Culture for Startups

In times of  stability, culture plays a vital role in the success of organizations. Most management studies have found ‘Culture’ to be amongst the four most important factors for success. Peter Drucker once said “Culture trumps strategy for breakfast.”Culture can make or mar startups but its importance is not adequately appreciated. 

Here is a link to an article I wrote on iamwire:http://www.iamwire.com/2013/08/leveraging-invisible-warrior/

Pricing in the Internet Era

Owing to the inherent low loyalty on the web, the ecom players are going to face a difficult battle amongst themselves on pricing. The brick and mortars of course face an existential battle over prices.Web commerce has disrupted pricing models - apps and price comparison sites ensure that how you price has become even more important. 

Here is a link to my article on iamwire on The Power of Pricing: http://www.iamwire.com/2013/07/the-all-powerful-pricing/

Micro Trends in the Indian Market

The markets are changing constantly and organisations can be on top only if they start working when the trends are just beginning - the article by me on iamwire looks at understanding the importance of trends early enough.

These embryonic trends start deep and create the structural disruptions that later end up as gigantic changes. For some these mega trends come as shocks that overturns their business models but it need not be so, if one starts identifying and working on the micro trends early in the cycle. My take in the link: 

                                                    http://www.iamwire.com/2013/05/of-markets-and-trends-start-early/

Seize the online Home Decor Market

The fragmented and unorganized Indian home décor market is rapidly becoming organized as consumers turn to chain stores and the web for purchases. The online industry has the power of the net to reach consumers throughout the country while eliminating the high operational costs of physical stores.
Here is a link for my article on the possible strategy for online Home Decor in India http://www.iamwire.com/2013/04/decoding-the-online-home-decor-market/

The perils for ecommerce in India

The ecommerce industry is seeing a repeat of the dynamics of the brick and mortar retail in India.in a fiercely competitive market, the e-commerce businesses will need to take a few lessons from the experience of offline retail in the last decade. Many lessons are inherent to a new industry but some of them are unique to the Indian market. They can ignore them only at their own peril.

Here is a link to my recent article in iamwire,a premier site for e commerce in India, which talks about what the industry can learn from offline retail.

  http://www.iamwire.com/2013/03/can-e-commerce-evade-the-hurdles-that-derailed-brick-and-mortar-retail/

Record Diwali Sales

Diwali has been traditionally a time of splurging for Indian consumers and companies look forward to this period.Last two years were subdued with the cloud of Lehman hanging over.This year the sun sparkled like never before.Most businesses have had a bumper time.There have been unprecedented sales of consumer durables,gold,cars,apparel and even DTH connections.A DTH company executive,I spoke to,revealed that they had signed up 40% more connections over last year in one month.Value retailers like Vishal and premium appliances both have never had it so good.The article below from ET gives an idea of the buoyancy sweeping the market.

Diwali retail sales rocket to new highs, up almost 80%KOLKATA|NEW DELHI: Retailers, carmakers, jewellers and other consumer goods and services companies have reported highest Diwali season sales, as consumers went on a buying spree across the country except in Punjab, where floods dampened demand.

Companies reported year-on-year growth ranging from 20-80% this season and remain confident that the high demand will last, with consumer confidence expected to stay high on the back of rising incomes, positive economic forecasts, booming stock market, rising asset prices and a good monsoon.

“Diwali sales were the best ever,” said Rakesh Biyani, CEO-retail at Future Group , India’s largest retailer, which recorded more than 20% rise in footfalls and a more than 25% jump in average bill size. “Good times are here to stay,” he added.

Retailers reported about 25% jump in average bill size, as demand for premium products such as flat-panel televisions, double-door refrigerators, fully-automatic washing machines, home theatres, branded gold and diamond jewellery, fashion apparel, imported gifts and branded furniture soared with consumers upgrading their household items.

“The fear mindset of consumers has completely vanished. Consumers have splurged like there’s no end,” said Sanjay Gupta, marketing head of Spencer’s Retail, which reported a 20% jump in average bill size.

The auto industry sold about 50,000 cars during the Dhanteras-Diwali week, driving almost 4-5 times growth in sales.
Maruti Suzuki , which sells every second car in the country, drained its entire inventory to dealers during Diwali.
“We estimate that more than 15,000 Maruti cars were delivered on Dhanteras day alone across the country,” said Shashank Srivastava , chief general manager-marketing, Maruti Suzuki.

The company sold a record 1.08 lakh cars in the domestic market in October and expects sales to be even better in November. The maddening customer rush was also seen at two-wheeler showrooms across the country. Market leader Hero Honda’s all three factories have been working overtime to meet the unprecedented demand as sales in October rose 43% to cross five lakh units in a month for the first time.

A Hero Honda spokesman said sales were better than despatches. “Our retail sales have already crossed the 5,50,000 mark during the period between the first day of Navratras and Diwali,” he said. “The festive period is still on, and we hope to add more numbers to this tally in the next few days,” he added.

The mood in the market is so bullish that despite a 24% jump in gold prices since last Diwali, leading jewellers reported anywhere between 40-80% growth in sales this year. “Growth has come from the medium-value items to the high-value categories,” said Mehul Choksi, CMD of Gitanjali Gems that owns D’damas, Nakshatra, Gili and Sangini brands. He said the company’s sales were 70-80% more than last year. Gitanjali has reported sales of around Rs 450-500 crore this festive season.

Other leading jewellers like Orra and Tanishq also clocked 40-50% growth in sales. Orra CEO Vijay Jain said apart from necklaces and bangles, solitaire sales have gone up dramatically by over 60%. Solitaires are more than one carat diamonds and in the Rs 3.5-5 lakh price bracket.

At Orra, average bill size went up by 26%, while Tanishq saw it growing by over 20%. “We have seen growth happening across all categories, particularly in diamonds,” said Bhuwan Gaurav, marketing head at Tanishq.

Typically, the festive season accounts for 20% of the annual sales for jewellers. In consumer durables, Korean duo of LG and Samsung, which hold the lion’s share of the market, recorded more than 40% rise in festive sales. So did leading Indian brands such as Godrej and Videocon.

“Sales were highest in October this year. Even smaller towns showed high demand for some of the premium product categories,” said Ravinder Zutshi, deputy MD of Samsung India . Steep fall in prices helped a spike in demand for premium items such as LCD and Plasma TV, Blu-ray disc players, camcorders and home theatres.

YV Verma, chief operating officer of LG Electronics India , said the only dampener was Punjab, which recently faced an adverse economic situation due to the floods. Punjab is among the richer states in the country, with high consumer demand, particularly in the festive season. This year, floods affected demand in the state.

The direct-to-home (DTH) satellite television sector too increased its subscriber addition by almost one-third this Diwali season, mainly due to a fierce price war and aggressive marketing by all the six companies and partly helped by a boom in television sales.

With new DTH connections now costing less than Rs 1,000, some 14 lakh people took such connections in October, taking the total consumer base to three crore. “The sub-Rs 1,000 pricing led to breaking of psychological barriers for consumers,” said Salil Kapoor, COO at Dish TV , the market leader with some 8.8 million subscribers. In the first five days of November, the industry added another six lakh consumers.


(With inputs from Chanchal Pal Chauhan & Meenakshi Verma Ambwani)

Inflation and the Case for FDI in Retail

As the debate opens up again for FDI in retail, it is interesting to examine the contours of the issue.

As things go,only 51% investment is allowed in single brand retail and 100% is allowed in wholesale operations.Almost no one, not even the opponents of FDI have any argument against the economic benefits of FDI. The reasons are political. The ICRIER in its report had strongly and staunchly enunciated the benefits of FDI and the fact that it has had manageable adverse impacts in emerging countries. The reasons for opposition are political and it is good fodder for the press.

But the question is can any country manage without a large organized retail and can any emerging country do it without FDI?

The Government has woken up to the fact that inflation is a monster that can be tackled only by efficiency and productivity. With the world economy likely to remain vulnerable for some time, sustaining fiscal deficits is not the answer. The Indian interest rates are also high enough to make the economy uncompetitive. A key source of inflation in India is the wastages and inefficiencies between the farm and the fork.

The story of FDI in the world economy makes for some astonishing reading. The world annual GDP is around $67 tr and the total FDI in the world is $ 16 tr.USA has cumulative FDI of $ 2.3 tr and UK and France have more than $1 tr FDI. The FDI in China is close to 800bn and even Srilanka has $250bn. India’s cumulative aggregate FDI in all sectors is barely $150 bn and we keep raising enough hue and cry to ensure that each additional billion is fiercely resisted. The single brand FDI in retail till Sept 09 is barely $48mn.

The following extract from a GOI site mentions retail along with gambling and lottery where FDI is not allowed.

The extant policy does not permit FDI in the following cases:

i. Gambling and betting
ii. Lottery Business
iii. Atomic Energy
iv. Retail Trading
v. Agricultural or plantation activities of Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)

For a 20% slice of the $450bn total retail market, we need to invest $15 to $20 bn and it is in the country’s interest to allow this for unleashing a cascading effect on the retail sector, inflation management and the economy.

Lessons from HDFC and Bharti for Retailers

The beleaguered retail sector in India needs to look no further than the story of mobile telephony and housing finance for inspiration. India’s retail sector is still listless and its people frightened even after several industries have revived and the economy sizzles back to a 8.5% plus growth rate.

HDFC started in 1977-78 when the concept of housing finance was well-established in western countries but barely understood in India. It found it difficult to raise funds, had a disastrous IPO and lost money for a few years. The share quoted below the offer price for a long time. But it stayed on in the game and slowly the tide turned, first due to the underlying demand and then the liberalization in the financial sector. Today, it has a balance sheet size of more than two lac crores with its housing finance, mutual funds, insurance and banking businesses.

Bharti had difficult initial years, there were losses but it persisted. In just more than a decade of being in the game, it is a true success. It is highly profitable, a top employer, large and now setting out with global ambitions. Out of the twenty-five players who entered telecom, only three have survived.

Both these companies focused on a simple formula for success in new industries – vision, people and continuous learning. Survival in the new sectors also needs robust strategic thinking by the promoters or the top management.

The retail players can look at these giants and use the lessons effectively.

Tough Times for Indian Retail

The retail industry operates on extreme efficiencies. The net margins are thin and each cost element is typically tracked closely and working capital is tightly controlled. The Indian retail is going through its baptism by fire and discovering the impact of extra costs in the system. The regulatory issues, infrastructural bottlenecks, supply chain constraints, sourcing problems and lack of economies of scale are creating inefficiencies and hence additional costs. These costs have hobbled the industry and thus have led to the turmoil the industry is in.

The infrastructure in the country is generally deplorable. The supply of power is erratic and inadequate in most places forcing the retailers to invest in extra capital equipment for power and extra costs. The roads are in a decrepit condition leading to delays and wastages during transit. This also means that within the country , the best produce cannot be transported and so large retail is not able to offer the advantages that it can in price and quality.

The supply chain infrastructure is outdated and cannot , through a system of transportation and warehousing ,offer the necessary support for large scale movement.

The regulatory framework, unlike in most countries, works against the organized retail with a plethora of antiquated rules and greedy inspectors. The industry badly needs the incentives that a fledgling sector hopes for.

There are also the costs related to real estate which continues to be expensive and scanty partly also due to opaque regulations and profusion of black money.

So the industry has stumbled even before it could walk and now the challenges need to be tackled forthwith with regulatory support, restructuring of business models and some real out-of –box thinking.

Gourmet Foods in India

Indians in a few leading cities have started taking to western gourmet foods. The market really opened up four years back when import restrictions got relaxed. Today, cheese (Cheddar and Edam being particular favourites), wine (both new world and French), extra virgin olive oils are available in quite a few places. Availability, awareness and affluence will be the critical factors in driving the business in future. The advent of fine-dine restaurants, global travel and deep engagement of the elite with western countries have helped in the spread of the gourmet foods.

There was an international exhibition on food and wine in Delhi last week. There were more than one hundred and eighty exhibitors from twenty-four countries showcasing their finest wine and other products and I am sure they did very well. This is the right point to enter India. Moet and Chandon is reaping benefits of an early entry and good publicity during its earlier entry.

I made a presentation on the gourmet food retail scenario in India in the inaugural summit of the exhibition and the delegates found it very encouraging that this huge market is opening up to quintessentially European tastes.

Caviars, truffles and foie gras are to be still accepted by the Indian palate and they are a bit too heavy for the wallet. But wine, cheese, sauces, asparagus, premium coffees, specialty meats and expensive chocolates have found their next big market, for sure. India is no stranger to gourmet foods. The Mahrajahs and Nawabs had elevated food to a fine art and used the finest spices ,ingredients and techniques for their food. The Indian tradition of hospitality and lavish formal occasions are going to be other factors helping the growth of this market.

All That Additional Space !

A recent report in a financial daily says that the additional mall space in India is going to double in 2010 from the current levels. The additional availability in Bangalore, Hyderabad, Pune, NCR, Mumbai, Calcutta and Chennai is 16.2 mn sq feet in 2008. This is going to become 19.1 mn sq feet in 2009 and 32.4 mn sq feet in 2010. Does demand exist for all this space?

In the US, the first mall in the world came up in Minnesota (Southdale Shopping Centre) in 1956.Victor Gruen, a refugee from Austria, conceptualized this to provide the experience of a European city centre. He made the structure covered and air-conditioned to enable people to visit it round the year. This also helped the whites perfectly well to have a cloistered environment in the suburbs. Today, the rich whites are going back to city centres and the suburbs are getting more mixed. This is taking away the principal customer segment for the malls - the affluent, white women. The conventional mall is also facing troubled times. The US has about eleven hundred malls today and no new mall is coming up.

Contrast this with the supply situation in India- NCR alone has close to seventy malls (albeit smaller ones). A back of the envelope calculation will show that the incomes, demand and availability of space are not even remotely matched. The cities are also full of vibrant open markets and shopping complexes. No wonder, the malls are faring badly and some charge exorbitant rates to break even. But that is a suicidal game because the tenants suffer and eventually leave.

The industry now needs to have a deeper understanding of demand and supply. The viable demand is much lesser than availability and the supply of space needs to go up far more slowly.

What is the noise in the retail industry today ?

The India Retail Forum concluded recently in Mumbai with proclamations about the great future of the industry. Most speakers, from newspaper reports, agreed that the next five years are going to be much better than today.

However, the media also flashes stories about various companies cutting costs, restructuring and not able to pay vendors. There are reports of top management moving out and confusion about the pace of the industry.

What is happening?

The truth is that the retailers entered the markets with untrammelled optimism. The metrics were based on models from other countries and the growth curve was expected to replicate that of the South East Asian countries. The real estate market also entered into a frenzy in line with the trends all over the world. The people, already in short supply, switched jobs merrily with multiplying salaries every time. The infrastructure continued to be in a mess. The technology solutions were not in place. The customers did not migrate to higher consumption and evolved formats as fast as expected. The Indian consumer is unique in this – the five thousand years of civilization has its impact and she changes at her own pace, always a little slower than her Asian counterparts in embracing western ways of consumption.

But the fundamentals remain in place. The GDP growth will continue at seven to nine per cent for quite some time. The consumers keep migrating to global ways of shopping. The trust in modern retail is developing. The real estate market has started showing signs of temperance with prices falling by 25%. There is more slide to come. The pool of trained manpower is growing. The support industries around the sector like training, design, equipment are expanding rapidly. And there are a billion people!

So it is good that the sector is going through a much-needed introspection and course correction before the next stage of acceleration.

Which retail format is going to win ?

One of the big questions today is what kind of format is going to succeed in the country. Is it going to be the hypermarket or is it going to be the supermarkets? If it is the supermarket, then what is the right size?

The conventional thinking is that hypermarkets are going to wipe off the rest of the formats. This, however, is not true.

The Indian consumer is going to plug for the format which suits her needs. The primary drivers of this choice are access, price and range. The hypermarkets do score in price but the supermarkets, being located near the neighbourhoods are far more convenient. The range can be of quite a reasonable width in a smaller format also.

The Indian consumer for the modern trade unlike his counterpart in the west is hamstrung by clogging traffic, poor roads and lives in larger cities. The other factor in favour of a small-format store is the fact that she would prefer to buy in small quantities over the month and the average ticket size in India still remains low.


At the same time, the Indian customer loves a bargain and the only way she is going to go long distances is when she eyes the prospects of cheap prices and bargains. Big Bazaar has got it right here and so we are going to see massive price wars between large format stores. In order to win, the large-format stores are going to have to offer large price leverages to the customer.

The brands and the efficiency of the format also make substantial difference. In countries like England and France, the hypermarkets have a more than fifty per cent share of the formats because Tesco and Carrefour are efficient and strong. In most of Europe however, the hypermarkets have about one third of the market and the supermarkets (4000 sq ft to 25000 sq ft) have close to sixty percent of the market.

But the hypermarket story is just really beginning in the country and we are about to see serious excitement in the space.
The overall investments also bear this pattern of split between supermarkets and hypermarkets. Of the $40 billion investments in retail in the next five years, about one third is flowing into hypermarkets and one third to the supermarkets

Indian Players Versus Global Corporations

The balance of power in the business world is shifting slowly but strongly. The era of domination by the global corporations is over. They have to fight for every square inch of space with their homegrown rivals. I believe the same story is going to repeat in the Indian retail space.

The global corporations earlier dominated by their capital, talent and expertise. The new financial order entails easy access to capital for everybody. The markets are more transparent and global capital today is chasing the best opportunity everywhere. The talent today is much more mobile and it has discovered that the domestic companies provide enough excitement, faster mobility and more opportunity to add value. The movement of talent also leads to faster dissemination of knowledge and expertise.

Besides these, the local companies have great local relationships and understanding. So today key players in India in retail others can match any corporation in financial muscle power. They would have acquired size, insights and the right business models by the time the foreign entrants start their businesses. The lead time along with the local insighting will be of immeasurable strategic advantage and almost impossible to neutralise. So the Tescos and Carrefours will meet worthy rivals when FDI opens and they come here.

High Real Estate Costs and Retail

The real estate rates in the country today are truly stratospheric. At their basic, the commercial rates (both capital value and rents) reflect the profile and the potential of the catchment area. But rates get skewed by the demand-supply mismatch, the amount of black money (esp. in India), the market sentiments and the dynamics in other channels of investment.

The rates in India are amongst the highest in the world. The commercial lease rates in markets like Khan Market have crossed Rs. 12000/- per annum. The markets like GK1, M Block in Delhi or Linking road in Mumbai are close to Rs. 8000/- per annum for good real estate. This has been caused by low supply of good real estate, euphoria in India’s potential and huge inflows from abroad -from Indians, foreign funds and investors.

The lease rates are comparable to those in the richest countries. The market potential is nowhere close to them. This means that the retail business starts off with a great handicap. The businesses have to find new sources of efficiencies to offset the high real estate costs. The real estate costs in Indian markets today, are seventy to two hundred percent higher than what the potential truly reflects.

This, more than anything else, is likely to slow down the retail growth in a couple of years when the excitement of new business models dies down and the reality of cash strikes back. Several players will find the losses unsustainable.

The answers, however, lie in factors which are very difficult to be addressed. The long-term solution lies in building infrastructure which spreads the population better and reduces commute time, more supply of quality real estate with better regulation and urban planning, reducing black money (which tends to get most into real estate) and making the current opaque regulation system more transparent.

Organised Retail in India- What will happen in 2010?

To say that the Indian market is hotting up would be an understatement. Every player has grand plans and it will be interesting to see the winners and losers. But the retail industry is generally a safe industry to be in. Amongst the leading 480 retailers in the world,94% made a profit in 2005.The average net profit margins were 4.2%(for the entire sample) and 4.5% for the profitable retailers. This gives hope for the Indian industry. But the real dampener today could be the astronomical realty rates. On the plus side again, retail, unlike product companies, is a tried and tested model and one could be profitable by adapting the elements of the model to the market.

But who is looking at what in the next five years?

Reliance, the big brother, is eyeing 100mn sq ft of space(Wal Mart had 490 mn sq ft in 2004) with 68 distribution centres and presence in 784 cities and 1600 small towns by 2011.The turnover - an eye popping 1,00,000 crores ($22.3 bn)!

Spencer’s has plans of 2000 stores and 6 mn sq ft of space by 2009.

Big Bazaar and Food Bazaar are looking at having 11.5mn sq ft of space and sales of Rs. 10,900 cr by 2010.

The other big ones like Bharti- WalMart and the Aditya Birla group follow a different PR strategy and are generally keeping their plans under wraps.

Subhiksha is another player which has grown rapidly and has the capability to scale up significantly.

There are other domestic emerging players like the Wadhawan group which have announced their aggressive intent through acquisitions.

Then there are Tesco and Carrefour closely eyeing the market.

However, the Indian market is big and has the capacity to accommodate about ten players with upwards of $2bn turnover(next four years) and some regional players. But the winner will be the ones who understand the customers and get their supply chain and people equations right.

The Size of the Retail Pie

There is justifiably a large degree of excitement about the Indian retail industry. I hope to throw some light on the way the industry is shaping up through this blog.

The India Opportunity:

Let us see it from two perspectives.

1.The penetration of the organized market in India is barely 4% in 2006.In the US, it is 80%.In Thailand it is 40% and in China which allowed organized retail only 20 years back it is 50%.Clearly, there is a lot of scope.

The growth in the market is being driven by:
a) Rising incomes (8%+ GDP growth, higher income households growing faster than other categories)
b) Demographic dividend (larger percentage of working and younger population)
c) Increase in the number of working women (now 26% in key cities)
d) Change in preferences to western style shopping due to media, travel and shortage of time

2.The size of the market is enormous.

India has been rated as the most attractive retail market in the world by A.T.Kearney in
2005 & 2006.This rating is based on more than 25 retail-specific and macro-economic variables.The total estimated retail market size in 2005-06 is $282 billion and the organized market was $12 billion. Out of this the food and grocery segment is $211 bn and the organized segment in this sector is $2bn.The total organised market is expected to reach a size of $40bn in 2011(27% CAGR) and $100 bn plus in 2015.

With the exception of biotechnology and possibly internet on a global scale, this is the largest opportunity anywhere in the world. To put it in perspective, the telecom sector in India is just about $10bn and the organized FMCG sector is $12 bn.