Friday, September 19, 2008

India Retail Forum (IRF) 2008

Here are my running notes of various presentations, lectures & pannel discussions that happened over the three day period at IRF 2008. I would be happy to be of in case you want to anything more on the subject.
Day 1: India Retail Forum
The conference began with anchors Mr Anish Trivedi, Banyan Tree Communications and Mr Jayant Kochar, GoFish Retail Solutions setting the positive tone for the Indian economy. They point to the fact that though Indian economy at the moment is going through inflationary phase with slower predicted economic growth, the economy is still not doing bad when compared with rest of the world. They showed that US, UK and almost all developed economy are facing much bigger trouble compared to India and the long term story of India remains intact. They felt that India is the most rewarding market and the place for retailers to be in.
Inaugural session by Mr V. Vaidyanathan, immediate past chairman of IRF and ED ICICIC Bank
The salient points covered by him were:
· India is not a decoupled economy.
· India story is indeed intact because of following reason:
o The fact that India is now a liberalized economy and country of entrepreneurs. Combine these two fact and it’s a recipe for success coz given a chance, entrepreneurs will find the way out. He gave the example of USA pointing to the fact that USA also is land of entrepreneurs and has been liberalized for last 200 years.
o Trend of globalization, technology, rising consumer income will help these entrepreneurs who will write the Indian story.
o People now are aware and need growth. Even politics is now more oriented towards growth.
· The risk are there and will always be. It is these risk that will keep us awake. Eg: Japanese fish – shark – fight for life.
· Change is the only constant.
The challenge of Managing the change, By: Mr R Subramanian, Founder & MD Subhiksha Retail
· Realism of Indian retail – Indian consumers are the most arbitrage seeking (will go and compare prices at all shops), most savy and are not time starved.
· Promotional day pricing, loss leader pricing etc will not work in India
· India is different in two key parameters:
o The cost structure – Globally cost of people is high and cost of property is low. That is why the big format stores with self service options got developed. But in India this is just opposite. Indians like being serviced and in fact Indians are most over-serviced population. India is the only country where people will have one lakh car and will still have it chauffer driven. Self service format is not for India.
o Impact of MRP – In India prices are governed by MRP and therefore you will not find wide variation in prices of general items. So there is no locational advantage that could be gained. Usually people will go to far distance to get benefit of prices but if there is no price difference, the stores should better be located near the convenient locations. India will probably always remain “small store format” country.
· One big change that has happened is substantial increase in disposable income of the consuming class.
· Currently India is going through excesses and fundamentals have been forgotten. Indian retail is currently in hyper growth mode which will slow down eventually and only those will survive who will have there fundamentals intact.
· The key to manage the retail store is therefore:
o To manage bottomline, topline are much easier to come. This is difficult because competition is with kirana stores who have traditionally survived with very low margin forced on them by big manufacturers like HLL, P&G etc. They survived because they are the true entrepreneurs. They know how to work in adversity. Generally, big retailers try to use scale of economies to manage margin but it is only increasing sales and not the profit.
o Real estate prices – Retailers have the tendency to get hold of any and all real estate since they believe that anyway over time the prices are going to increase and after some period they will be profitable. But retailing is not a real estate business.
· Consumers are highly value conscious and we should strive to increase the value to the consumers.
· Organized retail still has huge opportunity to grow.
· There is large part of untapped demographic dividend (under served geographies) to be tapped.
· Migration is happening to urban cities coz of growth in manufacturing and services.
· The key to make Indian retailers strong is to expose them to brutal competition.
· India is the most competitive market in the world and those retailers who can survive here can survive anywhere in the world. Thus in next 5-10 years one may find that Indian retailers are moving out and setting up shop in other countries.
Perspectives on the Indian Economy and Implication for retailers: 10 things retailers should do in the next 12 months By, Ireena Vittal, Partner, McKinsey & Co.
· Since 1992, Indian economy is the most resilient economy. In spite of various problems in the past like Asian meltdown, 911 etc and current sub-prime crisis, India can still grow at 7%.
· The rate of growth of Indian economy is increasing and at the same time volatility is decreasing. Since India is an emerging market the volatility will be there but at a much reduced level then before.
· The reasons for India showing resilience are:
o Pvt consumption is driving the growth (68% of GDP). Indians are more confident of future and are therefore spending more and saving less. The savings rate has decreased by 33% from past.
o Positive supply side…
· Basically India is at inflexion point. It is where China was 15 years ago.
· Long term story of India seems good but in short term the future seems uncertain. The consumption has tapered down in last 4 quarters but fixed investment is still robust. This indicates that bottom has been reached and there is no downturn from here.
· Inflation is mainly driven by (40%) fuel and food. The fuel prices will move as per global conditions and nothing can be predicted on that front. The food prices were the lowest and the farmers where the major loosers. The food price correction was long due and what we are seeing is the one time correction which was due for long.
· Cost of financing is likely to remain high in near future & the financing firm may see bad time in near term.
· The consuming class is still thriving:
o Salaries of govt employees has increased.
o More budding entrepreneurs.
o Rural economy and Farmers are doing good.
o The effect of NREGA (100 day employment scheme of govt) is showing results.
· Thus long term story is robust, short term is uncertain and consumption pockets are still thriving and growing.
· 10 things that retailers must do:
o Build sale by:
§ Communicating value to consumer – not by advertisement but by doing real thing that consumer values. Like reduced prices etc. The effect of this will take time.
§ Drive traffic to store – shift promotion and marketing to traffic generating vehicle.
§ Never miss a sale – proper replenishment and incentive to shop staff
o Reduce cost:
§ By simplifying merchandising & sourcing
§ Restructure indirect cost
o Find Cash:
§ Manage for cash – look at cash flow
§ Increase investment efficiency & effectiveness (get 4 stores at price of 3)
o Buy in Buyers market:
§ Use the downturn
· Find partners
· Find who have to sell and get it from them at lower cost
§ Build bench strength
· Recruit talent
§ Local market battle plan – involve local community including kirana’s.
· The retailers need to have speed, simplicity and productivity of space – the long term story is intact and retailers should move confidently.

Connecting with young India, Saurabh Dhoot, Director, Videocon retail
Nothing worth writing!!
Q&A with Kishore Biyani
· Only 3% of India gets affected by EMI.
· Success is about discovering Indian way of doing retail
· “Garv se kaho hum kanjoos hain” – to bring about cost sensitivity to people.
· Key learnings over the year:
o Thoroughly understood Indian consumers
o Invest every rupee smartly.
· There is no right format. Execution is the key.
o Central mall – least risky and most profitable
o Big Bazaar, KB fair price – Lowest cost – true retailing
o Pantaloon – consistent income
o Home town bazaar (new format) – door to door sales – exciting
· Retailing is about understanding consumers
· Pvt labels is one of the major growth drivers for success
· Entertainment is the most difficult business coz the biggest source of entertainment of Indians (gossip) comes free of cost. Next is movie which is considerably cheap.
Round table 1: Where is the opportunity?
- Arvind Singhal, Chairman, Technopak
- Anchor: Bijou Kurien, President & CEO, Reliance lifestyle holdings
- Govind Shrikhande, ED & CEO, Shoppers stop
- Mark Ashman, CEO, Marks and Spencers India
- Ambreesh Murty, Country Manager, eBay India
- Thomas Varghese, CEO Aditya Birla Retail
- Roshini Bakshi, Country Head, Walt Disney
- Sonica Malhotra, ED, MBD group
- Soumitra Ghatak, CEO, My Dollar Store
- Asif Adil, MD, Diageo India
- Dhruva Chandrei, COO, Next Retail India
- Arvind Chaudhary, CEO, Aadhar Retail
- Sanjay Dutt, Dy MD, Cushman & Wakefield
- Doug Hargrove, CMO, Torex UK
- Sandeep Kataria, Global Brand Director, Home Care, Uniliver UK

· Economic slowdown is not crippling opportunity – can be seen from the sharp increase in no. of stores across all formats and across all retailers.
· Diversification in format is happening
· Retailers are expanding their reach by diversifying into geographies (cities)
· Reaching to wider strata (class) of consumers
· Modern format is no longer intimidating (to not so well off)
· Modern retail is having impact in sales of various categories of products
· More brands are looking for vertical integration – manufacturers are becoming retailers.
· Strategic alliance with best in the world – tie ups Bharti-walmat, Tata-Tesco,
· Increasing support from pvt equity
· Consolidation is expected
· More global retailers will come in
· It is expected that within 5 yrs:
o Investment of $30 Bn
o Revenue - $100 Bn
o Mall space – 500 million square foot
o Reach – 600+ towns, 5000+ villages.
· Issues in catchment – reducing
· Stagnation of innovation in certain categories.
· Online retailing (growing at 30%) – key:
o Ease of use
o Safety & trust
o Value (in reduced price & increase convenience)
o Major categories – travel, brand new fixed price product (like tech product, some apparel pdt etc), no confirmed price product (like jewellery) where prices are fixed via auction.
· We should try to exploit synergies between online & offline retail:
o Online provides benefit of large catchment area to be targeted.
o Online can address unreachable market
o Ease of selling end of life inventory
Hypermarket: Experience and learning
- Viney Singh, MD, Max Hypermarket
- Andrew Levermore, CEO, Hypercity
- Rakesh Biyani, CEO, Future Group
- Anchor: Hem Chandra Javeri
- Brendan Dorrian, CEO, Patonz Global Retail Network, UK

· Hypermarket & Kirana: major benefit in terms of assortment mix and price to some extent. Hypermarkets tend to increase the assortment variety that people consume. Eg. Sales of Kellogs has gone up significantly due to increase in no. of hypercity. People get exposed to products in hypermarkets. Kirana is mainly about services.
· The worries are cost of energy, real estate, week infrastructure and rising people cost.

· Major people challenge are:
o Lack of experience – because of nascence of business.
o Bringing people from outside or training in house – the two options being explored. Future group has not brought any people from outside.
o Discipline among shop floor employee is a big problem – can be overcome by giving proper motivation.
o Collaborate with institutions to train people. Future group has tied up with around 22 programs in country
· Supply Chain challenges:
o Supply chain is very well developed in India. How else can u justify the fact that over 12 million retail outlets in India are getting their products and surviving. But it is long, complex and involve multiple handlings. Lead time is long. The thing that is supplied by two trailers in US is being supplied by >300 vehicles in India at different time.
o Retailers can hold their own logistics systems.
· Consumers:
o Sales are skewed in weekends and holidays.
o Retailers trying to manage sales over week uniformly
o Loyalty is defined by no. of visits the consumers make per month. Some customers does shopping with whole set of shoppers and are loyal to all.
· Pricing:
o Consumers want 5 quarters in a rupee.
o Country governed by MRP – locational pricing a problem
o Pvt label – the key
o Creat new categories where there is no price comparison – to gain higher margins
· High rentals – developers need to understand the business model of retailers and work along with retailers.
Don’t try to change people habit – it will take more time and will cause more pain
Rather try to create new habit – its easier and faster.
· Concern was shown in safety of woman – collaborate with police, bylaws to have proper covered atriums, toilets etc, multi-level car parking. But anyways, malls are much safer then streets of India.
· Finding a good location is a challenge.
· Finding a mall with right mix of retailers and convenience to shoppers is a challenge.
· Retailers should try to create entrepreneurs in the store who can manage stores to provide better service to customers.

What could be the future concepts
- Anchor: Gagan Singh, MD, Sandalwood Living Retail
- Anchor: Harminder Sahni, MD Technopak
- Kabir Lumba, ED, Lifestyle
- Damodar Mall, CEO, Innovation & Incubation, Future Group
- Arvind Nair, MD, DLF Retail
- Vishal Mirchandani, CEO, Wadhawan Lifestyle
- Subhinder Singh, MD, Reebok India
- Akhil Chaturvedi, Director, Provogue
- K R Suresh Kumar, GM, Retail Sales, Indian Oil
- Rajiv Agarwal, CEO & Director, Essar Telecom Retail
- Ashwin Puri, CEO, Pioneer Property Zone
- Sanjiv Gupta, CEO, GKB Lens
- Nilesh Khalkho, CEO, Sharaf DG, UAE
- Ravi Showan, Head of Retail, Empire Direct, UK

· (Missed some part)
· Innovation in concepts – mobile banking & shopping, virtual payment, elimination of experts to tell about products
· Oil companies - To maintain margins – go closer to consumers and improve the service levels.
o Sell pdt in oil court like mobile recharge, movie ticket etc for which customer don’t like to move out to purchase it specifically.
o Display commodity price for farmers and even provide trading facility at courts for farmers.
· India has the advantage of directly leap forging and find out what works rather than going through painful process of trial and error.
· Innovating concept that can bring local & big retailers together is the key
· Specialty mall like Emporio in New Delhi, Homes in Pune are the next gen formats.Collaborative retail (like two players coming together) to exploit the synergy is also very much possible in Indian scenario.

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