Will Government of India allow FDI in food retail?

The big news this week is that the Government is considering allowing FDI in food retail. Inflation, causing ripples across countries, has been felt in retail too. It has dampened consumer spending, causing several retailers to put their plans on hold.

-Chillibreeze Business Research Team

General Plans and Information

Govt may allow FDI in food retail

The government is considering a proposal to allow foreign direct investment (FDI) in food retail albeit with a caveat that all companies would have to meet mandated export obligations. The Ratan Tata-led Investment Commission has favoured permitting FDI in food retail, especially fresh and processed fruit and vegetables, with export commitments.

“We are considering a proposal to allow FDI in food retail. It should be in such a way that it would boost our agriculture. Our farmers must also get benefits of economic liberalisation,” food processing minister Subodh Kant Sahay told ET.

Suggesting that FDI in food retail be allowed, an Investment Commission report said, “Foreign food retailers could help in the transmission and adoption of better practices throughout the supply chain and could also facilitate access to export markets.”

The commission, set up by the prime minister in 2004 to boost investments, makes recommendations to the government on both policies and procedures to facilitate greater FDI inflows.

Agreeing with the panel’s suggestion, Mr Sahay said there was a need to bring market discipline in procuring agro products from farms. “FDI in food retail is the need of the hour. It would mean use of latest technology in the sector, more yield per hectare and optimum usage of arable land. Allowing FDI will create demand across all levels, from raw material to finished products, and, at the same time, maintaining every level of quality and standards,” he said.

He agreed the move could be politically sensitive, but economic growth can’t ignore farm sector. “Anti-retail lobby has to believe that FDI would mean inclusive growth in the sector, contrary to the prevailing fear of price war between big retail and local kirana stores,” he added.

After permitting 51% FDI in single-brand retailing, allowing FDI in select food items, fresh and processed fruit and vegetables is the next step. It would include retailing of farm and dairy produce, marine and poultry products, besides fruit and vegetables. While 100% FDI is allowed in food processing, investment is restricted in retailing.

Today, barely 6% of fruit and vegetables produced in the country are processed. The country has targeted 20% processing within the next few years and is keen on enhancing export of these items from less than 1% to 3%.

The government is considering opening up the $330-billion retail market with adequate provisions to protect neighbourhood stores. The commerce department is waiting for the report being prepared by ICRIER on the impact of retail on local kirana outlets. The study was commissioned to the Delhi-based think-tank after Congress supremo Sonia Gandhi voiced her concerns over effects of FDI in retail on unorganised sector.

April 22, 2008
Source: Economic Times

Inflation blues bites into retailers plans

A dip in consumer spending and the possibility of real estate prices softening have halted the expansion plans of India’s modern retailers. Says Future group CEO Kishore Biyani: “Demand for some categories have declined, which may be attributed to inflation. Some small retailers are also postponing their expansion plans.” According to industry experts, small retailers are the worse hit by the inflation.

Some retailers also say they expect real estate prices to fall further. In anticipation, many retailers have chosen not to invest in property right now. Even those who only a month back had announced their expansion plans are now keeping a low profile. And recruitment has taken a back seat as well.

Realty consultants, who had predicted the property prices to stabilise, claim that more retailers are now approaching them for better deals. Says Jones Lang Lasalle Meghraj chairman and country head Anuj Puri: “Prices have been too high for some time now. If this continues it may not be possible for many retailers to buy or rent out certain properties. Some retailers have been negotiating really hard for acquiring property at the lowest possible price, and prices may come down in the near future.”

Vishal Retail chairman and MD RC Agrawal says: “Yes, the growth now looks quite slow and we are considering whether we should go ahead with our expansion plans as aggressively as before. Though our year-on-year profits are quite impressive, but I must say there has been quite a decline in margins in some segments.”

Adds Spinach CEO Pushpamitra Das: “Supply is a problem. We are now bargaining harder with suppliers to make up for the slip in margins.”

April 18, 2008
Source: Economic Times

Big players - plans and investments

Videocon eyes Rs 10K cr turnover from cash and carry

The Videocon Group is targeting a turnover of Rs 10,000-Rs 11,000 crore from its cash and carry venture in the next four years.

The Venugopal Dhoot-promoted group, which is a leading consumer durables maker and has oil interests, has joined the retail bandwagon with plans to launch 16 stores under the Bolld Cash & Carry brand with an initial investment of Rs 400 crore.

Bolld will have food and groceries, consumer durables, IT and apparel and a range of other product categories.

Sunil Mehta, chief executive officer, Bolld Cash & Carry, said, “The company will invest Rs 2,000 crore in the next three years and we expect a turnover of Rs 10,000-Rs 11,000 crore by the fourth year. We intend to open five stores, measuring 1-1.5 lakh sq ft, in this financial year. The first store is scheduled to be launched in September.”

Videocon plans to take Bolld to Hyderabad, Ahmedabad, Bangalore, Jaipur and Pune in the first stage of expansion.

“The company will introduce private labels in certain categories like consumer durables, in the second phase,” Mehta said. “Our understanding of the local market will enable us to create a pull for the private labels.”

In response to a query whether Videocon would look for partners for the cash and carry venture, Mehta said the company was not looking for tie-ups just now, and that it would undertake logistics and supply chain activities through a group company that already handles their consumer durables operations.

April 20, 2008
Source: Business Standard

India's Bharti Retail opens convenience stores

Bharti Retail Ltd, a subsidiary of Bharti Enterprises, has launched its first food and grocery stores ahead of the roll-out of its wholesale centres that are being set up with Wal-Mart Stores Inc.

Bharti Retail said on Wednesday it had opened three Easy Day stores selling groceries, personal care and household products in Ludhiana in western Punjab state.

Bharti Retail aims to spend $2.5 billion by 2015 in multiple-format stores including hypermarkets and supermarkets, that will compete with Pantaloon Retail India Ltd, the Aditya Birla Group, RPG Group and Reliance Industries.

Bharti Enterprises also has an equal venture with Wal-Mart for wholesale cash-and-carry and back-end supply chain management. The venture will launch the first store by the end of 2008 and aims to open 10 to 15 centres over seven years. The high cost of real estate was a challenge, Managing Director Rajan Mittal told Reuters recently.

The Easy Day neighbourhood stores, measuring 2,500 to 4,500 sq. ft., were offering jobs to vendors of fruits, vegetables and meat, as well as to housewives and retired people, Bharti Retail said in a statement. "These initiatives will help facilitate inclusive growth in communities in which its stores operate," it said.

It may also help mitigate concerns about job losses from the growth of modern retail in India, where only about 3 percent of the retail industry is in the hands of large companies.

The tightly-controlled industry, estimated at about $350 billion, is forecast to nearly double in size by 2015.

April 16, 2008

Source: Reuters

Regional News

Bharti Retail has easy day in Ludhiana

Bharti Retail, a wholly-owned subsidiary of Bharti Enterprises, launched its first food and grocery stores called Easy Day in Ludhiana on Wednesday, reports the media.

The company, which has a JV with Wal-Mart for cash-and-carry operations and a franchisee agreement for front-end retail, aims to spend $2.5 billion by 2015 for opening multiple format stores.

Easy Day stores would offer a wide range of products for daily usage personal care products, stationery, household articles, hosiery items, daily-need groceries such as processed foods, staples, bakery, dairy products, meat and poultry. Bharti Retail is expected to open its first cash-and-carry stores by the end of 2008 and plans to open 10-15 such stores over the next seven years.

April 17, 2008
Source: Economic Times

International

Marks and Spencer agrees India joint venture

Marks and Spencer said Friday it had entered into a joint venture with Reliance Retail of India in the hope of establishing the British food-to-clothes retailer as a "major retail brand" in South Asia.

"Reliance Retail is the ideal partner for us to accelerate our expansion and create the opportunity to open much bigger M&S stores," Marks and Spencer chief executive Stuart Rose said in a joint statement.

Marks and Spencer said it would take a 51 percent interest in a new company, M&S Reliance India, while Reliance would own the remainder. Each partner would initially invest up to 29 million pounds (37 million euros, 58 million dollars) in the venture.

The new company would have the right to operate Marks and Spencer stores in India selling items including women's, men's and children's clothing as well as homewares.
It would aim to open at least 50 new stores in India over the next five years, the statement added.

April 19, 2008
Source: AFP

RIL, Marks & Spencer in 49:51 venture

As expected, Reliance Industries (RIL) and Britain’s Marks & Spencer Group plc announced their joint venture on Friday, but what RIL stands to gain from the partnership remains to be seen.

Marks & Spencer is known for high quality clothes, home products and food.

Though RIL is already present in at least two of these three categories, it is not yet perceived as a retailer of premium and luxury goods.

RIL has agreed to be the minority partner in the company, called Marks & Spencer Reliance Retail India, by holding 49% stake.
The joint venture is expected to open at least 50 new stores across the country in the next five years.
Interestingly, Planet Retail, which is the existing franchisee in India for Marks & Spencer, would continue to operate the 14 stores it has.

Planet Retail is the same franchisee company which was earlier trying to get US coffee major Starbucks into India so that its continuation as a franchisee for Marks & Spencer leaves some questions unanswered.

The value of the initial investment into the joint venture will be up to £29 million or Rs 229 crore (in cash or in kind) between the parties, with both parties agreeing to provide further funding in the future.
The joint venture will have the right to operate Marks & Spencer stores in India selling items such as women’s, men’s and children’s clothing as well as homewares.
The chief executive officer of Marks & Spencer Reliance India will be Mark Ashman while the chief financial officer will be Jatin Luthra.

April 18, 2008
Source:DNA

Carrefour to fix local partner by month-end

France’s Carrefour Group, the world’s second largest retailer, is close to homing in on a local partner for its much-awaited Indian foray. A formal announcement is slated by the month-end.

The identity of the prospective partner is being kept under wraps. However, the Carrefour Group, in a written response to ET’s email query, said on Wednesday: “We plan to open hypermarkets in India with a local partner and wholesale stores by the second half of 2009. We expect to select the local partner by April 2008. We will not disclose the name of the group with whom we are in discussions with in India, but we are not talking with Wadia. Carrefour is talking to some of the potential candidates at the same time.”

There is some buzz in the grapevine about the possibility of the Indian partner being the Aditya Birla Group. The Aditya Birla Group, however, has strongly refuted this. When contacted by ET, Aditya Birla Retail CEO Sumant Sinha said: “There is no truth in this rumour.”

Incidentally, Carrefour’s talks with both the Wadias and the DLF had failed. The AVB Group too had roped in some four-to-five senior executives from Carrefour into its own retail operations, Aditya Birla Retail. These big-ticket hirings include former Carrefour China operations head Russell Berman, who is now heading the AV Birla group’s hypermarket format ‘more’.

Carrefour has already floated a subsidiary, Carrefour Wholesale Cash & Carry India, to undertake the group’s cash-and-carry operations (wholesale retail).

April 17, 2008
Source: Economic Times

Luxury & Lifestyle

Abhishek Inds to spend 200 mln rupees to add stores

Abhishek Industries Ltd, the flagship company of Trident Group, said it will invest 200 million rupees to open 30 lifestyle retail stores across India. Abhishek Industries, which launched its first lifestyle retail store in Chandigarh on Sunday, said in a statement to the Bombay Stock Exchange it plans to open another 100 stores in the next financial year.
The company did not give a figure for the additional investment and officials were not immediately available for comment. Abhishek Industries said 300 stores would be opened across the country by the next three years.

The Chandigarh outlet will house a range of home products. It plans to open another outlet in Ludhiana shortly, Abhishek Industries said.

April 21, 2008
Source: Reuters

Abhishek Ind forays into retail space

Abhishek Industries, the flagship company of Trident Group, has forayed into retail business of home accessories under the brand name of Homespaces.

The maiden outlet of Homespaces was rolled out in Chandigarh on Sunday and the group has plans to open 300 outlets across India this year.

The Punjab-based company initially plans to open 30 company-owned stores across the country by March 2008 and it has zeroed in on ten locations in north India for rolling out its outlets and six of them will be set up in Punjab.

The Punjab-based company initially plans to open 30 company-owned stores across the country by March 2008 and it has zeroed in on ten locations in north India for rolling out its outlets and six of them will be set up in Punjab

“The company is open for expansion through franchise also, if we get worthy partners. However, the company would certainly set up 300 stores,” he said.

April 21, 2008
Source: Business Standard

Apparel & Accessories

Menswear brand Turtle plans more exclusive outlets

Menswear brand Turtle has firmed up plans to roll out 24 exclusive Turtle World outlets across the country in 2008-09. This will take the number of Turtle World outlets from 28 as of end-March to 52 by the end of the current fiscal. Plans have also been firmed up to augment facilities at the company’s design studio in Milan, Italy, according to Mr Amit Ladsaria, Director of Turtle Ltd.

Mr Ladsarai said Turtle World outlets are operational in cities across the country, including Kolkata, Chennai and Bangalore. Of the 24 new outlets that would be opened in 2008-09, eight would be in South Indian cities such as Chennai, Bangalore, Coimbatore, Kochi, Mysore and Thiruvananthapuram.

The Turtle menswear range includes shirts, trousers, casual wear and accessories such as ties and cufflinks. The company will soon expand its produce range to include suits and denims. Turtle products are available at more than 1,000 retail points in 380 cities and towns in India. The company also exports its products to West Asia and Fiji.

Augmenting facilities

According to Mr Ladsaria, the company is augmenting facilities at its design studio located at Milan, Italy. The focus currently is on integrating the work in Milan with the design team here in India. A total of 15 people based in Milan and India are engaged in computer-aided design based on design trends and design forecasts.

By mid-2009, Turtle would have a separate division that would manufacture products for private labels in the domestic and international markets, Mr Ladsaria said.

April 22, 2008
Source: Hindu Business Line

Unique Formats

Retailers on catalogue blitz to increase footfalls

As retailers in India look at ways and means to garner more footfalls, catalogues are slowly emerging as a force multiplier to the marketing initiatives undertaken by various formats. Catalogue marketing, though in its infancy, is seen as an effective marketing tool for formats to target audiences beyond the restricted catchment area. Thus players like Croma, Big Bazaar and Hypercity have initiated catalogue marketing programmes with an eye to increase not only brand visibility but also offtake of certain categories.

Big Bazaar will shortly launch a customised catalogues of what’s on offer within a particular store. Big Bazaar CEO Rajan Malhotra says that the format will be launching the catalogues across 50-55 stores in smaller towns and cities. “Catalogues are add-on media and we think it works best within a particular catchment or city,” he says.

Ajit Joshi, CEO, Infiniti Retail, which runs Croma, says that catalogues reduce the transaction time on the floor. “The purchases are family-oriented and evenings are the peak time at our stores. So, catalogues enable one to exactly zero in on the desired item to take a look before purchasing it,” says Mr Joshi. So for purchasing a LCD or a washing machine, which may take about 45 minutes on the floor, catalogues help reduce transaction time, which means fast turnaround during peak hours. Croma brings out a catalogue every alternate month, with offers on around 200 products for a specific period. Catalogues, as a promotional tool, offers two benefits — it helps create brand recall and allows retailers to promote certain offers and promotions for products. “It helps in advertising new product range on offer and services like extended warranty schemes,” explains Mr Joshi. Hypercity used catalogue to good use when it started operations way back in 2006, says Hypercity CEO Andrew Levermore.

“By using catalogues, retailers can eliminate catchment limitations and hope to cater to a bigger audience,” says AT Kearney principal (consumer & retail practice) Hemant Kalbag. Big Bazaar had initiated catalogue programme some years back, but discontinued it as the format grew bigger and using mass media became a viable option. “But now promotional effort is also necessary. It complements our mass media activity. Catalogues help in local area activation as the categories within a store has grown with a lot more SKUs added than before,” explains Mr Malhotra.

Typically, catalogues are distributed as newspaper inserts, stocked within the store or distributed in and around the catchment area. But using a blanket bombing approach to distribute them often doesn’t lead to desired results. What’s needed is a more focussed approach where retailers can use their existing database and customise accordingly.

“For any retailer with a large customer loyalty scheme database, mailing these leaflets to this base is very effective. Newspaper inserts are helpful if you want to target a specific customer profile. The worst results in our case come from a blanket delivery of leaflets into an area,” says Mr Levermore.

There are possibilities of creating synergy between catalogues and other mediums like phone-ins and internet, but in India it is still sometime away. “When it involves high-ticket purchases, customers still want experience the product before purchasing.

Certain consumer segment, as the market evolves, can look at phone-in or internet after browsing through the catalogue,” explains Mr Kalbag. In the Indian retailing arena, trial and error is the norm. Looks like catalogue marketing will also go through stages of evolution as well in the time to come.

April 21, 2008
Source: Economic Times

Grabbit to launch apparel vending machines

Buying apparel through a vending machine may soon become a reality, coming as a Godsend to brands and retailers who do not have a store to sell their wares in malls.

The idea to vend apparel through machines is being purveyed by Grabbit Franchisee Lette, a vending service provider, which is in talks with brands like Raymond and Spykar to launch the apparel vending machine very soon, a top company official said.

This would help brands and retailers who do not have a presence in malls to sell their products through vending machines, Grabbit Franchisee Lette's Managing Director, M D Nayar, told media here.

"We have already tied-up with Nari for the roll-out of its products which would be commenced soon," Nayar said.

Nari is an ethnic-wear brand owned by Raju and Karan Ahuja.

Grabbit would commence operations with ethnic wear and swim suits before branching into other segments, Nayar said.

"We have already launched vending machines for jewellery and have tied-up with brands like Kisna for diamonds and Agni for gold," he said. Cosmetics are also being sold through these machines.

On the company's revenue model, Nayar said that the company would buy the goods at a discounted rate from brands and then sell them through the vending machines at the maximum retail price (MRP), he said.

April 20, 2008
Source: Economic Times