Showing posts with label EBITDA. Show all posts
Showing posts with label EBITDA. Show all posts

12 June, 2014

Online Grocery Shopping

Big Basket

There has been enough spoken and written about the Flipkart-Myntra deal. Online Commerce is no more a hype at the moment and there is no money to be made – that’s the response most subject matter experts are saying although they don’t want to be quoted since they are in various advisory capacities for many such companies. With a healthy two-digit margin, if offline Retailers are not able to succeed (read: profitable), then how would these companies survive- they ask. Having said that, there is not a single ECommerce company (in India) that has tasted profits yet. While many promoters have made millions of dollars collectively, the companies in question still remain unprofitable. I would presume that a very few of them would even be making unit level margins. Such is the discount structure and focus on Topline that these companies are almost forgetting that the main intention of a business is to create value through profitability and not just a valuation (to subsequent investors). Amongst the online frenzy across categories, the most dreaded and the most challenging category is grocery & daily needs including fruits and vegetables. Bangalore based BigBasket.com already has some headway while WeStaple.com from Noida and a few others who are regional players are taking the lead to establish their positions. Big Basket even has a Mobile app for Android and iOS from Apple. Take a look below at what their customers have to say;

https://www.facebook.com/Bigbasketcom 

http://venkysundaram.wordpress.com/2013/05/29/why-i-stopped-using-bigbasket-com/

https://www.facebook.com/WEstaple

Ganesh Bigbasket

K Ganesh and his wife Meena Ganesh are an entrepreneur and angel investor-duo. BigBasket, which is run on a daily basis by the founders of e-tailer Fabmart, on the other hand, is one of India’s only online grocery stores. Online grocery stores have been seeing big traction around the world, as recurring orders prop up the profitability of the niche e-commerce category. “The Series B funding for BigBasket, which should close in the next three-to-four months, will be around $40- $50 million. We believe it has huge potential, with gross margins of nearly 20 per cent. Every order is profitable for us on BigBasket,” Mr. Ganesh told The Hindu.

Bigbasket founder Hari Menon, a successful entrepreneur who sold his brick-and-mortar retail chain Fabmall and Trinetra to Aditya Birla Group, is bullish. “It’s a huge, underserved market. Convenience is a major factor in our metros. We are finding that at least 85% of our customers return after the second order.” Menon said that revenue is increasing 20% each month. Bigbasket delivers 4,000 orders daily. In Mumbai, where the average size of an order is Rs1800, it does 800 deliveries each day. The site has served 200,000 customers so far and is expanding to Delhi and its suburbs. Menon said the company did Rs85 crore ($14.3 million) in revenue in 2013-14 and was on course to do Rs200 crore ($33.7 million)  in sales this fiscal year.

While the category is exciting, most customers seem to expect the savings (on real estate) to be passed on to them, which in reality is not. If the Real Estate savings are about 10-12% on Sales, the promotions and marketing costs are much larger than that, especially the first-time acquisition cost of customers. While most players do not offer much of discounts for every item, there are chances of combined savings when you buy more quantities or multiple brands from the same company.

However, the overall sentiment seems to be simple- customers would buy products online only if they value their time more than the time spent in shopping offline at Retail Stores such as Spencers, Foodworld, Nilgiris, Big Bazaar, etc. India has a huge density of Kirana Stores while Organized Retailers in the big cities are already quite popular for more than a decade now. Fruits and Vegetables are still preferred to be bought from the vendors who sell fresh quality items, most of them directly sourced from the Markets. Retail FDI in multi-brand retailing is a contentious issue and even the new Modi-led Government is not actively pursuing this at the moment, for the benefit of the trader community who form a big chunk of vote bank.

Online Grocery, at the moment is restricted only to those who work in odd-times, say BPO Employees and many others who would find it difficult to shop at a nearby store especially those who live in far off suburbs. Having said that, the Kiranas are much more active these days, offering various facilities such as door delivery to credit facilities to their customers. While Online Grocery has a great future, time will be a real reckoner.

21 March, 2014

Reliance wins handsdown

The first store for Reliance came up in Hyderabad. It was a grocery retail format and many skeptics wrote off the idea, citing intense competition in this segment. Gross Margins are low, two-digits and net margins, if any are a mere 4-6%. So, how would the company ever make money? Further, there were already established players in this segment, especially in the South (of India) such as Foodworld, Spencers, Food Bazaar, Nilgiris, FabMall, Trinetra (now together More), Fresh @ from Heritage Foods – the list could go on! But patience and perseverance has helped the company in the long term. According to a report in the most respected Hindustan Times newspaper, the company would become the largest Retailer in India by Sales in 2013-2014. The company is expected to close the year with $2 Billion in Sales, approx. INR 12,000 Crores. And it made a meagre INR 78 Crores last year and has made INR 278 Crores in 2013-14. That’s not bad at all. The company has been able to achieve scale over the past 7 years and its many Chief Executives of respective businesses have built the business brick by brick, sweating and toiling between Board Rooms and Store fronts.

Take a quick look at how the numbers stack up;

Reliance Retail

It’s a commendable achievement for Reliance Retail to achieve this position. Those who know me well would now agree what I have been saying ever since Reliance joined the fray in the Retail sector. I predicted right in the beginning that they are here for the long term. With a cash pile of INR 90,000 Crores and managing the largest Oil refinery in the world, Reliance has real deep pockets. And its Chairman Mukesh Ambani is not someone to open and shut businesses. Its not in their blood. Dirubhai Ambani, the patron founder of the group tht every household in India should have a Reliance product in some form or the other. The group created a furore in 2002 when the Reliance Mobile network was launched with an exciting Rs. 501/- package making it the most affordable mobile phone of its times. Similarly, they forayed into various other businesses and turned around all of them, albeit patiently.

One of the biggest reasons why Reliance has been able to reach where they are is also because of steadfast focus in the formats that they have opened and operated. They just have one Hypermarket, One Digital Electronics Format, three formats in Fashion, one in Jewelry and half a dozen international brand tie-ups. Makes it easy to focus on scaling up each vertical constantly. Reliance operates small supermarkets which compete with Kiran Stores and other organized players such as Spencers, Foodworld, Food Bazaar, etc. Reliance hyper directly competes with Metro AG, Best Price (Bharti Retail), Hypercity (K Raheja Group), Total (Jubilant  Retail), Big Bazaar (Future Group) nd other local wholesale markets and APMC operated mandis. In the fashion segment, Reliance Trends is positioned against Lifestyle (Dubai based Landmark Group), Shoppers Stop (India’s largest Department store Chain) and Pantaloon (now owned by Aditya Birla Group). Reliance Footprints has a unique positioning and doesn’t have major names for competition except Metro and Mochi who have a pan-India presence. Reliance Jewels competes with the local jewelry stores in each micro market. Reliance Brands such as Diesel, Quicksilver, etc. compete with their international competitive brands.

This is just the beginning. Look how Reliance is going to grow leaps and bounds in times to come. I am still sure that they wouldn’t have a JV with the global biggies such as Wal-Mart, Carrefour, etc. They would rather grow organically in times to come.

The game gets more interesting.

28 September, 2013

Restaurants in Malls…

I was recently at Forum Vijaya Mall (Chennai), one of the newest in town. It was a Sunday and I was there for lunch, but the upper level of car parking was almost empty around noon, which took me by surprise. However, I was told two days later by someone who works for the Mall that there were over 45,000 footfalls on that day. The Restaurant that I was supposed to visit was located on the second floor of the Mall. As is usually the case, I checked the reviews of the restaurant on the Zomato app on my iPhone. Most of them had written good things about the place and its menu, not to forget their wonderful service. Here is a sample;

After such a good meal, the bill came to around 2500 bucks. "Not bad at all!", we thought, given the amount of food we had eaten. The service too was perfect. The waiters were very watchful, responsive and most importantly, proactive. – Amruth

A great place with tastefully done interiors and food! The options on the menu are limited, but every single item you are served taste good and also look really good on the plate! – Nandhini

If I have to be perfectly honest, there could not be a more unfortunate location to host such a lovely restaurant. A mall in Vadapalani is hardly any place for a classy place like this. Where venue fails, Salt takes North Indian Cuisine and gives it a fantastic twist, to ensure they stand out from the others. I expect much more of this restaurant in the near future. – Vaishnavi

Apart from many reviews, the one above set me thinking. Are Restaurants in Malls a viable option as compared to those on high streets? Are Mall shoppers the right TG for specialty restaurants in Malls? For the cost of operation in Malls, do restaurants make any money at all as a business option? When I spoke to the gentleman who runs the restaurant, he mentioned that the rent is about Rs. 65 per sft per month. Assuming they have an area of 2,000 sft, their rent per month would be about Rs. 1.30 lakhs. Add to that all other expenses which would be around Rs. 2 lakhs pm. On a conservative estimate of Rs. 15 lakhs of sales per month and an operating margin of 50%, the store would recover its expenses and have an EBIDTA of about Rs. 2 –3 lakhs per month. Given the way the outlet has been done, their investment would have been about Rs. 70 lakhs. So, the restaurant makes about Rs. 25 lakhs in profits (before interest and taxes a year)  and would take about 3 years to break even.

2013-09-22 16.17.12

On the contrary, business would be double, if not more were it to be on a High Street. There are a number of good quality specialty restaurants that are garnering those numbers already. So, why do Restaurants still prefer Malls? Perhaps, Brand building and familiarity. I don’t see any logical reason why someone would invest so heavily in a Restaurant inside a Mall and wait for 3-4 years to break even, when it could be faster in a High Street. What works best are for established brands such as Rajdhani, Sigree, Mainland China, etc. which have built reputation over the years and have hence chosen to be within Malls to leverage their brand value. For first timers in the Restaurant business, Malls are probably not the place to be in. This is not restricted just to Chennai but to other cities as well. I was at Chandigarh a few weeks back and they have a brand new Mall called Elante. I was almost alone at Chilis on a weekday evening, which is located in the same floor as the cinemas on the fourth floor of the mall. Restaurants in India’s most successful Mall, Select City Walk face the same fate – Restaurants are empty through the week with weekends being their only busy times.

So, what ails Restaurants in Malls?

Mall shoppers are mostly for spending time, probably window shopping. Conversions for Retailers too is lower than on high streets. The sheer number of footfalls make up for lower conversions and therefore helps Retailers and Restaurants. Unless you are a destination such as a Shoppers Stop, Lifestyle, Café Coffee Day, Starbucks, Subway, KFC, Pizza Hut, etc. These are places which plan to visit and hence drop by. Eating out is way to expensive these days, given the cost of ingredients. And Restaurants are trying their best not to upset their clientele by absorbing losses as much as they can. But then, consumers are staying away from eating places on a regular basis, as was the case a couple of years ago. For example, a could of years ago, the neighbourhood area of Koramangala in Bangalore had almost 50 eating joints, a third of whom have closed over the last one year.

2013-09-26 14.05.49

Mall hoppers prefer food courts instead, which are usually pathetically planned. Mall planners in India somehow do not build large enough food courts, with thousand of chairs and a breathable exhaust system, that are modular and scalable as and when consumers increase. Instead, they try to lease all counters at one shot thereby not having scope for further expansion in future. What would cost around Rs. 600 for a family of three in the food court would probably cost over 50% more in a fine dine restaurant within the Mall.

Restaurateurs would do well to experiment new concepts first on the High Streets. That is where people frequent. There are no SCAM, errrr CAM expenses (Common Area Maintenance) on High Street Locations and no restrictions to close the restaurant at a stipulated time. The biggest benefit of being on High Streets is that the signage builds familiarity among customers over time. No wonder, there are more successful restaurants in India and the world over on High Streets!

24 May, 2012

The Dangerous Minimum Guarantee Model in Retail Expansion

Aggressive store expansion means two things – heavy capital expenditure and lots of people to manage the stores. Every brand worth its salt wants to boast an extensive Retail store network across the length and breadth of the country no matter what the store level EBITDA is. While there are various ways to expand its network, some of the commonly used ones by Retailers are Franchising (more on that in my next column) and CoCo – Company Owned Company Operated model. While Franchising could mean faster expansion, there are chances that the Retailer may lose control on the quality of customer experience among other things. The CoCo model is very expensive to scale-up unless backed by a solid VC / PE Firm. One of the other means to raise funds for expansion is through the Capital Market – recently Specialty Restaurants that runs the Mainland China, Oh! Calcutta, Sigree and other restaurants debuted their IPO, the first of its kind in the F&B Industry in India (while Jubilant Foods which runs Dominos Pizza in India is also listed, it is not in the Restaurant business but into Casual Dining). Retailers like Café Coffee Day, Dominos, Foodworld, Spencers, Zara, Tommy Hilfiger and many others have invested heavily on their own in terms of store expansion across the country, while others like McDonalds, Pizza Hut, Madura Garments, Reebok, Adidas, Benetton, Nilgiris, etc. have taken the Franchisee model.

Reebok Store 1

There is another alternate model – One of the easiest ways that a few Retail Brands have taken to, which is known as the “Minimum Guarantee” model where in a Second Party is appointed to manage the store(s) on behalf of the company while the Retailer itself invests on the business. Let me explain this in detail. Assume that the store fit-out costs for a 1,000 sft store is Rs. 40 Lakhs plus stocks to the tune of Rs. 50 Lakhs, then the Retailer invests Rs. 90 Lakhs to set up the store and also bears the Security Deposit to the landlord (6 – 10 months’ monthly rent).  Once the project work is completed, the store is handed over to a second party, also known as a Managing Partner or a Managing Franchisee who is responsible for the day-today upkeep of the store. All direct and operating costs such as manpower, electricity, rent and incidental costs are taken up by the Retailer and the Partner is also paid a lump-sum ranging from a few thousands to a couple of lakhs – just to operate the store everyday. The logic is, if there were to be an Area Manager to micro-manage the store (and a cluster of them in each city / region), then the costs would be substantially high. And hence the Managing Franchisee model. The partner also has sales based incentives, that is if the store achieves a set target, then he receives a further commission, usually as a percentage to sales. In many cases, the Partner leases his own property to the Retailer, which means the Rental income comes back to him! In a few cases, either the same partner operates through kith and kin or through friends and relatives who become partners! And then, there are incentives for introducing new partners and locations in other cities. This is indeed a vicious cycle.

In the name of faster expansion and quick growth, many Retail Brands have resorted to this practice. While there is nothing wrong in this approach, the Managing Partner usually gets the cake and eats it too. Without any investment, he has a full time job, a respectable retail profession and a handsome income too. While it is not clear whether the practice has been globally prevalent and if yes, from when – it is quite popular in the Indian Retail scenario over the past decade. While Retailers like Madura Garments have stuck to the tested Franchise model of “Buy and Sell” merchandise (that is the Franchise has to purchase all the merchandise with a small percentage of returns back to the company), others like Reebok, according to press and media releases in the recent past have opted the Management Partner model.

DSC00153 (2)

There is no correct or wrong way to expansion. As long as the means are ethical and law-abiding, there is no problem. But concerns arise when there is maniacal expansion with sometime, ulterior motives of helping / supporting some known people to become Management Partners. At the end of it, the Customer decides on the success or otherwise of the brand. And that’s what matters.

01 January, 2012

Retail in India–Way ahead for 2012

Customer Checkout 

Organized Retail in India has come a long way over the past decade and 2011 was expected to change the wind towards the positive side, due to allowing FDI in Retail. Thanks to political unrest and the opposition parties claiming hoarse, FDI in Multi-Brand Retail has been put on hold (hope not shelved) while FDI in Single Brand Retail has quietly been allowed, atleast on paper. While a few International Brands such as Benetton, Tommy, Diesel, Esprit, etc. have been operating in India for many years now through Joint Ventures with Indian partners, a beeline of Brands wanting to enter India is expected in 2012 – a hope that many in Retail have been holding on for sometime now! The coming months are expected to be exciting times for our Industry and here’s a view on how this landscape would evolve;

Malls

From a lakh square feet to a million square feet in 10 years, modern shopping centers aka Malls have walked a long journey all these years. Today, Malls are not places for consumers to just shop but a generous mix of shopatainment – which includes Shopping, Dining and Entertainment. While there are over 200 operational malls today in the country, another equal number is expected to come up in the next few years. A number of mall projects which commenced during the slowdown in 2008 are ready for occupancy now and many are expected to launch this year.

Supermarkets

The neighborhood supermarkets have evolved the most, among all formats of Retail over the years. Size was always a concern for players like Spencer’s and More – getting it right was a challenge, either the stores being too big with empty shelves or too small with regular stock-outs. Many players have exited the marketplace while a few like Food Bazaar and Nilgiris (through franchises) are increasing their presence assuming scale-up would help them gain overall net margins which range in high single digits. This would be the first format, in my opinion that would straighten up – only serious players would exist and they would do a great job while many others would exit – hopefully this year.

DSC00018

Hypermarkets

With foreigner CEOs and advisors engaging the managements of Indian Retailers, it was widely believed that Hypermarkets must be large, really large like the ones in western countries.Thanks to some early learning, many players like Hypercity and Total have corrected their ways of working. Small is the new Big, with Hypers ranging from 20,000 – 45,000 in prime retail areas in multi-level locations compared to the earlier proposition of being over 60,000 sft – one single floor in suburban areas! Newer players especially multi-nationals like Tesco and Target are expected in this format in the coming year while existing players are planning massive scale-ups.

Department Stores

These large format stores, the blue-eyed ones due to their colorful appearance was and is expected to be the only ones to see some EBIDTA in their early years. That’s a boon and bane in a sense in this format. To ensure they attract high-spender footfalls regularly, they should turn their stocks quite often; that means having the right mix of merchandise is extremely important which is a direct impact of having high quality staff who can choose the right merchandise every consecutive season. This is a vicious cycle and players like Shoppers Stop, Lifestyle, Westside etc. have got it right while a few of them are still struggling to learn.

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Specialty Retailers

Stand-alone specialty stores of international and even domestic brands are seeing dwindling numbers. The total number of stores that were being added year-on-year have reduced considerably. If it was 20 new stores and most being unprofitable four years ago, the numbers have reversed, thankfully. Most brands don’t talk about crazy numbers anymore, only well-merchandised stores and outlet level profitably.

QSRs and Food Retailing

It seems cooking and eating at home is a more expensive proposition these days thanks to high food inflation and going by the sales of pizza chains and fine-dine restaurants. While Dunkin Donuts is almost ready with its first outlet, Starbucks is slated to open quite soon too. Café Coffee Day will ad over 200 new cafes this year while Dominos and Pizza Hut will have company in California Pizza Kitchen and a few others. This would indeed be the most exciting format to watch indeed!

Greenland

Kiranas

The unorganized retailer down the road doesn’t pay taxes or offer health benefits to employees; no one ever checks the quality or quantity of goods sold; BUT he is able to offer lower prices everyday to consumers with other additional benefits such as short-term credit and quick home delivery. Modernisation is the byword for the them and they are indeed giving a touch competition to the organized players.

E-Commerce

But the real competition, if not threat to all formats of retail in 2012 is going to be through E-Commerce. Sadly, many brands and retailers are not paying attention to the increasing internet user base – over 100 million as of 2011 compared to just three million in 2001. This has allowed fly-by-night operators to open websites that sell everything from toothpaste to watches, apparel to expensive jewelry! Most of them have no clue how e-commerce works and many are even buying merchandise and selling – something which goes against the fundamental philosophy of transacting online!

31 May, 2011

Hypermarkets–The latest poster boy of Modern Retail

The first thought that came to my mind was – “Will this store be THE game changer for this Mall?” Not that it had weak anchors otherwise, but somehow this store, I believe would attract most number of footfalls. Time will prove, and I hope my assessment would be correct in this case too. I am referring to HyperCITY from the K Raheja Group which opened a few weeks back at Royal Meenakshi Mall - Hulimavu, a lesser known suburb in South-East Bangalore which houses one of the largest new-age residential settlements of those who are employed in IT, ITES and the BPO Industries, mainly due to the cost effective availability of housing requirements as well as reasonable accessibility in terms of time and distance to their respective workplaces. A maiden attempt by a group of enterprising entrepreneurs, I would say this is another brilliant model for Neighbourhood malls – self sustained with most aspects of modern retail within its precincts. Other anchors include Cineapolis, the Mexico based multiplex chain with its first cinema in South India, CROMA – the electronics store from Tata Retail (TRENT) and many others.

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The store is located on the upper ground floor facing the main entrance and the lower ground floor of the mall with direct access to the basement parking areas – a smart move by the Retailer to encourage shoppers to enter the store directly after they park their vehicles.  However, after finishing their shopping from the Upper ground floor, one would have to pass through the lower floor to access their cars – a bit of walking around the store though, which could be inconvenient during peak shopping hours. The store is well laid out – the lower ground floor offers Grocery and other Home needs while the upper ground floor with all other categories including Electronics, Toys, Apparel, Furniture, even Bicycles and many more. My guess is that the lower ground would remain more crowded – for two reasons; one that it has brilliant view from outside and would naturally attract mall visitors, and two that it houses the core categories which shoppers would come looking to save for – grocery, fruits and vegetables and household items. What I liked the most was the “fresh section” – Maybe it was the first day and hence everything looked very nicely displayed but still, the way the categories were planned was commendable. Also, they are located deep within the store, another smart idea to pull customers inside and thereby making them walk through the store. Meat & Poultry located close by could prove to be a disadvantage if the exhausts and HVAC are not maintained well – an issue that many retailers are trying to grope with.

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The store interiors are typical of a Hyper – no false roofing, basic tiles on the floor, tube-lights running through the length and breadth of the store and focus lights on merchandise that’s on offer. While it does reduce the Capex to a large extent, it also showcases the store as being simple and straightforward – a stark contrast to the luxury stores at high-end malls that sometimes stink of grandeur and austerity! After all, hypermarkets should also look what they profess – savings, savings and savings. And HyperCITY is indeed very good at it. On the store launch, Mark Ashman, CEO, HyperCity Retail (India) Ltd, told the media, “HyperCity is committed to fulfilling the aspirations of the local people by providing them a world-class shopping experience. Our customers will enjoy the convenience of international shopping from over 44,000 products at great value under one roof.” And all this over a mere 60,000 sft.!

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With their continued focus on convenience, experience, quality and savings, there is something that this Retailer has been doing right. Apart from stacking the right merchandise, I guess its the speed at which they have been growing. Often accused (not in a real sense though) of being slow in terms of store expansion and growth, HyperCITY has got its act right. With only 10 stores across the country, the group has managed to understand the business well – they have opened at interesting catchments across cities to ensure that they are not just in the race to grab market share but also to make money at the store level. With an investment of upto INR 2 Crores per store, the Retailer has been cautious about its overall Operational profitability which seems to be getting better by the day. Specific to this Mall, none other than the Hyper is going to be the the main anchor that would attract thousands of shoppers every month! Those who come to shop would indeed pass through the other Retail stores, Food Courts & Restaurants and m\Movies would complete the entertainment bit as well. This store is not an exception, but Hypers would become the Poster boy of Modern Retail and the Darling of Mall Developers soon.

11 July, 2010

FDI in Retail – A never ending discussion!

5th and 6th July 2010 would remain etched in the history of Indian Retail for some time to come. While the country witnessed an unprecedented (sic) response to a nation-wide Bandh (shutdown) called by the opposition parties against the recent Fuel price hike (after the Government deregulated Fuel prices) and to show their solidarity against rising levels of inflation on Monday, leading to estimated losses over USD 3 Billion, Tuesday was a green letter day for Organized Retailers. The Government of India (GoI) announced a discussion paper to debate on allowing FDI in multi-brand retail leading to mixed reactions across the country and outside. Everyone who was anyone in the Retail realm in the country had comments to make. Rightly so, as this public debate was much needed; while the fundamentalists have always argued against the entry of foreign multinationals in Retail, those in the business have usually welcomed the idea, although with caution. One of the biggest criticisms against such a move by the country is that the small retailers (Read: Kirana Stores aka Mom-Pop stores) would lose business to the modern, organized retailers.


Currently, Indian Government allows upto 100% FDI in Cash and Carry (B2B), 51% FDI in multi-brand retail and 100% FDI in single-brand retail – that means, the brand can sell various categories of products with the same brand identity – apparel, accessories, watches, footwear, etc. Insofar multi brand retail, the restriction is to ensure that Joint Ventures are formed only with Indian partners, thereby benefitting Indian business houses. Although this was allowed by GoI way back in 1996, apart from the then dominant RPG Group which formed a JV with Hong-Kong based Dairy Farm International to form Foodworld Supermarkets Ltd., not many business houses took advantage of the model. Organized Retail was after all not so lucrative those days and my own kith and kin didn’t take me so seriously when we would discuss the upcoming opportunities. Today, the top business houses in the country including Tatas (Westside Department Stores, Star Bazaar hypermarkets), Birlas (Aditya Birla – Fashion Retail, More Hypermarkets), Ambanis (Reliance Hyper and other formats) and Mittals (Bharti-Wal-Mart) are focussing on this business. Some of the concerns on allowing FDI in multi-brand retail are captured here;

Loss of livelihood for Kirana stores
The biggest and single largest qualm against allowing FDI in Retail have been that Organized Retail would lead to losses of small kirana stores. There are over 12 million retail touch points in India of which more than 90% of them are Unorganized. The estimated size of the Indian Retail Market (as per various sources online) is more than INR 200,000 Crores. So, 90% of those engaged in Retail business, to begin with do not pay necessary taxes to the Government. These small retailers operate on a net margin of 4-7% after all their expenses and hence the Governments (Read Political parties) have remained soft on them. These small traditional Retailers have been serving Indian consumers and their families for over four decades and remain favourites – from buying milk to bread or vegetables. Many of them provide credit facilities and some even deliver at doorstep at odd times of the day (and night), without any additional cost. These Kirana stores have been all time favourites for FMCG Companies to introduce and promote new products, new variants and various consumer promotions. All this changed since 2000 AD when organized retailers started to spring up all across the country. Those days, Organized Retail was less than 5% and was considered pricier and novel, even by urban consumers. However, Organized Retail has come a long way since then. In large cities and metros today, Organized Retailers aren’t competing with Kirana stores anymore, but with those of their own ilk – other organized retailers. It is quite common to see large advertisements in leading newspapers all through the week and weekends advertising various offers and promos to entice consumers to visit their outlets. Having said that, not many small retailers and Kiranas have lost business; In fact, they have got better and more organized than before. Those who are out of business are not because of large retailers, but because of competition in the same league – similar ones are offering better pricing and service, two main attributes why consumers were shopping at Kiranas. When consumers in SEC B and above moved towards Organized Retail, those below moved up from shopping at Govt. Run PDS Stores to small Kiranas. Maslow’s theory of Evolution?
Hence, the logic that small Kiranas would run out of business is not just a myth, but also immature. Remember, we have a billion people to feed, dress and house – there is enough and more opportunity at the bottom of the pyramid.  


Employment opportunities and benefits
Most of the Kiranas are entrepreneurs of their own right – they would have started their business using a small capital, borrowed from friends and family and the shop would actually be a part of a house, either their own or somebody else’s. The husband-wife couple take turns to run the show and some of their relatives’ children or their own add hands for support when required, especially on weekends or for home-delivery. It is amazing to see sometimes, children in their teens explaining fabulously about product attributes and pushing sales (top-ups), even better than Management Trainees of FMCG Companies. One of the biggest qualms of allowing FDI is that it would lead to loss of employment – a strange fact, since it is actually the couple who run the business and usually do not employ outsiders. Those employed are their own kith and kin and hence, the staff cost is less than 2% of their turnover, if not lower. Organized Retailers need to comply with Govt. norms with regard to payment of wages and the staff salary includes health benefits (ESI) as well as long term benefits (gratuity / pension). Therefore, Organized Retail would not only provide higher wages to those working in the front-end but would also ensure continuity of service and job-security. The Future Group along with its subsidiaries and joint-ventures, which manages various formats such as Big Bazaar, Central Malls, Pantaloon Fashion and various other formats employs over 12,000 employees!


Capital infusion and erosion of profits
Capital infusion is considered among the biggest benefits of allowing FDI in Retail. Although large business houses like Tatas, Birlas and Ambanis have enough (monetary) capital to provide, what they need is Intellectual Capital. While it is always good to say that India is a country of entrepreneurs and we know to run the business best, what we also need to know from International partners is ways and methods to run the business more efficiently – simply because they have been running their own businesses successfully across countries and continents all over the world. Having said that, the next concern is that the multi-nationals would send their profits back home to their headquarters situated outside the country. This too, is a far-fetched dream. The net margin EBITDA that Organized Retailers manage is between 4-12%, depending on the nature of their business. Typically after paying taxes of all sorts, what they end up with a single digit or a decimal profit. Note, Retail is a business that gets profitable over a period of time and with scale. So, to increase their presence and run the business across the country, a lot of capital (including profits) gets circulated. So, if there is any one multi-national that would make money and send back home, it would be a long, long time!


Decision-Makers – Final word
While all the razzmatazz of the FDI paper was being discussed in India, Carrefour SA, the French Retailer announced that it is planning to sell of its business and exit South East Asian countries such as Singapore, Malaysia, Thailand, etc. Many would know that US Retailer Wal-Mart had to exit certain European countries after its failed attempt many years ago. Japanese and Chinese Retailers have never stepped out of their terrain since they believe they know their market best. As many would agree in the business, Retail is a very local business. The players need to understand the sentiments of the local and accordingly manage the business. I was at a popular Hypermarket at Bangalore yesterday and while I was talking to their Head of Operations, I learnt that the layout was designed by two foreigners who were experts from Europe. Needless to say, the layout was not only unfriendly but also needs localization, NOW. Consumers have shrugged off the “phoren” theory of Retailing and have embraced local players because of their offering. So, ultimately it is not just Government policies but the consuming public who decide the success or otherwise of any business, and particularly Retail. Time will tell who remains in the business.

A Firefly finally takes off

Monday - 22 Jan. ‘24 is a very important day in my professional life. I complete eight months today in my role as Executive Vice President a...