Desi, Videsi or Woh!

I started my 30-hour 2 Credit Retail Management Elective Course at BIM – Trichy for the 40-odd sophomores who are completing their 2-Year MBA shortly. On my first session last Thursday, I was having exactly the same nervousness addressing students as was on my first session I took 15 years back at a B-School in Bangalore which was more of a one-off Guest Lecture. As with all the time, a few students asked me in the plenary session about the potential threat of Organised Indian players towards the 12 million+ Kiranas (Mom & Pop run) retail stores in India. And how the International Retailers and the fastest growing segment run by E-Commerce Retailers (despite their humongous losses) will fare in this game. 

Like in my past lectures, I invoked the story of David & Goliath and asked who really is the Goliath which elicited mixed responses. In my humble opinion, the Kiranas and small and marginal Retailers are the Goliath up and against the modern retailers. Their collective opinion-making (and vote bank) has found the flavour of the Politicians and ever since the starting of this Millennium when International Retailers heading India-wards, there has been growing unrest over Foreign Direct Investment (FDI) in Retail. The decade long UPA Government kept assuring to the small Retailers that their interests would not be compromised and the just about to conclude BJP Government has also ensured policy policing for the five years although by balancing the two power centres. While FDI in single-brand retail is allowed up to 100%, FDI in multi-brand Retail is controlled with a majority ownership by an Indian entity and no FDI in E-commerce at all, except for marketplaces. 

A growing economy like India needs FDI in many Industries and Retail is not an exception. While we keep telling ourselves that India is unique and that Indian consumers have a completely different attitude towards shopping, there is much to learn from International players, from the West, East and everywhere else in between. Having spent the last 22 years in Organised Retail, having grown with the Industry and with a notable and rich experience at Leadership levels at some of India’s home-grown top Retailers, I can say with confidence that no one is going to take away the opportunity and market share of the Kiranas. 

Metro AG, among the world’s largest Retailers and from Germany stepped in to India in 2002. The Retailer made profits in India recently after a presence of over 15 years and has assured a long term game plan for the Indian entity, which doesn’t sell to end-users rather only to Traders, Shopkeepers, Kiranas and anyone who prefers to buy in bulk. The coveted Retailer was recently called upon by DPIIT to work on a model that would help the unorganised to get organised, calling for a paper which could propose better fortunes for the marginalised retailers who mostly lack technology support for billing, reordering and consumer connect. Quite similarly, Wal-Mart which entered India in 2008 has been building large warehouse-styled Retail stores where it sells directly to Kiranas, similar to Metro. Walmart India provides a lot of information and support such as a native seller-marketplace for the Kiranas to reach their Customers, Sales associates who visit the Retailers with a Tab to get their instant orders and also arranges for delivery where possible. 

Reliance SMART (now being renamed MART) has done a similar thing while what it does differently is that it also opens its doors to end-consumers for shopping, a rule in the law book which allows home grown Retailers to do so. Being Indian companies, Reliance, D’Mart and even the Future Group have the opportunity to sell to Resellers and have created independent business units to cater to this need. The FMCG business of the Future Group is now the largest contributor across many categories at the Big Bazaar stores. Online players like UDAAN have created an e-commerce platform where small Kiranas can order products on the App which then gets supplied by wholesalers from across the India to the local store, perhaps even 1,000s of kilometres away. UDAAN connects the two and makes a small profit in the process, a much laudable initiative indeed.

So, are the Kiranas at an undue disadvantage despite all these advancements, provisions and support by Organised Retailers? Perhaps not. There’s a lot more work to be done to support the smaller retailers, beyond business interest. Ultimately, the SME Retailers are consumers for many other categories, so when they prosper, the economy also does. And Retailers increase their pie.

F for FDI in Food Retail

Much has been spoken and written about the opportunities and perils of allowing Foreign Direct Investment in Retail, especially in the Food & Grocery business. At the moment, only locally procured farm goods and other products manufactured in India can be sold in organized retail stores with FDI. Unfortunately, the top Food Retailers in India including the Future Group, Reliance Retail, RPG-SG led Spencers Retail, etc. do not have foreign investors. Most of the retail chains are reeling under heavy losses and have not been able to scale their businesses beyond existing geographies.

Carrefour and Auchan have shut shop while Walmart has severed it’s tie-up with Bharti Retail and is on it’s own for a while now. Tesco has always had a back-end arrangement with Tata Retail and it continues to be just that. And there is no news of any other international Food Retail chain getting into India in the near future. Interestingly, Amazon and homegrown start-ups Grofers and Big Basket have applied FDI proposals to FIPB for operating in the food & grocery space, perhaps in e-commerce, which is gaining ground every passing day.

Big Basket started operations in 2011, is well funded at the moment and works on an Inventory model in gross violation to existing FDI rules. BB has a warehouse where its products are purchased, sorted and stored. Customers order online/mobile apps and BB delivers the said products from their Warehouse to customers at their doorsteps. BB also procures products from local retailers for quicker delivery and for items that they do not carry. Needless to say, BB hasn’t made a single penny in profits and continues to mount losses.

Grofers started similarly as Big Basket and built ghost stores (outlets with products but no name board and consumer shopping) but then modified its business model to a Hyperlocal model where it currently picks products from neighborhood stores and delivers to customers.

Others like Peppertap, Zopnow, etc. have tried their best raising Investments but have failed to make a dent and have shut shop or have morphed in to delivery companies. Amazon Now currently operates only in Bangalore and is app-based. Customers order on the Amazon Now Mobile app and Amazon picks the products from The Future Group run Food Bazaar & Shopper’s Stop’s Hyperlocal format “Hypercity” Stores and delivers products to customers in a scheduled manner. This is the entity perhaps to whom the FDI license is being sought for.

Incidentally, I have been operating “Oyethere” which has a website and mobile apps on Android and iOS which are not only Hyperlocal but also Convenience formats. Customers can order products from our website or apps and we pick products from the nearest Retail outlet with which we have tie-ups and deliver to customers in 30-300 mins which is our Unique Selling Proposition (USP). We have been around for a year and half now with minimal investments and are on the verge of getting well funded shortly.

Food Retail is a hot space both offline & online Retail and we are playing a wait & watch game with what the Modi-Government is up to. Let’s hope for the best.

FDI in Ecommerce

The Govt. of India has recently affirmed through a circular through DIPP that Foreign Direct Investments in E-Commerce companies is allowed upto 100%. There is cheer among a few although there are clauses and causes for worry for many. The notification says that 100% FDI is allowed only in companies that operate as a Marketplace and not on those who operate with their own Inventory. 

Let me clarify this with some examples;

Amazon, Flipkart, Snapdeal and PayTM are the big Four Marketplaces in India and so is my own startup Oyethere.com. In these models, the company doesn’t own any inventory and merely facilitates the sale of products between Retailers/Sellers and Customers. Marketplaces bring together the above-mentioned two parties and complete the transaction. There are several variations here too. For instance, some marketplaces merely connect the buyer and seller (OLX) and the money is paid by the buyer to the seller directly. A majority of them including Flipkart and Oyethere.com collect the money from the customer while the Retailer provides a Bill/Invoice to the customer. The Marketplaces then repays the Retailer with its Sales value after deducting commission, if any. However, there is a catch for the big two companies, Flipkart & Amazon. Flipkart has a subsidiary company by the name WS Retail which is the largest seller on its own marketplace. Similarly, Amazon has a 49:51 JV with Cloudtail which is owned by Catamaran ventures, which is in turned owned by the family office of NR Narayanamurthy, Chairman, Infosys. These two companies could face issues because the DIPP Notification on FDI states that no more than 25% of Sales can be derived from one seller in the marketplace. This could be a potential spanner in the scheme of things until these large companies find a legal way out.

The most affected ones would include the likes of ZivaMe (lingerie), Urban Ladder (Furniture), Hopscotch (Baby Care) YepMe (Fashion) which has Shah Rukh Khan as Brand Ambassador and is also an Investor, Myntra (Fashion) owned by Flipkart and many other small and budding Ecommerce players who have already received foreign funding or are in the process of raising one. These companies are legally not allowed to receive FDI more than 49% which would never be possible.

Having said the above, the biggest beneficiaries would be the offline Retailers like Viveks Ltd. (Consumer Durables) who have already been selling online through Marketplaces. Oyethere.com also enables offline retailers like Café Coffee Day, India’s largest café chain with over 1,500 cafes across the country, Brown Tree (Organic Food), CeeDeeYes Supermarket, Smiling Baby (baby shop) and many others to sell their products online through its portal thereby facilitating the sale between the Retailer and consumer. I am personally meeting several Retailers to convince them to come on board our startup Oyethere.com and benefit from the incremental business opportunity without spending a dime on Marketing or Business Development.

There is a deterrent to Marketplaces as well – they are not allowed predatory pricing, meaning they cannot unduly discount the prices of products and ensure that the prices are merely competitive. This brings a lot of trust on marketplaces like Oyethere to Retailers because they are sure that they, and not the marketplaces, have a final say on the final pricing of products.

One of the promises of the Narendra Modi Government in their election mandate was that they would not allow 100% FDI in Multibrand Retail. And they have stuck to their guns. However, Ecommerce is seen by the Government as an enabler of trade and not a threat and hence this move which is expected to benefit very large marketplaces like Amazon and Flipkart and newbie startups like Oyethere.com.

Look forward to some interesting days ahead in this space.

Hate thread on McDonalds

Mc Donalds has been in India for over a decade and a half now and due to FDI regulations operates through two Franchise arrangements - with Cannaught Plaza Restaurants for North & East India and with Hardcastle restaurants for West and South India. Vikram Bakshi, the MD for Cannaught Plaza Restaurants has been locked in a legal battle for a little less than a year now and has pulled Mc Donalds to the Indian Courts and the case is only getting messier by the day with no sight of compromise or a solution between the two parties. Meanwhile, Hardcastle has been growing its number of stores and is expanding aggressively in the South, after covering West reasonably. After expanding across Mumbai, Bangalore and other key cities over the past 4-5 years, McD is now looking at growing across Chennai and the rest of Tamil Nadu. The high real estate rates is not helping them as well coupled with the availability of good quality locations along with a good fascade and parking facilities.  

Here is a video of how those insanely awesome French Fries or "taters" as they are famously known in the US are brought from farm to table, literally.

I recently spotted a new building coming up in South Madras, at Adyar just behind the famous Bus Terminus. It is a crowded neighborhood area and has a dozen or more famous restaurants and eating joints. I posted a pic of the upcoming building on Chennai Food Guide, a Facebook Community with over 40,000 members and is plannign a gala celebration of 10 years in Feb. 2015. The Group which mainly discusses about food across the city and its members reviewing restaurants every other day. Within seconds of my posting the pic, the post attracted a dozen or more "likes" and an equal number of brickbats from discerning reviewers, about the ill-effects of eating Burgers at McD. One person posted a pic of a bun with fungus and confessed that his trust in the brand was lost. Another conceded that she hates to go there but would eventually drop over due to the pestering of the little ones at home. And a few commented about their deteriorating service levels.

So, why is everyone hating McDonalds so much? Are they cooking and serving that real bad a food? Are there people dying because of consuming food at McD every year? Or is it just based on hearsay and random research? People are talking about how bad the ingredients that are used while cooking the food are to our health, which we all try to take as much care as possible. People are talking how bad the burgers are, mostly the chicken and lamb (McD doesn't serve Beef and Pork in India due to cultural reasons), not even sparing the greens which are apparently processed with chemicals. Interestingly, no one spoke about the ill-effects of Coke that we all gulp down along with the burgers. I know people who are so health conscious while eating out at Subway, but don't really mind the Coke that goes along. And the reused, recooked, refurbished food that we all consume from standalone restaurants to the best of Five Star Hotels - there was no mention of that. 

I recall an interesting article that appeared in the TIME Magazine a couple of months back. A Teacher from Iowa, USA ate at a nearby Mc Donalds outlet everyday for three months and lost 37 pounds while also lowering his cholestrol levels. He walked 45 minutes everyday along with his other day job. "Its our choices that makes us fat", John Cisna said, "Not Mc Donalds". Quite true. 

We all love our food. I have been living with a motto to live for eating for many years now. I believe one must eat well, sleep well and have fun with friends and family and that should alone be the reason of existence. Everything else such as making money, owning houses and material possessions and professional success is incidental. I am not really sure to say whether food at McD is bad for health or not. But I would trust their processes much more than indie restaurants. How many of you have been inside the kitchen of some leading restaurants in the city? Ask the owner or manager if you can take a pic and post it on Facebook - see how many agree. How many of you know that the kitchen staff use the same chopping board and knife many times to cut vegetables and chicken? How many restaurateurs here would raise their hand and accept that they do not provide healthy, fresh food, every day? So why this hypocrisy? Just because people around are making a nose about something doesn't mean we should join them too, mindlessly.

For me, I am really waiting for McD to open in my neighborhood, I would be one of their first customers probably. But yes, to overeat the patties, gulp coke, indulge in desserts and finally stuff myself with absolutely unhealthy food is a choice I have - to do or not.

PS: I am not a stooge by MCD or any other domestic or international chain - just another common man who loves his food which is everything vegetarian. 

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.

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

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.

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!

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!