Written By Chaitali Chakravarty & Rasul Bailay, ET Bureau

NEW DELHI: Even after acquiring India’s largest ecommerce company Flipkart, Walmart will stay away from applying to invest in a food-only retailing venture in the immediate future that will allow the US giant to stock and sell groceries directly to consumers through the online platform.

Walmart would rather have a presence in the food products market through third-party retailers on Flipkart and escape the scrutiny and riders associated with foreign direct investment of up to 100% in food-only retailing ventures, according to sources.

“It doesn’t make sense to sell only food either through brick-and-mortar or through online,” said a person familiar with Walmart’s plans. “With all those riders, it is even harder to do it.” Walmart’s strategy is in contrast to arch rival Amazon, which received government approval last year for a fully owned food retailing subsidiary that the Seattle-based ecommerce behemoth is yet to start. Amazon’s plans hit a hurdle after the government asked it to keep separate equipment, machinery and warehouses for the food products business and not to mix or share anything with its flagship marketplace business Amazon.in.

Walmart has always maintained that a food-only brick-and-mortar venture doesn’t make business sense because of the wafer-thin margins.

“Walmart would rather handle the back-end of the food and grocery and that will help it escape the scrutiny and riders associated with food FDI retailing,” the source said.

A spokesperson for Walmart declined to comment.

A company like Walmart is not in a rush because it is in India for the long term, according to Devangshu Dutta , chief executive officer of retail consultant Third Eyesight.

“They are looking at India as a longterm game — if it may not happen now, it will happen two years down the line when the regulations become friendly,” he said. “If you are in for the long haul, you are not in a rush as the window of opportunity is not closing.”

India created the food-retailing segment in 2016, allowing full ownership by overseas companies in ventures that could sell locally produced and packaged food items through offline and online channels. However, it set riders for applicants such as keeping logistics, manpower, accounting and offices, among others, at arm’s length from their existing ecommerce marketplaces. India also permits 100% foreign capital in online marketplaces, which can only be offered as platforms for other vendors and retailers to do business.

The government had banked on global retail giants such as Walmart and Tesco to lap up the new investment opportunity in food retailing, especially after the 2012 policy allowing 51% FDI in multibrand retailing remained a virtual nonstarter due to stiff riders.

While most global bigwigs shied away from investing in the high-profile foodonly retail ventures, Amazon appeared as a saviour in February last year, when it applied to invest $500 million through this route.

Amazon has now sought a clarification from the Department of Industrial Policy and Promotion on whether it can share some of its warehouse staff, entry and exit doors at warehouses, barcode machines, trollies, pallets and other logistical paraphernalia for its food-only venture with the existing infrastructure of Amazon.in, ET reported in April.

It has also asked the department if it can maintain the segregation “virtually.”

A top foreign retail consultant said Walmart would rather wait until India allows such ventures to sell non-food items like soaps, toothpastes and personal care items to make the business viable for store operators.

Source: economictimes

Written By Sharmila Das

New Delhi: India focused private equity firm Samara Capital plans to buy Aditya Birla Retail’s (ABRL) supermarket chain, More, for about Rs 2,500 crore. The PE firm is in advanced talk to complete the deal; a few industry experts with knowledge of the matter said this today.

As per the experts, primarily the group wants to sell its supermarket chain to reinvest the amount in Aditya Birla Fashion and Retail (ABFRL) to maintain its dominant position in the category. Also, because food and grocery is a low margin business, the group wants to shift focus on fashion category where it has Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL).

In May 2015, Aditya Birla Fashion and Retail Ltd (ABFRL) consolidated Aditya Birla Group comprising ABNL’S Madura Fashion division and ABNL’s subsidiaries Pantaloons Fashion and Retail (PFRL) along with Madura Fashion & Lifestyle (MFL). After that, PFRL was renamed as Aditya Birla Fashion and Retail Ltd.

“This consolidation will create India’s largest pure-play Fashion and Lifestyle Company with a strong bouquet of leading fashion brands and retail formats. This move brings India’s #1 branded menswear and womenswear players together,” Kumar Mangalam Birla, Chairman, Aditya Birla Group quoted saying then on the consolidation.

In 2007, Aditya Birla entered into food and grocery retail sectors with its acquisition of Trinethra Super Retail and thereafter expanded its presence across the country under the brand ‘More’ with two formats ― Supermarkets and Hypermarkets. However, as per experts, these acquisitions did not suit the company and hence now it is looking at further consolidation.

“In food and grocery scalability is huge but margins are thin. The Aditya Birla has been looking at selling the food and grocery retail operations for a while – the business had a debt overhanging from the acquisitions (Trinethra+Fabmall initially, and more recently Total), which kept dragging it down. The group’s other retail business, Aditya Birla Fashion and Retail (ABFRL), also is cash-hungry but potentially has better margin prospects, and it is one where the group is a market leader in the country. A divestment of More could free up cash for the group for reinvesting in ABFRL to grow and consolidate its leadership position,’’ said Devangshu Dutta, Chief Executive at consultancy firm Third Eyesight.

According to ET report, the private equity firm has almost completed its due diligence with Aditya Birla Retail.

Email sent to both Aditya Birla Retail and Samara Capital remained unanswered till the time of filing of the report.

Source: indianretailer

Written By Priyanka Golikeri

What makes brands ride on another one?

It takes two to tango. At least in the roller-coaster world of big brands.

Recently, Nestle and Starbucks entered into an alliance where the Swiss food and beverage (F&B) company pledged to pay Starbucks $7.15 billion for exclusive rights to sell the US-based chain’s coffees and teas around the world. This collaboration is just one of the many where two brands have tried to draw in strength from each other’s muscle.

Experts say such retail and distribution alliances are at best symbiotic, where each brand complements the other and stands to gain from the other’s assets and scales. “These collaborations are attempts to plug a weakness in one’s shield,” point out brand experts.

McDonald’s and Coca-Cola were perhaps two of the earliest brands who leveraged each other’s strengths way back in 1955 and have been selling cola packaged with various burger-fries combos.

According to Kaustav Das, CEO of integrated agency Ralph & Das, these are “classic marriages of convenience. They work well when an alliance is able to contain or overcome a threat or a weakness for either. It’s a bit like ‘you scratch my back, I scratch yours’, or ‘our combined expertise would be hands down winner’.”

In India, home-grown brands like Patanjali and the Future Group have attempted to ride on each other’s strengths, with the latter making the former’s fast moving consumer goods (FMCG) products available at its Big Bazaar outlets.

On the other hand, US fast-food chain Carl’s Jr. and Kingfisher have been attempting a cross-continental partnership. They have inked an arrangement to sell beer alongside burgers at Carl’s Jr. outlets in India.

According to Harminder Sahni, founder and managing director, Wazir Advisors, the two brands involved in retail or distribution partnerships stand to gain in terms of enhanced brand image, accelerated presence in different markets and in terms of profits and growth.

In the Nestle-Starbucks case, for example, experts say although Nestle has been dominating coffee with its Nescafe and Nespresso, the brand has not really resonated with millennials, despite its decades-old legacy. On the other hand, Starbucks is perceived as that ‘’cool contemporary brand of premium coffee and beverages’’, and an ‘’uber chic hangout’’, both of which strike a chord with the newer generations, feel experts.

“Add to this the fact that JAB Holding Co with its acquisition of brands like Keurig Green Mountain and Peets has been snapping at Nestlé’s heels,” says Das.

According to Devangshu Dutta from consulting firm Third Eyesight, although coffee consumption has been growing worldwide, Nestle has lost mindshare and market share to competitors, as consumers are keen to look at more premium products and more varied offerings. “So Nestlé’s deal with Starbucks gives it a leg up, particularly in the lucrative US market.”

On the other hand, Starbucks lacks the mass distribution muscle of brands such as Nestle, adds Dutta. “Starbucks gets to reach millions of points of sales that it cannot on its own, or might take years to create those networks. Since Nestle manages the networks quite efficiently, that benefit to comes to Starbucks,” says Sahni.

But alliances between brands in the past have (in)famously been called off.

Experts point out that an earlier deal between Starbucks and Kraft broke since Starbucks accused Kraft of multiple material breaches of contract, including mismanaging the brand. Closer home, alliances like Group Danone and Britannia were cut short over issues pertaining to the intellectual property rights of the Tiger biscuit brand, and Marico and Indo Nissin Foods had parted ways “as Indo Nissin had reached critical turnover mass with Top Ramen (noodles)”, say experts.

“There remains the unpleasant truth that both brands cannot be equal gainers in the long term. And that is when the alliance is questioned by the lesser gainer,” says Das, who feels that such alliances survive if the two brands agree on who will be in the driver’s seat when it comes to the brand and the business’s point of view. “Challenges lie in the culture and belief systems. Like in this recent case, Nestlé is geared for building volume businesses, while Starbucks is more interested in creating a Starbucks culture and lifestyle.” To create successful brand alliances, businesses need to look at the similarity of culture and core essence and not what each gain at a transactional level. “If the two brand cultures do not have a synergy, it is best not to attempt an alliance. Brands should be sure to agree on every milestone right down to the ultimate buyout by either one. Or at what point will the two-part away amicably,” says Das.

Source: dnaindia

Tony Fernandes’s apology may not undo the damage

Written By ASHWINI PHADNIS

AirAsia promoter Tony Fernandes’s video message on his Facebook page apologising for his decision to do a campaign video in the run-up to the May 9 vote in Malaysia in favour of Prime Minister Najib Razak, who has since been ousted, has created a storm on the digital media.

Razak was defeated in the polls by the 92-year-old Mahathir Mohamad.

In the latest video, posted on Sunday, Fernandes explained that he was under immense pressure, adding that it was not right (for him to side with one candidate) and that he will forever regret this decision.

In the same video, he says that AirAsia had announced 120 extra flights at lower-than-usual prices especially for the election, which would have carried 26,000 people home to vote.

“I knew it wouldn’t be popular with the government, but I felt as an airline we had to serve the people,” he said.

However, within 24 hours, the airline was summoned by the Malaysian Aviation Commission and told to cancel all those flights.

AirAsia X Chairman Rafidah Aziz acknowledged in a Facebook post that Fernandes had made a “bad judgment” when he tried to “please and placate” Najib and the previous administration.

She said Fernandes “did not have to go to that extent to placate” the previous government. However, he did it because he needed to stop the administration from “tightening the screws on where it would hurt most — AirAsia and AAX (AirAsiaX).”

Political minefield

Experts from the marketing industry believe that Fernandes’ experience also shows the importance of ensuring that brands do not openly side with any political affiliations.

Devangshu Dutta, Chief Executive, Third Eyesight, points out that no matter how top executives vote, most large businesses in diverse democracies are careful to maintain neutrality in their statements when it comes to political choices.

“Tony Fernandes made a very strong, visible and clear political statement — whether out of conscious choice or under compulsion, only he knows.”

Fernandes’s decision to promote the former PM will likely have a fallout. Says Dutta, “In the short term, AirAsia may take a hit. Corrective PR action is already under way, with the apology Fernandes has issued.

However, whether that will be enough for customers, or more will be expected, remains to be seen.”

Dutta also feels that given the size of the airline today and its importance for travellers, “I think AirAsia would recover in due course.”

Others agree and say that AirAsia’s current problems were unlikely to affect its operations as the airline enjoys near-monopoly in Malaysia, but the going could get difficult if the new Malaysian government decides to start awarding routes to other airlines in Malaysia. Interestingly, it was Mahathir Mohammad who had given the licence for AirAsia to Fernandes for a nominal one ringgit in 2001.

Harish Bijoor, brand strategist and Founder, Harish Bijoor Consults Inc, adds that brands must be politically neutral basically because when you indulge in politics or political comments, there are two sets of constituencies — one which will support and one which will oppose the comments.

“When there are two sets of constituencies, it is best not to irritate any of them. The personal expressions and views of business leaders must be kept personal,” he points out.

‘Brands must be neutral’

Jagdeep Kapoor, Managing Director, Samsika Marketing and a 40-year veteran of the industry, says that brands must be neutral and that the only god whom the brand should serve is the customer.

Another marketing guru, who did not want to be quoted as he is not allowed to talk to the media, said that it seems that Fernandes backed the wrong horse in the recently concluded elections in Malaysia and was now trying to retrieve the situation.

Source: thehindubusinessline

Written By Athira Nair

The US retail giant’s has had a tumultuous journey outside its home turf. There are many lessons to be learnt in its foray in Germany, the UK, Japan, and Korea in the past.

Unless you have been living under a rock for the past month, you already know of American retail bigwig Walmart acquiring India’s e-commerce leader Flipkart. The deal – biggest e-commerce deal in history – has gained attention for multiple reasons. The two players are taking on their common rival Amazon. The Arkansas-based 56-year-old retailer entered India in 2007, but has not been able to make the best of it.

The two players are taking on their common rival Amazon. The Arkansas-based 56-year-old retailer entered India in 2007, but has not been able to make the best of it.

Since FDI regulations restricted Walmart from retailing in India, it had joined hands as a wholesaler with Bharti Group and opened 21 ‘Best Price’ stores. Walmart played the B2B role, while Bharti took care of the front end (B2C). The affair, however, did not last long; they parted ways in 2013. Walmart has since continued as a wholesaler in the country.

But with Indian retail expected to touch $1 trillion by 2020, Walmart wants a slice of the pie, and its first step is to go online – for the market worth $80 billion by 2020 from the current $20 billion . With growing internet penetration, online shoppers in India are estimated to be 200 million by then.

Currently, the average annual ecommerce spending per consumer in India, which is $120-140, is expected to drop to $92 by 2020. This is where Walmart can bring in its USP – Every Day Low Prices (EDLP) – and build economy of scale.

Walmart had lost to Amazon in ecommerce in the US, and Flipkart is the only player that has given the 24-year-old company a run for its money. Walmart may not fight the Reliances and Birlas of the country yet, but Amazon is an enemy worth its salt.

But Walmart has a long history of failing to make it outside North America. Their biggest disasters so far were in Germany, Korea, and Japan, where the company could not make it due to multiple reasons – culture, competition, supply chain and, of course, Amazon. The latest to join the list is the UK, where Walmart is selling hypermarket chain ASDA to Sainsbury’s, 19 years after its acquisition.

So what went wrong for Walmart in these countries? What have they learnt from the failures and how will their strategy in India be different? YourStory digs in.

Misfit in Germany

When Walmart entered Germany in 1997, having acquired offline retailers Spar Handel and Wertkauf, it was the biggest retail market in Europe. Both players’ stores were rebranded as Walmart’s, and they went on to implement efficient operations and EDLP. Yet, by 2006, the company had to sell off all 85 stores to Metro Group at a $1-billion loss and leave Europe.

The most obvious reason was that Germany does not allow price cuts. Every retailer had matching prices, and Walmart could not offer anything which others are not offering.

With home-grown players like ALDI and LIDL having established themselves already, Walmart’ USP of lowest prices could not penetrate the saturated industry. In India, EDLP is expected to hurt the online sellers but ultimately benefit customers who do not have such options now.

Retail is rarely a winner-takes-all game. In Germany, the top five players accounted for 63 percent of market share in retail, but Walmart was not one of them.

The two companies they had acquired were minor players – which together had a mere three percent market share. Analysts see this as Walmart’s biggest mistake to date, which happened due to lack of due diligence.

Another reason that is believed to have brought Walmart down in Germany was the cultural friction between the US management team and existing German on-ground team. Flipkart will have to see how this will turn out in India.

First step in Asia

After tasting success in North America, South America, Europe and the UK, Walmart took its first step in Asia through Japan in 2005. By acquiring one of the largest retail chains in the country – Seiyu, founded in early 1960s – Walmart was hoping to exploit the online grocery sector through Seiyu’s offline stores.

But the online market was only less than two percent of the total grocery sector. A few years ago, though, prices of food items were rocketing, as were taxes. For the non-food items, Walmart offered EDLP, but could not reach out to Japanese consumers, who were more interested in quality.

Enter Amazon Fresh in early 2017, and Walmart felt the heat. With its rival providing fresh fruits and vegetables, gourmet products and other FMCG items at a much lower price, Walmart had to take action. In January 2018, they partnered with Rakuten, Japan’s largest e-commerce site, to provide online grocery delivery. Users can order grocery on Rakuten, and Walmart will fulfill the delivery from its warehouses.

Also, Walmart now provides e-books via Rakuten’s Kobo (e-book device) to fight Amazon’s Kindle. While Walmart continues its presence in Japan, it is obvious that they are struggling to fight its rival there too.

The Korean tragedy

When Walmart entered South Korea (as an independent entity) in 1998, the country’s largest discount-retail store E-Mart already had a 30-percent market share, followed by HomePlus, a localised version of Tesco. By 2006, Walmart sold all its 16 stores to Shinsegae Group, which ran EMart, for $882 million.

Mike Duke, then Vice-Chairman of Walmart Stores, had said, “As we continue to focus our efforts where we can have the greatest impact on our growth strategy, it became increasingly clear that in South Korea’s current environment it would be difficult for us to reach the scale we desired. We have decided to sell our business to the market leader as we believe this is the best option for our associates, customers and shareholders.” All Walmart stores in the country were thus rebranded as E-Mart stores.

With the market growing tougher, 70-year-old French retailer Carrefour also sold all of its 32 stores to Korean fashion retailer E-land for $1.85 billion around the same time.

In fact, South Korea is a market where a lot of biggies failed in – including Nestle and Nokia. Korean consumers tend to prefer their local brands – almost everyone has a Samsung phone.

Their shopping preferences were also drastically different from their American counterparts. For instance, American consumers tend to purchase in bulk for long-term storage, and they are comfortable with packaged foods. But Korean consumers are more particular about the freshness of the food. They are willing to make frequent trips to supermarkets, corner stores, and traditional wet markets to buy smaller volumes of fresh produce.

Understanding this consumer behavior, E-mart had aggressive discounts for smaller quantities. But, Walmart became a store for Koreans to visit when they needed to purchase large non-food products and to see a variety of products, including foreign products. They prefer to visit local domestic supermarkets for food purchases and daily use items.^[1]

Given its experience in Asia so far, Walmart is playing it safer in India, as the Flipkart acquisition is more of a backend buy.

As Harish Bijoor, Founder, Harish Bijoor Consults, says, the consumer-facing impressions would be unchanged. “In terms of branding, they’d retain the distinct imageries of Flipkart, Myntra, Jabong and Ekart. Walmart would do everything to keep these brand identities distinct,” he adds.

Escape the UK

When Walmart bought British hypermarket chain ASDA in 1998, the latter held a 31-percent market share, while Tesco had 28 percent. The relationship survived all odds until recently, when grocery became a battlefield for retailers, online and offline in the UK.

Last year, Amazon UK tied up with the online grocery group Morrisons for their Prime and Pantry services, and tech was their main weapon. Consumers can place orders on Morrisons using Amazon’s virtual assistant Alexa, integrated into Amazon Echo devices.

Add to this, the entry of Germany players Aldi and Lidl. Not wanting to fight anymore, Walmart sold ASDA to its rival Sainsbury for $4.3 billion and a 42-percent stake last week. This is another instance of Amazon taking over the world, and why Walmart cannot give up on the next big market – India.

Now that Flipkart is going big on grocery in India, Walmart can emulate the model of Amazon-Morrisons here. Instead of local stores, their wholesale division can provide the grocery through dark stores.

Walmart had also had its gains from ASDA. It had absorbed great practices in fashion and introduced them in the US too. ASDA’s apparel brand George is the second in apparel sales in the UK. Now Walmart is planning to sell the brand on wholesale, reportedly for Seiyu.

It is easy to draw parallels in India, where fashion is the highest margin category in online commerce. Flipkart has been building its private label in fashion for men and women, which Walmart can now scale up for offline sales as well in India and abroad.

Lessons for India and taking over Flipkart

According to Harminder Sahni, Founder and MD at retail consultancy firm Wazir Advisors, Walmart is not investing in what Flipkart is today. “Walmart is investing in what Walmart wants to be tomorrow. They couldn’t have allowed Flipkart to go to Amazon. They also know that Amazon would scoop up one of the Indian offline retailers soon,” he says.

Walmart has also acquired Vudu to fight Netflix, online grocer Yihaodian against Alibaba in China, and Parcel against Amazon Prime (in the US), but it is yet to see results.

Walmart does not have direct retail experience in India, but Flipkart has scaled rapidly in the last five years with deep understanding of customers and building a good ecosystem. As Devangshu Dutta, Chief Executive at Third Eyesight, a retail and consumer sector consulting firm, says, they have survived the many shutdowns in ecommerce.

“Flipkart’s tech and service are efficient and they are a powerful business. But this is not sustainable in the long term. Walmart’s alliance with Flipkart is a win-win for both as they can expand the customer base.”

Unless they have to end up selling off Flipkart to another player like Reliance after 10 years, Walmart’s previous disasters will not be a repeat in India. Although it is a saturated market in offline retail, it is only a matter of time before Flipkart and Amazon open customer-facing offline stores. If Walmart gets its steps right in India, the acquisition of Flipkart will be a golden page in the history of Indian retail.

Source: yourstory