Despite consumer support for foreign direct investment a "go-slow" approach is recommended

New research provides opportunity for consumers and stakeholders to voice their opinions about the entry of overseas, multi-brand retailers.

The results of the study - carried out by Delhi based Birla Institute of Management Technology (BIMTECH), and submitted to the trade ministry - show consumers would support the arrival of multi-national grocery brands.

The study appears to be in response to a Government discussion paper on the subject of deregulation.

84% of 660 people surveyed said they would welcome the relaxation of FDI rules. Kartik Dave, associate professor at Birla Institute of Management Technology explains why, "customers are definitely going to benefit on price, and better quality of service".

Go-slow approach

Despite seemingly overwhelming consumer support, BIMTECH recommend a go-slow approach, suggesting that the unorganized sector is given five years to prepare for the organized challenge.

Having taken advice from experts, BIMTECH conclude that without breathing space the unorganized sector will be undermined, leading to potential mass unemployment and social unrest.

In the meantime BIMTECH suggest a government funded development program. Additional training in areas of customer service, merchandising and sourcing would help the unorganized compete against more sophisticated challengers.

Foreign investment in the back-end is not feared, consensus is that an improved supply chain will benefit everyone.

Importance of pricing

In addition, BIMTECH recommend that unorganized retailers form co-operatives, using their improved buying power to pass on lower prices to consumers.

Safeguards against predatory pricing should also be put in place to make it harder for multi-nationals to drive up prices after establishing market share through discounting. In addition to displaying the maximum retail price (MRP) on each product, BIMTECH believe the first point price (FPP) should be shown for the purposes of transparency.

August 19, 2010 Add a comment

McDonald's set the standard for Indian market entry

Cultural sensitivity isn't always a quality associated with McDonald's. Rightly or wrongly (depending on your point of view) the brand has been labeled as uncaring, unhealthy and imperialistic. However, in India it appears that their market entry strategy has earned them a number of fans and many Rupees.

Setting the standard

Over a conversation with an Indian retail expert our attentions turned to western retail brands and India market entry. My friend was very clear in terms of which brand had managed the transition best, without having to tinker with their core brand values or the fundamentals of their business; McDonald's was the clear winner.

Products and Price

Through use of a joint venture arrangement they have successfully developed products and a pricing strategy to suit the local market, based on the fact that they have 160 restaurants across India you have to say it works.

Product: The McDonald's menu in India contains no beef or pork, there is also an extensive vegetarian menu. Vegetarian and non-vegetarian food products are kept separate throughout the sourcing, supply chain, cooking and serving processes.

So while you can't buy a hamburger or Big Mac, you can buy a McAlloo Tikki or a McVeggie burger.

Price: A price point of around - equivalent of - 20p for a burger means that McDonald's has mass market appeal, making it a viable option for the majority of the population, not just an expensive treat for the more affluent.

Riding India's demographic wave

While McDonald's know older generations brought up on a different cooking style are unlikely to chose to eat from their menu, India's young demographic allows the company to concentrate on attracting younger consumers, eager to try newer food concepts.

Local knowledge

While some retailers see joint ventures as unsatisfactory, McDonald's have benefited by tapping in to local knowledge and developing cultural understanding. Following four years of preparation and twelve years of trading, McDonald's have established the perfect business at the perfect time, without compromising their core brand.

June 18, 2009 Add a comment

Mumbai malls failing taxi driver test

A quick test to find out whether any single mall in Mumbai stands out from the rest. Not scientific by any means but feedback to the question, "Of all the shopping malls in Mumbai which one should I see", produced some interesting comments, one in particular was more interesting than others.

The theory

My theory is in a booming market full of eager retailers looking to expand and consumers willing to spend, building profitable shopping malls is relatively easy. When these dynamics go in to reverse things aren't so simple, a scenario facing India.

The squeeze is being felt, AsiaProperty magazine has reported that 11 of 15 malls on MG Road, Gurgaon, have had to refit to create mixed-use schemes as demand for retail space slows. In my opinion part of the reason is that developers have been building malls, not building brands, they have been busy badging "me-too" malls instead.

While a well-positioned and clearly defined brand wont solve all problems, it will help malls stand out from the crowd. More importantly it will help the developer make informed decisions about the tenant mix and service offer based on an understanding of who their target customer is.

The question

Having asked the question, general consensus was that Inorbit Mall - due to its size - was the place to go. While the size of a mall can be important, a competitor can always build a bigger mall, in India where malls are in close proximity this would be a real problem. Regardless, I set off in a taxi with a relatively open mind.

The taxi twist

The taxi driver spoke good English and asked what I wanted to buy. Having told my story he suggested the Oberai Mall instead. His reasons were telling, it was closer and in his opinion all Mumbai malls were the same, as he put it, they have McDonald's, cinemas and the same shops.

If taxi drivers can see this, the customers they deliver to malls can too. If the retail and leisure mix isn't providing differentiation, the brand has to. If this scenario is correct Mumbai shoppers are likely to be visiting the mall nearest to home, making customer attraction and retention increasingly difficult.

June 17, 2009 Add a comment

India's modern retail sector faces a reality check

India organised retail, the sector that best epitomizes India Inc growth and the country's growing consumer class is slowing. Turbo charged growth, fueled by foreign entrants and innovative, new, local formats led to big predictions just 12 months ago, these are now being revised.

Jones Lang LaSalle Meghraj expected modern retail to grow market share from 4% to 22% by 2010, in addition the number of operational malls was predicted to double to over 400 by the same year.

Revised figures

Contrast to now, Retailers Association of India has cut sector growth outlook to between 10% - 12%, revised down from 35%. While the luxury segment appears to be in good health, tier 2 and tier 3 cities offer some respite and rural India has potential, India's 200 million urban dwelling, upper middle class are changing their buying behavior. As demand for goods and services drops strategies are being revised:

• Argos closes its 5 Mumbai stores, and its telephone and internet ordering service, run in conjunction with its partner HyperCity.

• Reliance Retail, having failed to hit its 1000 store target, closes 25 of its 590 flagship Reliance Fresh grocery stores.

• Etam, the Paris fashion group ends its 50:50 partnership with Future Group.

• Subhiksha, India's biggest discount retailer closes up to half of its 1,600 stores.

• Foodland Fresh, a Mumbai based chain closes 39 of 42 stores.

• Speculation surrounds FCUK, suggestion is they will pull out of India.

Stepping back from unproven markets

Pressures in home markets have forced international brands to temper investment, when they return (as they certainly will) they will be wiser. Bryan Roberts of Planet Retail sums it up best, "There are a lot of people chasing not much market. Many international players have enough to worry about at the moment without putting money into unproven markets."

Local as well as international mass-market retailers are learning that despite miracle growth, India and its consumers are still vulnerable to global downturn.

February 12, 2009 Add a comment

Indian luxury retail remains resilient and offers hope

These are difficult times for shopping mall developers. Credit crunch creates a toxic environment, consumers aren't spending and retailers are contracting in size. While the middle market feels the pinch, developers look to India's rich for sales.

Lack of liquidity puts pressure on India's malls. Shubhranshu Pani, Managing Director of Jones Lang LaSalle Meghraj predicts, "A fair number of projects will not see the light of day, as funding has dried up."

167,000 US$ millionaires

With compound growth rate of around 35% - signs are the luxury segment may be recession proof, current expectation is that consumption of luxury retail goods will grow through 2009.

While wealth has been hit in India - in December 08, the country's 40 wealthiest individuals were said to be worth 60% less than 12 months previous - there is still a sizable segment of wealthy consumers ready to spend.

2008 CapGemini Merrill Lynch Asia Pacific Wealth Report concludes there are 167,000 Indians with more than US$ 1 million in assets (up 22% on 2007). Their significance is such that, Shri Kamal Nath, Union Minister of Commerce and Industry, recently spoke of the importance of the luxury sector to India when addressing the Mint Hindustan Times Luxury Conference.

Luxury malls

An increased propensity to travel has provided Indian's with greater awareness of not only international brands but also what is expected of flagship retail. "The service expectation (in India) is exceptionally high," says Esprit (India) COO Manjula Tiwari. Evidence suggests that India's developers are beginning to understand the crucial "added extras", of service delivery.

Three ultra luxury malls will open in Mumbai this year, and Hirani Group plans a nine level, 55,000 sq ft mall, that will offer leading international brands. Chairman, Pradeep Hirani explains that the mall will, "provide an experience that defines elevated living".

Milan, London, Paris, Delhi

Analysts expect Delhi's luxury sector to be the most resilient due to its mixed economy and none reliance on financial services or software sector.

DLF's Emporio (see pictures) redefined luxury retailing in India when it opened in October 2008. Positioned as "a premium luxury shopping-cum recreation center" it sets new standards and provides access to international and Indian luxury brands, including the likes of Louis Vuitton, Dior, Jimmy Choo, Cartier and Giorgio Armani.

Five-star exclusivity

A concierge desk and taxi service, add a sense of exclusivity to the refined design of the mall. A planned spa, salon, fine dining restaurant, 'roving' concierge service and members club will increase the feeling of five-star exclusivity.

Anecdotal evidence suggests that sales are good. Providing the luxury end of the market remains resilient over the next 6 months or so, expect the Emporio brand to be rolled out to carefully selected metropolitan cities across India.

Image source - DLF

February 6, 2009 Add a comment