Retail News October 2006

TRENDS & STRATEGIES

Organized retailers following kirana strategies

Several organized retailers have started using the kirana store strategy to achieve greater sales by focusing on the local area for customers. Food retailers such as Trumart, Spencers Daily, Spinach, Vishal, D Mart are positioning themselves as upscale versions of local kirana stores but with modern supply chain efficiencies, and are taking orders on the phone for home deliveries.

Interestingly, most of these stores had earlier selected non-residential locations such as malls, but suffered due to low conversion rates. It was found that while most consumers willingly travel greater distances to malls to make furniture, apparel, toys or home furnishings purchases, for food and grocery items customers preferred neighborhood stores.

Source: The Economic Times

The success of hypermarkets in India

Hypermarkets are emerging as the preferred format for most retailers due to their high growth rates and market buzz. India has only 25 hypermarkets at present, although all major domestic retailers are either already in the segment or will soon be getting into it.

According to Andrew Levermore, CEO of HyperCITY, price is still one of the most important issues that bring people to the store. He adds, "Unless your prices are the best, especially in the food and groceries (F&G) segment, there's little point." A relatively new entrant to the supermarket and convenience store chain, Piramyd has started Trumart which offers prices that match hypermarkets and kirana stores along with additional services like free home delivery.

Beyond having the right price, it is the product that makes all the difference, and in hypermarkets while the margins in food and grocery are usually quite unattractive, the stores offer a mix of general merchandise and food to balance it out. Most hypermarkets abroad too still make the bulk of their earnings on non-food items.

Source: Rediff Money

Retailers to push private label FMCG products

Several retailers such as Subhiksha, Spencer’s and Big Bazaar are planning to push private label oral care products to compete with FMCG majors. Spencer’s is keen on personal care products. JH Mehta, President Spencer’s Retail said, "The products will be targeted at the value-conscious consumer. Consumers will slowly understand the value of private labels, even in oral hygiene segment, since these will be produced by the same manufacturer."

Subhiksha is planning to focus exclusively on private labels for oral care products and hopes to win customers by offering superior products at lower prices. To compete effectively with FMCG majors, the retailers plan to increase branding and marketing to promote these products, including direct contact with customers, sampling and in-store branding etc.

Contract manufacturers such as JHS Svendgaard Labs, supplier of dental care products to eight international retail chains in the US, Europe and the Middle East are betting on India and increasing manufacturing capacity by 300% to catch a large slice of this emerging market.

Specialty stores to take center stage

Even though hypermarkets have been getting a lot of attention in recent times, it is the specialty store trend that is really taking off. The specialty store trend cuts across sectors with some offbeat categories and even some in the unorganized sector. Hindustan Lever is considering a chain of stores only for laundry products. Other categories inviting interest are electronics and electrical products, office products and stationary, toys, lingerie, chocolates and furnishings.

Some of the major names currently involved in this thinking include the Tata's, the Jumbo group from Dubai, Marks & Spencer's Women Secret, Straps which was earlier Sensa, Luxur Parker, Bilt, Havells, Phillips and Bajaj Electronics. The Indo Rama Group recently tied up with Office 1 Superstore International to open Office 1 stores for stationary and office needs.

According to Harminder Sahni, CEO of KSA Technopak, “ Internationally, specialized retail is a big business. Similar trends will emerge in India.” Abhijit Das, head of Ansal Plaza Mall Management Co. adds, “Since most stores in these specialized categories will need much lesser space in comparison to the existing formats, such as lifestyle and hypermarkets, they will all come up in malls. There won’t be too many stand-alone stores.”
Source: The Economic Times

Local drug stores gear up to face the competition

With the impending entry of major industry houses like Reliance Retail, Pantaloon and Fortis in the organized pharmacy trade, local drug stores are trying to organize themselves to face the competition. As a first step, the All India Organization of Chemists and Druggists with 600,000 members is registering itself as a company.

Fortis will be opening 500 stores across the country under the Health World Ltd. brand. The stores are likely to be large format stores similar to US pharma chains such as CVS Pharmacy and Walgreens. Some of the expansions that existing companies are doing are Apollo Hospitals expansion to 1,500 stores and Morepen’s investment of Rs. 350 million to increase its Lifespring stores from 10 to 70.

Other companies that are entering pharma retail are Zydus Cadila and Himalaya Drugs. Existing players such as Medicine Shoppe, Lifeken, Global Healthline’s 98.4 degrees, CRS Health, Health Glow are already in the market but pale in comparison to the mega bucks that new companies will be investing in setting up their pharma chains.
Source: Rediff Money

Delhi-its are the country’s biggest spenders

A report on household consumer expenditure brought out by the Delhi Government’s Directorate of Economics and Statistics shows that Delhi consumers have the highest per capita income and are the biggest spenders in the country.

The average monthly per capita expenditure in urban Delhi increased from Rs. 1,563 in 2003 to Rs. 1,606 in 2004. For comparative terms, the national average is Rs. 1,060. Delhi has 3,275,000 families, with an average size of 4.62 persons. 3,072,000 families live in urban areas and only 203,000 in rural areas.

Education, food, transportation and rent were the main expenditures for Delhi consumers, with Rs. 2,484 on food, Rs. 823 on conveyance and Rs. 576 on education. Other expenditures were Rs. 565 on fuel and lighting, Rs. 327 on clothing, Rs. 228 on toiletries, Rs. 169 on entertainment and Rs. 756 on consumer services.

Pantaloon to enter the logistics arena

Tuesday, September 12, 2006
Pantaloon announced its decision to set up a new division, Futures Logistics providing third-party logistical support to the retail industry. According to sources, initial investment is estimated to be around Rs. 4-5 billion and will focus on efficient modes of transport such as roads and railways. Sea and air modes of transport will be added at a later time. Initially Futures Logistics will cater solely to Pantaloon Retail, but plans to offer services to other companies within 1-2 years.

New Entrants

The rush to India is still on. This month two high profile international players – Carrefour and Vanity Fair - firmed up plans for their India journey.

- Chillibreeze Business Research Team

Vanity Fair and Arvind Brands tie up, open to buying Indian brands

Eric Wiseman, President and CEO of VF Corporation, described India as the perfect market for the company and is the fastest growing market for the VF Corporation along with China. At present, the company does not plan to start manufacturing through this new joint venture and its new JV partner, Arvind Brands has transferred all its business to the new venture, except for its manufacturing facility. Arvind has a wide range of brands including Lee, Wrangler, Jansport, Kipling, Arrow, Gant, Excalibur and Ruf & Tuf.

Nautica Home and Nautica Kids coming soon to India

VF Corp owned Nautica will soon be bringing two of its brands to India, Nautica Kids and Nautica Home. The company has formed a 60:40 joint venture with Arvind Brands. The same joint venture controls other VF brands such as Lee and Wrangler. While Nautica Kids will be opening in October 2006, Nautica Home will open in November. Stores each are likely to be opening in Bangalore and Delhi first, followed by Chandigarh, Hyderabad, Mumbai and Pune.

The company’s store in Bangalore’s Vital Mallaya Road will be the largest in the world, at 6,500 sq ft, and will stock the entire range of Nautica products, apparel for men and women, footwear, luggage and fashion accessories. Generally, international Nautica stores range from 2,800-3,500 sq ft. The company is present in over 60 countries.

Carrefour finalizing plans with Landmark

French retail giant and the world’s second largest retailer Carrefour is reportedly finalizing plans of a joint venture with the Landmark Group, who are already present in India with their departmental store chain Lifestyle, value retail chain Max and home furnishings chain Home Centers and Max Hypermarkets. The new joint venture is likely to be in the hypermarket format.

The company was the first international retailer that entered several Asian countries such as Taiwan, Indonesia, Malaysia, Thailand and China. Carrefour has had a procurement office in Gurgaon, India since 2000 and through its network of distribution agent’s sources food products. Both companies have refused to comment at the present.

The Carrefour Group is worth $94.5 billion and operates 7,000 stores in 29 countries although 47.8% of its sales come from France. The company operates in several formats including hypermarkets, supermarkets, discount stores and even cash and carry formats.

Carrefour to enter India under cash-and-carry format

French retail giant, Carrefour will be coming to India as a cash-and-carry retailer, investing an estimated $100 million in the venture. The first store will come up in the National Capital Region. This is the second international retailer than has followed this track of operations, with Germany’s Metro already operating in this format.

Carrefour operates on this format already and has 120 such outlets. The company also has a sourcing office in Gurgaon. According to sources, the company is keen to set up its supply chain in the country under this route, and once FDI regulations are changed, it will adapt the model to serve consumers directly.

While entering via a franchisee is simpler, the cash-and-carry method gives the retailer full control and a deeper understanding of the market and its prices. Carrefour has appointed Jones Lang LaSalle as its realty consultant and is already looking to locations.
Source: Business Standard

Global retailers take stock

Global retail giants are slowing down expansion plans to take stock. Wal-Mart in the mid 1990s expanded wildly, buying the Asda chain in the UK with 229 stores, 122 stores in Canada, 95 stores in Germany and 4 in South Korea and opened its first stores in Argentina, Brazil and China. Contrast it to the past four months, and Wal-Mart has not done any expansion and instead has opted out of South Korea and Germany and is expected to do the same in Argentina.

International retailers have had a hard time understanding that opening lots of stores does not work for all international markets and now are focusing on select countries such as India, where its is lobbying for a change in the FDI restrictions; China, the world’s most populous country; and Latin America.

Carrefour learnt a similar lesson and pulled out of South Korea, Mexico and Japan and is focusing on China. Tesco pulled out of Taiwan and is focusing on its US entry and on Europe.

Source: Reuters

Big Players Plans and Investments

International forays, new formats and business models are on the agenda for some of India’s big retail players. Here is a sample of what the great Indian customer can look forward to.

- Chillibreeze Business Research Team

Reliance Retail’s first store to open on October 18

Reliance Retail will work on both retail and supply models

Apart from its mega plans for retail, Reliance is also working on creating a successful supply chain model. The company has been supplying fresh fruits and vegetables to Big Bazaar as a practice of sorts, and is keen on continue doing so. When Reliance receives its consignment of goods from China, it will supply the items not only to its own stores, but to other retailers as well.

Keeping procurement as a separate division from retail, Reliance has already set up rural business supply hubs in Punjab, Haryana, Himachal Pradesh, Uttranchal and West Bengal, for procurement of grains and milk products. Taking a long term approach, Reliance has build schools and medical centers and also has soil and weather specialists to help the farmers maximize their production.

Source: The Economic Times

Reliance and Pantaloon building online retail business

Both Reliance and Pantaloon have plans to aggressively market their products online, creating a significant online channel, similar to Wal-Mart’s model, whose online sales are growing even faster than eBay and Amazon. The online business is currently estimated to be worth Rs. 11 billion and is likely to reach Rs. 23 billion in a year. Most online business in India still consists of travel and ticketing as yet.

Pantaloon is revving up its futurebazaar.com and Reliance is putting a separate team altogether for its ecommerce operations. Current players such as Fabmall and Rediff are also improving their strategies to meet the new competition on an even keel.
Source: Rediff Money

Pantaloon announces new format, Brand Factory

Pantaloon announced a new format called Brand Factory that will offer fashion brands at factory prices, while not compromising on the shopping experience. Vishnu Prasad, President (south) and CEO for Central and Brand Factory, said that "Factory outlets have become distinct shopping destinations with distinct audiences.… Brand Factory will offer brands at discounts and also provide the treatment and shopping experience that the customer deserves."

The first Brand Factory outlet will be opening in a Bangalore suburb, Marathahalli, where several other factory outlets are already located. The store will have120 brands such as Arrow, Esprit, Van Heusen, Levis, Reebok, Lee, Pepe, Wrangler, Provogue and others, spread over 70,000 sq ft of space.

The company plans to open 55 outlets by 2010, in 40 cities across India. The second outlet will open in Hyderabad in October and the third one in Ahmedabad. Pantaloon is looking to open outlets in metro’s and tier I towns with a population of more than 1 million.

Trinethra launches its operations in Kerala

South India’s fastest growing food and grocery retail chain, Trinethra Super Retail Ltd. (TSRL) opened its first store, a Fabmall in Kerala at Fort Cochin. The company will also be opening 5 additional stores in the city and suburbs in the next few days. Trinethra currently has 130 outlets and plans to reach 200 by expanding in Andhra Pradesh, Chennai and Karnataka.

Trinethra’s annual sales were over Rs. 2.4 billion and a turnover of Rs. 1.7 billion. The company plans to invest Rs. 1 billion over the next two years towards its expansion plans. The company has carved a niche for itself in the market by creating a right mix of quality, affordability and convenience in an enjoyable and comfortable setting.

Source: The Hindu Business Line

Café Coffee Day plans for Austria

Lifestyle

The Indian consumer has come a long way from his early penchant for austerity. The retailers are not complaining. Here is a look at the new players in the lifestyle and luxury space.

- Chillibreeze Business Research Team

Godrej & Boyce launches a unified furniture brand

Friday, September 08, 2006

Godrej & Boyce Manufacturing launched its new brand of furniture called Godrej Interio, which will combine the company’s home and office furniture as well as its special project lines under one unified brand. According to Jamshyd Godrej, Chairman and Managing Director, “ Godrej Interio is an amalgamation with a contemporary outlook towards business.” The company will be expanding to include products such as stadium seating and hospital and healthcare furniture by 2007 end.

Source: Business Standard

Gitanjali Gems acquires US chain

Gitanjali Gems announced that it will be purchasing a US jewelry chain with 100 stores for $40 million. The company is at present in advance stages of negotiations with the company, which is one of the top 10 jewelry firms in the US and has an estimated turnover of $100 million.

Gitanjali Gems has made a significant dent in the Indian jewelry market with its brands, Asmi, Gili, Ginatti, D’damas and Nakshatra and plans to grow its chain from its current 620 outlets to 900 outlets.

Source: The Economic Times

Oyzterbay plans to form a JV with German company

Source: The Hindu Business Line

Shoppers’ Stop to open 30 new stores

In an interview with Rediff, Shoppers’ Stop CEO, B S Nagesh spoke about how the company’s expansion plans and how it plans to maintain its growth numbers of 30% growth in sales and 45% growth in profit. The company will be opening 30 more Shoppers’ Stop department stores covering 2.7 million sq ft and 20 more HyperCITY hypermarkets covering 2.6 million sq ft. After the expansion, the company will have a total of about 6 million sq ft including 980,000 sq ft of space in Crossword, MotherCare and MAC Cosmetics.

Shoppers’ Stop loyalty program First Citizen, is already quite well known in the business and reached 644,500 after a 33% increase in the first quarter of the 2007 financial year. Private labels contributed 21% of sales in the first quarter and the company will maintain its level only up to 25%, so it is able to offer a wide range of international and domestic brands.
Source: Rediff Money

Shagun Wedding Mall plans new stores

Kolkata based Shagun Wedding Mall announced that the company plans to open 3 wedding malls in the country, one each in the north, south and west, with an investment of Rs. 150 million each. The new malls are expected to open in 2008-2009. At present the company is only focusing on the urban market.

Titan increasing its concept stores

Titan Industries Ltd announced its plans to set up 8-10 concept stores to showcase its watches and jewelry. The company is likely to invest and estimated Rs. 150-200 million per store. Although some concept stores would be franchised out, most would be company owned and operated.

The company is also bringing out a new retail identity for its watches and jewelry segment. Titan’s jewelry segment is growing at 60% while for the watches it is 30%. The company’s turnover for the last financial year was Rs. 14.81 billion and it is targeting to reach Rs. 20 billion this year.
Source: The Hindu Business Line