Retail News December 2006

STRATEGY AND TRENDS

Experts predict a shakeout

Reliance's mega launch in the retail sector has propelled its rivals to ramp up operations which experts estimate will lead to a retail revolution in the next 3-5 years, followed by a shakeout. The potential for growth is still immense, with penetration only at 5% at present.

Current initiatives:

Source: Financial Express

Can the retail sector accommodate everyone?

With the big guns of retail focusing on Hyderabad and opening multiple stores, local vendors worry that the market might not have room for them anymore. With Reliance, Subhiksha, FoodWorld and Spencers buying fresh fruits and vegetables directly from the farmers, local vendors who cannot source directly for farmers and have to use middlemen might become more expensive then modern retail outlets.

Another concern is that modern format retailers will purchase all the good quality produce, and only second grade produce will be left for the lower-income groups. Mr. Madhu, a senior CPM leader and Rajya Sabha member said, "They (the organized players) sell at low rates initially. But once their supplies are streamlined, they will increase prices sharply."

Source: The Hindu Business Line

Modern retail formats create new marketing strategy

In an interesting turn of events, modern food retail chains such as Spinach, Reliance Fresh, Spencer's and Food Bazaar are all in talks with local mom and pop grocers to stock and distribute their in-house brands in the food, home and personal care categories.

If kirana stores agree, they will be able to get higher margins on them in comparison to established brands and the retailers get higher volumes. These private labels will be sold either under their current brand names or would be changed to new names.

With competition growing between the two formats, kirana stores are wooing customers with multi-pack offerings, larger product categories and new ways to grow the business. Private labels are generally 20-25% cheaper than national brands.

HLL refashioning kirana stores

Hindustan Lever Ltd (HLL) has launched a project to improve the quality of kirana stores and make them compete with modern retail formats. The 'Super Value Store' programme is targeting mom-and-pop stores to update their look and help them add value to their stores. HLL will be buying shelf space from the retailer and giving a 3% discount to the retailer on its products. Besides theses tangibles, HLL will also train kirana stores on modern retail basics.

Industry sources estimate that the Super Value Programme will cover 15,000-20,000 kirana stores. One such store in South Delhi, who has been inducted in the program, has already seen a 20% increase in stores sales and a saving of Rs. 5,000-6,000 due to incentives of the scheme.

Big Players

It's happened finally - Bharti Enterprises tied up with Wal-Mart, signalling the entry of the global biggie in arguably the world's most watched market. And if the news below is any indication, it does not seem to have halted any of our homegrown biggies in their tracks.

- Chillibreeze Business Research Team

Wal-Mart is coming to India

Wal-Mart's entry to India is now official. The US giant will be entering the Indian market with a joint venture agreement with Bharti Enterprises. The partnership will be an equal one with the stores owned by Bharti Enterprises operating franchised stores of Wal-Mart. The stores in India will be offering a low price to shoppers as the US stores do.

Sunil Mittal, MD of Bharti Enterprises said, "The joint venture, with equal stakes, will operate in areas where government allows foreign investment in retail, like cash-and-carry and logistics."

Future Group to invest $250 million in hospitality sector

The Future Group will soon be getting into the hospitality sector by setting up a chain of fast-food thali restaurants. The company is still finalizing strategy to enter the hospitality sector. The company will be investing close to $280 million through its financial division Futures Capital. According to sources, the company will be leveraging its Yatra brand for the chain of thali restaurants.

The Future Group is also looking for partners in the hospitality business for setting up budget hotels and mixed use hospitality services and is likely to target business hubs such as Gurgaon, Noida, Mohali, Navi Mumbai, Bangalore and Hyderabad.

Reliance Retail ties up with Dabur

After its major tie ups with Timex and Sanyo, Reliance Retail has tied up with Dabur to sell various medicines, personal and healthcare products at its retail outlets. The company has formed a one year agreement with Dabur to sell its Ayurvedic products such as chawanprash and personal care products such as hair oil. With this agreement, Dabur will generate Rs. 900 million annually.

Reliance Retail is also said to be holding talks with Godrej's pesticide division Hi-care to provide pesticides to farmers, from whom it purchases agricultural products.

Subhiksha to cross 500 stores this month

South African retail chain Shoprite Holdings, a division of wholesaler Shoprite has been making firm plans to enter the Indian retail market. The company is the largest retail chain in Africa, with 846 outlets over 17 countries in Africa, the Indian Ocean Islands and South Asia.

The company is planning to launch wholesale trade in food products, with their own trademark and brand. The Indian division will pay royalty to the parent company for the use of its brand. At present the Shoprite proposal is under consideration with the Foreign Investment Promotion Board (FIPB). Metro of Germany has been in the country in the wholesale sector for the past few years.

According to reports, Shoprite will be investing Rs. 250 million in the Indian company, with Rs. 60 million in the initial phase. Shoprite will be setting up a cold chain in suburban areas of large cities, with an eye on good road connectivity from highways. Shoprite is also keen on providing technology to kirana stores to work with them, instead of competing with them.

Shoprite firming plans to open in India

Discount food retailer Subhiksha is likely to cross 500 stores this month and is building its private label brand and its mobile phone and pharmacy sections. The company will be opening 100 new stores this month to reach a total of 500 stores. Subhiksha is happy with the results of its phone retailing that it started in Delhi last month and is considering setting up a separate chain for the segment along with one for pharmacy products. By March 2007, the company hopes to reach 750 stores. Store openings are happening at a faster pace now, due to adequate funds being raised and the company fixing its backend integration. The company has allocated Rs. 3 billion for its expansion, raising money through debt, equity and working financial capital.

Regional Trends

Retail is a buzzword not only in Bangalore, Hyderabad or Delhi; but also in Jaipur, Coimbatore or Pune. Here is a look at regional happenings.

- Chillibreeze Business Research Team

Tier III cities growing rapidly due to significant cost advantage

According to surveys, these cities have the talent pool, low real estate costs that will lead to increasing interest in investment in these cities, as compared to mature markets such as Mumbai and Delhi, which have high real estate costs and socio-political risks. Bangalore and Gurgaon are considered transitional destinations as they have a large pool of human resource and lower cost real estate.

India's new retail hotspot: Hyderabad

Hyderabad has been receiving a lot of attention on the retail front lately. With Reliance Retail choosing the city to launch its retail venture, several other retailers are also focusing on the city. There is a million sq ft of space under construction, which is expected to increase to 3 million in the next two years. .

Besides Reliance, other new entrants in the city's retail scene are Landmark's Max Retail, which will be setting up the city's first hypermarket, and IVRCL, Lanco, Divyashree Construction and GVK are building malls. Raheja's will be taking both their ventures Inorbit Mall and Mindspace IT Park to Hyderabad.

Bangalore shoppers still want more

While new stores and malls seem to be opening at a quick pace in Bangalore, shoppers there are still keen on many more malls and shopping centers. While certain areas of the city have several malls, others areas don't have enough. Also, which The Forum and Garuda can be classified as malls, others like Bangalore Central, Eve Mall, Sigma Mall and The Pavilion are simply shopping complexes and not malls.

According to Ankur Srivastav, managing director of DTZ Debenham Tie Leung, a global property consultancy, "There is an under supply of quality retail malls in the city." The company recently conducted a survey that showed that about 10 malls in the 500,000 to 1 million sq ft range will be coming up in Bangalore in the next three years.

RIL looks to Pune to establish agri hub

Reliance is keen on acquiring approximately 100,000 acres of farm land in Pune to grow vegetables, flowers and other items to supply its stores. The company submitted a proposal to the Maharashtra government seeking permission to take the land for a 50 year lease.

The company emphasized that it does not want to take the land that belongs to the farmers, but instead wants to take the land on lease, paying a fixed price of Rs. 4,451 per acre per year. Reliance will also pay the market price to the farmers for their produce.

This contract farming act was brought in by Harshvardhan Patil, state minister for agri-marketing in Maharashtra. According to the contract, corporate clients are permitted to take farm land and forge a buyback agreement with the farmers for their produce by paying market prices. With the system, farmers will get better prices and companies can bypass the middlemen. According to Harshvardhan Patil, "Reliance is the first major player to have shown interest in getting into contract farming after the Act was passed."

Unique Formats

We continue tracking unique formats or offerings in the retail sector - here is one that focuses on the fortune at the bottom of the pyramid.

- Chillibreeze Business Research Team

Godrej Aadhaar ties up with HPCL

Wednesday, November 22, 2006

Godrej Agrovet's agri-services and retail division, Godrej Aadhaar signed an agreement with Hindustan Petroleum Corporation Ltd (HPCL) to set up Aadhaar Express, at HPCL's 'Humara Pump' rural retail outlets. According to C K Vaidya, MD of GAVL, "We believe that strategic partnership is the key mechanism that would enable us to work towards a viable business model in the long term. The vast network of `Hamara Pumps' will enable us to reach out to the masses and larger catchments of villages in a short span of time. With this establishment, the rural customer will now have an option of meeting his agricultural, household and fuel requirements under one roof."

At present, there are 775 'Humara Pumps' across India and will be increasing them to 1,100 by March 2007. Godrej Aadhaar also opened its first Greenfield hub at Barnala in Punjab, a 15,000 sq ft outlet.

Home Furnishing

From the ubiquitous stores peddling unbranded bed linen, the Indian home furnishing market has come a long way. Originally set up as mills churning out standard fare, Indian textile manufacturers are focusing on branding their products and going global.

- Chillibreeze Business Research Team

Bombay Dyeing to use a dual strategy for retail

Tuesday, November 14 2006

Textile manufacturer Bombay Dyeing plans to use two separate strategies to market its products to low and high-end consumers. The company is making an effort to not be known as a 'discount' brand anymore with this new strategy. Its competitors S Kumar's' Carmichael House and Welspun have both been increasing their top end brands and so Bombay Dyeing does not want to be left out.

According to Arun Bhawasingka, Head of Domestic Business for Bombay Dyeing, the company is not just focusing on the price to differentiate their products, saying that, "Apart from the price points, the look and feel of these new stores will be different to signify the high-end range of our products." Another differentiator would be location of the premier stores.
Source: The Hindu Business Line

S Kumars board to approve US textile firm acquisition

S Kumars' board will meet on November 9, 2006 to approve the company's acquisition of US textile firm Christy. S Kumars has reportedly evaluated the company at Rs. 4.5 billion. If approved, the acquisition will give S Kumars access to retail outlets in the US where it can retail its own brands. Christy is a San Francisco based company that supplies home, bed and bath products to brands such as Liz Claiborne, Nautica and Dockers, and retails under its own brand as well.

Thai home furnishings chain Index Living Mall plans to come to India

Source: Daily News & Analysis

Support Industries

Even as you watch the Indian retail sector take off, also focus on the support industries that thrive in its wake. Be it training of retail professionals or software and technical support that aid the retailers deliver better, its all happening.and how!

- Chillibreeze Business Research Team

Spin-offs galore from the retail sector

Thursday, November 23, 2006

India's retail boom has seen several beneficial spin-offs for a variety of allied industries such as logistics and air-conditioning. Newer industries are seeing a boom arising from the rapid growth of the retail industry in India. With an expected $412 billion investment projected to come into the Indian retail industry by the year 2011, there are several sectors that will continue to profit from this boom.

Both Indian and foreign companies in sectors such as airlines, commercial refrigeration and air-conditioning, logistics, smart card makers are all tying up with retailers to be part of the growth. One of the first industries to see this growth is the commercial refrigeration and air-conditioning sector, due to the rise of organized food retailers.

Logistic companies are also poised for significant growth and several foreign companies such as Bax Global, Prologis and PWC Logistics are expanding operations in India. Indian operators include The Tata Group which as tied up with DHL for its Croma Stores, Air Deccan which is in talks with several retailers and Go Air which is soon launching its cargo division.

Retail training skills

The Retailers Association of India (RAI) announced that it has started a professional retailing skills (PRS) course that is designed specifically to teach skills in retail. The programme has been started in association with the S B Global School of Retail Management in Kochi. The course duration is 100 hours and there is also an internship with a RAI member company for an additional 50 hours.

Source: The Hindu Business Line