admin
January 17, 2013
Vishal
Krishna, Business World
Bangalore,
January 17, 2013
In
February 2010, Future Group founder and group CEO Kishore Biyani
delivered a lecture at Coimbatore’s Bharathiar School of
Management and Entrepreneur Development. He said his business
ideals were driven by LSD (Lakshmi, Saraswati and Durga). Unless
we create wealth for all strata of society, learn from experiences
and create a strong identity, we will never become an economic
superpower, he told the audience.
That lecture echoed in May 2011, at a meeting to discuss a new
initiative with select senior executives at the group headquarters
in the SOBO Central Mall, Mumbai. At the end of the presentations,
Biyani told them in chaste Hindi, “Is mein dhan hi dhan hai.”
Translated into English, it means “there is enormous wealth
in this”. Translated into reality, it is a Rs 10,000-crore
opportunity for the Rs 15,000-crore Future Group; besides having
the prospect of creating thousands of livelihoods.
What Biyani was referring to is now taking shape at a 110-acre
site 100 km north of Bangalore, in Tumkur. This Rs 500-crore food
park — the first of two that he intends to set up by early
2014 —is at the heart of Biyani’s push to backward integrate
his group by creating a parallel FMCG business which, he hopes,
can be scaled up to be among the biggest in the country.“We
want to be one of the top three FMCG players in this country,”
he says.
At play here is Biyani’s ingenious instinct: If India is
changing, so are eating habits. “The future is in value-added
food. We see our customers evolving this decade because of the
changing economic conditions,” he says. He
defines value-added food as: TV dinners, frozen foods, ready-to-eat,
baked items, packaged fruit and vegetables, food pastes and curries.
With the food park, Biyani is also challenging the current norm in the retail industry where large rivals such as Reliance Retail, Bharti Easyday and Aditya Birla More source white label and private label products from contract manufacturers rather than getting into manufacturing themselves. So why is he going against the grain? Logistics is 13 per cent of the retail cost of food products. If the food park could reduce this to 5-6 per cent, the group stands to create a lot of “dhan” since food business accounts for 50 per cent of Biyani’s Rs 15,000-crore annual revenue. Eventually, like Walmart, Biyani will hope to sell at least 50-55 per cent of his products through white or private labels as against 35 per cent today. Private label food products earn an average net margin of 65 per cent versus 10-15 per cent from branded products. “We have the customer knowledge from our retail stores that allows us to take this bet,” says Biyani.
“For Biyani, an idea can mean not just a business opportunity but a way to bring investors together to make that product scale to potential,” says B.S. Nagesh, Biyani’s friend, and vice-chairman of the Rs 2,000-crore Shoppers Stop.
To Make It Work
These are hectic times for Biyani. He is pacing up and down in one of the Future Group’s conference rooms in Bangalore, even as he makes multiple phone calls and sips green tea. When sitting, he multi-tasks between an iPad, a Samsung smartphone and a BlackBerry. He tells the person on the other end of the phone to not think negatively and to get on with the work as planned. During his conversation with BW, he is mostly on his feet; he takes a break to listen to executives explaining the progress at the Tumkur project. At times, he slips into deep thought. Often, he runs out to acknowledge a business associate, holds a discussion, and then returns to the conference room.
When it goes live in 2014, the Tumkur park will connect farmers spread over a 300-km radius to six agri cooperatives or collection centres. The produce will go from the collection centres to the food park, where it will be sorted and graded. Some of this will reach stores while the rest will go into processing. The food park will also house pulping, milling, flouring, spice and dal (lentil) units. It will have an 80,000 sq. ft cold store to supply fruits and vegetables round the year. Biyani has also planned a manufacturing centre for 60 medium-sized food processing companies that can make ready-to-eat food for group company Future Ventures using raw material supplied by the food park.
“No one in India has created an integrated food park business, and the country needs this to generate employment in manufacturing and to create a new consumption boom for people,” says Biyani. It will be the job of Future Ventures to transport the products to the kirana network across India, and to the group’s 600 stores through Future Logistics.
But this is just the food aspect of the new business. For non-food
FMCG, the business plan envisages bringing in manufacturing units
of large FMCG majors such as Hindustan Unilever (HUL) and ITC
(talks are on with both), as well as large FMCG contract manufacturers.
For the latter, Biyani plans to provide ready-to-use infrastructure.
If required, the bulk of the responsibility for raw material sourcing
and logistics will be taken care of by various Future Group entities.
The plug-and-play infrastructure could be of immense value to
foreign retailers as the new FDI policy requires them to spend
50 per cent of their investment in backend infrastructure. With
the food park, the foreign retailer need not buy expensive land.
Instead, it can sub-lease it and set up manufacturing operations.
This move satisfies the backend investment requirement of the
FDI policy, and allows foreign retailers to focus on frontend
retailing.
Re-Inventing The Group
Biyani has come a long way in planning the park. At the beginning of last year, analysts considered Future Group a sinking ship. Its biggest company, Pantaloon Retail’s revenue was rising but net margins were almost flat — in the 0.5-1 per cent range. The group is yet to file its annual results for 2011-12 because of a restructuring and will file 18 months’ results in February 2013. It had also piled up a massive debt of over Rs 7,600 crore, whose interest burden had been taking a toll on its profits.
Biyani has managed to pare the debt. He hived off equity in various group entities, even selling businesses such as Future Capital Holdings (which carried 50 per cent of Future Group’s debt) and the Pantaloon fashion format. The biggest move came when he raised Rs 1,600 crore by selling 49 per cent stake in the Pantaloon format to the Aditya Birla Group in 2012.
The financial restructuring brought debt down to less than Rs 1,200 crore by November 2012. “It is good to be out of it,” says Biyani. Then he turns around to the presentation board and, after some thought, says, “That era was different. The business environment and opportunities were different. It was Future Capital Holdings and its NBFC debt that created a lot of confusion for us. I am not just back on track, I have been so for some time now.”
Biyani’s eyes are now focused on the Tumkur park. Work is in full swing at the 110-acre parcel of land acquired from the Karnataka Industrial Development Board. Land is being levelled before construction can begin for the fruits and vegetables centre, the cold store and ripening chambers. Amid the chaos and din, Praveen Dwivedi, a former ITC veteran of the farm supply chain initiative and cigarette business, is busy speaking to farmers and contractors on the project’s execution. Since he is solely responsible for the project as the president of Future Ventures, he works with an iron fist.
Dwivedi is used to inadvertent delays. He makes frequent calls to government officials, keen as he is on securing the 10 MW of power required for the food park immediately. He also wants to have everything — from water to drainage lines — ready in eight months. The project report says the park will need 500,000 litres of water, drawn from the Hemavathi river in Tumkur, and for which a reservoir is being readied. A few farmers are threatening to stop the movement of Dwivedi’s trucks. But he is not perturbed. “This project will eventually employ more than 2,500 people. It will change the way food processing is envisioned in this country,” says Dwivedi.
The Unique Selling Point
The idea of a food park is actually borrowed from China. The Chinese industry is 18 times the size of India’s $70-billion food processing business. An average food park in China is 200 acres in size and has investments of close to a billion dollars each. China has over 30,000 large food processing companies that process everything from meat to cheese and from raisins to nuts. China exported over 500 million tonnes of dry milk powder in 2011 alone. The Chinese industry is projected to reach $2 trillion (from $1.2 trillion) by 2018.
In India, Future Group’s Tumkur project is one of the 15 projects to take off from the posse of 30 mega food park schemes floated by the ministry of food processing. These projects are entitled to a government grant of Rs 50 crore and have been floated as a special purpose vehicles, with government representation on the board till they are commissioned.
Projects that have been commissioned include the 147-acre Srini
Food Park in Chittoor, Andhra Pradesh, with an investment of Rs
200 crore by five promoters; the 80-acre Patanjali Food Park in
Haridwar, Uttarakhand, with Rs 100 crore invested so far; and
the 70-acre International Mega Food Park in Chandigarh, with Rs
150 crore from International Farm Fresh. A couple of these projects
are for pulping fruit and processing vegetables for export and
are betting on revenue from leasing land. The Patanjali Group
is also promoting ayurvedic products of Baba Ramdev.
“Reliance, Spencer’s and Aditya Birla (Group) have connections
with farmers, and a huge private label play. But no one has done
food processing on their own,” says Pinakiranjan Mishra,
national leader of consumer markets, Ernst & Young. He adds
that low margins in manufacturing will be offset by retail sales.
Reliance Retail’s grocery business is close on Future Group’s
heels. It achieved Rs 4,000 crore in food and groceries in under
six years of operations from 600-odd stores. The company’s
total retail business generated revenues of Rs 7,600 crore. Sources
say that the company sources at least 30 per cent of its fruits
and vegetables from farmers. That the company is serious about
its retail business is evident from the fact that the group has
infused Rs 12,000 crore in the retail business and will spend
another Rs 13,000 crore over six years.
Similarly, Bharti Retail’s Easyday format has over 200 stores, and is working with 2,000 suppliers to increase its private label content from 25 per cent to 40 per cent by 2015. Its partner Walmart works with 20,000 suppliers in China alone and sources 95 per cent of the products locally. The Bharti group has already committed Rs 9,000 crore for the retail business.
But the competition does not deter Biyani because he already has the retail scale, and the food processing business will focus on value-added products, which will be largely exported; only about 30 per cent will be for domestic use.
“The world is looking to India for food processing with the Chinese food industry under scrutiny for not maintaining quality. Imagine the scale we can build on,” says Dwivedi. And scale is the question that Dwivedi has to find an answer to. He cites the example of an industrial pizza machine that can make 20,000 pizzas an hour, saying there has to be commensurate local consumption, which is unlikely to happen. “Can we use the same machine to make chapattis, parathas, rotis and other baked items, besides pizzas? This will allow us to utilise the machine to the fullest instead of letting it sit idle,” he says. Scale is essential because the food park will eventually have a major portion of its business contributing to exports. “Eventually scale will be possible only through exports,” says Dwivedi.
Getting Retail Into Play
Even though he will rely heavily on exports, Biyani has his entire retail chain of more than 600 supermarket and hypermarket stores backing him in rural, semi-urban and urban regions of the country to utilise the production from the food park. He has 315 Big Bazaar and Food Bazaar stores in major cities; 200 KB’s Fairprice shops; 38 Big Apple Express stores; and 37 Aadhaar stores. “There is a larger opportunity in retailing with KB’s Fairprice shops,” says Biyani.
He adds that he wants to empower the kirana as a franchisee and is identifying 10,000 franchisees to open KB’s Fairprice shops over this decade. Till now KB’s Fairprice shops were limited only to Delhi, Mumbai and Bangalore. “We are also going to acquire or take over many more small retail stores in a couple of years,” says Biyani.
A few years ago, Nilgiris, a retail chain owned by UK-based PE fund Actis in Bangalore, mooted the idea of experimenting with the concept of empowering small entrepreneurs to use its brand name. The project did take off with at least 50 successful small entrepreneurs who understood modern retailing. But it is intrinsically difficult to find local entrepreneurs who can work with corporate processes across every city. Nilgiris’ small entrepreneurs were usually retired executives or businessmen who wanted to experiment with retailing. But it was Nilgiris that provided the backward linkages and supplies. If such a plan is executed by Biyani, he would have the largest network of stores that he can supply to from the food park.
And this is something that other food parks do not have access to. Along with subsidiary companies like Future Supply Chain and Future Logistics, he hopes to complete the farm-to-fork loop. “India is a fascinating country to do business in. And with such a young population, it is only the beginning of what we as a group can achieve,” says Biyani.
Between The Cup And The Lip
Despite enormous planning, Biyani still has a few issues to grapple with. More than integrating farmers into the food park, it would be a challenge to convince large FMCG players such as PepsiCo, Dabur, HUL and Britannia to set up shop in the park.
“There needs to be commonality in a food park, much like in an automobile cluster, which has a large anchor, if the project has to succeed,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy. He adds that there is a business case if the Future Group can create an ecosystem in the food park where each entity works towards a common benefit.
About seven years ago, various state governments had asked individual entrepreneurs to set up food parks with a subsidy of Rs 4 crore. Many local businesses bought the land, but failed to open food parks. In Karnataka, small mango pulping units (30 tonnes-a-day capacity) started but remained operational only for about six months of the year. Similarly, textile parks became a real estate play. In many cases, the units set up functioned in silos rather than with a unified vision.
“These businesses were set up without market linkages, so they didn’t take off,” says Biyani. He says that Capital Foods, in which he has a 43 per cent stake, will be one of the larger private food processing companies in the park, and will act as anchor with a 100,000 sq. ft factory.
“Since the Future Group is back to pure-play retailing, it can focus on new businesses such as food processing that can supply food products to its retail formats and also create new markets with exports,” says Harminder Sahni, managing director of Wazir Advisors, a retail consultancy.
Perhaps, this is the beginning of the emancipation of Biyani the entrepreneur. Always a risk-taker, he is now ready to take bigger risks in a journey that will determine whether he is as successful in FMCG as he has been in retail.
admin
January 10, 2013
Nupur
Anand, DNA (Daily News & Analysis)
Mumbai,
January 10, 2013
It’s
not even mid-January yet, but a "flat 50% off" sale
is already on at an apparel brand outlet at Mumbai’s poshest mall.
This unseemly break with tradition – the two-week-long ‘sale’ season used to start in the third week of January, offer nominal discounts initially but jack them up later towards half price is not a case in isolation.
Sale, that four-letter word with the power to smoke out even
the tight-fisted shopper from self-imposed shopping exile, is
now plastered across all kinds of retail outlets at malls.
What’s more, several brands are already offering ‘flat 40-50% off’ in the first week of their sale. And no one knows how long this year’s sale season would last.
Abhishek Ranganathan, analyst at Phillip Capital, says the trend of advanced sale started last year due to infrequent ringing of cash registers. “This was expected to correct from this season. But that was not to be. As a few brands launched their ‘sales’ early again this year, others had to follow suit. For, if you don’t, then you’ll end up losing business to the store next door.”
Retail industry observers say premium fashion brands started the season with deep discounts. Agrees the manager of the apparel outlet at Phoenix. “We’ve realised that we do better business in the sale month of January than we do in July-December. So, in order to attract customers, we’ve started with a flat 50% off.”
There’s more to it, says Devangshu Dutta, CEO of Third Eyesight, a retail industry research firm. “New stock typically starts coming in from mid-February. Since slow economic growth has affected sales for the entire year, companies had to start with deep discounts in order to free up cash.”
Early starts, prolonged duration, deep discounts from the word go… such aspects of 2012 sale had caused concern to the retail industry. And it’s no different this year.
Experts say discounts help inboosting volumes but eat into margins. Worse, a relatively longer sale season was also driving away customers who are not essentially bargain-hunters.
As a result, retailers had started correcting their strategy. Analysts point out that in the past six months, attempts have been made to check inventory and forecast demand. “We’ve been trying to shift to a quicker inventory churn so that we could curtail the sale season, but it may take a quarter more,” says the CEO of a multi-brand outlet.
Retailers say that the extent of footfalls in the first two weeks of the sale season will decide how long the discount period may be extended.
If sales fail to pick up in spite of discounted sales, the sale period may well stretch to a month like it happened last year, say experts.
admin
January 6, 2013
R Krishna,DNA (Daily News & Analysis)
Mumbai, January 6, 2013
Unity
in diversity is one of those maxims that makes no sense in India,
except in the rarest of contexts. Chai, a colonial import, is
one such factor that Indians can identify with regardless of class
and religion. That’s why it’s surprising that there
are few places that serve good tea outside of our homes. Tea from
vending machines tastes artificial. At hotels, the decoction is
rarely fresh. And though tapris do serve good tea, they are over
boiled and sickly sweet.
“If I ask you to recommend one place in Mumbai that offers
great tea, you won’t be able to come up with a clear answer,”
says Amuleek Singh Bijral, founder of the Bangalore-based tea
chain, Chai Point. According to him there is a demand for good
chai that is not being met. “In terms of sheer volumes, tea
is consumed far more than coffee in India,” says Bijral,
“It is just that nobody has given it the kind of branding
that coffee enjoys. There is an opportunity for organised players
to come in to address this need.”
A challenge Starbucks faced
However, tea chains like Chai Point, which have come up in the last five years or so, face an uphill battle. Tea’s popularity in Indian homes, in fact, acts against its image. Coffee is considered a lifestyle statement, while tea is ordinary. It’s easy to convince a consumer to spend upward of Rs 80 for a cup of coffee. However, even Rs 30-40 for a cup of tea is considered expensive. Bijral is aware of the problem. “Starbucks had a similar challenge almost 30 years ago when they opened their chain in the US. Coffee was a drink every American prepared in his home. But they created a brand that convinced Americans to spend money on a cup of coffee,” says Bijral. Over the years Starbucks and other coffee chains developed a model such that the coffee chains’ popularity has less to do with the beverage itself, and more to do with the whole experience. Tea chains, on the other hand, are blazing a new path.
Chai Point, for instance, targets the white-collar worker. “Nobody in office takes a cappuccino break. We take a chai break. Office-goers are not looking for a lounge,” says Bijral, “Our outlets are in areas with lots of offices around. We want our customers to come to our outlets several times in a day to have a freshly brewed cup of tea at a hygienic place.”
Delhi-based Tea Halt has put up kiosks in colleges, marketplaces and in office areas. “We first wanted to introduce customers to various kinds of teas before putting up cafes which add to the cost,” says Ankur Agrawal, co-founder, Tisane which runs Tea Halt, “The range of teas we offer depend on the area in which we have put the kiosks in. For instance, near colleges our tea starts at Rs10. Near offices, we offer teas that are more expensive.”
Variety holds the key
While both Chai Point and Tea Halt stress on convenience, Golden Tips, the Kolkata-based tea company has taken a different approach with their own tea lounge, Tea Cosy. “We want to make tea glamorous by offering large variety of teas, as well as sell equipment such as infusers and teapots, stuff that people haven’t tried before,” says Bala Sarda, vice president, business development, Golden Tips.
Sarda says that customers can sample white tea, oolongs, and other varieties of tea at Tea Cosy, and buy the leaves of the ones they like. The leaves can be a blend from different tea estates or sourced from a single estate from different regions in India and the world. “Consumers can get a simple cup of tea at home. What we want to do is to introduce them to the world of tea. The sheer variety of teas on offer and the growing awareness about tea’s health benefits is attracting younger consumers (18-30 age bracket) to our outlets,” she says.
Still, tea chains attract a miniscule crowd compared to coffee chains. But if global trends are anything to go by, things can only get better. Earlier this year Starbucks paid $650 mn to take over the tea company, Teavana. Just two weeks ago Starbucks CEO Howard Schultz announced that apart from introducing Teavana products at their own outlets, the company would open standalone Teavana stores to “do for tea what it [Starbucks] did for coffee”.
It is some such move that will make tea chains contemporary, says Devangshu Dutta, chief executive of consultancy firm Third Eyesight, “It would have been easier for tea chains 20 years ago when coffee was not present in the urban market. Things could change in the future. But if past experience is anything to go by, it will not be an Indian company that will cause the turnaround. Tea chains will need an approval stamp from the West.”
admin
December 31, 2012
Meghna
Maiti, Financial Chronicle
Mumbai,
December 31, 2012
In
the year gone by, high inflation left consumers with lower disposable
incomes. Analysts said in 2012, consumers were worried about their
jobs, volatility in the stock market and soaring real estate prices.
More importantly, the grim outlook on fresh hiring, muted forecasts on wage hikes and lack of any spectacular bonuses created a sentiment of caution. Consumers are now awaiting the finalisation of budgets in the New Year to decide whether they should live it up or save for the rainy day.
While recent reports on the economy have been mixed, several indicators suggest the turnaround in the economy is yet to come. A recent research report by Crisil said as the current industrial slowdown is both well entrenched and broadbased, it will take a while for industrial growth to recover.
Retail giant Reliance Retail hopes the spurt in reforms in the last quarter along with the renewed resolve of the government to drive growth and the possible change in the bleak European macroeconomic climate will steer the Indian economy. “While not much is expected in this first quarter of 2013, hopefully after the Union budget 2013, we should see a spurt in economic growth and an improvement in domestic consumption. Consumers will come back to the stores and footfalls will increase,” said Bijou Kurien, president and chief executive for lifestyle at Reliance Retail.
Kurien said 2012 belied the expectations that retailers and FMCG companies had. “Obviously, the global economic headwinds coupled with lack of any domestic stimulus, failed to catalyse consumption. Growth was lacklustre and profit performance of companies was muted. The impact was bigger in discretionary spend categories, while categories driven by basic needs such as food appeared unaffected,” he added.
P Ganesh, executive vice-president (finance & commercial) and company secretary of Godrej Consumer Products (GCPL), said: “We have not seen any downturn in 2012. In the New Year, nothing will radically change in terms of consumer behaviour. Having said that, we can still expect renewed optimism and confidence in the market with the government turning focus on reforms,” said Ganesh.
Over the next year, the success and failure for consumer goods and retail companies will be determined by the speed and thoroughness with which they are able to adapt to changes at all levels, said industry experts. Given the dynamic developments, global as well as local, affecting sentiments, this will separate successful firms from also-rans. Consumer companies will have to constantly innovate, optimise supply chains, and drive brand value and sales through greater engagement with the consumer, added industry experts.
Chaitanya Deshpande, executive vice-president & head of investor relations and M&A at Marico, said on an overall basis, 2012 was a good year for the FMCG sector. “Although there has been a slowdown in the GDP growth, yet there was no significant impact on items of daily consumption. We have continued our investment on brand building and expanding our distribution reach. Having said that, a deceleration in growth was seen for items of discretionary spends and packaged foods,” said Deshpande.
While lower order flow through the CSD channel affected most companies, a sustained lower macroeconomic growth could ultimately have an adverse impact on the items of daily consumption as well, he added.
Devangshu Dutta, chief executive of Third Eyesight, a consulting firm based in New Delhi, said the previous year was challenging both on cost and demand side. “While cost inflation has happened for most players, real estate prices also went up. There was loss of confidence on the part of consumers. Now the challenge is for firms to survive in the short term to remain a player for the long term,” added Dutta. However, he said retail and FMCG players are more aggressive than ever and young consumers are entering the market.
Amitabh Mall, partner and director at Boston Consulting Group, said the growth rate has definitely come down for most consumer goods companies. “While consumer sentiment is clearly down compared with the previous years, it is not really a concern for retailers. Flat sales indicate things have stopped getting worse,” added Mall.
T D Mohan, joint managing director of CavinKare, said demand has slowed down and the volatile dollar and rupee are affecting production costs. There are concerns over rural consumption. “On the macroeconomic front, interest rates and higher financial costs are matters of concern. FMCG companies will not be able to maintain the 15-18 per cent growth rate they were seeing earlier. When the raw material costs go up it has to be passed on to the consumer at some point. For manufacturers, it will further reduce demand and volume growth. Price hike will also contribute to higher inflation. The government has to work on its monetary policy to bring back demand, create investment climate and fuel employment opportunities,” added Mohan.
(With inputs from Sangeetha G)
admin
December 25, 2012
Sagar
Malviya, The Economic Times
Mumbai,
December 25, 2012
Teenager
Aniruddha Aggarwal keeps nearly a dozen pairs of jeans stacked
up in his cupboard. The brands range from international labels
such as Wrangler and Lee to local ones like Killer and Flying
Machine.
But one brand that is barely visible in Aniruddha’s closest is Levi Strauss. Reason? Aniruddha’s father swears by the denim brand that sports the leather tag with the iconic two-horse design – virtually every denim in his wardrobe has the Levi’s stamp on it. "Levi’s is a good brand, but it’s what my father and his generation wears. I like to wear jeans that are fashionable and trendy rather than going purely by brand value of the past," says Aniruddha, who owns just one pair of Levi’s jeans.
The divergence in the father-son’s sartorial preferences succinctly portrays the 160-year-old denim maker’s predicament in India. After dominating the organised denim market – estimated to be worth about Rs 2,200 crore – over the past decade, courtesy its historical leadership status worldwide, competition from other global brands as well as a rash of local labels have resulted in its disconnect with the youth.
After being in India for 18 years, Levi’s is the country’s largest denim brand with revenues of Rs 741 crore in fiscal year 2012, as per recent filings with the Registrar of Companies. Sales grew 23% in the last fiscal year through its network of over 400 stores, adding over Rs 250 crore to its top line since 2010.
That’s the good news. The not-so-good part is that the Indian operation is losing money, with accumulated losses of some Rs 127 crore.
What is more, rival jeans brands seem to be on a faster growth track. US Polo, which opened its first store just last year with India partner Arvind Brands, has already reached the Rs 200-crore sales mark. "We will cross Rs 250 crore by end of this fiscal year, making US Polo the fastest-growing retail brand in the country," claims J Suresh, managing director & CEO, Arvind Lifestyle Brands, which has over 100 US Polo stores and plans to add 40 shops each year. A year ago, Arvind sold off its entire stake in the joint venture that sells Lee and Wrangler apparel brands to partner VF Mauritius.
Then there’s Italian fashion brand Benetton, which almost two years ago changed its India strategy and became a pure-play wholesale trading entity; franchisee owners have taken the store count to over 600 now. The gambit has worked nicely: Benetton, which entered the country around the time Levi’s did, has doubled sales from two years ago by adding Rs 300 crore since then. "Like a true Italian fashion brand, Benetton always appealed to the younger lot by having hip and trendy styles. This, along with faster store expansion, added to the revenues," said a senior official at Benetton India who didn’t wish to be quoted.
More agile competitors are just one half of the problem. Levi’s has also suffered because of shift in strategy at the San Francisco headquarters – from chasing market share till a few years ago, Levi’s has now chosen to boost profit margins across global markets.
In India, this meant cutting brands such as Dockers, Sykes, Signature and, two months ago, mass brand Denizen, which had been adding substantially to the company’s top line. "Levi’s globally is acting more like an FMCG company than a fashion or retail firm. Even their top management comprises veterans from the consumer goods space with very little experience in retail," said a senior official of a rival firm who did not wish to be quoted.
He is referring to Levi’s global president & CEO Chip Bergh, who spent over 28 years with Procter & Gamble, as well as its India head Sanjay Purohit, who spent more than a decade with Cadbury. "That’s why you see the company shedding non-profitable brands, a move which generally an FMCG company would make," he added.
The rationalisation, however, has done little to contribute to the Indian operation’s profitability. The Indian company attributes the piled-up loss partly to a higher royalty payment to its parent company. "India is a very important market for Levi Strauss & Co and we believe in the long-term potential of the Indian market," said a Levi Strauss spokesperson for Asia-Pacific. "We are focused on growing the Levi’s brand in India by driving innovation, service and the brand experience. We are working to elevate the consumer’s experience through a globally designed line of clothing that has the right amount of localisation for the Indian consumer."
The problem, though, is Levi’s may not be the only denim marketer doing all this. "What has changed in the last two years is that many international brands have entered or become aggressive in the market. While Levi’s has been maintaining a price differential compared to its local rivals till now, global brands have come with a similar positioning," Devangshu Dutta, chief executive of retail consultancy Third Eyesight, said. "There is also a novelty factor for the newer brands."
Levi’s plays on premium positioning and sells at an average price of Rs 2,200 a pair. That may help boost its margins, but doesn’t help in the market place when rivals US Polo and Benetton have priced their wares Rs 300-500 cheaper, making them more accessible to the youth. At the premium end, labels from Calvin Klein and Tommy Hilfiger have been able to establish a sense of fashion excitement in the past two years, justifying their higher average price tag of Rs 4,000.
Meantime, local brands such as Flying Machine from Arvind Brands and Kewal Kiran’s Killer jeans could benefit from Denizen going off the shelves. "The biggest challenge for any jeans maker in the country is at what price to sell. We have been primarily focusing on smaller towns, which has helped us get volume and economies of scale," said Kewalchand Jain, chairman, Kewal Kiran Clothing.
