admin
October 30, 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)
admin
October 25, 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)
admin
October 16, 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.
(Article continues below…)
admin
October 15, 2010
MINT (A partner of the Wall Street Journal)
Mumbai, 15 October 2010
Sapna Agarwal
Indian beauty salon chains are looking to expand operations, offer cheaper services and increase the share of product sales in their earnings.
Chains such as VLCC Healthcare Ltd and Kaya Skin Clinic are opening new outlets to meet growing demand for their services.
Kaya, a chain of premium skin clinics owned by Marico Ltd, runs 81 outlets in India and nearly 20 overseas. At the beginning of 2010, it had announced a freeze on domestic expansion.
International operations contribute 45-50% of its revenue. In the current fiscal year, it has opened three stores in West Asia and one in Bangladesh. It plans to open three-five more stores in West Asia this year, chief executive Ajay Pahwa said.
In India, he said, Kaya has reworked its business model and made its services more affordable to compete with the cheaper neighbourhood salons.
"We have made the brand more relevant to more people because you have, one, services which are positioned to meet your everyday needs, also they are very affordable. Two, you have products–products are so important because at the end of the day, great skin, I believe, is a result of composition or the holistic approach," said Pahwa.
The company has identified four growth areas: everyday skincare, skin beauty, skin concerns such as pigmentation and acne, and anti-aging.
While the focus will be on everyday care, even specialized services will cost less. For instance, Kaya has brought down the average price of the so-called aqua radiance ser- vice, which it has been offering for a year in partnership with UK-based TavTech, to `1,500 from `2,000 per session, Pahwa said.
Kaya acquired Singapore- based DermaRx this year and plans to begin offering its products in India soon.
While DermaRx has a business model similar to Kaya, half its revenue comes from products–compared with 15% for Kaya, said Pahwa. Kaya will try to double this contribution to 30% in the next 12-18 months.
For the three months ended 30 June, Kaya reported revenue of Rs. 50.6 crore–including Rs. 5.1 crore from DermaRx–a growth of 14%. It incurred a decline of Rs. 4.7 crore in profits before tax.
Pahwa added that Kaya is resolute about consolidating volumes and improving sales at its existing stores in India before expanding. "Once you are able to achieve that, then it just gives you the desire to expand also."
But VLCC Healthcare, which has 150 outlets in 90 cities, has opened 11 stores in India and will add 16 more this year, said Sandeep Ahuja, managing director. The firm will also launch eight outlets in West Asia, Sri Lanka and Bangladesh.
Ahuja said VLCC Healthcare may allow franchisees to open new outlets and launch relaxation services, such as a day spa, at more outlets. "People are looking at holistic wellness solutions rather than specific individual solutions," said Ahuja, explaining customers are increasingly opting for "body shaping" rather than just weight loss service.
In July, Channel [V], the music channel, had announced a partnership with premium hair salon Juice to open [V] Juice Lite salons that would offer cheaper services than Juice. "The market for health and beauty services is estimated to be a $2.5 billion and is expected to reach $4.3 billion by 2013 on account of increasing health and beauty consciousness," said Raghav Gupta, president at retail consultancy Technopak Advisors Pvt Ltd.
Currently, organized retail accounts for just 2% of this market. But with chains expanding, this could become 8-9% in four years, he added.
"This is a fragmented, price-sensitive, thin-margins, high-attrition, manpower-dependent business," said Devangshu Dutta, chief executive at Third Eyesight, a New Delhi-based retail and consumer products consultancy, He said smaller chains with three outlets are also aiming to expand to five or 10 outlets in the next year-and-a-half. However, despite their growth plans, none of the larger companies is aggressively seeking market dominance.
(This article originally appeared in Mint on October 15, 2010)
admin
September 15, 2010
From
RETAILER, Varun Jain
September
2010
Vishal Retail is reeling under a debt of Rs 730cr; Subhiksha has already closed all their 1600 outlets; Wadhawan Retail’s ambitious retail chain, Spinach, ran out of steam in this competitive retail scenario; and Raymond’s Be: Home, a home furnishings retail format, is already a thing of past.
These are a few examples of big retailers who could not able to sustain their retail businesses, while other players struggled successfully to be on the road to recovery. Let’s do a reality check, as in what other players did right to be still in the game and what went wrong with the formers.
Faulty Expansion Plan
"Retail is a long term game, where there is no immediate success. For this a business should be capitalised keeping the long term investments and returns in perspective", opines Mr Purnendu Kumar, Associate VP, Technopak Advisors Pvt. Ltd. An expansion primarily with a debt can lead to serious troubles, and it happened with Subhiksha, he adds.
Many retail business in India, initially adopted an experimental strategy for their retail venture, in the absence of organised retail history. "It is important that for further expansion, there is a clear strategy in tune with the company’s vision. Retailers must understand the needs of their target or captive customers, and offer appropriate products through the right formats backed by appropriate services to build customer loyalty. There is a need for a strong back-end foundation in terms of merchandising and supply chain that is efficient and aligned to the targeted scale of operations", opines Ms Tarang Gautam Saxena, Sr. Consultant, Third Eyesight.
It is rather a paradox that discount retailers such as Subhiksha and Vishal Retail have run into difficulty during the business slump when they could have been thriving. Ms Saxena further feels that Subhiksha tried to do too many things for many people in its ambition to scale up rapidly. Its rapid growth across multiple product categories and through different formats clearly was not sustainable. Further, the scale of its operations (1,650 stores), making losses did not go down well with consumers. Vishal Retail may have experienced some difficulties on account of financing, but the main issue they needed to address was related to merchandising and supply chain.
Mr RC Agarwal, MD, Vishal Retail Ltd. also admits that and comments, "Coupled with the external challenge of global turmoil, our overambitious expansion plan and low consumer sentiment brought us in a challenging situation". Vishal Retail Ltd, with 170 outlets countrywide, is seeking to reschedule debt of around Rs730 crore. Café Coffee Day, the largest and the most successful café chain in the country, understand the market and its potential extremely well before taking on expansion, confirms K Ramakrishnan, President- Marketing, CCD. We gauge the catchment in terms of the number of footfalls that could be, and ensure that we can undertake conversions before we open an outlet, he informs.
Where Else Does the Problem Lie?
Wadhawan Retail, which downed shutters of their Spinach stores operating across Mumbai and Kolkata, has interests in real estate, retail, financial services, education and hospitality, and runs operations in India, the UAE and UK. They didn’t take their business too seriously, and if reports are to be believed, the caretakers of the company were busy looking after their real estate business and many suppliers backed out from their commitment with the company because of the non-payment of the bills, which were huge.
In case of food retailing, this is one segment which is very difficult to manage. "This is more so in the food and grocery business where the trade margins are lower and there is a very strong competition from the kiranas. For a retailer in this category, a proper value proposition with private labeling is the key to make the store profitable", quips Mr Kumar. What also drives a footfall in these outlets are the availability of the fresh products. Visiting many of the affected store, you will find the shelves empty with very little or nothing to choose from. Stock and supply chain were not in sync. "Having a sound supply chain and well stocked stores is an absolute must as nothing is more fatal for a retail business than disappointed customers who do not find products in the store. Having processes for the retail operation and trained store staff adhering to certain store operating principles are equally important at the front-end during the growth" explains Ms Saxena.
Be: Home which was relaunched in 2008, with the intent of selling premium fashion designer labels in soft furnishings at affordable prices, sourced from across the globe in large volumes, closed down all its four stores within two years of its operation. This can also be the result of venturing into the space which is already cramped up with major players like Future Group, Bombay Dyeing, Shoppers Stop and many more. The timing was also not perfect for a brand which is primarily an apparel retailer to venture into a new space. Thus, it becomes very important to evaluate the market before taking the plunge.
Economic Slowdown, A Spoilsport
Vishal Retail, which created history by creating 149 stores in a span of almost 10 years, bore the brunt of economic slowdown. "The recent global turmoil, which affected the Indian retail industry deeply, had implications on Vishal Retail also to some point. But Vishal Retail has stood through all the odds and managed 35% YoY Sales growth last quarter", says Mr Agarwal.
But then there are retailers who were extremely cautious during the slowdown and made very calculative moves to see the light of post-recession. Big retailers like Reliance and Spencer’s went on the back foot and let the rough weather pass. They slowed down expansion, started cost cutting and today they are back again healthy in the same old ways. For Lifestyle, recession was like a blessing in disguise and just by tweaking the price range to suit the condition, their business grew four times.
"To survive the lows in a business cycle, the retailers
should have focused on its core strengths in terms of its product
offers and formats. The retailers should have had a grip on the
performance of various product categories and pruned down the
non-performing categories", opines Ms Saxena, further adding
that the retailers that survived the economic downturn took the
market slump as an opportunity to critically analyse their operations,
closed down non performing categories and stores, and made corrections
in their back-end processes rather than amplifying the weaknesses
through rapid expansion.
