Rohit Nautiyal, Business Standard – The Strategist

New Delhi, October 7, 2013

Thirty-year-old Ramesh Bhonsale, son of the owner of a big kirana store in Nagpur’s Byramji Town, has become extra kind towards his father’s customers lately. He often draws them into conversations explaining at length that they can now order groceries online and pay by cash. The delivery will be done within three to seven days. While most of the loyal customers of Bhonsale senior have heard his son out, a handful have placed orders on the tablet by routing a small portion of their monthly grocery budget to Ramesh’s new venture. In the following days, as more people in the locality warmed up to this unique e-direct selling model, Ramesh had to face his father’s wrath for poaching customers, something he hasn’t intended doing.

The names have been changed but the story is real. This happened during Big Bazaar Direct’s (BBD) pilot in Maharashtra’s eastern region of Vidarbha. BBD is the brainchild of Future Group CEO Kishore Biyani who claims, "If it works, BBD will be bigger than Future Group’s flagship store Big Bazaar."

The big idea

Attention readers: This model has no precedence globally. So we were not sure whether it was direct sales or e-commerce. To decode this model, The Strategist met with a BBD executive after filling up the franchisee registration form on its website. At its heart, BBD is a franchisee-based model where the franchisees are expected to personally visit consumers and take orders. This will be done over a tablet which is integrated with the back-end to avoid discrepancy in product demand and availability.

Now the tablet has a catalogue with 1,000 deals (other than the ones available at Big Bazaar stores) on select products like groceries, electronics and furniture. As of now, no perishable items – such as fruits, vegetable and dairy products – are part of this catalogue. BBD’s catalogue on a franchisee’s tablet can be updated on a daily basis to reflect changes in the deals and prices. BBD can send training modules on the tablet from time to time to test the awareness level among franchisees.

To become a franchisee, one has to make an upfront investment of Rs 3 lakh. The break-up of this amount is like this: Rs 1 lakh is the refundable security deposit; Rs 1 lakh is the set-up charge for the BBD tablet, initial branding, a year’s training, launch material etc; the last Rs 1 lakh will be a franchisee’s e-wallet, which will be used for placing orders. The moment an order is fed into the tablet, the order value will be deducted from this e-wallet. The customer will get an SMS confirming the order immediately and the delivery will be done within seven days (maximum). The customer will pay the franchisee when she places her order and gets an SMS confirmation. There will be additional shipping charges if the total billable amount is Rs 500 or less.

Unlike brick-and-mortar stores, there will be no territory demarcation for franchisees while placing orders. For instance, a franchisee based in Nagpur (Maharashtra) can take an order for a customer in his network from Bhandara (Maharashtra). All she has to do is punch in the correct area code. What’s in it for the franchisee? The franchisee will earn commission ranging between 3 and 20 per cent on every product sold. While grocery items will earn her commission of 3 to 6 per cent, electronics and furniture fall under commission slabs of 3 to 7 per cent and 8 to 20 per cent, respectively. The total commission earned every month will be credited to the franchisee’s account by the 5th of the subsequent month. BBD’s relationship managers will support franchisees on matters relating to marketing and communication. BBD will also conduct knowledge seminars from time to time to educate franchisee on the various aspects of this new business.

(ARTICLE CONTINUED BELOW)

Priyanka Goilikeri, DNA (Daily News & Analysis)

Bangalore, October 7, 2013

How about some white chocolate mocha or caramel macchiato? Not really little-known names, but when they take pride in belonging to one of the largest coffee chains in the world, the urgency to try them out runs high.

At a time when every international brand is trying to gain a foothold in Bangalore, American giant Starbucks is expected to jostle with the likes of homegrown Cafe Coffee Day, and imports like Costa Coffee, Barista, Gloria Jeans and Coffee Bean & Tea Leaf; in a market where drinking kaapi has been a centuries-old tradition.

After opening 15 outlets in New Delhi and Mumbai, the chain is now eyeing a crowded coffee market, where other than the ubiquitous cafes, traditional long-standing outlets like MTR, India Coffee House and Vidyarthi Bhavan dot the landscape.

Armed with a pricing that is upwards of Rs110 for a 273 ml glass of coffee (minus taxes), with variations that can go beyond Rs200 for a larger container; the US giant looks confident of luring its clientele in a migrant-rich, expat-dominated city, with set of globetrotters who would have tasted the brand abroad.

“We don’t believe in waging a price war to win customers,” says Avani Saglani Davda, CEO of Tata Starbucks. Her mantra is simple—one coffee, one customer, one store at a time.

An outlet too many

Brand consultants feel that despite the clutter in the market, Starbucks will be able to carve out its own niche, simply on the basis of its image.

Though the pricing is on the steeper side, experts believe, consumers wouldn’t mind paying to savour a global brand. “The analogy lies in the contention that people have no problems paying for a Baskin Robbins or a California Pizza; even when cheaper alternatives are aplenty,” says an expert, adding that the customer profile for a Starbucks will be distinctly different from those who frequent stores for a quick filter kaapi.

Many customers are aware that the actual price of the coffee in any cafe is just 15-20 per cent of the overall price printed on the menu, say experts, with the balance accounting mainly for real estate, marketing, human resources, and overhead expenditure.

“But still enough, customers do pay since drinking coffee at a Starbucks is not out of necessity, but as part of their lifestyle where hanging out at such a place is considered cool,” argues Devangshu Dutta, CEO of consultancy Third Eyesight.

Coffee’s cool

Yes, the coolness factor does weigh in. For instance, techie Anirudh Gupta, who has frequented Starbucks in the US and is now awaiting its arrival in Bangalore, has this to say, “Abroad, people grab a coffee and head out to work. Here a cafe is more of a place to hang out with friends, or relax while working on the laptop. With Starbucks, the takeaway bit may become popular in India as well.”

Brand consultant Harish Bijoor believes the entry of Starbucks will lead to a caste system of brands in the cafe culture, “where Starbucks might end up being the Brahmin.”

Moreover, alongside the brand image goes the underlying premise that a product belonging to a global chain will be better, along with great ambiance and service, adds Dutta.

“Therefore, a much awaited debut in Bangalore will definitely draw in customers,” says Bijoor.

What happens to CCD?

Since the market is huge, the potential for new and existing players is equal. A study carried out by Bijoor reveals that going by the consumption trend, India at present requires 7,450 cafes. “There are 2,650 as of now. So the demand-supply gap is huge,” explains Bijoor.

And in Bangalore, which remains a Cafe Coffee Day bastion, the entry of a US player is not really a threat. “The entry of a new player won’t throttle. There is room for all,” asserts K Ramakrishnan, president, marketing, Cafe Coffee Day.

Ramakrishnan feels that the chain has the necessary wherewithal, including its menu revision to include non-coffee drinks; and its formats like lounge, square, cafe and kiosk to cater to a mix of customers. And with 200 outlets across the city, “we are ever ready to service all types of customers with products that are sold across all price points,” contends Ramakrishnan.

Thus if Starbucks has its international image, Cafe Coffee Day has its numbers, feels Bijoor. “CCD has done a great job in capturing all the key locations in Bangalore. Finding the right locations will not be easy for Starbucks,” he predicts.

But experts feel that to ensure their top positions, cafe chains will have to provide customers with the same quality and service consistently across all their locations. According to Dutta, if there is any issue with the quality or service, “it can impact customer base.”

And, it will be the customers who will decide the fate of this brewing war.

Ankita Rai , Business Standard

New Delhi , September 30, 2013

In the cancellations and returns section on its website, e-commerce poster boy Flipkart says, "We want you to have an absolutely headache-free shopping experience…In case there is an issue with the product you have received, our Free & Easy Returns promise has got you covered." On its part, lifestyle products portal Jabong.com touts a "30-day no questions asked return policy." The concerned section on the website says, "Though we strive to give you a great customer experience each time you shop with us, if at all you are not 100 per cent satisfied with your purchase, you can return your order for a full refund of paid price." Snapdeal.com, which describes itself as India’s favourite online mall, also guarantees a full refund if a customer is not satisfied with a product. The website claims, "Guaranteed resolution of complaints within a maximum of 30 days/Full refund if not resolved."

Get the drift? If attracting consumers to pay up for a product they could neither touch nor feel was the biggest task in the first phase of the industry’s growth, handling product exchanges and returns is emerging as the next battlefront of e-commerce companies in India. It is easy to see how easy return can offer an e-commerce site a strategic advantage: The two windows open to customers to get a feel of an e-commerce brand are the website interface and the order fulfilment process. If customers see there is something missing in either of these, chances are they will never get back for a repeat purchase. Needless to say, with very differentiation in terms of products on offer and customer interfaces, e-commerce sites are bending over backwards to make sure consumers are at ease even when they revoke an order or send back a purchase.

This is a particularly big headache for lifestyle products companies.

"The industry average would be under 20 per cent but the return rate can be as high as 60 per cent in the case of fashion apparel," says Devangshu Dutta, chief executive officer, Third Eyesight. "In categories where products are more or less standardised, such as, books and DVDs, returns are low-may be in the 7 per cent range," he adds.

Like with everything else, it is easy to claim you have a great return policy but it is difficult to pull it off without a hitch. To be fair, the whole process of return management can leave you in a daze. First, reverse logistics is much more than just management of product returns. It involves putting together checks that minimise the number or possibility of returns, disposal, gatekeeping as well as all other supply chain issues after the sale of a product. "In 70 per cent of the cases, the cost to process the return (pick up, ship back, depreciation, refurbishment) can be higher than the value of the product," says Hitendra Chaturvedi, founder & CEO, Green Dust, a pioneer in reverse logistics.

Now look at the kind of imponderables it entails. The uncertainty regarding the kind or quality of return, the generation time or the distribution of the reverse logistics makes it difficult to put it down to a routine. Also, the scale benefits of storage and transportation would not apply to returns/exchange due to the random and sporadic nature of product transfer. Third is the problem of cash flow.

If cash on delivery (COD) has made life easier for customers, it has also added to the misery of merchants in case of a return. The problem is that the COD system creates a delay in a payment to go through. Courier companies generally hold the money for two weeks, which means the e-commerce company has to restock inventory before the cash from its last sale has arrived. Then there is the logistics fee. Major logistics companies charge the e-commerce firm a transaction fee (Rs 50) plus a percentage of the amount (about 1 per cent) collected. Some courier company also charges an extra Rs 50 to Rs 100 as return fees to ship the merchandise back to the point of origin.

You can imagine the plight of merchants. Now let’s look at the options available to e-commerce companies by way of managing the whole process efficiently and keeping the costs down.

(ARTICLE CONTINUED BELOW)

Sagar Malviya, The Economic Times

Mumbai, September 27, 2013

The world’s most popular coffee brand Starbucks sold coffee, snacks and merchandise worth Rs 14.6 crore in the first financial year of its operations in India ending March, averaging almost Rs 1.5 crore per outlet from its 11 doors in just five months since opening its first outlet in Mumbai last October.

The homegrown Cafe Coffee Day, with around 1,200 stores (at the end of FY13) makes Rs 38-40 lakh from each of its outlets yearly, according to a person who has studied the model of the company. Costa Coffee does business of a crore a year from its best selling outlets, but, on an average, it nets Rs 60 lakh from its 100-odd outlets. Coffee Bean and Tea Leaf, a niche premium chain sells coffee and food items worth Rs 3.5 crore annually in each of its 32 outlets.

The company, Tata Starbucks, a joint venture between US Chain Starbucks with Tata Global Beverages, closed its year end with total six stores in Mumbai and five stores in Delhi, which generated the total revenue of Rs 14.61 crore during the financial year ended March, according to its latest annual filings. It opened its first store in late October last year.

Experts, however, feel that while initial sales of Starbucks is substantially high by industry standards, its per store sales might drop going forward.

"Other than the initial rush of consumers due to the launch ‘novelty’, another factor contributing to high sales of current Starbucks outlets is that they are all in high-footfall marquee locations, and are all much larger than competing cafe brands," Devangshu Dutta, chief executive of retail consultancy Third Eyesight, said.

"Sustaining high sales per square foot over the years is the challenge to meet as the chain expands into other locations, possibly with smaller outlets," he added.

A Tata Starbucks spokesperson said its business in India continues to exceed expectations though establishing a successful business takes time. "Our measure of success is in the number of customers who come back to our stores. We are focused on a long-term, disciplined and thoughtful growth in this dynamic market, and committed to working towards exceeding expectations of our customers and building a strong presence in the market," the spokesperson said.

Starbucks currently operates 20 stores in the country. It plans to open around 100 Starbucks cafes in the country by next year to match up to established rivals and is building a war chest for expansion by more than trebling its authorised capital to Rs 220 crore.

Nupur Acharya, The Wall Street Journal

Mumbai, September 27, 2013

On the back of a surprise increase in a key interest rate last week, India’s central bank dealt another blow to banks this week by asking them to stop encouraging credit-card use with misleading “zero interest” payment plans.

While credit card issuers have been working with retailers to offer special no interest offers for years, the Reserve Bank of India said the plans were misleading as they often have hidden costs.

The banning of this standard promotion could prove to be a dampener for banks and consumer product manufacturers ahead of the festival season that begins in less than ten days.

Zero interest payment plans have become popular in the last couple of years with most big electronics and consumer durable stores offering them. The trend spread when smart phone and tablet manufacturers introduced them to push up the sale of their expensive devices.

While the drawn out payment plans for the purchases had no interest, they often included a processing fee. Meanwhile consumers that bought the products using the plans sometimes had to pay a higher price than those that paid in cash.

The RBI felt that the plans were just camouflaging the interest and passing it on to consumers as a fee or higher price. It said that any discount on prices should be passed on to all customers.

“The very concept of zero percent interest is non-existent and fair practice demands that the processing charge and rate of interest charged should be kept uniform,” The central bank said in its notification. “Such schemes only serve the purpose of alluring and exploiting the vulnerable customers.”

The end of the plans won’t affect most people, some industry analysts said, as the value-for-money conscious Indian consumer has always been aware of the other costs of the interest free plans.

“Consumer sentiment is fairly cautious on spending, especially high-price consumer durables, given the general economic scenario,” said Devangshu Dutta, chief executive officer with Delhi-based Third Eyesight, a retail and consumer durable consulting firm.

(This piece appeared in the Wall Street Journal blog titled "India Realtime".)