Category: Press Quotes

Pantaloon cuts Food Bazaar, eZone outlets in major rejig

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August 13, 2012

Meghna Maiti, Financial Chronicle
Mumbai,13 August 2012

Even as Pantaloon Retail India (PRIL) continues its expansion drive, post its deal to sell controlling stake in the Pantaloons format to the AV Birla group, Kishore Biyani CEO at Future group has embarked on a restructuring exercise to ride through the downturn.

While PRIL increased its space under management by 0.55 million square feet of retail space, during the quarter ending June, compared with the year-ago period, the flagship of India’s largest listed organised retailer has shut down two stores of its electronics retail chain eZone and 10 stores of its core format Food Bazaar, the company told analysts in a presentation last week.
Food Bazaar the supermarket format is a key component of Future Value Retail that brings in the lion’s share of the company’s revenues.

“Fresh food and grocery is a challenging format for most retailers. Biyani is trying to reduce the company’s losses by shutting down non-profitable sto­res,” said Harminder Sa­hni, managing director of Wazir Advisors.

In an analyst presentation, PRIL at the end of June quarter had a total operational retail space of 16.71 million square feet. “The company believes that in such challenging times, the focus has to be on areas like better inventory management, prudent cost management and more efficient store operations,” PRIL said in its quarterly result statement.

Devangshu Dutta, chief executive at Third Eyesight said that retailers should shut down stores located in wrong catchments, customers. “In such cases, the company should try to reform the stores. It’s sign of a healthy business,” he added.

Biyani’s eZone competes with Tata owned Croma and Videocon owned Next Retail, among others. The Food Bazaar unit has been facing increased competition from the Raheja owned HyperCITY; Reliance owned Reliance Mart and Super department stores amongst others.

Retailers in India have traditionally struggled to make a profit in the low margin food and grocery business as the fresh fruit and vegetables section has been their Achilles heel.

“During this period, the company focused as much on opening new stores in key locations as on improving store efficiencies. At a number of locations that weren’t performing up to the mark, the company decided to rationalise spaces either through shutting down non-performing sections of the store, conversion of lifestyle formats to value formats or full closure of stores,” said PRIL in the commentary of its results for its fourth quarter results announced last week.

PRIL’s gross space addition in the past 12 months was 2.37 million sq ft.

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Big Bazaar goes online in Mumbai

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August 2, 2012

Meghna Maiti, Financial Chronicle
Mumbai, 2 August 2012

If you are worried about the long queues at your neighbourhood Big Bazaar during the much-awaited Independence Day sale, help is at hand. For the first time the supermarket chain, is now coming to a computer screen across the commercial capital of Mumbai with the Biyani-led venture starting an e-tailing offering bigbazaar.com.

The e-tailing venture that promises home delivery of its merchandise across Mumbai could potentially do away with the drudgery of shopping on weekends and take care of the issue of long queues at billing counters on holidays and weekends. It will also allow the Biyani franchise to boost sales without adding real estate and salary costs, said industry experts. “Adding an online interface is the smartest thing to do at a time most retailers are going multi-channel,” said Saloni Nangia, senior vice-president at retail consultancy Technopak Advisors.

The biggest constituent of Kishore Biyani-owned Future Group will offer potential customers buy non-perishable products right from food and grocery to apparel save for fresh, dairy and frozen products, oil pouches, jams and sauces and loose cereals etc. The e-tailing venture has gone live just before the crucial Independence Day sale, which is one of the biggest revenue earners of Big Bazaar in the year. Big Bazaar will also offer cash on delivery option for this service, which is likely to give serious competition to kirana stores. For orders above Rs 500 in value, there is no delivery charge.

“When any company treats its online venture as just an add-on, it does not run very well. The company has to treat it as a different business environment with a clear model to succeed,” said Devangshu Dutta, CEO at consultancy firm Third Eyesight.

While the company’s online retail arm, futurebazaar.com is already operational; it has launched new initiatives in the e-commerce space such as SMS short codes, teleshopping proximity marketing through mobile phones. The initiative has helped Future Group, one of the first modern retailers to move into digital commerce in a big way. It will compete with portals such as eBay.com, Indiatimes.com and rediff.com as well as with websites of Shoppers Stop and Landmark, on the internet.

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Avoid impulse-buying while shopping premium brands at a sale

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August 2, 2012

Prashant Mahesh, The Economic Times

Mumbai, 2 August 2012

People may not love the rains, but monsoon sales are the favourite with most of them. It has almost become an annual ritual with people to shop for their favourite brands during the sale period that are otherwise too expensive to purchase. And the retailers are more than happy to cash in on this consumer frenzy.

Yes, it’s once again that time of the season to go on a shopping spree and pick up stuff at discounts varying from 10 to 90% on your favourite products… be it apparel, shoes, bags or watches. Some people may even want to buy presents to give their friends through the year for birthdays, reunions and so on, and this year is no different.

The economic slowdown hasn’t cast its shadow on the so-called season’s sales. Huge hoardings are visible at every busy traffic signal. But, one small nagging doubt: Is it a smart idea to shop at these sales? Sure, you save a lot of money, but does it make financial sense to shop as if there won’t be another sale in this millennium.

“Year-end sales are a great time to shop from a consumer’s perspective since you can get premium brands at a discount on such occasions,” says Ram Gudipati, Manging Director, Brand Harvest.

“Do not indulge in impulsive buying and avoid purchasing high-value items in a sale. Ensure that the sale is genuine and you get value in what you are buying,” says Devangshu Dutta, Chief Executive Officer, Third Eyesight, a consulting firm focused on retail and consumer products.

CHECK IF THE SALE IS GENUINE

There are many reasons behind an end-of-the-season sale. As a consumer, you need to understand if it works for you or not before opening the wallet.

“Due to the slowdown in the economy, manufacturers could not sell everything that they produced, resulting in a higher inventory, which they want to liquidate before the festive season sets in. A sale is one of the best ways to do it,” says Arvind Singhal, Chairman, Technopak Advisors.

“Styles and fashion change fast. In the case of apparel, designs could go out of fashion fast. Hence if a manufacturer has excess stock of a particular design, which he feels will go out of fashion, he would be better off selling it at a discounted price through a sale,” says Devangshu Dutta.

Of course, there is nothing wrong in both the above cases, as it is genuine and it could work in your favour, say experts. Then there are some retailers who play on consumer psyche, whom consumers need to be careful of. “Many retailers deliberately mark up a price of a product and then mark it down during the sale period,” adds Dutta.

So a product whose fair price is actually Rs 400 is marked up to Rs 800. A regular customer at the store is tricked into believing that it’s the best price and grabs the product in a sale on seeing a 50% discount.

Of course for a layman it is very difficult to distinguish whether a sale is genuine or not. However, if you use the brand regularly or visit the store regularly, it will be easier for you to judge whether the sale is genuine or not. You will be able to distinguish stores that use such tricks over ones that are genuine.

“Consumers should scan the market and check comparable products, which will give you an idea if the sale is genuine or not,” says Dutta.

EXERCISE CAUTION WHILE BUYING HIGH-VALUE ITEMS

While apparels or shoes are great to buy in a sale as they are low-value items, the same may not be the case with costly consumer durables or other high-value items.

Experts suggest consumers should be careful when it comes to buying a television, refrigerator or air conditioner during an year-end sale. Many a time the product may be available without the packaging or could have a dent or the paint would have peeled off and so on. While a minor defect may be ok, it is important for a consumer to check whether the company is ready to provide full-service and warranty for a product sold at a sale.

Many stores do not offer replacement for products bought during a sale. So in case of apparel and shoes ensure what you are buying fits you, since it may be difficult to replace the product otherwise.

BE A JUDICIOUS BUYER

Many of us just get tempted and buy all the things that are on sale, irrespective of whether we will use them or not. Experts caution against such impulsive buying. Spread your purchases over a period of time, rather than buying everthing in just one day, they advise.

“Buy a product only if you are going to start using it within the next two or three months,” says Aasheesh Mediratta, Director Sales, Fashionandyou. So if there is a “Buy two get one free” offer, see if you need three trousers or that many T-shirts.

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Thinking Small

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July 28, 2012

Vishal Krishna
BusinessWorld, 28 July 2012

When you have Rs 7,846 crore in debt, that takes centrestage and everything else is pushed to the sidelines. And that is exactly what was happening at Kishore Biyani’s Future Group over the past few years. However, after selling a majority stake in Pantaloon Retail to the Aditya Birla Group, managing a private placement with Bennett, Coleman & Company (BCCL), and getting private equity giant Warburg Pincus to acquire a majority stake in Future Capital Holdings (FCH) resulted in Biyani raising nearly Rs 2,500 crore in the last couple of months. Further, with Warburg Pincus taking over the Rs 3,800-crore debt of FCH, nearly Rs 6,000 crore in debt has been wiped off Biyani’s balance sheet.

Improved financials have left Biyani free to concentrate on his retail business. And first on his to-do list is Central — the group’s large format retail store which is like a series of shop-in-shops. “The Central store format is going to be our major revenue driver in the lifestyle segment in the coming years. We are targeting revenues of Rs 3,000 crore from Central in 2012-13,” says Biyani, chairman of the Future Group. In 2010-11, Pantaloons contributed to at least 50 per cent of the Rs 4,325.57 crore revenues generated by the group’s lifestyle arms; Central and Brand Factory (selling branded products at discounted rates) contributed to the other half.

After Big Bazaar, Central is the only marquee outfit big enough to generate the revenues. “Central is a successful and scalable business as it helps the landlord, the brand and the retailer share the upside of the business,” says Biyani.

Central’s business model is simple: Brands enter into an agreement with Central whereby they pay a minimum guarantee or rent per sq. ft (which may be upwards of Rs 75 per sq. ft), plus 10 per cent of the revenue. In case of the absence of rent, it will be 30 per cent of the revenues. Thanks to this model — Apple is attempting a similar arrangement with Walmart and Target — it covers itself during a slowdown while it shares the revenues of the brand when the going is good.

“Central is a marketplace and works well with Indian mindsets; retailers fight for the best spaces,” says Biyani. While K. Raheja promoted Shoppers Stop and Micky Jagtiani-owned Landmark Group’s Lifestyle stores also have shop-in-shops, they do not have a marketplace model for their stores.

“Not all brands work in every city when they are on a business model of minimum guarantee plus percentage of sales because the brands are under stress to perform,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy. Large retailers operate on this model in the West where space is given to brands and they have to ‘perform or perish’. “If a brand succeeds then Central benefits,” says Dutta. However, it is the duty of Central to draw in traffic. “Since we have footfalls of two million every month, there is no reason why a brand should complain about why they have not translated into sales,” says Vishnu Prasad, CEO of Central. The model works best in metropolitan cities as it banks on high footfalls.

But globally, the model of leasing out a shop floor to a brand works only in the case of FMCG companies, which want to test a new product line. This model is not very popular as the brand not only has to pay a rent but also share the sale proceeds with the retailer.

Evolving Business

In the eight years since its inception, Central has grown significantly. It has 22 stores covering 2.7 million sq. ft of retail space — 13 per cent of the Future Group’s total of 17 million sq. ft across the country. By the end of the year, Central will occupy 20 per cent of the group’s total retail space. Another 10 stores at a cost of Rs 125 crore are expected to be opened this year. Revenues have increased by nearly 30 per cent year on year between 2009 and 2012 and Central is expected to close its financial year in June with revenues of Rs 1,500 crore.

So what works in Central’s favour? Upfront it is its inventory model. Most brands work on a mutual agreement of a minimum shelf life of 90 days, after which the product is sent back to the manufacturer. Hence, very little inventory sits on the books of Central.

Further, Central has also been able to gather a lot of data on buyer behaviour and shopping preferences. While other stores use loyalty cards to gather data, Central’s data is based on the categories that people shop for and their preferences. “In the first five years of our growth, we brought in brands and it was a model where we drove consumption and left the selling to the brand,” says Biyani. However, between 2008 and now, it has been about collecting data on customers and telling brands what to sell and what to avoid in their space.

Prasad and his 14-member team have crunched six years’ data on what customers shopped for at Central. “We began to speak the language of what the data told us, the brands could not ignore our findings,” he says.

The data provides specific information such as a gender-wise break-up of customers’ preferences. “We collect data in-house. With the data in hand, we make sure a customer in Central gets what he wants,” says Prasad. Data collection has helped other retailers too. “Data is the key to the success of every retail business; 70 per cent of our revenues come from the 2.5 million customers who form our database,” says Govind Shirkande, CEO of Shoppers Stop.

Central has tied up with nearly 1,000 brands and ensures that they introduce their new collections a month before they release it in the market. “Analytics gives you an edge and very often our collections are different to the ones you get in the market,” says Prasad.

Even inventory management is done differently in Central. The inventory risk is on the manufacturer, where 40 per cent of the stock is contracted to be returned if not sold. But because Central sells most of the goods in store, only around 10 per cent of the stock is returned at the end of season.

According to analysts from E&Y, only 6 per cent of the $450 billion retail industry is organised. Of the 6 per cent, 45 per cent of the organised retail business comes from apparel retailers. “The apparel business has seen very few glitches over the last couple of years. It is in this context that some formats have done very well,” says Pinakiranjan Mishra, partner and national leader of consumer markets, E&Y.

In many ways Central is a seamless mall, at least that was the branding that shoppers became used to. It’s a place where they can shop, eat and watch movies. “We are often referred to as a mall and it is difficult to do away with that reference,” says Prasad. But all that is changing now and Prasad and his team are working on a business plan for a new format for the next three years. This has been prompted by some external issues such as the slowing economy. Plus, the large format itself is becoming a burden to replicate across India. “It is very difficult to get large properties across Indian cities as rentals are very high,” says Dutta of Third Eyesight.

Currently, nearly 40 per cent of the properties are on a revenue-share model with a minimum guarantee. During the first six years of operation, it was the high rentals (of nearly Rs 150 per sq. ft) which resulted in low margins of only 5-7 per cent. In 2010, all that changed when the management adopted a revenue-share model, increasing margins to 10 per cent. The net margin of the competition is between 10-12 per cent.

What has differentiated Central from the likes of Shoppers Stop and Lifestyle is its sheer size. While Central operates large-format stores — at least 100,000 sq. ft in size — located in independent properties that have been leased for a period of eight years, the other two operate stores with an average size of 45,000 sq. ft. But all that is set to change.

Next Move

Biyani now plans to open smaller formats of Central that will compete directly with Shoppers Stop, Westside, Lifestyle and the like. The first store is set to open soon at the Brigade Orion Mall in Bangalore. “This format fits well in our mall and is well positioned because of its multi-brand presence,” says Vishal Mirchandani, CEO of Brigade Orion Mall.

“We have realised that the large format has its limitations, but we will have the best of Central in the smaller formats and that is our differentiation,” says Prasad.

Analysts estimate that the new model can be scaled up to over 50 stores in the next five years. But the quality of the malls that they sign up with will be crucial to their success. In India, only about 15 malls of the 255 in operation seem to be bringing in revenues for retailers; the rest are still struggling.

Homing in on the right property is essential. Explains Kabir Lumba, managing director of Lifestyle India: “Our expansion strategy has always been to sign on good properties and not scale up to locations where we will not grow. That is why Lifestyle has been a success. We try to do more with the current set of properties.”

With a large number of retailers failing, there is a surfeit of properties up for grabs. This may work in Central’s favour. It needs to scale up its operations by opening more stores in the years to come to take on competition. “We are growing and have targets; Central is the best kept secret of the Future Group,” says Prasad.

(This story was published in Businessworld Issue dated 06 August 2012.)

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Coffee World to invest Rs. 50 crore in expansion

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July 27, 2012

Pallavi Srivastava, Pitch
New Delhi, 27 July 2012

In the last few years, coffee consumption has kicked off exponentially in the Indian market and the latest player to offer the cuppa is Swiss brand Coffee World. The company, which is buoyant about its performance amidst the clutter of brands, is confident of staying ahead of established players like Café Coffee Day. Will it deliver? Pitch finds out.

If market estimates are to go by, approximately 200 coffee outlets have been opened in the country every year for the last five years. This increased caffeine love of Indian consumers has resulted in huge expansion of early movers like Café Coffee Day (CCD), Barista, Costa Coffee and has also lured many international brands like Starbucks (to open its first store in second half of 2012), Coffee Bean & Tea Leaf, Gloria Jean’s to open shop in the recent past. Coffee World, café chain from Switzerland based group Global Franchise Architects (GFA, which has brands like Pizza Corner and Donut Baker) is another brand looking at milking this caffeine induced retail opportunity in the Indian market.

Coffee World made a low profile entry in the Indian market in 2006 in South India and Delhi but it closed its Delhi operations after some time due to franchise issues. But looking at the surging market for coffee over the last couple of years the brand has got aggressive and is expanding in North and East India too. It has partnered with GAMA Hospitality, the master franchise of GFA, which is handling Coffee World’s operations in these two regions and has six stores, three in Delhi/NCR and three in Kolkata. However, the South India stores of GFA work on a local franchise model. GAMA hospitality also handles GFA’s other brands Pizza Corner and Donut Baker. Overall, it has about 18 GFA stores across brands while GFA has about 80 stores (Coffee World, Pizza Corner and Donut Baker) across the country.

The great Indian caffeine opportunity

So why is Coffee World getting aggressive at this time? Well, the numbers will answer that! According to the Coffee Board of India Statistics, the per capita coffee consumption in India is merely 82 gm compared to developed markets like UK, where it is 4 kg, while for some European economies it is as high as 10 kg. Not just that, valued at Rs. 1,000 crore, the growth rate of Café Chain market is about 15-18 per cent annually. And according to Technopak Advisers there is scope for about 2,700 more cafes in the country in the next five years. Currently, there are about 1,800 coffee stores.

From being a traditional beverage consumed mainly in South India, coffee has become a trendy beverage with a national presence. According to the reports the coffee consumption in Northern India has been growing at a phenomenal rate of over 40 per cent.

Premium experience at competitive pricing

But though there is a huge opportunity in the café segment in India, it has players like CCD, Barista, Costa Coffee, which already dominate the market and biggies like Starbucks too are all set to open their stores. In such a market, is there enough scope for a player like Coffee World?

Devangshu Dutta, CEO, Third Eyesight, feels, “There is still significant scope for new entrants into the café market in India, despite the head start that the existing coffee chains have in terms of number of outlets.”

At the same time establishing itself will not be an easy task for a new player. As Anand Kumar Jaiswal, Professor Marketing, IIM Ahemdabad, points out, “There are currently two types of coffee chains in the market: first coffee pub model like CCD and second experience cafés like Barista, Coffee Bean & Tea Leaf etc. The first mover’s advantage will always be with them and it will not be easy for any new player like Coffee World to create its space.”

Experts feel that in a market as dynamic as India, there is always space for a new player but like any business the challenge for the player is to find the right space for itself. For instance, CCD has become ubiquitous in India with its ability to spot the right locations before they come in vogue and be present there. Sunil R Shetty, Planning Services Director, Draftfcb + Ulka, believes, “The challenge for Coffee World will be to understand the niche it wants to address and then build on it. If it aims to be a premium player then how will it differentiate itself in the market versus Coffee Bean, Starbucks and others, is the first question. Once Coffee World is able answer this critical question, the rest is easy.”

So what is the space Coffee World is looking at? Gaurav Agarwal, Director, GAMA Hospitality answers, “There are a lot of consumers in India who are conscious about what they spend and where they spend, but at the same time want a good coffee experience. That is the space we are looking to capture and our positioning is premium coffee experience at competitive pricing.” The company’s products are priced 10 per cent lower than Barista and Costa and at par with CCD.

So why a customer would go to a Coffee World instead of a CCD if the prices are same and considering that CCD is a well established brand? Agarwal says, “In terms of product, we are much better than CCD, they can never compete with us on product quality. I don’t consider CCD as competition.”

He further shares that Coffee World offers on the spot freshly made sandwiches and waffles, which differentiates its offering from other brands as they offer stored sandwiches and other products, prepared earlier.

So is this mid path of competitive pricing and better experience a sure shot way for success in the coffee chain segment? Experts feel that it isn’t. IIM’s Jaiswal says, “It is not as easy as it sounds. If Coffee World is not able deliver on its promise of price, the customer will go to CCD. If it fails to deliver on experience, the customer will go to Barista. So it will be a tight rope they will be walking.”

Journey so far

While the road ahead may seem different for Coffee World, but the brand has been doing decent for a starter. According to the company, the Coffee World Stores have monthly sales of about Rs. 75 lakh. While that may look miniscule compared to what established brands might be making, but experts feel it is a good enough number for a relatively new brand. Agarwal seems even more confident about its performance and claims, “In terms of sales we are number one in Kolkata. We have an outlet in Kolkata’s South City Mall. There is also a CCD outlet in the same mall. And our sales are much higher than them.”

As far as marketing spends are confirmed, Coffee World spends 4 per cent of its sales. And the majority of its marketing activities include hoardings, flyers, e-deals at discounting site to encourage product sampling.

Agrawal also seems very excited about the future expansion plans. “In coming years, we will be expanding into many cities around Delhi including Chandigarh, Jaipur etc,” he adds. Plus, GAMA Hospitability will be investing about Rs. 30-50 crore in future expansion.

While the road ahead may not be cakewalk for this nascent brand but experts are of the view that it will certainly benefit from Indian consumers’ increasing preference for coffee. And perhaps differentiation will help the brand carve its own niche in this space. Draftfcb+Ulka’s Shetty agrees, “Globally chains have successfully followed this strategy to build business in markets dominated by Starbucks; whether it is Green Mountain with its fair trade and organic routes or by a differentiated experience like Caribou Coffee with its mountain lodge theme décor.”

Third Eyesight’s Dutta feels, “Any café, regardless of the size of its parent company and its brand image, needs to prove itself at each specific location. Familiarity and predictability to a customer are important to customers.” And, thus, maintaining a high degree of consistency of product and service over a period of time will be key to this, at each location as well as across the chain for the success or failure of any brand.

(This article appeared on July 27, 2012 on Pitch Online.)