Growth gets thinner for Zara as competition grows in size

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May 20, 2024

Sagar Malviya, Economic Times

Mumbai, 20 May 2024

Spain’s Inditex, the owner of fashion brand Zara, saw its slowest ever sales growth in India, excluding the pandemic year, in FY24 as the world’s largest fashion group faced rising competition from global rivals in the clothing market that is increasingly getting cluttered.

Inditex Trent, its joint venture with Tata that runs 23 of Zara stores in India, saw revenue rise 8% to Rs 2,775 crore last fiscal, significantly down from 40% growth a year ago, according to Trent’s annual report. Net profit was down too at Rs 244 crore, an 8% drop.

Zara has been a runaway success since its arrival in the country more than a decade ago but after initially doubling sales every two years, the brand’s rate of expansion had come down in the past few years. “The market is very competitive, and the challenges are real. Nevertheless, the opportunity pool and the size of the market means that there is space for multiple successful players. Trent remains well placed to navigate this next phase of growth by leveraging our platform and growth engines,” P Venkatesalu, chief executive officer at Trent, said in the report.

Trent that runs Westside has shifted focus on its lower priced fast fashion brand Zudio, which opened about four new stores every week on average last fiscal to take the total store count at 545 doors. Trent also has a separate association with the Inditex group to operate Massimo Dutti stores in India. The entity saw revenues rise 14% to Rs. 102 crore.

Experts said consumer demand has been affected in the past couple of years with brands having to work extra hard to get same-store growth and much of top-line growth has come for brands from store additions.

“Most international and premium Indian brands are competing for a relatively narrow slice of the population pie in the larger urban centres. While the Indian market is a bright spot amid the gloom in the world’s major economies, global pressures are likely to play a part in the confidence among brands to invest in expansion,” Devangshu Dutta, founder of retail consulting firm Third Eyesight, said, adding there is not necessarily “fatigue” for the brand.

“But if the contest for the consumer’s attention is more intense and the consumer’s choices are more fragmented across a wider choice of brands, that will definitely have an impact on any individual brand’s performance.”

Being the world’s second most-populous country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing western-style clothing. Most of Zara’s back-end and merchandise sourcing are handled by Inditex, while the Tata expertise is mainly for identifying real estate and locations.

(Published in Economic Times)

Seamless Customer Experience in an Omnichannel Retail World

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May 8, 2024

At the recent Phygital Retail Convention in Mumbai, Devangshu Dutta anchored an engaging “Fireside Chat” with Bhavana Jaiswal of IKEA India and Kapil Makhija of Unicommerce , on retailers engaging with their customers across channels and formats, and the opportunities as well as challenges in managing experiences seamlessly across online and offline interfaces.

Watch the video at this link:

Starbucks Records Slowest Growth Since Pandemic In India Last Fiscal

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May 6, 2024

Sesa Sen, NDTV Profit

6 May 2024

Starbucks Corp., the world’s largest coffee chain, posted its slowest sales growth in India since the pandemic. The coffee giant is struggling to bring in as much business as it has in the past as consumers reduce their visits even as it prepares for ambitious store expansion in a tea-drinking nation.

The India unit formed in partnership with the Tata Group clocked net sales of Rs 1,218 crore, a growth of 12%, during the year ended March 2024, according to Tata Consumer Products Ltd.’s latest investor presentation.

The Seattle-based retailer experienced a compounded annual growth rate of 21.89% between FY17 and FY23 in the world’s most populous nation. The only exception to this trend was in FY21, when sales plunged by 33% as shops were forced to shut down due to the impact of Covid-19.

“Tata Starbucks had a subdued quarter given the overall trends that we’re seeing in the QSR [quick service restaurants] business,” said Sunil D’Souza, managing director and chief executive officer at Tata Consumer Products.

He, however, indicated that March was an improvement over February, and April was even better than March. “So, we see a better trend right now, and we remain focused on the larger India opportunity.”

Tata Starbucks Pvt. Ltd. took 11 years to scale its operations to a revenue of over Rs 1,000 crore. Although the joint venture turned positive at the EBITDA level for the fiscal year 2023, it continues to be loss-making. In the year ending March 2023, Tata Starbucks posted a net loss of Rs 25 crore on a turnover of Rs 1,087 crore, according to filings with the Registrar of Companies. The net profit figures for fiscal 2024 are not available yet.

The coffee chain has seen its popularity take a major hit over the last two quarters, ending in March and December, with a meagre 7% increase in sales during each period. This is a marked shift from its historical track record of double-digit growth, suggesting that consumers are now looking for more budget-friendly cafe experiences.

“Consumers have turned slightly more conservative with their spends, which is affecting both the frequency and of transactions,” according to Devangshu Dutta, head of retail consultancy Third Eyesight.

According to him, new store openings rather than an increase in sales at existing ones could drive growth.

The other reason is that the coffee market is more competitive today, with most local peers selling at price points lower than Starbucks, Dutta said.

Starbucks competes with Bengaluru-based Cafe Coffee Day and foreign entrant Barista, among others, in the country’s $400 million market. It also faces competition from private equity-backed Third Wave and Blue Tokai, which have opened about 200 stores between them in the last three years.

Since opening its first cafe in October 2012, Tata Starbucks’ store count has grown to 421, implying that on average, each outlet generated roughly Rs 3 crore in revenue from coffee, snacks, and merchandise sales in FY24.

The dwindling sales come at a time when the company plans to open 1,000 cafes in India. To meet the target, it seeks to open one new store every three days.

Starbucks added 29 net new stores between January and March, achieving a record of 95 stores opening in a year, according to the presentation.

The coffee chain had earlier said it plans to enter tier-2 and tier-3 cities in the country and increase the number of its drive-through, airport-based and 24-hour cafes. It also aims to double its headcount to 8,600.

To lure consumers back after a rough start to the year, the coffee giant is launching new products like a boba-inspired summer beverage.

“Over the past 11 years, the India market has grown to become one of Starbucks’ fastest-growing markets in the world,” Laxman Narasimhan, chief executive officer, Starbucks, said in a statement during his India visit earlier this year. “With a growing middle class, we are proud to help cultivate the evolving coffee culture while honouring its rich heritage.”

Starbucks faces challenges not only in India but also globally. A disastrous fourth quarter that saw a slowdown in store visits promoted Starbucks Corp. to lower its expectations for its full-year sales and profit. Its revenue for the January–March period dropped 2%, the first since the end of 2020.

Indian spice makers under heat in Asia for alleged contamination

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May 3, 2024

SAYAN CHAKRABORTY, Nikkei staff writer
Bengaluru, 2 May 2024

India’s packaged spice manufacturers MDH and Everest are under regulatory scrutiny in several countries after their products were allegedly found to contain carcinogenic elements, barely a year after cough syrups made in the South Asian nation were linked to the deaths of over 140 children in Africa.

Countries like Australia, New Zealand and the U.S. are weighing investigations into the packaged spices made by the companies after Hong Kong authorities raised a red flag over their quality. This isn’t the first time that the two — among the largest such companies in India — have faced these kinds of issues, with the U.S. Food and Drug Administration ordering a recall of Everest spice mixes in 2023 and some MDH products in 2019, both due to salmonella contamination.

The Centre for Food Safety (CFS) in Hong Kong said in a statement on April 5 that it found ethylene oxide (ETO), a pesticide that can cause cancer if consumed in large amounts, in three types of packaged spices manufactured by MDH and one made by Everest. The products were taken off the shelves and recalled, the CFS said.

Taking its cue from the Hong Kong authorities, the Singapore Food Agency (SFA) a couple of weeks later recalled the Everest Fish Curry Masala product, saying in a statement that consumers who had purchased it were “advised not to consume it.”

The SFA also said, “As the implicated products [in Hong Kong] were imported into Singapore, the SFA has directed the importer to recall the products.” The agency clarified that “although there is no immediate risk to consumption of food contaminated with low levels of ethylene oxide, long-term exposure may lead to health issues.”

India’s Spice Board, a government agency that oversees spice exports, said that the limit for ETO varies between countries, from 0.02 milligram per kilogram of spices in places like the U.K. and Norway to 7 milligram per kilogram in Canada and the U.S.

Pesticides are widely used in agriculture in India, often leaving traces in food products. According to Indian government estimates, the cultivated area where chemical pesticide is used grew 33.4% from the fiscal year ending March 2019 to fiscal 2023, reaching 108,216 hectares. That was about seven times the area cultivated with biopesticides in 2023.

“We tend to look critically at the end product, but even more rigor is needed at the level of the ingredients,” said Devangshu Dutta, CEO at consultancy firm Third Eyesight, referring to the use of pesticides in cultivation. “Otherwise, we will end up kind of catching the product at the last point of control, which is not enough.”

Hong Kong and Singapore did not disclose the amount of ETO content in the recalled products. MDH and Everest had not responded to requests for comment by the time of publication.

Authorities elsewhere have also taken note of the allegations. “Food Standards Australia New Zealand is working with our international counterparts to understand the issue with federal, state and territory food enforcement agencies to determine if further action is required in Australia, e.g., a food recall,” the agency told Nikkei Asia in an email statement on Wednesday.

The regulatory scrutiny in the U.S., Australia, New Zealand, Hong Kong and Singapore, raises questions over an export market worth about $700 million, research firm Global Trade Research Initiative (GTRI) said in a report on Wednesday.

“Swift investigations and the publication of findings are essential to re-establish global trust in Indian spices,” GTRI said, adding that the “lack of clear communication [from government agencies] is disappointing.”

Indian food has been under scrutiny in Europe as well. The European Commission Rapid Alert System for Food and Feed estimates that since the beginning of 2023, Indian food products were deemed to pose “serious” risks in 166 instances. These included nine cases of ethylene oxide found in food supplements and spices in countries including Sweden, Greece and Italy.

Chinese food imports were found to pose serious risks on 115 occasions and those from the U.S. on 152 occasions.

The recalls come at a time when New Delhi is rolling out incentives to support local manufacturers and exporters in transforming India into a $5 trillion economy. India is the world’s largest exporter of spices with shipments worth $3.9 billion in 2023, followed by Vietnam and Mexico, according to data provider Tendata. Those figures give India a market share of 37.2%, with Vietnam at 28.1% and Mexico at 9.6%.

The issue with food products follows an outcry over the quality of medicines manufactured in India. Since 2022, the World Health Organization has linked the deaths of at least 141 children in Gambia, Uzbekistan and Cameroon to cough syrups made by India’s Maiden Pharmaceuticals, Marion Biotech and Riemann Labs that it alleged contained toxins.

But while the pharma companies are small local players, MDH and Everest made revenues of $260 million and $360 million respectively, in the fiscal year ended March 2023.

Poor food quality in India stems from a general lack of awareness about food safety and insufficient resources to track ingredients, among other reasons, said U.S.-based food and beverage consultancy AIB International in a report in October.

The Food Safety and Standards Authority of India found 16,582 samples unsafe in the fiscal year 2022, the latest such data available. That was a threefold jump from the previous year.

“Most of the food and beverage manufacturers in India are focused on reducing costs to make their product affordable to the public,” the report said. “As a result, many cannot prioritize food safety as a pillar of their business because it could prevent them from meeting their profit margins.”

“Food manufacturing and processing facilities can lack the resources to maintain proper hygiene,” it noted, adding that food-borne illnesses in India is estimated to top 100 million every year.

(Published on Nikkei)

Inditex to launch Bershka and Zara Home in India this year

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April 15, 2024

Sagar Malviya, Economic Times
Mumbai, 15 April 2024

Spanish fashion company Inditex said it will launch youth clothing brand Bershka and Zara Home in India this year.

“Bershka will open its first store in Mumbai Palladium, and Zara Home will open in Bangalore,” it said in its latest annual report.

Inditex had launched fast fashion brand Zara in 2010 and premium clothing brand Massimo Dutti eight years ago. Its new offering, Bershka, will pitch it directly against Reliance Retail’s Yousta, which too targets the younger consumer segment.

Being the world’s second most-populous country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing Western-style clothing. Fast fashion brands such as Zara and H&M became runaway successes soon after they entered the country.

Experts said Bershka’s target consumer profile is mostly teens to mid-20s, slightly younger than that of Zara, which is pitched at 20-40-year-old fashion-driven customers.

“The product assortment is different, with a higher share of knits, fewer dresses and more casual overall compared to Zara, keeping in line with the lifestyles of the customer group. So in that sense it wouldn’t cannibalise Zara in any serious way, though some of the younger set among Zara buyers could migrate some of their purchases to Bershka,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “The biggest question is, can they hit the price points that young Indian fashion consumers want as with domestic brands such as Zudio, Yousta and others, or will consumers overlook higher prices for the style mix and a European brand pull in significant numbers to make the brand viable.”

According to a recent report by Motilal Oswal, the ₹2.5 lakh crore value fashion segment accounts for 57% of the total apparel market and is one of the largest and fastest-growing segments. A substantial untapped opportunity beyond the metros and tier-1 cities, driven by better demographics, higher incomes and greater customer aspiration, has compelled several big players to enter a market that was previously dominated by regional and local operators.

Since its inception in 2016-17, Zudio has seen considerable expansion and reached nearly 400 standalone stores, outpacing most apparel brands primarily due to its competitively priced products with an average selling price of ₹300. Following the success of Zudio, a unit of the Tata Group’s Trent, the segment has seen the entry of national retailers in the affordable youth clothing segment such as Yousta by Reliance Retail, Style-Up by Aditya Birla Fashion and Retail and Shoppers Stop’s InTune.

(Published in Economic Times)