The Indian Retail Apocalypse

The E-commerce companies mopped up over USD 3 billion during the Navarathri Sales late September / early October, we read in newspapers. That’s a small blip compared to the total business that usually happens all India during that period. To give a perspective, only Kolkata garnered a Sales turnover of Rs. 4,500 Crores and the State had an estimated Rs. 15,000 Crores in Sales during the Pujo Week, the Dasera Festival which is celebrated with much fervour Eastern India, especially West Bengal. For the rest of India, the Deepavali fortnight is the highest grosser akin to "Black Friday" Sales of the West (minus the discounts, usually). Most brands in the Electronics, Consumer Durables and Household Appliances businesses record 40% of their Annual Turnover during Q3 – October to December during when three important festivals occur and are celebrated all India – Deepavali, Eid and Christmas – New Year block. 

Having contributed to Amazon and Flipkart during the Big Billion Days ahead of Dasera, decided to open up my wallet at Offline Stores for my Deepavali shopping.  

Visited the iconic Express Avenue Mall in Chennai last week after a long time. Why after a long time? Because I moved to a new house late last year and don’t live closer to the Mall anymore. And there are enough stores across categories nearby current home. Looking at the sparse crowds all over, I had doubts if the mass media was actually correct about a possible slowdown. 

At least 6 CEOs / Heads of Businesses who run International / National Brands in India I spoke with over the past few days – and have known them personally, confirmed there’s no slowdown in Sales overall. Some said they have a single digit growth (over last year) and some said double-digit. Unfortunately, most of them told me not to quote them for this article. 

H&M on the other had revealed stunning sales for the past year although it’s not clear whether the Chennai store had a Y-O-Y increase in Sales or otherwise. At Rs. 1,236 Crores, it was 39% more than last year while it’s Profit grew a neat 29%. Zara, grew 17% to Rs. 1,438 Crores compared to last year. H&M & Zara operate 42 & 22 stores respectively in India. Meahile, Japanese Uniqlo opened a store at tony DLF Mall in South Delhi earlier this month and garnered a Sale of Rs. 2.20 Crores in the first two days. India's largest Department Store chain Shoppers Stop has been going through quite a metamorphosis under Rajeev Suri who took over a turbulent company two years back. Here's what he had to say to the Economic Times on where they are headed. Lifestyle, Dubai based Landmark Group's flagship chain has it various stores reporting mixed numbers, thanks to various geo-social changes in the consumption patterns. 

After seven fulfilling years in a healthy JV with the Tata Group, Starbucks aims to break-even this FY with an estimated store count of 185+ cafes all India. Dominos Pizza, India's largest F&B chain reported a 12% growth over last year while most other F&B companies, organized or semi-organised have seen a significant increase in Sales despite the hype over Food hailing Apps such as Swiggy and Zomato from whose channel, restaurants garner about 15-20% Sales. Even local eateries and restaurants have not seen a significant dip in outlet sales, which is usually compensated with online orders. A few local players have shut shop indeed but that's due to internal inefficiencies. 

The Multiplex industry, on the other hand is on a roll with PVR Cinemas, the market leader recording 25% more admits, 37% increase in Total Income and 149% increase in EBIDTA and 35% increase in Net Profits while there is a slew of films in Hindi, Tamil, Telugu and more Indian languages slated for release soon and which are expecting a big round of BO in the coming months. Minister Ravi Shankar Prasad claimed he was quoted out of context when he described the economy in healthy mode comparing the BO outcomes of a few films. And the American theory of Entertainment Industry doing well during a slowdown - well, probably yes for them but not in Indian when most Indians are scrambling for 3 meals and a healthy, wealthy living even when the Economy was apparently doing very well. 

There is NO Slowdown as is being projected everywhere in Mainstream Media. Yes, some industries have seen correction in the way they are run – from neighborhood Pharmacies to Auto-Dealers. Local Pharmacists cannot purchase medicines anymore without a valid GST Invoice which has affected their business overall since most small shops have never been used to paying VAT. Auto-Dealers were being dumped with stocks by Automobile Companies in the name of Primary Sales which has seen a collection. Commercial Vehicle Sales have come down, thanks to better quality of vehicles manufactured over the past decade, a faster TAT of trips thanks to GST and limited / nil local bureaucracy and of course the diesel price impact being absorbed by everyone in the value chain. 

No Indian has stopped spending or planning to stop spending. If people were buying a lot of grocery and vegetables, they have reduced shopping but this has been well compensated with Swiggy and Zomato Sales! And similarly in every other industry.

There is absolutely no scope of a RETAIL APOCALYPSE in India yet. Not for the next 30 years at least. Stop worrying and start spending like before. 

Happy Deepavali.

Retail horoscope 2017

There have been predictions written about sun signs and moon signs. So, I set-out writing one for the Retail Industry in which I complete 20 years this year . These are not purely fictional but I see things going this way. Take a look and let me know what you think.

Kirana Stores

The largest Retail segment, the sem-organized and unorganized Kirana Stores are set for a huge overhaul. With the onset of demonetization, Kirana stores do not have a choice but to go digital. All this while, most of them have been collecting cash for sales which mostly go unaccounted causing a great loss to the exchequer. This will change in 2017. From Bank EDC machines to Mobile Wallets, they will start accepting every form of money other than cash. A robust y-o-y growth is also seen in this business model.

Supermarkets

Neighborhood Supermarkets from large retail chains have already been making a comeback. Nilgiris is leading from the front through Franchising, while Aditya Birla More seems to merge with Future Group, and so would Heritage Retail this year. None of the supermarket chains have an online presence due to reasons best known to them. I don’t see any change here. Heritage is experimenting something but I am not sure if they would be scale up like the Hyperlocal players. Margins will be strained and even store profitability will be a challenge. I see more consolidation in 2017 among the medium sized players.

Hypermarkets

The most abused retail format of the last half a decade, the Hypermarkets have come a full circle. As I write this article, the store sizes have come down from 25,000-45,000 sft to as low as 8,000 sft. While poor availability of retail space is one of the reasons, the sheer ability to sell higher volumes like in Western markets is the core reasons. Indian customers prefer fresh products, be it rice or atta or oil or vegetables and fruits. Also, the households are smaller in size, so are the kitchens and refridgerators. Quite obviously the trolley size will be smaller. With most Mall spaces exhausted and almost no new Mall of any significance across major metros, Hypers may look for standalone sites in suburban areas.

Apparel Retail / Specialty

With a chunk of this format having moved online, from Diapers to Accessories to shirts to dresses, this offline retail format would see more store exits in 2017. The franchisee-dominated model will find few takers and loss making / average performing stores will be closed or consolidated. Malls are already operating at an average 15-25% vacancy of Vanilla Store locations and this year will be worse with burgeoning rent and maintenance cost (the CAM Scam!). Consumers will move towards E-Commerce for specialty retail and will be fine to shop even with limited or nil discounts due to the convenience it offers. Bad year for Retailers in this space which will see many small and regional Brands winding up.

Consumer Durables Retail

With E-Commerce already swooping a majority of consumer durable retail sales, such Retailers will be left in the lurch. Brands, who have initially supported offline retailers in the mid-2000s have started balancing their act with e-commerce. 2017 will see a swing in their loyalties towards e-commerce players. With tighter margins, higher rentals, surging operating costs, many such Retailers dealing in Consumer Durables will consolidate their store count while many would shut stores which are not making enough profits. Overall very challenging year for retailers in this space.

Jewelry Retail

The most affected sector after Demonitization is this retail format. Various media reports suggest how some leading players made a killing on 8^th and 9^th Nov. 2016 after the Prime Minister made the historical announcement. With 90% or more of their business in cash, and it’s quite well known how much of them get accounted, Bullion retailers will face heat the most. A significant number of stores would be thrown out of business. Large chains which have PE Investments made based on PPTs and Excel File projections will face a blank wall, with valuations diving deep and would find the going very tough. Extremely tough year for Retailers in this space. The market will dictate terms in May around Akshaya Trithiya when consumers go bonkers buying bullion.

Food & Beverage

With the Industry having matured in the last decade, it is time for consolidation for F&B Retailers. With scale in place, players like CCD, Dominos and McD will now consolidate their presence and focus on store EBIDTA. New initiatives such as Home Delivery and signing up with delivery companies will bring more business while a tired economy will put pressure on attract store footfalls. Outlet sizes will reduce by 30-50% across formats. There is a sudden upswing in specialty bars and pubs and this trend will continue. A growing and discerning set of gastro-enthusiasts will mean new entrants and new formats are on the anvil. Interesting space for Startups in this space.

 E-Commerce

It’s been 10 years since Flipkart the market leader was born. Sadly, this year would be the most challenging to the company that made e-commerce take off in this country where less than 10% of the Retail Industry is organized. With 1,000s of e-commerce companies of various sizes and shapes, names and offering in the market, the space would see a blood bath this year too. Most such companies which did not have a significant differentiator will have to bid adieu. Less than a Billion Dollar will go in to investments in existing companies while new startups will find the going tough. Amazon will consolidate itself in the market and will become a household name with higher market share and mind share. Hyperlocal Market places which connect offline retailers online will have a good run, since this model is reasonable new to customers. There will be some consolidation in this space too but new entrants will carve a niche. Reasonable investments are expected in this space.

Consumer

A weak economy, struggling to grow since the last 5 years will mean strained purses for consumers. They will be cautious this year on spending and will demand quality and service from Retailers than ever before. 

Are Cafes sustainable?

The most discussed topic these days in Retail circles in India is the impending IPO of the company that runs the Cafe Coffee Day chain of stores. The holding company, Coffee Day Enterprises is planning to raise ₹1,150 Crores from the Indian Stock Market for which Draft Herring Prospectus has been submitted recently. The company is among the few of its peers such as The Future Group, Shoppers Stop, Trent(Tata's) and Dominos (Jubiliant Organosys) who have gone public with the companies. CDE plans to utilise the money raised for paring debts and for expansion almost on an equal basis. The company started out renting its premises for Internet enthusiasts to browse in 1996 while also encouraging them to buy a good cup of Cappuccino, coffee that is prepared and presented in the Italian style for 5 times the price of a normal cup of coffee. Very soon, the company decided to change its strategy for Internet to consumer and positioned itself as a place for conversations and more. The rest is history. 

A lot happens over Coffee, is not just the tag line for CCd but also something that is real. A lot of things get done at cafe similar to CCd such as Costa, Barista, Coffee Bean and Tea Leaf, and of course at Starbucks, the world's largest cafe chain which entered India in 2012 in a joint venture with Tata's. I was at a Starbucks for over 4 hours yesterday, which included a one hour meeting, a half an hour call and rest of the time on Mails and office work. During those four hours, not more than two tables were empty for more than 5 mins. The cafe was running at full occupancy. There were people working on their Macs and other laptops, a few who were reading stuff on their books and devices and one man sitting next to me who watched a full movie! 

With an Investment of over ₹1 crore in interiors and hefty rents for locations, this SBUX outlet does a Sale of about ₹40-50 Lakhs a month. Compare that with ₹3/5 Lakhs that a CCD would do, albeit with 1/4 th the investment and 50% lesser opex. So, are these cafes really viable in the long term?

Answer is Yes and No. 

Cafes are viable in the medium to long term provided they receive continuous and healthy patronage. Keeping aside the Capex and Opex for a moment, the cafes would be profitable not just financially but as a Brand asset in the medium to long term when their occupancy remains high. Consumers walk in to a cafe for the coffee (and food) for only 30%. The rest is for the experience in itself and a peaceful me-only space that one doesn't get at home or workplace. 

It is far easier to be viable as a single store than as a chain of stores, for Ny format in Retail. Most of the Indian Retailers are bleeding due to unresponsive assets in the form of their stores and high costs of operations including servicing debts. This will change over time with Retailers finding new avenues for their revenues. But what about cafes? CCD took a strategic position to be the nearest cafe in every neighbourhood and that has paid off. There are over 1,400 cafes across four formats in over 250 cities in India apart from a handful of them in Austria and Malaysia. Most of the cafes for CCD are operationally viable and are not seeking money from Corporate anymore. The newer ones face tough competition with the traditional outlets, especially with the changing landscape in the out of home consumption sector.

Cafes have always been viable provided you get the fundamentals correct. So, for every Java Green and Barista, there is a SBUX and CCD as examples. As the saying goes, the 120 bucks you paid for the coffee is actually not for the coffee but for the sofa and a/c. With the increasing trend of people working in casual environments, cafes will have a large impact on our lives. Next - probably a Bollywood fil, on how cafes have made or broken marriages! Watch this space. 

Online Dining

I have enjoyed my pizzas better at the restaurant that at home, all along. It is more to do with the fun of dining – you plan a trip to the pizzeria, a walk or a short drive usually, or even at a Mall after finishing retail therapy. I fondly remember the bottomless Coke and unlimited Pizzas at Pizza Corner in Chennai in the late 90s during my most cherished college days with my gang of friends. Have ever since been a fan of pizzas and the love has only been growing. Frankly, I like pizzas from different places, be it Dominos or Pizza Hut, California Pizza Kitchen or standalone indie restaurants. One of my most favourite of course has been from “Italia”, the fine dine restaurant at The Park, Bangalore. For me, Pizza is an all time snack. I am usually game for a pizza at any time of the day (or evening) although I avoid a heavy dinner of pizzas. In fact, the love of pizza is more because of the yummy accompaniments, the cheese garlic bread and an array of toppings, especially the gherkins and olives. Am not a big fan of coloured flavoured colas and would rather prefer a strong coffee if not a lemon ice tea to drown the heavy food.

What I like best is food to be served hot and fresh from the kitchen. Haven’t been a big fan of home delivery or takeaways since I feel that the freshness is somehow lost, especially the international fare such as pastas, pizzas etc. although Indian food is still doable – we have an option to reheat the curries and biryanis at home once again which can’t be done with pizzas and pastas. Have avoided ordering pizzas at home for a long time now since I have had not-so-great experiences in the past, but that was probably because I used to live in Bangalore where the ambient temperature outside is not conducive to serve hot food by road.

This Football season, I decided to order pizzas at home. No, I don’t follow the game but why not enjoy the delicious offers provided by F&B Retailers! So, first it was Dominos followed by Pizza Hut. On the first occasion, the pizza arrived pretty late, almost 45 minutes since I ordered. I was very disappointed with all the promises made by the company on various media, but gave a benefit of doubt to the delivery boy – he must have had a lot of orders to fulfil and mine was probably the last one. So, I didn’t make an issue about it and just left it there. Yes, I would give them a try once again in future and I hope they live up to expectations.

On the next occasion, the pizzas were served hot and were in a consumable condition even after 20-30 minutes of being delivered at home. What was surprising was it was a Sunday and was the day of the “Final” match between the two teams. And yet, the pizzas were sent on time, well ahead of the promised time. They have a future customer for sure!

In both occasions, I used the mobile applications of both these companies. The UI for Dominos is a bit confusing while the one for Pizza Hut seemed much better. In fact, I had to switch over to the website while ordering for Dominos since that seemed to be a better option. The UI is perhaps not designed by retail experts and with consumer feedback, it lacks the sensibilities that customers look for, especially people of the older age and for women, both of these segments may not be very mobile savvy. Also, one of my friends quipped on his Facebook post recently how the delivery boys call a number of times to take directions. The Pizza companies can take a cue from Uber, the taxi service guys who have a GPS enabled map on their cell phones that help the drivers reach their destination without even calling once.

Mobile App Zomato also integrates Home Delivery along with providing reviews about restaurants and they are growing rapidly not just in India, but also internationally. Overall, I guess online dining, or rather online ordering is a great way to reach out to customers. It is also non-intrusive in a way. There is no need to call a number and go through the menu being repeated often – the menu is just there on the mobile app or on the website and helps users to choose what they want quickly and easily. Once customers are used to it, they would rather prefer this option instead of calling on the phone, whenever they desire to order food home. So, go ahead and try ordering on your phone next time. And yes, do take a minute to share your feedback. Happy Dining…