometimes had to pay a higher price than those that paid in cash.

The RBI felt that the plans were just camouflaging the interest and passing it on to consumers as a fee or higher price. It said that any discount on prices should be passed on to all customers.

“The very concept of zero percent interest is non-existent and fair practice demands that the processing charge and rate of interest charged should be kept uniform,” The central bank said in its notification. “Such schemes only serve the purpose of alluring and exploiting the vulnerable customers.”

The end of the plans won’t affect most people, some industry analysts said, as the value-for-money conscious Indian consumer has always been aware of the other costs of the interest free plans.

“Consumer sentiment is fairly cautious on spending, especially high-price consumer durables, given the general economic scenario,” said Devangshu Dutta, chief executive officer with Delhi-based Third Eyesight, a retail and consumer durable consulting firm.

(This piece appeared in the Wall Street Journal blog titled "India Realtime".)

Raghavendra Kamath, Business Standard

Mumbai, September 26, 2013

Aditya Birla Retail Ltd (ABRL), retail arm of the Aditya Birla Group, had been eyeing break-even in 2012-13, the sixth year of its operations. But that milestone remains elusive, with the retailer, which runs hypermarkets and supermarkets under the More brand, posting losses of Rs 510 crore last financial year, according to disclosures made with the registrar of companies.

Though losses fell marginally from Rs 535 crore in 2011-12 and net sales rose eight per cent to Rs 1,037 crore against Rs 962 crore in 2011-12, analysts say More’s focus on supermarkets is delaying break-even. ABRL runs 513 supermarkets and 15 hypermarkets, with an area of about two million sq ft across 60 cities.

Despite elusive profits, it has no plans to slow expansion. It is considering launching six-eight hypermarkets and 40-50 supermarkets every year. Pranab Barua, the group’s business director (apparel & retail business), says the retail chain has focused on profitable growth and this has reduced operating losses about 30 per cent.

“Some of the key factors that have impacted our profitability include improvising our margins. Moreover, we have done considerable work towards enhancing in-store consumer experiences in the business and laying a solid foundation for strengthening our supply chain,” he says, adding More was already making profits at a network level for both the formats.

More isn’t alone in struggling for profits. Other retail giants that entered the fray around the same time are also bleeding. Spencer’s Retail, an RP-Sanjiv Goenka Group company, which opened stores under the Spencer’s brand in 2006, recorded a net loss of Rs 2,091 crore in 2012-13 against Rs 2,554 crore in 2011-12. In the same period, Spencer’s sales rose to Rs 13,470 crore from Rs 12,063 crore. The company aims to record Ebitda (earnings before interest, tax, depreciation and amortisation) break-even in the third quarter of 2013-14. Sunil Mittal’s Bharti Retail, which opened stores in February 2007, recorded accumulated losses of Rs 1,522 crore in 2012. During 2012, revenue rose to Rs 1,581 crore, against Rs 1,021 crore in 2011.

The only exception was Reliance Retail, which opened its first store in October 2006, when the Birla group entered the retail business. Reliance Retail posted profit before depreciation, interest and tax (Pbdit) of Rs 78 crore in 2011-13. In the June quarter of 2013-14, the chain became the largest retailer in the country, with a revenue of Rs 3,474 crore and operating profit of Rs 70 crore, beating Kishore Biyani’s Future Retail (revenue of Rs 2,217 crore).

The Aditya Birla Group had made a big-bang retail foray, acquiring 172 store-strong South-based retail chain Trinethra Super Retail in 2007. Though Birla had plans to set up 1,000 stores at an investment of Rs 9,000 crore by 2010, the slowdown upset its calculations. Left with unviable stores and dwindling sales, the chain shut about 100 loss-making stores in 2009 and 2010, and an additional 40 last year. Barua defends this, saying the team was “focused on qualitative growth, not just quantitative growth”.

Abneesh Roy, associate director (institutional equities and research), Edelweiss Securities, says, “Small neighbourhood stores in organised retail have not done well. They are not able to compete with kiranas. If you look at Reliance, they follow a different model, where they are focusing on hypermarkets and cash-and-carry stores now… retail players should look at hypermarkets and cash-and-carry stores seriously.”

A top executive of a large corporate group which competes with Birla Retail, says “I think they are finding it difficult to see a turnaround with pure grocery play. The Pantaloons chain they acquired is in a different basket. If you look at Reliance, they have a combination of jewellery, durables, value, cash and carry and others which is adding value.”

“Even if electronics and jewellery grow during festivals, they will help in a big way,” he said.

Devangshu Dutta, chief executive of Third Eyesight, a retail consultant, says “for the last 15 to 18 months, business conditions were bad due to inflation, slow economy and other factors which have led to poor consumer demand. This financial year will also be tough. Secondly, retailers are also facing supply side issues. Input costs of fuel, employees and other items have shot up. When store level productivity is down, corporate level productivity will also be down,” Dutta adds.

Barua, however, is confident that ‘,more’ will see double-digit growth this year too.

Salil Panchal, AFP
Mumbai,September 11, 2013

A year since India reduced foreign investment barriers to its retail sector to spur flagging economic growth, confusing rules and political uncertainty are keeping overseas supermarket giants away, analysts say.
In September 2012, the government allowed foreign stores to set up 51-percent-owned joint ventures in India which they had eyed for years as a potentially lucrative market.

So far, there has been no rush to open outlets, despite further easing of entry barriers in August.

"There’s no comprehensive consolidated government paper on Foreign Direct Investment (FDI) — just updates and statements. It’s not a good sign," said retail analyst Anil Talreja of global consultancy Deloitte.

Last month, US giant Walmart sought more government clarifications on FDI, having earlier said it was unable to fulfill sourcing guidelines stipulating 30 percent of products must come from small-scale industry.

"India is an important market for us and we continue to study the implications of the new FDI policy on our business," a Walmart spokeswoman told AFP.

In September 2012, Walmart said it aimed to launch its first retail store in India within the next 18 months to two years but has made no recent mention of the target. The firm, like French supermarkets Carrefour and Britain’s Tesco, operates in India as a wholesaler with local partnerships but is yet to set up its own stores.

Devangshu Dutta, head of retail consultancy Third Eyesight, said "regulatory complexity" was an issue for brands "evaluating the costs against benefits" of entering the country.

The inability to woo big foreign firms is a blow for India, keen to attract outside investment to help boost its sliding economy.

The rupee has fallen by nearly a fifth against the dollar this year, economic growth is at its slowest in a decade and the current account deficit, the broadest trade measure, is at a record high.

With elections due by next May, the Congress-led government now seems more focused on populist measures, such as a huge food-for-the-poor scheme, than on streamlining FDI policy — a politically sensitive issue, analysts say.

After new FDI in retail rules were passed last year, protests erupted among shopkeepers and labourers who feared a loss of jobs and collapse of small family run stores.

The majority of the retail sector remains dominated by traditional family owned shops and small grocery stores, but organised retail — mostly chain stores — is expected to jump from eight to 24 percent of the market by 2023, according to consultancy Technopak.

The central government has left it to each state to decide whether foreign retailers can set up shop — and so far only 11 out of 28 states have expressed a keenness for overseas chains.

Sonam Udasi, Mumbai’s IDBI Capital research head, said there were "too many different noises" over foreign investment to reassure players. "Most will wait until a new government comes to power," he told AFP.

One of the few foreign retailers to commit to India in recent months is Swedish giant Ikea, which plans to open 25 stores as part of a wider push into emerging markets.

"In the first phase, we will plan stores in main cities," an Ikea spokeswoman told AFP, declining to be more specific about a timeline. The firm’s India chief, Juvencio Maeztu, has said it is willing to wait "five years" to find perfect store sites.

While foreign supermarkets hold back from India, domestic chains are rapidly expanding, underlining the potential of a middle-class — expected to cross 250 million people by 2015, consultancy McKinsey estimates.

The Future Group, India’s largest retailer, plans to grow by 1.5 to two million square-feet of retail space each year over the next three years, says "retail king" Kishore Biyani who controls the group.

"Aspirational growth in India remains strong. This will drive consumption, which we feel could be three to four percent above economic growth," he told AFP.

Another Indian giant, Aditya Birla Retail, says it has "aggressive" plans to open up to eight new hypermarkets and more than 40 new supermarkets this year.

Rival Reliance Retail, which sells everything from vegetables to electronics, aims to hike revenues five-fold to 500 billion rupees ($7.5 billion) by 2016.

As local players push ahead, the wait for foreign supermarkets will likely continue until the economic outlook and regulatory climate clears, experts say. "The current FDI policy should be discarded, it’s ill-informed and ill-advised," Technopak chairman Arvind Singhal told AFP. "The government could have done so much more. We’ve muddied the waters," he said.

Rachit Vats, Financial Express
New Delhi, September 8, 2013

Early this year, Gurgaon residents Abhishek Salwan, 33, and his wife decided to cut down on their weekly visits to the local hypermarket and started preparing a monthly grocery list instead for their local grocer.

Salwan is not alone. An increasing number of people are turning to traditional kirana stores to tame rising budgets, in the process impacting the usually resilient fast moving consumer goods (FMCG) sector.
A sector that remained defensive even during the dark days of 2008 is seeing a slowdown this year, especially in modern retail.

As per market researcher Nielsen, the overall FMCG growth numbers for H1 2013 came down to 11%, from last year’s 17%. The impact on modern trade, which contributes about 7% of the total FMCG market, saw growth rate come down to 11% during H1 2013, from 34% in the same period last year. Just two months into the third quarter, the numbers have seen only a marginal improvement owing to the festival season. Modern trade has been growing over 20% over the last few years.

“There is a restructuring in the industry. Sales are lower than last year on a same-store basis. While there is a slowdown, the growth numbers are still in double digits at 12%,” Spencer’s Retail president & CEO Mohit Kampani said, adding, “The major trend is that consumers are not upgrading as they were doing earlier. Further, retailers are not opening newer stores and even pulling out of existing properties.”

“There is a tendency to cut down on discretionary spending,” Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight said, adding, “In the Indian context, modern trade can end up suffering because it can be perceived to be either more expensive than traditional retailers or consumers feel they are overspending due to wider choices and promotions.”

While the likes of Hindustan Unilever and Future Group were not forthcoming with numbers, sources said till 2012, HUL’s modern trade was growing at 32%, faster than traditional trade at 17%. In H1 2013, the company’s traditional trade is growing faster at 7% while modern trade growth is at 6%.

Take Future Value Retail, the listed arm of Future Group that runs grocery chains such as Big Bazaar and KBFairPrice, for instance. The company’s net sales for the six months ended June was at R3,801 crore, a surge of 4.5% compared to the same period last year even as its gross margin during the period remained flat at 24.7% while the EBITDA margin grew to 8.1% from 7.5%. The retailer’s store strength during the period came down as Big Bazaar store numbers came down to 159 from last year’s 162. Food Bazaar store numbers fell to 29 from the earlier 46. While the company did not give a break-up of FMCG and apparel sales, joint MD Rakesh Biyani admitted it has been focusing on increasing share of sales in the high-margin fashion category.

“FMCG drop is a function of the market and inflation — overall, sentiment is down. Modern trade is a very mixed story and has to be seen in that light — players are reworking their business models and as a result comparison over years is not necessarily on a like-for-like basis. Surely, for the more organised and better players, store-wise performance is improving,” KPMG Transaction Services partner Mohit Bahl said.

(This article appeared in Financial Express on September 8, 2013)

Priyanka Pani & Bindu Menon, The Hindu Businessline
Mumbai/New Delhi, September 3, 2013

Given how consumption declines during this time, retailers try to excite consumers into opening their purse strings with attractive offers. “In the last few years, due to (promotional) campaigns, people have been buying during the ‘inauspicious period’ as it is followed by the wedding season in Kerala,” says Alukkas Varghese Joy, MD of Joyalukkas. “This year, we have seen marginally higher growth over last year.”

Nalli’s, India’s largest saree retailer, has an aadi sale every July.

SCHEMES GALORE

Ajit Joshi, Managing Director of Croma, a leading consumer durables retailer, says that during this period, a lot of finance partners and product manufacturers come up with various schemes, including low down-payment, low processing fees and attractive interest rates. “Such initiatives help us sail through this pre-festival period,” adds Joshi. This is resulting in highersales — about 20-40 per cent more than on a normal day.

Earlier, retailers used to witness bumper sales only during big festivals such as Onam, Diwali or Dasara . Now, with the industry more organised and with the entry of foreign brands, there is a huge competition to attract more customers.

The off-season sale trend, which kicked off in South India in the early 2000s, has now spread across the country.

Devangshu Dutta, from marketing research firm Third Eyesight, says that earlier, festival peaks could account for as much as 70-80 per cent of a brand’s annual sale. But in the last 10-15 years, consumers with higher discretionary incomes have tended to spread their spending round the year. Besides, the availability of multiple brands and increase in the number of stores has also improved product visibility year-round. The number of discount periods has also increased, encouraging customers to de-link their purchases from the festival period.

“It is better for retailers to have a more consistent and predictable flow of customers than managing huge peaks, which are impossible to forecast and difficult to fulfil,” says Dutta.

Some retailers do not seem to think there is a ‘season’ for sales. Future Group, which has pioneered celebrating local community festivals, believes each day is an opportunity and runs offers even on weekdays.

(This article appeared in The Hindu Businessline on September 3, 2013)