Retail News December 2006

General Trends & Information

Retailers on the looking for more space

With the continued expansion of retailers, the operational retail space is likely to reach 100 million sq ft by 2008, with an estimated 500 malls across India. Retailers are however, still hungry for more space and the high cost of real estate is becoming a serious handicap in their plans. Reliance alone is expected to have 30 million sq ft of space by 2010 with its range of hypermarkets, supermarkets, convenience stores in 784 cities and 6,000 rural mandis.

Other big players such as Pantaloon have signed for space in over 100 malls that are still in development stages, Max Retail and Provogue have secured 800,000 sq ft and 1 million sq ft of space. According to Pranay Vakil, chairman of Knight Frank, "There will be a significant gap between supply of retail space and demand over the next two years."

Source: Financial Express

Domestic retailers keen on global sourcing

Domestic retailers are fast following the ways of the global majors and are keen on setting up global sourcing methods to increase margins while still offering the best prices to customers. Retailers such as Big Bazaar, Shoppers' Stop, Ebony, Westside and even Subhiksha, are looking to set up a sourcing offices in Hong Kong and China.

According to Kishore Biyani, CEO of the Future Group, "For retail chains across the globe, the world is becoming a single market. We are looking at markets across the world from where one can source merchandise at the lowest price. We have opened our global sourcing offices in Hong Kong and China a few days back."

Source: The Economic Times

Chain stores to increase in India

Wal-Mart Inc said that 35% of India's retail sales could be from chain stores by the year 2015, a radical increase from the current 2%. According to Raj Jain, president of emerging markets (excluding China and Japan), Wal-Mart International said that, "The increase for organized retailing will depend on the amount of investments made and government policies."

The US based retail giant expects to retail sales in India will be around $500 in nine years and the company is pushing the Indian government to reduce restrictions on foreign retailers to get a larger share of the expanding market. The company also plans to "connect the 12 million mom-and-pop stores in India to the mom-and-pop suppliers and farmers in the country," so that both farmers and consumers benefit.

The Wal-Mart supply chain is expected to be ready in 18 months. According to Jayesh Shroff, fund manager with SBI Funds Management, "In the next one or two years, they plan to get their supply chain right and test the Indian market with the wholesale business."

Average consumer spending increasing

Organized retail is changing the way Indian consumers shop and is providing the perfect setting for global retail giants to enter the Indian market. Average ticket values at lifestyle stores such as Shopper's Stop and Lifestyle have doubled in the past two years.

At Lifestyle, the average customer spend is between Rs. 1,500-1,600 which increases by 40% during the festival seasons. Two years ago this amount hovered around the Rs. 800-900 mark. At supermarkets, the average ticket value has risen from Rs. 250-300 a few years back to Rs. 600.

Farmer's retail revolution

With several states permitting retailers to purchase produce directly from farmers, there is a new kind of revolution going on in the rural areas. Farmers are taking special care of produce to garner higher prices, selling to retail companies such as Reliance and ITC, and finally making money after nine years. More than 2,000 small farmers are benefiting from organized retailing in Andhra Pradesh, are dealing directly with companies without middlemen or intermediaries.

According to Harsh Bahadur, MD Metro Cash & Carry India, "Between 30 - 40% of fresh fruits and vegetables in the country get wasted because they rot before they reach the customer. What we do is build a collection centre at the farm gate. This is cooled, then we put all vegetables and fruits in cooled trucks and we bring them here."

Big Players

We may call retail a sunrise sector, but the industry is moving fast forward in time - signs of a shakeout, consolidation and realignment are unmistakeable!

- Chillibreeze Business Research Team

Pantaloon plans to dilute stake in divisions

Pantaloon Retail's Kishore Biyani is planning to dilute stake in some of his subsidiaries to take on the new entrants in the retail field. The divisions that will be diluted are Future Media, Future Capital, Future Logistics and Central, although the method of dilution is not clear whether it would be via IPOs, preferential allotment or a strategic sale.

Edelweiss Securities has estimated that PRIL requires Rs. 45 billion, of which Rs. 10 billion is likely to come from equity dilution. Another Rs. 23 billion would come from external sources. ICICI Ventures, and Kotak SEAF India have already bought 15% and 6% of Home Solutions, another PRIL subsidiary.

Adani Group begins process of selling to Reliance

The Adani Group has begun the process of selling its company to Reliance and its employees are being interviewed by Reliance for integration into the company. According to a company source, "Reliance is interviewing the executives and will retain the efficient candidates." Both sides have not yet spoken about the value of the deal, although sources suggest it could be around Rs. 2 billion.

Adani operates 54 stores in nine cities in the state of Gujarat. The company is in the process of clearing its existing stocks and has introduced special schemes to attract consumers. All stores will be renovated by Reliance which will be completed in the next 2-3 months.

Trinethra acquisition gives Birlas the upper hand

With its purchase of Trinethra Super Retail, the Aditya Birla Group has the upper hand in the food and grocery section and will strengthen its position ahead of its actual entry into the retail sector. According to Susil Dungarwal, a retail analyst, "The Birla group can leverage the acquisition of Trinethra, a well established player, in its expansion in south India. The buyout will give the group a headstart among all the new entrants including Reliance that has already started its operations."

Sources in the Birla Group said that Trinethra CEO Pranab Barua and MD George Thomas would carry on in their respective positions and would continue to maintain the company's southern focus. The company had posted a turnover of Rs. 2.4 billion in 2005-06 and has 83 outlets in Andhra Pradesh, 26 in Bangalore (which operate under the Fabmall name) and 15 in Chennai. Source: Business Standard

Aditya Birla Group acquires Trinethra

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.

Bharti and Wal-Mart fine-tune agreement

Bharti Enterprises and Wal-Mart will be forming a 50:50 venture for a cash and carry business and have agreed to dilute stake equally if any strategic or financial investor is brought in at a later stage. Sunil Mittal, MD of Bharti Enterprises, added that "Our JV with Wal-Mart is a 50:50 venture. This equity structure, where both are equal partners, will continue even if a stake dilution occurs in the future."

The two companies will also be forming a franchise agreement for front end retail besides their JV for the cash-and-carry business. The first store is likely to open on August 15, 2007, India's 60th Independence Day.

Reliance to open its first specialty store this month

It is anticipated that Reliance Retail will be opening its first specialty store on December 28, the birth anniversary of his father, the late Dhirubhai Ambani. This will be the start of Reliance in the consumer good segment. Reliance had launched its retail stores in late November in the fresh fruits and vegetables segment.

ITC to open 54 Choupal Fresh horticulture stores

ITC Chairman YC Deveshwar announced that it will be expanding its wholesale business from just fruits and vegetables to open 54 outlets in select metros. At present, ITC's first Choupal Fresh store opened in Hyderabad in August 2006 and in total has 3-4 Choupal Fresh stores operating in Hyderabad and Pune.

The company has set up a complete cold chain that ensures fruits and vegetables are fresh when they reach the consumer, and the emphasis of these stores will be on improving the quality and productivity of horticulture products from the domestic field rather than relying on importing products.

ITC also has plans to increase is rural hypermarkets, Choupal Sagars by nine within the next six months. Choupal Sagars provide a place for farmers to bypass intermediaries and sell their produce directly to the company. At present, there are 11 Choupal Sagars in Maharashtra, Uttar Pradesh and Madhya Pradesh.

Wal-Mart plans to export farm goods

Wal-Mart has made plans with Bharti to export farm produce in India and develop back end links to the agricultural sector, in an effort to replicate its successful global supply chain. The company plans to use its modern information systems and supply chain management to benefit Indian farmers.

The company refused to divulge critical detail about the plan; Wal-Mart said that it would be sourcing agri-products from India for the first time. The company has sourced $414 million worth of apparel, home textiles, fine jewelry and house wares from India in 2005.

Reliance acquires Adani Retail

Reliance Retail made its first major acquisition in the domestic market by buying Gujarat based Adani Retail for Rs. 1-1.10 billion. Reportedly, other companies such as Subhiksha, Trinethra and Tata's were also interested in purchasing the company. The purchase will give Reliance access to 54 stores in a variety of formats such as neighborhood stores, supermarkets and hypermarkets in 9 cities in Gujarat. The company's infrastructure and sourcing facilities are an added advantage for Reliance.

Strategy

Everyone has a different take on the key question - how to engage the consumer long enough to influence a purchase decision, in your favour. The search is on for different formats and forums to attract the customer.

- Chillibreeze Business Research Team

Nike to target women in gyms

According to Sanjay Gangopadhyay, marketing director of Nike India, "This will encourage the use right kind of apparel and accessories among the fitness practitioners. Our product evangelists will periodcally conduct clinics at these fitnes centres. New products which target the health and fitness concious are displayed at the centers." Nike is on the lookout for more partners to take this concept forward and is evaluating offers. Professionally run modern fitness centers are the preferred types of gyms.

Sachets likely to decrease in popularity

The rise of modern retail could likely cause the death of sachet marketing in urban areas. These small packs that were runaway successes in the 1990s are not finding any shelf space in modern retail stores who prefer larger packet sizes and offer bulk discounts. Many organized retailers, including some neighborhood chains, avoid stocking these items due to a bad visual display and high shrinkage rates.

At one time, sachets were the success story for many a FMCG company, enticing the bottom of the pyramid market but now don't have many takers. CK Ranganathan, Founder of Cavinkare, who pioneered the sachet revolution, says that the sachet needs to be reinvented for the organized retail market. He added that Cavinkare is ".working on a packaging to offer a carton of sachets, with an MRP, which will be easy for the retailers to stock and bill. I don't think the sachet trend would die out."

Be ready to buy small appliances at grocery stores

Several organized retailers are stocking and aggressively pushing small appliances in an effort to increase average ticket size and raise profit margins. Items such as toasters, mixers, grinders, sandwich makers and frying pans are being stocked at stores to ensure higher footfalls. At present, retailers are stocking branded products although most have plans to have their own in-house labels soon.

According to Upamanyu Bhattacharya, chief executive officer of Trumart, a Piramyd venture, "As a category they may be small now, but they push the value up. Anything which has value and meets the daily needs of consumers is considered." Spencer's Daily president, Jitu Mehta adds, "As a category, small appliances are growing over 60 % year-on-year. So it is an opportunity which cannot be missed."

Spencers' opt for a cluster model of expansion

RPG Group will be following a cluster method for expanding its food retail chain, Spencers', which they feel is best suited for achieving economies of scale in sourcing, logistics and promotional activities. At present, Spencers' has 5 retail formats, each with its own merchandise mix:
Spencers' Hyper, ranging from 30,000-75,000 sq ft
Spencers' Super, ranging from 10,000-18,000 sq ft
Spencers' Daily, ranging from 2,500-5,000 sq ft
Spencers' Express, ranging from 1,000-1,500 sq ft
Spencers' Fresh, ranging from 1,200-2,000 sq ft.
In its new approach, each cluster has have 2-3 Hypers, 3-5 Supers, 10-15 Dailies, 30-40 Express and 5-10 Fresh stores. Besides these, the company is also looking for specialized category stores such as for apparel and B2B under the Spencer brand.

Unique Formats

Retail-speak is growing.and our new word for this month is "rural malls"- fair price shops in a brand new avatar! Retailers are also revisiting the idea of selling on the net. At Chillibreeze, we believe e-commerce will be big in 2007.

- Chillibreeze Business Research Team

Gujarat opens 'rural malls'

Wednesday, January 03, 2007

There are several fair price shops that have opened in Gujarat, which the government has christened as 'micro rural malls'. These shops are part of a programme to de-regulate the services of fair price shops by permitting them to offer a variety of products and services. There are an estimated 15,000 such stores in the state.

At present there are 512 such malls and 508 are in the planning stage. The Gujarat state government plans to open 1,000 such malls each year. Local villagers can purchase items such as grains, four, oil, gas cylinders, cosmetic items, recharge vouchers, fertilizers, seeds and packaged goods at these stores.

Pantaloon launches its e-retailing portal

Wednesday, January 03, 2007

Pantaloon Retail India Ltd (PRIL)'s subsidiary Future Bazaar India Ltd, launched its virtual retail venture, futurebazaar.com. The e-tailing site will offer a wide range of apparel, books, electronics, home décor, kitchen appliances, mobile phones, watches and other accessories all available with the manufacturer's guarantee and home delivery.

According to Sankarson Banerjee, chief executive officer of Future Bazaar, "Leveraging the tried and tested 'brick and click' strategy, futurebazaar.com is the only e-commerce portal with a strong offline presence, quite different from the current e-commerce players who have adopted a 'marketplace' model. Backed by our end-to-end supply chain and the ability to source nearly a million products, our economy of scale gives the customers the lowest prices."

Government Policy

Any industry with a sizable number of employees must face management-union debates sooner than later. So also with the Indian Retail sector. Here's hoping to a win-win situation ahead!

- Chillibreeze Business Research Team

CPM's trade union arm Citu in talks with US labour group AFL

Wednesday, December 06, 2006

The trade union arm of the CPM, Citu, is reportedly holding talks with the American Federation of Labour (AFL) to collaborate and tie up with their counterparts. In this regard, Citu has asked for AFL's cooperation in organizing and implementing a nationwide campaign against Wal-Mart's entry into the Indian market.

According to MK Pandhey, Citu President, "AFL delegates will attend our national conference in New Delhi in January 2007. They will make presentations highlighting instances of Wal-Mart's anti-employee stance across its retail chain in the US."

Bharti, Wal-Mart agreement to be checked out by PMO's office

Wednesday, December 06, 2006

The Prime Minister's Office (PMO) will be looking into the Bharti-Wal-Mart deal due to the concerns of the Left parties. In response, the Commerce Industry will be preparing a detailed note, which is likely to be discussed in Parliament. In response, the department of Industrial policy and promotion (DIPP) under which FDI takes place has given the deal a clean chit.

International

The party didn't end with the New Year - word is out that its still on for the retail sector, with as many new entrants as there are domestic firms planning international forays.

Shing to enter Indian retail market

Friday, January 05, 2007

As Watson, a subsidiary of Hutchinson Whampoa, Li Ka Shing's flagship company is all set to enter the organized retail sector in India. Sources report that plans are being made to launch Watson's Your Personal Store, a health and beauty format retail chain in India. The launch has been delayed since FDI regulations do not allow for direct entry of multi brand retailers.

Watson is presently located in 13 countries with approximately 1,400 stores and is part of the $12 billion ASW group which has 7,600 stores located in 34 countries. Other brand of the company are ParknShop supermarket, Taste food galleria, Gourmet boutique style fine food hall, Fortress electrical equipment, Watsons wine cellar and Nuance-Watson airport duty free stores.
Source: The Economic Times

Burger King will probably use the franchise model in India

Burger King is planning its strategy for the Indian market and to take on its old rival McDonald's who has already created a market for itself in India. According to an industry analyst, "In the short term, McDonald's would lose some customers to Burger King out of the sheer curiosity factor. However, this would happen only if both are located in the same catchment area."

Burger King will be using the same strategy that it used for Japan, using franchises and making smaller, less expensive restaurants that fully use available space. Burger King has 11,129 restaurants of which 1,240 are company owned and 9,889 are franchisees and is currently located in the US and 65 countries.

SF Jeans sets up store in Sri Lanka

Source: DNA India

French retailer Decathlon scouting for Indian partner company

Sports goods French retailer Decathlon is reportedly scouting for an Indian company to partner with to enter the Indian retail market. It has already mapped out its strategy for India in anticipation that the Indian government would allow FDI up to 49% in multi brand retail for sports goods. The company had recently withdrawn from the US market making its entry into India even more critical.

The company will be entering the Indian market in a phased manner, first setting up a warehouse in Gurgaon, for which it has already begun negotiating with real estate consultants. Once this is set up then it will enter a partnership with an Indian company, although if it will go for a franchisee model or a joint venture is not yet clear. Some sources suggest that the company is in talks with Sierra Industrial Enterprises, whose retail arm, Sports Station India introduced Nike brought Nike to the Indian market.

Source: The Economic Times

Carrefour in talks with Wadias

Source: Financial Express

Gitanjali Gems purchases US jeweller

Source: The Economic Times, Business Standard

Support Industries

Support functions were in the limelight this month - watch out for new tactics and techniques from players big and small. The hunt for quality personnel continues, as does the search for prime property at affordable rates.

- Chillibreeze Business Research Team

Searching for talent

Friday, January 05, 2007

The three biggest challenges of the organized retail industry will be managing manpower, real estate and the supply chain, of which manpower looks like it will be the critical factor in determining the competitive edge in the long term. With the boom in the retail industry to continue for the next five years, at an expected compounded average growth rate (CAGR) of 30-35%, finding the right middle and senior management will become increasingly difficult.

Of the total employment generated by the retail industry, estimated to be 2 million, of which 500,000-600,000 will be in the organized sector. Higher management executives are likely to be poached from industries such as FMCG, banking and telecom.

Many companies are looking overseas for talent. Reliance in currently hiring approximately 100 senior managers from overseas, around 50-60 of which who have already joined the company and have 15-20 years of experience with major players such as Wal-Mart, Best Buy, Tesco, ASDA and Kroger. The Aditya Birla Group is also looking fro 30-40 persons from overseas to build its leadership team.

Railways keen on retail

The rail ministry will probably be leasing its free land to retailers such as Reliance, Bharti and the Birlas to set up retail networks and logistic parks. According to CNN-IBN, the rail ministry has already held talks with several major retailers to give details of 43,000 hectares of free land. The railways are keen on setting up at least 4 parks in the country as supply hubs. Each park is likely to cost around Rs. 50 billion. Cities such as Delhi, Mumbai, Chennai and Kolkata are on the radar currently.

Source: CNN-IBN

Visual Merchandising is where the emphasis is

Visual merchandising is receiving a lot of special attention as retailers try to differentiate themselves from each other and build their brand. According to Prathish Nair, Head Marketing of RAMMS India, a retail consultancy based in Bangalore, visual merchandising will see record spending this year, with department stores spending Rs. 300,000-400,000 per season and malls investing Rs. 150,000 on each seasonal change.

According to Shantanu Saha, CEO of Idiom Design and Consulting Co, a retail design company based in Bangalore, "As purchase decisions are made at the store, design interventions are needed to attract more customers."

Source: The Hindu Business Line

Retailers and real estate developers prepare to battle it out

India's retail boom is set to create a tug-of-war between larger retail chains and real estate developers, as retailers' requirements for real estate grows and they seek to reduce margins on real estate. To balance this scenario, developers are forming revenue sharing agreements with retailers. Traditionally, most leases are long term leases, generally up to 9 years with increases of 20% only after 3 years. Newer agreements are for shorter periods and are revised by 10-12% annually.

Raman Mangalorkar, principal, AT Kearney, said that "In the long run, a retailer operating in the value retail business cannot afford its real estate cost to be in the excess of 4-5% of total sales. In fact, globally this standard is just about 3%." Large retailers are focusing on the suburbs in the larger cities due to high real estate prices. In smaller cities and Tier I and Tier II cities, large retailers will still be able to set up in prime locations.

Source: The Economic Times

Future Group focusing on media

The Future Group will be creating a category for the growing media industry called Future Media, which is to be a medium through which advertisers can communicate with shoppers in the store. On the effectiveness of this method of reaching the customer, Partho Dasgupta, Chief Executive Officer, Future Media, said "You are communicating to the consumer when and where it matters - at the time of making a purchase decision." The company is considering all types of ways to reach the customer, including digital signage, audio, video and blue-tooth technology etc.

Source: The Hindu Business Line

TCS creates interest in Wal-Mart and Target with its Personal Shopping Assistant

Wal-Mart and Target have both shown interest in a new retail technological product being developed by Tata Consultancy Services (TCS). The new product is a Personal Shopping Assistant (PSA) and is currently being tested out at the TCS retail innovation lab, with a likely rollout occurring sometime next year. K Ananth Krishnan, Chief Technology Officer at TCS, said that "TCS has worked with some of the largest retailers, including 30 of the 50 largest in the world, and retail contributes more than $200 million in revenues for the company."

The PSA will be a scanning device with a LCD screen that is mounted on a regular shopping cart. Upon scanning the customer's loyalty card, the screen will guide customers to special offers and discounts available in the store. Customer's can also pay via this product as it recognizes bar codes and RFID tags.

Source: The Economic Times

Future Group switches account to Starcom

The Future Group has switched its media agency and has selected Starcom to handle its account which is around Rs. 2-2.5 billion and is said to be one of the largest accounts in the past five years. The company was earlier with Carat for the past two years. As Pantaloon expands across all formats and is rapidly increasing its sq ft space from 4 million sq ft to 30 million sq ft, the company is also looking for creative agencies. At present the company uses Mudra for its value retail segment and Percept for its lifestyle retail segment.

Source: The Economic Times

Retailers eye container trains for transportation

Several companies such as Reliance Retail, Transport Corporation of India, Mitsui OSK Lines, Hyundai Merchant Marine and NYK Lines, and The Future Group have shown keen interest in setting up private container train operations. The interest is in response to the Railway Ministry's invitation for proposals in the second round of licenses for interested parties for container trains.

Currently, only Concor, a public sector company that is controlled by the railway ministry is permitted to run container trains in the country and therefore has a monopoly in the sector. Railways offer a substantial savings as compared to road transport, around a third of the cost of road transport.

Source: Business Standard

Metro Cash & Carry, RIL engage ICICI Bank to identify retail properties

Metro Cash & Carry and Reliance Retail have engaged ICICI Bank to identify retail properties for their India expansion plans. Both companies are planning an aggressive expansion campaign and will use the Bank's expertise in finding locations across the country. Metro Cash & Carry plans to expand in Tamil Nadu, Andhra Pradesh, West Bengal, Delhi and Mumbai in 2007, Reliance Retail plans to have 10-11 stores in all major Indian cities by end 2007.

According to sources, Metro Cash & Carry is finalizing a property in Bhandup, a suburb of Mumbai through ICICI Bank and is also looking for additional locations in the city. ICICI Bank started offering this specialized service only one year ago.

Source: Business Standard