Devangshu Dutta
November 17, 2015
The Patanjali Group has created an Indian FMCG giant in a very short span of time on the back of a three-pronged strategy:
Over time, the group has also invested in improving its manufacturing and packaging infrastructure to bring itself on par with well-established competitors.
The group has clearly focussed itself on the mass market, and Patanjali Group’s products become a “go-to” for customers who are more price-sensitive than brand-loyal. This definitely creates pressure on established brands in each of the product segments where the group is now present.
In the growing market for ready-to-cook packaged food, a new entrant would struggle to create visibility and initial demand. However, with the momentum of the Patanjali brand behind it, the group’s new product — instant noodles — has a fighting chance.
I must say, though, that the immediate opportunity would have been bigger had Maggi also not just relaunched in the market. The other aspect to keep in mind is that while a lot of food and nutraceutical products resonate easily with the Patanjali brand, instant noodles seem completely counter-intuitive under this brand’s umbrella. How much consumers will support this new launch remains to be seen.
This 2-4 minute noodles story is still cooking. Keep watching the pot!
admin
September 8, 2015
Devina
Joshi, Financial Express
Mumbai,
8 September 2015
Recently,
there was news of restaurant reservation site EazyDiner expanding
operations to Mumbai from the National Capital Region, having
secured Series A funding worth $3 million led by existing investor
DSG Consumer Partners, and Saamna Capital.
As per a PwC analyst, investors have pumped more than $150 million
into companies like Grofers, TinyOwl, Swiggy, LocalOye, Spoonjoy,
Zimmber and HolaChef, among others. Judging by the patronage showered
upon them by customers and investors alike, it would appear that
hyperlocal start-ups are all set to create the next big boom in
the Indian retail sector. But is it really all that rosy? Probably
not, as can be amply witnessed by acquisitions taking place in
the nascent yet already overcrowded market.
Between November 2014 and February 2015, the Rocket Internet-backed
Foodpanda acquired rivals TastyKhana and JustEat.in, and is rumoured
to be in acquisition mode with TinyOwl. Restaurant search app
Zomato, which recently got into the food ordering space, is also
reportedly looking to acquire minority stakes in food-ordering
firms.
While investors are attracted to hyperlocal start-ups, controlling
logistics well is key to sustained growth for these businesses
— all of these will definitely go through a constraint in
the supply of delivery boys, for example. In India, organising
fragmented labour is a challenge and, hence, a services-based
hyperlocal needs to figure out the mechanics of human capital
even more than a traditional, product-based e-commerce firm.
For services, another challenge is customer stickiness. If a
user uses an app to obtain the services of a plumber, for example,
he may not go through the app to contact the plumber next time
if his services are found satisfactory. Discounting can induce
trials, but just like in any other business, prove fatal in the
long run. Like what led to the end of HomeJoy in the US —
excessive discounts to dissuade direct contact between servicemen
and customers.
Even for product-based start-ups, maintaining data quality is
a big hurdle as stock and prices may not be updated by retailers
in real time, making it difficult to track offline sales.
Since the game is hyperlocal, you need to be physically present
in the city to bring retailers aboard. For that, you need a city
team. Other challenges include retailer verification and assessment,
given that hyperlocals deal with small city retailers.
Stickiness is needed on both sides, and each locality will certainly evolve into having a market leader and a follower, with other players falling far behind. “So the critical success factor for a hyperlocal is being able to rapidly create a viable model in each location it targets, and then—to build overall scale and continued attractiveness for investors—quickly move on to replicate the model in another location, and then another,” says retail consultant Devangshu Dutta of Third Eyesight. As they do that, they will become potential acquisition targets for larger ecommerce companies, which could use acquisition to not only take out potential competition but also to imbibe the learning and capabilities needed to deal with microcosms of consumer demand.
(Published in Financial Express.)
admin
September 8, 2015
Devina
Joshi, Financial Express
Mumbai,
8 September 2015
E-commerce,
as we know it, is old news. Hyperlocal is the hot new buzzword
in retail hallways, going by the recent spate of well-funded launches
in this space. There is already a wide range of services on offer,
from grocery delivery to home, office and personal care services.
Hyperlocals, services-based or inventory-based, are largely an
urban India phenomenon. Services are hyperlocal by their very
nature, driven by locality or communities. When moving into a
new city, for example, people would like to stabilise as quickly
as possible and here, such services step in.
To put the whole picture in context, the Indian retail industry
is worth $500-600 billion. Of this, grocery items account for
about 67% of the revenue. However, in case of fast moving consume
goods (FMCG) and grocery, modern retail formats account for less
than 10% of the total sale. E-commerce or hyperlocals are obviously
a tiny part of the pie just yet. Most companies, therefore, are
still at a stage where they have to prove their business models
and change consumer behaviour.
While on-demand grocery delivery—the model that players
such as Grofers ride on—has immense potential in this space,
other high potential categories include delivery of services (such
as supplying peons/delivery boys, specialised laundry services,
plumbers or electricians), price comparisons, food ordering apps,
etc.
Hyperlocal startups in India
It is a no-brainer that an aggregation model, since it is asset-light,
is less capital-intensive than the inventory-led one. Moreover,
it is easier to scale up such a model. The new generation of hyperlocal
start-ups is coupling aggregation with logistics/delivery, thus
controlling even the last mile.
Take Zopper, a product-based hyperlocal which started off as
a price comparison website for electronics but now is a platform
for purchasing products from offline stores. It counts on faster
delivery through tie-ups with local shops near a buyer. “City
by city, we need to bring more merchants on board, and all they
have to do is download an app and their product can be listed
on Zopper,” says Neeraj Jain, CEO, Zopper. The company’s
margins vary from 2-8%.
Home services start-up Taskbob, founded by Aseem Khare, charges
a 20% commission from its servicemen. Product price comparison
website MySmartPrice works on commission too, while providing
a free six-month on-board period to offline sellers, where they
can use the platform for gaining traction. The revenue model of
BookMeIn, another home services company, includes a monthly subscription
fee for a SaaS-backed system given to service providers to manage
their business. Further, it gets revenues on leads/bookings done
by customers on the website, along with revenues through ads of
service providers. So what’s working in their favour?
A fertile environment
Indian retail is still dominated by brick-and-mortar stores, which,
oddly, is an opportunity in disguise for hyperlocal players. Unlike
non-hyperlocal e-commerce, these start-ups are not really competing
with offline retailers, but are partnering them instead.
Hyperlocal business models spell instant, on-demand delivery as
they cater to needs of a more immediate nature. The gratification
is far more accelerated – the entire transaction can be completed
in an hour sometimes. Customers also tend to trust hyperlocals
more than non-hyperlocal e-commerce websites, as the stores they
buy from through online platforms have a physical presence, making
it possible to attend to any grievances quickly. Further, the
start-up can tap into existing infrastructure, acting as a bridge
between existing retailers and the consumer.
“Due to the convenience factor, by being able to tap
into consumption opportunities that might have otherwise been
missed, the aggregator can actually drive new demand to the retailer
in the short term,” says retail consultant Devangshu Dutta,
chief executive, Third Eyesight.
Within hyperlocals, services have higher margins of around 20%
as opposed to product based models which earn 2-10% margins or
even non-hyperlocal e-commerce companies, which operate on 3-7%
margins, depending on the category.
This is because there is virtually no warehousing, inventory management or logistics involved in a services hyperlocal. Within services, food-ordering apps have an added advantage of the frequency of purchase as opposed to, say, e-commerce products. “The category is a high-repeat one as opposed to home repair for example,” says Saurabh Kochhar, co-founder and CEO, India, and chief business officer, global, Foodpanda.
A word of caution
While it ensures higher margins, replication of a services model
is much more difficult. Training of people in services is very
difficult as each individual has to be available wherever the
customer is located. “Second, when a product delivery happens,
I need local people to deliver it but if a person is coming to
give a service, he represents your brand and should know how to
handle a customer,” says Alagu Balaraman, partner and MD,
Indian operations, CGN Global India, a supply chain management
consulting firm.
Third, as the services industry is rather fragmented, it is difficult
to form partnerships with associations or groups of such service
providers, as specialists are spread out across the country. Fourth,
creating a need for services might be difficult as people may
already have their own local set-up in place. “But that mindset
is changing, with a large group of urban people who don’t
have the time or patience and need professional services,”
he says.
The biggest learning will be the capability to scale. A hyperlocal that focuses on a single ‘locality’ will find it difficult to get the scale needed to create an economically viable model. Being able to identify a widespread but local need, and having a model that adapts to each new market will be crucial.
(Published in Financial Express.)
Devangshu Dutta
July 30, 2015
Much has been written recently, with more than a touch of surprise, about ecommerce companies opening physical retail stores. Whether it is Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK or FirstCry and Flipkart in India, young tech-based ecommerce businesses are adopting the ways of the dinosaur retailers that they were apparently going to drive into extinction.
Perhaps, the seeds of the surprise lie in the perception that the ecommerce companies themselves built for their investors, the media and the public, that it was only a matter of time that the traditional retail model would be dead.
Or perhaps we should pin it on their investors for keeping the companies on the “pure-play” path so far – venture funds that have invested in ecommerce have largely taken the view that the more “asset-light” the business, the better it is; so they’re far happier spending on technology development, marketing, salaries, and even rent, than on stores and inventory.
After a bloody discounting and marketing battle, in a few short years, there are now a handful of ecommerce businesses left standing in a field littered with dead ecommerce bodies, surrounded by many seriously wounded physical retailers who are trying to pick up unfamiliar technology weapons. And their worlds are merging.
Which is a Stronger Building Material – Bricks or Clicks?
Online business models offer some clear strengths. Etailers have a reach that is unlimited by time and geography – the web store is always up and available wherever the etailer chooses to deliver its products.
An ecommerce brand’s inventory is potentially more optimised, because it is held in one location or a few locations, rather than being spread out in retail stores all across the market including in those stores where it may not be needed.
However, we forget that consumers don’t really care to have their choices and shopping behaviour dictated by the business plans of ecommerce companies or their investors. The fact is that physical retail environments do have distinct advantages, as etailers are now discovering.
Firstly, shopping is as much an experiential occasion as it is a transaction comprising of products and money. In fact, the word “theatre” has been used often in the retail business. For products that have a touch-feel element, the physical retail environment continues to be preferred by the customer. Of course, there are products that could be picked off a website with little consideration to the retail environment. For standard products such as diapers or a pair of basic headphones, online convenience may win over the need for a physical experience. However, non-standard products such as apparel or jewellery lend themselves to experiential buying, where a physical retail store definitely has an edge.
Shopping in a physical retail environment is also a social and participative activity. We take our friends or family along, we ask for their opinion and get it real-time. The physical retail environment lends itself to the consumer being immersed in multiple sensory experiences at the same time. These aspects are not replicable even remotely to the same degree by online social sharing of browsed products, wish-lists and purchases, nor by virtual smell and touch (at least not yet!).
In a market that is dominated by advertising noise, a physical store also helps to create a more direct and stronger connect for the consumer with the brand than any website or app can. An offline presence creates credibility for a brand, especially in an environment where online sales are dominated by discounts and deals, and many brands have risen and fallen online in the customer’s eyes during the last 3-4 years.
As a matter of fact, every store acts as a powerful walk-in billboard for the brand. If used well, the store conveys brand messages more powerfully than pure advertisements in any form. This reality has been embraced by retailers for decades, as they have created concept stores and flagship stores in locations with rents and operating costs that are otherwise unviable, except when you see it as a marketing investment.
Showrooming vs. Webrooming
As ecommerce has grown and brands have become available across channels, offline and online, the retail sector has been faced with a new challenge: customers browsing through products in the store, but placing orders with ecommerce sites that offered them the best deal. This obviously meant that retailers were, in a sense, running expensive showrooms (without compensation) on behalf of the ecommerce companies! The industry adopted the term “showrooming” to describe the phenomenon.
However, ecommerce businesses are now getting a taste of their own medicine as retailers are benefitting from a reverse traffic.
Consumers have now started using websites to conveniently do comparative shopping without leaving the comfort of their homes, and collect information on product features and prices but, once the product choice has been narrowed down, the final decision and the actual purchase takes place in a physical store.
This is described with a slightly unwieldy term, “webrooming”. This is one among the reasons that lead to consumers abandoning browsing sessions and carts when they’re online.
Bricks AND Clicks
The wide split between offline and online channels is mainly because traditional offline retailers have been slow to adopt online and mobile shopping environments.
Most physical retailers around the world have approached ecommerce as an after-thought, with a “we also do this” kind of an approach. Ecommerce has typically been a small part of their business, and not typically a focus area for top management. So, in most cases the consumer’s attitude has also reflected these retailers’ own indifference to their ecommerce presence. However, due to the accelerating penetration of mobiles, tablets and other digital devices, a serious online transactional presence is now vital for any retailer that wants to remain top of the consumer’s list.
On the other hand, ecommerce companies, as mentioned earlier, have so far mainly stuck to “pure-play” online presence due to their own reasons. However, with passage of time there is bound to be a convergence and eventually a fusion between channels.
The Journey to Omnichannel
Omnichannel today, in my opinion, is still more a buzzword today than a reality. Being truly omnichannel requires the brand or retailer to offer a seamless experience to the customer where the customer never feels disconnected from the brand, regardless of the channel being used during the information seeking, purchase and delivery process. For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online, have the product delivered at home, and be provided after-sales support by a service franchisee of the brand.
Very few companies can claim to offer a true omnichannel experience, due to internal informational and management barriers. However, having an effective multi-channel presence is the first step to creating this, since operating across different channels needs a completely different management mind-set from the original single-channel business. Having a presence across different channel means that a retailer will need to juggle the diverse needs. Capabilities, processes and systems that are fine-tuned for one channel, may not be fully optimal for another channel. This requires the retailer to restructure its organisation, systems and processes to handle the different service requirements of the various channels.
For instance, brick-and-mortar retailers moving online need to rethink in terms of the service (“always open”), speed (“right now”), and scale (“everywhere”). A traditional retail organisation is seldom agile enough to work well with the new technology-enabled channels as well.
An etailer opening physical stores, on the other hand, needs to embrace product ranging and merchandising skills to allocate appropriate inventory to various locations, as well as the ability to create and maintain a credible, distinctive store environment – in essence, inculcating old-world skills and overheads that they thought they would never need.
The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so.
Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix. They need to mould their business models until they achieve balance, proficiency and excellence across channels, and eventually become truly omnichannel businesses. It doesn’t matter from which side of the digital divide they began.
admin
June 6, 2015
Bureau,
Financial Express
Mumbai,
6 Jun 2015
In
a belated attempt to salvage its reputation, Swiss FMCG major
Nestle on Friday decided to recall its Maggi instant noodles from
the market to end the ensuing confusion in the minds of consumers,
which it said did not provide a conducive environment for the
product to be in the market at this point of time.
The company’s group CEO Paul Bulcke flew down to India and addressed a crowded press conference to reiterate that its products are safe to consume and that it applies the same quality standards and the same food safety and quality assurance system everywhere in the world. “We felt unfounded reasons resulted in confusion and the trust of consumers was shaken,” Bulcke said.
Though sales of Maggi in India account for roughly 0.005% of Nestle’s global revenue of almost 92 billion Swiss francs ($98.6 billion), Bulcke acknowledged that the recent developments had damaged its brand and the company was in for a long haul. “If you have confusion there is something wrong with communications. That’s why we are sitting here,” he said.
However, the company’s troubles do not seem to end. Even as Bulcke’s press conference was on, the food safety regulator, Food Safety and Standards Authority of India (FSSAI), ordered the company to recall all nine approved variants of the instant noodles from the market, terming them “unsafe and hazardous” for human consumption. It ordered it to stop further production, processing, import, distribution and sale of the product with immediate effect. It even said that Nestle launched the Maggi Oats Masala Noodles without approval and, therefore, ordered its recall as the company did not undertake a risk and safety assessment for the product. The regulator also said that Nestle violated labelling regulations on taste enhancer MSG and ordered the company to submit compliance report on its orders within three days.
After reports of presence of mono-sodium glutamate and lead in excess content in some samples surfaced in Uttar Pradesh around two weeks ago, till Thursday five states — Delhi, Gujarat, Tamil Nadu, Jammu and Kashmir and Uttarakhand — had banned its sale pending tests in government laboratories. Major retails chains as well as small eateries had also withdrawn the products from their stores and menu. However, with the FSSAI’s order on Friday the company’s woes are expected to increase and the crisis may get prolonged.
Referring to the reports of high lead content in tests by certain government laboratories, the Nestle global CEO said that the company needed to find out the methodology adopted by the government’s test centres. Denying that the company added MSG in Maggi, Bulcke said that MSG was found in the product because of natural ingredients like groundnut oil, onion powder and wheat flour which contain glutamate naturally. However, to remove any confusion the company has decided to remove from now on the “Contains no MSG” labelling.
While analysts welcomed the recall of Maggi by Nestle, they questioned the delay in doing so and even clashing with the regulator and denying the problem for weeks. “If you ask me, everything that Nestle has done is wrong. In this day and age of social media, you cannot question the government and consumers,” said Arvind Singhal, chairman of retail consultancy Technopak.
“Nestle India should have given higher priority to the interest of the consumer and should have done a nationwide recall right at the beginning instead of confronting the situation. In this case they have managed to lose trust of their consumers. Nestle India needs to understand that a brand lives on the trust of the consumer,” Devangshu Dutta, chief executive at Third Eyesight said.
(With inputs from Sharleen D’Souza in Mumbai.)
(Published in Financial Express.)
