News As We Read- 11th July'13

Thought of the Day:

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Following made the Headlines:

India:

• Supermarkets go Politically Correct, Will Come in 2014: The government resolutely faced a vote of no-confidence in Parliament last year over its decision to allow entry to foreign supermarkets, but it is unlikely to reap any benefit as global retail chains have decided to wait for the outcome of state polls later this year and 2014 general elections before pledging investments. Three executives who work closely with foreign retailers said these chains will assess the post-election political landscape and then make their moves. BJP’s virulent opposition to their entry has made them nervous, and they don’t want to be caught in no-man’s land if the party comes to power and scraps the multi-brand retail policy. While Narendra Modi, BJP’s presumptive PM candidate, has the reputation of being pro-business, he has banned the entry of foreign retailers in his state Gujarat. “If India can go after Vodafone after so many years, I would say hypothetically anything is possible,” said a retail analyst with a foreign consultancy firm who asked not to be named as he advises global retailers. He was referring to the government’s decision to retrospectively amend its tax laws and slap a multi-billion-dollar demand on the UK’s Vodafone Plc, despite the Supreme Court ruling in favour of the company. Foreign retailers are currently allowed to open stores in 12 states. Of these, 11 are Congress ruled while the 12th, Jammu & Kashmir, is ruled by a National Conference-Congress coalition. But two of the states — Delhi and Rajasthan — will go to polls in the next few months. “We are concerned about the state polls because the recent clarifications have given local governments sweeping power to change policy,” said a person familiar with the plans of Tesco Plc. “What if BJP comes to power in Delhi and says retailers need to source 50% locally, instead of the existing 30%?”

• Flipkart Gets a Delivery of $200 M, Co Valued at $1.5 B: Online retailer Flipkart has raised $200 million (1,200 crore) from existing investors, in a deal that marks the single-largest round of funding for an Indian ecommerce company and provides it with enough firepower to take on global leader Amazon. South African Internet company Naspers, venture fund Accel Partners, and US investment firms Tiger Global and Iconiq Capital participated in the fifth round of funding for the Bangalore-based company. The deal values Flipkart at $1.5 billion, or over 9,000 crore, according to a person with direct knowledge of the deal. “There was a lot of scepticism about Flipkart and e-commerce in India. This funding refutes that," said Sachin Bansal, chief executive of Flipkart who co-founded the company with Binny Bansal in 2007. The Bansals, who are not related to each other, first met as undergraduates at IIT-Delhi.

• Tata Starbucks Opens Outlet in Gurgaon: Tata Starbucks, the 50:50 joint venture between Starbucks Coffee Company and Tata Global Beverages, on Wednesday opened its first outlet in Gurgaon, taking its total store count in the Delhi NCR region to eight. Tata Starbucks CEO Avani Davda said: “We remain committed to offering a distinct third place to our customers at convenient locations; defining our unique, values-based Starbucks experience.” The opening of the new store in Ambience Mall, Gurgaon is part of the company’s ongoing expansion in India, where it plans to open 50 outlets this year. The JV partners have earmarked an investment of 400 crore for the purpose. Starbucks entered the Indian market in October 2012 and currently operates 17 outlets across the country.

• AirAsia Looks Beyond Expedia, Ties Up with Makemytrip, Yatra: Malaysian low-cost carrier AirAsia has hooked up with online travel agencies Makemytrip and Yatra to sell tickets for its proposed airline venture in India, putting a big question mark over its exclusive arrangement with joint venture partner Expedia. “As per our contract, we are exclusive and we would like to maintain that exclusivity,” says Vikram Malhi, general manager, South Asia and Southeast Asia, Expedia, the world’s biggest online travel company. Malhi was referring to the more than two year-old joint venture between AirAsia and Expedia for the Asia Pacific region that split the ownership of Expedia India equally between the two companies and granted Expedia sole rights to AirAsia bookings in India. AirAsia too sells tickets directly on the international routes from India. But Malhi’s statement directly contradicts the account of AirAsia group CEO Tony Fernandes, who has said his airline will pursue every channel of ticket distribution in India. “Expedia will be at the forefront (of ticket sales), but that doesn’t preclude us from working with Makemytrip and other agencies,” he said during his visit to India last week. A senior executive of Yatra said Expedia has been making noises about its exclusivity with AirAsia but his portal has already completed integration with the airline and sale of tickets for international flights is round the corner. “It’s up to AirAsia and Expedia to sort out any issue arising out of these developments,” he said, requesting anonymity. Yatra apart, AirAsia has a nearly sixmonth-old partnership with Makemytrip for bookings on the international routes. Makemytrip is also preparing to sell AirAsia tickets on Indian routes. “The airline has to figure out its arrangement with Expedia,” said Keyur Joshi, co-founder and COO, Makemytrip. AirAsia, which is due to start its Indian operations later this year, has also caught the interest of at least one other online travel company.

• Sanjay Behl to Help Transform Raymond into a Global Player: Raymond Ltd has roped in Sanjay Behl, former head of brand and marketing at Reliance ADA Group, as the CEO of textile and apparel businesses to lead the textile major’s transformation into a global lifestyle company. The 45-year old IIT graduate, who started his career at HUL, will focus on strategies to reposition Raymond’s textile business in tune with the changing wardrobe trends in India and elsewhere. “I was inspired by the challenge to transition successful homegrown brand into a trend-setting lifestyle global brand,” said Behl who spent more than eight years in the telecom industry. Clothing business constitutes 80% of Gautam Singhania-owned Raymond’s turnover of 4,500 crore. The 88-year old company is also present in personal grooming and tool businesses. Behl has already taken charge at Raymond and is currently meeting top executives to gain deeper insights into the business. Rising disposable incomes and growing preference for branded products have resulted in India’s clothing industry growing at the rate of 17%. Total size of the industry is around three lakh crore, out of which 40% belongs to menswear products. “Behl’s challenge will be to grow more than the industry average and make use of the rising opportunity,” Harminder Sahani, CEO at lifestyle consultancy firm Wazir Advisors, said. 

• Yash Raj Films Launches Fashion Label to Sell Diva-inspired Saris: From Rekha in Silsila to Sridevi in Chandni to Katrina Kaif in Jab Tak Hai Jaan, Bollywood divas have set the screen on fire in fluttering, body-hugging saris in Yash Chopra’s films. Now is your chance to sizzle in your own iconic chiffon saris from Yash Raj stable. Yash Raj Films (YRF) is launching its own Bollywood-inspired fashion label, Diva’ni, in partnership with Delhi-based Karol Bagh Saree House, a manufacturer and retailer of Indian ethnic wear. “We have been looking at the apparel category for some time now as a part of the licensing and merchandising business under YRF umbrella,” Rohit Sobti, vice president, licensing & merchandising at YRF, said. “Brand Diva’ni will be the first one to be launched towards the end of this year,” he added. Sanya Dhir, brand director at Karol Bagh Saree House, said the partners plan to open four exclusive stores this year to sell saris as well as other ethnic wear like suits and lehangas. She said the partners will make substantial investment, but would not share details. “Diva’ni is a marriage between cinema and fashion,” said Dhir, 26, who is a member of the promoter family of the 300-crore ethnic wear maker that owns intellectual property right for Diva’ni brand. Besides India, the partners plan to open Diva’ni outlets in markets such as the UK, US, Canada, Middle East, Singapore and Malaysia, where there are strong Indian diasporas. According to Dhir, Diva’ni will be an aspirational brand with focus on handmade and hand-woven products starting at an affordable price point of 5,000 and going up to 10 lakh. The first collection under the label will be a tribute to Yash Chopra, she said, adding that the late filmmaker’s widow Pamela Chopra is personally involved in the venture. Consulting firm Technopak in 2012 estimated the total ethnic wear market at 56,800 crore, with womenswear accounting for 70%. The organised segment is around 10% of the total market. “Given the growth of the wedding market and expanding base of NRIs outside India, ethnic wear is a good category to tap,” Arvind Singhal, chairman of Technopak, said. “And cinema is a very strong driver for demand creation,” he added, welcoming the Bollywood-inspired fashion label.

• CavinKare Set to Get Personal Yet Again: Chennai-based CavinKare, the sachet shampoo innovator whose initial promise in the FMCG space remains unfulfilled due to its numerous diversifications, is taking fresh aim at its bread-and-butter personal care business, armed with newly-infused PE money of 250 crore and a new top management. Personal care has always been a driver for CavinKare, known for brands such as Chik shampoo and Nyle hair colour, but then the profits it generated were reinvested into a whole host of other businesses. In the last 10 years, the company forayed into businesses such as salons, food, beverages, home care, restaurants and dairy. This hardly helped CavinKare take on the FMCG sector biggies, something which it seemed capable of when it burst into the scene three decade ago with innovations such as the 50-paise shampoo sachet. Founder Chinni Krishnan Ranganathan, 52, indicated this will change. “By bringing in the private equity money, personal care is freed from supporting other divisions,” he said. Early in June, Mauritius-based ChrysCapital invested 250 crore into CavinKare, which had revenues of about 1,200 crore last year. There have been other changes too. In April this year, Ranganthan roped in Heinz India chief Nellaiappan Thiruambalam to head the personal care and foods division. (Ranganathan has stepped back from a day-today role) He has also done away with the restaurant business. “In the personal care division, you will see a far higher amount of vibrancy,” he said. There will also be more buzz-brand-building spends are being increased by 50%. His estimate is that the personal care business can help double CavinKare’s revenue in three years.

• Biryani entrepreneurs stir quick-service pot: Navaj Sharief, 39, left the family steel business to start Ammi’s Biryani in Bangalore five years ago. It delivers traditional biryani hassle-free to hungry diners at their homes. Private equity firm SAIF Partners whetted this self-proclaimed foodie’s appetite with an investment deal – to furiously expand home deliveries and express outlets within the city first and later nationally.  SAIF committed Rs 40 crore, an amount 10-fold bigger than Ammi’s revenue in August last year. Sharief has more than doubled the turnover to Rs 10 crore since then. Some 600 kilometres away in Hyderabad, Ali Hemmati is working on an overseas investment to take his 60-yearold biryani restaurant Paradise beyond the city of Nizam. The second-generation restaurateur is tweaking the business model to drive home delivery and takeaway sales as he prepares to roll out Paradise in other metros. A casual encounter with an executive from a fast food MNC fuelled Hemmati’s ambitions. “He told me that the only competition to pizzas in India would be if someone could replicate the pizza business model with biryani,” he recalls. Kolkata’s Shiraz – the Awadhi biryani served there has found admirers in Javed Akthar, Shabana Azmi and late MF Husain – is talking to private equity investors to expand nationally, and overseas. Shiraz was born in 1970 though its origin dates back to a small restaurant called Taz, established in pre-independence Kolkata by Arshad Ali along with a descendant of the Awadh Nawab’s chef. Sharief and Hemmati are among the new breed of biryani entrepreneurs cooking up a storm in India’s fast food business, while challenging the might of global giants such as Yum Brands and McDonald’s. Their swift rise in recent years, with a business model to deliver biryani faster than pizzas and burgers is still localized but could raise the stakes in the $1-billion organized quick service restaurant (QSR) industry.

International:

• Apple conspired to fix e-book prices, judge rules: Apple conspired with publishers to fix the price of electronic books, a US judge has ruled. Manhattan Judge Denise Cote said the iPad maker "conspired to restrain trade". But the firm's spokesman, Tom Neumayr, said Apple would appeal against the ruling and fight "false allegations". Five publishers that were originally named as defendants alongside Apple have already reached settlements, including Penguin. The judge ordered a new hearing to determine damages to be imposed on Apple. The US Department of Justice said the conspiracy was designed to challenge online retailer Amazon's dominance of the fast-growing e-books market. Penguin settled its case for $75m (£49m). Hachette, HarperCollins and Simon & Schuster created a $69m fund for refunds to consumers, while Macmillan settled for $26m.

• Yum Brands profit hurt by food safety scare in China: Yum Brands, owner of KFC and Pizza Hut restaurant chains, has reported a drop in profits as a food safety scare continued to hurt its sales in China. It made a net profit of $281m (£185m) in the three months to 15 June, a 15% drop from a year earlier. Sales in China fell 20% during the period amid fears of bird flu outbreak. The fears over the flu came as Yum was trying to recover from allegations that its suppliers were giving chickens with unapproved levels of antibiotics. Yum said that the "residual effect" of those allegations, first raised in December, had also impacted sales during the period. However, it added that its sales in China were showing signs of a recovery as the extensive media coverage surrounding Avian flu had subsided. The firm said sales in China declined 10% in June, from a year earlier, compared with a 19% drop in May. It said that it expects sales in the country to start rising by the fourth quarter. China is a key market for Yum, generating more than half the company's revenue, and the firm said it was committed to expanding its presence in the country.

• Modest Back-to-School Increases Expected: U.S. retailers appear on track for a steady but unspectacular back-to-school season.  The stores that still report comparable-store sales results on a monthly basis today are expected to report a mean increase of 3.6 percent for June, according to Thomson Reuters. Research and tracking organizations expect the increase for b-t-s to fall within a point of that mark for the period, with last year’s strong showing of a 5.9 percent increase in GAFO (general merchandise, apparel, furniture and related merchandise) and only marginally stronger job data holding increases for the school year in check. Improved consumer confidence and some pent-up demand, however, should work in retailers’ favor. “The economy and consumer spending are like a car stuck between first and second gear,” said Craig Johnson, president of Customer Growth Partners in New Canaan, Conn. “They’re not in neutral and they’re certainly not in reverse, but they’re in the midst of anemic, mediocre growth.” Johnson expects b-t-s sales to increase 3.4 percent next month as growth in consumers’ real disposable income has languished at about 0.7 percent. Last year, he noted, b-t-s sales grew 4.2 percent with disposable income up a slightly better 1.6 percent. His projection excludes categories not directly affected by b-t-s purchases such as automobiles, restaurants, food and home improvement.

• Burberry Retail Revenue Gains 21% in Q1: Outerwear and large leather goods such as the Blaze and Orchard handbags helped boost Burberry’s first-quarter retail sales 21 percent, although the company said store traffic remains soft. Retail sales in the three months to June 30 were 339 million pounds, or $522 million at average exchange rates for the period, due to what Burberry called a “standout” spring-summer season. At constant exchange rates, revenue climbed 18 percent, with the lion’s share coming from same-store sales.  Product-wise, Burberry said more than half the growth in the period came from outerwear and large leather goods, with men’s wear and tailoring also performing strongly.

• Nordstrom Tops Digital Department Store Study: Nordstrom is leading the way for department stores in the digital space. The Seattle-based retailer took the top spot in a study by New York University think tank Luxury Lab, or L2, which ranked 40 global department stores using metrics from their Web sites, digital marketing, mobile and media efforts. Nordstrom was one of four organizations to receive a “Genius” label — Macy’s followed in second place and Saks Fifth Avenue and Marks & Spencer tied for third. Neiman Marcus, Bloomingdale’s, Net-a-porter, House of Fraser, Bergdorf Goodman and John Lewis rounded out the top 10, with the latter pair tied for ninth. The study was released Tuesday and counted online retailer Net-a-porter as a department store. Maureen Mullen, L2 director of research and advisory, told WWD that department stores are “a format under attack and the organizations pulling themselves out are the ones that have realized they have to win online, and winning online doesn’t just mean making robust e-commerce investments, but making investments online that drive traffic to the brick-and-mortar business. If you look at the guys at the top of the list, they are making huge capital commitments, upgrading operations and making inventory more flexible — and that is because they have to compete with the likes of Amazon and live up to the expectation of two-day fulfillment and almost boundless inventory.” A “bigger is better” mentality also applies to department stores — and Mullen said it is a myth that the Internet is a “level playing field” for these retailers. Nordstrom, Macy’s, Saks and Marks & Spencer, combined, have average online revenues per year of $1.7 billion.