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August 7, 2011
Vrinda Oberai, Retailer
August 2011
A crucial point which needs to be addressed while referring to the influx of foreign players in India is the customisation of products as per the Indian customer’s preferences. While innovation forms to be a crucial part of today’s marketing strategy of brands, customising as per the market’s requirements is something which holds an important grip over a brand’s experience in a market. What better than taking the MNCs into picture which launch their products across the globe! Companies sure do have to take into account the diverse Indian market in order to take their brand(s) to the next level.
Devangshu Dutta, Chief Executive, Third Eyesight shares his insight on the same and points out that some products are obviously non-starters (for instance, skin tanning lotions may sell in Europe, but there is no significant domestic demand yet in India). Other than that, product customisation needs to cater to the specific needs and nuances of the market segment.
How’s it different from abroad?
Most large markets worldwide are extremely diverse. Dutta
explains by sharing that the US market of 300 million people is
built of multiple segments, many of which need to be addressed
with distinct strategies. Similarly, the 500 million citizens
of the European Union live very differently, offering unique lifestyles
with diverse cultures and languages. Even China has multiple languages
and cultures within its 1.4 billion people. So in that way India
is no different.
Sanjeev Kumar, Brand Manager- Surface Care, Reckitt Benckiser (India) Limited asserts, "Most of the sale happens over the counter with very limited consumer-product interaction unlike in developed markets where Modern Trade (Key Accounts) forms bulk of the business and has higher consumer-product interactions."
Indian audience: Tough to cater?
It all depends on category. Some new categories in FMCG like Hair Gels or Hair Colours won’t be that difficult to introduce. "While food is so local and taste buds are so different, thus, in many categories you need to cater to the Indian palate," points out Devendra Chawla, President (Food & FMCG), Future Group.
The Indian audience is tough to cater primarily because of the
diversity that we have in India, ie, so many languages, religions,
geographical preferences, etc. "This makes the job challenging
for a marketer as the groups are so diverse that we cannot use
a blanket approach pan-India. Besides product offering, communication
also warrants customisation to make inroads across geographies
within the country," comments Kumar.
For instance, before launching any global brand or product in India, extensive researches, both qualitative and quantitative, are carried out in order to understand consumer usage and attitudes. Also, on the basis of this learning, required changes are made in the offering so as to cater to the requirement of the Indian consumers.
Customise as per the Indian taste
In a country where food and tastes change every 200 km, localisation of assortment to suit communities and regions is going to be important. Indian market is highly fragmented with very high contribution coming from traditional trade outlets (mom & pop stores contribute over 90% of the overall business). "We have a large rural as well as urban consumer base, so, again, there are more variables to satisfy due to sheer stage of evolution we are in," says Chawla.
For any segment of a significant size, some customisation
is needed, whether of the core product, or its packaging or promotion,
or the way in which it is sold. "I don’t think that the Indian
market or Indian consumers are any more difficult or any more
demanding than consumers anywhere else in the world. However,
the challenge in India for large international FMCG companies
is achieving economies of scale. The price points here are typically
lower, and both supply chain infrastructure and the retail front
end are fragmented, which erodes margin even further. This makes
it initially more difficult and needs a more strategic commitment
to building the business in India," avers Dutta.
Kumar brings forth a simple logic by sharing that the requirement for customisation clearly stems from the fact that what consumers are expecting from the product, ie, on the functionality front and other aspects like look and feel, value, etc. It is on the basis of these inputs that changes are made in the product offerings so that the consumer expectations are met across parameters.
Indian market: Attracting MNCs
India offers a unique opportunity for the MNCs because of the huge consumer base across the strata (socio economic classification). "On one hand, India is seen as a market with huge consumer base at the bottom and at the same time, because of improvement in the per capita income, there are more than enough consumers at the top of the value chain. This presents a unique opportunity for the MNCs to enter India and launch products/services across the spectrum, ie, top end as well as true value for money offerings," asserts Kumar.
The prime attraction that India offers, despite its initial hurdles,
is that the market here is already significant in size, and also
growing very rapidly. "Any company that establishes a
presence in India today has several decades of growth ahead of
it. So, any sharpening of the product and marketing strategy to
meet India-specific needs can be expected to pay off handsomely,"
adds Dutta.
"At 10 per cent projected growth of economy for the next 10 years, it’s going to be on every consumption driven company’s radar, sooner than later, given that the growth is here," sums up Chawla.
In their endeavour to enlarge their market share , marketers are coming up with more personalised, tailor made products. The focus is to please the customers of all strata, to reach out to a larger customer base. Though this phenomenon is common across the globe, in India this is imperative as diversity is India’s core characteristic.
(This article appeared in the August 2011 issue of RETAILER.)
admin
August 1, 2011
Priyanka
Pani, Businessworld
August
1, 2011
Rising inflation and interest rates have not really impacted the consumer confidence when it comes to grooming and personal care. This can be clearly understood from the fact that the FMCG firms have posted good volume growth in the personal care category, boosting their revenues.
Hindustan Unilever, India’s a largest household product and consumer goods maker witnessed a 20 per cent growth in the skincare and personal care products including soaps and detergents.
Similary, home-grown firms such as ITC, Dabur and Godrej Consumers have witnessed strong revenue growth in the personal care segment at 17 per cent, 19.4 per cent and 19 per cent respectively.
So does this mean that the people are buying more or is the growth
just a result of the price hike that most of the firms took in
the last few quarters to maintain margins?
A few analysts and consultants that we spoke to have different
takes on the strong growth in the personal care category. While
some said the growth came on the back of price hikes, others said
that more product launches across sub-segments such as soaps,
shampoos, conditioners, skin care and shower gels, and penetration
into newer geographies drove the volumes.
"Most of the FMCG firms have further penetrated into new cities and have also acquired more customers in the cities in which they are already present. This has been through more product launches and introduction of new sub-categories also," said Devangshu Dutta, CEO and founder of retail and FMCG consulting firm Third Eyesight.
HUL, the maker of personal care products like Dove, Sunsilk, Lux, Closeup and the largest consumer products firm, caters to only 60 per cent of the entire Indian market and hence there lies a huge opportunity for the company to enter new markets. This is one strategy the company is focusing on seriously and has been able to grow consumption in the new geographies, basically the smaller towns and tier III citties.
"As we look ahead the FMCG market will continue to grow," Dutta said, referring to fast moving consumer goods. "However, input cost inflation will continue to remain high."
Another important factor that led to the growth in revenues was due to reduction in grammage and package, Dutta said adding that value growth is around 12-18 per cent for most of the companies based on this factor.
Commodity inflation continued to remain high and hence the companies were forced to pass on the burden to the consumers to some extent, without impacting the consumption story.
However, hike in pay-packages and compensation of the people in Asia’s third largest economy has also boosted consumption and is likely to only grow further.
However, the sector also witnessed some kind of downtrading with people in rural areas and with low income groups opting for smaller value for money packs, in the personal hygiene segment such as diapers and sanitary napkins, shampoos, hair oil and even tooth pastes, according to Indiabulls Securities’ Vice President, Anand Mour. "Most of the growth this quarter has come from a mix of volume growth and price hikes," he said.
Meanwhile, Dutta said that despite the government’s worries about inflation, consumer confidence levels have not been impacted so far. However, he says that further price hikes could lead to ‘second thoughts’ among consumers.
(This story was published in Businessworld dated 1 August 2011.)
admin
July 26, 2011
MINT,
July 26, 2011
Sapna
Agarwal
Mall developers entering an increasingly crowded market are calling in experts to help them design and run their new projects. One such expert estimates that professional managers will be involved in every four out of five new malls that will open for business in the coming months.
Currently, one out of five malls is run by professionals, according to Sanjay Dutt, chief executive officer of Jones Lang LaSalle Property Consultants (India) Pvt. Ltd, a real estate consultancy services firm.
Quite a few firms, including Beyond Squarefeet Advisory Pvt. Ltd, Pioneer Property Zone Services Pvt. Ltd, Star Shopping Centres Pvt. Ltd and Prop Care, a division of real estate developer Mantri Group, are offering such services.
Even multinationals, including Jones Lang LaSalle Property Consultants, Knight Frank India Pvt. Ltd and CB Richard Ellis, which offer property consultancy, development and management services, are setting up separate divisions to cater to the growing demand of managing malls.
Such companies commit to the developers assured revenue and occupancy. In a builder-operated mall, the space is usually pre-sold to investors and retailers and the mall owners are not involved in driving footfalls.
In the new business model, consultancy fees are typically linked to incentives based on key performance indicators such as occupancy levels and rentals, said Dutt. The change is a result of the mall developers’ realization that the way a mall is managed has a direct impact on revenue and rentals.
“Professional management has a critical role to play to ensure the success of a mall. The combination of tenants and contracts is critical,” said Richard Cuthbertson, research director, Oxford Institute of Retail Management, Said Business School, University of Oxford. He has been conducting research at the International Management Institute, Kolkata on the future of India’s retail business.
“Organized retail is expected to add approximately 10 million sq. ft of new retail space spread across 50 malls in the next two years. About 300 malls now make up the organized retail space in India, spread across 50 million sq. ft,” said Anshuman Magazine, chairman and managing director, CB Richard Ellis.
India’s largest retailer by market value, Kishore Biyani, is also dabbling in this space. His venture capital arm, Future Ventures India Ltd, has invested in Star Shopping Centres, a three-year-old company that manages malls.
Star Shopping Centres signs up a property for 18-24 years and takes the responsibility for the entire asset as a tenant, offering the developer a guaranteed rent. It is working on three projects spread across 2 million sq. ft, has got proposals for 10 million sq. ft of new business but may take up 3 million sq. ft, according to Pranay Sinha, its co-founder.
Running a successful mall is not just about the right location. It includes getting the right tenants, merchandise mix, understanding the competition and marketing. Also, over the lifetime of the mall, it requires managing the facility, monitoring sales, planning events to keep the buzz alive and collection of lease rentals and so on.
“On an average, a mall operator needs to interact with hundreds of people regularly to run a successful mall,” said Susil Dungarwal, founder, Beyond Squarefeet. The developer may not have the bandwidth or know-how to do this and this is where a firm like Beyond Squarefeet steps in.
The rapidly growing sector is also facing a talent crunch. “Hiring a consultancy firm ensures continuity in services,” said A.K. Beri, managing director, West Asia property and asset management, Jones Lang LaSalle.
Organized retail accounts for 8% of the overall retail trade in India.
With competition intensifying, new malls are often being launched in close proximity to existing ones. Since they offer better experience and service, old malls run the risk of losing business. “A mall has to constantly evolve and upgrade service offerings to ensure footfalls and conversions,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight.
“We have got a lot of enquires for providing such services and are now setting up a mall management division for end-to-end services,” said Rituraj Verma, national director, Knight Frank. His colleagues in Singapore are helping to set up the new wing.
To be sure, outsourcing mall management doesn’t work for everyone. For instance, Select City Walk has built up its inhouse capabilities after a failed experiment with an international mall operator. “We are learning as we proceed,” said Arjun Khanna, director, Select City Walk mall, promoted by Select Infrastructure Pvt. Ltd. The international consultant struggled to manage expectations. “There are very few people who can run it with passion the way we do,” said Khanna.
(This story was published in Mint, a partner of the Wall Street Journal.)
admin
July 15, 2011
Poornima Kavlekar, The Smart CEO
July 15, 2011
Who doesn’t love to strike a deal, especially if discounts could vary anywhere from 10 per cent to 90 per cent on lifestyle products and services? Exactly the reason why group buying (discount deals) businesses show strong potential for growth in India. But there are many variables that these businesses need to pay attention to in order to succeed in this space. A strong consumer-merchant equation, a clear understanding of each of these interested parties and the capability of bringing them together in the most profitable manner are the foremost parameters. This apart, one needs to be present everywhere, scale up quickly and differentiate itself from competition. Sounds simple? Then again, who said simple was easy?
When I walked into my gymnasium during my routine workout timing,
I was baffled to see a number of people waiting in a queue for
their turn to hit the cardio-machines. This was the first time,
in the 15 months of my membership in the gym that I had to wait
for my turn. I realised then that a good number of faces were
new which made me wonder if June was some auspicious month to
start an exercise regime! And interestingly, the profile of the
gym users was slightly different too – most of them were in the
age group of 18 to 25 years from what used to be 25 years and
above. As a regular gym goer, I was intrigued by this sudden change
in the profile of my co-exercisers.
Well, before I lead you on, this story is not about the business of fitness or gyms in the country. This story is about understanding how the gym managed a sudden spurt in its membership without any offline promotional activities. And my question was answered by the gym instructor who said that they had sold memberships for a day through a popular group buying website. That explains two things: one, the sudden rise in membership in the month of June, and two, the change in the profile of my co-exercisers (those who have grown up with the Internet). This story is to understand the group buying landscape in India, the changing dynamics of the consumer profile and what it takes to succeed in this space.
Understanding the ecosystem
While low Internet penetration and the lack of consumer comfort
with transacting on the Internet (both very critical for group
buying businesses) were two major hurdles for e-commerce growth
in the past, things have changed over the last two to three years.
Internet penetration has improved significantly, particularly
with mobile usage. "Though e-commerce in India is still in
a very nascent stage – save for the travel segment, I believe
that with the exponential growth of smart phones, 3G and 4G, India
is at the cusp of an e-commerce explosion," says John Kuruvilla,
founder-chief executive officer, Taggle, a group buying website.
While using credit cards online is still a challenge, e-commerce
players have so far circumvented this by coming up with different
payment options for the customer. But, Devangshu Dutta, chief-executive,
Third Eyesight, a consulting firm focussed on the retail and consumer
products sector, says, "We are approaching a tipping point,
with more widespread availability of credit cards among younger
users, who have grown up with the Internet during the last decade."
This makes spending on the Internet an option that’s waiting to
take off.
The gradual rise in investments by the venture capital industry
into the e-commerce space in the last three years is a reflection
of this change. According to Venture Intelligence, a company that
provides information and analysis on private equity, venture capital
and mergers and acquisitions in India, the investments in this
space have increased from US $33 million in 2009 to US $83 million
currently.
Group buying or the discount deals business, a model popular in the U.S., adds a whole new dimension to the e-commerce industry. Put it simply, the sector gives offline retailers the opportunity to drive traffic into their stores through the online medium. Some experts even use the term offline-online commerce to describe the sector. This space has also grabbed the attention of the venture capital industry. Battery Ventures and Greylock Partners invested US $8.75 million in Bengaluru-based Taggle in June 2010 and Nexus Ventures and Indo US Ventures invested around US $12 million in January 2011 in New Delhi-based Jasper Infotech, the parent of Snapdeal.com.
The macro picture
In 2010, group buying saw phenomenal success with Groupon in
the U.S. In fact, last August, Forbes magazine crowned Groupon
the ‘fastest growing company ever’. It says Groupon made US $713
million in revenue in 2010, up from US $30 million in 2009. As
of March 31 this year, its subscriber base was 83.1 million, up
from 1.8 million at the end of 2009.
In the U.S., the retail industry is mature and there is already
familiarity with the couponing system. While India is yet to get
there in both these areas, there is no argument over the business
potential in this space with over 20 million active Internet users
(of a total of 90 million Internet users) in the country with
an increasing number of them shopping online. It has already attracted
entrepreneurial interest in India with several group buying sites,
such as Snapdeal, Taggle, Dealivore, Dealsandyou and Vamoosevacations.com
coming up in the last two years. Apart from products and services,
many of these sites offer discounted deals in their city’s spas,
gymnasiums, dance classes, car service centers and restaurants.
The whole model of offline – online discount coupons is based
on a simple fact that everyone loves to strike a deal, to make
a bargain and avail discounts. But, like Kuruvilla shares, there
is no clear road map or trends on what works and what does not
in a very nascent e-commerce space in India. And this means that
you need to constantly try new things and continue experimenting
with novel ideas to arrive at a working formula. He thinks a working
model will evolve over the next 12-18 months with consumers getting
hooked to buying great value online.
"But what’s happening in India is not a Groupon business
clone," clarifies Vani Kola, managing director, IndoUS Venture
Partners. The business model has been adapted to suit the changing
demography of the Indian consumer and the orientation and exposure
of the Indian merchant to the digital world.
Success definers
Companies need to differentiate themselves from their competitors.
It could be based on the target audience, types of deals, brand
positioning, the sectors they target and so on. The idea is to
recognise and capitalise on one’s strengths and leverage on the
scope of e-commerce growth in India. Taggle, for instance, felt
that everyone was playing with bottom of the pyramid deals. So,
it strategised to start at the top. "The move was a necessity
given that by June 2010 many other group buying sites were already
very much around, and it was important to get noticed quickly,"
says Kuruvilla.
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July 11, 2011
By VISHAL KRISHNA
Business World
11 July, 2009
When Martin Dlouhy, managing director of Metro Cash & Carry India – a 100 per cent subsidiary of the German firm – signed a Rs 900-crore agreement with the Punjab government earlier this year to set up six stores in the state over a fiveyear period, it seemed to reinforce the intention of global retailers wanting to penetrate the Indian market. Foreign direct investment (FDI) in multi-brand retailing is not allowed under the current policy regime; besides, most consumers in India still buy the bulk of their retail products from the neighbourhood kirana (mom-and- pop) stores. The cash-and-carry (C&C) business caters to the needs of these store owners.
But in their brief history of five years, C&C players have not been able to generate cash from the business in India. "They continue to bleed not because of the supply chain, but because the kirana store owner has to have a reason to buy from a C&C," says Devangshu Dutta, chief executive officer of Third Eyesight, a consulting firm in Delhi. Ninety-five per cent of the retail trade is dominated by traditional wholesalers, the backbone of India’s fast-moving consumer goods (FMCG) industry. "These wholesalers can give the kirana store the best price," says Ajay D’Souza, head of Crisil Research in Mumbai. He says traditional wholesalers continue to rule the roost because they manage to deliver goods at the doorstep of the kirana stores.
But this is just the beginning. Large global corporations – such as Metro – can burn cash and stay unprofitable for a very long time. They have deep pockets. Bharti Wal-Mart, a joint venture between Bharti Enterprises and US based Wal-Mart, has recently set up its first C&C store with an investment of nearly Rs 30 crore in Amritsar, and hopes to spend Rs 500 crore to set up 15 more stores over the next five years. Metro has invested over Rs 750 crore so far, apart from the Rs 900 crore mentioned earlier. Their plan is simple: to convert 12 million store owners into dedicated customers. This is not an easy task. The capital costs for a C&C are very high. According to Crisil Research, capital costs are close to Rs 3,700 per sq. ft, which is three times higher than that involved in setting up a hypermarket retail store.
The average size of a C&C is 100,000 sq. ft. To top it all, the real estate is owned by the company itself. Therefore, for Metro to turn cash positive is not easy in the short run. It takes at least 15 years to turn profitable and 11 years to generate cash in this sector (see ‘Long Gestation’ and ‘Wait And Watch’). Like any other retail business, it works on a high-volume, low margin basis. Sources in the industry say that Shoprite – a South African firm that has a C&C joint venture with Nirmal Lifestyle in Mumbai – was losing Rs 40 lakh a month at the back end, supplying to just one store in the country. An email sent to Nirmal Lifestyle did not elicit any response. Given the enormous challenges encountered by those trying to make a go of the retail business, will Metro and its brethren be able to survive the cash bleed?
New Avenues
Though kirana stores are the primary target customers for a C&C, business for the moment is coming mostly from others – hotels, restaurants and caterers, who buy in bulk from this wholesale format. A C&C can also gauge the quantity needed by understanding client demand and stock only as much required. Metro’s success has been supplying fruits, vegetables, meat and fish to its hospitality clients based on only demand. "Our strategy is to understand what our customers need, and then provide them a solution which offers quality product, right packaging size, and competitive pricing," says Dlouhy. The supply chain is not a problem for Metro as it worked with consolidators, farmers and fishermen to share knowledge on waste reduction, increase yield and produce high quality.
"The kirana guy will have to travel to a large cash and carry, usually located outside the city, and think twice if his transportation costs negates his margins," says Dutta of Third Eyesight. The other challenge is of scale. Most C&Cs have a bad kirana turnout because they never buy in bulk. More often than not, a kirana store owner will pick up the phone and call his distributor to send in the supplies. Metro or any other C&C does not provide such a service. But they believe their model can be successful, and they are serious about their intent, opening as many stores as they have.
For the kirana store owner, it is about saving on inventory costs. Analysts say that another reason why a C&C could work for a store owner is its ability to avoid stockouts for the customer. Metro serves as a warehouse and offers a selection of over 18,000 products. "We give the kirana guy a choice of products; with traditional retailers a kirana has to buy one product and in bundled quantities," says a spokesperson for Metro. In certain cases, Metro is also trying to specialise by sourcing from local manufacturers and stocking local brands, including an assortment of spices, rice and other food items. "This was earlier a forte of the traditional wholesaler. But we offer these solutions too," he adds.
Such a strategy of sourcing local products is also being employed by Bharti Wal-Mart. The C&Cs have their own private labels, which are selling well with the stores they have tied up with. Fifteen per cent of the sales of Bharti’s front end stores – called Easy Day – are in the form of private labels sourced by their backend partner. Bharti Wal-Mart is also selling honey, pickles, fruits and more under the private label name Great Value, which is also the international private label for Wal-Mart. Metro sells items under its international private label Arro.
"Their processes help reduce operational costs, which are very low, and they also have lesser employee cost per sq. ft," says D’Souza of Crisil Research. This is also why foreign brands such as Tesco and Wal-Mart sense opportunity in the Indian market with their back-end expertise. Tesco has already announced it is investing £60 million (Rs 474 crore) in the Indian market and has tied up with Trent, one of the retail arms of the Tata Group.
"While FDI is held up in the front end, the C&C business allows foreign retailers to sort out supply chain issues," says Pinakiranjan Mishra, partner and national leader for the retail practice in Ernst & Young (E&Y) in Mumbai. "Once that opens up, they will create efficiencies that will set the tone for building modern retail." Raj Jain, managing director of Bharti Wal-Mart agrees: "The whole Wal-Mart business revolves around saving in every aspect of that supply chain," he says. "It is not just about negotiating better prices with the suppliers, but actually about working with suppliers to remove any inefficiency in the supply chain." Bharti Wal-Mart is currently working with suppliers on packaging, stock control and inventory management.
Breakthrough Ideas
So what is eating into C&C margins? Simply put, there are not many kirana store owners walking in on a regular basis. For a C&C to make a dent in the Rs 2 lakh crore FMCG industry, it has to beat the traditional wholesaler who has been around for years. A C&C can help a retailer reduce the problems of dealing with multiple wholesalers, but cannot wipe them out. The distribution system in India has been built by the FMCG companies themselves to get their products off the ground quickly. Analysts say this multi-layered system takes a product to the smallest of stores in a village. "It makes sense for a C&C to find large buyers; they will burn cash if they focus on small businesses," says Dutta of Third Eyesight.
There has also been concern about how C&Cs can sell to their customers. Although a C&C is typically seen as a wholesale trade supporting small businesses which possess a trade licence, many point out that there have been sales to individuals who do not own businesses. The average threshold billing is Rs 1,000, and then it does not matter what you purchase in the C&C, or if it is personal purchases. This flouts the FDI norms that prohibit C&Cs from selling directly to consumers. As Businessworld noticed in a certain C&C recently, a man shopping with his wife had bought many single items. The only items they bought in bulk were brooms.
But Metro and Bharti Wal-Mart maintain that they have checks to avoid such a situation. "It is difficult for C&Cs to monitor every customer who buys because he will be a member who has a trade licence," says Mishra of E&Y. "This implies they are legitimate business owners, but it is not the job of a C&C to check their background." Stopping a customer and questioning him about the particulars of his purchases could create customer service problems that are avoidable.
Bharti Wal-Mart has about 30,000 primary members and about 75,000 total members registered in a particular trade area, around a 30-40 km radius of where its first store is opening in Amritsar. "There has been a very rigorous programme to control processes in our stores. People have to possess a trade licence," says Jain of Bharti Wal-Mart. If they do not have a trading licence, they need to have a trading association licence. "We will continue to renew that licence every year to ensure that only businesses are dealing with us, which is the law," Jain adds. Metro follows similar processes.
These hiccups, however, do not appear to slow down the C&Cs, at least the international ones. Metro Cash & Carry has opened 40 stores across the world in 2008, taking their global store portfolio to 655 wholesale stores. Their focus lay on growth markets such as eastern Europe and Asia. Officials say that group sales rose by 5.8 per cent to €68 billion (Rs 4,62,400 crore) last year. Its bigger rival Wal-Mart has even greater staying power. All of them appear to have enduring faith in the adage that only the strong will survive.
