admin
June 13, 2014
Rashmi
Pratap, The Hindu Businessline
Mumbai,
June 13, 2014
In
a market where homegrown and multinational companies alike make
a beeline for the hinterland, here’s one that has boarded
a bus to urban India after becoming a household name in villages.
Jyothy Laboratories has meticulously targeted rural consumers
to grow its brand into the country’s fifth-largest in the
fast-moving consumer goods category.
Every month, truckloads of Ujala fabric whitener and detergent, Maxo mosquito repellent coil and Exo utensil cleaner arrive at the doorstep of retailers in lakhs of villages, saving them precious time and transportation costs. The goods are also sold on credit, which is a major draw for rural retailers such as Gyaneshwar Kadam of Ajang village in Maharashtra’s Dhule district. “We are always short on working capital. Credit is a big help. Even our buyers prefer to pay after they get their wages. So I don’t stock products of distributors who don’t give me credit,” he says.
This, then, is the story of thousands of retailers who now swear by Jyothy Labs products. “In rural India, we have the first-mover advantage. Since we went to villages first, gave them respect and credit, we get trust in return. Big companies don’t give credit, but I ensure my distributors do it. The moment you give credit, people become your patrons,” says Ullas Kamath, joint managing director of Jyothy Labs, best known for its Ujala fabric whitener.
City shops beckon
The company’s products are available through 2.9 million outlets, and it supplies directly to one million of them. Now, as it readies to spread into every urban nook and corner, it has re-jigged some strategies. To begin with, it has added more products to its line-up.
“When you are in business, you want to spread your risks as well as product portfolio. And that’s what we have done,” says Kamath.
The company acquired 50.9 per cent in loss-making Henkel India, a subsidiary of Germany’s Henkel AG, for ?60.73 crore in March 2011. With that it attempted to improve its rural-urban sales mix. Before the acquisition, 65 per cent of its Ujala sales came from rural India. “Now it is 50:50 from urban and rural. That is how Henkel has helped. They have distributors in urban areas and that network has improved our reach,” Kamath says.
Earlier, retailers and stockists in urban areas were reluctant to take on Jyothy Lab’s products. “Along with Henko (Henkel’s detergent brand), we are able to push other categories too like personal care and liquid mosquito repellent. And people are accepting it.”
Villagers buy more
“In rural India, the consumption per family might be small but the number of families is so large that it outgrows urban India,” says Kamath. His assumption is not without basis. Rural spending at ?3.75 lakh crore far outstripped urban consumption at ?2.994 lakh crore during 2009-12. Rural consumption per person exceeded the urban equivalent by 2 per cent, according to CRISIL and data from the National Sample Survey Organisation.
But for a national presence, Jyothy has to look beyond rural India. “In moving to urban India, there will be more opportunities than challenges. Migratory population in cities is humongous. And their needs are more like those of rural consumers — whether it is the kind of products or even the price they are willing to pay. If a company can ensure a good supply chain across large cities, it can grab a substantial chunk of the market,” says Devangshu Dutta, chief executive at consulting firm Third Eyesight.
Jyothy has accordingly made changes in its management structure. Its top team now has 17 people, including the CEO, S Raghunandan. Each brand head operates in a silo. “We have brought in a new management team to grow the categories. We give them enough money to spend on a brand and understand the reasons behind their performance or non-performance.”
The gamble seems to be paying off. Raghunandan, an FMCG veteran, has helped the company restructure and cut the distributor margin from eight per cent to six per cent.
Advertising and sales spend has increased by 65 per cent to ?135 crore in FY14. “Brand expenditure continues to pay returns over a long period of time,” says Kamath. He points out that even when MNCs advertise, they not only grow their own brands but also create new categories. “Everybody’s brand grows as people know a product exists and then they compare similar products.”
Global dream
Jyothy Labs is looking to launch newer products and re-launch some others. “We should be in at least two more categories in a few years. The aim is to be among the top three players in each category,” Kamath says.
That does not appear to be daunting. Henkel can still buy a 26 per cent stake in Jyothy Labs by 2016. That would give Jyothy the financial muscle to take on the biggies. Moreover, an equity partnership with Henkel should allow it to hop onto the German company’s wide international network and ride into emerging markets.
But until then, Kamath and his team are busy marking the miles and the milestones on the road to urban India.
(Published in The Hindu BusinessLine .)
admin
June 11, 2014
Pia
Heikkila, for the International Bar Association
Mumbai,
June 11, 2014
The
unprecedented victory by Narendra Modi in the world’s biggest
democratic elections in India has created what can only be described
as a wave of optimism, with many hoping that the country’s
economic and business climate will now take a similarly dramatic
turn for the better.
Foreign investors are watching closely in the hope that the country’s new Prime Minister is able to move swiftly to implement much needed change.
This optimism isn’t without foundation: there have already been promises to make India more investor friendly and resolve ongoing issues plaguing several foreign companies.
Core supporters were amongst the business and enterprise classes, thanks to the visible changes achieved in the state of Gujarat where Modi was the Chief Minister for the last 12 years.
Akil Hirani, managing partner of Indian law firm Majmudar and Partners and Vice-Chair of the IBA Asia Pacific Regional Forum, said the Modi has already shown potential for turning the country back onto a growth path. ‘Changes were achieved in Gujarat in terms of better roads, greater electricity connectivity and foreign investment. With a resounding majority, the government is well poised to bring about the same changes nationwide,’ Hirani says.
The ‘Modi Wave’ was born out of widespread frustration at corruption scandals and India’s inability to sustain growth. To show that Asia’s third-largest economy is open for business and on the right track, action is needed quickly. ‘Steps such as making the tax environment more friendly, working towards a time bound implementation of the Goods and Services Tax, cleaning up the balance sheets of state-owned banks, are needed initially,’ says Hirani.
But there needs to be more than words and promises: movement in a consistent direction over a long period is vital for the country’s economic success.
‘Modi has specifically mentioned that governance needs to build further on what has already been built so far. Sustained economic progress is not feasible if inconsistent or even mutually opposing policies are adopted […] Momentum for equitable development takes a long time to build in a country the size of India,’ says Devangshu Dutta, the Chief Executive of Indian management consultancy company Third Eyesight.
India’s tax battles against foreign companies have been attracting headlines and raising concerns with potential investors for some time: uncertainty about taxes and regulation in India has discouraged companies from expanding into the country. There are a considerable number of examples. Vodafone has been fighting a multi-billion tax bill through courts in connection with its 2007 purchase of the Hong Kong based Hutchinson Whampoa’s India operations. Nokia is another well-known case: the Finnish company is alleged to have wrongly claimed exemptions for software imports and is taking its legal challenge against a judgment of the Delhi High Court to India’s Supreme Court.
The list goes on: Royal Dutch Shell, General Electric and Microsoft are just few of the household names that are fighting tax cases in India.
Companies have now begun seeking assistance from bilateral pacts and pursuing international arbitration. But help may be on its way as Subramanian Swamy, widely expected to take a key policy role in the new government, announced recently that his top priority will be to change tax regulation, which experts agree could aid India’s return to economic growth.
‘They should repeal the retrospective amendment that was introduced after the Vodafone decision,’ says Vivek Kathpalia, partner at the Mumbai-based law firm Nishith Desai Associates and a member of the IBA Asia Pacific Regional Forum. ‘This will send a very positive message to the world that India is open for business and that there exists regulatory certainty.’
Kathpalia added: ‘The other is the introduction of the Goods & Services Tax. The government has said that they will try and build a consensus for this amongst all the states of India. Once implemented, this alone will add around two per cent to India’s GDP.’
India’s new Government has promised it will try to create a level playing field for all investors by limiting bureaucracy. ‘Modi’s aim is to have more governance and less government, and to this end, he has reduced the number of ministries and ministers in his government. In addition, he seeks accountability, responsiveness and results from his team members, which will benefit everyone,’ says Hirani.
India also needs more foreign direct investment (FDI). The previous government did introduce a slew of economical reforms, such as changes in the banking and retail sectors that were hailed as successes. But, in order to achieve a steady flow of FDI, the government needs to implement further reforms, and not just focus on the stock market performance. ‘They have understood that for India to creep back to a growth rate of 8–10 per cent, development is the only solution,’ says Kathpalia.
The new government’s upcoming budget will be closely watched and may give indications of what’s to come. ‘The stock markets, though not a perfect barometer of real change, have displayed positive market sentiment,’ says Kathpalia.
(Published on IBAnet.)
admin
June 9, 2014
Mayu Saini, Women’s Wear Daily (WWD)
New Delhi, June 9, 2014
In
another fillip for onlinefashion retail in India, FashionandYou,
one of the pioneers in the online fashion retail space, has raised
$10 million in funding, the company said Monday.
The etailer, which got a boost from its early partnership with
Lakme Fashion Week is known for its focus on designers and its
flash sales model.
Aasheesh Mediratta, chief executive of FashionandYou.com, said
that the additional investment would help "acquire more customers
to bolster our flash sale dominance and build a more cohesive
brand."
Competition in the fashion retail segment has intensified over the last few months, especially with the acquisition of fashion portal Myntra by Flipkart last month. After the acquisition, Flipkart said that it would invest $100 million to further the growth of Myntra.
"Fundamentally, nothing has changed in the market," Devangshu Dutta, an analyst and chief executive officer of Third Eyesight, observed. "E-commerce platforms still need a path-to-profit; their business models have so far been driven mainly by discounts and promotions in a race to the bottom that no one is winning. Customer acquisition costs have dropped in recent months, as competition has thinned, but remain high. What is most worrying is low customer retention and the lack of differentiation – these are the foremost challenges to be addressed."
Snapdeal, Koovs, Jabong, and several other online apparel retailers
are trying hard to keep up in the race for the Indian customer’s
online wallet, and competition continues to intensify.
(Published in Women’s Wear Daily (WWD).)
admin
June 7, 2014
Meghna
Maiti, Financial Chronicle
Mumbai,
7 June 2012
Even
at a time when the economy has put in its worst performance in
nine years, Mukesh Ambani, chairman of Reliance Industries, continues
to be overtly optimistic about the conglomerate’s retail business.
Ambani expects Reliance Retail to increase its revenues by around five-six times to Rs 40,000-50,000 crore in the next three-four years. At present, unlisted Reliance Retail has a turnover of approximately Rs 7,600 crore.
“We are investing aggressively in this business (Reliance Retail) to consolidate and strengthen our leadership position in this sector. With scale, supply chain integration and continuous learning, we expect this business to be profitable within three to four years and achieve a satisfactory return on capital,” Ambani told Reliance Industries’ shareholders at its annual general meeting (AGM) in Mumbai.
“Reliance Retail will be one of our important growth engines in the next few years and will have amongst the highest growth rates and earnings potential,” added Ambani.
To achieve this feat, the company aims to treble its customer base from about 30 lakh people visiting its retail stores every week now to over one crore in the next three-four years. This over three-fold expansion in customer base would thus power the growth in sales.
Devangshu Dutta, chief executive of Third Eyesight, a specialist consulting firm for the retail sector, said the plans of India’s richest individual reiterates the promises and prospects of India’s retail story. “A long-term growth story is unfolding in India, which would support the growth strategies of any retail company,” said Dutta. “The total size of India’s consumption market is around $550 billion. Whereas GDP growth has shrunk to 5.3 per cent, retail spending has only increased. Considering the situation, Reliance Retail’s promises do not look daunting,” said Arvind K Singhal, chairman at Technopak Advisors.
“Our consumer businesses are going to provide a second dimension to our growth strategy. We will build on our position as the leading retailer in India. The execution of this business plan will benefit the India’s kisans and consumers and create new value for our stakeholders,” said Ambani.
RIL claims the retail business, which is still losing money, has grown strongly in the past five years and now spans across 1,300 stores and has a leadership position in three verticals. Reliance Retail has provided new employment for 50,000 people, including 25,000 people directly by Reliance. “We have built a sustainable growth model for our retail business,” said Ambani.
Reliance has used an expat management team and has partnered with experts around the globe to cement its position in India’s nascent organised retail market. "We have strengthened our portfolio of global brands through partnerships…We will continue to invest in partnerships with consumers, brands and producers. Consumer businesses will form a significant part our business in less than a decade," said Ambani.
Reliance Retail, through its newest format Reliance Markets, is partnering with kirana stores and small retailers to supply them products at low prices. "We aim to be a supplier of choice for kiranas and small retailers. We will grow in retail in partnerships with small retailers," he added. It claims to have tripled the number of its digital stores and expanded product offerings.
“We engage with 70 lakh farmers and procure fresh produce and milk from them. In apparel retailing we have established the largest chain of stores in the country,” said Ambani in his AGM speech.
admin
June 2, 2014
Ankita
Rai, Business Standard
New
Delhi, June 2, 2014
Gurgaon-based online home furnishing and furniture retailer FabFurnish,
which operates both online and offline stores, has found its niche
in smart expandable and collapsible furniture. Translated, this
means it creates flat-pack products that are assembled at the
customer’s home. Why is this insistence on flat-pack and in-home
assembly? Simple: Cost reduction. DIY (do it yourself) products
reduce logistics cost, damages and storage costs, ensuring phenomenal
efficiencies at the backend.
But hold the applause. The whole idea is borrowed: the e-retailer has been inspired by global furniture behemoth IKEA. "Flat-pack furniture can help reduce the total cost by 20 per cent for smaller products like wall shelves and in the case of heavy furniture like of sofas or wardrobes, the total cost can go down by 50 per cent. DIY is also more scalable," says Vikram Chopra, co-founder and CEO, FabFurnish.com. "Our focus is affordable yet inspirational products. This is precisely what IKEA does."
FabFurnish isn’t alone. Many organised furniture e-retailers in India have followed the success story of IKEA keenly, borrowing and tweaking some of its strategies and applying them in their own ventures to drive scale.
Says Devangshu Dutta, chief executive, Third Eyesight, "The IKEA model presents significant learnings for India’s online home and furnishing e-tailers in terms of product standardisation. Standardisation can bring credibility into the online business given the lack of the touch-and-feel factor."
Globally, IKEA derives its competitive advantage from low cost and smart ‘concept-led’ design, in turn leading to low prices – a lethal combination that makes IKEA a formidable brand. So what are those inspirational moves of the Swedish furniture maker, and is it possible to replicate them in India? More importantly, will the Indian players following in IKEA’s footsteps be able to deliver equally enviable results?
Before we proceed, let us look at the home decor and furnishing market in India. The market is pegged at $20 billion (Rs 1.2 lakh crore), half of which is furniture. About 90 per cent of the market is unorganised. Modern home furnishing and furniture retailers working offline have not been able to scale up fast because the footprint and inventory requirement is quite large. Such stores typically need at least 15,000-plus square feet of space. And if you are hoping to set up shop on the high street then the costs can really go through the roof.
This makes online an interesting medium to go to. "Compared to a physical retailer who has to spend about a third of his revenues only on premises and manpower, prices for online furniture can be 15 to 20 per cent less," says Paritosh Bindra, chief operating officer, Home Needs Online. "The segment is still untapped unlike categories such as fashion, consumer electronics, books etc. There is scope for niche and label businesses to organise this market using web/mobile technology."
That said the biggest challenge in the online furniture market is the high logistics cost. Says Bindra, "While margins in the business are in the range of 40 to 50 per cent, logistics cost make up 10 per cent of the overall cost." What can also make or break is raw material, which is the single biggest investment for a furniture manufacturer. Major e-retailers are working on making their supply chain cost-efficient with one common focus: make it lean like IKEA.
Building a frugal supply chain
Broadly, two kinds of raw materials go into two different kinds of furniture in India. While the hardwood required for furniture is sourced locally, particleboards or medium-density fibreboard (MDF) are sourced from China, Malaysia, Taiwan etc. The price difference between an MDF-made product and a hardwood product can be as much as 25-40 per cent after covering the cost of imports. Unlike hardwood furniture, MDF furniture is assembled from knocked down parts. This makes handling, logistics and transportation easier. "However, this involves working closely with vendors to enable them to change their traditional manufacturing processes," says Chopra of FabFurnish, which sources its products from Malaysia, Brazil and Indonesia, apart from certain pockets within the country.
Another major organised player, Style Spa Furniture, part of Saroj Poddar’s Adventz Group, also makes knock-down furniture. The company, which recently introduced an e-commerce platform to complement its brick and mortar retail stores, offers consumers the services of dedicated Style Spa furniture assemblers free of cost. It uses MDF boards, mostly imported from Europe. "It is not so much about MDFs being cheaper than solid woods. It is about design and manufacturing quality. Raw materials would be 60 per cent of the total cost of a product. So design is the key consideration," says DK Jairath, deputy managing director, Style Spa Furniture.
Mumbai-based online marketplace, Pepperfry is also looking at flat-pack design for the fast selling SKUs of its private label brand Mudra, which is 60 per cent of its total merchandise; the rest is branded, knock-down furniture. Says Ashish Shah, co-founder & COO, Pepperfry.com, "There is a lot to be learnt from IKEA: How to design a product that can be shipped at minimum cost."
Bangalore-based curated marketplace Urban Ladder is also inspired by IKEA’s frugal approach to business. "Product design at IKEA is such that the consumer wants to buy every single piece. The second is the scale at which it operates. The idea is to squeeze out inefficiencies and ensure that the product reaches the consumer at the right price," says Rajiv Srivatsa, co-founder and COO of Urban Ladder.
Delhi-based Snapdeal’s line-up comprises 60 per cent home decor and 40 per cent furniture. It sells both solid wood and MDF furniture. "Because of the ease of movement and scalability, many in the industry are moving towards easy-to-modify, acrylic-based furniture. This is a trend big retailers abroad have capitalised on already," says Amit Maheshwari, vice-president, fashion merchandising, Snapdeal.com.
Serving the last mile
More than one-fourth of furniture sold in India constitutes bulky products, such as bed, wardrobes, tables etc, which makes the task of delivery and installation cumbersome. Says Jairath of Style Spa, "I do not see DIY picking up in India. India will always have the services component attached to the offering," he adds, saying, "How efficiently one can manage the last mile can prove to be a game-changer."
FabFurnish is closest to IKEA when it comes to managing distribution. While the company manages the last mile itself, it charges a nominal fee of Rs 300 for assembling services. Even product shipping is not free.
Style Spa undertakes last mile delivery by itself. For its e-commerce platform, Style Spa plans to use its existing brick and mortar stores in 65 cities as fulfilment centres. Its physical infrastructure includes 28 warehouse and 115 physical stores. All online orders are transferred to the store closest to the customer location for execution.
In the same way, FabFurnish’s hybrid model allows consumers to touch and feel its products first-hand. It has four brick and mortar franchised stores – one each in Faridabad and Gurgaon (near Delhi) and two in Bangalore. Says Chopra, "FabFurnish is built on three pillars: Price and design differentiation, access and trust. To build trust and credibility, having partner stores is a must." The average delivery time is five days.
Chopra thinks that India is not ready for a marketplace in furniture. Vendors are small and fragmented. So managing inventory in a cost-effective manner is crucial. "Our inventory levels are never more than eight weeks," he adds.
By September this year, the portal expects to notch up annual sales of Rs 200 crore and hopes to close 2014 with a revenue of Rs 180-220 crore.
If Chopra is sceptical about the potential of the marketplace model, Snapdeal is a believer. It markets semi-knocked-down products. While the transportation is handled by a third party, the firm keeps a hawk eye on packaging, lead time, quality and installation. Currently, it is the only player in the category that dropships even bulky furniture.
Taking inspiration from IKEA’s way of conceptualising design, most of the products at Urban Ladder are designed in-house and outsourced to manufacturers handpicked from places such as Rajasthan, Bangalore, Mumbai and Delhi. It doesn’t customise but allows free shipping, free installation and cash on delivery (COD). "We have to make it easy for a customer to purchase high-ticket items. We have made discovery simple with our clutter-free website and the purchase process easy by offering COD on even expensive items," says Srivatsa of Urban Ladder.
Urban Ladder is present in six cities – Pune, Chennai, Hyderabad, Bangalore, Delhi and Mumbai – and has warehouses in each of these cities, besides one in Jodhpur. It only sells products made of solid wood. It uses external logistics partners for inter-city shipment. Last mile and assembling services are provided by the company.
On its part, marketplace Pepperfry has brought down shipping costs to nearly a third. It has reduced the shipping timeline to three-eight days (from a fortnight earlier) by building its own last mile delivery programme. It has hubs in cities like Delhi, Jodhpur, Bangalore, Mumbai, Kolkata, Pune and Chennai, which also serve as sourcing and distribution centres.
Another key learning from IKEA has been that in a category like furniture it is not such a great idea to just sell a product. The accent should be on selling a concept. So that the customer can visualise how the furniture will look in a particular corner in her house. Lately, IKEA’s online catalogue has attempted to simplify the shopping experience with its augmented reality app. Customers can virtually place items from its 2014 catalogue anywhere in their homes and see if they are of the right size, fit, colour and style, before committing to purchase.
So whether one talks of inexpensive design, the use of technology, a frugal supply chain or rich customer experience, IKEA seems to be the first port of call for Indian e-retailers in the space. The Swedish retailer’s value proposition is based on simplicity which in turn makes it clear to consumers how IKEA is like no other furniture retailer. Sounds easy but replicating its model of simplicity is more difficult than it seems. E-retailers in India have the inspiration. Now they have to get the execution right.
IKEA makes low prices the high point of its strategy: Denise
Lee Yohn
Denise Lee Yohn
Enlightened businesses usually avoid low price strategies because they tend to commoditise their offerings and squeeze margins. But home furnishings retailer IKEA uses low prices to fulfil its brand mission, cultivate loyal customers, and sustain profitable growth. The company is designed and operated "to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them."
Following are the key pillars of IKEA’s business model:
IKEA uses its brand as a management tool that fuels, aligns, and guides everything the company does. This is why IKEA has thrived, while so many other big box retailers have failed.
This is what great brands do.
Denise Lee Yohn
Brand-building expert & author of What Great Brands Do
(Sourced from Business Standard.)
