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.
admin
February 21, 2016
Shinmin
Bali, Financial Express
Mumbai,
21 February 2016
Having
created quite a stir at the time of their launch, hyperlocal companies
are now witnessing a dampened mood. While several have folded
up operations in some cities, others have downsized staff, tweaked
the services they offer and even made alterations to their business
models. A recent example is Grofers shutting down operations in
Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik,
Rajkot and Visakhapatnam.
TinyOwl last year was in the news for a poorly-handled downsizing
operation in Pune, with a dramatic hostage situation involving
its co-founder Gaurav Choudhary. PepperTap also recently shut
down operations in six cities.
Ironically, giants like Amazon have not only aggressively entered
the hyperlocal space, they are building on it. Amazon is currently
offering the service in Bengaluru, Amazon Now, after running a
pilot project, Kirana Now, in 2015.
The investor sentiment in India is also on a decline, as was
reported earlier this year. Investments by venture capitalists
have dropped from $2.12 billion (October-December 2014) to $1.15
billion (October-December 2015), according to a report by CB Insights
and KPMG International. This leaves an even shorter window of
opportunity for players to retain investor interest.
Albinder Dhindsa, co-founder, Grofers, states that differing
levels of technology literacy among the majority of merchants
and consumer adaptation to the online platform are concern areas
for the company. In 2016, the company is looking to bring over
one lakh merchants aboard and ensure that turnaround time stays
under an hour. Grofers delivers more than 35,000 orders per day
on average. In Q4 2015, the firm acquired teams of SpoonJoy and
Townrush to bring dynamic learning to the table.
For Swiggy’s co-founder Nandan Reddy, the focus is currently
to grow the market, while catering to a wide demographic of consumers.
He admits that in the early stages, the brand had trouble educating
even its partners. Furthermore, operating a delivery fleet in
an on-demand service offering sub-40 minute deliveries is a challenging
task, given that there are at least 15 points of failure in an
average order. Swiggy currently owns a delivery fleet of 3,800
delivery executives. The brand’s repeat consumers contribute
to over 80% of orders.
Debadutta Upadhyaya, co-founder, Timesaverz, says some of the
major challenges in a hyperlocal market are optimum resource utilisation
and matching locations, price points, and other specific requirements
to customer needs. Timesaverz currently has a service range spread
across 40 categories, aided by a network of over 2,500 service
partners across five metros. Its revenue model is commission based,
where 80% of earnings from consumers are shared with service partners.
Vinod Murali, MD, Innoven Capital, points out that as the hyperlocal
industry is in its nascent stages, it needs a fair amount of time
to grow. “One aspect to keep in mind is that a large sized
equity cheque does not imply that a company has achieved operational
maturity or robust business metrics, especially in this segment,”
he notes.
Given the recent consolidation in this category, the survivors
have the opportunity and time to focus on improving unit economics
and demonstrate that their businesses are viable and valuable.
Devangshu Dutta, CEO, Third Eyesight, is of the opinion that
hyperlocals make the mistake of borrowing business models and
terminologies from Silicon Valley, without adequately understanding
the real context of the Indian market. “Is there an existing
or even potential demand for the service claimed to be provided?
Or are you just going to introduce an intermediary and an additional
link in the chain, with additional costs and unnecessary administration
involved?” he asks.
(Published in Financial Express)
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
June 26, 2012
There was time when there were two choices for the middle-class Indian male of all ages—(usually) Bata or (occasionally) the Chinese guy who made shoes to order. Over the years, other brands also entered the market. Things have changed. While it may not reach the scale of an all-consuming obsession, there’s now a strong enough market in India for several upscale overseas and local brands to think it worth their while to vie for custom here, as Paromita Banerjee of Mint discusses in this video.
The article from Mint by Sapna Agarwal & Byravee Iyer is available here.
Devangshu Dutta
July 22, 2011
The apparel retail sector worldwide thrives on change, on account of fashion as well as season.
In India, for most of the country, weather changes are less extreme, so seasonal change is not a major driver of changeover of wardrobe. Also, more modest incomes reduce the customer’s willingness to buy new clothes frequently.
We believe pricing remains a critical challenge and a barrier to growth. About 5 years ago, Third Eyesight had evaluated the pricing of various brands in the context of the average incomes of their stated target customer group. For a like-to-like comparison with average pricing in Europe, we came to the conclusion that branded merchandise in India should be priced 30-50% lower than it was currently. And this is true not just of international brands that are present in India, but Indian-based companies as well. (In fact, most international brands end up targeting a customer segment in India that is more premium than they would in their home markets.)
Of course, with growing incomes and increasing exposure to fashion trends promoted through various media, larger numbers of Indian consumers are opting to buy more, and more frequently as well. But one only has to look at the share of marked-down product, promotions and end-of-season sales to know that the Indian consumer, by and large, believes that the in-season product is overpriced.
Brands that overestimate the growth possibilities add to the problem by over-ordering – these unjustified expectations are littered across the stores at the end of each season, with big red “Sale” and “Discounted” signs. When it comes to a game of nerves, the Indian consumer has a far stronger ability to hold on to her wallet, than a brand’s ability to hold on to the price line. Most consumers are quite prepared to wait a few extra weeks, rather than buying the product as soon as it hits the shelf.
Part of the problem, at the brands’ end, could be some inflexible costs. The three big productivity issues, in my mind, are: real estate, people and advertising.
Indian retail real estate is definitely among the most expensive in the world, when viewed in the context of sales that can be expected per square foot. Similarly, sales per employee rupee could also be vastly better than they are currently. And lastly, many Indian apparel brands could possibly do better to reallocate at least part of their advertising budget to developing better product and training their sales staff; no amount of loud celebrity endorsement can compensate for disinterested automatons showing bad products at the store.
Technology can certainly be leveraged better at every step of the operation, from design through supply chain, from planogram and merchandise planning to post-sale analytics.
Also, some of the more “modern” operations are, unfortunately, modelled on business processes and merchandise calendars that are more suited to the western retail environment of the 1980s than on best-practice as needed in the Indian retail environment of 2011! The “organised” apparel brands are weighed down by too many reviews, too many batch processes, too little merchant entrepreneurship. There is far too much time and resource wasted at each stage. Decisions are deliberately bottle-necked, under the label of “organisation” and “process-orientation”. The excitement is taken out of fashion; products become “normalised”, safe, boring which the consumer doesn’t really want! Shipments get delayed, missing the peaks of the season. And added cost ends in a price which the customer doesn’t want to pay.
The Indian apparel industry certainly needs a transformation.
Whether this will happen through a rapid shakedown or a more gradual process over the next 10-15 years, whether it will be driven by large international multi-brand retailers when they are allowed to invest directly in the country or by domestic companies, I do believe the industry will see significant shifts in the coming years.
