07 April, 2019
Desi, Videsi or Woh!
07 April, 2017
F for FDI in Food Retail
31 March, 2016
FDI in Ecommerce
31 October, 2014
Hate thread on McDonalds
12 June, 2014
Online Grocery Shopping
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
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.
22 May, 2013
Inviting patrons for a great feast
The Hotel Industry in India is facing tough times ever since the global recession occurred a couple of years ago. In my current role at Royal Enfield as Head of Business Development, I travel atleast 2-3 days every week across the country. Whenever I try to book rooms in small and big cities, the room rates just surprises me. I was trying to look for rooms in Hyderabad for stay over the next few days and was surprised to find discounted rates at 5 star hotels for as low as Rs. 5000 (USD 90). The Leela and Grand Chola – both touted as 7 star rated properties in Chennai are offering over 40% discounts on printed rates, to as low as Rs. 7,000 (USD 130). Same is the case in Delhi, Gurgaon, Mumbai, Pune and is even worse in smaller towns. I stayed in Trichy, a city in central TamilNadu which connects a number of other towns of prominence in business and culture within a 100 km radius during the first week of May 2013. On the MakeMyTrip mobile app for the Apple iPhone, I could get a double room for three adults and two kids for as low as Rs. 2,500 (USD 55). The room was quite large to hold a King size bed and two single beds. I have stayed in cities like Coimbatore, Dehra Dun, Jammu, Patna and many others for similar rates in well maintained properties. The outlook for hospitality in India as such wears a glim look and with increasing inventory and competition, not to forget the choices that customers make, the pricing is aggressive at most of the properties. This is where ancillary income to Hotels are helping them.
Most of the hotels have in-house restaurants, mainly to cater to resident guests. Many of them advertise these restaurants quite heavily, thereby attracting visitors through the year irrespective of peak season or otherwise for room occupancy. While this practice has been there for long, its quite evident these days with a number of hotels including some premium Hotel chains advertising in the media. What caught my attention recently was an ad (displayed above), by ITC Hotels, one of India’s largest companies in the hospitality space for their Cappuccino Restaurant at the erstwhile Park Sheraton (in Chennai) . They have advertised buffet options with prices! Do those patrons who visit these places really care for the price? I mean – everyone does. But then, do people care what the final bill is gonna be when they visit star rated hotels and restaurants? I really doubt. Restaurant incomes are an important source of revenue for Hotels. They contribute anywhere between 7-25% of total sales depending on how well these restaurants are positioned and popularised. Some of the restaurants in these hotels are even Michelin-rated – a rating by the Vehicle Tyres powerhouse Michelin which grades eating joints across the world and shares in a report that is published annually.
Suggested Reading: Franchising
Stand-alone restaurants are doing their best too, to woo potential customers. They advertise in leading newspapers regularly to attract attention and over a period of time become destinations. In some cases, they are located within hotels and Malls and in many cases they are located on High Streets. User reviews in sites and apps such as Trip Advisor, Zomato, Burrp! etc. help them gain more traction. Chains like McDonalds, Pizza Hut, Subway and Café Coffee Day advertise across the media regularly to pull customers to their outlets and many of them even offer complimentary WiFi as a hook to retain them.
Suggested Reading: Does Free Wifi help?
With inflation leading to peak rates of food items, it is becoming impossible to middle class families to venture out eating outside. But the upper-middle class seems to be slightly more insulated, fuelling the needs of these restaurants. While premium hotels and restaurants promise great food (quality) and a wonderful ambience, consistency is key. To retain existing customers and to attract newer ones. If you are planning a visit to a nearby restaurant this weekend, flip through the pages of newspapers or mobile apps and you may be in for a surprise at a hotel nearby you! Happy Dining…
Suggested Reading: Food Inflation
13 May, 2013
Shaswat Goenka–Hearlding new frontiers at Spencers Retail
After dabbling with various sectors in the Rs 14,000-crore RP-Sanjiv Goenka group for about a year, Shashwat Goenka, 23, son of group chairman Sanjiv Goenka, has taken charge of Spencer's, the retail chain, from April 1. In an interview with Namrata Acharya & Ishita Ayan Dutt of Business Standard, he talks about his personal mandate and the road map for the Rs 1,400 crore business. Edited excerpts:
What goal have you set for Spencer's?
I assumed the role of sector head from April 1. What is most important at this point in time is profitability; that's where we are all trying to go. That will be the focus for the coming year and the year after. Spencer's is aiming to deliver Ebitda (operating earnings) breakeven at a company level in the third quarter of 2013-14 and be Ebitda-positive on a full year basis in 2014-15. That's the overarching short-term goal.
Spencer's has missed its breakeven deadline quite a few times. What makes you think you would be able to achieve it?
Well, each time we have done better. We have achieved breakeven at store-level but company level is what we want to achieve.
How do you plan to get there?
We want to increase our footprint. We will go up to two million sq ft from 900,000 sq ft currently and will expand in the north, east and south over the next four to five years.
We will achieve it over the next few years. The other important thing, obviously, would be operational efficiency.
In terms of offering, we would look at increasing international foods and regional foods. Value-added fresh is one of the areas we would like to explore.
Doesn't the fresh segment have one of the lowest margins?
We have very good margins in the food business compared to our competitors. Margins in apparel are obviously much higher but our margins in foods are good.
Any new formats for Spencer's on the anvil?
We haven't thought of any. We want to grow in hypermarkets.
Is the rationalisation process for Spencer's over?
Last year was the rationalising and consolidation process. We have exited Pune. In the past two years, we have closed 65 stores. Now, we want to start growing and in the hypermarkets.
Earlier, we had hyper, super, daily and express stores. Now, we have hyper and dailies and a few of the old express stores are still functioning.
Why did you exit Pune?
We wanted to become stronger where we are. So, we wanted to focus on the north, south and east. After we get that strong, we will revisit the west.
Why do you think the response from foreign retailers has been muted, after FDI (foreign direct investment) has been cleared?
I think people are interested. They just want to figure it all out before they come in.
Do you see foreign retailers as a threat to Spencer's?
Walmart and its likes coming in will help us. We can learn a lot from them. Back-end infrastructure will improve. There are basic infrastructure issues in India, like roads. Also, cold chains or dairy chains, for instance, are not very well developed.
A lot of options were being explored at the back-end by retailers. Any progress on that front?
We are open to FDI at the back-end but we haven't been approached by anyone.
Spencer's was exploring the IPO (public share offer) option. When is it likely?
That's something we definitely want to do but right now, the focus is on profitability.
Would you look at getting into the cash and carry format?
We have not looked at it. We want to be profitable and then explore other things.
21 July, 2012
Why IKEA will do well in India
It has been a regular discussion point in Retail circles about the imminent Indian entry of IKEA, the Swedish Retailer which is also the largest Furniture Retailer in the world with sales over USD 30 Billion. A few years ago, IKEA announced its plans to enter India but later withheld due to the unfriendly FDI policy and other regulations. Most recently, in July 2012, IKEA submitted an application to the Foreign Investment Promotion Board (of India) to allow its Indian subsidiary to operate its business in the country. Although FIPB and FDI norms allow multi-national Retailers only to operate a B-to-B business in India (Wholesale businesses like the ones followed by Bharti Wal-Mart, Carrefour & Metro AG), the much awaited Single-Brand Retail FDI which allows foreign companies to transact directly with end-users and consumers is expected to be announced soon. And IKEA sees merit in it. After all, the Indian market by size is one that cannot be ignored, about INR 100,000 Crores of which the Organized market is a less than 10%. Home grown Retailers such as The Future Group (which operates the Pantaloon Department Store Chain, Big Bazaar Hypermarkets and Central Malls among others), K Raheja Corporation (which also runs the Department store chain Shoppers Stop) and Landmark Group (of Dubai which operates Lifestyle Department Stores and MAX Hypermarkets) dominate the space with their respective ventures Home Town, Home Stop and Home Centre. The price points at which these furniture retailers sell is rather high – and rightfully so since that is exactly what the unorganized market doesn’t offer. Also, the life expectancy of such furniture is manifold compared to the “one time use and throw” offering from the not-so-Organized Retailers. And hence they have been thriving selling premium products.
IKEA is hopefully expected to be a game-changer. Its strength lies in design – easy to use furniture for day-today utility. For any furniture, its form factor and utility are the two most important aspects followed by its cost. “Product developers and designers work directly with suppliers to ensure that creating the low prices starts on the factory floor,” says IKEA Group spokesperson Josefin Thorell. Just one sentence in the IKEA website sums it all up: “We design the price tag first and then develop the product to suit that price”. The furniture powerhouse with 330 stores worldwide obviously doesn’t like to mince words: it’s an out and out price warrior in all the 41 countries (India will be the 42nd) it operates in. At the heart of the strategy is the concept of do-it-yourself (DIY) furniture which means buyers have to assemble different pieces of the product themselves. The ‘flat packs’ design helps the retailer to sell them at lower prices. A customer has to take the delivery of the product and assemble it himself.
Furniture is used everyday in some form or the other and hence it is most valued for their usage. In the Indian context, furniture, like jewelry is always expected to be passed on down the generations. At my own home, I have a forty year old chair that my grandfather used. And original Burmese Teak wood almirah doors which once adorned the cupboards of his palatial house. And there are millions of them out there like me who maintain their hereditary furniture in India. It is indeed almost a custom. But things are changing, rather evolving. With more and more people moving out of their home towns to larger cities in search of education and employment, the need for simple, usable furniture is on the rise. Also, with transferrable jobs across the country, given the overall market boom, urban dwellers don’t prefer to invest heavily on movable furniture. They would rather buy those which can be easily discarded, usually to their drivers, maids, helpers, etc. And this is where probably IKEA becomes an exciting idea!
The DIY concept is another unique thing about IKEA which would do well with the youngsters – the Indian population has over 65% of them under the age of 35. IKEA sells pre-packed boxes of furniture and not assembled ones, thereby saving precious retail space at their outlets. While the turnover in this business is huge, margins are wafer thin. And real estate costs don’t help either. The DIY kits would hopefully do well among the majority of users who are youngsters. They like adventure and setting up a Dining Table or a Wardrobe would be pretty exciting. Also, to manufacture in the form of flat panels is mammoth effort, which is where IKEA would initially focus their efforts on, which is also their inherent strength.
Apart from bringing down prices substantially, IKEA is expected to bring in great designs with it while entering India. Fancy book shelves, cupboards and many other art forms would be a sure hit among consumers. With their maverick pricing strategy, they would also be taking on the local businesses head-on. However, there seems to be room for atleast half a dozen large players, so the market would respond well to them.
Looking forward to assembling my first IKEA furniture soon!
25 January, 2012
Retail Store Opening Time
I recently received an email from Reliance Mart that they would opening their stores at 8am! The email newsletter was a bit incomplete in most respects – it doesn’t talk of its existing store timing (including opening and closing) and the list of all stores or a contact number such as a Customer Care number or a Toll Free number. It is anybody’s guess why this particular retailer would want to open so early – given that it is a Hypermarket format. In the footer of the communication, the cities where they operate is mentioned, most of which are non-Metro cities, which I guess could be the main reason for this move. In metro cities, people (Read: consumers) leave to work by 8am and return back around 8pm, hence most of the modern shopping environments including Malls, Supermarkets, Hypermarkets and Specialty Retailers open their stores only by 11am. Also, this is a huge cost-saving for retailers – lower usage of electricity and other utilities; staff can work in a single shift; most importantly, it provides time to set-up the store in the mornings – stock fulfillments, “facings” of products on the shelves and a sound briefing session to the staff.
At Foodworld, (a Supermaket chain part of the erstwhile RPG Retail) when I used to work in Chennai 10 years ago, we experimented opening the store at 7am – really early by Organized Retail standards. But what we realised was that we built a strong loyalty among the local residents and the neighborhood. Customers started coming in early to pick up vegetables that would have landed fresh at the store; and along with bought a packet of bread and some milk. And a few other daily use things too! I remember, we used to interact with regular customers and they would feel happy to be at the store so early! I guess this is one area where Kiranas cleverly take a lead amongst Organized Retailers. A typical kirana store opens by 7am and starts brisk business early. And closes as late as 10.30 or even 11pm at times.
The Government’s rules and regulations are not helping Organized Retailers either. Law states that women employees (who contribute to a significant percentage of the work force in the front-end of Organized Retail in India) cannot work beyond 9pm and should be escorted back home by the employer. Almost no one follows this though, thanks to lax overseeing by the respective agencies and authorities. The retail stores cannot function beyond a certain timeline, which is 8.30pm in Kolkata, 9.30 pm in Chennai and so on. Recently, Star Bazaar, part of TRENT Retail (owned by the TATAs) and Total Hypermarkets, part of Jubilant Retail based out of Bangalore extended their store closing time to 12.00 midnight, a welcome move by regular customers who heaved a sigh of relief since they could comfortably shop during the late hours! Mustafa, a local retail giant in Singapore, for example, is open all night and sees regular customer flow all through! I was told that the contribution of business between 9pm and 8am is almost 20% since tourists hop by after the city closes down.
With FDI in single brand retail already in place, it is anybody’s guess if more and more Retailers would want to keep the stores open late night or open early since the International Giants might want to pump in more money and experiment if customers walk in late at night. While this may work for certain categories such as grocery, household, furniture, etc. it may be obvious that fashion is not something that could work. After all, that category of customers would we wining, dining and partying late night than shopping! Café chains such as Café Coffee Day, Barista, Costa, etc. keep their outlets open until late in the night while book store chains such as Crossword and Odyssey usually wind up early. The case may be a bit different at Airports, where a majority of International Travel happens during the night and therefore, most of the Retailers are open all through the day and night.
There are a few advantages for Retailers to have extended store opening time;
- Customer Service – During the lean hours, Retailers can provide better customer service, a typical measure to increase conversions
- Loyalty – Retailers could offer bonus loyalty points (if they are operating such a program) to those who shop during such a stipulated time
- Understanding Consumer Behavior – Since customers would be shopping under a more relaxed environment, they may tend to show a better behavioral pattern which may be useful to Retailers
- Targeted Promotions – Retailers and Brands could run specific promotions during such times to increase penetration of certain SKUs
The drawbacks though, would be;
- Increased Operating Costs – Retailers would have to shell out additional salaries to staff who work during such extended times as well as incur other overheads
- Sustenance – Such a move, if it is experimental only for a short while can dent the brand image of the retailer among customers, leaving them confused
- Managing the network – If the Retailer has stores across multiple cities, then it may be forced to maintain uniformity across all locations
Having said that, I believe there are hardly few Retailers who would want to try this venture. For, success is not something that comes without repeated attempts!
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