Devika Singh

Isha Ambani, director of Reliance Retail Ventures Ltd, said on August 29 that the company would soon enter the packaged consumer goods segment. Here’s how the move would impact the segment and existing FMCG players.

With this foray, Reliance Retail will be competing with the likes of FMCG behemoths like Hindustan Unilever, Nestle, and Britannia.

Reliance Retail’s announcement on August 29 that it would enter the packaged consumer goods segment has created buzz in the market.

The retail giant’s entry into the so-called Fast-Moving Consumer Goods (FMCG) sector is set to intensify competition as it does in every new industry that its parent, Reliance Industries Ltd (RIL), enters, experts say.

With the venture, Reliance Retail will be competing with FMCG behemoths like Hindustan Unilever, Nestle and Britannia in an industry valued at over $110 billion.

Even so, the company potentially confronts multiple challenges in its intended venture into FMCG.

“The competition intensifies in every segment that Reliance gets into because of their approach of being aggressive and not just in terms of growth. The company also wants to acquire market share very rapidly. The telecom sector was a prime example of this,” said Devangshu Dutta, CEO of retail consulting firm Third Eyesight.

“However, Reliance’s entry into any consumer-facing business has always been a long play,” he added.

The intended entry of Reliance Retail, the retail arm of RIL, into FMCG was announced by Isha Ambani, director of Reliance Retail Ventures, at RIL’s 45th Annual General Meeting (AGM) on August 29.

“I am excited to announce that this year, we will launch our Fast-Moving Consumer Goods business. The objective of this business is to develop and deliver high-quality, affordable products which solve every Indian’s daily needs,” Ambani told shareholders.

Isha Ambani was introduced as the leader of the company’s retail business by Mukesh Ambani, her father and Chairman and MD of RIL, at the AGM.

In his speech, Mukesh Ambani also said that he is hopeful of the retail arm emerging as the largest segment within the group.

Private labels

Reliance Retail already has a presence in the FMCG segment in the form of private labels that are sold in the company’s chain stores such as Reliance Smart, Reliance Mart, and its online grocery platform JioMart.

Brands like Good Life, Best Farms, Desi Kitchen, Snac Tac, Yeah!, Safe Lite, Petals, Mothercare and Calcident are some private label FMCG brands that the company sells.

Private labels (including in the fashion and lifestyle segment) contribute 65 percent of the company’s revenue.

According to analysts, the company initially is going to expand its private label offerings and will focus on segments in which it already has a presence.

“The products which it plans to sell range from groceries like pulses and grains, edible oils, flour, dry fruits, spices, pickles, pastes, idli dosa batter, snacks which include biscuits, namkeens and sweets, ready-to-cook meals, ketchup, jams, carbonated drinks, fruit juices, breakfast cereal, oats, muesli, honey, sauces, tea and coffee in the foods space,” said a note by Edelweiss.

In the non-foods space, the company sells products like soaps, shower gels, hand wash, face wash, hair oils, talcum powder, sanitisers, sanitary pads, diapers, toothpaste and toothbrushes, nail enamel, beauty and hair accessories, and daily essentials including deodorants, nail clippers and scissors, the securities firm said.

Edelweiss said it expects Reliance Retail to initially target the commoditised parts of FMCG like pulses and grains, edible oils, flour, dry fruits, spices, pickles, pastes, idli and dosa batter, namkeens, sweets and lower-end detergents.

Potential strategies

Experts indicate that much on the lines of its earlier playbook, Reliance Retail is likely to adopt organic as well as inorganic strategies for growth in the sector.

“Reliance aims to be a dominant player in every segment and, hence, the company, besides organic growth opportunities, is also likely to look out for acquisitions in the space,” said Dutta of Third Eyesight.

Edelweiss also expects Reliance Retail to acquire regional entities and Direct-to-Consumer (D2C) brands and also target unorganised/regional brands in most FMCG segments it enters.

The company, analysts said, will also look at value-play to gain penetration into the categories.

Impact on the competition

According to experts, the move is set to intensify competition in the segment and may have an impact on existing FMCG companies in the near term.

“We don’t expect a big impact on numbers of existing players from a two-three years’ perspective. However, near-term multiples could come under risk for some companies Hindustan Unilever, Britannia, Marico, Adani Wilmar, Godrej Consumer Products, etc. It will not have much impact on Nestle, Colgate, Dabur, ITC,” Edelweiss wrote in its note.

The impact on the industry will depend on the level of aggression Reliance Retail summons in product launches.

Challenges

FMCG is a well-established segment with well-known brands that have a huge distribution network, and cracking the market would be the biggest challenge for Reliance Retail, industry experts suggested.

“It is tough for new players to get shelf space in kirana (grocery stores). Earlier, we have seen some retailers entering the segment but with little success,” Edelweiss said.

“The existing players have decades of loyalty with consumers and relationships with distributors,” it added.

Analysts indicate that even after getting shelf space, new FMCG players have to constantly innovate to stay ahead of the curve.

“A company can offer early-stage incentives, launch offers to retailers to grab the shelf space but then it has to keep reviving that engine constantly, which is not easy,” said Dutta.

Although Reliance Retail has a significant share of modern retail trade through its grocery chains, the company needs to build a multi-tier distribution network, especially in general trade, which commands 80-90 percent of FMCG sales.

Disclosure: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

moneycontrol

Written By Akanksha Nagar

Having acquired Patanjali Ayurved’s food retail business, the company has ambitious plans

While its edible oil business has been its mainstay, Ruchi Soya’s CEO Sanjeev Asthana is confident that the share of FMCG revenue could touch 20% this fiscal.

Ruchi Soya has its sights set on clocking `20,000 crore- `22,000 crore in revenue over the next five years from its FMCG business, after recently having acquired Patanjali Ayurved’s food retail business worth `690 crore. The Patanjali food portfolio comprises 21 major products, including top-selling items such as ghee, honey and juices, besides staples such as atta and spices.

To achieve its target, Ruchi Soya plans to launch a D2C (direct-to-consumer) channel in the next two months for its nutraceuticals business, with more categories to follow, while also increasing its investment on e-commerce and expanding its offline footprint. It is quite active across all key online marketplaces including Flipkart, Amazon and JioMart.

According to the latest Statista report, India’s FMCG market was valued at $110 billion in 2020, and by 2025, it is expected to touch $220 billion, as more brands adopt the D2C route. Several top FMCG makers, including Hindustan Unilever, Dabur and Emami, have launched D2C brands in the past two years.

Oiling other products

While its edible oil business has been its mainstay, Ruchi Soya’s CEO Sanjeev Asthana is confident that the share of FMCG revenue could touch 20% this fiscal. It is targeting `7000 crore in revenue from FMCG and `25,000 crore from commodity sales by the end of FY23. “Over the next five years, the revenue split between FMCG and commodities will be equal,” he says.

Furthermore, Ruchi Soya plans on consolidating and rationalising the Patanjali food portfolio, while simultaneously revamping some of its existing products. “The aim is to reposition the entire company towards being a food FMCG major,” says Asthana.

Following the acquisition, Ruchi Soya will be renamed Patanjali Foods (after regulatory approvals). Asthana says that brands such as Nutrela, Mahakosh, Ruchi Gold and Sunrich will continue to be marketed under their existing names, while all the businesses that are coming in from Patanjali will use the Patanjali brand in exchange for a brand licensing fee

evangshu Dutta, chief executive, Third Eyesight, says the company name change may work in its favour, since there is a large audience aligned with the image and values of Patanjali Group and its founder Baba Ramdev.

Casting a wide net

But not all is smooth-sailing. Alagu Balaraman, CEO, Augmented SCM, suggests for the company to scale up, it needs to build a robust traditional distribution network, since a bulk of sales still happens through these channels. “The cost of doing e-commerce delivery is significantly high,” he notes.

Ruchi Soya is working on those lines. Asthana says besides utilising Patanjali’s existing distribution muscle, it is expanding its offline retail footprint by adding 10,500 non-exclusive modern grocery stores and 4,500 exclusive ones every month.

Source: financialexpress

Written By Christina Moniz

D2C brands take the offline route to widen reach

Direct-to-consumer (D2C) brands are fluffing up the Indian mattress category with promises of lower prices, mattress-in-a-box convenience, 10-year warranty and 100-day trials. In a market that is predominantly unorganised, startups such as Wakefit, The Sleep Company, SleepyCat and Flo are aspiring to establish themselves as better alternatives to legacy brands such as Kurlon and Sleepwell, with most of them looking at the offline retail route too, to boost sales.

According to a Research and Markets report, while India’s overall mattress market has grown at a CAGR of over 11% in the last five years, the organised industry has grown at 17%. The mattress category in India is worth `12,000-13,000 crore; of this the organised segment commands 40% share.

New-age mattress brands are able to deliver products at lower price points by taking control of the entire consumer journey – from product discovery to post-sales support. Therefore, these D2C brands save big on distributor and retail margins, says Devangshu Dutta, CEO, Third Eyesight. These savings go towards compensating for higher customer acquisition costs and logistics, he observes. The elimination of the middlemen means that customers get their products at 30-35% less than what traditional players offer.

However, these digital-native companies are aware that they operate in a touch-and-feel category, which is why many offer a 100-day trial period. Priyanka Salot, co-founder, The Sleep Company, says that the product return rate is only 2-3%, and the returned mattresses are donated to charities but never resold. The Sleep Company, which entered the market a little over two years ago, is eyeing a turnover of `1,000 crore in the next five years, and has plans to launch its first offline store in a few months.

Online players also save on logistics, says Chaitanya Ramalingegowda, co-founder and director at Wakefit. “We implemented the roll-pack technology that allows the mattress to fit into a compact box. This lets us ship more products at a time,” he says. Wakefit has only two factories—one in north India and the other in south India—as opposed to older players with 10-12 factories across the country, he points out. The company hopes to close FY22 with a turnover of 630 crore, up from197 crore in FY20. It has one offline experience centre in Bengaluru, with plans to launch 10 more across five cities soon; these centres will not only be experiential, but also double up as booking/ retail sales outlets.

Offline boost

Rajat Wahi, partner, Deloitte India, points out that these new-age mattress brands must establish deeper offline distribution to expand reach. “After all, more than 90% of retail is offline in India,” he notes.

This is why D2C brands are not only taking the offline route, but also foraying into other segments like furniture and sleepwear. Kabir Siddiq, founder and CEO of SleepyCat, says the brand has plans to launch around four experience centres, and aims to become a one-stop shop for all sleep and comfort solutions, offering comforters, pillows and even bedding for pets.

Is the proliferation of D2C players giving legacy brands sleepless nights? Mohanraj J, CEO, Duroflex, says it has been akin to a “wake-up call”. He says the company has poured in investments into the D2C segment in the past few years, and now even has a completely online brand called Sleepyhead, catering to the millennial consumers. “Until recently, about 10% of our company’s growth was from online sales, but we expect that number to change to 30-35% this year,” he adds.

Despite the influx of new-age players, he maintains that Duroflex has doubled its growth in the past two years, with traditional retail registering 25-30% annual growth.

Source: financialexpress

Written By Sangeeta Tanwar

Two of India’s leading retail chains are currently preparing the ground for their full-fledged e-commerce forays, albeit in totally different ways.

While the Kishore Biyani-led Future Group, which operates the popular Big Bazaar hypermarket chain, is busy listing its labels on Amazon, rival Reliance Retail is withdrawing its products from all e-commerce platforms, as parent Reliance Industries (RIL) gears up to launch its own online marketplace.

For both the traditional players, cracking online sales is important as they prepare for a future beyond high street retail.

Online sales in India will balloon from last year’s $18 billion (Rs1.25 lakh crore) to $170 billion by 2030, Jefferies India predicted recently. This potential aside, Indian e-commerce is still nascent and retailers are still perfecting their strategies.

“E-commerce is now a game of two dimensions, one of scale and the other of last-mile ubiquity. Whoever gets this right, will manage growth, revenue, and customer acquisition,” said Anil V Pillai, director of the independent marketing firm Terragni Consulting.

As for the Future Group, it thinks the best way to achieve this is by riding piggyback on Amazon’s proven capabilities in scale and last-mile delivery.

How the plan evolved

In 2016, the Future Group had made its first e-commerce acquisition by buying out the struggling furniture retailer FabFurnish from its German incubator Rocket Internet. Biyani had hoped to find synergies between the startup and his group’s furniture brand Hometown.

A year later, hit by heavy losses, FabFurnish was shuttered. Biyani downplayed the move saying his losses were “compensated” as the company had learnt “enough” from the episode.

The move now to partner Amazon seems to have stemmed from that learning.

Over the past month, the two have been trying to make joint plans, including in distribution, warehousing, and creating products for Amazon and its grocery format, Pantry. Also, Future group brands, including Big Bazaar, are being aligned with Amazon Now, which promises delivery of everyday essentials within two hours, suggest media reports.

A more serious handicap will be Amazon controlling Future Group’s data and customer relationships in the partnership. “In e-commerce, ownership of customer relationship and data, which offers consumer insights, is the real asset,” points out Devangshu Dutta, CEO of Third Eyesight, a consulting firm focussed on retail and consumer products.

Vianello agrees: “When you have your own e-commerce venture, as Reliance Retail plans, you are the owner of the data and you can slice and dice it to come up with exciting product offerings and improved service experience.”

This is one of the advantages that RIL might have seen in going it alone.

Going solo

“Reliance Retail has taken a more integrated approach towards e-commerce,” observed Dutta. “The company is set to leverage its pan-India retail presence and Reliance Jio’s (RIL’s telecom business) data capabilities to roll out an e-commerce platform,” explained Dutta.

The synergy between Reliance Jio and Reliance Retail is a big advantage. The retailer has about 10,000 stores across 6,500 towns in India, while Jio has a subscriber base of 306 million. After bringing many Indians online with Jio’s affordable data offerings, Reliance now hopes to get most of them to start shopping online as well.

The challenge, though, would be in getting the last-mile delivery right. “Reliance Retail could be at a disadvantage here compared to the Future Group, which has its delivery mechanism in place courtesy its partnership with Amazon,” suggested Vianello.

Moreover, like with Jio, consumers will expect heavy discounts from Reliance’s e-commerce venture as well, which may be difficult to sustain given the initial investments. “Biyani’s (online) launch involves lower upfront costs, while Reliance Retail’s will be resource hungry since it’s an almost greenfield project,” pointed out Pillai, adding, “Reliance’s challenge is the overwhelming perception about the group being a price warrior and disrupter.”

So, which strategy will triumph? Everything comes down to execution. “Success in retail, including e-commerce, is about more and more customers choosing to transact with you repeatedly. Achieving this is a difficult and ongoing process. There are no guaranteed or permanent winners,” says Dutta.

Source: qz