Digital Retail is still nascent

Croma, which is a part of the TATA Group has been my preferred store for shopping all things electronic over the past few years. They customer service is friendly, well-stocked and well maintained and operated stores. The staff also double up as digital experts, mostly guiding customers on why they need to buy a gadget, rather than what they need to. The apple Assistant at one of the Croma Stores I frequent is more like a good friend and advisor now – I reach out to him regarding queries about the phone, the software, the enhancements and a whole lot. Croma’s main competitors in the organized Retail space include EZone from the Future Group and Reliance Digital, a part of Reliance Retail. Then there are the local biggies, such as Viveks, Shahs, VGp, etc in Chennai and ofcourse the most infamous Ritchie Street off Mount Road which is the hub for electronic products in the city. Croma has fared much better than the others while it faces stiff competition from Reliance which is expanding rapidly off late.

I visited the Croma Store on Mount Road a month back, to enquire about a revolutionary device – a a USB Stick which provided 3G & Wi-Fi services on the go. The device just needs a plug point – AC or DC; which means you can use it as a wi+fi device using the cigarette lighter slot in your car and can provide its service upto 5 gadgets including laptops, tablets, phones, iPods, etc. The device has been around for sometime and the staff say that it is seeing brisk sales every other day that it gets sold out within a few days of stocks coming in to the store. So, the store that I went to didn’t have the stocks and they apologised for the same, and said that I could pay the advance for the device and that they would call once the device reaches the store. Somehow, I wasn’t comfortable with that idea, since I wanted the device then and there.

I set out looking for the Tata DOCOMO Store that exclusively sells these devices and offers other solutions and services of the same nature. Even they didn’t have the stock at the time I went. However, the staff was quick to note down my details and said he would call me the next day as soon as he received the stocks. And he did promptly call me the next day. Within just four hours, the device was working!

So, why did the guy at Croma not do what the guy at the DoCoMo store did? Since, the sales targets were different to each one of them, simple. For a mass retailer, which attracts hundreds of customers to their stores, the kind of focused service is always on the back seat. For the guy at the exclusive store, his key targets are selling the USB sticks and converting buyers into users and users into big spenders. It’s a known fact that “data usage” is indeed going to be a money spinner in times to come for Telecom companies, with SMS being replaced by the likes of whatsApp and ISD calls being replaced by the likes of Viber, Line, etc.

I would have expected Croma, which is also a Tata Company to work closely with another division of the group (DoCoMo is a Telecom company operated by Tata Teleservics). It is challenging, since they are different companies with different cultures. Also, the supply chain mechanism could be different. The big learning was as consumers, we need to visit the right kind of stores to get our things done. While it is simpler to buy online, it takes much more time to get the sim-card activated which required personal identification at a retail store, and hence only elongates the process.

Dining experinces redefined

I had the opportunity recently to stay at Hotel Vista Park. It is located bang in the middle of the iconic Sector 29 Market at Gurgaon. This market is very special since it is the only area in Gurgaon which has about two dozen eateriees, restaurants, pubs and cafes. It also has Reliance Mart, one of the few Hypermarkets operated by Reliance Retail which is on its way to become the big daddy of Indian Retail in the organized segment. Footfalls pour in all through the day and night; mostly office goers who drop over for lunch or an evening catch up with friends and colleagues; And families over the weekend. Bikanerwala, one of the largest food chains in North India has a two storied very large outlet that sells sweets and condiments, has a fast food counter and a well laid restaurant. There is also a Micro brewery, Hops & Brews which I visited twice just for the love of fresh beer - and weisbeer is extremely rare to get in India except at such places.

Then there is Starbucks Coffee, which brushes shoulders with Cafe Coffee Day and Coffee Bean and Tea Leaf. There is Mainland China and a couple of other restaurants that serve chinese/oriental cusine. Sphagetti Kitchen, one of the most remembered names for high quality Italian food is a mainstay in the market. Cream Centre, the high-end Veg Only Restaurant along with Sasuraal serves authentic North Indian and Punjabi food.

And then there are two large hotels which have over 25 rooms each, one being Hotel Vista Park where I stayed. These hotels also have restaurants and a small bar. To my utter surprise, there was literally no one in the in-house restaurants in the evenings. I would have expected the hotels to run a few schemes such as Happy Hours in the Bar or Food combos. But no. The staff were not bothered that guests were walking away to nearby restaurants. The Management seemed to be unaware as well. 

Restaurants in hotels, especially the Bar is expected to be a money-spinner. Delhi/NCR has more than 25,000 rooms of all classes and sizes, so most of the hotels have not more than 85% occupancy during peak times and about 45-65% occupancy during the year. Therefore, ancilliary income from room service, restaurants, banquets and party arrangements become extremely important for Hotels. These revenue streams are not always given a keen look by the Hotel Management teams, thereby allowing guests to spill over to nearby restaurants, bars, pubs etc. The main reason for Guests to move  out of the Hotels is because of the boredom created by the restaurants that are within and repetitive or usually uniteresting food and beverage options. 

So, are stand alone restaurants, pubs and cafes a threat to these Hotels? Indeed. To circumvent this kind of a spill over, Ginger Hotels, a part of The Tata Group had tied up with Cafe Coffee Day. The cafes of CCD are located within the premises of these hotels, usually in the lobby and would normally be open 24/7 and would even serve piping hot Cappuccinos and Sandwiches to the rooms. Most of the Ginger Hotels have these cafes. A few standalone hotels too have made such arrangements to attract non-resident guests and the public at large. In the West, it is common to see cafe chains such as Starbucks, illy, Costa, to name a few to have their cafes within smaller boutique/business hotels. 

Hotels could do better to have attractive F&B units within their premises to add value to their revenues. Alternately, they could have more exciting dining spaces to retain resident guests. Ultimately, it is what they want to offer to their guests as part of the overall experience. 

Brewing Cheer with Beer!

I recently happened to meet Rahul Singh, Founder and CEO of “The Beer Café”, an upcoming chain in Delhi NCR, based out of Gurgaon. Rahul comes across as an affable person, having spent over 20 years in the Indian Retail Industry. Before turning entrepreneur, Rahul was working for Reebok as Executive Director and was responsible for sourcing apparel for domestic as well as export markets. An electrifying guy, Rahul seems to have a natural flair for entrepreneurship. It was a chance meeting to discuss a business proposition but turned out to be a very engaging 90 minutes one on one. Prior to The Beer Café, Rahul  was responsible for creating the first ever indoor Golf centre along with F&B and Entertainment at Gurgaon, at the upscale Ambience Mall.

I couldn’t resist but to ask Rahul how many months did he take to come up with the idea of a Beer only place. He was quick to retort saying that it took him just two months! I loved the way he simplified his method of narrowing down the concept. According to Rahul, there are three broad categories in the F&B Business – Fine Dine, Quick Service and Fast Food. He chose the Fast Food model. Within that, there were two options – to focus on food or beverage and he chose the latter. And within Beverages (read Coffee Café chains like Café Coffee Day, Barista, Costa Coffee, Gloria Jeans and Starbucks which have more than 2,000 cafes in India), he chose cold beverages and that’s how the idea of Beer Café was born. Simple idea that relies on classy execution.

Rahul wants his chain to be the CCD of beer and conversations. Alcohol frees up the mind and the soul and today, one has fewer choices to consume a pint of beer, either at a restaurant or at a Pub (home parties are a limited choice though). So, he wanted to set-up Beer Cafes in convenient locations where people could drop by with their friends or colleagues at work for a quick chat or a relaxed conversation.

The Beer Café now has over 11 locations within Delhi/NCR and would have about 30 operational outlets within the next three months! With VC funding coming in, Rahul hopes to grow the café network substantially over the next couple of months. His only gripe: Real estate costs of First World with consumer spends of Third World. Every Retailer would agree to this quote. Operating Costs, especially store rentals are extremely high and staff attrition is another big challenge. Rahul is now looking for an able COO to run the business, so he could take a bigger role in managing Strategy and Expansion.

The café is very appealing, with bright lights and a friendly attitude of staff. On a weekday evening when I passed by at the Beer Café at the Ambience Mall at Gurgaon, there were many who were having a good time seemingly. And many more would be in times to come.

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.

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.

EMIs are a way of living for the nextgen

I am not too surprised to see the two main distributors for Apple in India, namely Ingram and Redington jointly releasing full page Ads to promote the iPhone 4S and iPhone 5 in daily newspapers. There has been a huge Marketing blitzkrieg in this regard since Jan. 2013. No wonder, sales of Apple’s latest smartphones have seen a jump of over 100% across various Retailers such as Croma, EZone, etc. Until the launch of iPhone 5, Apple used to bundle their newest smartphones exclusively with mobile operators such as Vodafone, Airtel, Aircel, etc.Which means if a customer is not on one of the networks that has been bundled with, then he cannot buy the phone (one has to buy it with a particular network and then use the number portability option). All these changed with the launch of the iPhone 5 in India. During this time, Apple decided to release their phones to the broad trade channel through its two national authorised distributors mentioned above. Which meant that the iPhone 5 was readily available across major retail stores in the country right from its day of launch. Although there was an initial demand-supply mismatch, this was corrected soon. Apple executed the same flawlessly once again with the launch of its iPad Mini. What was more attractive is that these smartphones are available at attractive EMIs, for as low as Rs. 2,376 per month for 12 months along with a down payment of just Rs. 16,990/- The recent newspaper ads have drawn thousands of footfalls to Retail stores that stock and sell the iPhones. Although Samsung started this trend in 2012 for its Galaxy range of smartphones, the scheme has become more popular thanks to Apple’s initiative.

 

Recently, India’s top car maker Tata Motors launched a marketing promotion for its Nano range of cars. The Tata Nano which was launched with much fanfare a few years ago remains to be the cheapest car in the world with its base model touted to cost less than USD 3,000 (Rs. 1.50 lakh). The car didn’t take off well initially due to its stripped-down features but a prolonged grim economy forced fence-sitters to downgrade their purchases and this car seemed to fit the bill as far as a comfortable city drive was concerned. However, sales had come down still more over the past months. From 9,000 – 10,000 units a month in its hay days, sales have been hovering at about 2,000 units a month of late. So, the company decided to launch an EMI Scheme which is hassle free. At a equated monthly installment of Rs. 8,333 per lakh, a prospective customer can swipe his credit card from various banks such as ICICI, HSBC, Axis, Standard Chartered and Kotak Mahindra to avail this offer across dealerships. Add another Rs. 6,500 for fuel every month. Effectively for Rs. 15,000/- one can own and drive around comfortably with a family of four in the city in a small car such as the Nano. The initial market feedback seems to be good although one needs to wait and watch how things go along in the medium term. This is one of the most innovative promotions that the Indian Automobile industry has seen in recent times.

The younger generation which lives on what they earn today rather than save boatloads for future is spending happily on such promotions. I have personally observed so many of them earning less than Rs. 6-8 lakhs pa carrying such smartphones and showing off their ability to own them to those around. After all, their cost of acquisition is as low as Rs. 3,000 per month. They are probably cutting down their spends on other discretionary spends such as travel, food, cinema etc and rather investing on a wonderful smartphone for themselves. For a large middle class that thrives on day-today commute on their two-wheelers (the size of the Indian two-wheeler market is over a million vehicles a year), it is always a dream to travel in a four-wheeled vehicle, atleast on holidays and weekends when the entire family is outing. And such promotions actually help satisfy their needs. What needs to be seen is how long these promotions could sustain. For example, the typical target customer who would buy a Nano is one who is in the lower middle class and with the car being his first four-wheeler. But would he have a credit card to buy the car? If yes, would he have a credit balance of a few lakhs in his account, given that the entire money would get blocked if he had to swipe his card for purchasing a car and may not be left with any credit for other regular expenses such as monthly grocery, fuel, dining, etc.

Whichever way, the next-gen is hapy to live on EMIs. And Retailers should be happy!

Consumer Spend – a loot at Airports

Recently, the Chief Minister of Tamil Nadu launched a populist move in Chennai to commemorate her birthday – a Government funded canteen that serves one idly (rice patty) for Re 1 (1 USD is Rs. 53 approx.) Yes, you read that right, One Rupee for a Idly. The move is aimed to cater to the needs of those under the poverty line and the poor, the working class such as drivers of autos, taxis, trucks and so on. This was a way Amma (mother) as she is fondly known as, appeased the vote bank. It is not sure how much this scheme is going to cause to the State. Ofcourse, these so called welfare measures are out of the state’s coffers – tax payers money. It so happened that the very next day since this scheme was launched, I was travelling through the Chennai Airport which is managed by Airports Authority of India, a government body which also operates the Airport in Kolkata. These two airports faced stiff opposition by the unions when the Ministry of Aviation privatized the other major airports in India in 2005 located at Delhi, Mumbai, Bangalore and Hyderabad. These six airports contribute to over 70% or more of the total air travellers in the country which is estimated at 110 million pax per year. While the Kolkata Airport has been recently renovated at a cost of Rs. 3,000 Crores, the Chennai Airport has been renovated for aorund the same cost and was inaugurated recently although the terminal buildings havent been opened up to the public due to lack of passenger amenities, a move that the Commercial Department of AAI conveniently seemed to have forgotten while planning the terminal building.

I was taking an early morning flight, a long one that too to Ahmedabad via Mumbai, an arduous 5 hour journey. And I was flying Spicejet, India’s most preferred low-cost airline which doesn’t offer complimentary meals on board, rather “sells” Cashews and Sandwiches at exorbitant prices. So I chose to have a quick breakfast before the Security Check for which I had quite some time. I walked up to the nearest F&B Kiosk which was serving hot food items. I ordered a plate of idly consisting two pieces and a Vada. The damage was Rs. 100/-. Yes, you read that right. Most passengers like me had no option but to pay such steep prices at airports to quench their hunger and thirst. What was more surprising is that the staff do not issue bills for every item sold on their own. Rather, the consumer needs to insist one of they really need one. I demanded one. And bingo, the staff tore a piece of paper from the manual bill book which had pre-written “Breakfast” in many of the bills. A closer look and the TIN numbers which are mandatory were indeed printed. But VAT or Value Added Tax and other charges such as Service Charge, Service Tax, etc. were not explicitly mentioned in the bill. I couldn’t blame the staff because they were just doing their job. I quietly paid the bill and proceeded to the aircraft. Afterall, this is not an isolated case at Chennai Airport. Almost all airports managed by AAI have the same issues more or less.

So, why are airport food products so expensive? To begin with, it’s the way the places are leased out by AAI. They follow an age-old practice of an out-dated tender system wherein those who qualify should propose a base price for the said location. H1, which is the highest quote gets selected. The tender period is usually for 3-5 years and doesn’t specify the architectural look and feel of the outlet. And most often, there is no seating option that is provided. This is completely contrasted by the approach taken by private Airport operators such as GVK and GMR Groups which manage Mumbai & Bangalore and Delhi & Hyderabad Airports respectively. The chosen partners need to submit and discuss schematic drawings and layouts with the airports and thereafter finalized. The design is not just contemporary but also functional and convenient. During my tenure at Bangalore Airport (BIAL) in 2006, we launched a global tender for Retail and F&B which attracted top players in the world to compete on a level playing field. The selection process was touted as one of the most transparent and efficient processes by international media which tracks Travel Retail.

AAI’s outdated tender system is the mother of all troubles. Coupled with it is its terrible space planning with outlets spread haywire here and there. Add to it, unqualified commercial guys who have no clue of global best practices and arbitrarily follow the H1 route to choose partners. It is quite obvious that they quote higher fees in the tender and therefore over charge customers. Branded players like Café Coffee Day, Subway, Pizza Hut, McDonalds, etc who also operate at airports follow a corporate pricing policy and provide bills with all statutory requirements. Due to high entry costs and related operating costs such as complimentary snacks and beverages to airport staff, most organized players do not even venture into this arena.

A popular Indian Aviation Entrepreneur who successfully started and shut a low-cost airline often used to quip that there is a private mafia now in the form of private airport operators. But then, the government operated airports are no better.

For better conversions, provide solutions!

A couple of days back, I had a meeting in the city (Chennai, where I live three days a week when I ain’t travelling!). The host was willing to meet anywhere and after a lot of careful thought, I fixed it at Ispahani Centre at Nungambakkam, assuming it would take me an hour from the Royal Enfield factory/office in Thiruvottiyur to drive down to. As planned , I reached on time and we met at a café and spoke for an hour about business prospects. The location is not actually a Mall but a kind of community centre that was built almost 15 years ago, one of its kind to come up in the city. Many Retailers and brands such as Mr. Kishore Biyani’s The Future Group, Gaitonde, Florsheim, to name a few, put up a shop or two here and vacated sooner than later for various reasons – some for lack of relevant footfalls and some for high cost of operating. Whereas Café Coffee Day, India’s largest coffee retail chain has been operating here for over 14 years now; ditto for Marrybrown, a concept similar to KFC that serves Burgers and the like with specialty fried chicken on the menu. I finished the meeting on time in an hour and was heading out when I noticed another iconic brand which has quietly been operating here for well over 10 years. It used to be perceived as one of the most expensive brands till until recently they have started making products that are affordable even to the aspiring middle class lot like me. Their “sound” is probably one of the best although there are many more premium sound systems in the world. And the brand I am referring to is non other than “Bose”.

How many of you there knew that the name of the brand is also the surname of an Indian! Yes, indeed. Bose Corporation was founded in 1964 by Dr. Amar G. Bose, professor of electrical engineering at the Massachusetts Institute of Technology. His graduate research at MIT led to the development of new, patented technologies, and at MIT's encouragement, he founded his own company based on those patents. Bose Corporation established itself by introducing the 901® Direct/Reflecting® speaker system in 1968. With this introduction, Bose achieved international acclaim by setting a new industry standard for lifelike sound reproduction. The list of major technologies emerging from Bose continues to grow. Award-winning products such as Lifestyle® home theatre systems and the Wave® Radio/CD have reshaped conventional thinking about the relationship between an audio system’s size and complexity, and the quality of sound it produces. To know more about the company and its products, click here.

Coming back to the incident, I walked in to the store to find about about the Bose Soundlink™ Air which they have been advertising quite a bit these days. This product seems to connect using wifi with any apple device such as an iPod, iPhone or an iPad. So, I got into the topic directly with the sales staff who came across to be affable and knowledgeable about what he was speaking – a rarity these days especially in the Electronics Retail business. He explained about the product, gave a demo with my own iPhone 5 and was patient to showcase other models as well. At the end of it, I was a bit disappointed as the product was not a complete package. It didn’t have built in Bluetooth™ to connect other devices and the Bass effect was minimal. I explored a couple of other models but none of them suited my requirements. And so, I thanked him for his efforts and efficient demonstrations and started to move out when I noticed the headphones display. I already use a noise-cancellation Apple earphone on my iPod which I have been using continuously over the past few months. It’s a welcome relief since the  external noise, especially that of an aircraft is almost unheard while in use. Ofcourse, it has its own disadvantage. One that it gets less white as the days pass by and the other is that since it locks itself inside the ear, at times it aches a bit.

The guy at the Bose store explained that the Brand has a special technology by which all mechanical sounds – any noise produced by an electronic / mechanical machine will be cut off once the head phones are switched on. I played “Comfortably Numb” by Pink Floyd from the demo iPod which they had and… Whoa! This was one of the best inventions that I had discovered. At Rs. 22,000 (USD 420), it wasn’t cheap either but I was too tempted to buy. After all, I have been longing for a great headphone for quite some years now. In my office job, I need to travel 3-4 days a week, usually 2 or 3 flights for over 2 hours each and road journeys of over 300-500km a day. And what better than hearing some soothing music all along.

The entire conversation with the guy at the Bose store lasted for over 30 minutes or so and he never once prodded me to “buy” their product directly – subtle inferences such as “When do you plan to buy this Sir?” “Take your time to decide because it is a worthy investment” “Apple devices are best heard on a Bose” to name a few. I was willing to wait and ask my wife to bring it along from London when she returns in sometime but the thought of owning a piece of marvel, a piece of history was too much for me to hold on to. Bingo – in the next few moments, I was having one on my hand for demo – billing done in less than 4 minutes flat. I have always been an impulsive shopper when it comes to technology albeit after a lot of thought and research & this wasn’t any different.

What hit me was the way the guy at the Bose store handled the Sale. He didn’t sell the product, not even the experience, but just like how a real staff of Apple provides you a solution – that’s what he did. I was walking back with a gleaming smile on my face, happy about my purchase. And that set me thinking.. If only retail staff were to stop selling and start providing solutions to customers… As the flute music of Pandit Haripraad Chaurasia reverberates on my ears through a Bose Quiet Comfort 3 as I write this column. Bliss.

E-Commerce Economics–Questionable?

I have been without a pair of floaters / slippers for over two months now. Just that I’ve not been able to find a Retail Store closeby where I could find a couple of options. And I have another peculiar issue – that my foot size is 11 and I don’t get options so easily across brands. In fact, I ‘ve been buying my shoes from Brand stores located in North India since the body/foot sixe of customers is generally larger there than in the south (and it applies for other forms of retail such as apparel such as shirts, trousers, shorts etc. and even accessories such as caps and belts. In the month of Dec. 2012, I was traveling down siuth towards Coimbatore, Karur, Bangalore and a few others and then was in Bihar for a couple of days before ending the year in Kerala for a vacation with the family. And in the new year, I finally decided that I need to get a pair of footwear immediately. A chance view of an eadvertisement on some news website took me to jabong.com which offered a 70% discount on a particular model of Lee Cooper floaters and thankfully, they had my size as well. Bingo, and I ordered my pair immediately. The entire transaction from browsing to selecting the size to payment confirmation and then finally the payment gateway took me all of 6 minutes flat. And yes, this happened not on my laptop but on my iPadmini what with its fast processing speed and convenience to hold. I was quite pleasantly surprised that jabong.com had its web page optimised to the tablet – given that the size of the ipadmini is considerably smaller than the regular iPad. Within a few minutes, I received an SMS confirming my order and that the folks there were working hard to get the product to me as soon as they could. This was at 9.45pm.

When I woke up the next morning, there was an SMS as well as an email that the product had already been shipped – and they shared a tracking number as well. Around 11am, I received an SMS that the product had reached Chennai (from Delhi where their main warehouse is located) and that it was on its way to my home. Around 1.15pm, the product was at my doorstep, neatly packed in its original box with an outer covering that was branded “jabong”. I was indeed delighted to get the product and wear it – was happy like a kid who received a new toy. From shopping to receiving the product it took less than 18 hours which I felt was simply superb. Impeccable Customer Service.

After a while, I was thinking about the economics of the entire business model. The product was at a 70% discount, so I would guess the e-tailer had a 5-10% margin if at all, had a warehouse to stock the product(s), a team that was working overnight to process the order, pack and ship it immediately and a shipping agency that delivered the product free of cost at my doorstep! No to mention the operational costs of running an e-commerce company. Well, was this worth the effort? Ecommerce specialists (and there are tons of them out there) call it the cost of acquisition – that a customer who once shops on their website would get used to the idea of shopping online and would indeed come back to them and buy once again in future. Atleast that’s what most of them in India have been doing for the past few years. But that isn’t the case. Various studies have shown that e-commerce loyalty is negligible in India (as is mostly the case outside too) and most customers who shop online are seeking better price and convenience of shopping rather than looking for a full range of products. Another recent experience confirmed this too. On 12-12-12, a book was released to commemorate the birthday of Tamil Film superstar Rajnikanth. The name of the book is “Rajnikanth – the Definitive Biography” by noted journalist and author Naman Ramachandran. I was wanting to get my hand on this book for quite some time, just that I was hoping there would be a kindle version so I could read it on one of my devices. But that doesn’t seem to be launched yet. So, I decided to buy the hard copy paper back which was priced at Rs. 699/- at Landmark, the retail venture of the Tata Group in India. Landmark is a specialty Retailer and mainly sells books and stationery, music, toys etc., among other things.  There wasn’t any discount on the book – given the fact that many hard core fans such as me would buy it whatever crazy price.

While I was browsing the internet on Sunday evening at home, again on my ipadmini, I was curious to check out the price of this book online. To my surprise, the same book was being offered at a 30% discount across various online retailers. And I chose to buy from flipkart.com which claims to be the largest etailer in India in terms of number of billings/shipments and turnover. I bought the book immediately, my second ecommerce transaction on a hand held device within a span of two days. In this case, the shipment wasn’t as quick as in my previous example. The order was processed on Monday noon and the book arrived at my home on Tuesday. I had proposed COD (Cash on Delivery) – and hence the product would be paid for only after delivery. The delivery boy was kind enough to call me on my mobile while I was at work since there wasn’t anyone at home, After sorting out the same, the book was handed over to someone at home. And pronto – I get an SMS in a while from Flipkart – that the book was delivered to a family member. Technology used to its best, I felt.

Again, there wasn’t any logic for Flipkart to sell it so cheap – if they would lose 30% margin for a transaction (and most items on their site are on discount), then where do they make money? Assuming that their Gross Margins is around 40%, this is a ridiculous business format, to say the least. Over the months, PEs and Investors have shunned away from encouraging E-Commerce businesses in India. A prominent Indian etailer which was also one of the earliest to pioneer the concept of online shopping seems to have run out of cash and hasn’t paid salary to its 100+ staff for over two months. Half a dozen of them have either shut down or been bought over by their peers and competitors during 2012. And many more will go out of business in 2013. I am neither a prophet or a pioneer to predict what would happen to the fate of such businesses but when an etailer is operating at –15% or more (negative) margin, then isn’t it logical to say so?

Store Openings of a different kind

It’s been around a hundred days that I wrote a column on this blog, by far the longest gap I have ever taken since I started writing since 2008. As I grew in my professional life over the years, the number of posts have certainly come down, hopefully a clear indication that I am busier than before! And the last five months have been one of the fastest and most exciting, although I believe 2013 is when the action would lay. As mentioned earlier in one of my posts, I now work for Royal Enfield, the oldest surviving automobile brand in the world. With a fantastic British legacy, having participated in both the World Wars and some stunning innovations in the motor cycling arena, the Brand was bought out by an Indian company in the middle of the last century. After being almost shut down due to poor product innovation and therefore Sales, the Brand has survived a tumultuous past with an imminent takeover that didn’t go through (probably for good) at the last minute. The company is now ably managed as a unit of Eicher Motors which has a commendable past in the Indian Automobile history.

So what do I do – I am responsible for expansion of the retail foot print of Royal Enfield across the country and also to establish Royal Enfield stores in international markets. I look after Dealer Development (most of the Royal Enfield outlets are operated by Dealers), identification of suitable sites for the business, designing the store including layouts, fixtures, branding etc. and finally up to handing over the store to commence operations to the respective Dealer / Regional Teams. I am also responsible for converting the visual identity of existing stores with that of our new brand identity – a mammoth effort that covers over 200 outlets and is expected to span over 24 months starting early 2013.

To be honest, I have been pleasantly surprised with the outcome of what I am doing. My job compels me to travel 3-4 days a week, across the country and soon to a couple of international destinations. Just a few days ago, I was at a town called Motihari, about 140 kms from Patna which is the capital city of the state of Bihar, the most talked about state in terms of CAGR over the past decade. And met half a dozen prospective dealers – and all of them seem to be gung-ho about the impending opportunity to sell our bikes along with various other things that consumers are grabbing in. I was shown acres of land available for putting up a Royal Enfield store, spread over 4,000 sq ft. in what is now seemingly good agricultural land – a move that is happening across rural India.

Store Openings have never been like this for me – most exciting to say the least. The sheer opportunity to establish over 60 new outlets over the next year is appalling yet an adrenalin run for the Retailer in me. I have the chance to make a difference to the Retail experience of Brand Royal Enfield, a task that has been awarded to me by the Management & Board. I hope I will be able to atleast live up to their expectations, if not exceed… And also hope I would sincerely be able to find time to keep writing…

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!

Another New store Opening?!?

Retailers in India seem to be continuing their efforts to open new stores, despite a slowing economy, higher import values, a falling rupee, increasing inflation and a weak consumer sentiment. This has been evident in the Retail Sales over the last two Quarters of this calendar year especially in high-value items such as A/Cs, Refrigerators, LCD TVs, automobiles including two-wheelers and four-wheelers. On one side, Retailers are offering huge discounts to lure customers – in India, Q1 & Q4 (for Financial Year starting April onwards) are essentially the most difficult times for clearing inventories and it is relatively easier in Q2 & Q3 due to the impending Festival and Marriage seasons. The above mentioned macro-economic factors haven’t helped them either. And Product ECommerce (excluding Ticketing services which account for over USD 8.5 Billion) which is estimated at over USD 2 Billion (approx. Rs. 11,500 Crores) is the biggest competition today for many Brick & Mortar Retailers, at least in the metros and mini-metros where Consumers have a reasonably quick and safe internet connectivity. And on the other side, large stores are being inaugurated in the hope that consumers would still like to visit and shop. We truly live in two contrasting worlds, to say the least. India's largest retailer, Future Group, which runs Central Malls, Pantaloon Fashions – a Department store chain, Big Bazaar Hypermarkets and FoodBazaar supermarkets among various other formats and models has scaled back its expansion from 2.5 million to 2 million square feet this fiscal year due to an economy growing at its weakest in nine years. The growth rate was 5.3 percent on an annual basis in the March quarter.

To drive footfalls to the store, continuously and consistently is one of the key challenges for Retailers anywhere in the world. That the population in India is huge is a bonus factor. However, conversions are miniscule. In the apparel and lifestyle formats, conversions range from 8-15% (those who buy as against those who enter the stores) while in consumer durables and brown goods, it is even lower. For Malls, which are destinations and are expected to attract significant footfalls, the conversions range from 3-5% and maybe lower in some cases (on a lower base of footfalls, usually). Given this fact, Retailers are in a frenzy opening newer stores within existing cities as well as in newer cities. One such example is Viveks, one of the oldest Consumer Durable Retailers in South India which was also the first one to start an EMI option in the early 90s when the Indian Economy was just opening up. It is rather surprising that the Retailer chose to remain a regional player, unlike its later counterparts such as EZone (part of Future Group) and Croma (from the house of Tatas) who quickly increased scale and went national with their presence. EZone is having operational challenges but that is not because of expansion but rather due to internal issues. To add to the woes of Consumer Durable Retailers, Hypermarket Chains such as Hypercity, Big Bazaar, Star Bazaar, etc. also stock Electronic Goods.

Challenges for Consumer Durable Retailers

Footfalls

To expect continuous footfalls all through the week is rather not practical. Instead, Retailers focus on weekend shopping festivals, usually for short durations. This is the time when Shoppers visit Retail stores and chances of conversion are higher!

Service

Superior Customer Service is something everyone talks about but is not generally followed all the time. And Customer Service is not just a gentle staff doing some smooth-talking and smart selling. It includes all the moments of truth – from hygiene factors such as lighting, A/c, Parking, etc. as well as product knowledge and friendly staff.

Differentiation

Multiple Retailers sell the same Brands and products. So why should a customer actually shop with one Retailer and not with another? Honestly, there is no clear answer. Consumers do not buy products, they buy Brands. And this includes the Retailer’s Brand Value as well, on which they should be focusing on.

Ecommerce

Showrooming – a prevalent concept in the West where shoppers visit Retail stores to check out products and prices but ended up ordering on Amazon.com or other ECommerce portals is brewing in India too. So, the difficulty of touch-and feel is negated. Another challenge is paying by Cash which is also something that ECommerce players have started over the recent months. Lastly, the convenience of getting the product on hand immediately – something that ECommerce players are finding it difficult to deliver but are successfully meeting customers’ requirements within 2-3 days in general.

With so many challenges, I wonder at times whether Retailing is worth the effort at all. For some, it’s a question of growth, for many it’s a matter of survival. With the opening of FDI in Retail sooner than later, the Big boys with boat loads of cash are going to lap up market share easily and faster. Interesting times ahead.

The Dangerous Minimum Guarantee Model in Retail Expansion

Aggressive store expansion means two things – heavy capital expenditure and lots of people to manage the stores. Every brand worth its salt wants to boast an extensive Retail store network across the length and breadth of the country no matter what the store level EBITDA is. While there are various ways to expand its network, some of the commonly used ones by Retailers are Franchising (more on that in my next column) and CoCo – Company Owned Company Operated model. While Franchising could mean faster expansion, there are chances that the Retailer may lose control on the quality of customer experience among other things. The CoCo model is very expensive to scale-up unless backed by a solid VC / PE Firm. One of the other means to raise funds for expansion is through the Capital Market – recently Specialty Restaurants that runs the Mainland China, Oh! Calcutta, Sigree and other restaurants debuted their IPO, the first of its kind in the F&B Industry in India (while Jubilant Foods which runs Dominos Pizza in India is also listed, it is not in the Restaurant business but into Casual Dining). Retailers like Café Coffee Day, Dominos, Foodworld, Spencers, Zara, Tommy Hilfiger and many others have invested heavily on their own in terms of store expansion across the country, while others like McDonalds, Pizza Hut, Madura Garments, Reebok, Adidas, Benetton, Nilgiris, etc. have taken the Franchisee model.

There is another alternate model – One of the easiest ways that a few Retail Brands have taken to, which is known as the “Minimum Guarantee” model where in a Second Party is appointed to manage the store(s) on behalf of the company while the Retailer itself invests on the business. Let me explain this in detail. Assume that the store fit-out costs for a 1,000 sft store is Rs. 40 Lakhs plus stocks to the tune of Rs. 50 Lakhs, then the Retailer invests Rs. 90 Lakhs to set up the store and also bears the Security Deposit to the landlord (6 – 10 months’ monthly rent).  Once the project work is completed, the store is handed over to a second party, also known as a Managing Partner or a Managing Franchisee who is responsible for the day-today upkeep of the store. All direct and operating costs such as manpower, electricity, rent and incidental costs are taken up by the Retailer and the Partner is also paid a lump-sum ranging from a few thousands to a couple of lakhs – just to operate the store everyday. The logic is, if there were to be an Area Manager to micro-manage the store (and a cluster of them in each city / region), then the costs would be substantially high. And hence the Managing Franchisee model. The partner also has sales based incentives, that is if the store achieves a set target, then he receives a further commission, usually as a percentage to sales. In many cases, the Partner leases his own property to the Retailer, which means the Rental income comes back to him! In a few cases, either the same partner operates through kith and kin or through friends and relatives who become partners! And then, there are incentives for introducing new partners and locations in other cities. This is indeed a vicious cycle.

In the name of faster expansion and quick growth, many Retail Brands have resorted to this practice. While there is nothing wrong in this approach, the Managing Partner usually gets the cake and eats it too. Without any investment, he has a full time job, a respectable retail profession and a handsome income too. While it is not clear whether the practice has been globally prevalent and if yes, from when – it is quite popular in the Indian Retail scenario over the past decade. While Retailers like Madura Garments have stuck to the tested Franchise model of “Buy and Sell” merchandise (that is the Franchise has to purchase all the merchandise with a small percentage of returns back to the company), others like Reebok, according to press and media releases in the recent past have opted the Management Partner model.

There is no correct or wrong way to expansion. As long as the means are ethical and law-abiding, there is no problem. But concerns arise when there is maniacal expansion with sometime, ulterior motives of helping / supporting some known people to become Management Partners. At the end of it, the Customer decides on the success or otherwise of the brand. And that’s what matters.

Apple–Smart Product or Smarter Retailer?

 

After a lot of careful consideration over the past few months, including reading various literature online and discussion with friends and users of the iPhone, I finally decided to take the plunge. Yes. Now I own an iPhone 4S 32 GB. So, what? Actually. It is just another phone, in my opinion. It is indeed a true case study of how an ordinary product can be made an extraordinary success with simple, yet effective Marketing. One must learn from Apple in this regard. Much has been written about the technical specifications, uniqueness and superiority of the iOS of the iPhone, the Siri and various other features and hence I wouldn’t delve into it. Nor am I a technology expert to rip through comparisons with an Android phone (from Samsung or HTC ) or a BlackBerry or a Windows Phone. Oh yeah, by the way there is Nokia too. Apple iPhone 4S, for me lacks some basic stuff – such as a favourite tune as an alarm; select many / select all in the email box to delete and many such small features. Wonder how the Apple engineers skipped these and a bigger wonder that Apple Marketers kept them low-key, promoting various other features. It is a good smartphone but can be a lot better. Will leave it there.

10 days ago, I ordered my iPhone online – through www.indiaplaza.com where I work. Not just because of a particular loyalty – but also because of the Price. The phone is about Rs. 2,000 (USD 40) cheaper while buying online, compared to the ones sold at an Apple Store or other Electronic Retail chains such as Croma (from the house of Tatas), Ezone (part of the Future Group), Reliance Digital, etc. Two months ago, I bought an iPod Touch (also from www.indiaplaza.com) and the price online was a lot cheaper – I got a 10% discount while the company was celebrating the birthday of Apple founder Steve Jobs. In my view, the iPods, iPhones and iPads should also be sold through Department store chains such as Shoppers Stop and Lifestyle too. After all, it is indeed a lifestyle product as promoted by Apple and not just merely a gadget. The Apple stores are more a novelty than being electronic stores. They are a lot more engaging, inviting and most importantly (well stocked). And I am referring this from an Indian context.

I visited the Apple Store twice in a span of two months to buy accessories for my iPod and iPhone. Every time, the staff have delighted me. They speak little, but with a lot of sense. I have already bought Rs. 10,000 (USD 200) worth accessories from the Apple Store and I believe it is only because of the wonderful staff interaction that I have had each time. On the first instance, I wanted to buy a case and screen guard for my iPod and the staff showed me gladly all the varieties that they had – without indicating any obligation on me to buy. I walked up to two nearby stores that also sold mobile accessories to check out what they have – at one store, the staff was busy canoodling with his girlfriend (I guess) on the phone and had least interest or respect for the customer who came to spend money. At another store, they had stocks for every damn model but an iPod. The staff felt sorry but couldn’t offer anymore. I came back to the Apple store and ended up buying from there. I repeated my visit a month later – this time to buy a screen guard and a case for the iPhone. I visited various other electronic retail stores who didn’t stock them, and were more interested in selling larger items such as LCDs, Washing Machines and Refrigerators. Even Croma, which is known to stock a wide range of accessories wasn’t carrying anything specific for the iPhone.

Back at my favourite Apple store  at the Forum Mall (Bangalore)m Simran, the sales assistant was not just being polite and interactive but was also non-obtrusive. She allowed me to have a look at things, touch and feel them and never got perturbed by the questions that I enquired regarding the various options. She was happy to answer as many and even offered a few ideas such as a “Matt-finish” scratch guard that would not leave traces of oil from the face and which is easy to wipe off. She suggested a case that not just matched with the phone but was sleek and had a good form factor. Amongst other things, she also showed a few headphones and a couple of JBL speakers. And eventually, I ended up buying a noise-cancellation Apple ear phone worth a 100 dollars (Rs. 4,800) which was completely unplanned! All in a span of a few minutes. Now, that’s what I call “engaging customers” smartly. She knew my preferences for music, realised I had an iPod Touch and an iPhone and that I could, most importantly – appreciate and enjoy the stuff that they make and sell. Hats off to their level of knowledge and customer service. Next on my list: JBL Speakers for the iPod.

I have been using a Samsung Galaxy Tab for the past one year and a BlackBerry for over 3 years. Its been just over two weeks since I have been using the iPhone. Happy with it. But would go back to my BlackBerry any day. I am just that. But all said and done, Apple is not just a product maker but also a smart Retailer. With its unique offering of products, they seemed to have mastered the art of letting customers engage with their products. Single Brand Retailers have a lot to learn from them. Of how not to sell, but to make customers buy the products. And appreciate them all their life. Kudos Apple.

Forecourt Retail–More returns per Sq.ft

The Apurva Chandra Committee appointed by the Union Government of India to review the proposals made by the Associations and Unions of the owners of over 40,000 fuel stations in India to increase their margins has proposed a few charges to be incorporated which are as below;

• Rs. 2 to fill air for two-wheelers
• Rs. 5 to fill air for four-wheelers
• Rs. 20 to fill air in a truck or a bus
• Rs. 2 for Drinking water / Toilet usage etc.

“These are the maximum suggested charges. The RO (retail outlet) dealers would be at liberty to charge lower rates” the committee said in its report reviewed by the Economic Times, India’s leading Financial daily. Currently these services are provided free, and pumps are penalised if they do not offer these facilities. The committee, which submitted its report last year, justified user charges as dealers required to employ additional staff to man these services. The Federation of All India Petroleum Traders (FAIPT) has threatened to go on an indefinite strike from April 23, 2012 onwards in case their demands are not fulfilled, among which are to increase their dealer margins on selling petrol and diesel which is Rs. 1.49/- and Rs. 0.91/- respectively at the moment. The committee had summarily rejected fixing the commission as percentage of the invoice value (proposed by the dealers as 5%) and recommended a 33% increase in dealers’ commission on petrol and 23% in diesel.

To me, it seems ridiculous to say the least to charge for value-added services such as water and toilets, let alone filling air in the tyres! Not that patrons would mind paying these small change – but for a Government appointed panel to propose such recommendations is going back ten steps – with all the modernisation and world-class looks and amenities of fuel stations in India, which started off more than a decade ago.

Petrol & Diesel are essential commodities. While Diesel (prices) are regulated by the Government, Petrol was deregulated a few years ago. Public Sector Undertakings like Indian Oil Corporation (IOC), Bharat Petroleum, Hindustan Petroleum, etc. and private players such as Shell, Essar and Reliance are free to price petrol as per their wishes. The price adjustment is executed once every 15 days and it usually goes up or down by a few paise – small change at a rupee level, though it could run upto Rs. 10-15 for a full tank of fuel of 40 litres. Petrol price itself is usually hiked once every 3-4 months by the Oil PSUs which also allows the private players to proportionately increase their prices. Private players price their commodities a bit higher than the PSUs citing lack of subsidies by the government which are liberally showered by the Union Government. Diesel, which is the main fuel used to ferry people and products in this country is almost a sacred commodity – tweaking prices by a few rupees has seen severe backlash over the years and is left untouched – swelling the losses incurred by the oil companies.

Forecourt Retailing, or having Retail outlets within a Fuel Retail Station is not very popular in India, although it has been a practice to have some convenience shops within its premises selling chips and candies. In the West, it is common to see supermarkets, grocery stores, gift shops, coffee shops, fruits and vegetables and so many categories of items being sold in such outlets – they bring additional footfalls to the RO as well as provide alternate, incremental incomes to the RO owners. In India, it hasn’t taken off very well, except for the one of success claimed by Bharat Petroleum and Hindustan Petroleum with their respective convenience stores. Café Coffee Day, India’s largest café chain with over 1,250 outlets at the moment is the only national player apart from McDonalds to have a significant presence at Fuel stations. And this seems to be only growing. "Between verticals and formats we keep looking at opportunities for expansion," said K. Ramakrishnan, President – Marketing in an interview to The Hindustan Times recently.  The other verticals where CCD is expanding include transport hubs, malls, multiplexes, highstreet, residential, premium institutions (such as hospitals and educational institutions), and highways. Highways are an important component for retailers like CCD, where finding reasonably lower-rental locations is easy, especially within fuel stations. Customers are familiar with the brand and therefore stop by at their outlet while refuelling their cars and refilling and relaxing themselves. McDonalds too operates many outlets on the highways, mostly within petrol stations. The RO dealer, in return for renting space gets either a fixed rent or even a revenue share on Sales.

Rather than charging additionally on value-added services like filling air and drinking water or for usage of toilets, it would make sense to create a strong value-proposition by exploring various retail formats within the ROs. Reliance Petroleum, which operates and manages over 600 ROs in the country includes a restaurant in most of its outlets. These were earlier operated internally by Reliance in the name and style of “A1 Plaza” but were later outsourced, given the better understanding of F&B players like Kamat Yatri Nivas who manage some of their prestigious locations. While the luxury of space allows to operate F&B outlets and other large format stores in the Highways (where overall rentals are cheap), it may not be possible within the city limits where space is at a constraint and while people are in a hurry. In these cases, it may make sense to sell small ticket items such as magazines and popular books, candies, chocolates, wafers etc. This wouldn’t require heavily trained staff while at the same time can get incremental revenues too.

It is only in the interest of customers, fuel dealers and Retailers that we move progressively – in a direction that is to the mutual benefit of all rather than recommendations like above where basic amenities are charged for! Pity!

Retail Employees Day! Thank you folks!

No matter how popular or old a retail brand is, they will not be able to reach out to their customers without the continued and trusted efforts of their employees. Retailers across the country have come forward to support an initiative called "Retail Employees Day" to be celebrated on the 12 December every year. An organization by the name TRRAIN is behind this idea. TRRAIN is the brainchild of the most respected Mr. BS Nagesh, the Vice-Chairman of K Raheja Retail which manages various retail formats such as Shoppers Stop (Department Store), Crossword (Book Store), Hypercity (Hypermarkets), Home Stop (Home & Living) and InOrbit Malls. Nagesh has been part of the Retail industry over for over 20 years and is seen as an icon among the retail professionals young and old, a kind of role model that every retail manager wants to become! He has been through the industry's ups and downs and has always been there to support the various ideas and initiatives of the Retail Industry. 

Retail staffing in India has come a long way since the 1980s. The old-fashioned “showroom salesman or salesgirl” is now referred as “Customer Care Associates”, thanks to the proliferation of modern and organized retail formats. Even stand-alone traditional retailers have embraced this well and provide respectable employability to their front-end staff, who can make or break the business. The final “conversion” of a potential customer into a real one is in the hands of the CCA and hence, a lot of importance to their well-being is being provided. In the good old days, they were paid a lumpsum as salary but things have changed today. They are covered under Minimum Wages Act, are to be provided PF, Gratuity and ESI and needless to say, additional income options such as performance bonus and variable increments. CCAs undergo a fortnight, if not more of classroom training before they enter their dream world of employment at the swanky retail stores. Within two years of commencing their first job, many smart ones move up the hierarchy as floor managers, department managers, etc. There are even classic examples of front-line staff making it to senior positions and more are in the making. The dedication of some of the staff is exemplary, to say the least. I personally know a few who have gone out of the way, beyond their call of duty at many times. 

I have been personally involved in training the front-end staff right from the beginning of my career. A fellow colleague, who used to sell DVDs and Video Games at Musicworld Kolkata ten years ago has now grown to the rank of a Regional Manager at one of the most reputed music companies in the world! I was also a certified trainer at RPG Institute of Retail Management, an inhouse training agency of RPG Retail which was created to focus continued training and development to the front-end staff. I have trained over 2,000 staff members ahead of the opening of Central Malls at Bangalore, Hyderbad and Pune during 2003-04. They stand all day, greet customers with a smile, make your shopping and dining experience a great one and at the end of day, deserve more than their salaries.

On this day, I salute these heroes – without whom the Organized Retailers cannot grow the way they aspire to! My heartiest thanks to each one of them for making us proud; Cheers guys!