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Free the Golden Bird

February 16th, 2013 by Devangshu Dutta

About six years ago, Kishore Biyani of the Future Group and I were discussing a presentation I had delivered at CII’s National Retail Summit, during which I had mentioned “Purushartha”. This millennia-old living philosophy takes a balanced view of life. Aspects related to consumption are two of its major components including Artha (wealth, commerce) and Kama (sensory pleasure). Dharma (righteousness in society and individual life) and Moksha (liberation) are the other two. My point was that most “traditionalists” and certainly policy-makers in the country have tended to view the retail sector negatively or dismissively.

Of course, at that time most businesses themselves hardly demonstrated any sense of balance, let alone any connection with the reality of India, whether in terms of the consumer’s needs, or in terms of the operating environment in the country. By and large the theme was: push explosive growth, margins be damned; promote “westernised” consumption aspirations, regardless of capability to fulfil those aspirations. Conversely, the four years after the global financial crisis in 2008 have been possibly the worst that the retail sector has faced in recent decades, whether in terms of total losses or the quantum of lost growth opportunity, and business sentiment has swung to the other extreme.

On its part the government has not done much to encourage the sector. After several policy flip-flops, approving investment proposals of some high-profile global brands is a positive signal to the outside world, but none of them so far have unlocked or grown the value of Indian retail businesses in any significant way. There is no doubt that foreign brands and retailers can and should be an integral part of India’s developing retail landscape, but they cannot be the prime drivers of the retail business in India or the saviours of its supply chain. That vision and energy needs to come from within, and the resultant growth will benefit all – Indian and international companies, consumers and the government.

From the ancient treatise Arthashastra, Professor Thomas Trautman quotes the concept of concept of “shad-bhaag” (the state having one-sixth share) as “entrepreneurial” because it has a sense of mutual interest, promoting production and the growth of everyone’s share. This spirit of co-ownership and entrepreneurial participation is largely missing in today’s governance. Direct and indirect taxation remains a complex net for all but the savviest evaders, not to mention all the other regulation and approvals that each business – large or small – needs to comply with.

Somehow the mandarins don’t seem to see that the retail business is a platform for the multi-fold growth of new enterprise, that it is a vehicle for urban renewal, and that it can help enormously in channelling the economy into visible taxable revenues. It also seems to escape them that the biggest drivers for this growth and change will typically be small entrepreneurial businesses, who themselves can only thrive in a simpler and non-adversarial regulatory environment.

The wishlist is not large, but needs some bold steps: enact policies that free up unproductive real estate to reduce costs, reduce regulatory hurdles, remove tax traps, reduce import duties. For instance, one estimate for illegal imports in watches is 75 per cent, where the beneficiaries are the smugglers and those who oil the wheels for them, not the consumer, not the brands or retailers, not the revenue department.

It is an important budget year politically due to impending elections but also economically due to the dismal GDP growth. The animal spirits that the Prime Minister has referred to in the recent past are more in the nature of a “bheegi billi” right now rather than a roaring tiger. The caged golden bird will not lay any golden eggs. Will the Finance Minister choose to crack the whip this year, or cut the chains? We watch with bated breath.

(An edited version of this piece was published as in Daily News & Analysis – DNA on 19 February 2012, under the title “Foreign brands can’t be prime drivers of retail”.)

Posted in India, Leadership, Retail, Uncategorized | No Comments »

International Shoes & Accessories Brands in India – The March Ahead in 2012

May 1st, 2012 by Tarang Gautam Saxena

India’s economic growth may seem to have taken a dip last year with India’s GDP growth falling to 6.9% for 2011-12 from 8.4% the previous year. But that has not translated into a slower entry of international brands entering the market. There already exist over 200 international fashion brands in India with more than a quarter of these operating predominantly in the footwear and accessories category. Bata may be an exception, having been present in India for over eighty years, but since the 1980s international brands have been trickling in, and the numbers really picked up in the 2000s.

Since 2006, the number of international shoes and accessories brands entering the market has increased 4-fold. The year 2012 has already ushered in international brands such as Claire’s (jewellery), Christian Louboutin (shoes) and Kelme (sports shoes and apparel) within the first three months, while more brands are there on the anvil. While India is expected to grow at 7.6% this year, the pace of growth of international brands may just as well surpass this relatively slow growth rate.

Business Environment & Choice of Operating Structure at Entry

The choice of entry strategy is a key decision for brands entering new markets. This decision hinges on internal and external business factors including the degree of control that a brand wants to exercise on the brand, the product and the supply chain, the market potential, the internal capabilities and strategies of the international brand in their home market or other overseas markets and the government policy pertaining to foreign investment in that particular market.

In the late 1980s and 1990s the Indian retail market was largely unorganized with few national Indian brands and an under developed modern retail network. Import duties were high and there were many investment barriers for foreign brands. The early players entering the market in the shoes and accessories segment were primarily sports footwear and equipment brands targeting the Indian men.  Bata was perhaps a lone brand that offered footwear for the entire family.

The international brands that entered the Indian market at that time largely opted to license the brand to an Indian partner that allowed the international brands to gain quick access to the Indian market with a minimal investment. Brands such as Lotto, Hush Puppies and Puma chose to license the brand to a partner based in India. The Indian partner invested in sourcing or manufacturing, merchandising, branding, marketing, distribution, and even retail while the international brand received royalties and other fees for lending its brand to the market. However, this left the brands with very little control on their growth path in the market. A few formed joint ventures (Reebok, Adidas) or entered into licensing and distribution tie-ups (Nike, Umbro) with Indian partners to leverage the partners’ manufacturing or distribution strengths.

Over time, certain brands decided to move their existing entities (licensed, franchised or joint venture) into wholly owned subsidiaries. These brands may have invested a disproportionate amount of management time and effort initially but the investment has paid off well. Reebok is today the largest international sports goods brand in India with a reported turnover of Rs 600 crores last year, followed by Adidas, Puma and Nike.

The 2000s saw a rising interest of women’s footwear and accessories brands in the Indian market as the market further evolved. Many of these players operated in the luxury segment appealing to a limited few. There was a distinct shift in the choice of entry strategy and franchising emerged as the preferred entry route for the brands stepping afoot in the Indian market testing the waters. The successive lowering of import duties for fashion products resulted in imports being a less expensive sourcing option and the realty boom brought investors in retail real estate that were ideal franchisees for the international brands.

At the same time the count of sports footwear and accessories brands also continued to grow. This product category was primarily distributed through agents, regional distributors and through a combination of exclusive branded outlets, multi-branded outlets and large department chains at the retail end. By 2003, franchising became the preferred launch vehicle for an increasing number of international companies, including Accessorize, Aldo, New Balance and Nine West, while only a few chose to enter through licensing.

In 2006 the Government of India reopened retail to foreign investment (allowing up to 51 per cent foreign direct investment in “Single Brand” retail). Later the Indian government also announced the possibility of gradually increasing the FDI limit in single brand retail from 51% to 100%. The possibility of having part or an eventual complete ownership encouraged brands, seeking a more controlled business in India, to use joint venture as the launch vehicle. International footwear and accessories brands such as Clarks, Fendi, Kipling, Pavers England either entered India by forming joint ventures or shifted their existing structures to joint ventures.

Thus the last decade saw the international brands largely using the franchising route or forming joint ventures to create a presence in the Indian market. While franchising became the choice for risk-averse brands, those that were convinced about the longer-term value of India took the more committed ownership route.

While the government has recently allowed 100% foreign direct investment in single brand retail, it has placed the rider that 30% of the sourcing would happen from small and medium enterprises in India. The lack of clarity as to what this actually means, as well as the need to set up an adequate sourcing presence in India has meant that most brands have not pushed their Indian presence into a 100 per cent ownership structure.

Of course, for a few brands India may be the key source for their entire range and given our government’s manufacturing policy they may already have an existing small and medium enterprise vendor base. These brands may go for complete ownership if India is a strategic and important enough market and sourcing base in their global portfolio.

One such international company is Pavers England, a premium leather footwear brand from UK, which has recently approached the Indian government to allow the retailer 100% foreign direct investment in single brand retail. The group has been present in India since 2008 through a joint venture and currently sells the brands, Pavers England and Staccato in India.

At the moment, 35% of the international brands are present through an ownership business model, either through a wholly owned subsidiary or a joint venture with majority stake which reflects the growth of confidence level of international brands in the Indian market.

Changeovers, Exits & Re-launches

The road to success in the Indian market has not been an entirely smooth ride even for the large brands that are successful globally. Brands that have invested in understanding the psyche of the Indian consumer, adopted flexibility in market approach and displayed persistence, have been paid off handsomely and some of these have even exceeded domestic brands in size and reach. Some others have had to reconcile to being niche operators.

Some brands have shifted their strategy and changed their operating structures and even partners in response to the dynamic market conditions and the increasing importance of India’s contribution in their global business. Some brands that may not have achieved success in their initial stint and have exited the market, only to return with renewed strategy, energy and rigour and more suitable business models and or partners. There are plenty of examples of international brands that have changed over their operating structure, partners, exited the market and yet re-launched again.

Puma, for instance, had first entered the Indian market through a licensing arrangement with Carona in the early 90s to sell sports footwear, but the agreement was revoked in 1998. The brand entered the market again in 2002, this time with a licensing / distribution tie up with Planet Sports. The company positioned itself as a lifestyle brand this time with a wider product range. While the Indian partner was responsible for sourcing of apparel and accessories, distribution and retail, Puma ensured that the quality of footwear being sourced from India was upto mark and also ensured brand consistency throughout all marketing, product and retail efforts. To the international company, India occupied an important position in Puma’s global as well as Asian business. With an aim to strengthen the brand’s position further in the country through greater control over its India operations, Puma set up a wholly owned subsidiary in 2006 subsequent to the end of its licensing tie-up.

Another early entrant, Lotto Italia, re-entered the market in 2005 through a license deal after a gap of ten years. More recently, in an effort to move to the higher growth trajectory, the brand has changed its partner last year and the brand is looking for aggressive growth by planning to grow its network of exclusive stores across India from 50 at the moment to 200 in the next three years. The brand is also undertaking various marketing activities to gain high visibility and connect with the consumers. Recently, the brand has been reported to be working on launching cricket equipment in India in the next six months, which will be a pilot run for the global launch of the product as well.

The renowned Italian brand Gucci was brought into India through a franchise agreement with Murjani Retail in 2006. However, the global economic crisis and its resultant impact on the Indian market, led a shift in the Indian partner’s focus from luxury to premium brands. The franchise agreement with Murjani Retail was terminated and replaced with a new franchisee, Luxury Goods Retail, in 2009. Simultaneously, the international brand Gucci, converted this new franchise agreement into a majority owned joint venture for more control over the Indian operations.

Clarks, a British footwear brand, first entered India in 2005 through a distribution agreement with an India partner and also set up a few exclusive stores across India. It withdrew from the market due to below-par performance. However, after researching and understanding the Indian consumer further it re-entered the market 2011 through a joint venture with Future Group. Now Clarks is offering differentiated products across segments (men, women and kids) with lower price points and is focusing on high brand visibility through exclusive branded stores to break through the clutter. India is an important sourcing base for this company and it is also drawing synergy for its global product range from the products being developed as per the tastes and preferences of Indian consumers. From the new partner the brand hopes to leverage their experience in real estate and their understanding of the Indian consumer.

The Italian fashion brand Miss Sixty exited the market and their partnership with Reliance Brands in 2007. The brand re-launched shoes and accessories in 2009 through another franchise agreement and currently the brand has three stores across Delhi, Mumbai and Chennai.

The German lifestyle brand, Aigner that entered India in 2004 is perhaps a lone brand that has not yet re-entered the market since its exit in 2010, but it will be no surprise if it returns to India again at an appropriate time.

The strategies of international brands have changed due to various factors. Many of the changes in strategy and structure have been due to the actual performance in the market falling well short of expectations and projections. Perhaps, the changes in partnership could have been moderated had the companies been more careful in questioning the criteria and motivations for choosing partners. (This is discussed further in detail in our earlier articles, relating to the International Fashion Brands in India). In choosing their partners, the international brands need to carefully identify what role they wish to play in the market, and what capability and capacity they need operationally to create the success that can truly root a brand into the rich Indian soil.

International Brands: Here to Stay

India is at the early stage of consumer growth and is emerging to be a strategic market to many international brands with a promising market potential. The market conditions are much better and the barriers to entry much lower for the international brands as compared to even the last decade. The overall confidence of the international brands in the potential of the Indian market is highly positive.

So far, the shoes and accessories market has been led by international sports and outdoors brands. Though there are already over a dozen international brands present in this category, we can expect to see more entering this category. The recently announced joint venture between Wolverine and Tata International to strengthen the presence of CAT and Merrell brands in the Indian market and to possibly introduce other brands from the portfolio shows that this segment is far from saturation.

Indian women are emerging as another important segment, drawing more footwear and accessories brands into the market and expansion of the existing brands through stand alone stores for women. There is still open ground available in the premium and value segment of women’s accessories for the growth of both international and national brands.

Over the last decade, the pace of growth of a brand has accelerated; the time needed for a brand to scale up has shortened.  The modern retail network has expanded and there are an increasing number of distribution channels today, even as existing players such as Bata and new ones such as Reliance Footprint offer growing platforms for international accessory brands to plug into.

The online channel is further emerging as an important route to reaching the consumers especially in the tier II and III cities where demand exists but there is low accessibility due to inadequate distribution network. Vans Shoes, an international footwear brand from USA, has tied with online portal myntra.com to widen its consumer reach having entered India last year through a joint venture with Arvind Brands. The online channel also offers the possibility of “pilot runs” and test marketing for brands at the early stage.

Going further, not only do we see more brands customizing their product range for Indian tastes, but India also becoming the testing ground and an inspirational source for global product range.

International brands clearly are here to stay. The more successful brands will be the ones that take pragmatic view of what is achievable and make course-corrections to their India business model as often as required.

Posted in Branding, Footwear, India, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Uncategorized | No Comments »

The Year That Could Be

January 6th, 2012 by Devangshu Dutta

The transition between calendar years offers a pause. We can use it to evaluate what passed in the previous year, chalk out our journey for the next one.

The first response of most people to the question “What happened in the Indian retail sector in 2011” would be probably something like this: lots happened, and then – at the end – nothing did!

That is because one theme ran through the entire year, month after month, fuelled by tremendous interest in the mainstream media as well. This was about the change expected, hoped for, in the policy governing foreign direct investment (FDI) into the retail sector. Hearing the debate go back and forth, on one side it seemed as if FDI was going to cure every ill of the Indian economy, and on the other it seemed as if the country was being sold out to neo-colonists.

It’s worth remembering that not too long ago foreigners could invest in retail businesses in India freely. Benetton ran some of the key locations in the network through its joint-venture which subsequently became a 100 per cent owned subsidiary. Littlewoods (UK) set up a 100 per cent owned operation in India during the 1990s before its home market business collapsed, and its Indian operation was bought by the Tata Group to form Westside. And well before all these, one of the early multi-nationals, Bata, had already built a humongous network of stores across the length, breadth and depth of India.

The motivation for the decision to exclude foreigners from this sector may have been political, economic or mixed – that is not as important as the timing.

By the mid-90s India had just started to attract interest as private consumption was just about picking up steam. Several international apparel, sportswear and quick service brands entered the market during this time. Many of these brands started setting up processes and systems that changed the way the supply chain worked. They gained market share, and more importantly mindshare, with young consumers. In this process some of the domestic brands did suffer, some of them irrecoverably. However, with foreign investment suddenly blocked-off, many brands that wanted direct ownership in the business in India turned away. In their opinion the opportunity just wasn’t big enough to take on the hassle of a partner. Some did enter, but with wholesale distribution structures rather than in retail.

During this last decade, the Indian retail landscape has changed dramatically. During the 2000s the economic boom happened and India became “hot” again. So did retail and real estate, as large corporate houses pumped in significant amounts of capital into setting up modern chains to tap into the fattening consumer wallets. Clearly, FDI was going to come up on the agenda again, but not quite at once. Indian companies needed some headroom to grow; and grow they did, partly with indigenous business models and brands, and partly as partners to international brands.

By 2011, there was more of a clear consensus among the Indian businesses that retail could be opened to FDI and must be. Internationally, too, political and economic heavy-weights from the significant western economies pitched for opening up the retail sector in India to foreign investment. Here’s the small public glimpse of the hectic activity that happened internationally and domestically:

  • January: UK pushes for FDI; Indian ministers say the decision would not be rushed but look forward to attracting $250 billion FDI between 2011 and 2015
  • February: some ministers say that the government is close to a decision but the timing is not yet right
  • March: a senior government official notes that FDI is not essential to bring down inflation, while the finance minister reiterates that there is no decision yet
  • May: another senior government official says that FDI is needed to tame inflation
  • July: the prime minister says that the government is working to build consensus; the Committee of Secretaries recommends relaxation in FDI norms
  • August-October: pronouncements progressively indicate a relaxation, but without a definite time-line
  • November: cabinet approves 100 per cent FDI in single brand retail and 51 per cent in multi-brand, but severe political backlash pushes government to reconsider
  • December: murmurs emerge about the delinking of decisions on single brand and multi-brand retail, so that some progress can be made

Such an anticlimax! For many, 2011 was the year that could have been a turning point. Could have been! If you had slept through the year and woken up on New Year’s Eve, would you have found nothing had really changed?

Ah, that’s the thing! I think most people observing the retail business actually slept through the year, because they were just focused on the FDI dream. Those actually engaged in the retail business know that many other things did change, some of which create the foundation for further growth.

The government did push on with the GST (goods and services tax) agenda. While stuck in politics at the moment, we look forward to incremental changes in harmonizing the taxes and tariffs regime, vital for truly unifying the country in the economic sense. On the downside, excise being levied on the retail price of clothing was a blow to retailers.

Growth continued. Indian’s retail giant, Future Group, grew to around 15 million square feet. The other giant, Reliance, announced renewed vigour and focus on the retail business with additions to the management team partnerships with international brands such as Kenneth Cole, Quiksilver and Roxy. Other new partnerships were announced, including significant American food service brands Starbucks (with the Tata Group) and Dunkin’ Donuts (with Jubilant). The British footwear brand Clark’s announced that it was aiming to make India its second-largest source country and among its top-5 markets within 5 years. Marks & Spencer pushed to expand its chain by more than 50 per cent, adding 10 stores to 19, while Walmart said its focus was on building scale rather than trying to squeeze profitability from its US$ 40 million investment so far. For fashion brands, the Rs 500 crores (US$ 100 million) sales threshold seemed more achievable as they used the accelerated pace of growth.

Many in the retail business talk about “the people problem”. Fortunately, some decided to demonstrate positive leadership, reflected in RAI’s announcement of an ambitious skill development plan for 5 million people in next 4-5 years, and industry veteran BS Nagesh announcing the launch of a non-profit venture, TRRAIN.

There was some bad news on the issue of shrinkage: a sponsored study placed India at the top of the list of countries suffering from theft. But the level was reported to be lower than the previous study, so there seemed to be hope on the horizon. The study didn’t say whether consumers and employees had become more honest, better security systems were preventing theft, or whether retailers themselves had become better at counting and managing merchandise over time.

A significant highlight was the e-commerce sector, which has found its way to grow within the existing restrictions and regulations, even as the online population is estimated to have grown to 100 million. Flipkart delighted customers with its service and racked up Rs. 50 crores (US$ 10 million) in sales. Deal sites proliferated and media channels celebrated the advertising budgets. Even offline businesses, notable among them pizza-major Domino’s, found their online mojo; Domino’s reported 10 per cent of its total revenues from online bookings within a year of launching the service.

In all of this the biggest story remains untold, which is why I call it an Invisible Revolution. This revolution is made up of the changes that are happening in the supply chain in the entire country, including investment by private companies in massive, large and small facilities to store, move and process products more efficiently. And in spite of the high costs of capital, suppliers are continuing to look at investing in upgrading their production facilities as well as their systems and processes. While the companies at the front-end will no doubt get a lot of the credit for modernizing India’s retail sector, it would be impossible without the support of the foundation that is being built by their suppliers and service providers.

2011 seems to have ended with a whimper. 2012’s beginning will be tainted by large piles of leftover inventory that needs to be cleared. Inflation seems tamer, but consumers have already tightened their belts, anticipating difficult times. The policy flip-flops and the political debates are sustaining the air of uncertainty. So what does 2012 hold?

Remember, the ancient Mayan calendar stops in December 2012, and no doubt there are many predicting doomsday! However, there are several others that see this as a possibility of rejuvenation, renewal.

Hope and fear are both fuel for taking action. Investment cycles are caused by an imbalance of one over the other.

In 2012, we’ll probably continue to see a mix of both. I recommend that we don’t take an overdose of any one of them. Even if you think 2011 was “the year that could have been”, I suggest still treating 2012 as “the year that could be”.

Here’s wishing you a successful New Year!

Posted in Apparel, Branding, Consumer, Corporate Social Responsibility, Food & Grocery, Footwear, India, Leadership, Lifestyle & Fashion, Marketing, Outsourcing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

Where is the Love? In the Brand.

August 26th, 2011 by Devangshu Dutta

A few months ago, when asked to speak about value-addition at a food industry seminar, I decided, in a deviation from the usual discussion, to dissect the meaning of “value”.

Most people in industry focus on only one dimension of value-addition – the economic value added by processing and transforming food raw materials – virtually ignoring two other dimensions which are required for most of the (undernourished) population: calorific value and nutritional value (see “Perishable Value Opportunities”).

At the end of that seminar session, an agriculturist from the audience put forth a very pointed question: “What is the cost of the potatoes in a bag of branded chips that sells for Rs. 10? Or to put it another way, how much of the retail price actually goes back to the potato farmer?”

The question, of course, was completely loaded with angst on the economic imbalance between farm and factory, supplier and buyer, small and big, rural and urban. But it also underlined missed opportunities to capture economic value, which in turn accentuate the imbalances in growth.

Economic value can be added to food through improvement, providing protection, changing the basic product and through marketing. Improvement typically focuses on seeds, growing techniques and post-harvest areas for improved quality of harvests, disease resistance, better colours, size and flavour, possibly nutrition. Protection initiatives work across cultivation, harvest and post-harvest, storage, during processing, through packaging, while change is essentially focused on processing techniques (cooking, combining, breaking down and reconstitution).

There is a lot of work going on in the food supply chain to enhance the value captured closer to the farmgate. And, certainly, the “value-added” earlier is vital to maintaining and building value later in the supply chain.

However, what is striking is the fact that as we move downstream towards final consumption, the economic value captured as a price premium also increases dramatically.

So, as depressing as the multiplier may be to the farmer, on a kilo-for-kilo comparison, the bag of factory-fresh potato chips is priced many times higher than his farm-fresh potatoes. And, the maximum economic value is created, or at least captured, by the act of branding and marketing.

The Love is in the Brand

A short quiz break: can you recall the “most valuable company” in the world in August 2011, as measured by valuation on the stock market?

The answer is Apple. It is a company that physically manufactures nothing, but tightly controls the design, development, sourcing, distribution and, yes, branding of a group of products and services, whose fans seem to grow by the minute.

Of course, one can argue that Apple “produces” by the very act of designing completely new, highly desirable, products that are not available from anyone else, and that this is what provides the premium. But similar premium – which is due to branding and marketing, rather than proprietary products – is also visible in thousands of companies, across product sectors, including food. That sustained price premium is the sign that the consumer trusts and wants a particular brand’s product more than another one. There is a hook, a strong connect, due to which that consumer is willing to lighten her wallet just that much more.

In India, surprisingly, “value-addition” discussions in the food industry focus almost entirely on cultivation, storage and transformation through processing, virtually ignoring branding and marketing. In fact, branding is usually only discussed in the context of multinationals or some of the largest Indian companies. What’s more, most of the brands discussed are focussed largely in the area of processed food products that originated in the west.

Run these tests yourself. When you think of food and beverage branded companies who do you think of? And, when you think of food brands, what kind of products come to mind first?

The answer is that the brand landscape is dominated by products such as biscuits and cookies, jams, fruit and non-fruit beverages, potato chips, 2-minute noodles, confectionary products and food supplements, mostly from the portfolio of some of the largest companies operating in the market.

Of course, there are some alternative examples.

Aashirvaad and Kitchens of India present quintessentially Indian products (albeit from the gigantic stables of ITC which also has a multinational parent).

And, yes, there are cooperatives such as Lijjat, as well as home-grown mid-sized companies such as the Indian snack maker Haldiram’s, spice brands such as MTR and MDH, pickle brands such as “Mother’s Recipe”, rice brands such as Kohinoor and Daawat.

But, given the size of the Indian food market and the width and depth of Indian cuisine, shouldn’t there be more brands that are Indian and focussed on essentially Indian food products?

This is a tremendous opportunity – a gap – not just in the Indian market (among the largest and fastest growing in the world), but also globally.

The Hurdles to Branding

So, why aren’t there more Indian brands?

Let’s face it, for most companies, marketing fulfils one need: to communicate their name to potential customers. Most of them generally hope that if they do it enough, they would actually be able to sell more volume.

Of course, no one has been able to draw a straight line graph that correlates more marketing expense with higher sales.

Those are two self-destructive notions. Obviously, if marketing is an expense, then it must be minimised! And secondly, if it cannot be proven to be effective, why would you spend money doing it? For most people, branding is even fuzzier in that regard, in terms of what it is and what it achieves.

However, the picture changes when you look at marketing as an investment rather than an expense. As we evaluate any investment, there should be an expected return that should be quantifiable. Examples of Apple and other brands make it amply clear that branding and marketing, when done well, can certainly create quantifiable financial returns on the investment.

The second hurdle to branding and marketing is that they require consistency, which is not a strong point for most wannabe brands. They end up with too many messages to the consumer, or the messages keep changing and shifting. The company, the name, end up representing many things, sometimes everything, and eventually nothing.

The third, enormous, hurdle is the time needed to develop a brand with a decent sized marketing footprint and a deep relationship with the consumer. Most small and mid-sized companies, constrained as they are for resources, focus on areas that seem to offer more immediate returns, such as distribution margins or discounts, or even expansion of production capacity. Especially in the early years of the business, the benefits of branding and marketing seem to be too far in the future to be a priority for investment.

Due to these one of these reasons or a combination, many companies are unable to see their brands through to success. In fact, sadly, most companies do not last long enough to become owners of successful brands.

Even those who do achieve success and even market leadership, sometimes choose to cash-out on their success by selling their brands to larger competitors, rather than competing with the financial might of the giants (such as Thums Up being sold to Coca Cola; Kissan, Kwality and Milkfood being sold to Hindustan Unilever).

In the past, one of the other barriers in India was the hugely fragmented retail and distribution system, which essentially sapped energy, resources and focus for any company that wished to grow a brand across regions. In fact, one of the key lessons from the western markets is that the growth of brands has been closely linked to the expansion of retail chains. So, certainly, we should view the growth of modern retail in India as a platform for the emergence of regional, national and global Indian food brands.

However, there is a flip side to this retail growth. In the west, most retailers were focussed on running shops, and were content to leave product development and brand development to their suppliers, the national brands. These retailers began looking at private labels only as an additional source of margin well after they had gained scale, and even then they ventured rather carefully into the space. In India, on the other hand, private label is very high on the priority list of our nascent modern retailers, precisely because the effectiveness of that business model has been proven elsewhere and because there are such few national brands that have a strong, irrevocable connect with the consumer.

Should You Invest in Branding?

The short answer is to that question is: yes.

It doesn’t matter if you run a small company or start-up, or a more mature company. It doesn’t matter whether you are selling a consumer product directly, which is the most effective and most necessary playing field for building a brand, or an intermediate product or service where you can still achieve a premium within the trade.

If you are committed to selling only commodities, where your selling prices are determined only by the tug-of-war between supply and demand, government policies and Acts of God, then you wouldn’t be reading this article.

Since you are reading this, you should brand.

In the short to medium term, if you do the job well, your customers will pay you a premium. And in the mid to long term, financial investors looking to ride India’s economic growth are more willing to put their money in a company that has a recognisable hook and a trading premium over its generic competition.

The brand can be built on any platform for which there could be a discernible premium. This can be trust (quality, quantity), simplicity and convenience (prepared snacks and meals, pre-ground spices, flour instead of grain), or even novelty (fizzy coloured sweetened water, reconstituted potato “chips” so uniform in shape and size such that they fit into a cylinder). Organic, vegan, fair-trade – you take your pick of the platform on which to build the brand.

Possibly the strongest driver of premium and brand value is a properly maintained heritage. Some brands have a past, some of them even have a history, but very few have a heritage. If your business has a history, there is a heritage waiting to be discovered, and it is worth a lot.

Of course, this doesn’t mean that a brand should become anchored at a certain historical time point and expect to only milk its age. Heritage is always viewed in a cultural context and culture evolves over time, so the most effective brands maintain a link between the attributes of their past to their ever-evolving present.

As with most other things, it is good idea to start early. Take on board the lessons of branding early in the company’s life so that the foundation is strong, and the brand can grow organically. As a side benefit, strongly branded companies also have strong and cohesive organisation cultures, a fantastic defence during times of high employee attrition.

The Global Branding Opportunity for Indian Food Companies

One of the most important ingredients of a good brand is clarity of identity and origin.

Often we confuse identity with the name, the logo, fonts or colours associated with a brand. Yes, a brand’s identity is certainly indicated by these – as much as our name and our physical appearance indicate our identity. However, the identity itself is much larger; in fact, it is helpful to think of the brand’s identity as a personality. The personality gets expressed in many different ways, but is tied together in a definable manner and has some strong traits that define its actions.

There are clear statements that can be associated with effective brands, whether or not they have been expressed by the company or brand in any of its formal communications. For instance, some globally relevant Indian brands include Tata Nano (“frugal engineering”), the Taj Mahal (“timeless beauty”), Goa (“party”), Rajasthan (“royal exotica”), and Kerala (“bliss”).

(I am deliberately picking “global relevance” as a theme to keep in mind that there is, literally, a world of opportunity that we could be looking at.)

We find a high number of tourism-related brands in this list, because these are destinations that pull the customer in – as long as they are true to themselves and relevant to the context of the consumer, they will be successful.

More conventional consumer product brands, on the other hand, must work harder to fit into the consumer own context, especially as they move away from their geographical origin, their home market.

This is particularly true of food, which is widely divergent across geographies. Some products can be adopted into multiple cuisines, offering more easily accessible opportunities and potentially greater scale. Rice and generic spices fit the bill here. However, for most other food items, the context of the home country cuisine is vital. Therefore, the growth of food brands, not surprisingly, is linked to the expansion of cuisines across borders. It is partly driven by the movement of people, and partly by the movement of culture (television and movies being the most important in current times), mostly both together.

For Indian companies, there is certainly an opportunity to ride on the back of the Indian diaspora across the world. And now there is an additional opportunity: expatriates who spend a few years living and working in India can also help to carry the cuisine and its associated brands out.

Finished product brands such as Tasty Bite, Haldiram’s and Amul are good examples of diaspora-led expansion, where the original driver was to bring people of Indian-origin a taste of home. In fact, Amul has recently announced that it wants to set up a manufacturing plant for cheese and other dairy products in the US, to service the Indian-origin population more effectively. Should it be restricted only to that? Certainly not; availability, if supported well by branding, can help it to cross into other segments as well.

As the consumption of Indian food grows across ethnic lines, it is likely to drive the growth of Indian ingredients as well – a perfect vehicle for branded ingredient suppliers. What’s more, Indian recipe books could even specify Amul Cheddar Cheese, MDH Chaat Masala or MTR’s Dosa Mix as ingredients – they wouldn’t achieve a 100% hit rate, but it would certainly be significantly higher than zero!

There is an opportunity to capture economic value that branding offers, which is very often greater than any other process in the food supply chain. Remember two phrases made famous by Hollywood: “show me the money” and “show me some love”. In the business of brands, these are one and the same.

It’s worth asking: do we have the patience to live through the lifecycle of a brand, and can we commit resources to nurturing it? If the answer is “yes” to both, we are most likely to benefit from branding.

Here’s to more Indian food brands that grow within India and across the world.

(If you need support with growing brands, do connect with us.)

Posted in Apparel, Branding, COLUMN-Progressive Grocer, Consumer, Food & Grocery, Footwear, India, Leadership, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

Indian Terrain looks at sourcing from the Americas

August 26th, 2011 by Devangshu Dutta

Indian Terrain Fashions’ plans to launch a ‘Made in America’ jeans brand using denim from a US mill made into jeans in Guatemala, is a move that bucks trends for brands sold in India. The move is an interesting twist in the growth story of a 10-year-old brand that was, until recently, a business division of the Chennai-based apparel manufacturer Celebrity Fashions. Celebrity’s notable customers include Gap, Nautica, Armani Jeans, Timberland, Dockers and Ann Taylor.

About five years ago, Celebrity had invested in growing its capacity by acquiring another exporter’s manufacturing facilities. However, Celebrity’s manufacturing and export business has been under pressure due to the difficult environment in its main markets, and last year Indian Terrain was demerged from its parent.

It now seems Indian Terrain is striking out on an independent path, with plans to launch a ‘Made in America’ jeans brand. Managing director Venkatesh Rajgopal says the company proposes to source the denim from an American mill and have the jeans manufactured Denimatrix in Guatemala, which also produces for brands such as Abercrombie & Fitch. According to him, Indian Terrain will use the same raw material as Abercrombie & Fitch, and “will be able to track every pair of jeans to the same cotton fields in Texas.”

The company’s competitors, both domestic and international brands operating in India, mainly buy denim products from within the country.

Denim is currently a very small part of Indian Terrain’s casualwear product mix which is largely sourced from its parent, Celebrity Fashions. The company is looking at launching the “mid-premium” priced brand in September that will not be “just about quality, but about offering a lifestyle.” Rajgopal estimates that denim has the potential to grow to 30-35% of the company’s business in three years.

The demerger of Indian Terrain from its parent company was carried out in 2010 with a view to achieving better valuation for the branded business and to provide additional liquidity to its founders and private equity investors. The company is currently present at about 80 exclusive brand stores and through 400 multi-brand retail stores, in eight cities, as well as in Singapore’s Mustafa Mall. It closed the financial year ending 31 March 2011 with sales of INR1.21bn (US$27m), and expects to grow its top line by 25% this year.

Its retail customers wait to see whether Indian Terrain will be able to effectively integrate denim into its core brand philosophy and grow to a third of the product range. However, for investors the critical question is this: after the demerger from the manufacturing parent and with product being imported from the Americas, will the brand business be able to maintain gross margins at the current levels of about 40% to 45%? Only time will tell.

Posted in Apparel, Branding, Consumer, Entrepreneurship, Footwear, India, Leadership, Lifestyle & Fashion, Marketing, Outsourcing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | No Comments »

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