Raghavendra Kamath, Business Standard

Mumbai, 24 March 2016

Inside Select City Walk, New Delhi, where almost every brand that wants a piece of the great Indian consumption story has pitched its tent, a grand fight is in the making. 

According to industry insiders, here Zara’s 17,000 square feet store pulls in about Rs 10 crore a month, or around Rs 6,000 per square feet. H&M’s 25,000 square feet store makes Rs 12.5 crore a month, or about Rs 5,000 per square feet. 

Since neither label breaks down its country-wise numbers, these numbers, although not completely representative, are the closest reflection of their struggles in the country.

According to industry veterans, H&M has been faster off its feet. “Scoring point for H&M is that it is priced right for India while Zara is relatively expensive. Zara wanted to reduce prices but did not do so eventually,” said Dipak Agarwal, former CEO of DLF Brands which retails brands such as Forever 21 and Mothercare.

However the big challenge, for both, many believe would be stepping beyond the metros in their next phase of growth. And here H&M holds an edge unless Zara is willing to take a fresh look at its prices. Zara’s entry range (women’s wear) retails at over Rs 2,500, but H&M starts at around Rs 1,500. “H&M will definitely impact Zara’s sales in the medium term,” Agarwal said.

Price, partnerships, styles

Both Zara and H&M cater to the premium category, but a Delhi-based mall head said, “H&M will grow faster than other global brands given that it is more affordable, has no partners, and a balanced portfolio.” H&M refused to comment on whether it would outgrow others, but said, “We believe we have competitive prices, by having our own design and buying department.” Inditex Trent, Zara’s parent company refused to comment, but it has launched a budget chain to compete with the likes of H&M and other fast-growing discounters like Primark and Forever21.

Zara is also the first apparel brand to cross the $100-million mark in India where it has spent six years and built 16 stores. But its sales growth has slowed; according to the Trent annual report for FY15, it is down from 43 per cent in FY14 to 23 per cent in FY15.

H&M, on the other hand, is new to game. It has just two stores in India but its stores are turning in far better numbers according to sources in the malls it is present in. But as a source in Inditex Trent said, “It is easy to grow from Rs 25 crore to Rs 50 crore but to grow from Rs 50 crore to Rs 150 crore is really difficult.” Besides, given that 75 to 80 per cent of the market is unorganised and brands are growing by just tapping the switch from unorganised to organised, he believes there is enough space for new and old brands to grow.

H&M has a wider range of styles and targets a larger customer base too — it caters to women, men and kids unlike Zara which focuses largely on women although it does have a men’s line. Globally, according to a Reuters report, H&M has moved into Zara’s fast fashion space by offering everyday styles.

Devangshu Dutta, CEO, Third Eyesight, says both have distinct operational strategies. H&M partners with designers to create special lines under joint branding, whereas Zara maintains its own branding. “Zara has a far greater number of products in its annual range, and invests far more on product development. H&M spends a significant amount on advertising, which Zara mostly shies away from,” he says.

The road ahead

Both brands are at different stages of their India journey,  but are looking at non-metros. H&M’s next store will be in Bengaluru, followed by one in Noida, Mohali and Mumbai in 2016. It is looking at other cities as well and so is Zara.

However, the question is whether the premium brands will tweak their pricing strategies for small towns. According to the head of a Delhi mall, non-metros can absorb H&M as it is more affordable. “After you move out of South Mumbai or South Delhi, there will be more shoppers for H&M than Zara. That’s why after 17 to 18 stores, Zara is finding it difficult to expand,” he said.

However, in Mumbai, a senior executive with one of the leading malls said that all global brands struggle after four to five stores in metros, be it Zara or H&M. “It is not easy to expand in tier II and III cities for any international brand,” he said. Dutta however believes that both are marquee brands that, more than hurting each other, will help all brands by driving customers to malls. Even if they do, the fight for converting footfalls to transactions is going to be an arduous one.

(Published in Business Standard)

Aarefa Johri, Scroll.in
Mumbai, 22 March 2016

Even though milk and dairy products was the Chitale brand’s original business, the headlines remembered Bhausaheb as the “creator” of bakarwadi.

Technically, the Chitales didn’t invent the crunchy besan- and maida-based snack. It has been a part of traditional west Indian cooking, particularly Gujarati farsaan, for a long time. But without Bhausaheb Chitale and the rapid growth of India’s packaged food industry, bakarwadi may not have been as popular among Indians both in the country and abroad.

Today, packaged bakarwadi in multiple sizes is sold by many firms – Chitale and Haldiram’s perhaps the best known – but the story of their journey from household kitchens to grocery store shelves across the world began with the Chitale patriarch.

The Chitale story

Born in 1920 in a small village in Maharashtra’s Satara district, Bhausaheb Chitale began his career helping his father with their milk business in Pune. As he came into his own, Bhausaheb expanded and transformed the brand into Chitale Bandhu Mithaiwale, which sells a host of Indian sweet and savoury snacks.

“In 1970, a person from Gujarat introduced Bhausaheb to the bakarwadi,” said Indraneel Chitale, one of Bhausaheb’s grandsons. “But the Gujarati preparation was on the sweeter side. My grandfather thought of adding more spice to the recipe to cater to Maharashtrian tastes.”

The current form of spicy bakarwadi, with a hint of sweet and sour, was popularised by Bhausaheb and his brother Rajabhau Chitale, who died in 2010. The family business is now run by their sons and grandsons.

“The Chitale bakarwadis are just right in terms of flavour – they are spicy and crunchy and go well with both tea or beer,” said Rushina Munshaw-Ghildiyal, a food writer from Mumbai.

From hand-made to automation

In the 1970s, when Chitale Bandhu began selling packaged bakarwadi, workers in their Pune factories manually prepared up to 300 kg of the snacks a day. But with demand constantly on the rise, the company decided to automate the process.

“My father went to Europe and with the help of experts from Germany and Holland, designed a machine specially to make bakarwadis,” said Indraneel Chitale. “The whole process took four years.”

In 1989, the company introduced partial automation for bakarwadi production, and by 1994, the process was completely automated. Today, Chitale Bandhu has three such machines in Pune, which collectively churn out 850 kg of bakarwadi an hour. One of the machines is dedicated to supply only within Pune, where it is often sold out in the first half of the day itself.

“Fortunately we are able to sell everything on the same day as it is made,” said Indraneel Chitale, who claims that Chitale Bandhu is the only company that makes bakarwadi through a fully automated process. “Apart from the milk from our dairy, bakarwadi is actually our highest-selling product.”

Automation has also helped increase the shelf-life of bakarwadi and other Indian snacks so that they can be more conducive to export. “As Indian companies have scaled up, they have been able to adopt automated technologies not only for production but also packaging,” said Devangshu Dutta, chief executive of Third Eyesight, a consultancy firm. With better packaging, dry food products are protected from the elements and from decay. “It has enabled Indian snack manufacturers to find their way to customers in much more distant markets within and outside the country.”

(Published in Scroll.in)

Sagar Malviya & Chaitali Chakravarty, The Economic Times
Mumbai/New Delhi, 21 March 2016

The discussion would have also covered areas such as logistics, offline stores and omni-channel to support Alibaba’s core ecommerce business, the person said. Alibaba could have approached others, including another ecommerce company. “India is set for a big consolidation in ecommerce,” said the person. An Alibaba spokesperson said it does not comment on speculation as a matter of policy.
A Tata Sons spokesperson said, “Several entities have appreciated our model and have expressed interest in it at different points of time. We do not wish to comment any further.” Evans had said in Delhi on Friday that the company plans to enter India’s ecommerce segment this year. “We have been exploring very carefully the ecommerce opportunity in this country, which we think is very exciting against the backdrop of Digital India,” Evans told reporters after meeting Communications and IT Minister Ravi Shankar Prasad.
FDI is still not allowed in the ecommerce sector but there are no restrictions on foreign funds in online marketplaces—the model adopted by the big three of Amazon, Flipkart and Snapdeal— that connect sellers with buyers. Morgan Stanley estimates the total Indian internet market size will grow to $159 billion by 2020 to emerge as the fastest-growing ecommerce market globally, from $16 billion now.
To put things in perspective, Alibaba sold goods worth $377 billion in 2015, compared with around $16 billion by all of India’s ecommerce companies put together, according to Morgan Stanley.
Tata Group, a salt-to-steel conglomerate with combined sales of $108.78 billion, has been a launch pad for several marquee consumer brands in the country. Retail arm Trent has two major partnerships— with the world’s largest apparel firm Inditex to sell its Zara brand and an equal joint venture with UK’s Tesco, the world’s second largest retailer. The biggest coffee chain Starbucks has entered India through an alliance with Tata Global Beverages.
“Tatas are the best match for Alibaba given the scale and capabilities both these players possess,” said the person cited above. “Alibaba is keen to create a strong back-end network before launching its online portal.” Unlike Amazon, which relies on third-party service providers for most of its logistics, Alibaba owns a consortium of companies connecting a network of logistics providers, warehouses and distribution centres to create a platform that serves smaller towns and the hinterland well.
In China, its arm Cainiao works with 15 strategic partners, collectively operating 1,800 distribution centres, 1 million delivery stations and 25,000 pickup spots.
THE TATA EDGE:  Experts feel Tatas could give Alibaba an immediate boost in terms of infrastructure capability as well as understanding of the consumer market.
“Tatas are viewed as a fairly good partner across sectors and bring with them a strong retail infrastructure created over the years and awell-structured, transparent management,” said Devangshu Dutta, chief executive officer at retail consultancy Third Eyesight.
The Tatas also have a history of cordial relations even with those they have split up, experts said. In India, electronics and fashion are the dominant categories as in China and the US. Online penetration in these two categories is set to increase from 3-5% in 2014 to 25-30% in 2020, resulting in an online market of $88 billion, according to Morgan Stanley. Within retail, Tatas gets a bulk of its revenue from watch brand Titan and jewellery company Tanishq. It also runs the Westside department stores and electronics chain Croma.
An ecommerce venture is also in the offing. “Tata Unistore will shortly be launching a unique omni-channel in e-retail. This is entirely a Tata venture with over 200 international and domestic brands and, at launch, presence of over 200 omnienabled stores all India along with the app and web presence,” added the Tata Sons spokesperson. In India, Alibaba is a fringe player in its core business-to-business online trade but it has an indirect presence in Indian ecommerce through its investments.
Alibaba and its financial-services affiliate Zhejiang Ant Small & Micro Financial Services Group last year invested over $500 million for a 40% stake in One97 Communications, which runs Paytm, a wallet and ecommerce company. Snapdeal raised $500 million from a clutch of investors including Alibaba last year. Snapdeal and Paytm also have Tata Sons chairman emeritus Ratan Tata as an investor.
“With Alibaba’s stake in Snapdeal and Paytm, it can leverage both these companies into some sort of consolidation with Tata at a later stage that will give them a real clout in the Indian consumer market,” said the person cited above. Some experts feel that Alibaba will have to increase its stake in the Indian companies to dictate any sort of merger strategy though.
“Alibaba needs to bring its stake to a level when it can control the consolidation process seamlessly in these three businesses. It may not happen in the short term but there will be a serious consideration for such a move after few years,” said Ruchi Sally, director at retail consultancy firm Elargir.
While global rival Amazon and the country’s largest player Flipkart controls a majority of the Indian online market, there is still scope for Alibaba. Total online shoppers in India as a proportion of internet users stood at 12% in 2015.
Analysts expect online shopper penetration to reach 20% by 2017, which could be a turning point for ecommerce in India. Alibaba’s active buyers as a percentage of total internet users in China has doubled from 28% to 54% in the past few years, cementing its dominance. In comparision, that of Flipkart is 12% in India, added the Morgan Stanley report.

(Published in The Economic Times)

The New Indian Express
Chennai, 17 March 2016

Purchase of cars, bikes, or gold jewellery can give immense pleasure, but is a labourious exercise. E-commerce companies are trying to change just that.

A host of high-value products be it SUVs, cars, diamonds, gold coins, two-wheelers including electric bikes are all up for grabs online. If the likes of Flipkart, Snapdeal or Amazon saw rise in sales of electronics or clothes during their formative years, version 2.0 of Indian e-commerce market is banking big on money guzzlers i.e., luxury products.

“There is more flexibility in terms of the product categories and certainly e-tailers are beginning to exercise that flexibility as much as possible. The reasons are simple: currently, in e-com customer acquisition costs are high, retention is low, margins are thin due to discounts, so any product or service, which can broaden the portfolio and the chances of a successful transaction, increase the value of the transactions happening, or lead the customer away from discount-oriented behaviour are being looked at seriously,” Devangshu Dutta, CEO, Third Eyesight told Express.

“It took them almost a couple of years for ecommerce players to get consumers buy mobile phones online. The current trend of retailing high-value products will help consumers do online research, compare products and make an informed decision on a product purchase,” said Harish HV, Partner – India leadership team, Grant Thornton India LLP.

“As customers are becoming comfortable transacting online, the average ticket size is increasing and high value purchases are rising. Premium brands are also coming online to broadbase their customer base. We see this trend only growing further with increasing smartphone-led penetration of internet,” said a Snapdeal spokesperson.

(Published in The New Indian Express)

Richa Maheshwari, The Economic Times
Bengaluru, 26 February 2016

Snapdeal and Amazon India lost market share in 2015, according to the research arm of Morgan Stanley, as online shopping options grew rapidly in India and established etailers cut back on discounts. But Flipkart managed to marginally increase its share and the Big Three, despite a fall in combined market share, accounted for more than 80% of the total market.
A Morgan Stanley research report released earlier this month pegged Snapdeal’s and Amazon India’s market share in terms of gross merchandise value at 26% and 12%, respectively, in 2015. A similar report published by the same firm last year had estimated the shares of these two companies at 32% and 15%, respectively, for 2014.
While Flipkart maintained its number one slot and increased its share from 44% to 45%, the combined market share of India’s top three ecommerce companies fell from 91% to 83%. Paytm remained steady with 7% market share. The real gainers were small and more-focussed online retailers who saw a jump from 2% to 10%.

Industry watchers said unlike China that is dominated by a handful of ecommerce giants, India’s online shopping market will grow in a ‘more democratic’ manner, like it has in Europe. “Our market will not be like China where you have a few big players like Alibaba, Tmall and JD.com. India will go more the Europe way with many vertical players,” said Nitin Chhabra, CEO of Bengaluru-based ecommerce consultancy firm Ace Turtle.

“Verticals players such as Urban Ladder and Zivame have started nibbling at market shares. India will be far more democratic than China where it is just few big players,” said Chhabra. “This is a healthy sign for the ecommerce industry in India,” said Arvind Singhal, managing director at Technopak, adding, “As the ecommerce space is seeing multiple startups coming in along with several brickand-mortar players, it will be unrealistic to expect them (Flipkart, Snapdeal and Amazon India) to increase market share.”

Experts also believe that leading players might be losing share because of the gradual reduction in discounts. “In 2015, companies started looking at improving margins. As a result customers have started exploring other portals in search of discounts,” said Devangshu Dutta, CEO at Third Eyesight.

Snapdeal said it has one million daily transacting users on its ecosystem, which is more than both Amazon and Flipkart put together.

“This robust and growing user base and frequency of usage are the key metrics to evaluate long-term growth trajectory of businesses like ours. We are working towards our stated goal of having 20 million daily transacting users by 2020,” said a Snapdeal spokesperson in an emailed response.

Amazon challenged the findings of the report. “The report does not reflect what we are actually seeing on the ground as we are growing significantly faster than the growth rates of the ecommerce industry in India and other mentions in the report. We have previously announced that Diwali 2015 was four times bigger than Diwali 2014 and we sold more in Q4 2015 than we did in the entire previous year (2014),” said the company spokesperson.

Flipkart said it would continue to invest in technology and supply chain, and will focus on consolidating its position in the coming years, “We believe that keeping customers at the core of our business and our relentless focus on customer experience has enabled us to earn the trust and faith of millions of customers across the country,” said a Flipkart spokesperson.

(Published in The Economic Times)