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June 7, 2023
M. Sriram and Aditya Kalra, Reuters (MUMBAI/NEW DELHI)
June 7, 2023
Starbucks is revamping its strategy to lure Indians, including children, with smaller, cheaper beverages as it looks to expand in small towns amid a fierce challenge from domestic startups in one of its fastest-growing markets.
Among the first foreign coffee brands to enter tea-loving India, the U.S. giant has taken almost 11 years to open 343 stores, in contrast with private equity-backed chains Third Wave and Blue Tokai that opened about 150 in the last three years.
“As you grow in size, you need to get new consumers,” said Sushant Dash, the chief executive of Starbucks in India, adding that the chain’s “pricing play” would help shatter a perception that it is expensive.
The company has launched a six-ounce drink, “Picco”, which starts at $2.24, and milkshakes for $3.33 as part of its revamp to target affluent Indians who prefer smaller servings.
Starbucks plans to open more stores in smaller towns, said an industry source, who spoke on condition of anonymity.
Both its new offerings are unique to India and unavailable in China, Singapore and the United States.
India’s small but fast-growing specialty tea and coffee cafe market is worth $300 million and set to grow 12% each year, Euromonitor estimates. Canada’s Tim Hortons and Britain’s Pret A Manger are also expanding, but have only a handful of outlets.
“Excessively large portion sizes are an American phenomenon,” said Devangshu Dutta, head of retail consultancy Third Eyesight.
“Indian consumers are value-conscious. If adjusting portion sizes down to what is more normal helps make prices accessible, that’s a double win.”
He was among the analysts who felt the move by Starbucks, operating in India in a joint venture with Tata Group, could further boost its sales, which hit a record $132 million in fiscal 2022/23.
Although Starbucks still dominates in India, rivalry is fizzing in the capital, New Delhi, and the technology hub of Bengaluru, where many Third Wave cafes are often as crowded as Starbucks outlets.
“We’ve lost 30 cups a day to them,” said a barista at a Starbucks shop in Delhi that sells 7,500 drinks a month, referring to a Third Wave that opened nearby months ago, but already sells 3,700.
Starbucks has faced homegrown challengers elsewhere, most notably in China, where its 6,200 stores service the biggest market outside the United States.
There, in just the last five years, Luckin Coffee has used discounts to lure customers to its 10,000 mostly pickup or delivery stores.
Bet On Chai
In India, where Starbucks has added domestic touches to its offerings over the years to boost their appeal, it is now stepping up that game, just as global giants McDonald’s and Domino’s have done.
It estimates that just 11% of Indian homes drink coffee, as opposed to 91% drinking tea. Hot milky tea, or “chai” as it is known in Hindi, is sold at roadside stalls by the hundreds of cups each day for as little as 10 rupees (12 U.S. cents).
Starbucks, which offered for years just one milk chai “latte” made with tea syrup, has launched “Indian-inspired” tea offerings laced with spices and cardamom, both favourites in many Indian homes, which start at 185 rupees ($2.24).
The drinks were introduced to attract those who do not drink coffee and shun Starbucks, said Dash, adding the company would retain its focus on coffee and not make chai a primary offering.
The launch of smaller, cheaper beverages in India indicates Starbucks may have seen “a decline in traffic related to a pushback” on higher prices, said Chas Hermann, a U.S.-based restaurant consultant and former Starbucks executive.
Competition, Small Cities Push
In May, people lured by a one-for-one offer queued in a street outside the first Starbucks store in the western city of Aurangabad, a YouTube video showed in scenes reminiscent of when it first opened in India.
But its rivals are catching up and a price war has begun.
Soon after Starbucks’ May launch of $3.33 milkshakes, designed to attract children, Third Wave launched its own range, a fifth cheaper at $2.71.
In Bengaluru, startup investors and founders hold meetings in Third Wave outlets. It has more than 40 stores there, exceeding the 35 of Starbucks, data from real estate analytics firm CRE Matrix shows.
Third Wave’s chief executive, Sushant Goel, said he planned to add 60 to 70 stores every year, with a focus on big cities. He saw Starbucks’ cheaper, small-sized drinks as a response to competition in “an incredibly price-sensitive market”.
Matt Chitharanjan, chief executive of Blue Tokai, said it had “seen success in converting customers from Starbucks”, partly because of lower prices.
While Dash said he was undeterred by competition, Starbucks recognises the threat, although privately.
In one lease deal for a Bengaluru mall reviewed by Reuters, Starbucks inserted a “cafe exclusivity” clause barring the mall owner from allotting space on the same floor to rival “premium” brands, including Third Wave and Blue Tokai.
“Going deeper into smaller cities, beyond the metros, is the only way to grow,” said Ankur Bisen, head of retail at India’s Technopak Advisors.
(Reporting by M. Sriram and Aditya Kalra; Additional reporting by Anushree Fadnavis in New Delhi, Varun Vyas and Euan Rocha in Bengaluru, Miyoung Kim in Singapore, Sophie Yu in Beijing and Hilary Russ in New York; Editing by Clarence Fernandez)
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May 26, 2023
Chloe Cornish in Mumbai and Eleanor Olcott in Hong Kong, Financial Times
May 26 2023
India’s biggest company Reliance Industries is seeking to dominate the country’s $10bn online domestic fashion market, striking a deal with Shein that will allow the rapidly growing Chinese retailer to return to the world’s most populous nation.
The retail unit of billionaire Mukesh Ambani’s petrol-to-telecoms conglomerate will tie up with Shein three years after India banned the online retailer’s app in its attempt to freeze Chinese companies out of the local market in retaliation for border clashes that had left at least 20 Indian soldiers dead.
“We can confirm Shein’s partnership with Reliance Retail and have no additional comment at this time,” said Shein, declining to answer questions about the structure of the deal. Reliance did not respond to queries about the partnership, which was first reported by the Wall Street Journal.
The addition of a low-priced offering gives India’s biggest listed company by market capitalisation an important boost in its battle to dominate the country’s growing online fashion retail market, which was worth $10bn in 2022, according to analyst estimates.
As part of the licence agreement, which was recently approved by the government, Shein will receive a percentage of profits generated from its fast fashion sales in India, people familiar with the deal said, while Reliance will help Shein build a supply chain with India’s garment industry for global exports.
The move into Indian sourcing comes as Shein diversifies its supply chain outside the coastal province of Guangdong in southern China, where it has 8,000 suppliers, mostly located in the garment hub of Panyu. Pandemic-era supply chain bottlenecks, rising labour costs in China and geopolitical tensions between Beijing and Washington have propelled multinational companies, including Apple and clothing retailer Mango, to migrate parts of their supply chains out of the country.
Shein, which does not sell in China, has been seeking to distance itself from its home country. Last year, it made its Singapore arm the de facto holding company, rapidly expanding its workforce there and shifting some of its operations from its China headquarters in Nanjing.
Shein will seek to minimise delivery times by having more manufacturing centres around the world. India, meanwhile, hopes to benefit from multinationals’ “China plus one” movement, a strategy that seeks to avoid investing only in China and aims to diversify supply chains to other countries.
Reliance has signed agreements with international luxury brands ranging from Balenciaga to Burberry, catering to India’s small but growing demographic of super-rich consumers. In addition, it has nearly 13,000 bricks-and-mortar stores across the country selling affordable apparel.
“Reliance’s other international brand partnerships are more premium, being luxury or designer brands,” said Devangshu Dutta, chief executive of consultant Third Eyesight. “India is still a relatively low per capita income economy. The bigger opportunity is in brands which are euphemistically called value brands, and that’s where Shein is positioned.”
For Shein, access to the Indian market will allow the company to boost sales as the pace of its expansion in Europe and the US begins to lose steam, according to people briefed on its growth figures.
The Financial Times reported that in a recent presentation to investors, Shein forecast that gross merchandise value — the total value of merchandise sold on its platform — will almost triple by 2025 to $80.6bn compared with the figure last year.
The lofty revenue projections come ahead of a much anticipated initial public offering, which promises to be one of the largest listings of a Chinese-founded company in years.
In fashion ecommerce, Reliance lags behind Myntra, one of India’s oldest ecommerce players, which merged with Walmart-backed Flipkart in 2014. Myntra accounts for around half of the online fashion market in India, according to Satish Meena, an independent ecommerce analyst based in Gurgaon.
“Myntra is the nucleus” for online fashion, said Ankur Bisen, senior partner at retail consultancy Technopak Advisors, adding that its “cohort” of shoppers is primarily young and urban. “With the Reliance and Shein partnership, they would like to get into this cohort and break the monopoly of Myntra,” Bisen said.
Meena estimates that Reliance’s ecommerce fashion business Ajio has about 4 per cent of market share, while Bisen put Ajio among the “long tail” of ecommerce fashion ventures behind Myntra. Reliance’s JioMart online shop also sells clothes, alongside groceries and electronics.
“If you look at Reliance as a company, it’s about dominance and it’s about long term,” Dutta said.
(Published in the Financial Times)
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May 25, 2023
Rochelle Britto & Shabori Das, The Economic Times
May 25, 2023
“Taiyaar Hoke Aaiye”. It seems the tagline has worked for the company which has been able to attract investors who came prepared for its offer for sale (OFS).
In a bid to reduce promoters’ shareholding down to 75% as per SEBI norms, Vedant Fashions, known for its ethnic wear brand Manyavar, floated the OFS on May 19 which saw huge participation — oversubscribed 1.4 times with bids for 34 million shares as compared to 24 million shares on the offer. The non-retail segment was oversubscribed 2.24 times.
The shares were offered at a price of INR1,161. While the stock initially fell 1.5% on May 19 to INR1,230, it was trading at INR1,268 on May 24, up 4.59% in five days.
The promoters have offloaded 16.9 million shares, which works out to 7% of the total equity shares with an option to sell additional 6.9 million (2.88%) shares, taking the total to 9.88%.
Manyavar represents the premium wedding market of the country and boasts of some big names as its brand ambassador — Virat Kohli, Amitabh Bachchan, Ranveer Singh, and Kartik Aaryan. With strong fundamentals, the company has grown at 30% CAGR over the last one year and investors feel this is one classic growth stock with high valuations that cannot be ignored. Vedant Fashions trades at a PE multiple of 73x while Trent, a competitor, has a PE of 119x.
The great Indian wedding
The sales of Vedant Fashion are highly correlated to the wedding season. The Indian wedding market is massive at USD50 billion with around 3 million weddings or events taking place every year. According to news reports, the spending is growing and is likely to be around INR3.75 lakh crore this year.
According to Crisil, weddings are getting bigger, grander, and longer, fuelled by higher disposable incomes and a surge in discretionary spending. It expects the ethnic-apparel market to grow between 15% and 17% to nearly INR1.38 trillion by 2025, supported by a growing desire among Indians to wear traditional attire instead of western wear for big celebrations.
While a lavish spending is done on everything, from venue to food to even flower arrangement, clothes hog the limelight. The business has become high-margin, elite, and high-fashion. And the organised market is growing at a very fast pace.
In the organised market, Vedant Fashion has a 40% market share which might be difficult to maintain as competition increases. “In the upcoming quarter, while April experiences a slight lull in wedding dates, May and June present an abundance of excellent opportunities. Moreover, as we analyse the entire year ahead, we are highly confident in the favourable wedding dates during Q3 and Q4. These trends align closely with our historical data, reinforcing our optimism for the current new financial year,”says Vedant Modi, chief marketing officer, Vedant Fashions.
“Vedant Fashions has successfully tapped into and emerged as the market leader, head and shoulders above competitors, in a segment that has been extremely fragmented. Festive wear and occasion wear is not immune to downturns, but is better placed to ride them out, and this makes it a very attractive product segment. However, Vedant have exploited this opportunity and scaled up much more successfully than other companies, beginning with menswear and then in womenswear,” says Devangshu Dutta, CEO, Third Eyesight.
Expansion spree
Vedant Fashions is expanding its retail footprint by adding around 75,000 sq ft retail area in Q4FY23. It has a total retail presence of 1.47 million square feet as of March FY23, spanning across 649 stores in 257 cities. There is a direct correlation between the addition of stores and the growth in sales, but the full potential of a new store takes some time. Almost 40% of the expansion has happened in the fourth quarter, so the full revenue (of the expansion) would come in the following year. Thus, many times the store growth doesn’t match the revenue growth.
The company is also expanding in US, UAE, London, and Canada to cater to the growing Indian community in these markets. For FY23, it has had sales growth of 30% at INR1,355 crore with Ebitda margins at 50%.
However, the growth witnessed by the company in FY23 has slowed down despite an upswing in events and weddings.
Vedant Fashions reported revenue growth of 76% in FY22 over FY21 and profit growth of 136% during the same period. While the slowdown in the growth rate can be attributed to settling down of revenge shopping post-pandemic, the number of social events has definitely increased to not take notice.
“Market valuations are an indicator of not only present value of a business but also perceived future value, and market leaders usually are rewarded with richer valuations(Page Industries is another such example),” adds Dutta.
The company’s latest presentation states that it has achieved 95% ROCE for FY23. The company is still in an investment stage and its cash flow statement says that INR249 crore is blocked in investments for FY23.
Market outlook
In a market that is lacking growth, the wedding season almost looks like recession-proof. The market has returned to growth mode even at a time when inflation is high and the overall economy is subdued. But then, the Indian wedding market — especially the part that Vedant Fashion tracks — is on a high and the growth will continue for a long time.
While the number of players is increasing, not many have a picture-perfect balance sheet with high ROEs and even higher Ebitda margins. Vedant Fashions has become the classic growth stock with very high valuations. It has a price/book value of 28x but investors feel that for a company that generates a high ROE and a high growth, the valuation is not extreme.
Mutual funds and institutional investors are making a beeline for the stock because of the growth rate and the overall size of the market. According to BSE filings, mutual funds account for 8.90% of the total holding where SBI Mutual Fund has the biggest share at 3.80%. On the other hand, retail holds 1.43%. Post the OFS, these numbers will go up.
The company successfully launched its initial public offering (IPO) last year. The stock debuted at an 8.08% premium over the issue price of INR866. The share slipped more than 4% on May 18 as the promoters announced plans to sell stake in the company.
Since listing, the company has gained 36% and has had a great run with its stock being up by a significant 27% over the last one year as compared to its peer Aditya Birla, which is down by 30.95%, and Nifty 50, up by just 12%.
The Indian apparel market is amongst the top three consumer categories. The pandemic made a lot of consumers switch to the online channel — which was also enabled by easy returns. However, while western apparel in India is a lot more frequently purchased when it comes to the online channel, the offline channel continues to be the primary source of consumers and footfall for ethnic-wear brands. The organised ethnic wear market in India is still relatively small, as the unorganised apparel category, ethnic and otherwise, continues to dominate.
The primary market for the unorganised ethnic wear is mostly women, driven by everyday and wedding wear categories.
According to Euromonitor International, a UK-based market research firm, the Indian apparel market is expected to be at USD58,773.8 million by the end CY23 (excluding the footwear market). The market is expected to grow at a CAGR of 8.6% during CY2023-CY2027.
“The apparel and footwear market experienced significant recovery in 2022 with the easing of Covid-19 restrictions. The industry also benefited from the return of festivals and weddings to their pre-pandemic fervour, as these are periods when the demand for categories such as ethnic apparel and other occasion-based apparel spiked,” says Euromonitor International.
The peer play
Prominent players like Aditya Birla Fashion, Reliance Retail, and Tata-owned Trent are making strategic investments in the country’s thriving ethnic wear market, estimated at INR1.84 trillion.
The recent acquisition of TCNS Clothing by Aditya Birla Fashion further solidifies this ongoing trend. With a transaction value of INR1,650 crore for a controlling stake of 51%, this acquisition highlights the company’s commitment to capitalising on the prevailing market dynamics.
According to Ashish Dikshit, managing director of Aditya Birla Fashion, ethnic wear commands the largest market share in India’s apparel industry, comprising 30% (equivalent to INR1.84 trillion) of the total domestic apparel market valued at INR6.15 trillion, while 80%-85% of the ethnic wear market, according to experts, is dominated by the unorganised segment. The branded or organised end of the market at 15%-20% (around INR28,000 crore – INR37,000 crore in size) is growing at around 20% per annum.
Trent, owned by Tata, has launched a new ethnic wear brand Samoh to increase its market share, as consumers splurge on fresh attire for every event. The new brand will help Trent to compete with Manyavar, and Aditya Birla in the ethnic wear space. The company also has two other fashion retail formats. Its flagship concept, Westside, caters to discerning customers who are aspirational and yet seek value for money. The other format, Zudio, with much smaller stores, operates in a more mass-priced segment. Besides, Trent runs a relatively new concept store, Utsa, which sells its own ethnic and indie wear private labels like Utsa, Zuba, Vark, and Diza.
A growth stock?
The management’s disciplined approach to growth, exemplified by the gradual scale-up of brands like Mohey and Twamev, has been instrumental in mitigating the risks associated with inflated working capital and excessive write-downs. This prudent strategy has safeguarded Vedant Fashions’ profitability and allowed it to maintain sustainable growth without compromising on scalability.
The company’s strong design capabilities with data-driven decision making (leading to no discounted sales), tech-driven supply chain, and auto replenishment model, exclusive vendor ecosystem, and franchise-based EBO expansion have helped scale up its business and achieve superior margins. Most brokerage houses give the stock a “buy” rating.
Manyavar’s decision to team up with some of the country’s top names like Virat Kohli, Ranveer Singh, and Kiara Advani (for Mohey) demonstrates its ambition to capture new markets and connect with a diverse customer base. Continuing the brand’s vision to associate with the best, it reinforced #DulhanWaliFeeling by looping in actress Kiara Advani in January 2023 as the new brand ambassador. With all of them on board, Vedant Fashions hopes to have a joyful journey in style!
By capitalising on their influence, Manyavar solidifies its position as a leading ethnic wear brand in India. But will the company live up to the investors’ expectations? For a growth investor, the answer is yes.
(Published in Economic Times)
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September 5, 2022
Akanksha Nagar, Financial Express
September 5, 2022
Can you give a brand a second shot at life?
Reliance Retail Ventures certainly thinks so. It has acquired Campa-Cola for an estimated `22 crore from Delhi-based Pure Drinks Group on the assumption that it will not only be able to revive the five-decade-old brand but can also use it to springboard into the dog-eat-dog soft drink market in India.
It will not be a cakewalk surely. The ones who were fans of the brand—which was launched in the 70s—have moved on, and younger customers have little or no association with the brand.
Samit Sinha, managing partner, Alchemist Brand Consulting, believes that Reliance must have been very keen on getting into the soft drinks category as a part of its overall strategy of retail expansion. In any case, it hasn’t had to shell out a bomb for the brand so it is a less audacious gambit than starting from scratch. There is one other factor that might work in its favour—which is the formula, the taste of which had near widespread acceptance in its heyday.
Sandeep Goyal, managing director, Rediffusion Brand Solutions, who is handling a similar resurrection of Garden Vareli sarees, says giving an old brand like Campa-Cola a new life will be far from easy—the Campa-Cola generation is now in their sixties and therefore there is very little monetisable value in the nostalgia.
RESURRECTION RULES
Breathe life into an old brand if:
1. The market presents an opportunity to refresh the brand without compromising on its core promise
2. There are positive connotations for the brand that can be built upon in the current market context
3. The company has the resources and inclination to be a “caretaker” or “steward” of the relationship that had been created between the brand and its customers
Courtesy: Devangshu Dutta, CEO, Third Eyesight
Launch versus resurrect
From the looks of it, Campa-Cola will have to fight sip for sip, bottle for bottle.
Rohit Ohri, chairman and CEO, FCB Group India, who had managed the Pepsi account for more than a decade, says it will be difficult for a new brand to find space in a market dominated by multinationals like Pepsi and Coke. While the residual equity can help get the foothold, the real challenge would be to woo a younger consumer set.
Naresh Gupta, co-founder and CSO, Bang In The Middle, concurs: “When you try to resurrect a brand, you do it knowing that the brand isn’t doing well or has been out of circulation. That is big baggage for the brand to wipe out. Often the residual awareness and following are limited to the audience that is less likely to be your core audience today.”
There is also the fact that young people in the metros are moving away from colas, preferring healthier drinks or niche artisanal products instead. At the same time, soft drink is an impulse category and needs a large dose of salience to fly off the shelf.
Gupta says Reliance can try and build on the Indian-ness that Campa-Cola exudes. His guess is the old brand will be used as a calling card in trade and there would be a host of new launches that build upon it. “Campa-Cola may fuel a lot more fresh fizzy drinks launch from Reliance,” he adds.
That said, just the sheer time an old brand has spent on the shop-shelves would give Campa-Cola an edge over any new brand that its current owner might want to launch. An old brand can appear to be proven, experienced and secure, while a new brand could be seen as untested, raw, and risky. An old brand may have had a positive relationship with the consumer but may have been dormant due to strategic or operational reasons. In such a case, reviving the brand is clearly a good idea, says Devangshu Dutta, chief executive, Third Eyesight.
Reliance could have launched a new brand but if the existing brand has residual awareness or connection, it could be the pivot around which other brand properties can be built. Here, the new owner also has the benefit of having a wide retail network. As on March 31, 2022, Reliance Retail operated 15,196 stores across 7,000-plus cities with a retail area of over 41.6 million sq ft. This, if nothing else, will give Campa-Cola a start any new brand will die for.
(Published in Financial Express)
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July 8, 2022
Akash Podishetty & Krishna Veera Vanamali, Business Standard
New Delhi, 8 July 2022
India’s $900 billion retail market has emerged as one of the most dynamic industries and is expected to reach anywhere between $1.3-$1.5 trillion by 2025. The organized retail is seen gaining 15% market share in the overall retail space, while food & grocery and apparel and lifestyle may account for 80% of India’s retail market by 2025.
Large market offers big opportunities. And it looks like Reliance Retail has seized it, with its massive omni-channel retail play of physical stores, B2B with kiranas and e-commerce.
The company went on an acquisition spree and partnerships in the last three years, adding to its portfolio some of the biggest names, including Hamleys, Dunzo, Zivame etc.
It has also partnered with famous global retail chain 7-Eleven. Catering to India’s affluent consumers, Reliance, meanwhile, houses some of the most iconic brands such as Versace, Armani Exchange, GAP, GAS, Jimmy Choo, Michael Kors among others. The premium segment has become one of the fastest growing categories.
Also firming up its inorganic play, the company is planning to acquire dozens of niche local consumer brands to build a formidable consumer goods business.
Arvind Singhal, Chairman and Managing Director, Technopak Advisors says, there’s focus on physical retail expansion. Reliance is looking to cater to both price conscious and brand conscious customers, while trying to capture as much of the private consumption market as possible, he says.
Reliance Retail’s competitors are nowhere close to even put up a fight. The company has over 15,000 offline stores across categories, compared with DMart’s 294 stores or Aditya Birla Fashion’s 3,468 outlets.
Reliance retail’s revenue has grown five times in the last five years and the core retail revenue of $18 billion is greater than competitors combined, according to a Bernstein report.
Speaking to Business Standard, Devangshu Dutta, CEO, Third Eyesight, says, Reliance wants a decent share of Indian consumers’ wallet. From that perspective, Reliance still has a long way to go, he says. As consumer preferences evolve, Reliance too should adapt.
An undisputed leader in the domestic market, the aim of Reliance, according to Mukesh Ambani, is to become one of the top 10 retailers globally. Part of this bet is based on the premise that incomes and consumption power of Indians will increase across the board in coming years. However, could the uneven recovery that different segments of the population have seen stop the pie from growing larger and prove to be a dampener for Ambani’s ambitions?
(Published in Business Standard)
