Mom & pop stores will retain 84% of retail pie till 2013 – ICRIER Study

The ICRIER study allayed some fears with their findings – mom & pop stores will rule at least until 2013. Meanwhile, the unorganized or small stores are gearing up to deal with changes in the industry, even as organized retailers continue their efforts to include smaller retailers in the growth story.

-Chillibreeze Business Research Team

General Plans and Information

Mom & pop stores shall rule 84% of retail till ’13

Allaying fears of mom & pop store owners, a study by the Indian Council for Research on International Economic Relations (Icrier) has found that the unorganised sector will retain around 84% of the retail market till the year 2013.

The share of the unorganised sector will come down with the advent of large-format stores, but any negative impact will wear off with time, the think tank has indicated in the largest study so far on retail sector in India. The study would be submitted to the government on May 9.

Icrier was commissioned the study early last year after the Prime Minister’s Office (PMO) directed the commerce and industry ministry to get an assessment done on the impact of organised and big retail on the smaller mom & pop stores.

Pointing out that organised retail does not have an adverse impact on intermediaries, the study found that unless retail trade is modernised, bottlenecks would continue. Another key recommendation is that the government should rationalise licensing norms to encourage growth of organised retail.

The Icrier study does not talk about the role of foreign direct investment in the retail sector, but is only an assessment of the impact of organised and modern retail on mom & pop neighbourhood stores. Around 2,000 mom & pop stores and 1,000 consumers across the country were surveyed for the study.

One of the most important findings of the study is that mom & pop stores have so far been able to adjust to the emergence of organised retail and malls.
Comparing regions in the south (where organised retail has been around for long) with those in the north (where organised retail is a very recent phenomenon), Icrier has concluded that the impact of modern retail on the profitability of small stores wears off with time.

This finding is interesting since large players, particularly Reliance Industries’ fresh fruit and vegetable outlets, have been a target of protestors alleging such stores snatch the livelihood of small traders and kirana stores.

Icrier has also found that none of the small stores are affected by organised retail to the extent that they want to move out of this business. Even a large majority of the next generation of those owning mom & pop stores have said that they want to remain in this business, despite the advent of organised retail. Then, even customers appear to favour the existence of big guys, saying they would like both organised retail and mom & pop stores to co-exist since they derive value from both. Very few of those surveyed wanted one of the two formats to go.

May 4, 2008
Source: DNA

Franchised companies report 20% higher sales

What is common to cricket, Coca-Cola and Kentucky Fried Chicken? All three have grown through franchising. With the Indian Premier League, franchising has been a success formula in cricket as well, said an expert.

Researched reports indicate that franchised outlets of leading brands sell 20 per cent more compared with company-owned ones, Mr Rod Young, Executive Director, DC Strategy, a global specialist in franchising consulting, told Business Line.

Noting that franchising in India has immense potential, he said the $4-billion industry in India has employed 97 lakh employees. “The nearly two lakh-odd franchisees in India will double by 2010 and this will cut across all sectors,” he said. In the US, the listed companies are also looking at the franchising model, he added.

Mr Young said that a good franchising model is all about providing a good customer experience and global brands are adopting it to tide over issues such as attrition and high rentals. “Franchises understand the lifetime value of a customer. Therefore, every customer is a king.”

However, poor customer experience by the franchisee can spoil the brand, he noted. “Franchising and compliance go hand-in-hand and a good brand should immediately terminate a franchising arrangement if compliance in terms of services is not met with,” he added.

Mr Young said both India and China have seen a growth in the franchising model but it is more successful in India as its legal framework is better. “MNCs looking at India can make the most of the franchising model as it is a capital-raising mechanism, besides retaining equity base and control of the company.”

May 1, 2008
Source: Hindu Business Line

Big players - plans and investments

Wardhawan group plans big investments in F&B, lifestyle

Real estate and retail player, Wadhawan Group is now betting big on food and beverages and lifestyle segments and planning to invest around Rs 3,500 crore in launching new restaurants format and luxury retail expansion plans.

The group has recently entered into a tie-up with Dubai-based Jumeirah Group in order to bring in South East Asian cuisine restaurants for the first time in India, branded as ‘Noodle House’.

According to Srinath Sridharan, vice president & head - strategic alliances, Wadhawan Holdings, “Dish Hospitality Private Ltd, an enterprise of Wadhawan Holdings Private Ltd, promoted by the Wadhawan Group, is planning to set up 35 Noodle House restaurants in India at an investment of Rs 1,500 crore in the next four years.

The cuisine at this restaurant will comprise Chinese, Japanese and Thai, among others. The dining for two at this restaurant will cost around Rs 1,000 to Rs 1,500. Plans are on the anvil to launch Noodle House restaurants as a stand alone format as well as within malls.

Further, Sridharan also informed that Dish Hospitality is planning to foray into the international Markets such as Europe and UAE in order to set up luxury dine-in restaurant called ‘Aurus’. The company has set up a luxury ‘Aurus’ dine-in restaurant in Juhu, Mumbai where a dine-in for two costs over Rs 6,000.

Wadhawan Lifestyle Ltd is planning to set up four US-branded ‘Christian Audigier’ lifestyle apparel and accessories outlets each in Markets such as Delhi, Bangalore, Hyderabad and Chandigarh. Says Sridharan, “We are also looking at setting up two US branded ‘Ed Hardy’ lifestyle apparel stores in India. Each store will have an area size of 2,200 sq ft.”

Apart from this, Wadhawan Food Retail is planning to set up 1,500 branded retail stores, at an investment of Rs 1,500 crore, in the next two years.

May 4, 2008
Source: Financial Express

Aditya Birla Nuvo bets big on apparel retail

Aditya Birla Nuvo plans to extend its footprint in apparel retailing through two subsidiaries for men's exclusive lifestyle and Peter England family stores. Madura Garments, the company's branded apparel division, crossed a turnover of Rs 1,000 in FY08.

The company is eyeing the super premium and luxury segment with plans to open three men's exclusive lifestyle stores in Bangalore, Delhi and Mumbai. Madura Garments will introduce international brands and is expecting a turnover of Rs 4,500 crore in three years.

Vikram Rao, business director (textile and apparel), Aditya Birla Nuvo, said, "We plan to open 10-15 men's lifestyle stores in three years with investments of Rs 600 crore. The foray in luxury retail will provide us an opportunity to trade up and gain a larger market share." Madura currently retails premium shirts up to Rs 4,000 and the new venture will cater to higher price points.

The company will also invest Rs 400 crore in the next five years to open 80 Peter England family stores and consolidate the mass brand business. It plans to launch 10 stores in this financial year, with the first five stores expected to open in 6-8 weeks.
The Peter England family stores, spread across 12-15,000 sq ft, are estimated to clock business worth Rs 1,350 crore in five years.

However, the high real estate costs and long gestation period for new stores impacted the profitability of the branded apparel business. Rao said, "The fashion brands operations grew by 28 per cent and mass brands registered a growth of 23 per cent. But the bottomline was impacted due to the high realty prices as the company made critical investments for retail expansion last year. "The fourth quarter was better as we took measures to improve retail productivity and manage cost pressures."

May 3, 2008
Source: Business Standard

Landmark eyes treble Indian retail business

The Dubai-based Landmark Group expects its Indian retail business to treble in next three years. The company operates chain of Lifestyle department stores and has launched the home decor retail format ‘Home Centre'.

The company has launched 14 Lifestyle stores in India and plans to increase this number to 35 in next three years. It intends to open 15 Home Centres in an attempt to tap the home decor market.

Kabir Lumba, executive director, Lifestyle International said, " We closed last financial year with Rs 693 crore and aim to treble the turnover in three years. Lifestyle retails a mix of brand and private labels, home space is an exciting area as there are few brands."
Lumba maintained that, though the negative consumer sentiments have impacted per store growth, it still is in healthy two digit figure. "There is a dip in sales since 4-5 months but it is not as bad as the last year", he said.

May 2, 2008
Source: Business Standard

Adidas to open eight more 'Adidas Originals' stores

Encouraged with annual growth rate of 30-35 per cent in India, Sports goods firm Adidas today announced to expand its presence by opening eight 'Adidas Originals' stores in the metros within a year.

"We have plans to cover all the major metros such as Chennai, Mumbai, Hyderabad for the opening of 'Adidas Originals' outlets within the next 12-15 months," Adidas India Marketing Private Limited, Managing Director, Andreas Gellner told reporters here while inaugurating second such store.

The company also wants its foothold in tier III and IV cities with opening of its sports performance showrooms during this year. "We have decided to open 150 more outlets by the end of the year, taking the total strength to 450," he said.

On being asked about the appointing any brand ambassador, he said that the company was seriously looking to appoint an Indian personality. "But we are not looking for commercial endorsements. Rather we want non-commercial relationships as we are following in global markets," he said. He said celebrities such as Madonna, Robbie Williams and Gwen Stefani continue to sport trefoil-a symbol of Adidas.

Projecting that India would be among 12 top markets for the company in the next 3-4 years, he said Adidas would be investing 8 per cent of its total sales from the country on marketing initiatives.

However, he refused to divulge details regarding sales from Indian market but added that Adidas globally clocked turnover of 10 billion euros in 2007. According to Gellner, Adidas has 25-30 per cent market share in the country's sports footwear and apparel market while Reebok commands 45-50 per cent.

May 1, 2008
Source: Economic Times

Regional News

Future, Reliance, M&M on rural retail roads to Gujarat

After an aggressive buyout by Reliance ended Adani group’s rural retail plans, Gujarat is getting ready to see at least three big boys of Indian retail taking the rural roads for a major push. Future Group, which has just formed a JV with Godrej Agrovet, Reliance and Mahindra are set for a major foray in the lucrative rural Gujarat market.

While Reliance will launch 15 rural retail hubs, Godrej Adhar, powered by the 70% Future Group stake, will increase the number of stores to 20 in the next two years.

Mahindras too are on an expanding mode. The company, which has so far been only in agri-input retailing, will add more products to its retail portfolio. The retail rush is fuelled by prosperity and increasing consumerism in the Gujarati hinterland. According to Piyush Kumar Sinha, professor of marketing and chairperson, centre for retailing, Indian Institute of Management Ahmedabad (IIMA), Gujarat’s good road connectivity has already erased the rural-urban shopping divide to an extent.

“Almost all the big format retail chains are present in Gujarat’s smaller cities and people from all over the state shop there. It is a myth that rural Gujarat does not spend as much as say people in rural Punjab. The rural spends are as high (in Gujarat),” he adds.
Both Reliance and Pantaloon will adopt the hub and spoke model. The smaller sourcing centres (spokes) that will feed the main centres — hubs — that in turn will provide extension services and retail agri-inputs together with consumer products like apparel, FMCG and durables.

The semi-urban and rural areas of the state may be the gainers of consolidation in the industry that bridges the rural and urban retailing divide. Gujarat is likely to see more action from other long-term agri-retailers, who have ignored the state for more lucrative Maharashtra and Punjab.

Established rural retailers like ITC Choupal Fresh, Mahindra and Mahindra Shubh Labh Stores and DCM’s Haryali Kissan Bazar et al hardly had any presence in Gujarat. However, the companies are re-thinking their strategy for the state, which was not considered an attractive destination for retailing of agri inputs, sourcing agri products or for contract farming.

“Most of the rural retailers started as agri-input providers, be it Tata, DCM or ITC. They have a different model for retail that is based on sourcing agri-inputs. Gujarat was not their core market,” says Mr Sinha.

May 2, 2008
Source: Economic Times

Parsvnath to invest Rs 250 crore on Delhi mall project

Real estate firm Parsvnath Developers Ltd will invest Rs 250 crore to develop a mall-cum-office building near New Delhi's central business area, its head said on Friday.

Parsvnath has paid 2 billion rupees to acquire a 5,735-square-yard plot near Connaught Place in New Delhi. It will spend the balance on construction of a luxury mall and high-end offices at the site. "We will start construction in 4-5 months and complete the project within 24 months," Managing Director Pradeep Jain told the media.

"About 40 percent area will be reserved for retail and another 50 percent for office space," Jain said. "We plan to lease out the entire space." He expects lease rentals of around Rs 1,000 per sq ft for retail space and 500 rupees a sq ft for office space.

According to property consultants Cushman & Wakefield, retail rentals in the Connaught Place area average around Rs 775 per sq foot a month. Office rentals in the area are currently around 335 rupees a sq foot a month, but are seen going up. Parsvnath shares were trading at Rs 234.25, up 1 percent in a strong Mumbai market.

May 2, 2008
Source: Economic Times

Jewellery Retailing

Organised retail jewellery set for major expansion

With the entry of Rajesh Exports Ltd, world’s largest exporter and manufacturer of jewellery into gold retaining, the organized jewellery market is set for a major expansion in India.

At present, the market is dominated by Tanishq belonging to the Tata group with a sales turnover of Rs 1200 cr which is expected to touch Rs 2000 crore this year.

The market for organized jewellery retailing in India is estimated at Rs 20 bn and is expected to grow more than 40% per annum. “ We believe that the Indian market offers attractive growth opportunities, given the fact that India is the world’s largest consumer of gold and gold jewellery, accounting for approximately 27% of the global consumption,” according to EMKAY Research.

At present, orgnaised jewellery market constitutes only four percent of the total business which is expected to rise to seven percent in 2010, according to EMKAY Research. Globally, organized retailing comprises thirty percent of jewellery sales.

Titan, which is the biggest jewellery retailer in India with 40% and above market share, can be used as a proxy for the organised retail jewellery market in India. It has already demonstrated a CAGR of 60% (FY06-08) in its revenues from the jewellery business, the brokerage said.

Rajesh Exports Ltd might pose stiff competition to Tanishq in the branded jewellery segment with three categories of retail chains being set up all over India. It has launched Shubh and Laabh stores to tap value and fashion conscious customers respectively.

It has aggressive plans to increase the number of stores (Shubh + Laabh) from 38 at present to 160 by FY10E. “We believe that REL’s foray into the high margin retail business coupled with its economies of scale will lead to sharp expansion in profit margins in global markets at very competitive prices,” Emkay Research said.

India is the largest consumer of gold and gold jewellery accounting for 27 percent of world gold consumption and 23 percent of gold jewellery consumption. According to latest figures, consumption of gold jewellery is 558.2 Mt annually which constitutes 23 percent of global jewellery consumption and total gold consumption is 773.6 MT at 27%.

May 4, 2008
Source: CommodityOnline

Unique Formats

A decade on, Amway feels it has just started out

Amway, which will complete a decade of direct selling in the country next month, says that the company has taken a long-term view in India and in the first decade of operations, has set a strong foundation for growth.

“We do think that we have just started out in India. We have built the right product portfolio and positioned ourselves for growth in the country,” said Mr Bill Pinckney, Managing Director and Chief Executive Officer of Amway India Pvt Ltd.

According to him, the company was keen to get its act right and there was a need to adapt the business for the Indian market. He added that the direct selling industry will boom in the next 10 years as the middle-class segment expands.

Providing a comparison, he said that while the direct selling industry in India stood at Rs 3,000 crore currently, it was at Rs 15,000 crore in a developing economy like Mexico, which has a population of 90 million. The huge gap, he said, could be put down to the fact that the industry was a late entrant in India, starting out in 1998.

In an effort to reach out to a wider cross-section of consumers, Amway has launched a range of products under the Great Value brand aimed at the mass market. The launch of the range, comprising coconut oil, amla hair oil, shaving cream, hair cream and disposable razors, follows close on the heels of the launch of the Attitude range of cosmetics in December last. The latter, priced about 30 per cent lesser than the company’s super-premium Artistry range, is slotted in the premium category.

The Great Value range is priced on par with other brands available in the retail segment, said Mr Pinckney, adding that the brand value built up over the past few years would help the company sell the new line in the market.

Speaking with journalists on a company-sponsored trip to the manufacturing site of Amway’s largest contract manufacturer, Sarvotham Care, in Baddi (Himachal Pradesh), he said the company was bullish about its growth prospects and was targeting a turnover of Rs 1,000 crore in calendar year 2008. It had recorded a sales turnover of about Rs 800 crore in 2007.
When asked about a perceived dip in its presence in the marketplace with one coming across fewer business owners, he said this could be attributed to the fact that the company had been able to develop a base of customers and a percentage of sales was now being conducted on the basis of referrals over the phone.

The company’s products fall into four categories: health and wellness products, cosmetics and skin care, personal care and home care. Mr Pinckney said that the company would be expanding its product portfolio with the launch of some surprise products later this year.

May 6, 2008
Source: Hindu Business Line