Tuesday, July 17, 2007
Reliance Retail kicks off dairy foray with sip of liquid milk
RELIANCE Industries’ (RIL’s) ambitious dairy plans are finally taking wing. The company, which has been working on plans to enter the country’s Rs 40,000-crore branded dairy sector over the past two years, has kicked off the venture by foraying into the lucrative, but low-margin, liquid milk category. Reliance Retail has begun testing liquid milk, branded Dairy Pure, in Hyderabad, sources told ET. It has tied up with a south-based private dairy operator. The liquid milk has been rolled out in four variants at a pricing structure that pits RIL’s brand against other competing liquid milk brands in the state such as Mother Dairy, Vijaya and a host of other private players. However, Gujarat Milk Marketing Cooperative Federation (GCMMF)’s Amul, which leads the country’s Rs 15,000-crore branded packaged milk market, does not have a presence in Andhra Pradesh. In fact, Amul liquid milk is not yet present in the southern states. When contacted by ET, an RIL spokesperson declined to comment. Hyderabad is a reasonably big liquid milk market with a total estimated size of approximately 11-12 lakh litres per day (lpd), of which packaged milk accounts for 8-9 lakh lpd.
Sources said retailing of liquid milk is expected to commence later this month at Reliance Retail stores across all states. RIL has signed up with the Punjab government for milk procurement. It plans to buy 7 lakh litres every day from 1.5 lakh farmers across 3,000 villages in the state. Other plans include supporting milk cooperatives in Uttar Pradesh and Bihar, but no agreement with cooperatives has been finalised so far. In UP and Bihar, Reliance Retail proposes to set up over 5,000 collection centres, which will be a single-window selling system for the milkmen in the area. RIL is also working on a private label to make deeper inroads in the dairy sector. The country’s biggest market for liquid milk is Delhi, estimated at 50 lakh litres per day, of which pouches account for 35 lakh lpd. National Dairy Development Board (NDDB)’s Mother Dairy leads the Delhi market. Unlike other FMCG products, margins in liquid milk are very low — at just 3-5%. The biggest challenge for players operating in this sector is to work out efficiencies in logistics. However, the dairy sector has a huge potential, with the country’s milk production estimated to have touched 100 million tonne last year. India also happens to be the world’s largest producer of milk. WHITE FLOOD RIL has signed up with Punjab government for milk procurement. It plans to buy 7 lakh litres every day from 1.5 lakh farmers The company also plans to support milk cooperatives in UP and Bihar, but no agreement with cooperatives has been finalised so far Reliance Retail has planned 5,000 collection centres in UP & Bihar. It is working on a private label to make deeper inroads in dairy sector
Tesco and Asda check abuse claims in Bangladesh
Supermarket firms Tesco and Asda have said they were looking into allegations of worker abuse at garment factories used by their suppliers in Bangladesh. The retailers’ comments came after a Guardian investigation claimed that workers making clothes were paid as little as 4 pence an hour. Tesco said it had done all it could to ensure “high standards and good conditions” in the country. Asda said any abuse was “unacceptable” and it may audit its factories. The textile industry is a large employer in Bangladesh In its report, the Guardian claims that garment workers are regularly forced to work 80 hours a week in factories where conditions are often violent, and where staff do not have access to trade unions. Allegations of abuse of workers in South Asia’s textile industry are nothing new. We have done all we can to ensure that high standards and good conditions are maintained Charities such as War on Want have campaigned for years to improve the pay and conditions for garment workers in Bangladesh and last year wrote a report based on interviews with 60 workers from six garment factories. The group claimed that retailers could only sell their clothes at very low prices by pressuring suppliers in developing economies to keep costs down. As a result, suppliers in countries such as Bangladesh have had to drive down wages and extend working hours, as there is stiff competition for the retailers’ business from other developing nations such as China.
Asda told the Guardian: “We find abuse of any kind unacceptable.” The retailer blamed the problem on the fact that one of their approved suppliers was outsourcing its work to another factory without its knowledge and against its wishes. Tesco said it had taken steps to improve working conditions. “We have stuck by Bangladesh, continued to invest in modern factories and done all we can to ensure that high standards and good conditions are maintained,” the UK’s largest supermarket firm said in a statement. The company added that in many ways it would be easier for them to stop sourcing garments “in countries that have economic and social problems, which are beyond the capabilities of any organisation working alone to fix”.
Saturday, July 7, 2007
AVB’s ‘More’ to set foot on Gujarat retail market
THE Aditya Birla group’s retail venture, Aditya Birla Retail, is now set to bring ‘More’ brand of stores to Gujarat. Industry sources say that the company has already grabbed around 80,000-1,00,000 square feet of leased space for the proposed foray. While most of the locations are under construction and ready for possession in two-four months, a few more are ready. Birla retail is believed to have signed around 20 properties in Ahmedabad, almost all of them on ground floor. “The company plans to launch its ‘More’ brand supermarkets in Gujarat with an average area of 2,600-7,800 square feet,” said a source. Some ten locations have already been finalised, with few more yet to be finalised. While it will start rolling out its stores in the next three-four months in Ahmedabad, the company also plans to reach out to Vadodara, Rajkot, Surat and Jamnagar. The company announced its national launch in Mumbai in May and has come up with stores in Pune. The company is increasing its presence in South through retail network of Trinethra Super Retail.
It had acquired the south-based chain to further expand in the southern region. Aditya Birla Retail has already faced strong opposition from the vegetarian community in Maharashtra for selling non-vegetarian products and is fearing further opposition in Gujarat, a strong vegetarian market. However, sources say that at present the company does not intend to sell non-vegetarian products in Gujarat market. The company plans to increase its presence across the country. “The stores will be set up in every 3-5 km radius as they are positioned as convenient stores.” The supermarkets would be neighbourhood stores serving daily needs of the customers, including fruits, vegetables and groceries at competitive rates. The company plans to bank on store brands to improve margins. With the APMC act in Gujarat to be amended, the company is looking at tie-ups with farmers.
Vishal Retail debuts at a 178% premium
VISHAL Retail debuted on the bourses at a premium of 178% over the IPO price of Rs 270. The scrip opened at Rs 472, touched a high of Rs 809 and a low of Rs 423. The stock ended the day at Rs 752 on the BSE. About 1.14 crore shares were traded on the exchange. Brokers said the reason for the spectacular listing was that the IPO was perceived as having been attractively priced. The company had priced the offering at the top-end of the price band, following strong response to the issue. The issue was subscribed a massive 69 times. The proceeds of the issue would be used to establish new retail stores. Of the total 32 stores to be set up this year, the IPO will fund for the establishment of 22 stores. The company will deploy Rs 104.15 crore of the net issue proceeds for setting up the stores in the current financial year. The setting up of the remaining stores will be funded through internal accruals.
Toeing the value retail line, Vishal Retail sells goods at affordable prices by either manufacturing themselves or procuring them from small and medium-sized vendors. The target group of the company is middle and lower-middle income groups, which constitute a major portion of the demography in India. It also sells readymade apparels (including its own brands) and a wide range of household merchandise and other consumer goods.
Global handset retailers vie for pie of Indian mobile biz
ABOOMING Indian telecom market is throwing up big buck opportunities on the retailing front. Several international handset retailers are foraying into India to tap the mobile sales and after-service market. According to sources, among the latest entrants scouting for opportunities in the country are Axiom, a Middle-East-based company and Oke, an Indonesian mobile retail company with over 750 outlets. Global players already present in this market are Virgin, with its collaboration with Essar, and Cellucom, the Dubai-based retailer which has tied up with the RPG group. Sources say that Oke is looking for technical collaborators in the Indian market. According to reports, Axiom, with over 200 outlets in the UAE, has committed around $250 million for its entry into the Indian markets, but is still scouting for an Indian partner. As per current FDI regulations, companies can enter the country only through the franchisee route or with technical collaborations.
For instance, the RPG-Cellucom tieup is through the franchisee route while the Essar-Virgin collaboration is a technical tie-up. In this case, Virgin provides brand licensing and consultancy services. According to analysts, the market for mobile retailing including post-sale services is close to Rs 75,000 crore, and is growing at 60% pa. With mobile retail stores now expanding their portfolio, adding laptops and game consoles, an additional Rs 25,000 crore comes in from sale of laptops. The operator side of the business, including selling prepaid and postpaid cards, recharge vouchers along with billing services, brings in another Rs 70,000 crore. The interest in this market by global players brings in international expertise. “Our tie up with Cellucom will help us gain domain knowledge, which is really critical in retailing.
Hermes gets FIPB nod to set up shop
AT A time when entry of international brands into India through the franchise route is facing regulatory hurdles, the Foreign Investment Promotion Board (FIPB) has allowed Hermes International of France to set up a subsidiary here through the single-brand retail window. Apart from retailing the French luxury brand in the Indian market, the multinational has also been allowed to carry out wholesale trading and distribution. The French company plans to retail cosmetics, perfumes, readymade garments, leather goods, footwear, lifestyle products, jewellery, silk items and bags here to tap the booming demand for premium luxury goods. This will be done through a joint venture in which Hermes International will hold 51% stake. The French company’s partner in India is Khanna Speciality Retail and Distributors.
The entire equity of the Indian partner is owned by Aashana Retail, also an Indian company. The clearance granted to Hermes is subject to the joint venture company sticking to the norms laid down for singlebrand retail. This means the joint venture can only retail the Hermes brand of products. These products should be branded during manufacturing and sold under the same brand internationally too. Entry of Hermes into India comes at a time when FIPB is reviewing the policy on permitting foreign brands into India through the franchise route. In view of the clarifications sought by the board in the Starbucks case, the promoters of the venture have revised their application once and are likely to do so again. FIPB seems to be looking at a policy shift to induce multinationals to invest in the country rather than market their brands through franchise arrangements.
The Hermes proposal was cleared since the French company that owns the brand is investing 51% in the joint venture. The single-brand route should be adopted in such cases, officials argue. The Hermes-Khanna joint venture has committed that it would adhere to single-brand FDI stipulations, official sources said. Among the products that Hermes has obtained permission to retail in India are readymade garments for babies, pet items, enamel products, office accessories, saddlery & riding gear and outdoor accessories. The perfume brands of Hermes include Caleche, Amazone, Parfum d’Hermes, Equipage, Bel Ami and Eau d’Hermes. The French major is also well-known for its gloves and hats. Following the FIPB clearance, the joint venture is likely to set up outlets in metros. The company would be appointed as the distributor of Hermes in India and enjoy exclusive rights over the trademark here. The total investment of the joint venture is estimated to about Rs 9 crore.
Retailers look up to ITIs for wholesale solution
FACED with acute manpower crunch, country’s top retailers are turning to Industrial Training Institutes (ITIs) for raising and replenishing their front-end workforce. Retail bigwigs, including Mukesh Ambani of Reliance and Rajan Bharti Mittal of Bharti-Wal-Mart, may soon be face to face with ITI directors persuading them to introduce retail courses in their institutes at the earliest. ITIs are spread across the country and impart skills to trainees in different industrial trades (electrical, electronics, mechanical) for lower-level skilled employment, mainly in manufacturing units. The government in association with Industry body Ficci is organising a conference of ITI directors and retail industry leaders at the end of the month in New Delhi. Reliance Retail, in its bid to ensure a regular supply of front-end talent to its upcoming stores, had approached Directorate General of Employment & Training (DGET), part of ministry of labour, for holding a meeting of the ITIs. DGET in turn roped in Ficci to hold this industry-ITI meet.
DGET, the policy making body for the ITIs in the country, is presently working towards introducing retail courses in these institutes. “We are identifying institutions and instructors for retail courses,” director general of DGET Sharda Prasad told ET. The process may take three months. Two separate six-month retail courses are likely to be introduced for salespersons and supervisors at the ITIs. The course would comprise 3 months of classroom teaching followed by an equal duration of apprenticeship. The curriculum has already been prepared and approved by the National Council for Vocational Training. Mr Prasad says all mandatory approvals for starting these courses at the ITIs has been taken, but a budgetary allocation is pending. An expenditure of Rs 16 crore has been proposed for the purpose. Of late, industry in general has been quite enthusiastic towards engaging ITIs for their manpower needs. Industry bodies Ficci, CII and Assocham have volunteered to adopt several of these institutes in order to ensure that right skills are imparted to trainees and a pool of productive employees created. But there is scepticism in some quarters over ITIs’ ability to produce right talent for retail industry. Says consulting firm Technopak’s chairman Arvind Singhal: “ITIs are meant to provide technical skills and they should focus on that.
ALL this while, Kishore Biyani wanted you to come to his Big Bazaar. But now, he is bringing his new stores — call it the ‘Small Bazaar’ — next to your home. These stores will be small, like Subhiksha, which is a convenience store format, and will look to address the daily shopping needs of customers. For the past 18 months, a team from Pantaloon Retail has been secretly working on a special project, which Pantaloon Retail CEO Kishore Biyani hopes will change the face of Indian food and grocery retail and infuse new life into its foods business. The project is the launch of KB’s Fairprice Value Stores (KBFVS), a no-frills, deep discount format, sometime in August that will focus on local catchment areas and service the daily requirements of consumers. Sources call it a radically different concept and services model which is based on a German no-frills discount format, LIDL (owned by Schwarz).
Pantaloon is planning a ‘bombardment strategy’ that will see the group swarming a particular area with clusters of stores. The group plans to set up 1,500 stores over 18 months across top cities. These non-AC, basic format stores will offer limited stock-keeping units with massive discounts, but will not compete with kiranas. The company has already tied up the real estate for the formats, sources said. Food Bazaar, Pantaloon’s large food format did not get the kind of volumes needed to be successful in the low-margin foods business since consumers visit the store for their monthly purchases and not for daily requirements. However, Kishore Biyani was tightlipped on the details. “I cannot say anything more than confirming that the launch is sometime in August,” he said.
The stores will take on new-age convenience formats such as Subhiksha, Spencers, Spinach, Reliance Fresh and the proposed Bharti retail venture. The first cluster of stores is understood to have been test-marketed in Delhi. The launch is also the result of consumer learning that Indians prefer fresh supplies and proximity of stores in residential areas to make frequent purchases. More often than not, Indian consumers do not have access to good roads, cheap fuel or have large storage space to stock up the big volume purchases. Food retailers are finding that the traditional kirana style is best suited to the Indian consumer’s needs. Currently, the foods portfolio accounts for nearly 24% of the total turnover. But margins are as low as 3-4%. Currently, all the fresh foods section across all Big Bazaar formats are run under the Choupal Fresh umbrella. Some pilots have already been done in markets such as Ambala. In fact, most of the modern food retailers have recently begun following the kirana (local mom-’n’-pop stores) business strategy of setting up smaller convenience food and grocery stores. These stores have positioned themselves as upscale kiranas with the back-end efficiencies of a large retailer, new formats such as Trumart. Spencers Daily, Spinach, Vishal, D Mart and others are offering the kirana convenience of being situated locally and offering similar services such as taking orders over phone and making home deliveries. Earlier, most of them had set up stores in the larger hoping a higher conversion rate (consumers actually making purchases) from the footfalls in these formats, a strategy which did not prove too profitable. Retailers say most consumers tend to visit these areas as entertainment zones and rather than making their daily basic grocery purchases. Convenience formats are also able to get better bargains with suppliers and manufacturers by offering business scales higher than the local kirana. Consequently, manufacturers have begun stepping up discounts to the new formats, industry players said.
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