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.

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.

Luxury at a Discount!

It’s a misnomer that Luxury Brands do not discount. Of course, they do. Just that they don’t do it so loudly and obviously as other premium and streetwear brands. Except for brands such as Louis Vuitton, Rolex, Mont Blanc, to name a few, most other premium brands promote discount sales, albeit succinctly. In most cases, they are not at their own stores but at cozy 5 Star Hotels, where the Brands hire banquet halls and quietly carry on with their business. Even then, they need to communicate what’s on offer and choose smartly created advertisements and place them on national dailies. The purpose of hosting these so called “Exhibition cum Sales” is to ward off the junta crowd, most of them being on-lookers. The moment the venue is a Star Hotel, window shoppers would think twice to drop over. It doesn’t look nice, quite obviously to take a public transport to such a venue. Secondly, shoppers still feel intrigued to browse and shop in star hotels, traditionally where luxury products are being sold world over, with India not being an exception.

The other genuine reason is also that we do not have high quality luxury retail spaces in India except for the DLF Emporio Mall in Delhi, the Palladium in Mumbai and the UB City in Bangalore. While there is a small hub by the name Bergamo in Chennai (at Khader Nawaz Khan Road), the RPG Group is coming up with a luxury destination in Kolkata. Apart from these, there are hardly any retail spaces that fit in to the luxury brands’ portfolio. And that’s precisely the reason such Brands choose 5 Star Hotels as venues.

Over the weekend, one such event was hosted at The Westin, Chennai. Prada shoes for Rs. 25,000, Fendi belts for Rs. 15,000, Gucci Wallets for Rs. 18,000 and much more. Yes, these are apparently discounted prices. At 11.30am, on the only day  of sale (being a Sunday), the room was full of discerning customers. Though there were hardly a few pieces in each line, most of them were being bought by those who had dropped in. Many of these brands are not available at Retail Stores in Chennai and shoppers have to travel either to Delhi or Mumbai or probably outside of India to get one for themselves. The smart sales team were even wooing visitors with catalogues, taking orders thereby fulfilling sales orders. The display of items was not as what one would expect in a Retail Store for such products, but perhaps suited well for the “Exhibition” theme.

I tried on the Prada loafers, size 11, but felt it was too tight. As is always the case, the prices were not mentioned on the items, be it wallets or shoes and many people who are price conscious would rather not dare ask for prices, unless they were sure to buy!

India needs varied Retail spaces. What we have now are either too large malls that cater to the middle class or star hotels that house Luxury Brands. We do not have suitable spaces for luxury brands. Malls chains like Phoenix Market City are cordoning off certain areas within the mall for luxury brands. Express Avenue, the only Mall of over a million square feet in the hart of Chennai has created a nice mix of brands. Its so secluded that regular shoppers don’t even pass by that side.

In the meanwhile, keep looking for advertisements in newspapers like the one above. You may be able to get a good deal on your favourite luxury brand in town!

Is there something as a Click-Only customer?

I was recently invited to attend the first edition of the Retail Marketing Summit Chennai, organized by Paul Writer, a leading consultancy which works in the Marketing space and advises various enterprises. The day was very exciting, with speakers from various Retail companies and Brands expressing their opinions. During the course of discussions, there was a topic which was discussed elaborately by the esteemed panel of guests as well as the audience. The topic of discussion was, whether there was someone called a “Click-only customer” that existed, who shops only online. There were ayes and naes but there was no single answer that could be fully validated. On the need for having an online presence and also focusing on the internet commerce business, Mr. Pattabhi Rama Rao, President of Australian Foods, which runs the Cookieman chain of stores felt that the market is too small at the moment on the internet and Retailers should continue to focus on the offline business by providing a better customer experience. In his own words, Man is a social animal and social interactions would never cease to exist. Pattabhi should be knowing well. With over a dozen years behind him in the Hospitality business, he started off the Cookie business 13 years ago. His brand of cookies were priced 10 times as that of a normal biscuit, although such a comparison is odious. He continued his focus in the business and now has over a 50 stores across the country. Most of his outlets are located in prime locations in Malls and Airports. Many of them bake fresh cookies at the store and the aroma spreads all over. It appeals to the senses and therefore converts a passerby into a customer, a customer into a loyalist and a loyalist into a brand ambassador. However, there is indeed an opportunity to sell categories like cookies online, although they are restricted to gifting and occasion based purchases.

In another panel discussion, Calvin John of Caratlane.com which specialises in the sale of jewelry products said that a customer has purchased 35 times in a few months from their site. And he felt that there were a small but growing species of “Click-only customers” who shopped extensively online. Jessie Paul, the convener of the event and also a moderator in one of the sessions confirmed this and said that she shops grocery extensively online at BigBasket.com, a Bangalore based start-up which has been slowly but steadily growing its online-only grocery business. With more and more people shopping online, it is all about convenience and discounts? Would the charm of shopping (at Retail outlets) dwindle over time? There are references to the West and how things have been changing in developed countries. A lady from the audience says that at Macys.com, sales were 37% of the total compared to just 26% in the previous year during the holiday season. And this was countered with a view that the sales increase was only during the Holiday Season when Macy’s was very badly organized at their stores. In India, the Books category was the first to succumb. Customers (in India) bought books online from Indiaplaza, Flipkart, eBay and the likes not just for convenience but also due to the generous discounts that were being doled out. But for those discounts, would customers have bought online? Perhaps yes, but a majority would prefer browsing and buying at their favorite books stores down the road such as Crossword.

The Internet Commerce business in India is still too small compared to the Offline one. As it is, Organized Retail in India is just under 10% of the INR 200,000 Crores market size. And e-commerce accounts for a decimal percentage of that. Although online retailers are showing double digit growth year on year, the business model is largely led by discounts and there is no hypothesis at the moment to prove that shoppers would still buy online at full prices, except for the gifting and essential categories. In my opinion, there is room for online and offline Retailers, But the bigger growth is offline, given the levels of broadband, internet and computer penetration in India. Payments gateways for credict cards, debit cards and Net Banking is quite limited too. In fact, I would place my bets more on m-commerce - shopping on smartphones which is still an untapped category. So, if you are a Retailer or a Brand, do build an internet commerce site now, if you already don’t have one. But remember, Retail is all about customer experience, and there is no better place than the store to demonstrate it.

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.

Alternate ECommerce–Auction Sites

There was a cover story about Alibaba.com, China’s largest ECommerce company in recent issue of The Economist. Quite a few facts. That it is turning out to be one of the largest ecommerce companies in the world, with sales of over $170 billion, which is Amazon and eBay put together. That it has a financing division, viz., AliFinance which provides micro credit to small firms and consumers; and that it has 6 million vendors registered on its site. What was started in 1999 by the firm’s founder, Mr. Jack Ma, an English Teacher as a B-2-B portal connecting small Chinese manufacturers to overseas buyers has now transformed into an internet behemoth. “EBay may be a shark in the ocean,” Mr Ma once said, “but I am a crocodile in the Yangzi river. If we fight in the ocean, we lose; but if we fight in the river, we win.”Taobao, a consumer-to-consumer portal not unlike eBay, features nearly a billion products and is one of the 20 most-visited websites globally. Tmall, a newish business-to-consumer portal that is a bit like Amazon, helps global brands such as Disney and Levi’s reach China’s middle classes.

Indiaplaza, which was also founded in 1999 back home in India is unfortunately facing its toughest time yet. With over 80% of its 150+ workforce having quit over the past six months, the company which pioneered ecommerce in India has no takers today. With a weak b-2-c model based on product listing by various partners, the company has just not been able to scale up over the last few years, thus allowing late entrants like flipkart, myntra, jabong and coupon sites like snapdeal and groupon to surge ahead. To be fair to Indiaplaza, most of the Ecommerce sites in India are on deathbed, awaiting Angels to come and save them. The top three players, Flipkart, Jabong & Myntra with sales of over USD 600 million collectively are only making losses and there no signs of any profitability in the immediate future. Offline Retailers have had a slow start without much success in this arena. Croma, part of the Tata Group’s Trent Ltd., Crossword, India’s largest book store chain along with Landmark and Shoppers Stop,  India’s largest Department Store chain are the only few large Retailers who have attempted an Ecommerce entry over the past years. With FDI in Retail not included for Ecommerce businesses, the Government’s backing has been minimal in this regard.

Even as I was thinking so, I came across an article which mentioned about an auction site named QuiBids (spelt as KweeBids). More out of curiosity, I set-up an account to know how this works. Registration was simple.GBP 0.40 is the value of each bid (for the UK Site) and can be bought online at the store in bundles that the user can choose, which in turn can be used while placing bids or while buying an item on the site after discounts and offers. The joining fee will be refunded in full or part thereof if bids are not placed for the said value. They have listed hundreds of items and all of them are on auction. The products are genuine and the processes are audited by Grant Thornton, one of the top audit companies in the world (I have personally seen the audit assurance report which is published on their website). One can bid an item only 5 minutes before the bid time comes to an end. Which means, users keep track of all those items on bid and are probably hooked on to the site all through, if they want to participate in the bidding process. Each time a bidder places a bid, the time slot for the auction increases by 20, 15 and 10 seconds in that order. If the number of bids the user holds is over, then he/she cannot participate in the bid anymore but the value in their account can be used against purchases. Also, the value of the product is discounted to the extent the bids are placed by users. Which means, if a product is priced at, say GBP 100, and the auction ends at GBP 32, with a discount of GBP 9, then the user can buy the product for GBP 91 (less the value that is already in the account). Shipping is charged depending on the size and weight of the product. All in all, it is a win-win for the company and the user. The company makes a thin margin on sale of such products while the loss on bid money is usually written off against a publicity fee paid by the brand to feature their products. And on top of it, users also buy the product which is at a discount for them but which fetches a margin for the company. In addition to this, users may also buy “bids” for set values, so as to keep on bidding. At the end of the day, a user will only gain from the tremendous discount that he gets out of the product even after buying bids.

The prose above may not be fully convincing, so do log on to www.quibids.com to explore.

According to their website,

“QuiBids was started in July 2009 as an attempt to improve the Internet auction model by making it more exciting, safer, and more reliable. We're based out of Oklahoma City, Oklahoma and our goal as a business is simple: To provide an exciting online auction model with better deals for the consumer than any other website in existence."

You can win all sorts of popular products at incredibly low prices. Look at our homepage to see what products are up for auction right now, and if one catches your eye, buy some bids for a low price! When you place a bid, we add a maximum of 10-20 seconds to the timer - to give someone else the chance to bid if they're interested. This is similar to the "Going Once...Twice...SOLD" approach of auctions.

If no one else bids and the timer reaches zero, you’ve won a sweet deal on QuiBids! If you don't win the auction, you never have to go away empty handed. Any time after you've placed your first bid in an auction, you can choose to buy the product for a discount using the Buy Now feature. This will help limit your losses so you don’t have to leave all your bids on the table. You’ll never have to pay more than the Value Price for any products on QuiBids.

I have never come across such an exciting business model which I can comfortably say is an alternate Ecommerce model. There is hardly any publicity that I see for this company or for this form of Ecommerce and yet there are hundreds of dedicated users who are constantly bidding to win their favorite products at rock bottom prices. I guess the typical profile of the customer would be in their 20s and this is almost like a contest for them! Internet penetration is quite important for the success of this model and I presume the success of this model in western countries, which is not so the case in India where most of the internet consumption still happens at workplace with curious onlookers peeping into each others’ desktops and laptops. With Wifi (at home) using the iPad and other tablets and 3G on mobiles such as the iPhones by Apple and Blackberry gaining popularity coupled with the deeper penetration of Android smartphones starting at $ 100 (Rs. 5,500), chances are more young ones in India will appreciate and participate in such promotions in times to come.

Indian Ecommerce players need to reinvent themselves to stay ahead in the game. Afterall, everyone remembers who is the biggest of ‘em all, and not really the one who started. Such is life.

The Retail FDI brouhaha!

 

Popular Media is in full force discussing the pros and cons of opening up FDI in multi-brand Retail, announced by the Manmohan Singh led Union Government of India on 14 Sep. 2012. Finally, it happened. Rather, it had to. On 9 Jan 2012, the same Government allowed 100% FDI in Single Brand Retail, acting as a precursor and paving the way for the current policy decision. The UPA Alliance which leads a multi-party coalition Government has finally had the spine to push this through, alienating some of its own partners putting its Government in jeopardy. With the current policy in place, it means that multi-national Retailers such as Wal-Mart, Carrefour, Tesco and their likes can invest in India on their own as well as in Joint Ventures with Indian partners or Business Houses. But, there is a catch. FDI in Retail has been made a State Subject which means that each State has to provide an approval for each partnership that is proposed and to be allowed to be operated within its precincts. This is a bit absurd, to say the least. The policy states that over 30% of input must be locally sourced, which in my opinion is a very good thing for Indian traders and businessmen.

(Suggested Reading: Starbucks in India)

So, lets see what’s in store for consumers with multi-brand FDI in Retail;

Pricing

By allowing FDI in Multi-brand Retail, the end consumer is expected to get better pricing for most products. In case of Agri-products, even the Farmers are expected to command a better pricing since they would be dealing directly with the Retailers. Since these Retailers purchase large quantities of products from FMCG companies directly, they would be able to get better margins and would thereby pass them on to Consumers. This is largely in case of Grocery Retailing. It would be similar in Electronics Retail too. Fashion Retailers who run a chain of stores would be able to procure their merchandise at better rates from manufacturers and would again pass on the benefits to their customers. This is one important area where everyone gains!

Assortment

At the moment, products manufactured / produced in one part of the country are not available in many other places. This is mainly because of Supply Chain Constraints. Multinational Retailers don’t just bring big bucks, but also the knowledge and know-how of how to do things better. This, would be an important part of the proposed Retail expansion of Organized Retail, with traders getting more scope for their products. Customers will get a wider variety and range than before which will throw open new options and opportunities for consumption.

Generate Employment

Retail trade as a whole employs about 8% of the population in the country, directly and indirectly. These people are paid a fixed amount as compensation and do not benefit with other Government schemes such as Pension Fund, Provident fund, Employee State Insurance, Gratuity, etc. Modern Retail already provides most of these benefits to its staff. With more and more Organized Retail Stores opening up, it is expected to generate higher employment across the country.

(Suggested Reading: Retail Staffing)

Credit availability

One of the popular qualms is that the neighborhood Kirana provides free credit which the Organized players may not be able to and would hence lose out on. This is incorrect. Spending through credit/debit cards has grown over 6 times in the past decade within Modern Retail. Customers are happy to swipe their cards even for smaller transactions, more for ease than anything. Retailers like Shoppers Stop and Big Bazaar have co-branded cards, thus exciting customers with higher reward points for purchases.

Recreational Spaces

Modern Retail is not just about shopping in a comfortable environment but also includes a lot of fun and entertainment for families. These large stores have F&B facilities, gaming zones, etc. where children can unwind while parents are shopping. It is also an excuse for families to go window-shopping and end up buying something or the other!

And here is why a few segments of the people are against it;

Kiranas would shut-shop

The oft-heard uproar is that Kiranas would shut-shop due to the emergence of big-box multi-national Retailers. This is untrue. Kiranas have their basics right, starting with Location, Pricing, Assortment, Credit to Customers, to name a few. Large Retailers take time to crack even some of these points. Having present in India for over a decade, Domestic Retailers such as Foodworld, Spencers, Reliance Fresh, More, etc.  haven’t got their act correct, I would say. If they have a good location, then their pricing is (obviously) not so competitive and even if they attempt to, then they are in the Red. Merchandising is one of the most difficult paradigms of the Retail business coupled with severe Supply Chain constraints in the Indian scenario. Given these, it would be almost impossible for large Retailers to succeed, whether they are of Indian origin or International.

(Suggested Reading: Store Opening )

Secondly, most of the Kirana stores (Mom-and-Pop-Stores) are first generation entrepreneurs in their 40s and 50s who started off their own little corner stores during the 80s and  90s after Liberalization. Some of them include women, who run petty shops in neighborhoods to support their family, sometimes as a main source of income and at times as alternate, additional income. Their children, most of whom are undergoing good education are moving out of the family businesses. Many youngsters aspire to become Diploma holders, Engineers, MBAs, etc. across a wide range of subjects and are hence not looking forward to continue the family’s traditional Kirana business. As it is, many shop owners are not looking at continuing their petty businesses for the coming generations. So I wonder why this hue and cry.

Many Kiranas have already embraced modern Retail. For example, Metro AG which set shop ten years ago in Bangalore now has half a dozen stores spread across the country. Most of its customers are traders and merchants who buy from Metro and sell to end-users (customers). Wal-Mart set up a JV with the Bharti Group a few years back and runs Cash & Carry Stores in Punjab, Haryana and Rajasthan. Its main focus is on Kiranas and Retailers to whom they sell stuff in tonnes! Even in big cities like Mumbai and Chennai, it is quite common to see Retailers shop at the likes of Reliance Mart and Big Bazaar, given the substantial savings.

Kiranas are a tough lot and represent the well-entrenched Indian Entrepreneurship and cannot be unseated so easily. Long Live Kiranas!

(Suggested Reading: David Vs. Goliath)