Monday, March 31, 2008

India ranks 44 as global retail destination

India has been ranked 44th on the list of most preferred destinations by global retailers, according to a report by real estate consultant CB Richard Ellis.

The report explores the globalisation of the retail industry and scrutinises retailer presence in relation to market sectors, country of origin, regional trends and other influences.

"Even though the Indian economy is growing at a rapid pace with consumers having more buying power, we are still only at the 44th position," said Anshuman Magazine, chairman and managing director of CB Richard Ellis (South Asia).

"This is primarily due to FDI (foreign direct investment) restrictions in retail and also relatively lower average per-capita income in the country. Hopefully in the future, if the FDI norms are relaxed, coupled with expected economic growth, India would move up in the rankings," Magazine added
Among the BRIC (Brazil, Russia, India and China) group of countries, only China and Russia have been able to make it to the top 10.

Britain leads the chart with the presence of 55 percent retailers, Spain second with 51 percent retailers followed by France, a close third with 49 percent retailers.

France and Germany also performed strongly in the global ranking, achieving third and fourth positions respectively. The United Arab Emirates, China and Russia figured in the top 10, the report said.

"The penetration of international retailers into these emerging markets is similar to that of much more mature economies, explained by a number of domestic political, economic and retail market idiosyncrasies," it said.

Interestingly, the US was ranked 11th with the presence of 39 percent of international retailers.

Presence of luxury goods dominated the international retail expansion, with almost 90 percent having a presence in more than 10 markets, whereas grocery, food and drink retailers indicated 60 percent presence in 10 or more markets.

Retail biggies discover future in hypermarket format

Hypermart is the flavour of the season. The big guns of organised retail have entered new markets with small-sized supermarkets and branded convenience stores. Now they are ready for bigger investments and larger formats.

Reliance, Aditya Birla and Tata’s Star Bazaar are focusing on large European-style hypermart roll-out while old hands like Spencer’s and the Future Group too are scaling up their hypermart formats. Hypemarket are the next stage in retail revolution for some brands. They will get higher margins, volumes and more brand recognition.

“The supermarts have already established brands, now hypermarts can levearge that brand recognition and create a captive customer in smaller markets. European style of hypermarket with roomy isles and white lights seems to be favoured by the new players in India”, says a marketing consultant attached to an Indian retail business house.
According to a Technopak study, 66% of the total domestic investments in retail (estimated to be at $1,011 billion by 2017) would be done in hypermarts and supermarts formats. In the next five years, 32% of the new investment in retail is expected to be in the hypermarkets, says the study.

Typically, a hypermarket is weekend shopping destination that works on low price points and high volumes, covers a large floor area (anything from 40,000 square feet to 200,000 square feet) and has a larger catchment area. It is a combination of supermarket and departmental store and stocks a large amount of product categories, including groceries, general purpose goods to specific apparel and even automobiles etc.

The Tata, Reliance and Aditya Birla groups have by co-incidence of design launched their hypermarts in Gujarat during the beginning of this year. For most, it was a combination of easy availability of property in a reasonably mature market. “There was property easily available since retail development had commenced in Ahmedabad.

Since the hypermarket business was new to us, we wanted to test in a market that was value-conscious and gauge the results before spreading our footprint across the country,” Smeeta Neogi, brands head, Trent, told ET. Russell Burman CEO, hypermarkets, Aditya Birla Retail, says that the Gujarat opening and timing of hypermart is a coincidence.

“We have been planning it for sometime. It has more to do with which property developed early,” he said. More is planning to open some dozen hypermarts this year in NCR and across tier two cities in India. Reliance, which has already opened two hypermarts in Gujarat, is also rolling out the retail model across the country.

Big retailers to take care of mom-&-pop stores

India Inc is all set to script an Indian model for retail growth. The government has asked big retailers to chart out an India-specific strategy for organised retail, which would result in inclusive growth of mom-&-pop outlets.

“We have had two rounds of meetings with retailers such as Reliance, AVB Group, Future Group, Bharti and the Tatas,” minister for food processing industries Subodh Kant Sahay told ET. “We want small shopkeepers to get access to big supply chains. Everybody should benefit,” he said. This could be the answer to the political criticism over large retail trampling small kirana shops.

“Organised retail, in the long term, would create a market as it would help boost supply-chain management for our farm produce also. Without retail, farmers cannot get optimum value for their produce. Due to lack of an efficient supply-chain network, more than half of India’s produce gets wasted,” Mr Sahay said.

India could consider opening up its $330-billion retail market to foreign investment after it is convinced that the kirana stores will not be affected by big retailers. “Organised retail, backed by an efficient supply chain, has the potential of raising the rate of growth of the food processing sector from 13% to 20% in the next three to five years,” the minister added.

Last year, states like Uttar Pradesh cracked down on organised retail, especially in fruit and vegetables, following protests from vendors. This sector has a strong lobby of middlemen, who control significant chunks of local vote banks.

Saturday, March 29, 2008

same old storey

Considering that the apparel and lifestyle retail format, Shopper’s Stop is one of the oldest players in Indian retail, BS Nagesh and his team can feel a sense of achievement. But the oldest network also brings a rider along — that Shopper’s Stop has the largest number of old stores. This for the team is a matter of concern because in addition to launching new stores across new regions, the old stores also need a boost from time to time. Currently, there are four stores under revamp across Delhi, Hyderabad and Bangalore. “If you open three or four stores a year, they look newer and your first 20 stores look older. So in your own generation, yesterday’s business looks extremely old,” says B S Nagesh, CMD, Shopper’s Stop. While one can see the thought behind the revamp of older stores within Shopper’s Stop network, it’s only 18 months since the Croma store at Juhu opened for business and already changes are in the offing. Not because footfalls or per square feet realisation is dropping, but the idea here is to create a more customer friendly environment. “When sales are good, the normal logic is don’t touch it. But in the last 18 months, we have studied customer traffic. Based on what we found out, we have decided to incorporate some changes,” explains Ajit Joshi, CEO, Infiniti Retail. The retailers today are doubling up as cosmetic surgeons undertaking elaborate makeover sessions. The intervention has been necessitated by worries about same store sales, a phenomenon which has hit the Indian retailing market. As players are leapfrogging the retail curve and aggressively expanding, they are faced with shorter retail lifecycles on older stores. Globally, average retail life cycles are six to seven years but Indian modern retailers have been forced to re-invest in old stores by the third year on account of the rapid pace of expansion. Same store sales are generated only by establishments that have been open more than a year and give a clear sense of how the industry is really performing. It is crucial since the older stores bring in most of the business until newer ones consolidate their position. Globally , the same stores metrics are used to measure the health of the business and are also a trademark of the health of the economy particularly in countries with a developed retail environment. It’s this phenomenon which is keeping Salil Sahu, CEO, Home Stores India, which runs Sabka Bazaar in the North on his toes despite a complete revamp recently. Home stores, part of Wadhawan retail holdings, acquired Sabka Bazaar in July 2007. Post acquisition, the company revamped all 30 existing stores while adding new ones to its fold. Six months into business, old store sales have grown by 50%, while footfalls grew by 70%, says Sahu. “A reasonable timeframe can be four years before a major overhaul is undertaken , but changes are taking place in all directions , from cost pressures , competition to shopper behaviour. Thus one needs to constantly monitor the need for incremental changes from time to time,” he explains. Industry estimates indicate the retailers target between 5% and 15% same stores sales growth depending on inflation and shape of the economy. India however is witnessing erratic behaviour. Considering the nascent stage, the growth should be increasing consistently. However, studies reveal that while stores do better in the first year, the second year witnesses a drop. Hemant Kalbag, principal - consumer & retail practice, AT Kearney believes the drop is more to do with the novelty factor associated with a store. Since retail is a new phenomenon , barring big metros, most catchments haven’t got exposed to modern trade.

Wednesday, March 26, 2008

India among 'most brand conscious countries' globally

A fast growing economy and a rising number of affluent consumers have pushed India into the league of most brand conscious countries globally, says a survey.

In the 'Nielsen Global Luxury Brands Study', India was placed at the third position after Greece and Hong Kong.

According to the survey, 35 per cent Indian respondents agreed to buying designer brands. On the other hand, about 46 per cent people in Greece and another 38 per cent in Hong Kong responded positively to having bought such brands.

Interestingly, the study conducted by global information entity Nielsen Company found that despite the prevalence of imitated designer-branded goods, more than three-fourth of Indians do not believe that imitation products match up to the real one.

While 34 per cent of respondents were found to have spent on Calvin Klein brand, 25 per cent preferred Gucci and another 24 per cent spend money on Diesel. About 16 per cent Indian consumers spent on Christian Dior and 10 per cent on DKNY.

About 26,312 internet users in 48 markets across Europe, Asia Pacific, North America and Middle East were surveyed in November 2007. About 500 interviews were conducted in India.

"Foreign brands are synonymous to status and our survey finds that 57 per cent of Indians surveyed buys designer brands as a status symbol," The Nielsen Company Associate Director (Client Solutions) Vatsala Pant said in a statement.

In terms of brands, 41 per cent Indians prefer to buy the products of Italian brand Gucci, making it the top country for this brand in the Asia Pacific region, followed by Philippines (39 per cent) and Indonesia (37 per cent).

Meanwhile, the survey said if money was not an issue, Gucci (41 per cent), Calvin Klein (31 per cent), Christian Dior (26 per cent), Versace (25 per cent), Diesel and Giorgio Armani (both 22 per cent each) are the "most coveted" brands for the Indian consumers.

Pointing out that local brands are popular among Indian consumers, the study said 40 per cent of respondents in the country are buying these brands.

"This is the sixth highest percentage globally for a country that buys local brands," it added.

Even though 73 per cent Indians feel that designer brands are usually overpriced for what they are, 35 per cent also believe that these brands are having a higher quality.

However, 45 per cent Indian consumers think that only fashion conscious people consider buying designer brands.

Another interesting fact is that consumers in the country approved the potential of a crossover product between a designer fashion brand and a new technology gadget.

"...56 per cent Indians surveyed would buy a mobile phone that was co-branded with a luxury brand... 40 per cent said they would buy a co-branded designer laptop computer, 32 per cent a 'designer' flat screen TV...," the statement added

Monday, March 24, 2008

Coke to pump more money to make India top 5 markets: CEO

Betting big on India's potential to emerge its top five markets in the world, Cola giant Coca Cola on Monday committed to more "incremental" investment on top of Rs 1,000 crore it will pump by 2011. "We are bullish on India. It is a matter of stimulation... as the growth comes, you have to put in incremental investments," E Neville Isdell Chairman and CEO of US-based multinational Coke said. "We are investing 250 million dollars (Rs 1,000 crore)... this will not be the last. More investments will come," Isdell, who is visiting India as part of pushing business in tandem with a pleasure trip, said. Dubbing Coca Cola (India) as a "profitable" venture that is adding to the balance sheet of the global giant, the CEO said, "We have arrived in India. But we have not arrived to the level where we want to." "It is a question of long-term commitment. India figures in the global growth strategy of Coke. We are going to make it among the top 10 countries for Coke and then later among the top five," he said, but did not give any time frame on whether the first milestone would be achieved in five years or less. Stating that India is currently at number 17 in the list of countries where Coke is present, Isdell said the country had emerged among the best markets for the company during the year 2007.

New cleaning solutions from Henkel

Henkel India introduced its new Bref range of disinfectant-cleaning solutions in Chennai on Thursday. This includes a hard-surface power cleaner, a toiler-cleaner and an in-cistern block. “The advantage of the power cleaner is that it is available in foam form and can even be applied on vertical surfaces,” Henkel India managing director A Satish Kumar told the media. They expect the new range to contribute to about 5% of the company’s turnover in the coming fiscal. The cleaning solutions market (both hard surface and toilet cleaner segments) is estimated at Rs 373 crore. In the last four years, the industry has shown a CAGR of 24%. The segment contributes roughly Rs 25 crore to the company’s Rs-500 crore business in India. Market penetration of toilet cleaners is under 10% in the country, but is growing fast, Mr Kumar said. Bref Power Cleaner would be available in a 400 ml pack priced at Rs 75, while the Toilet Cleaner will be available in 200 ml (Rs 22) and 400 ml (Rs 50) packs. The incistern block would be available in 50-gm block priced at Rs 50.

Nestle to expand chocolate portfolio

Swiss FMCG major Nestle is expanding its chocolate portfolio in India with an aim to strengthen its market share in the estimated Rs 1,900-crore chocolate market in the country. "Our current market share is over 27 per cent and we will continue to strive to enhance our position," Nestle India General Manager (Chocolate and Confectionery) Stewart Dryburgh said. The company, which currently offers six brands of chocolates - Munch, Kit Kat, Milkybar, Milk Chocolate, Bar One and Selection, has added two more variants to its popular Kit Kat range to boost the growth momentum. "The chocolate market, valued between Rs 1,700 crore and Rs 1900 crore, grew at 23 per cent last year and we have been able to better the industry growth. Going forward, we expect to continue this," he said. Asked if the company had any specific targets for the coming fiscal, Dryburgh declined to comment. He, however, said Nestle India would be launching the two new Kit Kat variants, Kit Kat Chunky and Kit Kat Mini-in 23 cities across India, which would be supported by adequate advertising and communication campaigns. Dryburgh said keeping in mind the changing lifestyle of consumers, the new Kit Kat variants would target those who are seeking to balance indulgence with lighter eating.

Tuesday, March 18, 2008

Daylight robbery

Organised retailers are recognising the need to take tough steps against losses from pilfering and waste.

This would make a great question for the strategist quiz: What is the link between baby formula, Levi’s jeans and Gillette razors? The answer, as it happens, is equally interesting.

Across the world, these three are the most popular targets of retail theft. And as losses due to pilfering and fraud increase worldwide — and in India — retailers are worried that other products, too, will find favour with the wrong people.

It’s called “shrinkage” in retail lingo — when goods leave the retail store or the warehouse without a matching payment. And according to a recent study conducted by the UK-based Centre for Retail Research, shrinkage cost the world’s retailers approximately $98.6 billion — that’s more than six times the $16-billion organised retail trade in India — last year. Retail giant Wal-Mart alone is believed to have lost over $3 billion in shrinkage last year.

Considering the minuscule size of organised retail in India, you would assume shrink isn’t that big a problem here. But the global retail theft barometer survey conducted by the same agency states that Indian retail’s shrinkage woes are actually more acute, and worse in the unorganised sector. At 2.9 per cent of sales, India’s shrinkage rate is said to be the highest in 32 countries surveyed by the company.

Of course, most established players believe that number is dated or just plain wrong, claiming their shrinkage rates are less than or close to 1 per cent. But even that hurts, as shrinkage is a direct loss of revenue and not an expense that contributes to sales. Organised retailers agree shrinkage is a problem, but quickly add that they have kept the problem under control.

“Shrinkage exists and can’t be eradicated completely. It can only be constantly monitored and lowered. It is similar to how manufacturing companies spend on maintaining and monitoring their machinery,” says B S Nagesh, managing director, Shoppers’ Stop.

Other industry heads agree. “Shrinkage is a industry hazard. Since retail is a new business, companies are learning to adapt quickly and find ways around it,” says R Subramanian, managing director, Subhiksha Trading Services.

Before that, though, they need to digest some rather unpalatable facts. Retail theft can usually be traced to four causes: employee pilfering, shoplifting, accounting errors and vendor fraud.

And contrary to popular belief, it isn’t light-fingered customers who are walking away with unpaid goods: internal theft is the biggest cause worldwide, and in India.

In Western markets, shoplifting consumers are responsible for just over 40 per cent of all pilfering losses; the figure for India is much lower — 25 per cent.

What strategies are Indian organised retailers adopting to negotiate this admittedly tricky territory, where the people they need most — employees and customers — are also the cause of some of their biggest losses?

The ethical codeResearch shows that the most common method of employee theft is to allow a friend to slip away with high-value items after charging him for other, low-value items. And if an employee gets away with it once, he is likely to repeat his actions.

Retailers are aware of these grim facts. HyperCITY Retail Chief of Operations John Wilcox points out that 40 per cent of any retailer’s employees are likely to steal from the store or the warehouse.

Which explains why one of the first steps retail consultants recommend is creating an organisation culture that fights loss. That means protecting whistle-blowers, rewarding staff who help reduce fraud and investing in employees to create an experienced and loyal work force.

“As employees quit in a very short time — less than six months in most cases — they do not have any sense of attachment or empathy with their employers. Hence, building a stable employee pool is one of the most important measures,” agrees Pinaki Mishra, partner, retail, Ernst & Young.

The high attrition rate in the retail industry — 40 to 60 per cent annually for floor staff — is one of the biggest reasons for internal theft, agree retailers. To combat that, they are working to creating a sense of responsibility in their employees.

Big Bazaar, for instance, puts all its employees through training modules that highlight the importance of “Indian values” like honesty and integrity and also focus on building a sense of ownership among employees.

“You are more careful about something you personally own. Hence we believe in making employees feel that they are the owners of their counters,” says Rajan Malhotra, CEO, Big Bazaar.

It also helps if employees have a vested interest in keeping theft under control. HyperCITY, Spinach and Subhiksha all link financial incentives to shrinkage rates and reward positive behaviour. At Subhiksha, for instance, targets for shrink are set at the beginning of each month.

Teams that maintain shrinkage below that level are awarded bonuses. “A good rewards programme for containing shrinkage and identifying miscreants should motivate employees,” approves Gibson Vedamani, CEO, Retail Association of India.

But if the carrot doesn’t work, there’s always the stick. Most retailers dismiss dishonest employees immediately, believing the permanent blot on the résumé is punishment enough. Recently though, some retailers have adopted a zero-tolerance policy — they initiate criminal proceedings against erring employees. “It is a matter of integrity. Besides, it sets an example for others in the organisation,” points out the head of a large retail chain.

Constant vigilanceHarry Potter fans will be familiar with Alastair Moody’s severe instruction for fighting evil: constant vigilance. Well, retail shrink isn’t that far gone, but Indian retailers already recognise the soundness of that advice.

There’s only one way to reduce losses from administrative and supply chain errors — check entire stocks against furnished records, pack by pack. Needless to say, that can’t be done more than once or twice a year. Instead, retailers are depending on snap checks and increased, specialised audits to reduce shrinkage.

When Subhiksha changed from the over-the-counter model to the supermarket model, it found shrinkage increased from near-zero levels to well over 1 per cent. The company then changed from its annual stock taking to checking the stocks thrice a year, while certain high-value items like electric razors are audited twice a month. Subramanian says the always-on approach has helped bring shrinkage losses in the retail chain to under 0.25 per cent.

Others have opted for daily checks on high-value items. At Big Bazaar, mobile phones and LCD monitors are inventoried everyday. For its part, Shoppers’ Stop has divided all its products into three categories. Category A, which is checked four times a year, includes high-value and often-stolen items — jeans and dupattas, lists Nagesh.

Lesser value items are in category B and bulk and low-value items like imitation jewellery form category C, which is checked only once a year. (Incidentally, imitation jewellery is exceptionally easy to nick but most retailers shrug that loss off as an occupational hazard.)

Industry observers approve of this strategy. “Regular checking helps. If something goes missing companies can investigate the loss immediately. They can check their CCTV recordings, talk to the employees manning the counter and take action. None of this would work if the product is found missing after months,” says Arvind Singhal, chairman of retail consultancy Technopak Advisors.

TaggedBarcodes only go so far. RFID tags on products would be a more effective solution to shrinkage. But they’re not cost efficient: each tag costs between Rs 5 and Rs 50. For consumer goods and small-ticket items, then, retailers like Spinach and HyperCITY rely on closed circuit TVs.

Experts believe this feature can be used even more effectively. Rather than concealing the cameras, they advocate displaying them prominently. Large signages that mention the store is under electronic surveillance are also important.

In fact, one expert recommends a display screen in the store that screens the movement of customers. “More than the recording or monitoring, it is the perception that you are constantly monitored that will deter shoplifters,” says Vedamani.

Companies agree. When HyperCITY Retail first began operations, it had over five shoplifting incidents everyday. “In the first six months, we filed many cases. Soon we built a reputation of being a store with good security systems in place and this has reduced shrinkage,” says Andrew Levermore, CEO, HyperCITY Retail.

In storeIndian consumers may not be as dishonest as their Western counterparts, but retailers are taking no chances. Which is why they are tweaking store layouts to ensure shoplifters aren’t tempted. Rule number 1, then: No dead corners in the store.

“All our stores are square. If we do find an odd corner, we place a mirror in it so it becomes visible,” says HyperCITY Retail’s Wilcox. HyperCITY also advises plenty of open, well-lit spaces and wide aisles to ensure high visibility.

Other retailers have their own ways of minimising shoplifting. Product shelves in Subhiksha stores are under 4 feet so that customers are always visible to sales staff. Spinach has its own experiment. Most frequently pilfered items — like razors and chocolates — are placed next to the cash counter, under employee supervision.

Big Bazaar, for its part, is experimenting with dummy models of high-value products that are used for explaining features. The real product is brought out of the store only when the customer confirms purchase.

That’s not all. At HyperCITY Retail, plainclothes securitymen walk through the store, constantly monitoring activities. Spinach has a team of mystery shoppers who visit its various outlets looking out for suspicious behaviour — from customers and employees.

What more should retailers be doing? Here are some recommendations: additional security measures during sales and festive shopping seasons; and prominent signages and alarms to deter shoplifters.

Nationwide chains should make loss prevention a centralised function so that multiple store and regional problems can be easily spotted. Most important, perhaps, is that retailers need to understand their losses accurately: measuring at full retail value rather than cost will provide a truer picture of retail theft and, hopefully, prompt them to act faster and more effectively.

Dabur takes on multi nationals

Dabur India’s toothpaste brands have been growing faster than the oral care segment as a whole, transforming a market that has traditionally been dominated by multinational behemoths Hindustan Unilever and Colgate.

According to AC Nielsen data for April-December 2007, Dabur’s three toothpaste brands, Dabur Red, Babool and Meswak, together reported 37.1 per cent value growth in the period against the segment growth of 13.5 per cent.

With this, Dabur’s toothpaste market share grew to 12.2 per cent in volume terms in 2007 as against 10.1 per cent in 2006. In value terms, Dabur’s toothpaste market share has risen to 9.1 per cent in 2007 from 7.7 per cent a year ago.

On the other hand, Colgate and HUL’s Pepsodent have shown a decline in market share in 2007. While Colgate’s volume market share dropped to 36.6 per cent from 37.4 per cent in 2006, Pepsodent’s slid to 12.5 per cent from 13.7 per cent in 2006. Dabur’s Babool, on the other hand, saw a growth in its market share to 5.3 per cent from 3.8 per cent in 2006.

Dabur’s toothpaste brands have been the fastest growing oral care brands for two consecutive years. Its portfolio registered 33.8 per cent growth in value terms in 2007 against the industry growth of merely 13.2 per cent.

Dabur brands have also shown the fastest volume growth in the toothpaste category, reporting a 31.5 per cent growth as against an industry average of 9.4 per cent in 2007.

“We have been consistently making investments in product upgrades and brand building activities of every brand, including the ones acquired from Balsara. Appointing film star Vivek Oberoi as a brand ambassador to endorse Babool is one such initiative,” said Sunil Duggal, chief executive officer of Dabur India.

According to Anand Shah, retail and FMCG analyst at Angel Broking, “HUL has been drifting away from oral care business to focus on its other diverse businesses. Its oral care portfolio consists only of premium products and it should look at introducing more products at the lower-end of the category to be present across price-points like Dabur.”

Toothpowder continues to be an interesting category for Dabur. While its Dabur Lal toothpowder continues to be a high-growth brand, the company has decided to expand its portfolio.

“We have recently expanded our presence in the toothpowder market with the introduction of a white toothpowder under the Babool brand. Babool white toothpowder is being currently test marketed in Maharashtra,” Duggal added

Wednesday, March 12, 2008

Kellogg's, Amul and GSK bullish on food for fair sex

If food companies in India were looking for a fair deal, they seem to have found one. While women have been a preferred consumer constituency for beauty and fashion majors, now food majors such as Kellogg’s, Amul and GlaxoSmithKline have begun to target them in the right earnest. Leveraging on the growing concern about health & nutrition among Indian women, FMCG companies are aggressively pushing niche products to address specific needs of this consumer segment. While Kellogg’s brought its flagship brand Special K to India last week, Amul has launched its CALCI+ milk and GlaxoSmithKline (GSK) introduced its Women Horlicks. Sources say, Nestle has similar products in the pipeline. Positioned to enhance the nutritional level in a woman’s diet, these products promise high-quality ingredients. While Amul Calci milk offers a fat-free and calcium-enriched milk for pregnant women, Kellogg’s $1.5-billion flagship brand Special K is targeted at the platform of wealth management.
It is important for a product to functionally deliver all essential minerals,” says Kellogg’s India managing director Anupam Dutta. “For the 12 crore obese urban women, Special K will be a tasty solution to keep a check on their weight.” For GSK, Women Horlicks is a solution to perennial problems like anemia, osteoporosis and other health related problems. According to Shubhajit Sen, vice-president, marketing, GSK, it is an appropriate time to come out with products for women since their role is dramatically changing and nothing specific is available in market to address their ever-changing demands. “We see a huge opportunity in coming out with ‘women only’ products in food and beverage segment,” he says. “We are positioning the drink for health-conscious women across socio-economic classes who face similar problems.” While GSK also offers a ‘women only’ health drink variant, Mother Horlicks, targeted at pregnant women, it is a prescription-led unlike Women Horlicks which sells over-the-counter. Though companies may not want to admit, analysts believe such differentiated niche product with higher perceived nutritional appeal allows them to charge a premium. “While for us it is not a mode to charge extra price, but it’s true that value addition does command a reasonable premium,” agrees GCMMF marketing head, R.S. Sodhi.

Food for thought: Amul to enter bakery segment

The breakfast spread from the billion-dollar brand Amul will now be complete. Gujarat Cooperative Milk Marketing Federation (GCMMF), which so far introduced milk, butter and milk powder along with 150 products, will soon introduce the missing link — bread. Not just bread, the cooperative major will also bring in buns and cookies to hold its sway over the breakfast table. The plans to enter into the bakery segment will help Amul emerge as a major player in the food market, thus enhancing its scope from just dairying. The apex marketing body of dairy cooperatives, GCMMF, is aiming to capitalise on its wide distribution network, experience in dealing with perishable products and synergy between dairy and bakery products One of the 13 district unions of the Rs 4,300-crore GCMMF and pioneer of dairy cooperatives, Kaira District Co-operative Milk Producers’ Union, will soon test market for bread, buns and cookies. Lately, GCMMF is buoyant on ready-to-eat products like ethnic sweets, milk-based beverages and pizza. The Rs 800-crore Kaira Union has commissioned a pilot plant at Mogar in Anand district where the product remains untouched till final stage of production. It is aiming to offer reliability of dairy products in bakery segment also. At Mogar plant, Amul Dairy manufactures Amul Chocolates and Nutramul. There are not too many organised players in the bakery segment. Amul’s entry into the segment may force other food companies to revisit bakery plans.

Kaira Union vice-chairman Rajendrasinh Parmar confirmed the development. “We have country’s most popular butter brand and having bakery products like bread and buns would strengthen our portfolio. We would taste market in Anand and Kaira districts of Gujarat under Amul brand before firming up plans,” he said. According to a market expert, it is a wise move by Amul since GCMMF enjoys access to over five lakh retail outlets and longest experience in dealing with perishable products in India. So far, Amul’s exposure to bakery industry has remained limited only to serve pizza. However, the plans under consideration would add entirely a new product category in GCMMF’s basket of over 150 dairy products. “We would be rolling out bakery products in the next couple of months in local markets. Bakery is a new product category for us, but it has great synergy with our existing product range. Also, we are already manufacturing some of the inputs for bakery products,” Amul Dairy MD Rahul Kumar told ET. It may be mentioned here that Kaira Union manufactures bakery grade butter and chocolate flavours for ice-cream, which are most critical ingredients of cookies, bread and buns. Also, dairy cooperatives have wide spread network in villages to procure raw material grains for bakery products. Mr Kumar added, “Cookies have tremendous potential with biscuit market growing rapidly. And about 80% of butter consumption is with bread and buns in dishes like paav bhaaji and hence there is a perfect synergy between bakery and dairy products.” GCMMF would replicate the bakery product-manufacturing model in parts of country if the tests in Anand deliver desired results. With expanding milk distribution network, now, GCMMF’s member unions have dairy plants spread across country that can be used for setting up additional units for bakery products.

Monday, March 10, 2008

Nooyi-led PepsiCo more admired than rival Coke: Fortune

Beverages major PepsiCo, led by India-born Indra Nooyi, has been placed higher than its arch rival Coca-Cola on a list of 20 most-admired global companies prepared by US business magazine Fortune.

The list, published in the latest issue of Fortune, ranks PepsiCo at 13th position as against Coca-Cola at 19th spot.

The list has been led by Apple Computer, the maker of digital music player iPod and Mac personal computers. PepsiCo shares the 13th position with IT services major IBM.

PepsiCo is the only company run by a person of India origin to have figured on the list of most admired firm.

Apple is followed by diversified industrial conglomerate General Electric at the second position and Japanese auto major Toyota at the third place.

Berkshire Hathaway, the holding company of legendary investor Warren Buffett who was crowned the world's richest man last week by another business magazine Forbes, has been ranked at the fourth position on the list of 20 most admired global companies.

Others ranked higher than PepsiCo include consumer goods major Procter & Gamble (5th place), courier and logistics firm FedEx (6th), consumer goods maker Johnson & Johnson (7th), retail giant Target (8th), luxury car major BMW (9th), software giant Microsoft (10th), retail firm Costco Wholesale (11th) and another logistics firm UPS at the 12th place.

PepsiCo has, however, outscored companies like networking solutions major Cisco Systems (15th rank), aircraft maker Boeing (16th), world's largest retailer Wal-Mart Stores (17th), Japanese auto maker Honda Motor (18th) and industrial and farm equipments maker Caterpillar (20th).

A total of 622 companies in 65 industries were surveyed for making the list. Fortune partnered with global management consulting firm Hay Group for the study.

According to Fortune, to pick the 20 most-admired global firms overall, businesspeople were asked to vote for the companies from any industry.

"To create the top 20, an overall list of Most Admired Companies, the Hay Group asked 3,721 executives, directors, and securities analysts who had responded to the industry surveys to select the ten companies they admired the most."

They chose from a list made up of the companies that ranked in the top 25 per cent in last year's survey, plus those that finished in the top 20 per cent of their industry, the magazine added.

Wednesday, March 5, 2008

Hariyali rural retail, now a Harvard case study

One of the country’s agri-business initiatives, Hariyali Kisaan Bazaar — the rural retail venture of DCM Shriram Consolidated Ltd — has become a case study for students at the Harvard Business School.
Late last year a team from Harvard came to India to extensively study the model and turn it into a case study, and this month it was also presented at their international agri-business seminar at the school.
Earlier, Harvard had studied the e-choupal model of ITC.
“Prof David Bell (of Harvard) contacted us after hearing about the initiative from a participant during a World Bank meeting. He was excited and wanted to study how it was making a difference in the lives of farmers in the country, besides being an example of inclusive growth that the country is advocating,” said Mr Rajesh Gupta, President and Business Head of DSCL’s Hariyali venture.Catalyst for social change
The study, in fact, has highlighted the model as a catalyst of social change and traces its beginnings to DCM’s deep-seated interests in agri-business and its involvement with the sugar business as early as the 1930s and later its entry into the fertiliser sector in 1966.
The genesis of the retail venture goes back to 1997 when DSCL initiated an agricultural extension programme, Shriram Krishi Vikas Guides, in northern India where the guides were trained agronomists posted in rural areas to address the needs of farmers and solve agri-based problems such as seed quality, irrigation techniques, fertiliser usage and crop yields.
It was at this point that the company found farmers asking for a host of quality agri-products at reasonable prices.
The study quotes Chairman and Managing Director Mr Ajay Shriram recounting how the company found in this a business initiative “which could leverage the agri-value chain, have a transformational impact and improve the quality of life in rural India.”
Today Hariyali has 125 rural centres spread over the north, west and south of the country. Its one-stop shops provide farmers with a range of agri and non-agri products, latest farm technology, farm fuels, and output buyback of farmers’ produce. The centres are also IT-enabled and provide farmers critical data relevant to them, inputs and access to weather forecasts, market prices and other technical knowledge.
Going forward, the company wants to experiment retail on the output and input side. Mr Rajesh Gupta is exploring Hariyali’s potential as a bulk buyer, which would serve as a conduit to rural India for companies who want to sell their products and services there. Motorola is already using the Hariyali route for its handsets. On the output side Hariyali is mulling being an “instrumental link” in the retail value chain, to supply large urban retailers with fresh fruits, vegetables and grains procured directly from the farming community.
The major challenge faced by Hariyali in meeting the expectations of the brand, and cited in the Harvard study, is the logistics of having employees in so many different locations and providing for the economic nuances, attitudes and practices of different regions of the country.

Anchor Health plans to acquire global personal, oral care brands

“It has to be an excellent product which would be able to add value in its category. We could enter into an arrangement whereby we could also manufacture the products for the acquired company or brand.”

Mumbai, March 4 Anchor Health & Beauty Care (AHBC) is planning to acquire international brands in the personal and oral care space. Having forayed into soaps and toothpaste, the FMCG company is now keen on making global inroads with the intention of adding distribution muscle in new markets.
Mr Sashi Nair, President, Anchor Health & Beauty Care, told Business Line, “We are now looking at the world as a map to tap into new opportunities and are interested in brands in personal and oral care.” Following the footsteps of others FMCG majors such as Marico and Godrej, which have been on a brand acquisition spree, Anchor believes in looking out for international brands which could add value to its portfolio.
As Mr Nair adds, “It has to be an excellent product which would be able to add value in its category. We could enter into an arrangement whereby we could also manufacture the products for the acquired company or brand.”
Anchor is planning to step up its international presence by taking its own brands to new markets as well bringing in new brands into the domestic market.
It is stepping up its presence in the toothpaste category in the domestic market by roping in actor Kajol as the new brand ambassador for its toothpaste. Being the number three player in the toothpaste category (after Colgate and HUL) with a 6.5 per cent volume share, Anchor is now poised to grow at 12 per cent in the category while the toothpaste category continues to register growth rates between 8 and 9 per cent.
In soaps too, it has already got Katrina Kaif as its brand ambassador and has been in the category for the past year- and-a-half.
“In the soaps category there has been down-trading as people have been shifting from the mid priced to the popular soaps,” observes Mr Nair. In this scenario, Dyna has recorded a turnover of Rs 100 crore for AHBC and is expected to grow at 50 per cent in the next two years. Confectionery segment
However, in the confectionery category, Anchor has been lying low for a while. Explains Mr Nair, “Confectionary has not been a prime focus for the company. There has been consolidation in this category and we continue to have our brand of hard boiled sweets under five variants. But now we are looking at taking this category forward with our brand.”

Tuesday, March 4, 2008

ITC : Filtering growth

Higher prices could lead to lower volumes.
India’s leading cigarette manufacturer ITC, which commands a market share of 74 per cent, will need to cough up about 17 per cent more by way of excise duties from FY09.

That’s a consequence of the hike in excise duties for plains, where the duty is up from 56 paise to Rs 132 paise per stick and for micros where it has gone up from 17 paise to 82 paise per stick. Micros and plains together account for about 20 per cent of cigarette volumes, but contribute less than 10 per cent of profits.

It’s not clear how exactly the higher duties will be passed on. The Rs 12,369 crore ITC could choose to spread the price hike across the entire portfolio rather than raise prices of just non-filter brands.

Either way, there could be some impact on volumes, which are now estimated to grow by about 1 per cent in FY09. Nonetheless, ITC has the advantage of a big portfolio and, therefore, an option to cross-subsidise non-filters.

A larger proportion of sales of higher-end products will boost margins and over time, it may choose to exit plains and introduce regular filter cigarettes at lower price points because the hike on non-filters means the migration from bidis to cigarettes will be slower. Currently, plains cost Rs 1.5-1.75 per stick while micros are priced at Rs 2-2.25 per stick.

ITC has gradually been foraying into new areas; it now a presence in hotels, paper, foods and lifestyle products. However, more than 75 per cent of its revenues accrue from cigarettes.
Over the last 12 months, the stock has underperformed the Sensex by 12 per cent primarily because of concerns about VAT, which was imposed at 12.5 per cent and threatened to dampen volumes. Between FY05-07, the stock has traded at an average forward multiple of 24.
The stock, which at Rs 193, trades at 19 times FY09 estimated earnings, is not cheap, given that earnings are expected to grow at around 20 per cent over the next couple of years. However, it could be a good defensive play.

Monday, March 3, 2008

Fruit Punch

A look at why beverage companies are adding fruits to the drinks trolley

This juice is worth its squeeze. At least cola majors Coca-Cola and PepsiCo think so. A couple of weeks back, when beverages giant The Coca-Cola Company announced its results for the October-December 2007 quarter, it attributed the growth in its Indian market to its mainstay brand Coca-Cola and its expanding portfolio of fruit drinks (beverages with 20 per cent fruit pulp).
Fruit drinks are increasingly filling the crates that were otherwise capped with fizzy carbonates in the Indian market. In October 2007, Coca-Cola India took its orange fruit drink Minute Maid national after a carefully phased launch that first covered major cities. Last month, PepsiCo rolled out its fruit drink, Tropicana Twister, nationally.
PepsiCo also announced that it expects to treble its turnover in the next three years, expecting a good portion of this increase to come from fruit drinks. Coca-Cola India has meanwhile launched its second communication campaign for Minute Maid and the company has also finished its test-marketing 200 ml carton packs of “Mazaa Aam Panna” in Agra, Bhopal and Bareilly. The company plans to launch the drink this summer.
The action by the global giants is partly in response to the local players. In March 2007, homegrown beverages major Dabur had launched Real Twist, its fruit drink in three flavours – Mango-Orange, Mango-Apple and Mango-Pineapple.
“Growth in the fruit drinks segment has been accelerated by increased consumption by teenagers in the last two years. With Réal Twist, we are meeting the needs of teenagers who were looking for a product that is different and with which they can associate,” says K K Chutani, general manager-marketing, Dabur India.
It’s also because the fruit drinks segment is ripe for plucking. At Rs 1,200 crore, the juice and juice drink category is among the fastest growing segments of the approximately Rs 9,500 crore packaged beverages category. While fruit drinks as a category is growing at 18-20 per cent, carbonated soft drinks are growing at 6-8 per cent.
However, more than 90 per cent of sales happen through the unorganised route — juice centres, street corner shops and so on. It’s this 90 per cent that companies are tapping. “Hygiene is a huge issue at most of these outlets. A well-packed fruit drink can surely tap this market,” says Venkatesh Kini, vice-president-marketing, Coca Cola India.
Competitors agree. “It’s the fastest growing liquid beverage category. The young consumer has clearly displayed a liking and a need for fruit drinks,” says Sucheta Govil, executive director- innovation, PepsiCo India.
The other part of the strategy is to cater to the evolving consumer tastes. “The Indian consumer of today is clearly seeking healthier alternatives,” says Sharda Agarwal, a former marketing director of Coca-Cola India and a co-founder MarketGate Consulting.
“Bottled water and fruit-based drinks are benefiting from the healthier tone that Indian consumers have taken. Moreover, the soft drink market is maturing,” agrees Sunil Alagh, chairman, SKA Advisors.
Hence, TV campaigns of both companies emphasise the presence of fruit. For instance, Pepsi’s campaign shows a young boy sipping from a bottle of Tropicana Twist only to find pretty girls hurling oranges at him, in a way symbolising the fruit rush that the consumer gets after drinking the juice. “We plan to spread awareness about health benefits of fruit and fruit juices through various nutritional programmes,” says Govil.
Coca-Cola India’s campaign for Minute Maid shows fruit pulp disappearing from oranges only to be found in the drink, promoted widely as Pulpy Orange. The company focused a large amount of it promotions on sampling.
Apart from television and print advertisements, Coca-Cola India distributed free samples to consumers at malls, offices, shopping arcades multiplexes and other places in most major metros to create awareness. “We distributed more than a million free samples. Once consumers taste our product they would be hooked to it,” says Kini.
But the same confidence seems to be missing on ground. In a dipstick study conducted by Business Standard, It was found that close to 50 per cent of restaurants, bars and hotels surveyed did not stock the new variants launched by Pepsi Co or Coca Cola India.
Bar and restaurant owners believe that these drinks are of little use to them as customers prefer carbonated drinks as they mix well with other spirits. They also believe that most of their customers are not in an health conscious frame of mind at their joints and hence most do not see any value in stocking these drinks.
Hotel owners are also of a similar opinion that customers trust them on hygiene, but would not prefer such fruit drinks due to the preservatives present in them. Says one, Fresh fruit juice always tastes different, these drinks are just not the same.
Another points out that their fresh fruit juice are higher ticket items at Rs 30-45 a glass than these drinks. “Fruit juice and fruit drinks will sell more at kirana and convenience stores. They require the more traditional FMCG medium of distribution,” agrees MarketGate’s Agarwal.
But the other 50 per cent who stock support the products are positive. Pepsi retailers are optimistic that there will be demand for the drink once the advertising and campaign picks up. Minute Maid retailers claim that they already sell 1-2 bottles in the same time in which they sell 10-12 bottles of Coke or Sprite.
Further they believe that sales are low because its winter. It’s a common belief amongst them that once summer sets in demand will surely increase for these drinks. Hotel owners in affluent areas claim that they are already experiencing a pull for the drink.
This pull is essential as the focus on fruit drinks is also an attempt at portfolio diversification. Both Coca-Cola and PepsiCo discovered this, much to their discomfort, when consumers started to shy away from Colas following reports of contaminated water in the carbonates— twice in the last five years. A diversified portfolio, consultants believe, will empower companies when crisis strikes.
Both companies decline that this is the real reason behind pushing fruit drinks. They say that they are merely leveraging the market opportunity. Says Kini, “The market for carbonated drinks is 10 times larger than the fruit drinks segment. We are launching this product because our research shows that the Indian customer is ready.”
Globally, however, both Coca-Cola and Pepsi have no qualms in accepting that their focus is on building a strong portfolio of non-carbonated drinks. Coca-Cola’s global strategy has been to target newer markets with carbonated drinks and to build a strong non-carbonated drink brands and healthier carbonated drinks like diet-colas, sugar-free drinks and so on.
The results are also showing globally. For instance, Pepsi’s juice brand Tropicana Premium’s global sales is higher than carbonated drinks like Mirinda and 7Up. Also sports drink Gatorade and Diet Pepsi rank second and fourth in terms of world wide retail sales clearly signifying the shift towards health drinks.
Non-carbonated drinks is also more profitable. In 2007, 62 per cent of the volume sales of PepsiCo Beverages North America were accounted for by carbonated drinks, while non-carbonated merely contributed 38 per cent. However, in terms of revenue, non-carbonated drinks contributed to 69 per cent while carbonated drinks generated only 31 per cent.
While it’s too early to compare volumes in India, the pricing of the products can shed some light on the attractiveness of the segment. While a 500 ml bottle of Pepsi or Coke costs Rs 20, a 350 ml PET bottle of Tropicana Twister costs Rs 22, while Minute Maid costs Rs 25 for a 400 ml PET bottle.
While Coca-Cola and PepsiCo are climbing up the price ladder, Dabur is driving its price point down with Real Twist. That’s because the company has traditionally marketed fruit juice and nectar, which contain 80 per cent or more of fruit pulp.
After targeting, housewives, children and senior citizens with its premium juice offering Real and its variant Real Activ, the company has extended its portfolio with Twist to reach out to the youngsters. Real Twist is priced at Rs 45 for 1.2 litres on the other hand its fruit juices like Real and Real Activ are priced between Rs 72 and Rs 85 per litre.
Even PepsiCo and Coca Cola India are looking at the age group of 18-29 years and 20- 29 years respectively. Both companies have also tweaked the taste of their global products to suit the Indian palate.
“Indians like their juice with more orange and more sweet. Hence, we have made it so,” says Coke’s Kini. Will consumer response be equally sweet?