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August 19, 2024
Sagar Malviya & Faizan Haidar, Economic Times
19 August 2024, Mumbai/New Delhi
About a dozen listed lifestyle, grocery retailers and quick-service restaurants (QSRs) reduced their employee count by nearly 26,000 in FY24, retreating from the hiring spree of the past two financial years after they slowed down store expansion rate amid weakening demand.
According to their latest annual reports, the reduction was completely led by five retailers – Reliance Industries’ retail arm, Titan, Raymond, Page and Spencers – which saw their combined workforce decline 17% or by 52,000 people. The staff count was across permanent and contractual employees and adjusted for attrition in the retail segment, the second largest employer after agriculture. These retailers had a combined workforce of 429,000 people in FY24 compared to 455,000 employees a year ago.
“There is a shortage of talent and we are trying to tie up with universities so that the industry has the option to hire. Some companies might have reduced staff due to shutting of some business, but companies like Shoppers Stop and Trent continue to expand and will require staff,” said Kumar Rajagopalan, CEO of Retailers Association of India that represents organised retailers in the country.
Consumers had started reducing non-essential spending such as that on apparel, lifestyle products, electronics and dining out since Diwali 2022 due to inflation, increase in interest rates, job losses in sectors like startups and IT, and an overall slowdown in the economy. India’s retail sales expansion slowed to 4% last year after a surge in spending across segments-from clothes to cars-in the post-pandemic period, triggered by revenge shopping.
RIL in its annual report said the overall voluntary separations in FY24 were lower than FY23 and the retail industry typically has a high employee turnover rate, especially in store operations.
“Store productivity usually happens in cycles and we have seen consumers unleash their spending post pandemic, which led to retailers expanding their network or square footage. However, if some of the stores are unviable, then management teams are now highly objective, even ruthless, and will shut stores,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “In addition, any company planning to list would like to have healthy and lean operations, although we cannot pin-point it to Reliance in this case.”
Weak sales saw these retailers having the slowest pace of store expansions in at least five years at 9%. The retail sector took 7.1 million square feet of space across top eight cities in 2023, which is expected to dip to 6-6.5 million sq ft in 2024, according to commercial real estate services firm CBRE.
“There’s an enormous management bandwidth requirement to just get this entire ship running in the right trajectory, right direction, and with the relevant speed. We are thinking about what this company will be 10 years from now. And hence, if you want to reach there in a nice way without too much damage or bruises, then what is the kind of talent we need to have today in the next 2 years, in the next 3 years?” Avenue Supermarts CEO & MD Neville Noronha asked investors.
(Published in Economic Times)
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August 10, 2024
Faizan Haidar, Economic Times
10 Aug 2024, New Delhi
Japanese apparel major Uniqlo’s sales growth in India slipped by more than half to a still-strong 32% last fiscal year while its net profit expanded by 25%.
The Indian unit of Asia’s biggest clothing brand posted a net profit of ₹85.1 crore for the year ended March 2024 with net revenues of ₹824 crore, according to its latest filing with the Registrar of Companies (RoC). Uniqlo India had posted a profit of ₹68.1 crore with sales of ₹625 crore in the previous year. Its on-year revenue growth was 69% in FY23 and 64% in FY22.
Uniqlo opened its first door in the country in September 2019, but lockdowns and other constraints during the Covid-19 pandemic delayed its store expansion plans. At present, it has about 13 outlets in the country. Overall retail sales growth rate across segments such as apparel, footwear and quick service restaurants (QSR) fell year-on-year every month in FY24, reflecting comparatively weaker consumer sentiment.
Last fiscal’s comparatively slower 4-7% growth rate sustained this year as well, with May and June seeing a 3% and 5% rise each, Retailers Association of India (RAI) recently said after a survey of top 100 retailers.
“The market was sluggish for the industry as a whole last year, and that will reflect in practice every brand P&L, whether Indian or international,” said Devangshu Dutta, chief executive of retail sector consultancy Third Eyesight. “However, any brand that is committed to the Indian market as a strategic market for its future growth will take the ups and downs in its stride,” he said.
“Uniqlo’s expansion plans now include store sizes that would be smaller both in the cities it is already present in and in newer cities, which should help it tap into the demand at operating costs that are appropriate to each location,” Dutta said. Inditex Trent, Spanish fast-fashion major Zara’s joint venture with Tata that runs 23 stores in the country, saw its revenue rise 8% to ₹2,775 crore last fiscal, significantly down from 40% growth a year earlier, according to Trent’s annual report. Its net profit fell 8% on year to ₹244 crore.
Over the past decade, global brands Zara and H&M have become market leaders in the fast fashion segment in India.
Uniqlo has said India is one of the most priority markets where consumers are increasingly shifting from ‘fast fashion’ to long-lasting essentials and functional wear. As the world’s second most-populated country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing western-style clothing.
Uniqlo is globally popular for functional basics like T-shirts, jeans and woollen wear, unlike fast-fashion rivals which are associated with designs that move quickly from the catwalk to the showroom.
(Published in Economic Times)
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August 9, 2024
Manu Balachandran, Forbes India
9 August 2024
If it hadn’t been for a kind manager at Canara Bank in Malappuram district of Kerala, Shaju Thomas would have probably continued being a journalist.
It was around 2005, and Thomas had wanted a loan of ₹10 lakh from the bank, the only SME (small and medium enterprise) branch in his district, to keep his entrepreneurial venture going. The manager, impressed by the 26-year-old’s perseverance, finally decided to take a gamble on him, even though his predecessor had thought otherwise.
“It was God’s intervention,” Thomas says about that time. “If it weren’t for that money, Popees wouldn’t have existed today.” Today, Thomas runs Popees Baby Care, a business that rakes in well over ₹100 crore a year and has become one of Kerala’s best-known brands in a little over two decades. The company produces everything from clothes to soaps and diapers, retailing them through 70 exclusive outlets and some 8,000 other retail outlets across the country.
Three other stores, all in the Middle East, are being readied this year, which will see Popees go head-to-head with some of the world’s leading baby care brands in malls across Dubai, Abu Dhabi and Sharjah. “I am a believer in Indian cotton being the best,” Thomas tells Forbes India from his office in Thiruvali in Kerala. “Indian manufacturing is also the best. That gives me the confidence. I am obsessed with quality, and that’s at the centre of everything we do. Money is only secondary.”
Last year, Popees posted annual revenues of ₹122 crore and is now setting sights on a topline of ₹250 crore by 2025, before growing to ₹1,000 crore by 2027. The brand sells garments between 18,000 kg and 22,000 kg a month and employs over 1,400 people at its two factories in Kerala and Karnataka. “I am in this business not to make huge gains and profits,” says Thomas, managing director of Popees Baby Care. “We are in the business of baby care, and we must be very careful about everything we do because it involves babies. What I want is satisfaction at the end of the day.”
Last year, Thomas and his wife, Linta Jose, acquired a majority stake in Chennai-based publicly traded Archana Software Limited and renamed the company as Popees Cares Limited. Now, the privately held Popees Baby Care will merge with Popees Cares Limited, before raising private placements, as the company targets aggressive growth in the coming years.
“This year, we are not being very aggressive,” Thomas says. “We want to focus on the listing and merger. We also want to premiumise our collections because our customer profiles are changing. There are more premium customers coming into the market. What we are focussed on is an Ebidta margin of between 34 and 38 percent.” Ebitda refers to earnings before interest, taxes, depreciation, and amortisation.
India’s childcare product market is expected to grow between 13 and 14 percent annually to ₹5.4 lakh crore by 2028, with younger parents focusing on branded apparel and consumables, according to a report by Redseer Consultancy. It also helps that India is the world’s most populous country, and has one of the highest birth rates globally, with 16 births per thousand people, almost 1.5 times that of developed countries. A growing Tier II and III market only adds to the potential for companies such as Popees.
“Global brands carry with them the momentum and visibility that has been built over decades, which translates into trust as well as aspirational value,” says Devangshu Dutta, founder and CEO of Third Eyesight. “But in many cases their pricing is higher than what would be affordable for most Indian consumers. Therefore, there is space for Indian companies to create strong brands that address both factors, trust and value.”
Taking the Risk
Thomas has always had an entrepreneurial streak in him and began venturing out on his own after school. Much of that, he says, is hereditary, coming from a family that had been in business, supplying rubber to the likes of MRF. Passionate about photography, Thomas had set up a small studio in Nilambur, his hometown in Kerala that is known for its teak wood, after his schooling.
Simultaneously, he studied economics before going on to finish his diploma in journalism from the Calicut Press Club in 2000. “Nobody wanted to study economics back then,” Thomas says. “Now it’s in huge demand. But I realised the importance of studying concepts such as scarcity, demand, and supply, now.”
After his graduation in journalism, Thomas picked up work with the Malayalam newspaper, Mangalam, and was soon posted to the hills of Wayanad. Around the same time, he invested in a baby care shop in Manjeri, a town near Kozhikode in Kerala. “I knew there was potential in the sector,” Thomas says.
Being an investor made him aware of the nuances involved in the baby care segment. To begin with, there were no brands, and clothes were often brought in bulk from garment manufacturing units and sold in the state for as little as ₹5. “Very often, these clothes would come in big cartons with naphthalene balls and smelled of sulfur,” Thomas says. “And regardless of that, they sold like hot cakes. Sometimes, people would come from hospitals after childbirth, pick up these clothes, and make the newborn wear them.”
That’s when Thomas realised the massive underlying opportunity in manufacturing good quality, branded clothes for children. “There were big brands for everybody except kids,” Thomas says. He soon packed his bags and went off to Tirupur in Tamil Nadu, India’s then-thriving garment manufacturing capital, to understand how he could venture into the business. With him, he also carried a few pieces of child wear that he had sourced from friends abroad, as a reference for the quality of the product that he was looking to make.
“I was thinking both domestic and international,” Thomas says. But Tirupur was something of a rude shock. Thomas found himself in a market near the railway station, with tiny shops, that had their stitching units outside, from where clothes were dispatched to various states under different labels. “When I enquired with them, they asked me if I wanted to sell domestic or international,” Thomas says. “If it was domestic, I had to buy from there. If it was international, I had to have a minimum order quantity. It was the first time I had heard of that concept.”
But Thomas wasn’t startled. Instead, he found a supplier, who would meet his demand for quality, and soon began working with a minimum order quantity, which is usually the minimum number of units a business is willing to sell to a customer in a single order. He also turned down an offer to join a television news channel, IndiaVision, much to the disdain of his family who had wanted him to remain a journalist.
Starting his own business also came with its own set of challenges. For one, in an era when customers didn’t bother about branded clothes for their kids, and when cheaper alternatives were easily available, Thomas’ products were significantly expensive. He could only sell for ₹60 what was otherwise available at ₹6.
“People in the Malabar region have a mindset to help others,” Thomas says. “Shops in the region started keeping my products. That gave me confidence.” Thomas also realised that he needed to set up a factory in Kerala if he had to make timely deliveries as business was slowly picking up steam, and shipments from Tirupur took time.
Saviour at the Bank
Setting up a small factory was no cheap affair. His family had already been opposed to the idea of doing business, which meant Thomas now had to turn to banks to raise capital. “I made a project report, and submitted it to the bank,” Thomas says. It was a branch where his father, a businessman, had a loan limit of ₹1 crore. “I wanted ₹10 lakh. But the manager wasn’t convinced by my business plan. He asked me ‘why don’t you start a curry powder business’ since people always want food. I told him babies are born every day and clothes for them were essential too.”
But his plea fell on deaf ears and was finally sanctioned a loan for ₹1 lakh without collateral. With his personal savings of another ₹4 lakh, he bought machines from Chennai. “All I knew was that if I set out to do something, I will complete it,” Thomas says. He soon set up a small factory, combining a few rooms in Thirunelly in Kerala. The idea was that the raw material would come from Tirupur, and the workforce in Kerala would do the final stitching before it was dispatched.
Thomas, however, was still desperate for working capital to keep the business running. It was around this time that a new manager had come to the branch and Thomas would visit him every day to pitch his business. “I used to tell him about my ambitions,” Thomas says. “I was particular about cleanliness and having everything in order and would invite him to my factory.” Finally, after much persuasion, the manager visited the factory and was quite impressed. “Within two days, he added another ₹9 lakh to my loan, and that’s how I started.,” Thomas says. “If that hadn’t happened, I would have shut down.”
With the additional funds, Thomas soon began expanding and selling products across Kerala. By 2005, Thomas was married, and his wife also joined him in the business, helping design products. His background in journalism also helped, as he began putting advertorials in evening newspapers about the importance of buying high-quality kids’ wear. By 2010, Popees changed its logo, a turning point in its growth trajectory. That splendid run lasted until 2019, Thomas says, when Popees would only be able to meet 70 percent of its demand and had already been distributing in markets including Punjab and New Delhi.
It was around this time that Thomas began toying with the idea of its retail stores. “My cycle was very long,” Thomas says. “Once you reach a certain turnover, you need to reduce your time. That’s how I thought of my showroom. Until then they were sold in other retail outlets.” The yarn for Popees clothes comes from organic cotton farmers in Ahmedabad, and the manufacturing is done in Tirupur, based on designs given by Popees. Only the final assembly and last round of stitching is done in its factory.
“I was scared to foray into retail,” Thomas says, “My business was already at about ₹74 crore, and I was worried if stores would stop taking my products. With floods in Kerala and Nipah virus in Kozhikode, there was uncertainty already in the market.”
Still, Thomas took the plunge and set up a proto store outside the company’s headquarters. That was a success, with customers flocking to the store and buying in bulk, with the store generating ₹5 lakh in sales. In 2019, Popees opened its first retail outlet in a 1,500 sq ft showroom in Kochi, before starting in Trivandrum and Bengaluru.
But Covid-19 came as a dampener. In early 2020, Thomas had almost finalised a deal with a private equity (PE) major to raise ₹100 crore for a 26 percent stake sale. The due diligence had been completed, and everything seemed on track before the PE firm pulled out after uncertainties about the future. Thomas had also met actor Aishwarya Rai Bachchan to bring her on board as the brand ambassador for Popees.
With Covid-19 shutting down operations, Popees turned to manufacturing masks and clothes for children, all given for free in Kerala during the pandemic. Simultaneously, though, it went on an expansion spree with its retail outlets going from some six stores to over 30 in two years. Today, the company has 70 stores, 35 of which are franchise-invested, company-operated while the others are franchise-owned, franchise-operated. Twenty more stores are expected to be completed this year, with the company gearing up for a launch in the UK and Australia, apart from the UAE.
There is also a focus on omni-channel distribution, with Thomas saying that as much as 30 percent of his clientele chooses to buy products online. The company already sells on ecommerce platforms. Today, it has the capacity to make 5 lakh garments monthly.
Alongside, it has moved to manufacturing everything from baby oil and soap to baby wipes and fabric wash. The product range includes toys, baby soap, body wash, shampoo, lotions, and towels, among others, although a significant share of the sales still come from clothes. “I have three children, and much of what we did was also keeping them in mind,” Thomas says.
That’s why he prefers not to give discounts on products, instead focusing entirely on the quality. “I am obsessed with product and quality,” Thomas says. “We can also provide discounts after raising our markups significantly. But we don’t want such high margins.” The company has now hired a new designer in Bengaluru to bring in a premium collection, which Thomas says, will put Popees in a different league in the next few years.
“We don’t want a lot of money,” Thomas says. “We didn’t have children for a few years after marriage. People are praying and waiting for children. So, you have a responsibility to give good products. If you give good products, they will always come.”
“While the large proportion of those are born to families in low-income segments, there is still a substantial number born to households that are middle and upper income,” adds Dutta of Third Eyesight. “Also, as incomes are growing and the size of families is reducing, the budget available per baby is climbing, which is obviously a strong driver of market growth.”
All that means, for Thomas, the baby steps are now complete. It’s time for the sprint, and the 47-year-old is all set for that.
(Published in Forbes India)
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July 8, 2024
Sharleen D’Souza, Business Standard
Mumbai, 7 July 2024
In 2023, after more than two years of development and testing, Mondelez India launched a version of Bournvita that delivers about half the recommended daily allowance of key micronutrients for children, including iron, iodine, and zinc, as well as vitamins A, C and D. All this while having 15 per cent less added sugar.
“Prior to this and around two years ago we also introduced Bournvita 50 per cent less sugar variant to provide an option for consumers. We have made adaptations to our portfolio products like Bournvita biscuits, which now have 15 per cent less sugar, and our most loved Oreo chocolate variant has also seen a 5 per cent decrease in sugar content,” the company said in an email.
This drive is not confined to Mondelez. Other multinational companies, too, such as Coca-Cola, PepsiCo, and Nestle India, have been working on bringing down the sugar, salt, and sodium content. They could be patting themselves on the back for doing this. Not only has the Indian consumer become more health conscious than ever — with all the talk going around that salt and sugar are two of the monsters in your kitchen (the third being maida) — but also the country’s food regulator has swung into action.
On Saturday, the Food Safety and Standards Authority of India (FSSAI) approved a proposal that information about the sugar, salt and saturated fat content on labels of packaged foods and beverages should be bolder and bigger. “Along with empowering consumers to make healthier choices, the amendment will also contribute towards efforts to combat the rise of noncommunicable diseases and promote public health and wellbeing,” the FSSAI said in a statement.
Earlier, the regulator advised ecommerce platforms to ensure that dairy-, cereal-, and maltbased beverage mixes were not available under the “health drinks” or “energy drinks” categories. The recommended sugar intake is 20 grams a day for adults and 25 grams a day for those below 18. Not more than 5 to 10 per cent of a person’s total energy intake should come from sugar. Children under two are not supposed to consume any added sugar. However, these guidelines are often breached because people tend to consume packaged foods.
Therefore, experts and activists have been calling for a different labelling, which would announce out loud what lies inside.
Eating right, drinking right
Some multinationals had already been working on reducing the salt and sugar content. For instance, Coca-Cola removed more than 900,000 tonnes of added sugar globally since 2017, and 19 of its top 20 brands offer reduced-sugar or zero-sugar options. In India, Coca-Cola’s Minute Maid Honey Infused drinks offer added dietary fibre for healthy digestion in three flavours.
“In 2022, approximately 68 per cent of our global beverage portfolio contained less than 100 calories per 12-ounce serving (350 ml), with 246 low- or no-sugar options launched,” Coca-Cola India said in a statement to Business Standard.
The company added that it prioritised transparency by placing calorie information on the front of all its packaging worldwide and did not market its products directly to children under 13.
Nestle India joined the FSSAI’s Eat Right movement and signed the pledge to reduce an average of 6 per cent added sugar, 10 per cent salt, and 2.5 per cent fat in its relevant product categories. “The company has achieved these commitments,” it said.
Varun Beverages, PepsiCo’s India bottler, told its investors on a conference call that its gross margins improved significantly, rising by 385 basis points to 56.3 per cent — and sugar had a role to play in it.
“This increase was largely driven by our focus on reducing sugar content and the light-weighting packaging material, incidentally, also meeting our sustainability initiatives along with the benefits from reduced PET prices which contributed to this improvement,” Raj Pal Gandhi, chief financial officer of Varun Beverages, said on the investor call.
Approximately 46 per cent of the company’s reconsolidated sales volumes, he said, came from low-sugar or no-sugar products. The no- or less-sugar trend is working for the company as it optimises its cost structure and enhances its overall efficiency.
“These efforts have had a tangible impact on our financial performance with EBITDA increasing by 23.9 per cent to the level of Rs. 988.76 crore year-on-year, and the Ebitda margin improving by 240 basis points to the level of 22.9 per cent in quarter one of 2024 (January-March),” Gandhi said. Ebitda, a widely accepted benchmark of profitability, is short for earnings before interest, tax, depreciation, and amortisation.
“So, we are developing more and more — Gatorade, we mentioned a new launch which PepsiCo has given us formulation with zero sugar. So, effort is there, and constant effort is there to reduce the sugar content,” Gandhi said. PepsiCo India said in an earlier statement it had initiated trials of a blend of sunflower oil and palmolein oil in certain parts of its portfolio last year, thus becoming one of the few players in the food industry in India to do so.
Rush of junk
Experts say the standards for food and beverages vary across the world and India should have its own. “There should be thresholds for healthy and unhealthy and, in my view, this should be labelled boldly on the front of the pack,” says Arun Gupta, convener, Nutrition Advocacy for Public Interest (NAPi), a think tank.
A report titled The Junk Rush, jointly brought out by the Breastfeeding Promotion Network of India and NAPi, said: “India faces a severe public health crisis of obesity and diabetes.” In 2022, a group of public health experts, consumers, lawyers, and patient groups had called upon the government of India to check the soaring consumption of junk food among the country’s youth.
“Certain countries are more stringent than others. Even global brands have the same product, but the ingredients differ across countries and continents,” says Devangshu Dutta, founder of Third Eyesight. He explains that India still has some road to travel on food safety, alleging that some ingredients benefit companies more — such as by providing a longer shelf life — than the consumer.
“The Indian regulator is still very new to the game. If you look at processed foods, it is a newer market and the regulator needs to pick-up pace,” Dutta says.
On Saturday, the FSSAI picked up pace.
(Published in Business Standard)
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June 15, 2024
Kolkata & New Delhi, 15 June 2024
Writankar Mukherjee and Faizan Haidar, Economic Times
Indian retail is increasingly bedevilled by shrinkage or the loss of inventory due to shoplifting by customers, theft by employees, vendor fraud and supply chain errors. As a percentage of sales, shrinkage has risen at retail chains in India with industry executives attributing this to the rise in thefts amid growth in sales volumes.
Tata-owned Trent Ltd said in its annual report that shrinkage swelled to 0.41% of sales in FY24 from 0.22% in FY23, primarily due to significant volume growth. In FY20, it was 0.21% and had actually come down to 0.19% in FY22. Trent’s sales volumes have almost doubled year-on-year in FY22, FY23 and FY24. Trent owns the Westside and Zudio chains.
At V-Mart Retail, this has gone up from 0.4% in FY23 to 0.5% in FY24.
“Shrinkage has gone up in the industry and has become a whole new challenge,” said V-Mart Retail managing director Lalit Agarwal. “Whenever business goes up, it tends to go up. Also, the new generation wants more even when times are tough. We try to ensure it remains under control.”
The All India Mobile Retailers Association (AIMRA), which represents cellphone retail stores, said several of the large and regional retail chains have reported a surge in shrinkage, mostly by employees. While five years back, it used to be around ₹50,000 to ₹1 lakh per month for the retail chains, it’s now around ₹5-10 lakh per month, AIMRA chairman Kailash Lakhyani said.
Shrinkage goes up during events such as the Indian Premier League (IPL) and the festive season when some employees try to make a quick buck by selling store inventory in the grey market, at times to fund bets, Lakhyani said.
“Retailers file police complaints and claim insurance, but still it’s a pain,” he said.
Interestingly, shrinkage disclosures by most Indian retailers – including listed ones – are something of a taboo for them unlike their western counterparts.
Highest in Apparel, Shoes and Fashion
Devangshu Dutta, chief executive at Third Eyesight, a retail sector consultancy, said shrinkage is an operational reality and a cost which retailers monitor very closely.
“However, they may not publicly disclose the numbers if it reflects poorly on their operational controls and security. Shrinkage goes up when there is economic tightening and high inflation as India has gone through in the last couple of years,” he said.
Shrinkage is the highest in apparel, shoes and fashion categories, retailers said, followed by gadgets like mobile phones, smartwatches and headphones where the risk-reward ratio is higher due to small pack sizes and the high value of the goods.
Cracking Down
Retailers are going in for stricter audits to rein in such losses. Cellphone and electronic stores have started doing them on a daily basis. Shoe retailer Woodland has set up local audit teams, unlike the centralised ones earlier, so that shrinkage can remain under control at 0.2% of sales, said chief executive Harkirat Singh.
If it goes out of control, staff can get penalised. “Shrinkage beyond a certain limit is realised from the store team,” Singh added.
Still, Retailers Association of India chief executive Kumar Rajagopalan said shrinkage till 0.5% of sales is manageable as globally it is 1.5-2%.
“We are not yet at the alarming stage. In India, the return rate of a product is high and sometimes those products are not in the condition to be sold again, adding to the burden,” he said. RAI is a grouping of organised retailers.
In a 2023 retail security survey by the US-based industry body National Retail Federation, the average shrink rate in 2022 increased to 1.6% from 1.4% in 2021. That represented $112.1 billion in losses in 2022, up from $93.9 billion in 2021.
(Published in Economic Times)
