The hype around Air India’s big buy

Much is being spoken, written and debated about the recent purchase of 470 aircrafts by Air India from Airbus and Boeing. So much so, that the US President made an official statement that this could create a million jobs for his countrymen. Many politicians thanked the Indian Prime Minister while so many questioned his role in this private affair between a buyer and a seller – why and how would the Governments on both sides have any role. Leaving all the controversies (if one exists!) aside, let us see the opportunity that we are sitting on. 

In the past 8 years or so, the present Government has reactivated over 70 airports. These are not new ones really, for they already existed. Barely. These were airstrips with an ATC Tower at best built before WW 2 by the British. The Union Government through its ambitious project to make the common man fly – Ude Desh ka Aam Nagarik (UDAN) was activated and many unused airports were operationalised. It is another thing altogether that our railway networks are choked and a small section of travellers do not mind paying a premium for air travel.

A view of the Udaipur Airport developed under UDAN

Altogether, the number of air passengers have grown from 37 mn pa in 2010 to 167 mn in 2019 (sans 4 days of the first lockdown!). The number halved for FY 2021, grew to 123 mn in 2022 and would be around 130 mn in the current FY. By 2027, we expect over 200 mn passengers to hit the sky in a year. To give it a perspective, over 2.2 mn (2 Crores) people took train journeys daily in 2019 of which an estimated 8% of them travel in airconditioned classes.

What excites me, as a (Travel) Retail Professional are the possibilities for retail at airports. To accommodate these new 470 aircrafts plus another equal number from all other incumbent airlines at the moment in India, we are expecting a blast in the skies. Don’t worry, it wouldn’t be so choked like our railway networks where one express train has to stop at times to let the other one travel. But the congestion at airports (runways) would be inevitable. 

IGI Airport, New Delhi

The new Terminal 3 built at New Delhi Airport a decade back is already choking during peak hours. Mumbai is building another new airport and the same is the case at Noida. Bangalore has commenced a new parallel runway last year and a brand new terminal T2 which will be fully activated by Q3 FY 2024. Goa has a brand new airport in the north while there is no confirmation of shutting down the existing one in the south of Panjim. 

Keeping aside the top 20 airports – 2 super metros, 4 metros and the top 16 cities in India – there would be 175+ operational Airports across the country by 2025. The bare minimum would be a daily passenger count of 1,000 pax/day while the maximum would be 30,000. The top 6 airports, by then would be handline 30,000 – 60,000 passengers per day! 

At the moment, the spend per passenger in Indian airports is abysmally low. Singapore’s Changi Airport recently announced their CY 2022 revenues from Travel Retail – USD 870 mn. That would be 38% of 2019 revenues, which means in 2019, it would have been USD 2.2 Bn pa. Dubai’s retail and F&B revenues pre-pandemic were a little over USD 2 Bn pa; Hong Kong, Paris CDG, Frankfurt and Zurich Airport, each had Travel Retail Revenues between USD 600 mn to USD 1 Bn pa. All this crashed due to Covid-19 but is slowly bouncing back.

New Integrated Terminal Building coming up at Chennai Airport

In India, Travel Retail has been a non-starter except at the top airports, especially those which were privatised. AAI continues to operate quite differently, in a manner that is neither exciting nor enticing for retailers to embrace the opportunity. However, change is inevitable and we see a huge improvement coming our way. By 2025, over 5 lakh people would be travelling through our Airports every day. Imagine the  potential retail opportunity that we are eyeing. And these are reasonably affluent passengers with disposable incomes. From a humble cup of tea or coffee to a beer / gourmet meal, F&B seems to be a larger pie than product retail at airports. I had written the reason for this in my previous post. 

Nevertheless, Air India’s purchase of 470 aircrafts is a boon for Indian Travel Retail. Happy to be back here in my new avatar in Travel Retail supporting the Trinity - Airports, Retail / F&B companies and the Consumers.

The Café boom – Retail 2020 (Article #4)

When I was climbing up Vaishno Devi hills 5 years back late in the night, I saw to my pleasant surprise an outlet of Café Coffee Day midway known as “Ardh”. The café was quite popular among devotees and visitors and many regulars were savoring their favorite cuppa at this 24hr café. One can find over 1,700 such cafes across 450+ cities in India and the brand can be credited with creating as well as leading the “café culture” in India and introducing it to three generations since 1997 when the first one opened at Brigade Road, Bangalore.

A friend of mine asked me a few years back, “what’s it like to drink a cappuccino at Starbucks in India?” – I said, enjoying a great cup of coffee indeed. He replied, “No, one spends Rs. 350 to live their American dream while spending the 90-120 mins at the Café”. In hindsight, this is quite true. I had written in my article only yesterday that most Indians buy luxury products for the “Badge Value” it offers and not really for what the product stands for and the craftsmanship. Same is with eating out as well and no wonder, the café boom has been growing year on year in India. A Café (or a local F&B joint earlier) is the third most preferred place after Home and Workplace to have a social catch-up for most of us worldwide. 

The traditional tea shops in India, since the days of the Independence struggle, would play community radio and the entire neighbourhood would gather to listen to the latest updates. Later on, it was Ceylon FM and Geet Mala which attracted the locals only before independent Tea shops and local Restaurants started mushrooming across cities. The India Coffee House, stunningly still operational through a network of cooperative societies, is a glaring example of the gossip-gupshup culture of the 50s and 60s. And then came the trendier cafés which served Italian styled cappuccinos with local snacks and gourmet cuisines to attract the well-travelled as well as the aspirational customers of popular western culture. The rest as they say is History, rather, “History in the making”. For, we have a mere 4,000+ modern style cafés across 500 cities in India – for an estimated discerning customer segment of at least 30 million consumers in the age bracket of 18-45 years. 

Café Coffee Day is the largest café chain in India with over 1800+ cafes. In store count, second comes Starbucks which entered India in 2012 in a JV with Tata Group and operates around 180 outlets – approximately 10% of the market leader. Home grown café chains such as Barista and Java Green as well as Internationally acclaimed chains such as Costa, Gloria Jeans, Coffee Bean and Tea Leaf and many others entered India with much fanfare a decade or so back and have already exited with huge losses since they couldn’t get the business model right. While coveted brands like Illy Coffee are available only at select star hotels, many international café chains haven’t even entered India for obvious reasons. 

Meanwhile, India has witnessed a boom in the Tea Retailing models with a number of funded start-ups ruling the roost. Market Leader Chai Point has raised US $37.5 million and has 104 operational stores across India while Chaayos has raised US $18 million and operates 65 outlets. While these investments have largely gone into brand building, the Tea-Retailing business hasn’t been profitable even at an operating level as per market sources, thanks to the low perceived value of a cup of tea, its liberal availability across the length and breadth of the Country due to abundance of supply of raw tea leaves which are grown across the country unlike the Coffee Crop which needs a special soil and shade alongside to grow with high maintenance. Incidentally, most of the premium varieties of coffee and tea are exported for a hefty price and what we get mostly is of inferior quality. The ApeeJay Group created an innovative concept by the name “Cha-Bar” as part of the eponymous Oxford Bookstore, beginning from Park Street Kolkata to Mumbai, Delhi, Bangalore, Chennai and across India, although neither the book retail nor the tea-retail business took off as much as many other coffee chains took the country by storm at one time. 

A few years back Hindustan Unilever experimented with Bru Café at Mumbai as a brand experience center and the Tata Group has experimented with the Brooke Bond Café at Mumbai and Tata-Cha at Bangalore, both of which haven’t expanded for reasons best known to Tata Sons. Bru Café eventually never scaled since the instant coffee was not what the consumer was willing to pay a premium for. Bru and Nescafe Sunrise are the Top 2 operators in the Rs. 2,000 Crores pa Instant Coffee Market in India with over 40% market share together with numerous others such as ITC's Sunbean, Levista, Continental Coffee, Leo Coffee, Narasus Coffee and many others are stacked up one behind the other in one of the smallest Coffee Markets (by value) in the world, disproportionate to the population size. Nescafe has been able to open Kiosks at various establishments such as Airports, Railway Stations and Corporate Tech Parks while Bru has penetrated deep in to the small and medium size offices and corporates with over 25,000 installations cumulatively across all its formats.

With 50% of India’s population under the age of 35 years, a substantial exposure among the Gen Y, Gen Z and the Millennials to global culture and higher disposable incomes than the immediate previous generations, the Café boom is yet to even begin in my opinion. But it would be fraught with challenges. Getting the right real estate is the prime challenge. Then comes standardizing the F&B assortments so the crew at café can prepare with limited OTJ training. Third, deep pockets to keep consumers coming back for repeat visits. But the good news is that the potential Consumer is not just ready but is willing to pay a premium for discerning concepts. 

As I write this article, Gloria Jeans is making a comeback, CCD is about to get a new Investor cum Owner and a few interesting brands are scaling. Exciting space ahead. So I can write more interesting stuff about my favourite beverage, more often.

Retailers and Jet Airways – Cross Learnings

I had just started flying frequently from Bangalore to Delhi for monthly meetings and the preferred choice those days was Jet Airways (9W). Their on-board service was perhaps the best in class (the only comparison was the erstwhile Indian Airlines) and a few years later, maybe Kingfisher. Even with the popularity of the red-dress stewards with mini-skirts that attracted millions of flyers (forget not those plastic Kingfisher branded earphones), the Corporate Traveller still preferred 9W. There were many reasons for this choice, despite their pricing being 7-9% higher than Kingfisher and almost 1.5 times of Indigo and Spicejet in the later years. 

The Jet Airways – Citibank co-branded Credit Card was a must have on our wallets in the later part of the Millennium. The card provided several intrinsic benefits – including Lounge access at Airports as well as shopping and dining benefits across the country. The 5 Tier membership on Jet Privilege, among India’s largest Loyalty Program was similar to the Snakes & Ladder game, that travellers had to cautiously fly a designated number of flights in a quarter to retain their Membership Tiers. And how can I forget the uncountable “upgrades” I have enjoyed on 9W from Economy to Business to even First Class! 

Move over Kingfisher, which many Corporate Travellers thought were more hype and publicity than 9W which had a very genuine care for travellers. Be it the highly curated gourmet food menu even on Economy Class, Coat hangers for Business Travellers and an overall, relaxed travel experience for toddlers to Senior Citizens, these were a few things that attracted passengers until a few years ago. Around a decade back, 9W acquired Sahara Airlines only to burn out too soon, even as the low-cost airlines were matching or lowering air fares what Sahara offered. And after the merger completed, 9W continued to be a premier airline, some even calling it elitist. It was common to see celebrities, cricketers, reputed Business Leaders and many more socially popular people on board 9W. Even without the selfie melees those days, it was nice interacting with such personalities often on board or at the 9W Lounges. 

As I write this piece, I just finished reading that SBI which is managing the debt ridden airline’s takeover has further tightened the norms for a possible suitor even as travel agent-turned India’s most respected Aviator and business tycoon Mr. Naresh Goyal resigned from the Board recently. I am able to already see similar comparisons between 9W (and to some extent Kingfisher as well) and Modern Retailers, for they both cater to similar consumer segments. I have hardly seen traditional Kirana stores go out of business, save for financial mismanagement or not keeping in tune with changing times. In some cases, the next-gen of these Kiranas despise to take over the business calling them traditional, boring and uninteresting. 

But we have seen the meteoric rise and abysmal fall of so many Retailers, Shopping Centres and Malls. If we see what’s in common with those who downed shutters or ones that don’t have the grease to keep them up – it’s all about financial prudence, business stability and focussing on the core. For example, 9W lowered its fare over time to compete with the likes of cost-efficient airlines like Go Air. Being an International Airline and also having a Government norm to fly to far off destinations including Tier 2 towns, the airline was making losses for every nautical mile it flew in some cases. Sounds similar to many of our Retailers selling at cost or lower, a few or more SKUs which they call “Loss Leaders” and what is expected to drive footfalls who will eventually end up buying high-margin products. How I wish this dream was fulfilled. 

Most recently, 9W removed complimentary meals on board for the first time in it’s illustrious history which made even the most hopeless 9W Fan and Corporate Traveller to start whining, writing a fitting Obit for the airline on social media. Instead of upping its value proposition, the airline took to removing services, akin to how Retailers cut down support staff or reduce/switch off air-conditioning in the Retail Stores and Malls to reduce operating costs. In-flight Retail, which is a proven big-billion business worldwide remains largely untapped as well.  All is not over for 9W, yet. I am quite confident that the airline will find a new suitor who will continue and also improve the brand’s legacy with passenger growth touching double digits the last few years. Also, the Government wouldn’t let another airline fail, for it impacts the image of the country at large. However, Retailers may not be that lucky. A private Retail Company is not of national importance, yet – the way Americans eulogised Walmart & Starbucks. We see store openings and closures commonly these days. Ask me about E-Commerce players losing money for every transaction – from selling mobile phones to a portion of Roti or Dosa – well, they all hope that consumers will get used to convenience. Well. 

Travel Retail at Regional Airports

I am seated at Madurai Airport and my Spicejet to Chennai is delayed by 55 mins. It’s a swanking new terminal built a few years ago when the local heavyweight MK Alagiri, (eldest son of Late M. Karunanidhi, the former Chief Minister of Tamil Nadu) was an MP in the UPA Cabinet. Being his hometown, he pushed for this infrastructure development a decade back when the DMK was a key ally of the UPA led Congress Government between 2004 - 14. That was when Bangalore & Hyderabad came up with new greenfield airports while Mumbai and Delhi had a massive makeover – all four now being run by private partners. While the UPA Government selectively upgraded regional airports, the present Modi Government led by BJP along with NDA allies has given a further push to unlock aviation opportunities at over 40 unused airports under the ambitions UDAN – Udega Desh ka Aam Nagrik (Common man will fly). 

The Prime Minister inaugurated the Gangtok Airport recently, unveiling a host of opportunities for tourism to the Eastern hill state of Sikkim (although excessive tourism is a bane for ecology, but I will save this for another article) along with numerous airports across India taking the tally of operational airports in India to 100. A further 50 airports are yet to take off even as many airlines have wound up operations at some of these airports due to various reasons – poor patronage by passengers cited to be the most favoured response even as I reckon that it is due to careless Business management by these operators who took up routes which they knew were unviable and continued to bleed operationally without building parallel commercial opportunities other than not marketing the cost of time to the locals to fly, rather than take up a rail or bus journey. Truejet has ceased operations to Salem while Air Deccan (yes, they were resurrected by Captain Gopinath) ceased operations in the East. And many such examples.  

I had to rush to Madurai on an urgent personal work and took a day trip by Air. After my work was over, I reached the Airport four hours in advance since I had a 2-hour Video Conference with a Client. I was dreading the thought of being seated in those most uncomfortable standard airport-seating. But to my own surprise, there was an oasis – a Lounge before Security hold area. It was prohibitively expensive for Rs. 900 per pax with unlimited time one can spend plus some food and snacks on the house. They wouldn’t accept Mastercard or Visa’s Complementary Lounge options either. But my call was more important, so I chose to pay and use. Didn’t realise how I spent the three-hour period at this well maintained Lounge with polite and courteous staff. Thankfully, I was the sole occupant all along so had the entire 20 seater Lounge for myself.

Took my boarding pass from the Kiosk and walked around and upstairs to be greeted by unexcited staff who were clueless why their “shops” existed what with not a single passenger glancing inside. I noticed local delicacies – Halwa and Milk Khova from neighbouring Tirunelveli and Srivilliputhur respectively. Once inside the waiting area, there were the usual food Kiosks savouring watery coffee, dip tea and oily snacks with sugary bakery stuff. Absolute gold mine of an opportunity to cater to the 3,000 plus passengers who fly off daily from the domestic terminals. Being sensitive Tier 2 cities like Madurai, it would make sense to engage passengers with affordable F&B and Retail options. Perhaps a Levis or Nike may not work, but Indian brands with a regional appeal could do well. 

Tourism development in India is usually seen as an activity to be undertaken by a particular Department of the Government. Worldwide, I have seen a cohesive collaboration between the Public and Governmental agencies to promote tourism – from Singapore to Switzerland, Bangkok to Berlin. It’s only in India that we compartmentalise the potential opportunities. There wasn’t a single poster or a visual that speaks about Enchanting Tamil Nadu which is the spiritual and cultural capital of India. At the Departure hold, passengers and visitors are already travelling back, so instead of promoting the city, why not promote the State? We would sell more Coffee, Tea & much more at neighbouring airports too!

Should Cafes Advertise?

I came across two special offers by India’s leading café chains Café Coffee Day and Barista today. One was through a email campaign – Buy One (Cappuccino), Get One Free. And the other was on newspapers – a combo offer of a Cappuccino and Egg Wrap at a discount of over 35%. And this was not an isolated case – both these café chains have been advertising in the mainline media for quite a while now and have also been continuously offering discounts over the past couple of months on their products. And all this for attracting footfalls into their cafes. with the onslaught of new café chains such as Starbucks over the recent months and those such as Gloria Jeans, Costa Coffee and other regional café chains, this space has been witnessing active poaching of customers. However, the regulars haven’s shifted loyalty, and that’s in the proof of the pudding. If that were the case, monthly sales of these chains fluctuate quite much, which has not been the case.

The biggest effort for cafes, contrary to what we believe is not just retaining existing customers but attracting new ones as well. CCD, as it is popularly known has followed a deep penetration strategy in large cities like Bangalore (where it is headquartered), Mumbai, Delhi, Hyderabad, Chennai and Kolkata. There are over 8-10 cafes of CCD within a 3 sq. km radius in Bangalore and all cafes are full with guests in peak times. Chennai, the hotbed of the South Indian Coffee culture has grown slower for CCD than other cities. That’s perhaps because the iconic Filter Coffee available in regional restaurant chains such as Saravana Bhavan, Ananda Bhavan, Vasantha Bhavan, to name a few are just unbeatable. The modern cafes also do not prepare the filter coffee and are more popular with the Cappuccino, the Latte, the Americano, the Espresso and ofcourse the cold coffee varieties which are difficult to replicate and are not easily available at other restaurants. Barista, which has slowed down its growth over the past three years and has focused on store profitability rather has been a pioneer of the coffee culture in the North, especially in Delhi. It has also been heavily advertising especially in conjunction with India’s leading newspaper Times of India about various offers.

So, this set me out thinking, “Should cafes advertise?”

The first answer that comes to my mind, is Yes, indeed they should. Every company must advertise its products and services through relevant media to their target customers. There are two kinds of advertising, I would say. One is the Corporate form; CCD came up with its campaign “sitdownism” a few months bacj which was an instant hit among the youth and was well appreciated within the Advertising faternity. And the other is advertising its products and services. But then, for cafes, in my opinion, being present in a locality is itself the best form of advertising. The store itself is an advertisement (and holds true for other retail formats too). Be it Malls or High Streets or Airports, Café are often point of direction or a meeting place. CCD at Bangalore Airport is located in a very prominent place such that no one can ever miss seeing it. Same applies for Gloria Jeans at Hyderabad Airport. However, At Delhi Airport’s T3 Terminal, Starbucks is quite tucked away and is almost missed by everyone.

The café should rather focus on the following to retain customers and to attract newer ones mainly through word of mouth;

• Ambience
• Convenience
• Familiarity
• Consistency
• Quality

These are some factors which potential customers would consider before they step into the café for coffee and conversations. Most of them, even college kids who are the most targeted for such cafes do not like to indulge on products that are heavily discounted. Or would like to be seen in places which are positioned as being “discounted”.  I would wonder then, why do cafes scream so loudly that they have products which are “discounted” and gain adverse publicity. A satisfied customer would get ten more, goes an old saying. Cafes would do better in attracting newer customers if they provided top quality Coffee and other Food & Beverages to its customers with consistent quality and convenience (Read: Furniture, Sofas, Chairs, Plug points for Laptops, Wi+Fi, toilets) and make the place a familiar one for them to revisit. Afterall, cafes are meant to be the third alternative place after Home and Office and hence need to be the first point of recall for customers to walk into.

Airport Retailers get an added advantage

The Reserve Bank of India (RBI) has recently announced that Non-Resident Indians (NRIs) are not allowed to carry Indian currency out of the country. Earlier, the limit was ₹10,000 to carry with them after clearing Customs and Immigration. This was basically some loose change to meet Food & Beverage expnses while in the Security hold area. While cafes and restaurants do accept prominent foreign currencies, even foreigners try to finish their Indian currencies while leaving the country.

What brings an opportunity is for Retailers to sell Indian souvenirs and interesting take aways which can be spent using the Indian currency.

Keeping this in mind, we had created a very large section called "The Spirit of India" at the Bangalore International Airport. Within this area was a designer boutique from ace designer Deepika Govind among others. One could buy scarves, stoles, jewellery, neck ties and many more before departing. There was also a bookstore which was operated by India's largest bookstore chain Crossword. The store had many interesting books that doicted Indian history, arts among others. I remember, the most sold book used to be "Kamasutra". Foreigners would take it as a souvenir and NRIs would take it as a gift for their friends who lived abroad.

The present rule is expected to be enforced with full force by RBI. If so, then this is a boon for Retailers to sell Indian products to those who are departing the country.