Devangshu Dutta
April 24, 2016
(Published in the Financial Express, 10 May 2016)
In about 20 years, Café Coffee Day (CCD) has grown from one ‘cyber café’ in Bengaluru to the leading chain of cafés in the country by far.
In its early years, it was a conservative, almost sleepy, business. The launch of Barista in the late 1990s and its rapid growth was the wake-up call for CCD — and wake up it did!
CCD then expanded aggressively. It focussed on the young and more affluent customers. Affordability was a keystone in its strategy and it largely remains the most competitively priced among the national chains.
Its outlets ranged widely in size — and while this caused inconsistency in the brand’s image — it left competitors far behind in terms of market coverage. However, the market hasn’t stayed the same over the years and CCD now has tough competition.
CCD competes today with not only domestic cafés such as Barista or imports such as Costa and Starbucks, but also quick-service restaurants (QSRs) such as McDonald’s and Dunkin’ Donuts. In the last couple of years, in large cities, even the positioning of being a ‘hang-out place’ is threatened by a competitor as unlikely as the alcoholic beverage-focussed chain Beer Café.
CCD is certainly way ahead of other cafés in outlet numbers and visibility in over 200 cities. It has an advantage over QSRs with the focus on beverage and meetings, rather than meals. Food in CCD is mostly pre-prepared rather than in-store (unlike McD’s and Dunkin’) resulting in lower capex and training costs, as well as greater control since it’s not depending on store staff to prepare everything. However, rapid expansion stretches product and service delivery and high attrition of front-end staff is a major operational stress point. Upmarket initiatives Lounge and Square, which could improve its average billing, are still a small part of its business.
Delivery (begun in December 2015) and app-orders seem logical to capture busy consumers, and to sweat the assets invested in outlets. However, for now, I’m questioning the incremental value both for the consumer and the company’s ROI once all costs (including management time and effort) are accounted for. The delivery partner is another variable (and risk) in the customer’s experience of the brand. Increasing the density through kiosks and improving the quality of beverage dispensed could possibly do more for the brand across the board.
The biggest advantage for CCD is that India is a nascent market for cafés. The café culture has not even scratched the surface in the smaller markets and in travel-related locations. The challenge for CCD is to act as an aggressive leader in newer locations, while becoming more sophisticated in its positioning in large cities. It certainly needs to allocate capex on both fronts but larger cities need more frequent refreshment of the menu and retraining of staff.
An anonymous Turkish poet wrote: “Not the coffee, nor the coffeehouse is the longing of the soul. A friend is what the soul longs for, coffee is just the excuse.” There are still many millions of friends in India for whom the coffee-house remains unexplored territory, whom CCD could bring together.
Tarang Gautam Saxena
May 15, 2014
“Ingredients for Speed & Innovation” Conference 2014 gathered together senior delegates (CEOs/ CXOs) of the food & beverage Industry, on 7 May 2014 in Delhi. The event was organised by Third Eyesight in association with Infor India Pvt. Ltd. & Nagarro Software Pvt. Ltd.
Devangshu Dutta, CEO, Third Eyesight
The conference was focused on the emerging opportunities for the companies in food and beverage sector amidst the challenging business environment. In his opening presentation, Devangshu Dutta, CEO, Third Eyesight reflected on the current macro-economic environment and the dichotomous changes in the consumer mindset. Dutta highlighted the need for companies to invest in developing advance insights, and to not only anticipate change but to seed ideas and invest in creating industry segments. Manish Gupta, VP Business Development, Nagarro provided insights on various technological solutions that have been engaged by companies that could enable companies achieve faster and better visibility into the data.
Manish Gupta, VP Business Development, Nagarro
A panel discussion that followed discussed industry leaders’ experiences related to challenges faced with respect to demand fluctuations, demand fragmentation, complex supply chains for products with low shelf life, lack of homogeneity in food ingredients sourced through diverse geographic locations within India, as well as high levels of personnel attrition.
Devangshu Dutta, Manish Agarwal, Arshad Siddiqui, Tarang Gautam Saxena, Manish Gupta
Manish Agarwal, Director, Bikanervala mentioned that while consumers are including other cuisines in their diet, they still prefer to have Indian food on a regular basis. Standing firm on its positioning of being a leader in Indian traditional snacks and QSR has helped his company to sustain business in these challenging times.
Arshad Siddiqui of Rasna Beverages shared the challenges related to diversity in India not only of the demand base but even the supply base. He highlighted how flavours of the same fruit vary across different geographic regions within India and adds to the complexity of maintaining consistency in the product range.
The conference was received well by the delegates who found immense value in exchanging thoughts on some highly relevant business issues.
Devangshu Dutta
December 5, 2013
(Published in ETRetail.com on 6 December 2013)
Franchising isn’t rocket science, but advanced space programmes offer at least one parallel which we can learn from – the staging of objectives and planning accordingly.
A franchise development programme can be staged like a space launch, each successive stage being designed and defined for a specific function or role, and sequentially building the needed velocity and direction to successfully create a franchise operation. The stages may be equated to Launch, Booster, Orbiter and Landing stages, and cover the following aspects:
Stage 1: Launch
The first and perhaps the most important stage in launching a franchise programme is to check whether the organisation is really ready to create a franchise network. Sure, inept franchisees can cause damage to the brand, but it is important to first look at the responsibilities that a brand has to making the franchise network a success. Too many brands see franchising as a quick-fix for expansion, as a low-cost source for capital and manpower at the expense of franchisee-investors. It is vital for the franchiser to demonstrate that it has a successful and profitable business model, as well as the ability to provide support to a network of multiple operating locations in diverse geographies. For this, it has to have put in place management resources (people with the appropriate skills, business processes, financial and information systems) as well as budgets to provide the support the franchisee needs to succeed. The failure of many franchise concepts, in fact, lies in weakness within the franchiser’s organisation rather than outside.
Stage 2: Booster
Once the organisation and the brand are assessed to be “franchise-ready”, there is still work to be put into two sets of documents: one related to the brand and the second related to the operations processes and systems. A comprehensive marketing reference manual needs to be in place to be able to convey the “pulling” power that the brand will provide to the franchisee, clearly articulate the tangible and intangible aspects that comprise the brand, and also specify the guidelines for usage of brand materials in various marketing environments. The operations manual aims to document standard operating procedures that provide consistency across the franchise network and are aimed at reducing variability in customer experience and performance. It must be noted that both sets of documents must be seen as evolving with growth of the business and with changes in the external environment – the Marketing Manual is likely to be more stable, while the Operations Manual necessary needs to be as dynamic as the internal and external environment.
Stage 3: Orbiter
Now the brand is ready to reach out to potential franchisees. How wide a brand reaches, across how many potential franchisees, with what sort of terms, all depend on the vision of the brand, its business plan and the practices prevalent in the market. However, in all cases, it is essential to adopt a “parent” framework that defines the essential and desirable characteristics that a franchisee should possess, the relationship structure that needs to be consistent across markets (if that is the case), and any commercial terms about which the franchiser wishes to be rigid. This would allow clearer direction and focussed efforts on the part of the franchiser, and filter out proposals that do not fit the franchiser’s requirements. Franchisees can be connected through a variety of means: some will find you through other franchisees, or through your website or other marketing materials; others you might reach out to yourselves through marketing outreach programmes, trade shows, or through business partners. During all of this it is useful, perhaps essential, to create a single point of responsibility at a senior level in the organisation to be able to maintain both consistency and flexibility during the franchise recruitment and negotiation process, through to the stage where a franchisee is signed-on.
Stage 4: Landing
Congratulations – the destination is in sight. The search might have been hard, the negotiations harder still, but you now – officially – have a partner who has agreed to put in their money and their efforts behind launching YOUR brand in THEIR market, and to even pay you for the period that they would be running the business under your name. That’s a big commitment on the franchisee’s part. The commitment with which the franchiser handles this stage is important, because this is where the foundation will be laid for the success – or failure – of the franchisee’s business. Other than a general orientation that you need to start you franchisee off with, the Marketing Manual and the Operational Manual are essential tools during the training process for the franchisee’s team. Depending on the complexity of the business and the infrastructure available with the franchiser, the franchisee’s team may be first trained at the franchiser’s location, followed by pre-launch training at the franchisee’s own location, and that may be augmented by active operational support for a certain period provided by the franchiser’s staff at the franchisee’s site. The duration and the amount of support are best determined by the nature of the business and the relative maturity of both parties in the relationship. For instance, someone picking up a food service franchise without any prior experience in the industry is certainly likely to need more training and support than a franchisee who is already successfully running other food service locations.
Will going through these steps guarantee that the franchise location or the franchise network succeeds? Perhaps not. But at the very least the framework will provide much more direction and clarity to your business, and will improve the chances of its success. And it’s a whole lot better than flapping around unpredictably during the heat of negotiations with high-energy franchisees in high-potential markets.
admin
May 17, 2013
Organised by the Retailers Association of India the Delhi Retail Summit this year (10 May 2013) focussed on multi-fold growth for retailers utilising multiple channels to the consumer, with panel discussions and presentations by industry leaders who shared their experiences in exploiting the opportunities and dealing with the strategic and operational challenges of their varied businesses. Some snippets from the first panel discussion, comprising of the following panelists:
1. Devangshu Dutta, Chief Executive, Third Eyesight (Session Moderator)
2. Atul Ahuja, Vice President – Retail, Apollo Pharmacy
3. Lalit Agarwal, CMD, V-Mart Retail Ltd.
4. Atul Chand, Chief Executive, ITC Lifestyle
5. Rahul Chadha, Executive Director & CEO, Religare Wellness Ltd.
Devangshu Dutta
October 9, 2011
Amazon went public in 1997, when there were a total of 50 million internet users in the world. I remember making my first purchase on Amazon in 1998, and being delighted at the experience of finding something specific, quickly and conveniently. Over the next few months, a “revolutionary” fashion site in Europe – boo.com – raised and spent more than US$ 100 million of venture funding, and heralded a world under the domination of dotcoms.
A few short months later, chatting with a journalist in New Delhi, I found that India too had caught the dotcom bug. We weighed the pros and cons of retail on the internet in India. The previous year, ecommerce sites in India were estimated to have transacted all of Rs. 120-160 million (US$ 2.7-3.7 million) worth of business, but the figure looked set to explode.
I felt then that while the growth could be rapid, even exponential over the next few years, the outcome would still be a very small fraction of the total retail business in the country. We estimated that by 2005 e-commerce in India could be anywhere between Rs 5 billion and Rs. 15 billion on a best case scenario. Despite several apparent advantages in the online business model, the outcome depended on a variety of factors including internet penetration, the appearance of value-propositions that were meaningful to Indian consumers, investments in fulfilment infrastructure and the development of payment infrastructure.
In fact, by the middle of the decade the business had reached just under halfway on that scale, at about Rs 8-9 billion (US$ 180-200 million), despite 25 million Indians being online. Dotcoms became labelled dot-cons, with an estimated 1,000 companies closing down. The retail business discovered a new darling – shopping centres – which pulled funding away for another explosion, that of physical retail space.
The Second Coming
Today, though, dotcoms seem to be back with a vengeance.
The Indian e-commerce sector has received more than US$ 200 million investment in the last couple of years. Now India’s Amazon-wannabe Flipkart alone is looking to raise approximately that amount of money from private equity funds in the next few months, to push forward its aggressive growth plan.
Estimates for internet users in India vary between 80 million and 100 million, and the total business transacted online is projected to cross Rs 465 billion (US$ 10 billion). Online, the Indian consumer seems spoilt for choice, with offers ranging from cheap watches, expensive jewellery, speciality footwear, premium fashionwear, the latest books to feed the intellect, and organic foods to satisfy the body.
However, a closer analysis shows that product sales (or “e-tailing”) are still straggling, being forecast at about Rs. 27 billion (around US$ 550 million) in 2011, which would be merely 6 per cent of all e-commerce, and just about 0.1 per cent of the estimated total retail market. 80 per cent of the business remains travel related, with airline and railway bookings taking the lion’s share, and most of the rest is made up of services that can be delivered online.
The success of online travel bookings shows that the consumer is increasingly comfortable spending online. While a low credit card penetration remains a barrier in India, websites and payment gateways have created alternative methods that give the consumer a higher degree of confidence, including one-time cards through net-banking, direct debits from bank accounts, mobile payments, and, if all else fails, cash on delivery.
An e-tailing presence offers “timeless” access without physical boundaries. For a retail business, reducing and replacing the cost of running multiple stores, with their heavy overheads (rent and store salaries being the largest chunks) seems like a dream come true.
Similarly, merchandise planning and forecasting is typically fraught with error and multiple stores only compound the problem. An internet presence can minimise the number of inventory-holding points, thus reducing the error margins significantly. These factors should, in theory, make the online business more efficient and the value proposition more compelling for the consumer.
Then why isn’t e-tailing growing faster?
Barriers to Growth
The answer is that, while the online population is bigger and payment is no longer the hurdle that it once was, there are two other critical factors that have changed only marginally and incrementally over the years: the consistency of products and how effectively orders are fulfilled. With an airline or a train ticket, one has a reasonable idea of the product or service that will be delivered. Unfortunately this isn’t true of the online merchandise trade, which is plagued by poor products, poor service and, as a result, low consumer confidence.
Individual companies, of course, are spending a large amount of management effort as well as money, to ensure consistency. For instance, the team at Exclusively.in told us how they fretted over design, (including the thread and the number of stitches in the embroidered logo on the T-shirts) to ensure that the final product had a “rich” feel and to ensure that their product in quality to some of the most desirable brands in the market. Flipkart highlights its in-house logistics operations to ensure high service levels, in addition to using traditional courier and postal services.
Unfortunately, the fact remains that the consumer’s confidence can only be built over a period of time, by constantly providing consistent product quality and high levels of service. Businesses need to spend a few years before they achieve a “critical mass” in this area.
This issue of confidence is more of a problem in some products, due to their very nature. For instance, buying fashion and accessories online is very different from buying a book online.
Businesses such as Amazon have made it more convenient for the customer to search for books, compare them with others on the same subject, and read reviews before finally deciding to buy the book. But, even more importantly, they now also allow us to preview some of the pages or sections, so that we can do what we do in a bookshop – flip through the text, to get a sense of whether the book actually speaks to us. However, when we think of putting fashion products online, the problem that immediately comes to mind is that there is no effective way yet of the consumer getting a similar touch-feel experience. Avatars and virtual placement are a poor substitute to holding the product and physically placing it on oneself.
Accessories – such as jewellery and watches – are an easier sell than clothing and footwear, and if we could classify mobile phones and other electronic items also as “fashion accessories”, then we can declare the online accessory market a runaway hit. As long as the product quality and the accuracy of the picture depicting the product are high or consistent with the offer, it is the pricing and convenience that will drive business growth online, and the business can benefit from all the efficiencies inherent in the online model.
However, with clothing and footwear two major concerns remain: sizing and fit. For the answer to why this is so, we need to remember the fact that these are indeed two separate barriers. There are usually anywhere between three to six sizes options in any product, sometimes more (especially if you account for half-sizes in shoes). This translates into 3-6 times the complexity of managing inventory and, at the very least, doubles the possibility of returns (since customers may order multiple sizes to discover one that fits them). However, the other aspect is perhaps even more important and a bigger problem: fit also depends on styling, not just the size. We know from our own experiences in buying clothing and shoes that the same size in two different products does not mean that they will fit in a similar manner. This is less acute for clothing, especially products such as T-shirts, shirts and blouses which may have some allowance around the body, but is absolutely critical for shoes, which must fit close to the feet.
The American online shoe retailer Zappos – also owned by Amazon now – has found a way to overcome this barrier by offering free shipping both ways (i.e. for delivery to the customer and for any products that need to be returned), a 365 day return policy and a process whose final objective is customer-delight. As long as the product is in the same condition as it was when it was first delivered to the customer, Zappos accepts returns at no cost to the customer.
On the other hand, Indian sites Bestylish.com and Yebhi.com (also now owner of Bigshoebazaar.com) have different policies to deal with returns, but both are less flexible and less customer-friendly than the Zappos policy mentioned above.
I’m sure the Indian websites have sound commercial principles and clear strategic reasons for structuring their policies as they have, but it certainly presents a significant barrier to customers who may be debating whether to buy shoes online or buy offline after trying the shoes on. Unfortunately, the convenience factor is just not a big enough driver yet to overcome the fit barrier for most customers.
Among other products, the food and grocery category stands out as having the largest chunk of the consumer’s wallet. However, selling this electronically is a challenge, especially since the biggest driver of purchase frequency is fresh produce that is tough to handle even in conventional retail stores in India, let alone via non-store environments.
However, grocery retailers could ride on the back of standardised products, if they can overcome the challenge of delivering efficiently and quickly.
Another barrier is the desirability of shopping online versus offline. Management pundits may borrow Powerpoint slides from their western counterparts, describing “time-poor and cash-rich” customers for whom the internet is the most logical shopping source. This holds true for a small base of Indian consumers, but for most people product-shopping remains predominantly a high-touch activity and a social experience to be enjoyed with friends and family. In spite of the inconvenience related to driving and parking conditions, the pleasure of walking into a physical store has not diminished. If anything, during the last five years the “retail theatre” has become capable of attracting more customers with better stores and better shopping infrastructure. The convenience of shopping online is just not compelling enough for most of India’s consumers.
Emerging Opportunities
On the plus-side, consumers located in the smaller Indian cities, with less access to many of the traditional brand stores, are finding the online channel a useful alternative. However, fulfilling these orders in a timely and cost-effective manner remains a challenge for most companies.
One potential growth area is the “clicks and bricks” combination for existing retailers. Indeed, worldwide, leading retailers have moved on from multichannel strategies to being “omnichannel” – present in every location, format or occasion where their consumer can possibly be reached. Many of the chains in India have gained the trust and goodwill needed to tip the customer over to online shopping. However, for them the challenge would be to ensure that the internet presence is designed for an excellent user experience and serviced in a dedicated manner, just as any flagship store would, rather than as an online afterthought.
Retailers who have achieved a high degree of penetration and consumer confidence can also use a combination of “sell online, service offline” in locations where they have critical mass, as first demonstrated successfully by Tesco in the UK.
Delivery-oriented food services are a potential winner for consumers in urban centres in India who are pressed for time, again on the back of standardised service and product offerings, and their existing delivery mechanisms. For instance, quick-service major Domino’s, which hits 400 outlets this year, already has 10% of its annual sales coming from internet orders within just a year of launching the service, and that share is expected to double in the next year. What’s more, the online orders are reported to be of higher value than its other delivery orders. All in all, a phenomenal shift for the brand that promises delivery within “30 minutes or free”.
There is no doubt that e-tailing will grow in India. The confluence of increasing incomes, a growing online population, improving connectivity, and more businesses starting up on the net will lead to what would be “stupendous” year-on-year growth figures. We can expect the e-tailing revenues to be between Rs. 50 billion and Rs. 80 billion by 2015.
However, we need to remember that this will still be a very small share in the total pie, because the rest of the retail business is evolving and growing rapidly as well. Costs of acquiring and retaining customers will remain high and only increase, cost-effective fulfilment and high service levels will continue to worry most players. Per capita spends are also not going to be helped by discount-driven websites.
It is not a false dawn for e-tailing in India but, to my mind, the sun is as yet below the horizon despite the recent sky-high venture valuations.
Teams that are building for an exit must remember: most are likely to never achieve one. If you are losing money on every transaction, and will continue to do so in the foreseeable future, there is no future. Entrepreneurs and investors who are being over-enthusiastic and blithely ignoring the real costs of doing business may be in for their darkest hour.
However, those who are careful in tending to their flickering flames and have a longer term view of remaining in the business, may get to see their own e-tailing sunrise in the next few years.
(Updated in November 2011.)
