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September 16, 2024
Sesa Sen, NDTV Profit
16 September 2024
As India’s economy grows and digital technologies reshape consumer behavior, the future of kirana stores—the quintessential neighbourhood grocery shops—hangs precariously in the balance.
These soap-to-staple sellers, once impervious to change, now confront an existential threat from quick commerce players like Blinkit, Instamart, Zepto, and from modern retailers such as DMart and Star Bazaar, raising a pivotal question: Can kiranas survive the pressure of change, or will they die a slow death?
The All India Consumer Products Distributors Federation, that represents four lakh packaged goods distributors and stockists, has recently raised alarms, urging Union Minister for Commerce and Industry Piyush Goyal to investigate the unchecked proliferation of quick commerce platforms and its potential ramifications for small traders.
Their concerns are not unfounded. Data suggests that the share of modern retail, including online commerce, which is currently below 10%, is set to cross 30% over the next 3-5 years. Much of this growth will come at the cost of traditional retail.
“Unless the government takes on an activist role to support the smallest of business owners, the shift toward large corporate formats is inevitable,” according to Devangshu Dutta, head of retail consultancy Third Eyesight.
Casualties Of The Boom
Madan Sachdev, a second-generation grocer operating Vandana Stores in eastern Delhi, has thrived in the recent years, adapting to the digital age by taking orders via WhatsApp and employing extra hands for home delivery.
Despite having weathered the storm of competition from giants like Amazon and BigBazaar, he now finds himself disheartened, as his monthly sales have halved to about Rs 30,000, all thanks to quick commerce.
Sachdev is worried about meeting expenses such as rent, his children’s education, and other household bills. He finds himself at a crossroads, uncertain about how to modernise his store or adopt new-age strategies in order to attract customers in an increasingly competitive market.
India’s $600 billion grocery market, a cornerstone for quick commerce, is largely dominated by more than 13 million local mom-and-pop stores.
Retailers like Sachdev are also seeing a steep decline in their profit margins from FMCG companies, which now hover around 10-12%, down from the 18-20% margins seen before the Covid-19 pandemic. The consumer goods companies are instead offering higher margins to quick commerce platforms so that they can afford the price tags.
Quick deliveries account for $5 billion, or 45%, of the country’s $11 billion online grocery market, according to Goldman Sachs. It is projected to capture 70% of the online grocery market, forecasted to grow to $60 billion by 2030, as consumers increasingly prioritise convenience and speed.
Many of the mom-and-pop shops are family-run and have been in business for generations. Yet they lack the resources to modernise and compete effectively with larger chains. Modern retail businesses, including quick commerce, begin with significantly more capital, thanks to funding from corporate investors, venture capital, private equity, and public markets.
“They can scale quickly and capture market share due to a superior product-service mix, larger infrastructure, and more robust business processes,” said Dutta.
Moreover, their ability to engage in price competition poses a challenge for small retailers and distributors, making it difficult for them to compete.
“This is something that has happened worldwide, in the largest markets, and I don’t think India will be an exception,” Dutta said, adding that it would be incomplete to single out a specific format of corporate business such as quick commerce as the sole villain in this situation.
“India is a tough, friction-laden environment at any given point in time, including government processes which don’t make it any easier,” he said.
Peer Pressure
Data from research firm Kantar shows that general trade, which comprises kirana and paan-beedi shops, have grown 4.2% on a 12-month basis in June, while quick commerce grew 29% during the same period.
Shoppers are becoming more omnichannel, rather than gravitating towards one particular channel, said Manoj Menon, director- commercial, Kantar Worldpanel, South Asia. “While the growth [for quick commerce and e-commerce] might appear to have declined compared to a year ago, a point to note is that the base for these channels has significantly grown. Therefore, achieving this level of growth is still commendable.”
Consumer goods companies such as Hindustan Unilever Ltd., Dabur India Ltd., Tata Consumer Products Ltd., etc., have acknowledged the salience of quick commerce to their packaged food, personal and homecare products. The platform currently comprises roughly 40% of their digital sales.
“We are working all the major players in the quick commerce space and devising product mix and portfolio. This is a very high growth channel for us,” according to Mohit Malhotra, chief executive officer, Dabur India.
Elara Capital analysts have pointed out that the share of quick commerce is expected to rise to60% in the near future with e-commerce and modern trade turning costlier for FMCG brands than quick commerce. “The larger brands tend to make better margins on quick-commerce platforms versus e-commerce due to lower discounts on the former,” it said in a report.
However, it is too premature to draw a parallel between kirana and quick commerce in terms of competition, given the significant size difference.
The average spend per consumer on FMCG in kirana stores stands at Rs. 21,285 annually while the same is Rs. 4,886 for quick commerce, according to Menon.
Rural Vs Urban Divide
Quick commerce is still an urban phenomenon. In contrast, in rural settings, where internet penetration is still catching up and access to large retail chains is limited, kirana stores continue to thrive.
According to Naveen Malpani, partner, Grant Thornton Bharat, while the growth of quick commerce is undeniable, this channel is not poised to replace traditional retail, which still has a wider reach in the country. “It will complement older models, filling a niche for immediate, smaller purchases. Also, a 10-20-minute delivery may not have a strong market pull in rural markets where distance and time are not much of a concern.”
Yet many others believe, even in these areas, the challenge is palpable.
The small businesses are beginning to feel the sting of same slow decline that once befell the ubiquitous telephone booths in the era of mobile phone, according to Sameer Gandotra, chief executive officer of Frendy, a start-up that is building ‘mini DMart’ in small towns where giants like Reliance and Tatas have yet to establish their presence.
As rural customers slowly start to embrace digital shopping and seek more variety, kirana stores must adapt or risk becoming obsolete, he said.
Besides, the popularity of quick commerce is set to challenge the dominance of incumbent e-commerce platforms, especially in categories such as beauty and personal care, packaged foods and apparel.
“Quick commerce is primarily operational in metros and tier 1 markets, which is impacting the sales of traditional companies in these areas. However, if quick-commerce players were to extend their operations to tier 2 and tier 3, it would even challenge companies such as DMart and Nykaa, and would pare sales and profitability,” noted analysts at Elara Securities.
Frendy’s Gandotra believes the journey for kirana stores is not a lost cause, but it requires strategic interventions. Many kirana store owners struggle to integrate point-of-sale systems, inventory management software, or even digital payment solutions. These stores need to embrace technology.
Another aspect is the need for policy support. Regulations to ensure fair competition can prevent monopolisation by large retailers. Additionally, subsidies, tax benefits, and grants for infrastructure improvements can help small businesses adapt to changing market dynamics. With renewed support, kirana stores can continue to be the backbone of Indian retail.
Nonetheless, there will be some who’ll be left behind during this shift. Analysts at Elara Capital warn that the swift rise of quick-commerce platforms, combined with aggressive discounting, could wipe off 25-30% of traditional grocery stores.
(Published on NDTV Profit)
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October 26, 2023
Sagar Malviya, Economic Times
26 October 2023
Surging demand for fitness wear and sports equipment for disciplines other than cricket and football helped Decathlon’s India unit expand sales 37% to Rs 3,955 crore in FY23. With more than 100 large, warehouse-like stores selling products catering to 85 sporting disciplines, the French company is bigger than Adidas, Nike and Asics all put together in India.
In FY22, sales were Rs 2,936 crore, according to its latest filings with the Registrar of Companies. The retailer, however, posted a net loss of Rs 18.6 crore during the year ended March 2023 compared to a net profit of Rs 36 crore a year ago.
Experts said a host of factors – from pricing products about 30-40% lower than competing products to selling everything from running shoes, athleisure wear to mountaineering equipment under its own brands – has worked in its favour. “They have an extremely powerful format across different sporting activities and have something for both active and casual wear shoppers. For them, the market is still under penetrated with the kind of comprehensive product range they sell for outdoor sports beyond shoes and clothing,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Even their front end staff seem to have a strong domain knowledge about products compared to rival brands.”
By selling only private labels, Decathlon, the world’s biggest sporting goods firm, controls almost every bit of operations, from pricing and design to distribution, and keeps costs and selling prices low.
Decathlon uses a combination of in-house manufacturing and outsourcing to stock its shelves. In fact, it sources nearly 15% of its global requirement from India across sporting goods. And nearly all of its cricket merchandise sold globally is designed and made in India.
(Published in Economic Times)
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November 4, 2022
Christina Moniz, Financial Express / BrandWagon
November 4, 2022
Direct-to-consumer (D2C) lingerie brands, often credited with transforming the category and the way women shop for innerwear, are expanding their offline footprint in response to growing demand from tier-II markets and beyond. Zivame, whose journey began online just over a decade ago in 2011, has grown its offline presence to over 120 stores and also sells through over 4,000 partner outlets. In its recently concluded Grand Lingerie Festival, Zivame saw its sales grow three times,with a 120% increase in new customer acquisition. “Tier-II markets are showing massive potential and though tier-1 remains our highest revenue contributor, we are seeing significant revenue baseline shifts in tier-II locations,” says Khatija Lokhandwala, head of marketing at Zivame. The company has announced that its focus will be retail expansion in the second half of this fiscal, going beyond metros and tier-I markets.
Another decade-old D2C player in the innerwear segment, Cloviais eyeing the immense opportunity presented by smaller markets with aggressive expansion plans in place. “Clovia currently has 45 exclusive brand outlets in the country and has been diversifying its product range, with plans to open 130 outlets by the end of this fiscal. Ours has always been a mass- market brand, and most of the repeat customers come from tier-II and tier-III markets,” explains Pankaj Vermani, founder and CEO, Clovia. He notes that over 65% of its customer base is from the non- metro markets, and average order values are 20% higher in these cities compared to the metros. Earlier this year, Reliance Retail Ventures acquired an 89% stake in Clovia’s parent company (Purple Panda Fashions) for Rs. 950 crore. Vermani adds that Clovia will ben- efit from the conglomerate’s scale and retail expertise, driving up growth and love for the brand. Reliance Retail had picked up 15% stake in Zivame back in 2020.
Shaping the market
The women’s innerwear market in India is set to double to reach $11-12 billion by 2025, according to a report by RedSeer. Aside from the key segments of bras and panties, ancillary products like athleisure, sleepwear, swimwear and lounge wear are also boosting the lingerie category’s growth in the country, as is evident from the widening portfolios of leading brands. The online segment for women’s innerwear is expected to become a $1 billion market by 2025.
Experts believe there is a large opportunity for companies to grow since 60% of the $6-billion women’s intimate wear market in India is unorganised, and the category is still largely underserved.
“The lingerie market is an example of improving supply feeding into a growing demand, and the increasing demand expanding the opportunity for more brands to step in. Larger cities, with their higher income profiles and demand concentration, are the logical first-choice market for companies such as Zivame,” points out Devangshu Dutta, CEO, Third Eyesight.
The competition in the large cities is greater, with a plethora of Indian and global brands, which is why Dutta recommends that e-commerce led companies should push aggressively in smaller markets to drive sustained growth.
The fact that D2C brands have better data sets at their disposal to glean insights about Indian women and their concerns when buying innerwear has also worked in their favour.
“Intimate wear shopping can be overwhelming for a lot of women. Finding the right size and choosing styles for their specific needs requires an environment free of embarrassment and judgement. At Zivame, we help women choose the right size and perfect fit, ensuring a private, comfortable and discreet shopping experience,” says Lokhandwala.
While lingerie can sometimes be prohibitively expensive, Vermani points out that Clovia’s feedback-led design approach helps it keep pricing competitive.
The brand creates each product in small quantities, and uses technology to predict future sales based on customer feedback, thereby determining the right quantities for production. He states, “With this approach, we have created a fashion brand that is low on cost, high on consumer appeal and efficient in inventory, leading to better margins and cash flows.”
(Published in Brandwagon, Financial Express)
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April 24, 2022
Written By Suvashree Ghosh, Bijou George, and Sankalp Phartiyal
It was a contentious plan to repay overseas bondholders in full that brought what would have been India’s biggest retail deal to a grinding halt.
Debt-laden Future Retail Ltd.’s offshore bondholders — a relatively smaller part of the creditor pool — were promised 100% payment in the rescue offer from billionaire Mukesh Ambani, according to people with knowledge of the matter. Indian lenders were asked to take a haircut of as much as 66%, the people added, asking not to be identified discussing confidential information.
The unequal treatment led to the move last week, when the local banks rebuffed the $3.2 billion offer from Ambani’s conglomerate. Reliance Industries Ltd. announced the purchase plan in August 2020 but struggled to complete the transaction in the face of legal challenges mounted by Amazon.com Inc., which argued it had the first right of refusal contractually.
Bank of India and State Bank of India, the main bankers to Future Retail, didn’t immediately respond to emails seeking comment on reasons for voting down the deal. Representatives for Future Group and Reliance also didn’t immediately comment.
State-run lenders risked probes from federal agencies if they accepted these discriminatory terms, they said, explaining their preference now for a court-mediated insolvency process where bids are called in and there’s no risk of them being accused of cutting a bad deal. Bank of India has already requested an Indian court to initiate the process.
Hard-Nosed Decision
The hard-nosed decision by Indian banks has pushed the teetering Future Retail, which ran one of the nation’s largest retail grocery chains before the pandemic struck, one step closer to bankruptcy. Future Retail is almost certain to default on its $500 million bond coupon payment due July 22, S&P Global Ratings said Tuesday, while downgrading the company’s ratings deeper into junk territory.
The lenders’ action has also taken the wind out of a tortuous two-year-old litigation between Reliance and Jeff Bezos-owned Amazon — the e-tailer had started arbitration proceedings in Singapore to block the deal — but left the door open for Ambani to snag these retail assets, possibly at an even cheaper price, under the bankruptcy process.
“Reliance and other parties could be eligible to bid for its assets by submitting their resolution plans” even if Future Retail ends up in bankruptcy, according to Satwinder Singh, New Delhi-based partner at law firm Vaish Associates Advocates. “This would also lead to moratorium on any or all ongoing arbitration proceedings against Future.”
While the local lenders were agreeable to the deal when it was first announced, a lot changed in the past year or so, the people said. While the Amazon lawsuit dragged on, the asset value eroded and the pandemic worsened the cash crunch at Future Retail that began defaulting on its debt repayments.
Secured Indian lenders were promised recoveries ranging between 34% to 88% of the total $4 billion in dues and even those payouts were staggered over seven years, the people said.
Bloodless Coup
Reliance dealt a body blow to the Kishore Biyani-led Future Group in February when it quietly began poaching employees and taking over rental leases of hundreds of stores earlier run by Future Retail and Future Lifestyle Fashions Ltd. Ambani’s bloodless coup prompted Amazon to suggest settlement talks on the bitter dispute and alarmed Future’s investors and lenders who worried about asset-stripping.
Reliance’s unexpected takeover of Future’s stores eroded bankers’ confidence in the deal as it stripped off value from the chain and potentially could erode Reliance’s offer terms.
The out-of-court truce talks between Amazon, Future and Reliance collapsed soon after the store-purchases were initiated, the companies informed India’s top court on March 15. Amazon will continue with its arbitration proceedings against Future Group in Singapore, according to a person familiar with the matter, who asked not to be identified as the deliberations are private.
“A major turning point was when Reliance physically took over Future’s stores, which turned it into a no-holds barred situation,” said Devangshu Dutta, head of New Delhi-based retail consultancy Third Eyesight. “Before this the battle was being fought in courts and across the negotiating table. But at this point it moved over to the real business.”
Source: bloomberg
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January 10, 2022
Written By Vaishnavi Gupta
UAE-based Tablez has launched a kids’ super store in India
Tablez, the retail arm of UAE-based LuLu Group, has launched its kids’ super store House of Toys in India. Tablez has been around in the country as the master franchisee of brands such as Desigual, Build-A-Bear, Go Sport, Yoyoso, Cold Stone Creamery, and Galito’s. The toy market in India, currently pegged at $1 billion, is estimated to double in size by 2025, according to a FICCI-KPMG report.
All stacked up
The first House of Toys store was unveiled at Global Malls, Bengaluru, in December, 2021. The store offers more than 20,000 products, from feeding bottles, strollers, and bathtubs, to wearable tech, remote-controlled toys, and stationery. Spread across 5,100 sq ft, the store also houses the Build-a-Bear shop, where kids can make their own soft toys. “We have toys starting from Rs 30, going up to Rs 30,000 in our assortment. We have 3,000 toys in the value segment of below Rs 500,” says Adeeb Ahamed, managing director, Tablez.
House of Toys aims to open 12-15 stores by the end of this year, initially in South India, and metros, followed by tier I cities and beyond. Tablez also plans to rebrand at least 10 Toys“R”Us stores in India to House of Toys in the second half of this year. The store’s products are available on Tablez’s own e-commerce platform, and will soon be listed on third-party marketplaces like Amazon and Flipkart. “House of Toys has potential to be one of the top revenue contributors of Tablez,” Ahamed says.
Tablez has been consolidating its presence in the Indian market lately. Last year, Tablez launched Yoyoso’s seventh outlet in India, and opened another outlet, its 33rd, of American ice cream brand Cold Stone Creamery, both in Kerala. Further, it has earmarked an investment of Rs 100 crore for the expansion of sportswear store Go Sport. Fashion brand Desigual, which caters to women in the 25-45 age group, is now present on Tata CLiQ Luxury, and will soon make inroads into Mumbai and Bengaluru, followed by Chandigarh and Hyderabad.
Presently, Tablez operates 80 brand stores in India; it plans to take this number to 250 over the next five years.
Playing smart
Given that more than a quarter of India’s population is under 15 years of age, intuitively, it makes for a “great market for toys,” says Devangshu Dutta, founder, Third Eyesight. He says upper-income households with fewer children tend to buy more toys, games and learning aids, especially since children have been much more confined to the home environment in recent years.
According to Angshuman Bhattacharya, partner and sector leader (consumer products & retail), EY India, the growth of this market has been driven by improved availability and penetration of branded toys, upgradation from manual to automated toys, and improved awareness and availability brought about by e-commerce.
However, any kids category, whether apparel or toys, has been a difficult model to crack, owing to factors such as low SKU proliferation, and difficulty in inventory management, says Bhattacharya.
To stand out in the market, analysts say, brands need to create an authoritative and diverse product mix, which, in turn, requires a relatively large store footprint in high-visibility high-footfall locations. “The stock turnover is also slower than many other product categories, so merchandising and replenishment strategies need to be really smart. Branded merchandise offers lower margins, so private labels and unique products are necessary to add to the margin mix,” Dutta notes.
Deeply understanding a store’s catchment, so that consumer engagement can be kept high through the year — rather than being limited to local celebratory peaks and holidays — could be a useful strategy, say analysts.
Source: financialexpress
