Category: Press Quotes

After McDowell’s success, USL increases focus on higher-priced brands

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May 13, 2013

Mihir Dalal, MINT (A Wall Street Journal Partner)

Bangalore, May 13, 2013

After successfully wooing drinkers toward McDowell’s No.1 products from cheaper labels such as Bagpiper, United Spirits Ltd is increasing its focus on higher-priced brands such as Antiquity whiskey and Black Dog scotch.

From April to December, the volume growth of United Spirits’ premium brands—products including and priced more than its McDowell’s No.1 whiskey—was 18%, faster than the industry average of 12%, according to data supplied by the company. A majority of the growth was driven by McDowell’s No.1 whiskey and rum, both of which overtook Bagpiper, the company’s largest-selling brand for more than a decade.

United Spirits expects its other premium brands to continue growing faster than the market this year partly as it shifts its marketing spending toward these products, managing director Ashok Capoor said in an email.

India’s largest distiller has introduced new packaging or ‘packaging value adds’ for some products such as Antiquity Blue, one of its highest-margin brands, Capoor said.

According to analysts, it’s essential for United Spirits to accelerate sales growth of premium products and show more consistency in growth if it wants to catch up with France’s Pernod Ricard SA, which earns more profits in India than United Spirits despite selling less than a fourth of its rival’s volumes.

The reach and variety of United Spirits’ product portfolio is unrivalled in India. It has brands at practically all the price points from Bagpiper at the lower end to Black Dog scotch at the upper end and products such as McDowell’s No.1 and Signature in between.

“The width of portfolio allows companies to use distribution muscle and gain margins and market share. It also allows companies to shield themselves from a drop in sales of a given brand as they have others, some even in the same segment, to make up for it. This kind of a flanking strategy also reduces the manoeuvring room for any competitor,” said Devangshu Dutta, CEO of retail consulting firm Third Eyesight.

For instance, last year, Signature whiskey—one of the company’s fastest-growing premium products of the past five years—saw a drop in growth last financial year. However, Signature Premier, a brand variant that is 10% costlier than Signature, grew significantly more than the latter, Capoor said.

“There were some interim ‘downtrades’ from Signature in a few markets. Royal Challenge was the major beneficiary in such states. Each brand has a role to play in the premium price ladder. For example, Antiquity Blue sits at the top end of this ladder driving imagery for the franchise, while Antiquity Rare is pitched to facilitate upgrades from brands below it in the price ladder,” he said.

The flip side is that it can become unwieldy to manage so many brands and can lead to inconsistency in growth.

United Spirits has more than 10 brands priced higher than McDowell’s No.1 whiskey and rum that contribute significantly to sales and profits. In comparison, Pernod Ricard gets a majority of its business from just four whiskey labels—Royal Stag, Imperial Blue, Blender’s Pride and 100 Pipers scotch. These brands, three of which are priced higher than competing products by United Spirits, have consistently reported compounded annual growth of 17-31% in 2007-2011, according to data by International Wine and Spirit Research (IWSR).

United Spirits’ premium brands have shown less consistency. Black Dog and Antiquity Blue both reported an increase in volumes at a compounded annual rate of over 30% in2007-2011, according to IWSR data. This year too both products gained market share from rivals such as Beam Inc.’s Teacher’s as United Spirits increased distribution in so-called tier 2 cities. The company’s McDowell’s VSOP brandy grew by 53% last year, taking significant market share from rivals especially in Tamil Nadu.

However, Antiquity Rare and Royal Challenge, other premium products, grew less than 8% over the same period. Another premium brand, McDowell’s No.1 Platinum, a pricier variant of McDowell’s whiskey, reported a sharp drop in growth last year partly due to price increases. McDowell’s Platinum, which was launched three years ago, reported a volume rise of just 15% after sales nearly quadrupled in 2011-2012.

Still, some analysts said that United Spirits’ wide portfolio would serve the company well in future, especially given the impending stake sale to Diageo Plc. The world’s largest distiller announced in November that it would pay $2.1 billion for a 53.4% stake in Vijay Mallya’s United Spirits. The deal is expected to be completed in the quarter to June, though Diageo will end up owning roughly 30% or lesser.

United Spirits has a much wider approach than Pernod, which has “extremely good” but fewer brands placed in attractive niches, said Sunita Sachdev, an analyst at brokerage UBS Securities.

“It’s not a like-to-like comparison between United Spirits’ and Pernod’s strategies. Going forward, with Diageo coming in, we expect to see increased ‘premiumization’ across brands at United Spirits. There should be heightened competition with both global players in India, but given the strength of United Spirits portfolio—and complemented by Diageo’s branding and marketing expertise—this is going to be a formidable challenge for the rest of the industry,” Sachdev said.

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Zodiac A WINNER BY DESIGN – How Indian garment maker Zodiac broke into the world of high fashion in Europe

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May 12, 2013

Walk into high-fashion clothing chain Bijenkorf’s outlet in Krasnapolski Square in Amsterdam’s main shopping district and tick off the shirt brands on display. Armani, Hugo Boss, Calvin Klein, Zodiac,… Zodiac? Doesn’t quite gel here, does it? Bijenkorf does not think so. You will find Mumbai-based Zodiac Clothing Company’s branded shirts jostling global brands for space even in its outlets in Holland’s other big cities, Rotterdam and The Hague. In the UK, 130-odd Ciro Citterio classic menswear retail stores have placed Zodiac shirts next to Polestar shirts made by the UK-based Thomas Pink, considered the world’s best shirt makers.

And what a good job that is. Last year, Zodiac sold shirts worth Rs 21 crore in the UK and the Netherlands. That is 17% of its total sales and a third of its exports. Zodiac shirts retail at 50 euros in Europe, nearly twice the domestic cost, and are more expensive than other private labels, which retail at 40 euros (higher-end brands like Hugo Boss and Armani sell at 60-plus euros). So, if volumes go up, the upside is huge. Noorani knows that. He is investing a “substantial” amount in building a 5,000 sq ft design centre in his office in central Mumbai. His next target: the German and the US markets.

Zodiac’s brand sales overseas may be tiny compared to India’s $5-billion garment exports. Yet it is significant. So far, Indian firms worked on a cost-plus basis with foreign retailers taking the bulk of the margins. Says Noorani: “In the long run, we will get more money for our hard work and the efficiencies we create.”

In reality, Zodiac is not too different from other Indian exporters. Like the Bangalore-based Goculdas images, it makes shirts in its fully-automated factory in Bangalore. It sources fabric from the same Indian mills that other top exporters buy from. It employs 3,500 workers, as much as any exporter of its size. Much of its income comes from making and exporting shirts for private labels abroad. So what makes Zodiac special?

Noorani shows you a series of cards with swatches of fabric stuck on them. These are designs and weaves that Zodiac designers have specially created for different markets. Based on these, Zodiac will make collections for different seasons – like the Florentine collection for summer. And this is where it begins to differ from others. Traditionally, when a GAP or a Wal-Mart buys from India, it supplies the exporter with a set of designs. The exporter translates the designs into shirts with little value addition.

Zodiac’s model changes that. When Noorani started selling in Europe in 1996, he set up design offices in the UK and Germany. These offices track international fashion trends and create shirt designs for every season. These are then fabricated into shirts and sent to Europe. The process does not end there. Designers in India modify those designs to create newer lines, which are then hawked to buyers who order shirts for their own brands. A few days ago, Dubai-based retailer Splash chose half-a-dozen designs based on the Florentine collection. As a result, Zodiac shirts for other labels export at 15-20 euros compared to 6-10 euros that other exporters make. Says Delhi-based textile consultant Creatnet Services’ Devangshu Dutta: “Design is the simplest way that Indian companies can move up the value chain.”

It is not that other Indian exporters don’t design. Mumbai-based Go-Go International’s director Rajiv Goenka buys garments from malls and exclusive showrooms in Paris and Germany, restyles them and shows them to foreign buyers. But this is only a way to get more business; Goenka gets no premium for his labour. Says Dutta: “Buyers are quick to realise these designs are not original and, hence, won’t pay anything extra.”

Zodiac’s design process is more intensive. A typical stylesheet that its international designers create contains the type of fabric, the weaves and the colours in vogue, and the like. Textile engineers in Mumbai weave a sample of that fabric style in their in-house unit and send it to the international designers for approval. Once approved, the fabric is produced at looms it has hired in three leading mills in India. The result: in three months, Zodiac has unique designs to offer to its foreign customers, way ahead of other Indian exporters.

Other Indian firms, too, are waking up to the opportunity. Last year, Raymond, which sells woollen fabric in Europe and the Middle East, bought a suit-making factory in Portugal along with its design team. Today, it sells 300-400 Parx suits a day in Spain and Portugal. Arvind sells its Arrow shirts in the Middle East, while Birla group company Indian Rayon has enlisted the help of European designers to dress up its shirts.

But it will not be easy. Zodiac cannot build its brand quickly. And Noorani does not want to sell his clubwear brand Zod! abroad yet even though a German chain has shown interest in it. That’s because reputed retailers do not stock single-product ranges. Hugo Boss sells perfumes, shirts, ties and wallets. Flagship Zodiac has built such a product line over the years; one-year-old Zod! is still to do so. Even if it wants to have a new product line, it will have to invest big money. For shirts, Zodiac invested Rs 20 crore. And a few months back, it bought Niryat Sam’s factory for Rs 25 crore as it wants to make trousers. In an earlier interview with BW, chairman M.Y. Noorani said: “In the shirting business, the more number of years you are in the business, the more respectable you become. Building a premium brand is really a long haul.”

Can Zodiac withstand that?

Earlier, in Messe Frankfurt’s Heimtextil fair in Germany, Zeba was the only Indian home textile firm invited to the select ‘Trends Hall’. This year, it plans to open its own stores in Belgium, Morocco and Germany in addition to existing ones in the UK and Spain. All in the name of design.

Till three years ago, Zeba was like any other exporter. It sold to big stores across the world, but produced only what buyers wanted – till Krishna Mehta came on the scene, after a stint in New York’s Fashion Institute of Technology. Now 30% of Zeba’s Rs 60-crore revenues come from own-brand sales in India and abroad. Krishna expects the firm to eventually sell more of the Zeba brand than under the brands of other, big foreign buyers.

Krishna does not think that designing for global markets is hard. He draws ideas from the Internet, catalogues, while travelling and “any other source”. He has designers from the National Institute of Design, the National Institute of Fashion Technology and institutes in Mumbai. Krishna says: “The most important aspect of designing is the final presentation to customers. That’s where most Indians fail.”

Besides design, detailed photo shoots of the product and cataloguing, too, has paid good dividends. Last year, when exports of other companies fell, Zeba’s customers increased orders by 25%. This year, while volumes from old UK buyers have not increase a lot, many new stores have signed on. Says Zeba director Rajan Mehta (left): ” Design has changed the way we do business. We are now in control. ”

This article is from the 12 May,2003 issue of Businessworld.

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Are we like this only?

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May 2, 2013

Priyanka Pani, The Hindu Businessline

Mumbai, May 2, 2013

They are all over the place – on a hoarding, on the telly, on the radio, in the newspaper – ads caustically caricaturing South Indians, harping on their idiosyncrasies, mocking their mannerisms, their language, their accent.

‘Betterrr safe thaaaan saari’ goes the television campaign by travel portal GoIbibo, which has been criticised as being in “very bad taste” and “irritating” by many consumers for obvious reasons.

A huge chunk of advertisements these days playing out on the idiot box are portraying South Indian stereotypes – they do not know about Holi, all nurses hail from Kerala, or even that people from the South have a typical accent.

The Idea commercial featuring a South Indian dad running away from kids playing Holi is a case in point as is Dhoni’s missing pillow in the Gulf Oil advert. Don’t look now, but there is a Rajnikanth lookalike in the Finolex commercial as well as the You Telecom one, and Kareena Kapoor’s ‘Romba Nalla’ selling point for Mahindra Duro.

A campaign by mosquito repellent Hit has a nurse, with a distinct South Indian twang. Again, this is supposed to appeal to the mindset that all nurses are from the South and will have a heavy accent, says Kiran Khalap, co-founder of creative agency Cholorphyll.

Of late, every third advertisement that we see on television has some South Indian connect or element attached to it. So, are marketers trying to engage the so called ‘conservative’ South Indians?

Subhobroto Chakroborty, Business Head, Genesis Advertising, says, “Breaking the clutter in the Southern market is difficult. Hence, creative agencies are coming out with new ideas and different marketing strategies to woo the Southerners.”

Other advertising experts say advertising in India has suddenly discovered the South as the consumption story is picking up there. “Even though southern States contribute about 56 per cent to the Indian GDP, they were not known as spenders but huge savers. This phenomenon is changing,” says brand strategist Harish Bijoor, CEO of Harish Bijoor Consults Inc.

Earlier, gold, utensils or financial products were the high-priority areas for the Southerner, who chose not to spend much on comfort, says Bijoor. But things have changed of late. The priorities are changing and so is the buying pattern, he adds.

While Virat Kohli is endorsing Nestle’s Munch South style, playing B. K. Vaali, a Tamil look-alike of his who manages to get a shot at an entry into the local cricket team just by crunching on a Munch bar and distracting the opposite team, Chennai Super Kings’ captain M. S. Dhoni is endorsing Gulf Oil.

The list goes on: Telugu superstar Mahesh Babu toppled Bollywood’s ‘Akki’ Akshay Kumar to become the brand ambassador for Thums Up. This year, marketers have entered into a kind of rat race to inject humour into their ads with some quirky southern dialogues thrown in for good measure.

Santosh Desai, CEO of Futurebrands, believes advertisers have woken up to the fact that India is not just in New Delhi-NCR or the metro region alone, and that they need to look at other markets too.

“Media is no more region-specific. The same advertisement is reaching out to a nondescript village in Karnataka and Rajasthan as well as the big metros,” said Desai. When regional food becomes popular in the metros and more and more marriages cross geographical and linguistic barriers, why should ads be left behind, he asks.

PepsiCo’s recent television commercial for 7-Up shows a girl waiting for transport on a hot sunny day, and is suddenly entertained by a Kathakali dancer, who appears to be gyrating to a salsa number.

Khalap believes ad makers are no longer putting a face to any region, but are looking at all consumers. The trend appears to be sweeping across corporates. From chocolate companies to AC manufacturers, banks to financial service companies, and even lubricant makers, companies have jumped on the bandwagon, all rolling southwards.

AC firm Voltas has a Tamil-accented male protagonist to promote its all-weather air conditioner. Competitor Lloyds AC too has decided to take the southern route.

Alpana Parida of DY Works says with people travelling to other States for work or business opportunities, advertisers feel the need to stay connected with consumers in different and unique ways.

Devangshu Dutta, founder of marketing research firm Third Eyesight, adds that creative agencies have always used humour to break the clutter. Hence they come out with extraordinary – which could be senseless – and funny ads that viewers might instantly connect to. For example, the Maruti advertisement featuring a Sikh son and dad (“Petrol khatam hi nahin hondaah”) is still fresh in consumers’ minds and has nothing to do with Punjabis but with the fact that Maruti is sold more in North India, he adds. The southern element in ads can also be attributed in large part to the fact that the consumption story is now being driven by the South Indians and that a large part of South India resides in the North too. This is probably what prompted Havells to launch a campaign for its grinders where the idlis made with its help substitute flowers that decorate the house for festivities.

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Raymond to focus on growth, profitability in current fiscal

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April 30, 2013

Madhurima Nandy , MINT (A Wall Street Journal Partner)

Bangalore, April 30, 2013

After focusing on consolidation and margin improvement for a year, apparel maker Raymond Ltd intends to return its sights to growth and higher profitability in the current fiscal year.

Top Raymond executives sent out the signal in a conference call with analysts on Monday in which Raymond’s newly appointed chief financial officer M. Shivkumar indicated that the company’s net debt may go up by Rs.150-200 crore this financial year owing to the company’s capital expenditure plans.

Around Rs.342 crore of debt is due for repayment in the third and fourth quarters of 2013-14 which will be replaced by long-term debt, or other loans, he said.

Raymond appointed consultancy Accenture Plc last year for a margin improvement programme and consolidated its apparel business structure to improve cost efficiency. These measures have resulted in the firm boosting cash flow from operations by 42% to Rs.326 crore in the year ended March, according to brokerage PhillipCapital (India) Pvt. Ltd.

The management indicated that 2013-14 will see a lower proportion of discounted sales and better control over inventory levels, two factors that analysts say typically eat into profitability and dent cash flows.

“The company has been focusing on improving cash flows and margin improvement. While the net debt, at Rs.1,347 crore, has remained almost same compared to a year before, investors would ask for reduction in debt by sale of non-core assets,” said Ankur Agarwal, an analyst at Nomura Equity Research.

On the analysts’ call, Raymond executives said a team is exploring options to realize value from its 120 acres of land in Thane on the outskirts of Mumbai.

The inventory days—a measure of efficiency based on the number of days that a company holds its inventory before selling it—declined from 155 days to 144 days in FY13 and the improvement is largely led by textile business as well as liquidation of inventory in branded apparel business, said a report by PhillipCapital.

In the March quarter, Raymond opened 22 new stores and closed 14 stores.

Raymond has restructured its top management, splitting its portfolio and separating the strategy and finance divisions in March. H. Sunder, who was the chief financial officer and headed both finance and strategy portfolios, will now focus on strategy, while Shivkumar, who joined Raymond last year from Jet Airways (India) Ltd, was made CFO.

Robert Lobo, who earlier headed the brands ColorPlus and Raymond Premium Apparel is now president-group apparel at Raymond, and will oversee all the four brands in the branded apparel business segment such as Park Avenue, Parx, Raymond Premium Apparel and ColorPlus.

“The company has initiated a restructuring process for its apparel business structure which involves getting a distinct strategy for each of its brands. It only helped that the company has put one person in complete charge, instead of two people heading the brands earlier,” said an analyst, who didn’t want to be named.

Last Friday, Raymond posted an 80.75% drop in net profit for the March-ended quarter from the year-ago period to Rs.61 lakh, while revenue rose 13% to Rs.1,081.36 crore. The firm said that the net profit falling to Rs.61 lakh was “mainly due to reversal of deferred tax asset provisioning”. The fall in profit came after adjusting for exceptional items and taxes.

A Nomura Equities Research report said the streamlining of Raymond’s branded apparel business includes fine-tuning the communication strategy for each brand and focus on sales channels that would help in brand visibility.

One of the key measures that Raymond has taken up in branded apparel business is the transitioning of Park Avenue from The Raymond Shop (TRS), a retail store format, to exclusive brand outlets (EBO). Raymond Premium Apparel, the high-end segment will be sold through TRS.

Raymond executives mentioned on Monday that while the first phase of transitioning Park Avenue to exclusive outlets has been completed, the company will decide on the second phase depending on consumer demand for the brand and Raymond Premium Apparel.

Gautam Hari Singhania, chairman and managing director, said in a statement that the focus has been on improving the operational efficiencies, through supply chain management initiatives, cost rationalization and consolidation of apparel business operations, which resulted in pull back of profitability and improvement in cash flows.

Raymond shares rose 5.43% to close at Rs.281.3 on Monday on the BSE while the benchmark Sensex gained 0.52% to close at 19,387.5 points.

Apparel companies have been struggling to garner sales, along with high levels of inventory of unsold stock and discounted sales eating into healthy margins, said analysts.

“The key challenges for apparel brands today are to get adequate sales per outlet and maintaining an excitement about product ranges to pull (in) consumers. Discounted sales have also put the margin mix of companies and their cash flows out of balance for a while now, including promotions that are done to drive footfalls,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

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Step By Step

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April 29, 2013

Amrita Roy, Ankita Rai & Masoom Gupte, Business Standard

New Delhi/ Mumbai April 29, 2013

On an unremarkable day in 1991, Ramnath Nalli, grandson of Nalli Chinnasami Chetty, who set up the first Nalli Silk store in Chennai in 1928, decided to check out if there was a market for Kanjivaram silk saris in the country’s fashion capital. He organised an exhibition-cum-sale of its products at New Delhi’s Pragati Maidan and showcased an exquisitely crafted range carefully picked from his enviable repertoire. The event was a sell-out, and spurred him on to step out of his stronghold and set up his first Delhi store that year. Today, Delhi is the second largest market for Nalli after Chennai.

Nalli Silk’s journey from Chennai’s T Nagar to locations across the subcontinent and beyond mirrors the growth curve of many other home-grown, family-run retail chain brands in India. Indeed, if in the early days of national television regional and local brands scrambled for a national presence, recent years have seen ambitious local retail outfits take the leap of faith. A whole host of factors have come together to encourage them to leave their comfort zones and explore new markets.

Devangshu Dutta, chief executive, Third Eyesight, a consulting firm focused on the retail and consumer products ecosystem, explains why in the last decade or so, so many stand-alone, single-store brands have set about building critical mass. “One reason is ambition. By itself it can be a great enabler,” says Dutta. The arrival in India of global chains fuelled the ambitions of the local players. This ambition has been driven by exposure to modern retail and the media focus on it, creating an environment for the family-run enterprises to grow, he says.

The significant growth in commercial real estate over the past decade has provided ground for the ambition to spread roots. “In the last few years so much more retail real estate has become available, bringing down capital investment and improving the profit multiplier significantly,” adds Dutta. Earlier, a retailer seeking to open a new branch would have to typically invest in building the physical infrastructure ground up. The growth of malls and modern commercial complexes even in tier II cities, however, offers opportunity to set up bare-bone kiosks. What has accelerated the process is easier access to capital. “Apart from institutional capital, even before you become a serious contender for PE funding, there are investors you can approach,” points out Dutta. Then there is the changing profile of the entrepreneurs – many are second and third generation members of the promoter family and young, often with foreign degrees in technology or management. “These people are loath to come back to the family shop and sit at the cash counter. They have global exposure and have, quite often, started their careers in the corporate sector. For them, just running a store or two offers no challenge. They will return to the fold only if they can script a growth story,” says Dutta.

However, many entrepreneurs with successful single store operations dither over questions such as when is the right time to do it, what would be the best route forward – do it alone or with franchisees? We studied a dozen such chains, which grew from being single stores, for answers. Here we would like to put together a road map for expansion for brands looking to establish a chain across markets.

The liberalisation proved to be a turning point of sorts for many established Indian single-store brands. Some perished, unable to adapt to the changing times and tastes and ceded ground to the bigger brands and multinationals. The more nimble ones – such as Nalli Silk, Lawrence & Mayo or Vijay Sales – saw opportunity for brand building. The cases we will discuss started their journey as single-store enterprises; they had one other thing in common – unmatched brand equity, which they cashed on as the markets opened up.

Start from the beginning

According to Vivek Mendonsa, director, Lawrence & Mayo, the foundation of a successful chain rests on the four pillars of location, understanding of the market, concept or value proposition, and the knowledge to execute, or LUCK for short. If you are a successful one-shop enterprise looking to make the transition, the first question to ask is, whether your business – its format or model or its very nature – is amenable to the chain format. If the nature of the business is such that its brand equity is solely dependent on a unique factor that cannot be replicated across multiple outlets, then developing it into a chain will adversely affect the brand. For example, if you run an adventure camp in a Himachal valley, it’s unlikely that you could replicate the same model in Goa. Another question to consider, particularly for the service-oriented enterprises, where the main differentiator is the quality of the customer’s experience of being served, is how to maintain standards across multiple locations. For a beauty chain, or a restaurant, where reputations can be made or marred by a hairdresser’s attitude or a waiter’s promptness, it is difficult to ensure the same standard across locations. With continuous training of personnel and strict monitoring mechanism in place such risks can be mitigated to an extent, as the success of chains like Shahnaz Husain salons or the Oh! Calcutta and Mainland China brands of restaurants run by Speciality Restaurants Ltd (SRL) testify.

Also, the economies of scale are not equally applicable. According to Nilesh Gupta, managing partner and CEO of Vijay Sales, a white goods and electronic gadgets retailer, economies of scale don’t work beyond a point in this segment. Once you have crossed the threshold of 15-20 stores, returns tend to diminish as certain costs – like that of inventory – don’t go down. What goes down is the time taken to draw in the customers. “We are in the technology space and every time a new technology comes, it has to be made available to the customer,” he says. “Even now we take 45-50 days for a physical store opening. But where earlier it took us about two to three months to start attracting customers, we now have them coming in from day one at any of the new stores.”

After you have figured if it is a good idea to establish a chain, the next big task is to identify the best location/market you should head for. Being in the right location is crucial for the survival of any business, especially in the retail, service or hospitality sectors, where accessibility of the store and the demography of the potential customer base directly impact footfalls, avers Kamal Tandon, CEO, Nalli Group. Lawrence & Mayo, which was started during the British rule to serve an exclusive clientele of royals, industrialists and high ranking civil servants, operated five stores across undivided India. When much of its client base vanished with Independence, it changed tactics and targeted a wider base of customers and expanded into a chain. The 94 stores it currently runs are located near established markets. Mendonsa says more than 25 per cent of the assets are completely owned by Lawrence & Mayo and some of these are high street and marquee properties, given the brand’s aspirational positioning.

Aspirational or not, not doing due diligence while looking at a location or site could be a fatal mistake, warns SRL founder and CEO Anjan Chatterjee. “It is important not to over commit on fixed outgoings in developing locations where actual population is not enough to generate the kind of footfalls that will justify the rent,” he adds. SRL has roped in Jones Long LaSalle and Knight Frank to research the demography of a new city/location before zeroing in on properties. For her salons, Husain’s company insists on properties on ground floors with good frontage or first floors with easy accessibility.

Being in the right market is an absolute must. “Apart from understanding the overall potential of a city, a good strategic location is also important,” says Gupta of Vijay Sales. For its part, L&M does not venture into cities with less than 10 lakh population, while the Nalli brass believes that if the size of a market is right, there may even be several Nalli stores in the same market. “The metro cities are expanding very fast, making it difficult for customers to commute from one end to the other. People are cutting down on destination shopping. So we see potential even in cities where we are already present. In Bangalore alone we have four stores now. We are also expanding in tier II cities; we have opened in Kanchipuram and Coimbatore. We looking at Gurgaon and Chandigarh in north India,” says Tandon.

Know your market

Needless to say, the nature and quirks of individual markets is another factor that determines how successful a chain is likely to be. “Credit cards and EMIs don’t work much outside big cities and one can’t bank on these to push sales,” says Gupta. Another important lesson to remember, he warns, is that even in today’s highly connected world, brand equity takes time to build. “When we entered Surat, we had advertised fairly heavily. Yet we had to contend with questions like ‘Who are you? How do I trust you?’ I asked the customer who posed this question if he had relatives or friends in Mumbai. They could tell him whether he could trust us or not. It was a lesson that brand equity cannot be transferred automatically,” adds Gupta.

Besides, in new markets with established local players, consumers take a lot of convincing and aligning with local festivals is a smart way to generate trust.

The next question to ask is whether to go it alone or scout for franchisees. After much deliberation Vijay Sales opted for the company-owned-company-operated (COCO) route. “We find that the franchise model doesn’t work in our business because we are not selling our own brands. There is no value addition since we work more as amalgamators of brands. If we were to bring on franchisees, they’d quickly learn the ropes of our business, gather the necessary experience and branch out on their own,” says Gupta.

SRL follows a combination model. A large number of its stores are under COCO and it also has a few franchises. Even when the restaurants are owned by the franchisee, the operations are managed by the company (franchisee owned, company operated).

“We are in the fine-dining business and hence our main offerings – food and service – cannot be mechanised like you can do in the quick service space,” explains Chatterjee. He says the franchise model was looked at only to help speedy expansions primarily in smaller cities and bridge the gap of initial capital requirements needed to set up a new outlet.

The next big question is how to raise the capital required for fresh investments. While most brands have said that the initial funding came from internal accruals and bank loans, once a standalone store brand has established brand value and demonstrated scalability, raising funds gets easier. If the sector you operate in is growing fast, the job is 75 per cent done. The rest depends on how you sell your dream to the potential investor.

Take the eye care segment. The size of the organised industry is about Rs 1,000 crore and the unorganised segment makes up another Rs 2,000 crore. There are national chains like Lawrence & Mayo, Titan Eye+, Vision Express, besides regional players like Gangar (in Mumbai and Pune) and Dayal Optics in New Delhi. The opportunity is huge and what can work for large regional players is the kind of trust they enjoy in their home base. That’s precisely the lever that players such as GKB and Himalaya have used to their advantage and that’s the reason why we have seen specialty eyewear becoming such a hotbed of competition in recent years.

Chatterjee says VCs find the restaurant sector quite attractive. Macro factors like the growing quality of life and the scalable nature of the business make it an attractive bet. The organised segment would be Rs 28,000 crore by 2015 with a CAGR of 30-32 per cent, he points out. But profitability at the store level is a key challenge. Food inflation has been in double digits in the last three years, affecting the margins.

In sum, the going won’t be easy even though you feel you are ready to stretch the equity of your brand across markets. Whichever market you might be in, it is a good idea to remember the first rule that every business text book propounds: that sound market knowledge underpins success and all business ideas must be tested thoroughly before launch.