admin
February 11, 2010
Reporting
by Aniruddha Basu; Editing by Ramya Venugopal
Reuters,
Thu Feb 11, 2010
Utilisation levels are high and given the growth in domestic consumption it would be very encouraging if the allocation under TUFS is increased as textile makers are investing more," said Sunil Khandelwal, Chief Financial Officer at Alok Industries Ltd.
The textile industry had been battered by the economic slowdown for much of 2008/09 but has begun to recover in the past 2-3 quarters with major textile firms such as Alok Industries, Raymond and Century Textiles & Industries Ltd reporting higher sales and profits in Oct-Dec.
But analysts said that the government needs to quicken disbursement of funds as there was no clarity on how soon a unit can receive the funds under TUFS, which is essentially a low interest-rate loan.
"TUFS is not a grant, the interest waiver is what you are getting. A fundamental issue is to see how the funding is disbursed and how long it takes for the units to get the waiver," said Devangshu Dutta, chief executive, Third Eyesight, a textile consultancy.
The industry has also asked for removal of duties on man made fibres to increase utilisation in the country, CITI said in a statement.
Currently there is a ratio of 62:38 in the utilization of cotton and man-made fibres in the country, as against the global ratio of 40:60, it said.
VALUE ADDITION
Excise duty on man-made fibres had been increased from 4 percent to 8 percent in the last annual budget.
The industry has also asked that liquid fuels used by textile and clothing units for captive power generation be exempted from duties to encourage them to cut energy costs, said D.K. Nair, secretary general of CITI.
"The thought process needs to be on value addition rather than capturing percentages of low value items," Third Eyesight’s Dutta said.
Industry participants are also asking that export credit for textile and clothing units be provided at a uniform rate of 5 percent interest. Export credit is currently provided at about 8 percent interest.
"They may get more export benefits, but I don’t expect any major stimulus to be given this time. Overall the budget would be slightly conservative or negative," said an analyst from a Mumbai brokerage who declined to be named.
The budget will be presented on Feb 26.
admin
January 23, 2010
By
Vishal Krishna
Businessworld,
January 23, 2010
An upwardly mobile population makes Bangalore’s suburb Jaya-nagar a lip-smacking catchment area for organised retailers. The significance of this ‘must-have’ location was not lost on Indian retail’s biggies Reliance Retail, Big Bazaar, Aditya Birla Group and Spencer’s Retail. By 2007, all four had already set up 5,000-6,000 sq. ft supermarkets in the area. But the stores were still to break even when they had to deal with a new contender. Dubai-based Micky Jagtiani’s Landmark Group started its 70,000 sq. ft hypermarket in collaboration with Dutch retail chain Spar in the locality in 2007.
Just a year after Jagtiani built his first store in India, the aftershocks of the global meltdown hit the Indian retail industry. The tight money conditions saw even the big Indian retailers slow down their expansion plans. One would have assumed that Spar, being a newcomer, would find the going tough in this period as well. But in the midst of the slowdown, Spar has added one hypermarket and one supermarket in Bangalore. Another hypermarket is expected to come up in March. In fact, managing director Viney Singh is preparing a nation-wide plan to launch five more stores by the end of the year and at least 10 in the following four years.
| SPAR |
| MD: Viney Singh. Promoted by
Micky Jagtiani Stores: 3 (30,000-50,000 sq. ft hypermarkets) Plans: 15 stores in five years; Present in Bangalore The stores sell fresh food, FMCG products and private label food. The first retailer to own stores with large cold rooms and space to help logistics solutions |
Landmark, which also owns Lifestyle, Home Centre and Max retail chains, is among a handful of retailers still expanding rapidly after an investment storm blew through India’s $350- billion retail industry, first giving rise to a huge tide, before the inevitable ebb. In the past 48 months, local entrepreneurs pumped in $10 billion (around Rs 46,200 crore at Rs 46 to a dollar) in a dozen formats to strengthen their presence in the market as the government pondered over opening up domestic retail to foreign companies. But lack of experience, poorly conceived strategies, over-ambitious plans and a slowdown triggered by the global recession has left them all bruised and battered. Weaker retailers such as Subhiksha who over-reached, had to bite the dust. Those left standing are taking a breather for the moment.
But as the haze clears, nearly a dozen new players beyond the Big Five – Kishore Biyani’s Pantaloon, K. Raheja group’s Shoppers Stop, Mukesh Ambani’s Reliance Retail, R.P. Goenka Group’s Spencer’s and Aditya Birla Retail’s More – are moving briskly to build up significant retail empires. Most of them are small, but they have survived the worst part of the slowdown. They are experimenting with models very different from the Big Five. They may still be tweaking their models but they are confident and competitive. And more than anything else, they are proving that you need pluck, not necessarily loads of money, to weather a storm.
But can they graduate to the next level and become serious rivals to the Big Five? Can they scale up their models without hitting the same roadblocks that the Big Five did in their quest for growth? Those are the big questions facing this pack of retail enthusiasts.
It is inevitable that as they open more stores and expand into more areas, at least some of the players featured in this story will stumble. Some will fade away. And some opportunistic ones have already started negotiating to sell out at a profit to a bigger player instead of trying to build a long-term business. But at least a few of them are showing the determination that market leader Kishore Biyani wore five years ago.
Their reasonable successes, despite varied interests and diverse strategies, infuse hope that India’s choppy retail industry may be settling down.
| DANGER ZONE In a highly competitive market, smaller retail chains have cracks in their business models |
|
Behind The Scenes
Interestingly, hypermarket player Spar is an exception in this lot of new players because, first, it has a retailing pedigree, and second, because it is backed by a big group with deep pockets. Most of the others are product companies that have now got into the retail business. A few are backend specialists who have logically forward integrated to set up retail stores.
Take the case of Bangalore-based Uday Singh whose Rs 200-crore hybrid seeds company Namdhari Seeds got into retail sale of premium fruits and vegetables through Namdhari Fresh. Singh, who is the parent company’s managing director, says he was so busy building the seeds business that retail was just a natural extension and nothing more. Though food retailing can take more than five years to break even, Singh says the Rs 30 crore-Namdhari Fresh turned cash positive in 2009. Having tasted blood, he now plans to expand the 20-store chain in Bangalore to 100 in the next two years.
However, the past couple of years were tough for Namdhari Fresh, which had to shut eight stores in Delhi when the state government clamped down on use of non-commercial property for commercial purposes. “It was a big loss for us. But we are still growing by 30 per cent,” says Praveen Dwivedi, CEO of Namdhari Fresh.
On similar lines, Delhi-based REI Agro – a rice producer and exporter – hived off its retail entity REI 6Ten in 2007 and took it public. Leveraging its connect with farmers, the company launched 21 stores of 1,000 sq. ft each stocking private labels in rice, staples, spices and other items. “The concept behind 6Ten was to create not a monthly grocery store but rather a daily needs store,” says Danish Beg, REI Agro’s assistant finance controller, adding the retail business reported a net profit of Rs 22 crore in 2009. The company now has 300 stores across 10 cities such as Delhi, Nagpur and Kolkata.
| 6TEN |
| Promoter: Sanjay and Sandip
Jhunjhunwala Revenue: Rs 800 crore Stores: 300 in all (supermarkets and convenience stores of 700-1,100 sq. ft) Present in 10 cities including Delhi and Mumbai The listed entity is a fresh food and and FMCG retail chain |
Similarly, in 2007, when denim and apparel manufacturer Arvind Mills restructured its loss-making apparel retail business into three kinds of stores – Megamart (150 stores), Flying Machine (60) and Arrow (70) – they seemed to have hit the sweet spot. The 1,500-sq. ft stores with distinct identities – Megamart for affordable, mass-market products from multiple brands, Flying Machine for trendy apparel and Arrow for the executives – was just the formula. The retail and brand business now generates Rs 550 crore, about 15 per cent of Arvind Mills’ revenues. Suresh J., CEO of Arvind Lifestyle Brands and Arvind Retail, says the retail business turned cash positive in 2009. “The business is growing by 40 per cent and we are planning to add over 100 stores by next year,” he adds.
| ARVIND RETAIL |
| CEO: Suresh J. Revenue: Rs 330 crore Stores: 280 (hyperand small-format) Plans: 100 more stores in two years; Present in Bangalore; The apparel retailer houses 80 per cent private labels along with other brands |
His main focus is on opening Megamart stores across India. “We have a symbiotic relationship with the larger retailers. We follow a market saturation strategy before moving to new geographies,” says Suresh. Analysts say Arvind’s strategy of targeting 30 tier-3 cities such as Nashik and Namakal, has been the key driver behind its retail business.
Going the same direction is Delhi-based apparel maker Koutons Retail, which chose the franchisee route to ramp up to 1,360 stores in 10 years, more than 400 in the past four years. It owns 100 of these 1,000 sq. ft-stores and plans to open another 100 company-owned stores in two years. “The franchisee route is yielding results. It has not only reduced costs, by minimising capex, rentals and employee costs but has also led to an increase in sales since franchisees make an extra effort for their sales incentives,” explains D.P.S. Kohli, chairman of Rs 1,000-crore Koutons Retail. The retail chain, however, is yet to break even operationally.
| KOUTONS RETAIL |
| Chairman: D.P.S. Kohli Revenue: Rs 1,000 crore Stores: 100 (small format 1,000-1,500 sq. ft) Plans: 100 more stores by 2011 Present in multiple cities; Manufacturer-turned-retailer of apparel |
An exception from the food and apparel pack is the Bangalore-based Rs 400-crore mattress manufacturer Kurlon. For long, the company used its 5,000 franchisees to sell mattresses. However, in 2008, Kurlon ventured into organised retail for the first time in Bangalore and Mumbai with 17 Kurlon Nest stores, which sell everything from mattresses to bed linen. The idea is to have a one-stop shop for all home furnishing needs. “People have never slept more than they did last year during the recession,” quips Kurlon chairman T. Sudhakar Pai, referring to the job losses during the slowdown. Pai says the business grew 35 per cent in this phase. He now expects to open over 100 stores in three years and has targeted a break even in two years.
| KURLON NEST |
| Promoter: T. Sudhakar Pai Stores: 17 (large format — above 5,000 sq. ft) Plans: 100 more stores. Get funds for expansion through private equity or by listing by the end of 2010 Present in Bangalore; Sells furnishing, mattresses, linen and even custom-made furniture |
Supermarket Warriors
Neighbourhood supermarkets is a business where the Big Five have mostly been humbled. They raced to set up hundreds of stores, but have had to write down several thousand crores from their balance sheets, freeze expansion and overhaul strategy. Among them, Reliance has shut 50 supermarkets, Aditya Birla Retail 70, Spencer’s 150 and Pantaloon Retail 10. The reasons for the closures have varied from government or political opposition, poor choice of location, bad logistics and other operational issues.
Analysts such as Third Eyesight’s Devangshu Dutta believe the Indian customer is disloyal to organised retail brands and, therefore, the supermarkets cannot compete with kirana stores, in the short term. Indian retail’s numero uno Kishore Biyani told BW he was sceptical about small 2,000 sq. ft stores and stopped expanding his small format Food Bazaar in 2008. But small may well be beautiful as far as many of the newcomers are concerned.
A case in point is the Delhi supermarket chain Big Apple promoted by Express Retail that belongs to Lalwani Holdings and Chaurasia Group, which have interests in tobacco and real estate. Starting out in 2005, Express Retail had set up 65 stores with an average size of 1,500 sq. ft and an initial investment of Rs 100 crore. High rentals forced it to shut 20-odd stores in the past two years, shaving off 10 per cent from its topline. However, Express Retail’s CEO, P. Anand Murthy, claims it has turned cash positive in 2009. “Skyrocketing rentals have always been a concern. If a location does not reap profit for us, why would we keep it open?” says Murthy. He adds that each closed location had its own strategic issues – no parking space, strong competition from kirana stores, among others.
| BIG APPLE |
| Promoters: Lalwani Holdings
and Chaurasia Group. P. Anand Murthy is the company’s
CEO Revenue: Rs 170 crore Stores: 42 (convenience and mini-supermarkets of 1,500-3,000 sq. ft); Present in Delhi The food and FMCG chain has direct tie-ups with farmers for fresh supplies |
Another company that jumped on to the supermarket bandwagon is the vegetables, fruits and FMCG retailer Spinach, a subsidiary of real estate major Wadhawan group. “We tried the farm-to-fork connect,” says Kapil Wadhawan, chairman of Mumbai-based Wadhawan Holdings, which started the Spinach chain in 2006.
The group planned an investment of Rs 300 crore to expand Spinach, which has close to 50 stores across India. They have targeted a three-year break even with their five brands in retail – Spinach, Sangam, Sabka Bazaar, Maratha Stores and Smart Retail. The Sangam and Maratha Stores cater to the specific needs of Maharashtrians. Smart Retail is not very different from Spinach, but is smaller in size with 1,000 sq. ft stores. Sabka Bazaar (bought for Rs 100 crore in 2007) again targets local catchment areas. The average size of the stores is 2,500-3,000 sq. ft and their private labels bring in 20 per cent of the business. The group is still trying to perfect its act, with some stores doing well while others showing patchy performance.
| SPINACH |
| Promoter: Kapil Wadhawan of
Wadhawan Holding Stores: 220 including other brands average size is 2,500-3,000 sq. ft) Present in Mumbai and Delhi Sells fresh food and FMCG products. Has 20 per cent private labels |
One player who thinks the experimental phase is over and is willing to pull the throttle is Delhi-based Samir Modi’s venture 24×7. The chain’s USP is convenience stores that are open round-the-clock. Modi, son of Godfrey Phillips group’s chairman K.K. Modi, says he has experimented with the formula in his four outlets in Delhi. One of the stores has downed shutters but Modi remains unfazed and is planning to expand to 100 outlets in 18 months.
| 24×7 |
| Promoter: Samir Modi of Modi
Enterprises Stores: 3 (1,000 sq. ft convenience stores) Plans: Rs 100 crore additional investment and expanding to 100 more stores in two years. Plans to break even in three years; Present in Delhi; Is an FMCG-based convenience store |
“Nothing like this has existed in the country. Such outlets are born out of a change in lifestyle,” says Samir Modi. 24×7 targets those who work till late in the night. The business was set up with an initial investment of Rs 4 crore but is going through a Rs 100 crore expansion. “There was a need for convenience stores for working Indians, based on the western model,” he says.
The Pitfalls Ahead
Before we understand why the new players are so upbeat, we need to understand why some retailers have floundered. Analysts say the food and apparel businesses are all about rotating inventory. But food is tougher because of its complex supply chain. If a retailer is sourcing directly from farmers, investing in a cold chain is imperative. Then, the logistics of sending the produce to the many smaller stores from a warehouse becomes a nightmare for quality management. “Fuel cost and pilferage is the problem,” says Ajay D’souza, head of Crisil Research in Mumbai. Combine this with high operational costs and the lack of cash to manage the working capital cycle, and you will understand why Subhiksha’s 1,600-store chain collapsed.
Other organised retail chains have also run into funding and cash flow problems once they reached a particular scale. Nilgiri’s is another such troubled supermarket chain. It has over 90 stores in Tamil Nadu, Karnataka and Andhra Pradesh. Recently, it faced management troubles with Actis, the UK-based private equity firm, and the promoter family of M. Chenniappan getting into a tussle over the sale of property worth Rs 90 crore and a rights issue of Rs 35 crore that could reduce the promoters’ stake by 2-3 per cent. Actis owns 65 per cent of Nilgiri’s, while the family owns 35 per cent.
| NILGIRI’S |
| CEO: Vikram Seth Stores: 90 (supermarkets Of 3,000-5,000 sq. ft) Plans: 200 more stores in two years Present in Chennai and Bangalore; The fresh food and FMCG retail chain operates mainly through franchisees |
A member of the promoter family told BW that Actis had gone ahead with the rights issue without the family’s approval. But, sources close to Actis say that the family was kept informed and the rights issue was necessary to bring in fresh capital needed for expansion. Sources add that Actis aimed at turning around the retail chain in four years before planning its exit. The promoter family sold 65 per cent stake to Actis in 2006 for Rs 300 crore. Actis expanded the supermarket chain to over 90 stores through franchisees and plans to open 200 more stores in three years. While Actis declined to comment on the situation, the Chenniappan family says that it is losing control over the chain it had initiated. The family’s move to the company law board (CLB) to stop the rights issue was vacated. The CLB has asked the company’s management to provide details of the utilisation of the funds from the rights issue. A copy of the CLB order is with BW.
Searching For The Mantra
The ones who seem to have a better shot at moving to the next level of play have one thing in common – they are integrated players. Invariably, it is the strength derived from their integration that has saved them from collapsing in poor market conditions.
Namdhari, for instance, has been working with farmers for 25 years. The company had prior experience of managing the fruits and vegetables supply chain, and has ended up building the retail chain around that. The company owns 18 refrigerated trucks and uses the cold chain expertise to service new markets across India. “We have evolved into modern retail based on a strong backend,” says Dwivedi of Namdhari Fresh. He says why many have failed is because modern retailers tried to get into the retail business without any experience or understanding of backend operations, especially of how farm economics worked.
| NAMDHARI FRESH |
| CEO: Praveen Dwivedi. Promoted
by Uday Singh, MD of Namdhari Seeds Revenue: Rs 30 crore; Stores: 20 (2,000-3,000 sq. ft mini-super markets) Plans: 100 stores in two years; Present in Bangalore; Also supply to the UK |
Similarly, Arvind Mills and Koutons already had established supply chains that they had mastered over several years. In apparel private labels, it is each individual store that sends its requirement to the manufacturer and the supply chain is managed seamlessly. It is not as complicated as the food segment where you need to maintain freshness of the products. REI Agro and Kurlon are two organisations that have built their retail chains around their core products of rice and mattresses but have expanded the offerings in the store to make it a worthwhile trip for the shopper. While REI’s stores stock spices, lentils and the entire range of FMCG and food products, Kurlon’s stores stock bed linen, mattresses and even custom-made furniture.
Some of those that did not start off controlling their supply chains have ended up doing so. For instance, Spar – which has a large selection of fish and meat to cater to expats in Bangalore – has seven cold rooms in each of its stores. It also has tie-ups with around 80 farmers (for vegetables and grains) in Hoskote, near Bangalore, and also with small poultry farms and meat suppliers. Delhi-centric Big Apple’s USP is its direct tie-ups with farmers in Haryana, Rajasthan, Himachal Pradesh and Uttar Pradesh for fresh supplies of items such as rice, pulses, fruits and vegetables. “Local connect is very important for retailers and that is where the business is – making brands affordable to an aspiring segment of the population,” says D’Souza of Crisil. Spinach has also integrated heavily. About 20 per cent of Spinach’s vegetables and fruits are sourced from farms, the rest come from mandis.
“It is all about pricing. Discounts should compensate with people buying other things to make the store profitable,” says Wadhawan. Spar also differentiated itself from other crowded supermarkets through its store design. It left more space between aisles, similar to Spencer’s. Spar’s 7-10 feet space between the racks is among the widest in the country.
Defining Moment
The question is: having come this far, will the newcomers get into the next round easily? The new retailers may have seen through the slowdown but they are not yet above water. Many, such as Koutons, are not even cash positive.
As retail is a volume game, the smaller retailers cannot remain hidden in a geography or industry niche and hope to survive. Only when they scale up will they be fully exposed to the vagaries of the cutthroat retail business.
The biggest hurdle is financing. "Retailers still have a difficult time raising loans for new projects. It will remain a business driven by equity funding," says Pinakiranjan Mishra, national leader of retail and consumer practice, Ernst & Young. Pantaloon CEO Biyani says that it was only the liquidity squeeze that killed some retail entrepreneurs last year. "If money could have been raised on time, then retailers would not have been in trouble," he adds. REI’s 6Ten has had to curb its ambition too. Promoters Sanjay and Sandip Jhunjhunwala had planned to invest Rs 1,500 crore to open more than 1,000 stores. But they have stopped at 300 because cash to expand the retail business has become hard to come by.
The organised retail industry could only raise Rs 2,000 crore through initial public offerings (IPOs) and the total private equity investment in Indian retail was close to a dismal Rs 2,000 crore this decade, says Pankaj Jaju of Enam Securities. "Very few Indian retailers will become large because funding is not available for the long term," says Jaju. He adds that the biggest bottleneck to retail was that private equity investment from abroad was treated as foreign direct investment (FDI) by the Indian retail policy and this was turning out to be a bottleneck for the growth of the industry. Bankers stay away from the retail business because they have no collateral to fall back upon if the retailer goes out of business. In the case of Subhiksha, bankers and private equity players could not recover the money as the business had no real assets. The real estate was owned by landlords, and the only assets were furniture and fixtures, whose value cannot cover the defaults for the recovering bank.
Their other big challenge in going national will be managing the supply chain. While the new players have exercised a tighter control in smaller geographies, their skills in managing nation-wide logistics and supply chains are still untested. Whether a Big Apple or Spinach can manage their chains as efficiently if they grow manifold and start operating in distant parts of the country is still to be seen.
Analysts such as Mishra believe that 2010 will bring relief to retailers from exorbitant rentals (which account for as much as 20 per cent of costs for some retailers), which are projected to fall.
The defining trend in the year, however, will be consolidation. "There are many lesser known retailers who want to sell. There is good valuation for people who have created scale and their brands are only known in niche geographies," says Deepak Srinath, director of Bangalore-based Viedea Capital Advisors, which advises smaller business houses that set up retail chains. Srinath says the industry was looking to consolidate because entrepreneurs cannot scale up owing to scarce institutional funding for expansion and managing their working capital. Therefore, retailers who are running out of cash are merging with larger players to survive.
| AGAINST GOLIATH Some smaller chains are holding up better than the big players in generating revenue |
| BIG PLAYERS: Spencer�s Retail: Rs 9,600 per sq. ft Shoppers Stop: Rs 8,500 per sq. ft Pantaloon: Rs 8,000 per sq. ft Trent: Rs 7,500 per sq. ft NEW PLAYERS: Arvind Retail: Rs 50,000 per sq. ft 6TEN: Rs 26,000 per sq. ft Big Apple: Rs 22,000 per sq. ft Namdhari Fresh: Rs 7,500 per sq. ft Some smaller chains are holding up better than the big players in generating revenue |
"The organised retail space has very little differentiation. Most business models are similar. However, models are still evolving in the country and there is ample opportunity for new players," says Crisil’s D’souza. Faced with the real test of character, the new retailers will have to build scale this year. After all, the rules in this fiercely competitive industry are such that only those who can make that transition will be able to see the light of the in 2011.
[With inputs from Suneera Tandon]
(Copyright: Businessworld)
admin
January 3, 2010
By
Ranju Sarkar
Business
Standard, New Delhi January 03, 2010
Large retailers are trying to make their small food and grocery stores viable by trying out new ideas. While some like Reliance Retail are converting most of these stores into a deep- discount value format, RPG Group’s Spencer’s is looking at the franchising route.
Anand Raghuraman, partner, The Boston Consulting Group, said it is extremely tough to make money on small food and grocery stores. “It’s a crisis situation, and retailers are trying to find answers to some fundamental questions.’’ The problem is that retailers are straddled with a large base of small food & grocery stores — nearly 700 of them.
Reliance’s retail business reported an aggregate loss of Rs 557 crore on revenue of about Rs 4,000 crore for the year ended March 2009. Half of these losses came from the food and grocery chain, Reliance Fresh, which reported a net loss of Rs 249.30 crore on revenue of Rs 1,778.06 crore; the rest came from other formats.
Retailers have been trying to figure out how they can make the small stores viable. Industry sources said that Reliance Retail is now looking at a heavy-discount format; the stores will offer very little service, no air-conditioning but prices will be much lower than kirana stores. A Reliance spokesman did not respond to an emailed query.
Similarly, Spencer’s is looking at franchising these smaller stores. Devangshu Dutta, the chief executive of Third Eyesight, a retail consultancy, said this can work if the franchisee is involved in the operations. ‘‘In food, the margins are very low. If it’s a good site, you can offset lower margins with higher throughput,’’ he said.
Franchising has worked well in footwear and apparel retail where margins are higher at around 25 per cent. In food and grocery, the average gross margins are around 15 per cent. If food stores can achieve double the sales of apparel stores, they could be viable for franchisees. A brand like Spencer’s would be able to drive-in footfalls.
A franchisee could be someone who has a space to rent out, an existing retailer, or a commodity trader entering the retail business. It can also be an existing kirana store owner who will gain from the marketing and the sourcing support of a retail chain. ‘‘There are franchisees who have 15 to 30 outlets and handle four to five brands. But for it to work in food, the franchisees need to be active and involved in operations,’’ said Dutta.
If they are not, wastage, error and theft (which is very high in India) can eat into the net margins, and make the stores unviable.
admin
January 1, 2010
By
Sunitha Natti
ExpressBuzz
(Indian Express), January 1, 2010
As the New Year celebrations wear out sooner or later bringing to the fore the harsh realities confronting the society today, the first thing that is likely to hit the denizens hard is the food inflation that is rising sharply.
Even as political unrest continues in the State, no one seems bothered about the spiralling food prices, except the common man on either side of the divide.
As a result of frequent bandhs, prices of essential edibles such as vegetables and fruits are hitting the roof.
Sample this: Tomatoes in both neighbourhood kirana stores and organised retail outlets — including Reliance Retail’s Fresh, Aditya Birla’s More, Big Bazaar, Heritage Retail’s @Fresh, Spar and Spencer’s Retail — costed Rs 15 per kg on Tuesday but increased to Rs 17 per kg on Thursday. Similarly, prices of onions and green chilli spiked from Rs 25.50 per kg to Rs 27 and Rs 20 per kg to Rs 21 respectively in just two days.
“Because of bandhs, frequency of trucks and lorries transporting vegetables from farms to mandis and outlets had come down. As a result of inadequate supply of some vegetables, increase in prices is only natural,” a senior official from More told Expresso.
While most retail chains do have robust inventory management and cold-storage facilities that can preserve vegetables for seven to ten days, due to continuing agitations, which began at the end of November, retailers feel that there is an impact on the overall supply-chain and distribution network.
“Typically, vegetable and fruit prices are fixed based on a combination of factors such as production, supply, demand, transportation and storage costs. Even if any of the factors gets disturbed, prices shoot up,” said Devangshu Dutta, CEO, Third Eyesight, a Delhi-based consulting firm focused on retail and consumer products.
Interestingly, some of the organised outlets, in a desperate bid not to lose customers, are selling raw tomatoes and overripe cucumbers at reduced prices. “Retail outlets dealing with perishables are severely hit due to the ongoing political crisis in the State. It causes customer inconvenience besides posting losses,” said K S Venugopal, Chief Executive (customer operations), Reliance Retail.
admin
January 1, 2010
By
BSReporters / Mumbai / Kolkata
Business
Standard , January 1, 2010
Tie-ups with international retailers and brands, emphasis on profitable growth and increased focus on private labels are set to be key trends in the Indian retail sector in 2010, say retailers and consultants Business Standard spoke to.
Though foreign direct investment in single-brand retailing and cash-and-carry ventures are allowed along with franchising and licensing pacts as of now, 2009 saw most of the foreign retailers focusing on manage the business in their home countries, where they were seeing declining sales.
“In 2010, a lot of international retailers and brands are most likely to look at India as global markets have stabilised and the Indian economy has proved to be better than most other countries. These factors give a lot of confidence for them to invest in India,” said Arvind Singhal, chairman of Technopak Advisors, a business consultancy.
Wal-Mart has set up its first unit in the country and Tesco, the UK’s largest retailer, is providing back-end support to Tata’s hypermarket Star Bazaar, Carrefour is said to be talking Kishore Biyani’s Future Group for a possible tie-up.
Industry sources said a number of international brands are also holding talks with Future Group, Reliance Retail and Spencer’s Retail for tie-ups.
Devangshu Dutta, chief executive of business consultancy Third Eyesight, believes franchising and licensing agreements could be a major avenue used by overseas brands to enter the country.
“Our research shows that 45 per cent of fashion and lifestyle brands, which have entered India in the recent past, have used this route because it gives a quick entry and allows tie-ups with partners who have good real estate capabilities,” Dutta says.
A profitable growth
Though retailers such as Reliance Retail, Aditya Birla Retail
and Spencer’s Retail closed hundreds of stores or shifted
stores to economical locations in 2008 and 2009 and took various
steps to cut costs, they are likely to continue to focus on profits
and boosting margins in 2010.
Shoppers Stop’s top management took 15 per cent salary cuts, while 300 floor-level staff were not replaced. The company shrank its office space 20 per cent and corporate office expenses by 40 per cent to cut losses.
Delhi-based Vishal Retail, which has been battling cash woes and mounting debt, relocated 25 stores in the financial year 2009 and 10 stores since April 2009. It is now planning to close 20 more and go only through the franchisee route.
“In 2010, our strategy is to increase margins, reduce costs and boost revenues. In 2009, we mostly focused on controlling costs,” says Thomas Varghese, chief executive officer of Aditya Birla Retail, part of the Aditya Birla group. “We will watch the situation and open stores,” Thomas adds.
“Retailers will not book properties at ridiculous rentals and look at private labels to boost margins. Growth with profitability is the main mantra in 2010,” says Singhal.
Private labels to rise
Most retailers like Future Group, Spencer’s Retail and Aditya
Birla Retail, among others, are stepping up their private label
plans to boost margins. The reason: Private labels in food and
groceries carry margins of 25-35, while private labels in apparel
and accessories offer more than 40 per cent margins.
Future Brands, which manages the private labels of Future Group, is expecting a turnover of Rs 750 crore in 2010 (the group’s flagship Pantaloon’s financial year ends on June 30), 14 per cent growth.
Private labels contribute 30 per cent of its sales in FMCG and 25 per cent in personal care products. The group is expanding its private label portfolio further. It is planning to launch its own brands in lingerie and a toothpaste brand ‘Sach’, according to Future Group CEO Kishore Biyani.
Aditya Birla Retail, which has more than 400 products in its private labels, plans to take its share of private labels in overall revenues from 19 per cent to 25 per cent next year.
RPG’s Spencer’s Retail is also planning to double the contribution of private labels and fashion to its overall revenues in the next couple of years.
Spencer’s plans to launch several new private labels across categories. Under its brand ‘Smart Choice’, the company will launch floor cleaners, savories and chips, wines, air-freshners and cakes in the next two months. Under its ‘Livin Smart’ brand, the company has launched categories like quilts, handloom towels, dining accessories and, under its ‘Gerat’ brand, Spencer’s recently launched a mixer grinder and plans to launch a DVD player soon.
