Trutek - Nitara Home ventures into WhiteGoods Market

Trutek, owners of Nitara Furniture Brand is all set to plunge into testing the White Goods Retail Market under the brand name Nitara Home. The company has taken a strategic decision to start from the bottom up - Tier-III cities first :-) The first 3 stores will go live for business in Sivakasi [The city of Crackers], Tuticorn and Tirunelveli. Eash of the store will be of atleast 5,000 sft in size.

Mr. Arumugam, Director of the Rs 100 cr company said,

We are anyway going to display a table or kitchen cabinet there. Why not put an LCD TV or a Mixie on top of it.

Nitara also plans to setup one Mega Store in Chenai with atleast 10,000 sft in size.The company plans to expand using the franchisee route and intends a separate distribution channel.

Nitara Furnitures will very soon add MyDsign - whereby consumers can design his furniture with a range of ready to assemble modules made available to suit his requirements.

Challenges of Food & Grocery Chains

Yesterday, we covered the Key Trends from Food Forum India - 2009. Today we will see the key challenges faced by Food and Grocery Retail Chains in India.

Retailers argued that the principal advantage of food and grocery shopping with organized retailers is the assurance of quality that is normally not the case with most of the kiranas and road-side vendors in India. Government & Retailers to work towards maintaining Food Quality at all points across the value chain. India currently is at a nascent stage where food quality and safety technology is concerned when compared to its Western counterparts. The European market, where hygiene is a prime concern, the Indian and Chinese products are treated on par as both are Asian countries.

Creating a Large Consumption Market - Key Retailers argued that in the case of a growing country like India, consumers should be moving towards fulfilling their daily needs to daily wants, which is not happening in proportion to the growing income levels. This is one of the biggest challenges facing not just the Food Retailers in particular, but the Retail Industry as a whole too. This far, India has only been consuming its daily needs.

Massive Investment in Cold Chain & Logistics - Food infrastructure is an important concern with more and more state-of-the-art technologies and processes coming into place. Manufacturing a good product is rendered useless if the food infrastructure is not in place to make the food available fresh to the consumers through the Retailers. Though the cold chain in India has the potential to grow to Rs20,000cr by 2011, there is a need for logistics, good infrastructure, proper transportation, etc.

Few Key Challenges in Food Value Chain include quality of produce, lack of standardization in the supply chain, inefficient usage of infrastructure and logistics cost.

Manufacturers vs Retailers - Retailers urged the Manufacturers to introduce more brands and innovative products to satisfy the growing consumer demands, Manufacturers voiced their concerns about Retailers asking for huge Margins and Placement fees for the products. Mutual hlp is essential - Retailers can help manufacturers to gain insights on the shopping behaviour of consumers by sharing their consumer data.

Finally, there exists scope for Foreign Premium Food in India, we believe that in the current scenario, the consumers would opt for inexpensive substitutes rather than go for the premium or foreign food. The big challenge MNC companies face is the complex legal procedures for foreign brands to enter India.

Food Forum - Key Trends

Our analyst attended the Food Forum India 2009 and here are the key takeaways from the forum.

Growth to be fueled by Small Wallets - India's Retail Sector will witness the best period between 2009-14 when the industry will continue to grow, and consolidation would set in with most of the top global retailers having a presence in India. India currently is the fourth largest economy on Purchasing Power Parity terms and is all set to become the third largest by 2013, leaving Japan behind. It is expected that there will be around 300 million middle class consumers in India by 2013 propelling growth of the Organized Food Retail in India and facilitate it to capture market share of 3.9% of the Total Retail Sector by CY2013E.

Slowdown in Food Industry - Economic slowdown has marginally affected or not affected the Food Industry & Food Retailing in India. Consumer spending on Food Industry has increased on account of savings in big-ticket purchases. Lifestyle segment of the Food business that comprises generous corporate meals has been hit the most.

Scope for Foreign and Premium Food Retailers in India - Foreign & Premium food demand in India on account of quality products. Any product imported from abroad has the scope to do well in India, provided the right atmosphere, ambiance and retail format is provided for its sale was another interesting point that was brought forward by Industry members.

Another major indicator of increasing potential of Foreign and Premium Food Retailing in India is the changing consuming patterns, which are directed towards more healthier and hygienic alternatives in packaged and processed food. The key to the success of such food items, however, still lies in having a right value that suits the palette of the consumers.

Finally, Product positioning is also very important for marketing premium brands in India. Premium products require specialised retail chains or niche stores and it is important to bring out the exclusivity of the product.

Private Labels find acceptability with consumers - Indian consumers prefer private labels as they provide more value for money to them. Success of the Private Labels in the Retail industry, especially the F&G segment, can be gauged from the fact that Private Labels for many key retailers are doing pretty well. Private Labels of Pantaloons, for example, have been able to garner market-share ranging from 16% to as high as 30% in the categories they are present in.

Another advantage of Private Labels is that they provide high margins to Retailers compared to the branded products. Margins are as high as 20% in the FMCG space. Future Group is the leader in this space and will enter the space of beauty, men's grooming products and ready-to-eat foods.

In the next part, we will post the key challenges faced by Food Retailers in India.

Reliance running 18 months behind schedule

In just over two years, Reliance Retail, Reliance Industries' retail subsidiary, has emerged as India's 2nd largest retailer with retail space of 4.2m sf (Pantaloon consolidated 10.5m sf).

Its equity capital as on Mar-08 was Rs40.5bn and as on Dec-08 it had invested Rs52bn. Over the last six months, the company has been reviewing its formats, operations and strategy.

It has closed over 20 stores out of 900 [see chart below exclusively prepared for our readers], right-sized stores and laid-off some 600 out of 24,000 employees and associates. In Aug-07, it had launched India's largest hypermarket store across 1.6m sf. This store has now been reduced to 1m sf. While it has cut the size of hypermarket stores and some specialty formats, the size of Reliance Fresh (convenience store format) is being increased.
As per the management, 75% of the stores have achieved break-even and carry just one month's inventory. Management is reportedly re-negotiating rents for most of the properties to lower them by 20-30%.

HMV's Waterstone talks to Reliance for Music + Bookstore Fromat

Now don't you all know about HMV or heard about it in India ? Yes that's correct, HMV in partnership with RPG group are into the music industry - Saregama for quite few decades. However, the RPG group went on its own in establishing a Music and Books format under the brand Musicworld.

HMV - the British entertainment company is reported to be in talks with Reliance for a Music, Bookstore and Gifts format which it currently retails under the brand name Waterstone. It has 300 plus stores across the UK.

However, Reliance already operates a chain in this format under the brand name Reliance Timeout. It is not very clear on the JV and both the sides have declined to comment. What could RIL Retail be possibly thinking is for a tie-up to to beat the slowdown and also acquire the knowledge and experience in running this format. Aditionally, Waterstone will get the advantage of the already established HMV brand.

Home Entertainment + Music - Review

According to FICCI the Indian Home Entertainment & Music industry is expected to grow at a rate of 17% YoY and reach INR 11,570 cr by 2012.

Today we will look into the Home Video Market which has been growing at 30% and contributes about 9% to the overall E&M industry. The Home Video rental market in India is still very fragmented and offers tremendous scope for modern retailers.

We have video libraries such as Cinema Paradiso operating through physical store format and several players like BigFlix, SeventyMM, MovieMart operating online stores and Home Delivery.

Cinema Paradiso operates in the cities of Hyderabad, Pune, Cochin, Chennai, Bangalore, Kolkata and Coimbatore. MovieMart, the online rental library is looking at expanding into Tier-II cities such as Surat, Jaipur, Bhopal and Coimbatore because of the huge demand for original movie titles. MovieMart believes that the ideal way to survive is to facilitate selling, renting offline and online. The young audience prefer online format while the older folks opt for store.

BigFlix part of the Reliance ADAG is embarking on Internet to reach Tier-II and Tier-III cities as they offer huge potential. BigFlix also plans to reach 500 outlets from its current 110. They eventually want to shift the platform from offline to online. It is already witnessing a shift of 60% from offline to online. BigFlix is also targeting the NRI customer with Online Movie Downloads protected by DRM.

Blue Ray DVDs for the Rich Consumer Experience:
You will have consumers who spend upwards of INR 100,000 in setting up their LCD TV with Bose Home Theater system. They will definitely look for movies recorded on HD-DVD for ultimate entertainment experience.

Threat from DTH / IPTV Operators ?
DTH / IPTV operators has a good reach and is providing Video on Demand. However, they hit a roadblock as they don't have the huge collection of movies from Hollywood to Bollywood / other International content for the customer and hence these retail chains dismiss DTH / IPTV operators as big competitors.

How Pantaloon + Future Group surviving the Slowdown

The Pioneer of Indian Retail - Mr. Kishore Biyani is more realistic than other CEOs of Retail operations in India. Dating back to the hey days of Jan-08, KB decided to write to his employees that they are heading into tougher times and not the days of economic boom. In his Monday morning e-mail he said - Garv Se Kaho Hum Kanjoos Hain [Say proudly that we are stingy] Mr. Biyani took an oath with the employees of Big Bazaar that they will cut costs wherever necessary. Their margins have been affected over the next few quarters, but the company has survived and will sail the slowdown.

Mr. Sanjay Jog, HR Head at PRIL said,

Thank God for what we call Kishore Biyani's sixth sense. Early on, he had an inkling of things to come and we kicked in the restructuring and reorganisational process quickly. We have revised production norms and are redeploying existing people in new stores.

It is not his sixth sense but his experience and vision to forsee things that madeh im send the email and take the pledge.

Mr. KB is taking cues from Telecom czar Mr. Sunil Mittal. KB outsourced IT and other related functions to optimize cost and focus on pure Retail play. This is one of the greatest management lessons for professionals stepping out of biz schools but have no idea on such business models :-)

Mr. KB Further added,

The organisation has been designed in a manner to adapt to changes faster. So, a Pantaloon customer moved to Big Bazaar, or an EZone customer buying Samsung could now buy Koryo at Electronics Bazaar. By being present across the consumption basket - fashion, food, electronics, mobiles, furniture, and home products, Pantaloon kept overall sales growth far more stable. Even if customer decided to spend less on furniture or mobiles, spends on apparel or food continued to grow.

KB is now negotiating deals with Mall Developers and we believe that he has closed deals in atleast 4 malls at rentals of 20-30% discount.

Mr. Ambani of Reliance had tried to talk to Mr. Biyani in 2006. However, those talks broke down abruptly and since then, Biyani has emerged stronger than ever and climbing higherto clinch the title of Retail King of India- atleast in Retail 1.0 War.

Big + Food Bazaar = Future Value Retail - New Entity

In April-08, we had written about Kishore Biyani's plan to spin off Value Retail format Big Bazaar into a separate company. Biyani also took the approval of shareholders and is all set to unveil a new Value Format. However, the name that they are likely to choose is Future Value Retail which will comprise Big Bazaar and Food Bazaar chains.

According to latest quarterly results, both of these formats[Big + Food Bazaar] together contribute 55% of Pantaloon Retail India Ltd [PRIL] top line. Currently, Big Bazaar has 109 stores and Food Bazaar 152 stores.

Why they need to be spun off into a new entity ?
The new entity will be India's largest Value Retailer and it can entail the Pantaloon group to command a premium while raising more money for expansion. The goal here is to make this entity the supply chain back end for all the Future Group Formats. What is in for current shareholders of PRIL ? PRIL will become the holding company in proportion to its existing stake, which is 100% in both Big + Food Bazaar.

It is reported in the press that French retailer Carrefour may take a stake in Future Value Retail which will bring in the required cash as well as expertise to build and run economies of scale supply chain so essential to make a difference in the Indian retail scape. However, we feel it is Kishore Biyani's decade of experience with Indian vendors and suppliers that will equally help thcompany since Western models cannot be replicated directly in India.

What will happen to FutureBazaar.Com - eCommerce entity ?
PRIL has raised unknown amount in April-08 from Sherpalo Ventures and Kleiner Perkins by diluting 15% stake. Will this also be transferred to Future Value Retail or will it continue to function as an independent entity and later become the center for its online / mobile shopping ?

Update on 18/03/2008:
We have received confirmation from PRIL that FutureBazaar.Com will function as an independent entity.

Disney Baby + Jeans - Bungee Store Opens in Kalyan

The Global Trendz Retail - GTR JV between Hardcastle Restaurants [owners of McDonalds India] and Jalans of Prakash Mills Mumbai have joined hands to launch Bungee Stores for kids. The first store opened for business in Kalyan Mumbai.

Disney Baby is a their brand targeted for toons between the age group of 0 - 4 years, while Disney Jeans is targeted for kids between 4 and 14. Currently, Bungee will retail only appareal and some accessories though the brands globally have assorted merchandise from food to shoes. They also plan to add more brands like baby Mickey Mouse, baby Donald Duck, Pooh and Tigger.

Mr. Amit Jatia of GTR said,

After having dealt with the Indian consumer so closely through Mc-Donald's for the last 10-12 years, we feel we have a good sense of their requirements. The Indian consumer is price-sensitive and if you do not price your products right, then market penetration will be a challenge. Kalyan is a midsegment market and is representative of India in many sense. We shall be able to judge consumer-reaction much better here.

GTR plans to open 50 stores in 20 cities by 2009-10. Going forward, Bungeee would be rolled out in Hyderabad, Nagpur, Bangalore and Mysore. Disney Baby and Disney Jeans will also be made available in MBOs like Shoppers Stop, Lifestyle and more. GTR plans to own most of the stores in Tier-I cities. However, it is open to the idea of franchisees andi s already looking for them for Tier-II cities.

Titan + Tanishq + Fastrack Reality Check

India is a large consumer of Gold. With soaring prices sales have been under pressure for organized Gems and Jewellery Retailer like Tanishq. Here is the Reality Check of the Industry and the management's views on the same.

Tanishq gold jewelry volumes have come down. Margins are now partly linked to gold price and hence profitability is less impacted than sales. Also, higher margin diamond jewelry has been growing at a faster rate than plain gold jewelry resulting in mix gains. Management believes current high gold prices are not sustainable as Indian demand has dried up. The company aims to introduce larger format stores in Tier-I cities with wider product portfolio to beat the local jeweler.

Titan has 30 Gold Plus stores to date and plans to open 5-6 stores next year. While sales in Tier-II/III towns have been encouraging, the company has found it difficult to find an appropriate trust worthy franchisee and hence slower than expected ramp up

Titan Watches has not remained immune from consumer slowdown. However, the impact is not uniform across geographies and consumer segments. Tier-II / III cities have not witnessed any slowdown as yet and have outpaced the large cities in growth rates over last few months. Even among the metros / large cities there is a wide variance - Mumbai has definitely been impacted, so have been IT hubs Bangalore and Hyderabad. Youth and women seem to have been least impacted segments.

Management believes that the key to achieving growth in watches is launching frequent new collections backed up by advertising spend. The company has opened 4-5 exclusive Fastrack stores on pilot basis focusing on youth accessories like leather bags, belts, wallets etc. besides sunglasses and watches where they were already present. These stores would be small in size - 400-500 sq ft, located in malls or near university campuses.

Fabric Spa acquires Snoways Laundary

Fabric Spa chain of laundry promoted by Jyothy Laboratories has acquired Snoways for an undisclosed sum. Snoways is the second largest chain in Bangalore after Band Box. Snoways had a topline of Rs 5 crore while the later has Rs 10 crore.

Speaking after the announcement, Mr Ullas Kamath, of Jyothy Laboratories said,

JFS - Jyothy Fabricare Services has been set up to provide laundry services to the retail and institutional segments in cities like Bangalore, Pune, Hyderabad and Chennai. The laundry business is estimated to be around Rs 6,000 crore but is largely unorganised and we believe that our firm which has presence in the fabric care business can position itself as a national player.

JFS is banking on the white collar IT professionals for its growth. It is targeting 500,000 households of the 2 mn households in Bangalore for retail point of service and 5,000 recession proof households for door-to-door service.

It is expected to clock a topline of Rs 15 crore this FY and expand to Chennai, Pune and Hyderabad.

Small Chains of Kolkata Shrug Slowdown - Shagun + Savera Sarees + Lederland + Dhanuka

You have already read that PAN India retailers are facing significant slowdown or shut down. One of our Associates did a retail reality check with small or independent retailers in Kolkata and the findings suggest that they are affected by the slowdown but not as much as their Large competitors.

Shagun a Wedding Mall of 20,000 sft is likely to register a turnove of Rs 20 cr for FY09 which is higher than Rs 17.5 cr it did in the last FY. Mr. Khaitan of Shagun is of th view,

Thankfully we have already crossed our last years revenue and out business has not ben affected that much, simply because we are into wedding wear. Even now consumers go overboard when it comes to shopping for the bride and groom. The meltdown dos not matter as shopping for bride and groom is based more on requirement. However, business from NRI customers was low this year.

Shagun did see some markdown in its sales target and is going for a discount sale on all its merchandise to woo shoppers.

Savera Sarees one of the speclized Lifestyle retailers for the Women witnessed a modest slowdown of 20%. This Park Street retailer has opened the doors of discount ranging between 15-25%. The mood in the store is customers are just buyng as per needs and the willingness to BUY expensive items is missing.

Now moving on to the jewellery market, retailers are expnading thir folio to include budget friendly variants such as lightweight designs, silver jewellery and costime jewellery. Pricing has been changed to include the Youth. Mr. Dey of Subhas Brothers said,

We are giving attractive discounts on manufacturing charges and offering various gifts on purchase of certain amount. Since the jewellery business is based on trust we can't offer discounts like Apprel retailers do but we give a cut to the customer from our own margin.

Lederland a retailer in Leather Goods and Accessories having two stores in the city however, had a different story to tell. His sales are moderate but the future is uncertain. Mr. Ajluwalia said,

With customers becoming more price conscious, the volume of sales is taking a hit. Consumers are in no mood to BUY anything overtly expensive. With the middle class under stress of job market, they are shifting to local retail shops which offer quality assurance at reasonable pricing.

When it comes to Furniture, S.T.Unicon retailer feels that the market seems to have gone into Hibernation. But this sector has got to do more with the Real Estate which is the worst affected in the Indian Economy. Mr. Kanodia MD of the company said,

Today if we are feeling the heat it is because the real estate sector is affcted and white collar jobs have been affectd. Broadly speaking the MIg and LIG spending patterns have changed but there is a lot of expectation from the year ending.

Dhanuka menswear retailer thinks this time is an opportunity to build a raltionship with customers and do some long term planning to fight the biggers guys on the turf later. The company is sending out mailers and SMS messages to keep in touch with customers. To woo them to shop, they are trying to greet th customers on special ocassions like Birthday and Anniversary. Indeed, this is a fantastic approach to retain him on your platform selling him the lifestyle products and better consumer experience.

So is size a bane during economic slowdown or is it because that Indian retailers have not fully organized from sourcing to store keeping and got carried away by the wind that they are facing terrible times ?

Nature's Basket gourmet chain highly profitable

Godrej Agrovert promoted Gourmet retailing chain Nature's Basket will be spun off into a separate entity as it is highly profitable and can thus grow on is own. You may recall that Godrej groups retail initiative included Aadhar - Rural Retail Chain where they divested 70% stake in favor of Future Group to support Growth.

If you are wondering what Gourmet retailing is about, it involves selling high-quality premium food for the consumer with global taste and health and nutrition awareness. SKUs include but not restricted to items such as farm fresh vegetables and fruit, premium wines, cheese, handmade pasta, cold cuts, seafood, jams, ready-to-eat desserts, condiments and spices from around the globe

Ms. Tanya Dubash CEO of Nature's Basket said,

We see the Godrej brand and Nature's Basket doing a two-way equity transfer. We have hit on a very successful model and our same store sales has grown 50% annually. The decision to spin off this business is to accelerate growth and scale up the business. Nature's Basket has done exceptionally well at a time when the modern retail industry is currently tackling a downturn.

Nature's Basket is scouting for Global Partner to take this initiative forward. Hypercity and Spencers are the other players in this niche business.

Reliance Fresh + Super + Hyper gets Major Thrust

After merging group company Reliance Petroleum with flagship Reliance Industries, Chairman Mukesh Ambani has now set his eyes on making it big in the Retail. Over the past 28 months, after opening the first Reliance Retail Store - Reliance Fresh, the company has done in-depth market research and tested waters on how to proceed to make it a Multi-Billion Dollar business.

It is learnt that, Reliance is set to expand its Reliance Frehs Stores fro mthe current 645 to 1,000 by March 2010. The management's focus is clearly on value retailing the vertical which Future Group focused from the beginning. Reliance will also add more Supermarts and Hypermarts in the next 12 months.

Status of Reliance Retail Stores as on Feb-2009:
Reliance Retail has 920 stores across 20 formats covering a retail space of 4.5 mn sft reaching 80 Indian cities. Herei the individual breakup of Stores

• Reliance Fresh - 645
• Reliance Super + Hyper Mart - 43
• Digital - 9
• Jewellery - 6
• Shakhari Bhandar - 17
• Apparel Speciality -11
• Footprint - 14
• Ranger Farm - 33
• Apple Stores - 9
• Books & Music - 4
• Delight -100
• Health & Beauty - 15
• Furniture + Kitchen -10
• Automotive -4
  

Until now, the show clearly belonged to Mr. Kishore Byani, the Pioneer of Indian Retail. Going forward we can expect good competition from Reliance, Aditya Birla's More and other retailers.

John Miller + DJ&C - Future Brands to be Licensed to Others

Kishore Biyani's brain child Future Brands is all set to take it private labels - John Miller, DJ&C, Bare and Dreamline out of the group stores and license to other competitors. This means, these brands which are primarily sold through Pantaloon, Central Malls, Big Bazaar will noe be available at other stores.

Last November we broke this news about Future Group's plans to license Private Labels and today they are going to start with three of them - in the profitable Apparel segment. John Miller is a formal menswear clothing brand, DJ&C and Bare - Denim wear and casual wear and Dreamline includes kitchenware, home decor, bed, bath and linen products.

Mr. Saxena of Future Brands said,

We are expanding our brands outside the Future Group through the licensing route. This will help us improve brand presence and increase sales.

Future Brands has set a target of Rs 200 cr sales from each of these brands by 2011, double than their current revenues. It will be interesting to see how this business unfolds and its impact on the Group's retail business. It is likely to face some hurdles on distribution and logistics to other retailers.

Department Stores Comparison - China Vs India

We would like to present a comparison between China and India in the Departmental Store Business. This study concludes Retail as an unviable proposition but that is a fact and we have already seen what is happening in the Retail space. Here is the excerpt of the study.

All figures are in USD in the following analysis.

• Capex (fixed assets only) / square foot - $20 for china where as it is $23 in India. We expect this will decline as input costs diminish
• Working capital (Inventory only) / square foot - China $4, India $29. Inventory management is abysmal compared to peers - if this can be improved, store economics will significantly improve. Logistics management in India is very poor, given inter state tax laws, poor roads, improper ERP systems, etc. We remain concerned about this aspect of the retail industry
• In India the total CAPEX / SFT costs $52 while in China its at just $24
• Revenue / SFT is around $290 in China while its just $181 in India. Given that our disposable income levels are lower, low proportion of modern retail, we can expect improvement on this front.
• Indian Departmental Stores clock higher gross margins at 37% compared to mere 20% by Chinese. This implies Indian retailers are highly dependent on Apparels :-)
  

The problem that plagues retail in India has been succinctly summed up by retail industry veteran BS Nagesh, CEO of Shoppers Stop,

Ironically in India as of today the rental and operating costs have reached 3/5ths of European levels. Whereas the revenues are still at 1/5th or 2/5ths of such sales standards, thus making retail unviable in the short term.

To conclude, we will get more constructive on the retail sector in India when we see evidence of a) better inventory management, b) lower capex costs and c) ability to maintain gross margins despite the challenging environment.