Financial Express

15 April 2006

BUSINESS CASE TO BE ANALYSED: Akash Paul was finding it hard to bet on the profitability of a proposed new venture when there was hardly any precedent of such a model in the country, which is one of the largest producers as well as biggest market for fresh produce.

The model proposed a value proposition based on quality, shelf life, size and hygiene. It stressed controlled post harvest process with procurement partnership with sales through distinct marketing channels to sell different grades at different prices in main cities to begin with. But most important of all was a new definition of an organisational set-up.

This could not be achieved without a wired system which connects everything from farm to fork and gives real time information to all decision-makers concerned. Executives would require a thorough diagnostic dashboard to understand produce health, supply issues, problem sources and market pulse continuously. Thus, investments in a mature enterprise solution with supply chain capabilities along with sound analytical tools were suggested. A customised solution for basic enterprise solution by an experienced IT vendor who understands the company and location would fit the bill.

Finally a solution from leading global enterprise resource planning (ERP) vendor was implemented. It took lot of time to train people on the processes and using on state of art systems. However, Mr Paul, was still wondering at the end of six months whether the venture will really break even at the end of the third year as projected.

Source: O P Wali, associate professor , IIFT

ANALYSIS BY DEVANGSHU DUTTA, Chief Executive, Third Eyesight
Most consumer, product-supply chains have evolved into fairly complex chains for two main reasons. Firstly, despite all the talk about removing intermediaries, there are still many people involved in the entire supply chain at different levels – for no reason but that they do add some value in the steps they are handling. Whether this is breaking of bulk, or handling of disparate products, shipping or storing goods, or providing bridge finance, each intermediary is in the chain because he has a role to play.

Secondly, and more importantly, product diversity has increased tremendously. Whether it is the number of brands available of biscuits, or the number of types of melons, or the package sizes of shampoos, the growing market has created more suppliers, more product segments and more variety for the retailer to handle.

With perishable items, a third factor gets added in: date of production and shelf-life. Clearly, even in a developing market like India which has lax regulation and low compliance, consumers are increasingly aware of perishability of products. And as companies grow in size and profile, their vulnerability to litigation also increases.

The retailer, who is the critical link between the consumer and the rest of the supply chain, must effectively manage not just the diversity and the perishability, but also communicate with and manage with the rest of supply chain. And given the nature of the complexities, Mr Paul’s business would have no choice but to implement an effective IT system that would keep the company’s executives clued into the information on as near-time a basis as feasible. For a company that is planning operations at a certain scale, even the opening of one store without the IT system would create a huge gap to overcome in subsequent growth.

However, the IT system alone cannot guarantee the success or failure, and certainly not the profitability of the venture. Technology may be seen as the easy quick-fix, or as the stick with which to drive process discipline. But to me it is the last link in a chain that begins with ‘People’ and leads to ‘Processes’. Without the right orientation, training and skills, effective processes cannot be created. Without effective processes, the best IT system in the world is, at best, very effectively enabling a bad organisation.

The advantage of an existing branded product is that it is more ready for roll-out than a bespoke (custom-developed) system would be. Not just would it take more time to create a bespoke solution, it would also require the involvement of senior management. Senior management time is a rare commodity in the best of times – in a start-up business, it is even more scarce.

There is also the premise that a branded IT product that has been implemented across other companies will have some amount of best practice built in. With the assumption that poor practices are not also built into the system, it might actually help the management to leap-frog the business learning curve.

On the other hand, Mr Paul may be paying for features and capabilities in the branded IT product that his fledgling business will not use for a long time. Customisation and implementation needs may also push the cost over the limit.

Therefore, the ERP system must be evaluated just like any other business investment or expense.

There must be a clear rationale for it, a very clear set of objectives and deliverables, and a well-structured programme and project plan for implementation. Like any other investment, it must also be evaluated for returns.

Raghavendra Kamath, Business Standard

Mumbai, 15 April 2016

After a long gap, global investors are buying large retail properties for big bucks. 

While investors are buying them to build their portfolios, global retailers are acquiring properties to enter markets such as Mumbai.

A month after Singapore government-owned $100-billion sovereign fund GIC bought 50 per cent stake in Viviana Mall in Thane, on the outskirts of Mumbai, for over Rs 1,000 crore, US-based private equity (PE) firm Blackstone bought a one-million-square-feet mall being developed by L&T Realty in the Seawoods area of Navi Mumbai, said a source.

The deal is expected to be closed between Rs 1,200 crore and Rs 1,500 crore. Blackstone and L&T Realty executives could not be contacted for comments.

Late last year, Blackstone acquired two retail assets of Gurgaon-based developer Alpha G in Amritsar and Ahmedabad for around Rs 800 crore.

“Many global investors are looking to buy good mall properties. It will help them build portfolios in the country and help mall developers consolidate their projects,” said Susil Dungarwal, founder of Beyond Squarefeet Advisory, a mall management company.

Recently, DLF, the country’s largest developer, said it had sold its shopping mall in Saket in Delhi to its subsidiary for Rs 904 crore as part of its strategy to consolidate and monetise non-core assets.

Even big retail chains are not behind.

Swedish furniture firm IKEA is in talks to buy 350,000 square feet (sq ft) in Oberoi Realty in Borivali area of Mumbai for over Rs 900 crore, reports said on Friday.

Recently, IKEA signed up for a 26-acre land parcel in Navi Mumbai’s Turbhe area for Rs 214 crore from Tata group firm Rallis.

IKEA is the first retailer to enter the country after 100 per cent foreign direct investment (FDI) was allowed in single-brand retailing. The company is planning to invest Rs 10,500 crore in real estate to set up 25 stores in Mumbai, National Capital Region, Bengaluru, and Hyderabad.

Last year, it had bought 14-acre land parcel in Hyderabad.

Global buyers roll back into property Phonemaker Apple is said to be in talks to take 30,000 sq ft retail space at plush property Maker Maxity, in Bandra Kurla Complex  in Mumbai. The company is expected to set up one of its flagship stores in the property.

The rents in the complex hover around Rs 320 to Rs 350 per sq ft, one of the highest in Mumbai.   

An email to Apple did not get any response.

On Tuesday, The Times of India reported that Spanish retailer Zara had taken 50,000 sq ft of space in Hutatma Chowk in South Mumbai for Rs 2.5 crore rent.

Its rival H&M is aggressively opening stores. It opened 37,000 sq ft store in Mall of India in Noida recently after opening a store in Ambience Mall, Gurgaon.

It plans to open two stores in Mumbai in autumn.

“We see great potential for expansion and growth, both in metros as well as Tier-II and -III cities in India. Our expansion strategy is to always open at the best business location, and we look at many different options at the same time. The best business location is so important we would rather hold off from opening a new store and wait till the right location becomes available,” an H&M spokesperson told the Business Standard recently.

“Retailers such as Zara are not just anchors, they can be destination stores. Certainly IKEA is a full-day destination store. A larger store allows them to have a more comprehensive product mix and aims for a much larger share of the customer’s wallet than they would otherwise. Also, larger spaces would cost less per square foot, in terms of rental and operating costs,” said Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy.

(Published in Business Standard)

Mehak Sharma, Indiaretailing.com
New Delhi, 31 March 2016

While the new policy for foreign direct investment (FDI) in the fast-growing e-commerce sector has been welcomed by several lobby groups and offline retailers, experts note that a few implications of the new guidelines could leave some online players in a fix.

The Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, on Tuesday, allowed 100 per cent  FDI in online retail of goods and services under the marketplace model, but kept the inventory-based model of e-commerce out of its purview.

However, two conditions attached to the approval, in particular, could exert pressure on some e-tailers, as they will have to restructure their businesses to comply with the law. The first being that no one company or seller on a marketplace can now account for more than 25 per cent of the total sales generated on the site. Second, e-commerce entities operating a marketplace model can no longer influence the retail prices of goods or services.

“This will ensure that the pseudo marketplace models run by a few e-commerce companies will be forced to rationalise their pricing and discounts,” says Craftsvilla.com Founder & CEO, Manoj Gupta.

Commenting on the bar on retail price manipulation, CEO Third Eyesight, Devangshu Dutta, notes, “Buying market share through discounts is a game for the deep-pocketed, and aggressive discounting is also now explicitly in the Government’s cross-hairs. While the focus within e-commerce companies had already started shifting to smaller discounts, the new policy will force them to think harder and act quicker.”

In addition to this, the cap on seller contribution on total sales generated on an e-commerce marketplace site could also complicate matters for market leaders Flipkart and Amazon, experts point out.

Sellers like Cloudtail and WS Retail account for a major chunk of sales on Amazon and Flipkart, respectively. While Cloudtail is a joint venture between Amazon Asia and Infosys founder NR Narayana Murthy’s personal investment vehicle Catamaran. WS Retail was set up by Flipkart co-founders Sachin Bansal and Binny Bansal in 2010.

“Marketplaces such as Amazon and Flipkart have very large shares of their business being contributed by inventory sales from their own (‘arm’s-length’) entities. These companies will have to rethink their business mix and business structures to comply with the law. However, platforms that present a diversified merchant base would certainly have a clear path to invest further in India,” Dutta states.

Emails sent to Flipkart regarding the impact of these implications went unanswered, while Amazon India told Indiaretailing Bureau it is still studying the changes and would issue a press statement soon.

Even as e-tailers scramble to interpret and implement the new rules, investors feel that the latest policy announcement is a breath of fresh air for e-commerce firms that have been struggling to attract funding since the beginning of 2016.

“E-commerce players have already raised significant foreign funding. However, there are still many multi-billion dollar funds yet to be injected. With regulations in place, we can see a fresh infusion of funds in the market,”Managing Partner, Unicorn India Ventures Anil Joshi, tells Indiaretailing.

“E-commerce entities should now look to build a profitable ecosystem rather than revert back to old, predictable strategies,” Joshi asserts. “Currently, e-commerce accounts for a mere 2-3 per cent of modern retail in India and has barely scratched the surface. There is a huge market potential and demand, especially in tier-II and III towns that are still waiting for these companies to make an entry.”

(Published in Indiaretailing.com)

AFP/The Times of India
New Delhi, 30 March 2016

India has set rules for foreign investment in online marketplaces, allowing up to 100 percent overseas ownership and providing much-needed clarity as billions of dollars pour into the country’s fast-growing e-commerce sector.

The long-awaited rules permit full foreign ownership of sites that connect online buyers to sellers — similar to the model pioneered by Internet giant eBay.

However, foreign direct investment in “inventory-based” sites that sell their own stock is forbidden, the Department of Industrial Policy and Promotion said Tuesday.

In practice, India’s e-retailers already considered this to be the case, acting as technological platforms that connect buyers and sellers rather than selling their own products.

Even Amazon does not sell its own stock directly to shoppers in India. Despite the regulatory fuzziness, domestic marketplace sites such as Flipkart and Snapdeal have attracted billions of dollars in overseas investment.

“This announcement brings current business structures on the right side of the law,” Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy in Delhi, told AFP.

While the new rules will end much of the uncertainty, the government has also imposed restrictions that may cause headaches for some online retailers.

Under the new rules, a single seller can only account for up to 25 percent of sales, the department said.

This could cause problems for some of the big sites which, while technically marketplaces, are reportedly home to a handful of super-sellers that provide the lion’s share of their products.

Aggressive discounting wars by India’s Internet retailers may also be under threat, as the rules say they are not allowed to “directly or indirectly influence the sale price of goods or services”.

“There were no conditions (before) — now it looks like some of the players may have to restructure the agreements with their sellers to be compliant. It’s not very easy,” said Paresh Parekh, a tax partner in retail and consumer products at EY.

Some retailers welcomed the new rules, including Kunal Bahl. He founded Snapdeal, one of India’s biggest Internet shopping sites.

“Great to see the guidelines around 100% FDI in ecomm marketplaces. Glad the govt recognises and supports an industry transforming India,” he tweeted.

(Published in The Times of India)

Viveat Susan Pinto, Business Standard

Mumbai, 26 March 2016

Amritha K is a homemaker based in the central suburb of Ghatkopar here. Like most housewives, affordable grocery shopping is an important item to manage. She keeps a hawk’s eye on quality but never fails to bargain for that extra rupee of discount from the grocer. There’s a new Patanjali shop in her neighbourhood. “I’ve heard the products are of good quality and reasonably priced,” she says. “But, there is such a crowd there that I don’t know when I will be able to find the time to go there.”

This is a dilemma that confronts a number of middle-class households in India. Yoga guru Ramdev’s Patanjali Ayurved has presented itself as a credible alternative in fast-moving consumer goods (FMCG), compelling many to switch from age-old preferences and brands. “Herbal and ayurveda is one aspect of what Patanjali stands for,” says Aditya Pittie, chief executive officer, Pittie Group, a distributor of Patanjali products in modern and general trade. “The success of Patanjali has to do with its positioning on health. The fact that Swamiji (Baba Ramdev) is a yoga guru who has always canvassed for good health is not lost on people. This is what is helping sales.” 

To many, Patanjali Ayurved, which has targeted a Rs 5,000-crore turnover this financial year, is symptomatic of a trend sweeping the country today: The entry of babas into business. Whether consumer goods, lifestyle or entertainment, spiritual gurus are no longer averse to stepping into business – doing it confidently and even emerging successful.

A string of them

Take ‘Sri Sri’ Ravi Shankar, for instance. A recent report by brokerage Edelweiss says that Sri Sri Ayurveda, ayurvedic FMCG arm of Sri Sri’s Art of Living Foundation, is expanding into more categories and has begun to use mass media, point of sale advertising and push its digital presence aggressively through its app, e-store and via e-commerce portals.

Additionally, Sri Sri Ayurveda is looking to ramp up distribution of its products by taking it to 2,500 stores by 2017 from 600 stores now. The next leg will see it get into modern trade as well, talks for which are currently on, the report said. Future Group’s CEO Kishore Biyani said recently he was open to distributing Sri Sri’s products.

“Sri Sri Ayurveda has a wide range of products in personal care, diet supplements, food and accessories. It is planning to expand its presence into breakfast cereals, cookies, atta, oils, spices, ready-to-cook items and a range of organic staples for select markets. Though lagging Patanjali, it has the right ingredients to help grow the ayurveda space, posing competition to other consumer peers,” analysts Abneesh Roy, Pooja Lath and Tanmay Sharma noted in a report dated March 14.

While a detailed mail and calls to Sri Sri Ayurveda Trust elicited no response till the time of going to press, Devangshu Dutta, chief executive of consulting firm Third Eyesight, says the coming together of religion and commerce is not new. “If you look at the West, whether it is TV evangelism or other large movements, there is a whole system that has developed around it. A part of this involves the lifestyle of followers, which includes products and services. What we are seeing is an explosion of this in India.”

Tapping followers

Experts say the wave of babas stepping into business is linked to their larger and core ability to tap into a captive base of followers. It serves as the first line of defence for most of them before going mass. Take Gurmeet Ram Rahim Singh, chief of Dera Sacha Sauda, a Sirsa, Haryana-based organisation, estimated to have a following of 55 million across India and the globe (Sri Sri is larger at 370 million and Patanjali has 70 million followers worldwide).

Singh, popular in Punjab, Haryana and Rajasthan as a rockstar saint, burst into the national consciousness last year, when he directed and starred in two films – MSG: The Messenger and MSG-2: The Messenger.

While the first instalment is estimated to have grossed Rs 126 crore in box-office collections, MSG-2, according to Aditya Insaan, the Dera’s spokesperson, has entered the Rs 500-crore league recently. ” The objective was to convey a social message in an interesting and entertaining format,” he says.

The response to the first two instalments appears to have goaded Singh to direct and star in two more – MSG: Online Gurukul and MSG: The Warrior, to be released later this year. Additionally, Singh has taken the MSG franchise launching a line of eatables, cosmetics and grocery items this January. A singer, composer and lyricist, Singh also has a line of music CDs, speeches and discourses available for sale. Further plans include taking his consumer products into international markets and looking at means to leverage technology, Aditya Insaan said.

While revenues for both Sri Sri and Dera Sacha Sauda are not available, there is no denying the potential of the business ventures promoted by these organisations, experts say. 

“If marketed and distributed in an organised manner, these businesses have the potential to do what a Patanjali has,” Dutta says.

Kishore Biyani, chief executive officer, Future Group, who saw the trend coming, wasting no time to tie-up with Patanjali last year, says, “The customer is king. It is what he or she dictates that counts.”

OTHER GURUS IN FMCG SPACE

• Sadhguru Jaggi Vasudev: Popular with corporates for his spiritual discourses, Sadhguru set up the Isha Foundation in 2012. This has a commercial arm that sells food, personal care and wellness products. Has a strong presence in the south and is slowly expanding to the north in Delhi and Uttar Pradesh

• Bochasanwasi Shri Akshar Purushottam Swaminarayan Sanstha (BAPS): An institution that runs 800 Swaminarayan temples in India, US and UK, besides Akshardham temples in New Delhi and Gandhinagar, Gujarat. The institution manufactures and markets FMCG products under the BAPS Amrut brand, which is strong with its follower base.

• Aurobindo Ashram: A community based in Puducherry which considers spiritual thinker Sri Aurobindo as their guru. The ashram, which produced goods for its own consumption, has now stepped into the commercial market with incense sticks, soaps, candles, perfumes and furniture

Source: Edelweiss/Industry

(Published in Business Standard)