Breakfast is the most important meal of the day. Certainly for several packaged food companies , if not for everyone.

Call it the breakfast war, the scramble to serve the first meal of the day is getting busier with companies such as Britannia, Marico, PepsiCo, Kellogg India and MTR Foods offering more and more options to meet Indian consumers’ rising demand for quick-fix food.

Britannia Industries, which already occupies share of the breakfast table with bread, butter and cheese, is making early moves in the ready-to-cook breakfast meals segment, an official said.

One of the country’s largest biscuit makers, Britannia is conducting trials of packaged products such as buttermilk oats and sweet multi-grain porridge under ‘Healthy Start’ brand, and is also toying with traditional Indian options such as upma and poha, an industry official said. "Healthy Start is being positioned as an umbrella brand for Britannia’s plans in the breakfast space," the person said on condition of anonymity. The brand may be rolled out in Bangalore this year.

Britannia is one among several companies looking to cash in on a surge in demand for quick-fix breakfast options in urban areas where the number of double-income families and working professionals are rising and consumer lifestyle and food habits are changing. These products are targeted specifically at urban, working people and, hence, there is no price undercutting or margin pressure, helping the industry grow in double digits, in volume and value. Industry players estimate the branded breakfast foods market in India at around Rs 500 crore, offering enough room for new entrants. There is a ready market for such products.

A breakfast habits study conducted by Kellogg India last year revealed that at least one in three Indians and more women than men skip breakfast daily. Young girls and children were also opting out of the meal several times a week, the study said.

Packaged food companies spot a big opportunity here. "It is easier for consumers to adopt ready-to-cook meals for breakfast as against other meals because of the need for convenience," says Vidur Vyas, marketing director-Foods, PepsiCo India.

"This consumer is also gravitating towards healthy options while looking out for affordability per serving ," he says, adding that Quaker Oats appeals to the Indian habit of consuming dalia (broken wheat).

Also, the urban lifestyle is changing in line with the western world. "The Indian consumer today is more in tune with the lifestyle of western countries due to growing business travel and media exposure, which has been reflected in apparel and now in food as well," says Devangshu Dutta, chief executive of Third Eyesight, a retail and consumer products consulting firm.

At the same time, there is a good demand for ready-to-cook traditional breakfast. "Morning is the most high-pressure time of the day, particularly for the woman of the family. The adoption of ready-to-cook product is on the rise because she does not feel like she is compromising on the traditional breakfast," says Sanjay Sharma, CEO of MTR Foods, which sells instant breakfast mixes such as rava idli, dosa and uthappam.

The Rs 250-crore company, owned by Norwaybased Orkla Brands, said its breakfast segment sales increased 25% last month and that it expects the contribution of breakfast mixes to its revenues to double to 20% in three years.

In recent months, Marico too entered this segment with Saffola Oats and cereal maker Kellogg India launched Heart to Heart oats to cater to Indian preferences of a hot breakfast.

All this explains Britannia’s move to enter the segment. Analysts tracking the sector say the breakfast meals category would be a natural extension for the likes of Britannia as it provides multiple areas of synergy for the company.

"It would give the company greater sourcing flexibility for inputs such as milk powder and sugar , with volumes giving it the capacity to withstand seasonality," says Anand Ramananthan, manager at KPMG Advisory services. Besides broadening its portfolio with trade, on the demand front, it would help Britannia occupy greater mind space in the healthy foods segment, he says.

Incidentally, quick-service restaurant chain McDonald’s , which enjoys strong equity in the breakfast meal space globally, has also identified the gap in the breakfast market. Its chicken Mexican wrap, muffins and hash browns offering is being rolled out across Pune and Bangalore, beyond Mumbai and New Delhi, in two years. "With 200 restaurants in the country today, we are accessible to the on-go-consumer today," said Amit Jatia, Managing Director McDonald’s India (west & south).

(This article originally appeared in The Economic Times on November 3, 2010)

BusinessWorld, 30 October 2010

Vishal Krishna

Debt-laden Subhiksha’s hopes of resurrection seems to have reached a dead end. The retailer received a serious blow this week with the Madurai bench of the Madras High Court rejecting its merger proposition with Blue Green Constructions and Investment (BGCIL), a Madras Stock Exchange-listed company. A merger would have helped the combined entity list on the Bombay Stock Exchange and the National Stock Exchange and raise fresh capital. Subhiksha owes at least Rs 800 crore to its creditors, which include Kotak Mahindra Bank, ICICI Venture and ICICI Bank. The court squashed Subhiksha’s appeal stating that any more money being raised would jeopardise the interest of the investors.

The last time BW spoke to R. Subramanian, CEO of Subhiksha, about a year ago, he said, “There is no better time for value retailing. We kick ourselves for having to sit out injured at this time. We have only retired hurt and will be back to bat soon.” One year since, the retailer is still retired hurt with many claiming that the company’s innings are over. Subramanian also said the merger meant quick access to the consumer durable retailing business where BGCIL had done a lot of spadework, and that BGCIL would give Subhiksha access to more equity.

The retailer has not been a bad venture for all its investors, though. For instance, ICICI Venture, which invested four times in Subhiksha in eight years, has taken out Rs 270 crore on total investment of Rs 90 crore, claims Subramanian.

Subhiksha is not the only one stumbling. Vishal Retail — currently sitting on a debt of over Rs 700 crore — is negotiating with US-based TPG Capital and Chennai’s Shriram Group to sell its assets. The company reported a net loss of Rs 19 crore in the quarter ended 30 June and a loss of Rs 414 crore in 2009-10. Apparel seller Koutons Retail is also facing cash problems. Its suppliers filed winding-up petitions in the Delhi High Court this week, after they failed to recover their dues. The company’s current debt stands at Rs 660 crore. Koutons’ net profit fell 49.9 per cent to Rs 5.51 crore in the quarter ended June 2010. The retailer’s stock has also tumbled over 60 per cent in the past one month on worries that the promoters have pledged more shares. The retailer has close to 1,400 stores across India.

Managing rents, servicing a large number of stores and inventory build-ups have virtually stalled retail’s growth in India. But, analysts say, many are beginning to think practically. “Retailers have realised that they have to build the current set of stores and lead them to profitability and expand when the first task is achieved,” says Abhishek Malhotra, partner at consulting firm Booz & Company.

But core challenges will be there. “Undercapitalisation is the bane of any business, but particularly for retail,” says Devangshu Dutta, CEO of Third Eyesight. He says retail is lighter on fixed assets than businesses such as manufacturing and infrastructure. This makes raising secured debt difficult.

Others think organised retail is a playable game for cash-rich conglomerates only. “The retail business still needs deep pockets and it is the larger firms — with other large business interests — that are surviving,” says Pinakiranjan Mishra, national leader of consumer practice at Ernst & Young. This trend is clearly noticed with Reliance Retail, Aditya Birla Retail and Pantaloon Retail consolidating their respective businesses for better capital efficiency.

As far as Subhiksha is concerned, it is fast becoming a good case study for what not to do in retail business. Or, in other words, biting off more than one can chew.

(This story was published in Businessworld Issue Dated 08-11-2010)

Business Standard
Mumbai, October 25, 2010
Raghavendra Kamath

McDonald’s has ambitious plans to become a breakfast destination as well.

After wooing customers with happy meals and extra-value meals, Big Mac has added breakfast to its menu, which it believes will keep the chain "ahead of competition".

After trial runs in a few Mumbai and Delhi restaurants, McDonald’s has taken over two years to formally launch the breakfast category, which both the chain and analysts call a challenging segment to be in, given the Indian habit of having breakfast at home.

"Most Indians prefer to have their breakfast at home and it is a challenging job to change that habit. But we clearly see an opportunity in this segment. We feel breakfast will see the kind of success we have seen in burgers," says Amit Jatia, managing director, McDonald’s India, west and south.

And that opportunity is big. Globally, breakfast contributes 25 per cent to McDonald’s revenues, and in south east Asia, it accounts for 12-15 per cent.

So, the chain is gearing up for the launch of its breakfast menu "patch by patch" in all metros and then Tier-II cities. For starters, the 14-year old McDonald’s India runs 192 restaurants in the country. In the next three years, the chain plans to sell its breakfast menu in nearly 70 per cent of its restaurants.

It has introduced a dozen items such as chicken Mexican wrap, egg muffin, paneer salsa wrap and salad sandwich, priced between Rs 20 and Rs 72.

Retail consultants say McDonald’s bet may pay off given the changing food habits. "The shift from Indian breakfast to western has been happening for a while as people are getting used to western snacks and the number of those who are eating out is increasing," says Devangshu Dutta, chief executive, Third Eyesight, a business consultancy. The acceptability of western breakfast is enough to give McDonald’s a critical mass in this segment, says Dutta.

Adds Debashish Mukherjee, principal at retail consultancy AT Kearney: "Though the breakfast concept is ahead of its times, I think it is a step in the right direction."

But isn’t two years a long time for experimenting in a market which is very dynamic? Jatia does not think so. "We wanted to make sure the pricing, menu and offering is right and match the taste of our customers," Jatia says.

Further, the chain has been making its restaurants "breakfast-ready" over the last six months, investing around Rs 10-15 lakh on new equipment per restaurant and changing the layouts of the kitchens, and Rs 1 crore on the supply chain.

Other than supply chain, Jatia says the chain is investing Rs 40 crore in the next one or two years to be able to offer breakfast across all its restaurants.

Though consultants endorse the success of McDonald’s as a value for money restaurant with right pricing, location, branding and delivery strategies, they also point out the growth of other quick service restaurants (QSR) such as KFC, Pizza Hut, Dominos which can pose a tough competition.

"Though McDonalds had a head start, how the competition plays out will be a critical factor," says Mukherjee. The QSR market has a lot of unbranded players.

Jatia says the chain has many aces up its sleeve. For example, pricing, which is the chain’s biggest USP. Even when food inflation was at its highest, prices were almost flat at McDonald’s. "We had increased prices in three-four items, but quickly brought them down,” he says.

He recalls how the chain brought down the prices of extra meals – McVeggie and McChicken – to Rs 85 and Rs 96 from Rs 110 and Rs 120 respectively in September last year.

Apart from breakfast, Jatia says Big Mac has big plans on expanding the chain and introducing new items in the menu over the next three years. The chain plans to open 250 new restaurants in the next three to four years with an investment of Rs 750 crore on the front end, excluding the real estate charges, and Rs 250 crore on the back end.

Around 20 per cent of the new restaurants will be drive-through. The current num ber is 40.

But unlike other chains, McDonald’s is focusing on a cluster strategy. For instance, in 2006, Bangalore had two stores; today it has 29. "I don’t want to enter a new region until we have serviced the current territories fully. It helps us in getting better economies, better branding, consumer connect and so on," he adds.

Analysts believe the new stores will help the chain in achieving its stated target of doubling turnover every three years. The chain is also working on bringing McCafe, its chain of coffee shops, to India in the next couple of years.

On the menu front, plans are to add new categories such as desserts, beverages and products at premium price points. McDonald’s is also launching its MFY (made for you) system across all stores. In MFY, whenever a customer orders at the counter, it goes live to the kitchen, and it has to be delivered within a minute.

Jatia says the chain is running a profitable business and delivering a high double digit same store growth consistently for the last six years. It broke even two years ago at the store level.

(This article originally appeared in Business Standard on October 25, 2010)

Business Standard, New Delhi, October 18, 2010

Amit Ranjan Rai

Five years ago, Woodland, the maker of outdoor shoes and apparel, with a flourishing business in the country’s metros, decided to test waters in Tier 2 and Tier 3 cities. It opened a store each in the retail high streets of Jaipur and Udaipur, both well-known, well-to-do cities. Woodland had much expectation. But the stores flopped — there just weren’t enough buyers — and had to shut. Woodland then decided to stay away from smaller cities for a couple of years. No more experiments, no more testing waters was the message from the head office in Delhi.

year-and-a-half ago, amidst the buzz about the potential of Tier 2 and Tier 3 cities, Woodland decided to venture into these cities once again. This time it tweaked its strategy a bit. Instead of opening the regular 300 square feet stores, it decided to go full throttle taking up entire buildings or up to 30-40 per cent of all the space in a mall, and converting them into spacious, almost large-format stores. “We decided to make the Woodland store a landmark in such cities. Nothing works like word of mouth in small cities and towns. If people see a big store which stands out, it becomes a talking point and they make sure they visit it,” says Woodland Managing Director Harkirat Singh.

For the time being, the strategy seems to be working. The response from such stores has been encouraging. But Singh admits what’s also working in his favour is a sea change in the retail landscape and consumer attitude in the past two or three years. Smaller cities are buzzing with retail activity. Branded stores are coming up left, right and centre, and the consumer is no longer shy of opening his wallet. “The consumer in these cities is now ready. The youth is becoming brand conscious, and we see them much more open to spending,” says Singh.

No doubt, Woodland has been on an expansion spree in Tier 2 and Tier 3 cities. While currently 60 per cent of its 300-plus stores are located in metros and 40 per cent in smaller cities, Woodland wants this to change to 50-50 in the next one or two years, and then gradually to 40 per cent in metros and 60 per cent in smaller cities. “In the past two or three months alone we’ve opened stores in Varanasi, Allahabad, Vapi, Sangli, Thrissur and so on. Unlike five years ago, many of these stores have been doing well from day one. Our plans for the next two to three years will be concentrated on Tier 2 and Tier 3 cities,” says Singh.

“Certainly there is a big difference in real estate costs when it comes to Tier 2 and Tier 3 cities versus the metros. But what companies like Woodland will have to be careful about is that not every such city is going to work. Not every location drives enough demand for such products for the business to sustain. Yes, latent demand is there in many cities and locations, but Woodland will have to carefully evaluate the sites before selecting them,” says Devangshu Dutta, chief executive, Third Eyesight, a retail consulting firm which has been tracking the sector in Tier 2 and Tier 3 cities.

But that’s a significant shift for a brand which has primarily been catering to the urban middle class in big cities for almost two decades. Woodland is a sub-brand of Aero Group which started as a winter boot manufacturer in Quebec, Canada in the 1950s. Called Aero America then, it manufactured outdoor winter boots for Canada, Russia and Europe. The company entered the Indian market with Woodland in 1992. With a factory in Sonepat, it catered primarily to Delhi and some other large cities in North India.

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