admin
December 1, 2011
The
Times of India
Bangalore,
December 1, 2011
Traders in Karnataka are livid at the Centres move to allow 51%
FDI in multi-brand retail. The state is home to lakhs of processing
units which, traders fear, might take a hit. The FDI in retail
creates predatory pricing, says Bharath Shah, vice president,
southern chapter, Confederation of All India Trades (CAIT), New
Delhi.
Karnataka, for instance,has over 25 lakh processing units involved
in dehusking and processing dal. Big retailers are capable of
sourcing close to 30,000 bags of these on a daily basis, whereas
a kirana owner can manage only 200. This creates monopolistic
pricing in the market, he added. In the FDI policy, the government
has mandated 50% investment by foreign partners in the back-end
subject to a minimum investment of $100 million.
Retail experts played down the fears of kiranas losing out to
big retail. The opening up of the retail sector will benefit ancillary
development.Supply chain and transportation is ancillary to retail
that will reduce wastage from farm to fork, said Anil Talreja,
partner at consultancy firm Deloitte.
Trade associations feel the government advocating FDI in multi-brand retail to bring down inflation is quite contrary to its stance. The government itself, through the finance minister informed the Parliament that high inflation is due to high global food prices. If thats the position,how will FDI bring down inflation, said JR Bangera, president, FKCCI.
A section of the industry feels government needs a calibrated
approach for introducing FDI in the retail sector. Devangshu Dutta,
chief executive at retail consultancy Third Eyesight, says states
retain the power to allow or disallow foreign-owned retail businesses
from operating within their boundaries,and local and regional
political parties would certainly have an impact on retailers
expansion strategies.
Dutta draw a parallel with China where it took 12 years to
liberalise its FDI regime. It first allowed FDI in retail in 1992
at 26%,took another 10 years to raise the limit to 49%,and allowed
full foreign ownership in 2004,but only in certain cities. It
even revoked some previously granted approvals to reduce foreign
retailers footprint, he added.
Despite all the anomalies,Dutta feels the retail sector is
capital intensive and large Indian retailers can use foreign equity
and cheaper foreign debt to reduce high-interest domestic debt,and
infuse more funds into growing the store footprint.
Consumers,too,say they might see a shift if the retail FDI is allowed. Fisheries businessman from Indiranagar, S Guha, makes his weekly trip to Nilgiris store on Brigade Road to buy his weekly stock of staples and greens. Old habits die hard. I’m loyal to Nilgiris, he says, an interesting observation given the FDI hullabaloo. We will see a shift in shopping patterns that may lead to over-consumption, he said. Deep-discounting products will not only stimulate demand,but will keep customers away from kiranas and neighbourhood shops,he said.
(Read: "Debate on FDI in Retail — More Heat than Light")
admin
November 30, 2011
Shuchi
Bansal, Abhilasha Ojha & Gouri Shah
MINT,
New Delhi/Mumbai, November 30, 2011
Indians who can afford the good things in life may soon be able
to browse for exclusive labels without having to leave the country
following recent changes in investment rules.
The controversy that’s been touched off by retail reforms
has been focused on the key decision to allow 51% overseas investment
in multi-brand retailing. The move to increase the 51% limit on
foreign direct investment (FDI) in single-brand retail to 100%
hasn’t attracted as much attention, but could see a change
in existing relationships plus lead to a transformation of the
Indian high street, such as it exists in upscale malls and shopping
districts.
Other labels that aren’t visible in India but may be persuaded
by the rule change are UK-based Arcadia Group Ltd’s brands
such as Topshop, Dorothy Perkins, Miss Selfridge and Burton, besides
labels from GAP Inc. that include Banana Republic, GAP, Piperlime,
Athleta and Old Navy.
Experts say that most luxury brands would want 100% ownership
. That’s because the earlier 51% rule, which dates to 2006,
didn’t enthuse those who prefer to go solo in order to preserve
brand integrity.
There are many labels wanting to enter the market with their
own operations, said Ankur Bhatia, executive director, Bird Group
Pvt. Ltd, a Delhi-based company with interests in aviation services,
retail, travel and technology.
“Many premium brands have global mandates that they don’t
want to work through a franchise agreement and be in the country,”
he said. Brands such as GAP and Prada, have been waiting for this,
wanting to see if the environment is right for them, he said.
Prada’s international office in Milan refused to comment
on the story. GAP and Arcadia Group did not respond to queries.
Swedish fashion retailer Hennes and Mauritz said that while India
was an interesting market, it was too early to comment on stores
in the country.
“There are no concrete plans for if, and in that case when,
we would open stores there,” said a company spokesperson.
The rule change could lead to existing partnerships, which were
mandated by the old rule, breaking up as foreign brands seek to
control operations and strategize in accordance with global directives.
International brands such as Louis Vuitton, Christian Dior, Bottega Veneta, Canali, and Jimmy Choo are among those that have entered India through local subsidiaries, joint ventures and franchisees. Some brands may have already begun the groundwork to understand the market better. Ashok Goel, luxury brand consultant to many high-end watch companies and distributor for the likes of Hublot, Breitling and Gucci in India, has been asked to prepare a plan for independent stores. The upscale watch brand also wants Goel’s company to manage the stores.
“Basically, I have told them to wait till there is more
clarity on the FDI policy,” Goel said.
The government is currently in the middle of defending its decision
against the political storm that has been set off by the reform
move. Although the FDI policy is designed for the “mass market”
and not “luxury brands”, given that multi-brand retail
essentially relates to supermarkets, Goel said it has opened a
forum of sorts for the sector. The most recent ventures include
one between fashion designer Suneet Varma’s company Unique
Eye Luxury Apparel Pvt. Ltd and Giorgio Armani to bring Armani
Junior to India next year. The franchisee will open three stores,
the first of them early next year at DLF Emporio.
Luxury brands prefer to control every aspect of their operations
and style of functioning, said Kalyani Saha Chawla, vice-president,
marketing and communications, Christian Dior Couture, the French
company owned by Christian Dior SA.
“The sector—being niche— requires tremendous discipline,
so its brand philosophy can be replicated across countries, wherever
the brand is present,” said Chawla.
Christian Dior Couture entered India in 2006 through Christian
Dior Trading India Pvt. Ltd. Goel agreed that most luxury brands
would want 100% ownership.
“In single-brand retail, the brand is supreme. They want
to put the right face forward,” he said. “Whether brands
will come on their own or with a partner will depend on how hungry
the brand is. If it is very hungry, it will be 100% independent.
If it is testing waters, it may partner somebody.”
Overseas labels want to control operations because they’re
more about brands than stores, said Pinakiranjan Mishra, partner
and national leader, retail and consumer products, Ernst &
Young India Pvt. Ltd.
“The decision of the single-brand retailers who are already
in India to be in the country on their own minus their partners
will depend on the kind of agreements they have with their Indian
partners—whether they have the flexibility to exit the partnership,”
Mishra said.
Those in the trade feel the real action will be in the already
existing brands, and that some brands could pay their partners
to exit, he said.
Markets such as India pose a challenge in terms of luxury segment
experience.
“It is mostly a struggle to align views in terms of (brand)
experience and training,” said Radha Chadha, a marketing
and consumer insights expert who runs Chadha Strategy Consulting,
also co-author of The Cult Of The Luxury Brand: Inside Asia’s
Love Affair With Luxury. When it comes to big luxury brands with
deep pockets and vision, they would want control and ownership
of their India operations, she said. Smaller boutique brands will
be happy to go with local partners, she said.
While reputed international luxury brands will get more serious about investments in the country, local partnerships can add value, said Tikka Shatrujit Singh, adviser, Louis Vuitton, India, a division of French holding company, Louis Vuitton Moet Hennessy.
“India is a unique market,” he said. “A cut-and-paste
business model cannot be replicated here.”
In India, Louis Vuitton operates through a joint venture, said
Damien Vernet, general manager, Middle East and India, Louis Vuitton.
“Everywhere we are present, we are always keen on maintaining
a full control over our operations, thereby ensuring to our clients
the benefits of an integrated structure, which include consistently
high level of service and the guarantee of authenticity,”
he said.
Local partners will be welcomed provided they add value, whether
in terms of their existing footprint, knowledge of the consumer
or supply chain management, said Devangshu Dutta, chief executive,
Third Eyesight, a specialist management consulting firm focused
on retail.
Such partnerships cut down the learning curve and hasten the
process. This also depends on the company’s operational philosophy
and structure.
For instance, “Ikea has always maintained that it sees
very limited value in bringing on a local partner,” said
Dutta.
Ikea president and chief executive officer Mikael Ohlsson was
in the country recently to study the retail investment changes.
“The Ikea Group has decided to take some more time to plan
the next action in regard to its entry strategy into India. We
look forward to present more information about our expansion plans
shortly,” said an Ikea spokesperson.
The single-brand retailing decision is unlikely to lead to an
immediate flood of international premium brands into the country,
said Arvind Singhal, founder, Technopak Advisors Pvt. Ltd.
“Some of the brands will be careful as they are currently
facing problems in their own markets in the US and the UK. Yet
others may want the dust to settle as the situation is politically
volatile,” he said.
Dutta of Third Eyesight said those present in India may take
“more control of their operations and buy out local partners
or strengthen their presence here.”
admin
November 28, 2011
Eric
Johnson
American
Shipper, November 28, 2011
The Indian government last week opened its doors to multinational
retailers through a relaxing of foreign direct investment regulations.
The government has proposed allowing single-brand retailers (such
as the furniture giant IKEA) to wholly own stores in India, while
multi-brand retailers (like Wal-Mart and Carrefour) can own a
51 percent stake. Previously foreign single-brand retailers could
only own a 51 percent stake in a joint venture with a domestic
company, and multi-brand retailers could not hold any stake in
front-end retail operations.
The moves, which have yet to be formalized, could greatly impact
the supply chain landscape in this country of nearly 1.2 billion
people. It could also rearrange the retail pecking order in India’s
urban centers, with the country overwhelmingly relying on local
“mom-and-pop” shops for its retails needs since gaining
independence in 1948.
Bear in mind, the proposed new FDI rules would be subject to
state approval, meaning individual states could limit, or even
block, the entrance of foreign wholly- or majority-owned retail
outlets. Indeed, one particularly hardline state politician has
already threatened to burn down any foreign hypermarket that opens
in the country.
The new FDI rules have the potential to bring more efficiency
to the nation’s retail supply chains, through development
of better transport infrastructure, and foreign best practices
in logistics. But the looming threat of major global retailers
entering India’s largely insular retail market has prompted
cries of protectionism.
The argument goes that large-format outlets would quickly put
small corner shops out of business by beating them on price, thanks
to economies of scale and negotiating leverage that the private
shops can’t match.
It’s been speculated that the big winners, if the rules are indeed adopted, would be the nascent group of domestic organized retailers. They would see the country’s supply chain landscape made more efficient, and they would be in a great position to partner, consult, or sell to foreign retailers looking for local knowledge.
Devangshu Dutta, chief executive of Third Eyesight, a retail
consulting firm based in the New Delhi area, wrote Saturday in
the Financial Express that he doesn’t see the local mom-and-pop
shop culture disappearing anytime soon. He also said it’s
naïve to think that Wal-Mart and the like will blast their
way across the Indian landscape without any hurdles.
He said there will likely be intense blowback from local government,
and noted that China’s acceptance of foreign retailers has
been gradual and not without its own setbacks.
“If efficiency is simply a matter of scale, and if building
up scale is simply a function of having deeper pockets from which
to invest, it is obvious that the largest global retailers will
squeeze their smaller Indian counterparts out of business, one
way or the other,” he wrote. “However, retail is not
a global business or even a ‘national’ business: it
is an intensely local business. Sheer financial muscle can be
used to bulldoze competitors, but the consumer chooses to shop
at a particular retailer for several reasons, many of which are
not influenced by the size of the retailer’s balance sheet.
So, local retailers have more than a fighting chance. Walmart,
Carrefour and Tesco are the only three foreign retailers in China’s
top 10, although two of them have been there for more than 15
years.”
Dutta said the group most likely to hurt by the development
of the foreign retail sector is India’s huge wholesale sector.
“The losers will include simple intermediaries and low-value
wholesalers who have a diminishing role in a better-connected
economy,” he wrote. “Large suppliers, including multinationals,
will gradually find power slipping from their hands.”
He also said not to expect an immediate improvement in Indian
supply chain, adding that the new FDI rules were no “panacea.”
“Where India as a whole can potentially derive the biggest
benefit from foreign retailers is in developing agricultural practices
and supply chains that comply with global requirements,”
he wrote. “If channelled well, this can create tremendous
export possibilities (‘agricultural produce outsourcing’),
and help to propel rural incomes upwards, creating a wider economic
impact. However, I think the critical things that have been debated
most hotly will also be the slowest to be impacted: foreign retailers
contributing to bringing prices down, and on the other hand, potentially
damaging local competitors.”
Dutta also warned that the presence of foreign retailers won’t,
in and of itself, drive supply chain efficiency.
“The growth of modern retail is an outcome of the development
of the economy and a better supply chain, and a working population
that is seeking food in more convenient and safe forms; it doesn’t
necessarily drive supply chain improvements itself,” he wrote.
“Indeed, in India, during the last decade, modern retailers
have deployed money and management more on opening stores in a
drive to capture market share, than actually in supply chain improvements
and operational efficiencies. However, without investments in
the supply chain, neither can the quality of products be significantly
improved nor their cost significantly reduced.”
Finally, Dutta argued that the government can’t absolve
itself of future economic development responsibility and merely
let the private sector drive supply chain investment.
“We also cannot run 21st century supply chains on dirt
roads, with unpowered storage and a poorly educated workforce,”
he wrote. “The benefits of FDI in retail will remain largely
unrealized for the nation overall if there is no simultaneous
investment by the government in three key areas: transport infrastructure,
electricity and education. The Indian government must be a ‘co-investor’
and active partner in developing and maintaining these aspects
much more aggressively.
(Read: "Debate on FDI in Retail — More Heat than Light")
admin
November 25, 2011
Purvita
Chatterjee, The Hindu Businessline
Mumbai,
November 25, 2011
Mr Kishore Biyani, Chairman of the Future Group, is holidaying in Brussels right now. But he may well extend his trip from Belgium to the neighbouring country to renegotiate with French retailer Carrefour, after foreign direct investment in multi-brand retail was approved by the Government yesterday.
Looking forward to fresh infusion of funds into his debt-laden retail company (Pantaloon Retail and its fully-owned subsidiaries), India’s Sam Walton had been lobbying hard for FDI to come in and was elated when it was finally declared.
Speaking from Brussels on the night FDI was announced, Mr Biyani said, “It is a win- win-win situation for us. There will be better infrastructure especially at the farm side of the business, create new job opportunities and bring in capital. More retailers will create more choices for consumers. There will be $8 -10 billion of fresh investments coming into the country over the next 5 to 10 years.”
In fact, capital infusion is the need of the hour for Mr Biyani as he is saddled with debt of nearly Rs 4,000 crore, and has been seeking partners for most of the formats the group has such as Big Bazaar, Ezone, KB’s Fair Price and Home Town. Recently, Biyani negotiated with Japan’s convenience store chain Lawson to pick up a 49 per cent for food sourcing and manufacturing. But Future Group officials say debt in its Rs 11,500 crore retail business is not at an uncomfortable level. They claim that the debt amount of Rs 4,000 crore on a huge turnover of Rs 11,500 crore is negligible and that cash flows can lead to normal debt equity ratios.
Meanwhile, industry observers are of the opinion that FDI in retail can certainly take care of the debt issues for most retailers. According to Mr Devangshu Dutta of Third Eyesight, a retail consultancy, “With FDI, the cost of capital will be lower and companies will be able to roll over their debt to the foreign partner who could have access to cheaper funds. With FDI Indian retailers will be in position to have better balance sheets.”
Biyani’s hopes of partnering with French retailer Carrefour may finally come true. After all the other top international retailers like Tesco (with Tatas) and Wal-Mart (with Bharti) have already found their partners in India. Officials at Future Group said, “Mr Biyani was keen to forge a similar arrangement to Wal-Mart Bharti but now with FDI in retail, he might take it forward.”
But whether Carrefour would choose Mr Biyani’s debt-laden company at this stage is an open question. As Mr Dutta observes, “While foreign retailers may get the benefit of a footprint in the country with big retailers like the Future Group, they may like to have a passive partner who is not that big in retail but has access to real estate and funds.”
admin
November 18, 2011
Purvita
Chatterjee, The Hindu Businessline
Mumbai,
November 18, 2011
It is the kirana stores and smaller traders that seem to be patronising Metro Cash & Carry’s wholesale stores rather than the big-format retailers. In spite of providing supply chain efficiencies, it is inadequate scale in the cash-and-carry operations which is making the latter stay away from the cash-and-carry wholesale formats such as Metro Cash & Carry.
According to Mr Rajeev Bakshi, Managing Director, Metro Cash & Carry, “Large, modern trade outlets continue to source directly from the manufacturers as it gives them better margins. We have mainly smaller traders, hotels and the general trade as our members. Outlets of Big Bazaar are not our members as they continue to stock less of fresh produce at their stores.”
The largest retailer in the country, the Future group, which owns the Big Bazaar outlets, is unlikely to register itself as a member of Metro Cash & Carry. “We will continue to have our own supply chain and will directly source from the manufacturers. The eight Metro Cash & Carry outlets cannot meet the demands of our 159 Big Bazaar stores across the country. It simply cannot match our scale as their operations are still small,” says Mr Rajan Malhotra, President – Retail Strategy, the Future Group.
Big, modern trade chains would rather stay away from cash-and-carry outlets. “Cash-and-carry is meant to service small businesses. Big retailers would always like to own their supply chains as it is core to their business. They would ideally like to continue with their independent sourcing and not bring in more distribution layers which would lower their margins,” says Mr Devanshu Dutta, Third Eyesight, a retail consultancy.
Metro Cash & Carry is doing its bit to help the farmers who are its members. The B2B company is also engaging in training programmes and has set up collection centres from them. With nearly 100 farmers as registered members, it claims to give them guaranteed prices and volumes unlike the mandis which have fluctuating rates. As Mr Bakshi said, “In our case farmers get the benefit guaranteed price and quantity which is informed in advance to them, which is not possible in the mandis. We have cashless transactions with farmers and deposit the money directly into their bank accounts which makes their recoveries much faster. They can also get credit from their banks based on such transactions. ”
After going slow in expanding its outlets, Metro Cash & Carry is now stepping up investments with nearly Rs 480 crore assigned to setting up new outlets in cities such as Ludhiana and Delhi. “We have planned to set up 8-10 stores in the next year with an investment of Rs 60 crore for each store. However, the investments are always higher in bigger cities such as Mumbai,” said Mr Bakshi. Recently it launched its second wholesale distribution in Mumbai with an investment of Rs 120 crore.
However, unlike the rest of the cash-and-carry players, Metro is not looking at finding a partner. It has also decided to stay away from the B2C business. In fact, even in markets such as China where FDI has been allowed in retail, Metro continues with its B2B cash-and-carry model. “Considering the volumes are different in the B2B and B2C businesses, we are getting our margins based on the greater volumes and there is a bigger opportunity in the B2B segment,” said Mr Bakshi.
