In 2016, brick-and-mortar modern retailers seemed to have begun recovering their confidence, and cautiously investing in expansion. However, currency shortage has significantly dampened demand at the end of the year. The hangover would continue into the first half of 2017, and consumers could be muted overall on discretionary purchases, including fashion, mobile upgrades and out-of-home dining.

On the other hand, while digital transactions introduce a note of caution (friction) in the consumer’s purchase decision, for e-tailers they do reduce complexity, cash-handling costs and potential returns which could provide significant unexpected wins.

I’ve written about this for years, and don’t tire of reiterating: the retail sector must recognise that shopping is a unified activity for the consumer; physical stores and non-store environments are alternative but complementary channels. Brands can and must use whatever channel mix works for them, and brick-and-mortar retailers need to invest in creating an integrated growth blueprint towards “unified commerce”.

On their part, while e-commerce companies are constrained by FDI policy, they will need to invest more in developing “old economy” strengths – strong product differentiation and distinguishable brands. Fashion, accessories, home decor and other lifestyle products are strong drivers of gross margin for all multi-product retailers, and e-commerce players struggling on the path to profit would focus on these even more, as well as on private labels. They also need to have management teams that are able to cast their minds 3-5 years into the future, while keeping close watch on immediate cash flows. Capital is available, but turning risk-averse. All businesses need to focus on up-skilling their teams, retaining good people, improving processes and adopting technology. In recent years, growth in the retail sector seems to have been driven by a “spray-and-pray” approach, not necessarily management sophistication. Spending like there’s no tomorrow is a sure way to no tomorrow.

In short, 2017 could be the year where the entire retail sector grows up – a lot. We hope.

(This piece was published in The Hindu – Businessline on 29 December 2016).

P. Karunya Rao of Zee Business in conversation with Devangshu Dutta, Chief Executive, Third Eyesight and Narayan Devanathan, Group Executive & Strategy Officer, Dentsu India, about festive discounts, the evolution of ecommerce and retail business in India.

Packaging of products is, undoubtedly, an extremely strong means of conveying the essence of the brand, its ethos and its personality.

Packaging is not only a vehicle to endorse the identity of a brand in a consumer’s mind, the growing need for sophisticated packaging also results from many lifestyle needs such as ease of transportation, storage, usage and disposability sought by convenience seeking and time pressed consumers.

But, increasingly, it also reflects the brand’s responsibility and sensitivity towards Nature and its resources.

If we, as consumers, were to reduce or optimize packaging from our daily lives, especially for food and beverages, there will be a redefinition of the processes involving our purchase and usage. It will also to a larger degree alter the systems and processes of organisations whose distribution and retail is integrally dependent on packaging.

Original Unverpackt, a concept grocery store in Berlin, Germany operates without food packaging that would later turn into garbage. The idea around which it is build is to bring one’s own containers and have it weighed. The supermarket will label your containers. After one shops and gets to the till, the weight of the containers is subtracted and one has to pay for the net weight of the groceries. The label is designed to survive a few washings so one may come back and skip the weighing process for a few more times. In this way, not only do the food products shed their familiar identifiers (brand colors, packaging structures, and bold logos) but the ways they move from shelf to home becomes radically different. While shoppers are encouraged to bring their own bags and containers with them, a range of re-usable jars and containers are also available for purchase onsite. As much as possible, produce is sourced locally.

At this point of time, it may seem difficult to adopt this framework in entirety. However we should remember that just a few short decades ago we followed similar practices such as engaging biodegradable, recyclable, reusable materials for packaging, making use of one’s own containers and bags and filling them in with quantities as per the requirements from the bulk containers.

Singapore’s National Environment Agency (NEA) will be introducing mandatory requirements for companies to use sustainable resources in packaging and reduce packaging waste very soon. It is still being decided in what forms the regulations could be developed, but the preliminary ideas include requiring companies to submit annual reports on how much packaging they use, to develop waste reduction plans, or to meet recycling targets. Belgium on the other hand has been championing the cause of waste management by maximizing recycling and reusage.

The global trends are moving towards sustainable packaging given the ecological resource wastage it creates, the garbage the packaging material produces and the air and the ground water pollution the landfills create. Earth Overshoot Day, which marks the date when humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year, is arriving progressively earlier and earlier, indicating that the humanity’s resource consumption for the year is exceeding the earth’s capacity to regenerate those resources in that year.

Another very grim consequence that was witnessed is the frightening and highly visible impact on marine life – since the start of this year more than 30 sperm whales have been found beached around the North Sea in the United Kingdom, the Netherlands, France, Denmark, and Germany. After a necropsy of the whales in Germany, researchers found that four of the giant marine animals had large amounts of plastic waste in their stomachs. Although the marine litter may not have been the only cause of them being beached, it had a horrifying consequence on the health of these animals.

Given the serious consequences and the growing sensitivity towards these consequences, it is imperative for product manufacturers, raw material manufacturers and equipment and technology providers to design packaging with solemn intent to address sustainability.

The best time to reduce the use of packaging was 50 years ago. The next best time is now.

(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.

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)