Tushar Goenka, Financial Express
March 13, 2023

Flipkart Supermart, the online grocery delivery platform of the Walmart-owned ecommerce company, is betting on regional brands to unlock the next phase of growth. Over the past few months, the e-tailer has been listing brands and making them more readily available in cities where their recall value is high.

The regional push targets staples and is pronounced across categories such as atta, tea, pulses, among others. So, instead of offering, say, just the Tata brand of tea, Flipkart also showcases local favourites like Nameri Tea for the residents of Assam. Similarly, instead of selling Nestle’s Maggi and ITC’s Yippie noodles across the country, Flipkart will also let customers pick brands selling Korean noodles, popular among north east teenagers.

The shift in focus is vital in a country whose grocery bill totals $600 billion, of which offline sales account for a staggering $592 billion, while online is a much smaller $8 billion. Further, of the total grocery bill, the share of regional brands at around 60% is much higher than organised national brands that stood at 40%, according to rough estimates from EY.

So far, the plan seems to have worked for the company. Smrithi Ravichandran, head of grocery, says her unit has grown 2.5X between June 2022 and February 2023.

The reason for this shift in focus is easy to understand. In Ravichandran’s own words, “The Indian palette changes every 150 kilometres.” Consider this. The kind of toor daal consumed in Chennai is different from that consumed in Madurai. That is, even within a single state (Tamil Nadu in this case) there is a huge difference in preferences. And that is true for most categories.

Next, look at the potential. Ravichandran’s department sees about 65-70% of its orders coming from Tier 2 and beyond, with metros and Tier 1 cities accounting for the rest.

Analysts believe Flipkart’s initiative is a step in the right direction. Says Devangshu Dutta, CEO, Third Eyesight, a retail consulting firm, “Focusing on regional brands makes eminent sense not just to cater to tastes in a particular geography but to also serve consumers who have moved away from their hometowns and might find it difficult to buy their chosen brands.”

That said, catering to regional preferences is easier said than done. “If one has the same selection even for the same state, it doesn’t help. But there is a cost in catering to that varied choice and we’ll need to operate more fulfilment centres,” Ravichandran adds.

From what to how

Flipkart’s plans to double down on the regional selection in grocery will mean partnering with some of them. Here consumer data available with Flipkart will come in handy, says Ravichandran.

Angshuman Bhattacharya, national leader, consumer product and retail, EY India, believes that by offering more regional brands in categories like atta, Flipkart will deepen penetration, giving smaller players a chance to tap a wider customer base. “Smaller, regional brands will be hungrier for growth and may end up offering healthier margins than what a nationalised player would do,” he adds.

In this, Flipkart’s approach is similar to that of Future Retail under Kishore Biyani, who underscored the importance of a regional brand-led strategy. “The Future Group had launched around 10 private labels of atta and that is no easy feat. A regional brand-led focus might prompt Flipkart to toy with the idea of launching its private labels at a later stage. Or it may even end up asking the regional brands to package staples under its brand, thereby yielding much higher margins,” Bhattacharya of EY points out.

Flipkart isn’t drawing the line just yet. The company will invest in technology to tell customers about the origin of the products they order. “Conscious consumerism is another aspect we will focus on. So, on the packet of a toor daal, consumers will have traceability regarding where and when exactly the daal was harvested,” Ravichandran adds.

This journey will not be a cakewalk for Flipkart. Analysts point out that to be able to partner with Flipkart and address its customer base of over 450 million, smaller brands must up their supply chain spends. That apart, there is always the fear that if the e-commerce giant does not get the desired results, it might discontinue such tie-ups, leaving the regional players in the lurch. Flipkart must allay these fears right at the outset.

(Published in Financial Express)

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Faizan Haidar, ET Bureau
Jan 18, 2023

Tension has built up between retailers and malls across India, with leading malls planning to increase rentals every year instead of the current arrangement of every three years.

Industry insiders said large retailers are opposing the move given the number of stores they operate. Malls usually sign nine-year agreements with the retailers with a 15% increase in rentals every three years. If rents increase 5% each year, retailers will have to shell out about 17% in three years.

“It does not make any sense because we sign our properties for a long term, which is generally 12-15 years. An annual escalation in rent will not be viable and we would want to not go ahead with such short-term demands,” said a chief executive at a departmental store chain, who did not wish to be identified.

Rajendra Kalkar, president-west at Phoenix Mills, which operates more than half-dozen malls in Mumbai, Pune and Bengaluru, and in some tier-2 cities, said rentals are revised as per the originally agreed terms of the agreement. But in new agreements, the issue of annual rent revision is being negotiated on a case-by-case basis.

Another retailer said on condition of anonymity that brands invest a lot in fit-outs and annual rental hikes will make the business unviable. “A brand has to manage so many stores that annual hikes will lead to a chaotic situation where every month brands will have to keep rental hikes in mind,” said the retailer.

Other malls such as those of DLF, Nexus and Oberoi, Select City Walk and Vegas are also mulling over the issue, said industry executives.

“We have started something like staggered rental so that we can hike the rental every year. However, in the first year. we don’t put much pressure because the brand is trying to settle in. But once they start doing well, we push for a rental hike,” said the director of a leading mall, who did not wish to be identified.

Single-brand retailers said the demand is strong and they may be able to absorb rent inflation, if at all it goes through.

Mall developers said they will push for a 20% rental hike in three years given the inflation and cost of raw materials.

“The cost of everything has gone up and we will have to put it in a fresh condition to sustain. Retailers are doing good and they should not be hesitant in absorbing the hike,” said another mall developer.

India’s top ten listed retailers, including Aditya Birla Fashion & Retail, Shoppers Stop, Jubilant Foodworks and Tata Trent, have together saved more than Rs 1,500 crore in rents over the past two financial years, after negotiating discounts with malls and other landlords for the lockdown period.

“Covid impacted both mall developers and retailers, and mall developers may possibly be trying to recover from those lockdown losses,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Where there’s a dearth of quality retail spaces, well-managed malls may be able to negotiate more strongly for a frequent hike. But both retailers and malls need to come together for a symbiotic solution that works for both.”

Rentals have now returned to pre-Covid levels, as malls have returned to normal business and their tenants are seeing healthy footfall. According to ICRA, rental income reached 80% of pre-Covid levels during 2021-22 and is expected to surpass 2019-20 levels by 4-6% in the current fiscal.

“We have seen double-digit growth and understand that it was an unfavourable time for mall operators during Covid. So during renewal, we may accept rent escalation if we are not able to hold it. However, we don’t expect any adverse impact on our financials,” said Satyen Momaya, CEO of Celio, a French apparel brand.

Rental incomes have improved at a faster pace after the second wave of the pandemic, with recovery at 74% during the second quarter of 2021-22, as against 34% a year ago, and reaching 102% of pre-Covid levels in the second half of the current fiscal, said ICRA.

“Malls are investing heavily in events and every month there are two-three events to ensure footfall. With these initiatives, the mall expects sales to increase and the retailer to pay higher rent,” said a Kolkata-based mall developer, who did not wish to be identified.

ET Bureau, Dec 23, 2022

Reliance Retail Ventures, a subsidiary of Reliance Industries and the holding company of the group’s retail businesses, signed definitive agreements to acquire German wholesaler Metro AG’s India business – Metro Cash & Carry India-for a total cash consideration of ₹2,850 crore.

As part of the deal, Reliance will get 31 large format stores in 21 cities as well as the realty portfolio that includes six store-occupied properties, 3,500 staff and Metro’s 3 million B2B customers, of which 1 million are frequent buyers. The deal is subject to regulatory and other conditions and is expected to be completed by March 2023, the companies said on Thursday. ET had first reported in its edition dated Oct 15 that Reliance is the frontrunner to acquire Metro’s India business.

Metro AG said in a release that the India business valuation implies a sales multiple of 0.6x based on sales in the year ended September and takes into account lease rental and other related liabilities of e150 million (₹1,320 crore). Metro India generated sales of ₹7,700 crore (926 million euros), its best ever, in the year ended September.

Metro expects a transaction gain of about 150 million euros and an earnings per share (EPS) gain, once the deal closes.

The move will help Reliance consolidate its presence in the B2B trade segment, which it calls new commerce and is among its next big growth drivers, intensifying competition with Udaan, Amazon and Walmart-owned Flipkart. Reliance owns and runs the country’s largest retail business. All Metro India stores will continue to operate under the Metro brand during an agreed transition period.

Reliance Retail Ventures director Isha Ambani said the acquisition of Metro India aligns with its new commerce strategy of building a unique model of shared prosperity through active collaboration with small merchants and enterprises.

“We believe that Metro India’s healthy assets combined with our deep understanding of the Indian merchant and kirana ecosystem will help offer a differentiated value proposition to small businesses in India,” she said.

Metro AG chief executive officer Steffen Greubel said it is selling a growing and profitable wholesale business at the right time. “Indian trade industry is currently experiencing strong consolidation and disproportionate growth in ecommerce, including the B2B segment,” he said. “Due to the market dynamics, a sizable investment would be required to further grow the business. Therefore, now is the right time to use the momentum and open a new chapter for Metro India.”

Metro said it aims for a leading market position in wholesale. Due to increasing market consolidation, accelerated digitalisation and intense competition, Metro India’s operations don’t fit Metro’s core growth strategy, it said. Abneesh Roy, executive director, institutional equities at Nuvama, said the price to sales ratio is 0.37, which seems fair, given the B2B segment is a low-margin business.

Reliance will gain a significant jump in revenue and established locations that it can expand or optimise under its own branding and formats, said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “The additional shelf space will also be very welcome for its own FMCG brands,” he said.

(Published in The Economic Times)

Metro AG global chief executive officer Steffen Greubel said the company is at a “very advanced” level of discussions on its India business, suggesting for the first time that it could be looking at an exit from the country soon.

“We are very advanced in the process regarding India and are at a certain maturity level in the process. It’s too early to share any information, but we have discussed it greatly,” Greubel told analysts when asked if he is looking at a possible withdrawal from India and the status of talks. “We are very deep in the (sale) process in India,” he said last week while announcing annual earnings.

The German wholesaler grew its Indian business by 21% to $982 million during the year ended September, as per its latest annual report.

Last month, ET reported that Reliance had agreed in principle to buy Metro AG’s cash-and-carry wholesale India business for ₹4,000-4,500 crore.

Its unit Reliance Retail is already the biggest grocery retailer in the country with over 2,400 stores across formats while Metro operates 31 wholesale stores in India with seven of them on company owned land in prime locations. The company hasn’t publicly stated that it’s looking to leave India. Metro would be the second big international wholesaler retailer to exit India, if this happens. French retailer Carrefour wound up its India business in 2014 after struggling with sales for four years.

Globally, Metro is the world’s fourth-largest retailer by revenue. In India, it doesn’t sell directly to consumers and is an organised wholesaler or cash-and-carry operator that sells merchandise to local kirana stores, hotels and catering firms.

It decided to put the India business on the block as part of a global decision to exit the country due to heightened competition, a tougher regulatory environment and the lack of a level playing field between local and foreign retail companies, industry executives said.

Experts said the difficult European and global economic environment, regulatory restrictions in India, tough competition from domestic Indian groups and thin margins in the B2B business in India may have led Metro to focus on growing its core markets in Europe.

“Though India is, indeed, a long-term strategic market for companies looking at global growth, whether retail or B2B, not every business model from other geographies can be successfully transplanted or rapidly scaled in India, and Metro’s business footprint in India may be far smaller than they may have expected in the two decades of presence here,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. The choice to be present in different countries is always a dynamic one for global retailers and entry or withdrawal is driven by individual strategies, rather than solely on the merit of the market itself, he said.

“In September, the management board reported on the current status of the audit of strategic options for Metro India,” according to the annual report.

Overseas investment in offline trade has been a tricky issue, despite India allowing 100% foreign direct investment (FDI) in wholesale trade on a cash-and-carry basis. Metro was one of the first companies to enter the segment in India in 2003. Lobby groups representing small Indian retailers have accused overseas retailers of violating FDI rules, which the foreign companies have consistently denied. Some trade lobbies have complained to the government that a few global wholesalers have been flouting FDI rules by selling to consumers directly, which is not allowed as per current regulations.

(Published in The Economic Times)