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).

When American fast food standard bearers McDonald’s and Domino’s Pizza stepped into India in the mid-1990s, the market was just ripe enough for take-off.

McDonald’s and later Domino’s Pizza can be credited with not just growing the consumer appetite for fast food but also for fostering an entire food service ecosystem, including fresh produce, baked goods, sauces and condiments, and cold chain technology.

India has been typically difficult for business models driven by scale, replicability and predictability. The customer is price sensitive, operating costs are high and non-compliance of business standards is a frequent occurrence. In this environment, these brands have reinvented the meaning of meals, snacks and treats.

Their growth has set the stage for other international players and also set business aspirational standards for Indian food entrepreneurs and conglomerates alike.

Product experimentation has also been an important part of their success; it keeps excitement in the brand alive and help improve footfall. However, how far a product sustains and whether it becomes a menu staple can’t be predicted accurately. New products also need significant investment in both supply chain and front-of-house changes in standardisation-oriented QSRs, so the new product launch cannot be undertaken lightly. This is one reason these successful QSR formats don’t overhaul their menus drastically but make changes incrementally.

For these market leaders, future scale and deeper penetration is only feasible with higher visit frequency. For growth in middle-income India, they need to become a significantly cost-competitive option to be seen as more than a ‘treat’ or celebration destination.

So, while both McDonald’s and Domino’s Pizza have invested significantly in Indian flavours and menu offerings, perhaps it’s also best for them to reconcile with the fact that there will be a significant part of the consumer’s heart, stomach and wallet that will remain dedicated to indigenous offerings.

In a global environment that’s turning hostile to fast food, India isn’t a quick-fix growth market, but it’s certainly one to stay invested in, for the longer term.

And I have no doubt that as much as these companies aim to change India, over time India will also change them.

(Also published in Brand Wagon, The Financial Express)

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.

Suneera Tandon, Quartz
New Delhi, 12 September 2016 

The Platonic ideal

“Efficiency is doing better what is already being done.” – Peter Drucker, Innovation & Entrepreneurship: Practices and Principles

The practice

Research firm Gartner defines supply chain as, “…the processes of creating and fulfilling demands for goods and services. It encompasses a trading partner community engaged in the common goal of satisfying end customers.”

Sounds simple? But it hardly is. In fact, the supply chain can be one of the most complex structures in a business, piecing together design, development, sourcing, manufacturing, and distribution. It gets even more complex when it relies on rural India, which is scattered over 640,867 villages and are often hard to access. Fabindia, a chain of retail stores, has spent close to five decades scoping India’s hinterland to connect rural Indian artisans to urban shoppers. Here’s how they did it.

Fabindia began its India sojourn back in 1960 when John Bissell, who was first introduced to the country in 1958 while on a two-year grant from the Ford Foundation, decided to set up an export shop to sell home furnishings to overseas customers. Bissell, whose work at the foundation involved advising government-based craft organizations on handloom fabrics, spent a lot of time traversing the length and breadth of the country.

In 1976, the export house diversified into retail through a small store that sold leftovers from export orders in Delhi’s tony market of Greater Kailash. It took another two decades for retail to became the mainstay of the company’s business.

Fifty years later, Fabindia, managed by John’s son William Bissell, is a widely recognized global brand, known for handwoven and hand-made goods that connect some 55,000 artisans from the country to consumers worldwide. In the process, it has achieved two broad goals: to market the handloom tradition of India to the rest of the world and to provide sustained employment to artisans in rural areas.

The chain sells everything from handwoven saris, rugs, apparel, home d�cor, and organic food in its 220 stores across 83 cities in India, including eight stores in overseas markets such as Dubai, Singapore, Malaysia etc. It also retails its products online to 33 countries. For the fiscal year 2014-15, Fabindia had a turnover of Rs1,148 crore (approximately $170 million).
 
But behind the red and black Ikat-printed scarves, Kalamkari prints from south India, and block-printed Bagru fabric from north India is an extensive and complex supply chain that runs from villages across the country, covering a third of India’s over 650 districts.

The retailer has successfully taken its founder’s vision to enable social change at the grassroots level while engaging in a profit-making business for urban shoppers. It does this while building systems that encourage not just fair remuneration to India’s rural artisans, but also provides infrastructure, access to technology and systems, quality guidelines, and timely payments to these craftsmen. Fabindia also offers access to capital and raw materials to artisans working with the retailer.

As William Bissell puts it in a Harvard Business School case study: “It seems contradictory that we pursue both a social goal and a profit, but I believe that is the only way to do it.”

Through most of the ’90s and early 2000s, Fabindia grew as a retail chain expanding modestly in the country’s top metros.

Since the opening of the Indian economy through the economic reforms of 1991, Fabindia’s interaction with artisans scattered across the country has grown significantly (pdf). The complexity of the company’s supply chain is far different from that of a regular manufacturer that works through designated factories.
 
The company’s interaction with these artisans is very localized since it works with them through multiple associations. The retailer deals directly with individual artisans who work out of their homes and also with clusters of crafters and rural NGOs and organizations that have a crafts supply base.

In addition, the company uses its 11 production hubs across the country, which are basically aggregation points, to centralize orders and pair up vendors with artisans. Each hub has a number of field offices attached to it.

“The production hubs and field offices act as nodal points for interaction with the artisans that constitute the supply chain, which is one of the most unique in the world,” said Prableen Sabhaney, head of communications and public affairs at Fabindia Overseas.

While most artists have the skill and the craft, they don’t have the acumen to decipher fashion trends for the season. So Fabindia acts like a conduit between their crafts and the market.

At Fabindia, a large proportion of products carry some element of the handmade, which requires an ability to communicate with artisans and institute quality control as most artisans work largely in India’s hinterland. For instance, an 18-step process is required to create a simple pattern in Bagru print, a traditional form of block-printing using natural dyes perfected in the northern state of Rajasthan.

And the company has spent years putting processes to ensure newer collections reach the stores on time. Recently, the product range has become more diversified as well.

As for remuneration, Fabindia follows a bottom-up structure. It asks artists what it costs them in terms of—time, energy, skills, and raw material to hand-make a certain fabric or accessory and pays accordingly.

Analysts who track the sector believe that Fabindia’s unique model sets it apart from other domestic or export-focused handicraft companies purely because of the sheer volume of artisans it works with.

“In handicraft, there are several companies that have created substantial export-led supply bases, which tap into craft both from the rural artisans as well as those based in smaller urban centers,” Devangshu Dutta, chief executive at consulting firm, Third Eyesight said. 

“Among these, Fabindia has certainly had the most visible success in terms of size and brand profile domestically. Fabindia has achieved scale by working through artists, intermediaries and supplier companies who have acted as anchors in the rural communities,” said Dutta.

Sabhaney offers that challenges span from co-creating contemporary products while using traditional techniques to quality issues, since the products are created in environments that are very different from where they are finally used. The company also works hard to provide access to raw material and capital across many hard-to-access areas—and doing all of this at scale.

“The ability to do this and not lose anything in translation has been and will continue to be Fabindia’s strength,” added Sabhaney.

The takeaways

As the market evolves with e-commerce and the entry of foreign brands, which has altered consumer preferences and style-cycles, Fabindia knows it needs to quicken its response to these changes.

Not all of the innovations the company has tested remain. In a unique ownership structure created by Bissell, Fabindia set up supplier regional communities (SRCs), which were community owned companies, self-managed by a group of artisans, weavers and craft workers in a particular geography back in 2007. According to a case study by INSEAD (pdf), these SRC’s “offered artisans joint ownership of resources and access to common facilities. It also trained artisans and developed new handicrafts. The SRC allowed Fabindia to consolidate supply capacity instead of dealing with single-loom weaver units, and to implement a standard system for production and delivery control.”

The 2010 book, The Fabric of Our Lives reveals how production worked under the SRC model. A number of dedicated designers and sourcing officers worked closely with rural artists giving them design inputs in tandem with the latest trends in the market and order quantities through dedicated distribution centers in key villages. These designers worked with the weaver to develop samples. They were then shown by the designers that refer it to a product selection committee. The fabric was then approved and the cost price finalized. The quantity of fabric to be produced the first time was pre-determined by software based on a minimum stock requirement ratio and an order is given to the weaver to make the product. The weaver produced the requisite amount of fabric in a month and brought it into the distribution centers.

But the SRC model has now been diluted as the company looks more innovative ways to engage rural artisans.

In the company’s next vision plan, it is focusing more on cluster development that will basically help bring artisans up to speed with the processes and market trends.

“There are plans for a greater focus on the handloom and hand-craft sector,” Sabhaney said.

“There is a much bigger focus on the social aspect, there are going to be significant investments in developing clusters and bringing them up to what is required around the country,” she added.

(Published in Quartz)

The cold chain sector is expanding quickly due to increased investments from Indian and international organisations going towards both modernisation of the existing facilities and establishment of new ventures. Over the last few years cold-chain has gained a buzz, finding its way not only into industry presentations but also into budget speeches in Parliament. It is widely reported that India needs to build more cold chain capacity, especially to reduce the enormous amount of waste of food products in the chain from farm to consumer.

India is one of the largest producers of agro-products i.e. fresh fruits and vegetables, milk and related products, fishery products and meat. However, due to lack of the required facilities, spoilage of products is comparatively high.

In recent years, significantly incentivised both by business logic and by tax breaks, there has been a fair amount on investment in cold storages. However, the sector is still highly fragmented; there is inequitable distribution of cold storages, interlinkages between storages is also very poor and many facilities are also operating below capacity.

The National Centre for Cold Chain Development (NCCD) reported that as of December 2014, 70% capacity was utilised, where the total number of cold storages available in India was around 5300 and approximately 6000+ vehicles, providing about 30 Million Metric Tonnes capacity of storage. Most of these facilities are located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra and West Bengal.

Storage and transportation capacity is only the very first step in strengthening cold chain capabilities but, unfortunately, that is where many entrepreneurs and investors in cold-chain are stopping their thought process. Many players in the industry have been using obsolete machinery, and storages are majorly for a single commodity. The result, predictably, is underutilisation of capacity or mishandling of food products leading to operational problems, cost escalations, spoilage and other losses. Just to mention a simple example that many seem to forget: even domestic refrigerators have at least 3-4 temperature-humidity zones: the freezer, the chill tray, the large cool area, and a vegetable tray. In comparison, many cold stores are built without adequate thought to the various influencing factors. It’s important to recognise that in developing a cold chain capability, the products to be handled, the environment in which the cold chain will operate, not only storage but intake, handling and transportation, all have a role to play.

With a fragmented operating environment, both in terms of production as well as distribution, often a single investor or company may not be able to create the business logic to set up a cold chain facility. Collaboration between multiple individuals and agencies may be a way out.

An example of successful use of integrated cold chain is the Tamil Nadu Bananas Growers Federation. Banana growers in the Tamil Nadu belt were diminishing due to lack of appropriate storage facilities, and farmers were forced to sell produce at throw away prices. With introduction of integrated cold chain solutions, the federation of farmers from Tamil Nadu has now managed to gain a hold of the banana market again. They have managed to increase their income manifold by growing better qualities and storing bananas for longer period of time in the integrated cold chains.

Cold chain logistics in the true sense begin with harvesting and post-harvest handling, going on to controlled atmosphere vehicles, cold storages, sorting and grading facilities, modern pack houses and controlled atmosphere retail stores. Most importantly, even operational know-how is something that is not made part of the investment plan, leading to unviable, unprofitable cold chain facilities.

The focus should be to integrate the cold chain, and also build capacities in all areas. As per NCCD (December 2014), India has approximately 6,000 reefer vehicles against a requirement of 60,000. Similarly the number of pack houses available is 250 and the projected requirement is for 70,000. Hence, the need for a more balanced investment in terms of modern pack-houses, refrigerated transport units and ripening chambers is evident and will bring far better results, both operationally and financially.

In addition, there has to be a significant improvement in developing the know-how and skills sets available to the sector. While the country is faced with large-scale unemployment annually, a well-thought out development of the cold chain sector including due investment in knowledge-based initiatives can create significant numbers of better paying jobs around the country, especially in rural areas from where the produce is sourced.

With development of the consumer and retail sector supporting its growth, integrated cold chain development should be at the top of the agenda for government as well as for private business.