Indian Retailer

NEW DELHI: The government has started insisting that the power to legally direct the actions of a company should at all times be in Indian hands if the investments it makes in other companies are not to be classified as foreign investment.

The attempt to plug the loophole in the foreign direct investment (FDI) rule follows widespread criticism that the new rules will allow foreign investment in excess of the allowed limit and effectively transfer ownership and control to foreigners even in sectors restricted to them.

The Foreign Investment Promotion Board (FIPB), the apex body that clears FDI into the country, is putting this new rider to ensure that the spirit of the new liberalised FDI norms is not defeated through undeclared arrangements between the Indian and foreign partners in ventures with local companies.

The rider is at the suggestion of the Department of Industrial Policy and promotion which framed the FDI policy. The move is to stall possibilities of foreigners effectively controlling the decisions of the investing company even when on paper the reins of the company stay with Indian promoters.

The idea is to remove the chances of firms in key sectors such as retail and defence being controlled by foreigners above the levels allowed by the law. “This is an added safety measure,” says a member of FIPB. “There are lots of ways to shift control through ‘inter se’ agreements (or the understanding between the partners in a joint venture). The new rider is to ensure that control is actually in Indian hands always,” said the official, who asked not to be named.

Leading lawyers said it is possible for promoters to comply with ownership and control norms in paper, but when the corporate veil is lifted, one might find ownership somewhere else. FDI expert and managing partner of law firm KDB Associates, Sumant Batra, said the new rider makes the letter and spirit of the FDI norms more explicit. It seeks to prevent attempts to disguise the control in a company through shareholder agreements, which are not filed with the government (unlike the articles of association of a company) but are relied upon for enforcement of contracts, explained Mr Batra.

The Board is likely to suggest this condition if it allows Analjit Singh and Asim Ghosh to sell 49% in their two companies to a foreign firm, without these companies’ downstream investments in Vodafone Essar Ltd getting classified as foreign investment, said a person privy to the development.

TURIN: Till now it was just software and small cars. But if Italian coffee giant Lavazza S.p.A has its way, India might soon become the hub for coffee in Asia.

In 2007, Lavazza walked into the country by acquiring the Barista coffee house business and Fresh & Honest Cafe, a company that specialises in serving corporate clients with vending machines and ground coffee products, for a reported sum of 100 million euros. And now, it’s time to expand, according to Gaetano Mele, CEO at the Italian Lavazza Group. On the cards is Lavazza’s first coffee plant outside home and an ambitious plan to expand its business in the Asia-Pacific region.

About 60% of Lavazza’s revenues come from Italy and rest from foreign markets. Asia contributes a mere 5% to its coffers. So, it is no surprise that Italy’s biggest coffee maker wants to use India and its relatively cheaper raw coffee beans as a base to expand into other markets.

“We are making fresh investments in building a coffee processing plant in Chennai on the lines of the one that we have in Turin,” says Mele. “It is our first factory outside Italy and should be operational by the first half of 2011.”

Mele is banking on the country’s young population and its potential disposable income. China is also a budding market. In the pipeline is a range of designer cafes, such as the popular Lavazza Espression where décor and service make an exciting proposition to coffee lovers.

But more important is the money that Lavazza would save on the nearly 110% import duty it goes through by manufacturing its products here. “Around 70% of the retail price of our products is due to the cost of raw materials,” says Attilio Capuano, director, Asia & Pacific, Lavazza S.p.A. “It will be a huge saving for us once we start manufacturing in India.”

At the same time, the Lavazza brand here is undergoing a brand transition with the company’s logo slowly being integrated with the Barista logo. “We don’t want to suddenly intrude,” points out Mele. “It will be a slow makeover.” Incidentally, Barista has not performed according to the expectations of the Lavazza group. “We have still not broken even,” says Capuano.

But the company’s other spearhead, Fresh & Honest Cafe, a part of the Indian coffee vending industry, is going great guns. “We have most of the top hotels as our clients and from only 14 coffee vending machines a month in 2007, we are now selling 100 machines a month, which translates into sales of 50,000 coffee cartridges every month,” reveals Capuano. “We will soon touch a lakh,” he adds.

Today, compared to around 800 stores of close competitor Café Coffee Day, Lavazza has just over 200 stores in the country. “Don’t expect our numbers to go up drastically,” explains Mele. “We are not competing with Café Coffee Day.” Well, that’s how conservatively the Italians “espress” themselves!

MUMBAI: Retail stores operator Pantaloon Retail (India) Ltd on Friday posted a net profit of Rs 43.82 crore in the first quarter ended September 30, 2009, up 21.11 per cent over the corresponding period a year ago.

The company had net profit of Rs 36.18 crore in the September quarter last fiscal, Pantaloon Retail (India) said in a filing with the Bombay Stock Exchange.

Total income of the company increased to Rs 1,781.74 crore in the quarter under review from Rs 1,512.37 crore during the same period previous year, it said.

The company operates multiple retail formats in both the value and lifestyle segment of the consumer market.

It operates over 1,000 stores in 61 cities across the country. Its principal formats include Pantaloons, a chain of fashion outlets, Big Bazaar, an Indian hypermarket chain; Food Bazaar, a supermarket chain , and Central, a chain of seamless destination malls.

Some of its other formats include Depot, Shoe Factory, Brand Factory, Blue Sky and Fashion Station.

Shares of the company closed at Rs 323.35, marginally down from the previous close on the BSE.

Nilgiris Dairy Farm, the Bangalore-based retail chain, is revamping its channel operations to build its general trade business volumes.

The century-old retail chain, as part of the initiative, is set to launch a new brand — Southern Days, focusing on general trade. Three months ago the company successfully migrated its general trade volumes of bread to a new brand: Southern Days. It will soon expand it’s general trade portfolio to include ‘namkeens’, cookies and a host of stuff within the next few months all under the new general trade brand ‘Southern Days - From the House of Nilgiris’.

Ashish Khera, VP - general trade & private labels, Nilgiris said this is part of the chain’s concerted efforts to eliminate channel conflict and provide the company a platform to aggressively build its general trade business volumes. In due course the products under the mother brand Nilgiris will be sold only at its 100-odd Nilgiris stores.

Nilgiris Dairy, controlled by private equity fund Actis, has been consolidating its presence in the highly-competitive retail market by having a sharp focus on South India, a market in which the brand has a high recall. The company has rather successfully withstood the onslaught of pan-India retail chains, including Spencer’s, Reliance and Aditya Birla-owned More.

Industry sources indicate that Nilgiris in the recent past has closed down a few unprofitable stores and opened a clutch of new stores. It is also constantly looking to expand its footprint through the franchisee network. The company, to increase its focus on the retail chain, has also exited the hospitality business for around Rs 100 crore by selling its prime projects to Chennai-based Shabari Group.

Acting in accordance to the competitive expansion of grocery retailers, Aditya Birla Retail Ltd. (ABRL) leading chain of food and grocery retail – More, incorporated in May 2007 has major expansion plans to have 700 supermarkets and eight hypermarkets across towns and cities by the end of fiscal year 2009,according to a company official.

Speaking exclusively to ImagesFood.com, Thomas Varghese, CEO, Aditya Birla Retail Ltd., says, “ By the end of this financial year we expect to have approximately 700 supermarkets and eight hypermarkets across towns and cities. Our existing hypermarkets are located in Baroda, Mysore, Aurangabad, Bangalore and Indore. We are expecting to open three additional hypermarkets in Thane, Delhi and Hyderabad in the next few months.”

Regarding the break up of the 700 supermarkets by March 2010, he revealed that, the company would have 331 stores in metros, 102 stores in tier I cities remaining 203 stores in tier II cities and 64 stores in tier III cities.

When asked about how lucrative the big modern formats prove to be in tier II and tier III cities, Varghese cited, “Any format which is supported by the right business model and the right rent to revenue ratio will prove attractive. Nowadays customers are brand conscious and extremely price sensitive, they also look for retailers who offer them consistently quality product. Tier II and III cities are within easy reach of the agricultural markets and have good local produce. So customers over here are more quality conscious, relatively while setting up our modern formats we make sure to consistently deliver quality with price to attract these customers, so its proves to be successful over here.”

Currently the company has a retail presence of around 642 outlets in supermarket formats having minimum size of 2,200 sq ft. in 101 cities. Furthermore, the group also operates five hypermarket formats under the brand name More Megastore in Mysore, Vadodra, Indore, Aurangabad and Bangalore, on an average spread of over 60,000 sq ft each offerings of over 60,000 products across fruits and vegetables, groceries, FMCG products.

— Akansha Srivastava

By: Satish John

Mumbai: Just how big is the retail business of Reliance Industries Ltd, or RIL?

The answer, according to the company’s annual report for 2008-09: well over half the size of Pantaloon Retail India Ltd, India’s largest listed retailer that set up its first Big Bazaar store in 2001.

Reliance’s first store opened for business in late 2006. Still, Reliance’s retail subsidiaries remain unprofitable, an indication of the challenges facing India’s modern retailers.

The firm’s annual report, released on Wednesday, shows that RIL’s retail businesses ended the year with an aggregate loss of Rs557 crore on a revenue of about Rs4,000 crore. Pantaloon Retail reported a net profit of Rs140.58 crore on net sales of Rs6,341.7 crore in 2008-09.

Among RIL’s retail subsidiaries, Reliance Retail Ltd (RRL) reported a loss of Rs20.24 crore on a revenue of Rs622.31 crore; grocery chain Reliance Fresh Ltd reported a net loss of Rs249.30 crore on revenue of Rs1,778.06 crore; and Reliance Hypermart Ltd reported a loss of Rs51.84 crore on a revenue of Rs372.32 crore. Reliance Dairy Foods Ltd and Reliance Digital Retail Finance Ltd too reported losses.

“The (losses) are small change for a company of RIL’s size,” said an analyst who tracks the company at a Mumbai brokerage and who did not want to be identified. The firm is now scaling up its retail operations.

“Through this year, RRL increased its footprint to more than 900 stores in 80 cities across 14 states in India,” RIL said in its annual report. “Keeping in sync with its multi-format store strategy, RRL added new formats to its spectrum in the last year,” the company said in its annual report.

Several operational metrics in the consolidated annual report for 2008-09 have doubled after the Bombay and Gujarat high courts approved the merger of Reliance Petroleum Ltd with RIL. Its net fixed assets have doubled to Rs1.69 trillion from Rs84,889 crore in 2007-08. Its total assets have surged to Rs2.45 trillion from Rs1.49 trillion and its net worth has increased 55.15% to Rs1.26 trillion. The number of employees in the firm’s roster, however, slipped to 24,679 from 25,487 in 2007-08. Its contribution to the national exchequer also fell to Rs11,574 crore from Rs13,696 crore, although not all of it could be ascribed to tax planning as depreciation rose to Rs5,195 crore from Rs4,847 crore a year earlier.

RIL’s appetite for cash was evident from the fact that it divested its entire mutual fund portfolio of Rs3,058.73 crore even as it received a cash infusion from the balance subscription of Rs15,142 crore.

RIL’s cash and cash equivalents at the year-end stood at Rs25,050 crore, placed in instruments such as fixed deposits or government securities. “The management anticipated the liquidity crisis,” said a spokesman for the company.

RIL’s net gearing was still at a stable 27.8%, even as a bulk of its capital expenditure budgets are in place, said the analyst mentioned earlier. He added that RIL has to de-bottleneck its refinery capacities a bit, which will not entail much funds. The analyst also said RIL is at its peak in terms of the debt burden as its investments in the new refinery at Jamnagar, Gujarat, and in the Krishna-Godavari basin will start paying off from now.

There were some interesting transactions with related entities such as Reliance Gas Transportation Infrastructure Ltd, a company promoted by RIL’s promoters, which is setting up intra-city and inter-city gas pipelines.

RIL invested in 500 million non-cumulative preference shares of Reliance Gas for Rs2,000 crore. As per regulatory norms, RIL cannot invest in the equity of the gas transportation company. RIL had also bought 85,000 shares in the National Stock Exchange for Rs28.48 crore during the year.

The firm decided to levy “manpower deputation charges” of Rs20.81 crore on RRL for 2008-09, against zero in 2007-08. Reliance Trends was levied Rs12 crore under the same overhead, and Reliance Petroinvestments Limited was charged Rs2.75 crore.

The media in recent times has speculated about RIL readying for a major acquisition after a portion of its treasury shares, held by wholly owned subsidiary Petroleum Trust Ltd, was sold in the current fiscal. RIL in 2008-09 invested Rs314.53 crore in Delta Hydrocarbons SA Luxembourg. Gulf Africa Petroleum Corporation, which the firm acquired in 2007, is yet to make a turnaround.

“Significant reductions were achieved in supply chain cost and the operations were integrated into the RIL system,” the report said.

The Indian book retail industry is estimated to be over Rs 3,000 crore, out of which organised retail accounts for only 7 per cent.

The industry is expected to grow by approximately 15 per cent a year.

Book retail contributes only about 1 per cent to the overall retail industry. Text and curriculum books account for about 50 per cent of the sales. Second-hand books are also a big chunk of the book retail market.

In the past few years, several large format book store chains have come up, such as Landmark, Crossword and Om Book Shop.

Book retailers are focusing on improved customer experience. Many book stores have also introduced coffee shops and provide a library-like atmosphere where customers can sit and read, while sipping coffee.

This festive season has been successful enough in pushing sales for companies to revise upwards their year-end targets. A survey by the Federation of Indian Chambers of Commerce and Industry (Ficci) says demand conditions have improved across sectors.

The survey states there is a definite improvement in demand at the retail level. Retailers of leading automobile, consumer durables and FMCG (fast moving consumer goods) brands say the month of September saw a substantial jump in sales for products across segments. Retailers reported a 45 per cent increase in footfalls and a 30 per cent increase in sales. The trend is expected to continue in the coming months.

The highest degree of optimism was reflected by auto companies, which have seen sales go up well since the middle of this year. Many companies reported a sales increase of up to 25 per cent in the current season. According to representatives of auto companies, the stimulus package announced for the economy by the government has had a definite impact on their sales. The lowering of excise duty gave a definite boost.

More, the launch of new models, lowering of interest rates by banks on auto loans, reduced loan processing fee and the sixth pay commission award were some other reasons contributing to higher sales. Companies have reported that while last year interest rates on auto loans were in the range of 12-15 per cent, this has now come down to 11-12 per cent.

FMCG majors like Nestle, Cadbury, Coca-Cola, Pepsi and Dabur, and leading sweetmeat manufacturers like Bikanervala and Haldiram are expecting a sales growth of around 20 per cent in their food products during the Diwali season. Dabur is already observing an increase of around 15-20 per cent in sales volume of fruit juices through gift packs launched specifically for the festival. Similarly, sweet houses are expecting a 20-25 per cent increase in sales volume. On an average, the big retailers are expecting 30-35 per cent increase in sales this Diwali.

The nearly $10-billion Indian textile and apparel industry, buoyed by a growth in August after nine months of decline and by increased
demand from Europe, says it's taking on its biggest competitor by entering the Chinese market.

"We are charting a new course by entering China, the textile behemoth," said Apparel Export Promotion Council (AEPC) chairman Rakesh Vaid.

"Earlier, we were tied to traditional markets like the US and Europe, where 70 percent of our textiles and apparel are exported. But now we have taken on China, our biggest competitor, on its own turf," Vaid told IANS.

"China is known for exporting cheap textiles across the globe," he said, adding: "We are far ahead of China in terms of creativity, fashion, designs and the variety of textiles."

India's main competitors are Asian countries such as Sri Lanka, Bangladesh, Vietnam and Cambodia, apart from China. "But India has made inroads into these markets as well," the AEPC chairman said. "We have been entering new markets over the last two years."

The move to enter new markets comes at a time when the country's textile sector is facing one of its worst crises with business orders from advanced economies like the US and Europe having fallen sharply due to the global slowdown. But Vaid said he is "optimistic about the business trends".

"After nine months of consecutive losses and slowdown (since December 2008), the industry logged growth in August," he said. "Exports to Europe have gathered pace, retail chains there are buffering up inventories for spring-summer. I am just back from Europe. I expect the market to pick up early next year."

According to the council, exports to the US rose 1.39 percent in August over that in July, the same month when exports to America slumped 6.09 percent compared to that in the corresponding month last fiscal. The August performance comes after garment exports fell 15.4 percent in the first quarter this fiscal, prompting the government to announce a subsidy of Rs.2,546 crore ($535 million) for the crisis-hit sector.

In the $373-billion global clothing industry, India's share has fallen over the years from 3.3 percent to 2.6 percent, amounting to $9.69 billion. To maintain the current share of 2.6 percent, India needs to export $18 billion worth of clothes annually, requiring 2.7 million additional manpower and investments of $30 billion. The sector employs over 33 million people, and contributes about four percent to the country's gross domestic product (GDP) and 14 percent to its industrial production.

However, the meltdown has taken its toll: companies have reported mounting losses and retrenched staff. "Lately, we have been trimming overheads and manpower, and learning to live without government subsidy," Vaid said.

The organised retail companies in India after passing through a year long bout of recession, are now moving forward with business expansion plans. Retail majors like Future Group, Aditya Birla Retail, Reliance Retail, Trent and Spencer's Retail are now opening new stores and planning to come up with new hyper market chains.

The Future Group is sure of success after the end of economic down turn. The group is confident that it revenues would touch Rs. 25,000 crore next year even though its business extension planes have been delayed by 2 years. The group is planning to increase its space to 30 million sq ft and 10% operating profit margin. In 2008-09 the revenue of the company was Rs 5,000 crore.

The company coming up with retail malls in Chennai, Kolkata, Bangalore and Udaipur in the coming three months.

Releasing its expansion plans in front of the media Mayur Toshniwal, president (retail operations), Future Group told "We are planning to add at least two Big Bazaar stores every month. We would come up with 15 Big Bazaar stores and add one million sq ft over the next six months.

The slowdown did affect retail companies because big-ticket purchases like electronics went down by 30% and household electronics and furniture tumbled by 30%.'' But now the market is showing improvement signs and as of now his company growth is 10% and hopeful of making it double in the coming months.

Moreover Mr Toshniwal added that to fulfil its sales target and to increase its retail space the company would be in need of big investments of Rs 3,000-4,000 crore. The other retail majors are also in the mood of making cash. That is why Aditya Birla Retail is expanding its retail hyper market 'More' one in every month.

Spencer's Retail owned by RPG group is also planning to invest Rs 1000 crore for expansion of its business in the next three years. It is going to open 10-15 small format stores and the same no of large format stores by the end of 2010.

The H1N1 influenza more popularly known as Swine Flu is having its influences not on the humans but even in the retail market. Natco Pharma from Hyderabad has come up with its anti-H1N1 drug 'Natflu' in Delhi on Friday and now it is in talks with pharmacy chains across the country. The company had recently done an agreement with Medplus, the pharmacy retail chain which has its stores mainly in south India and now looking for other biggies in the sector.

Natco Pharma National Sales Manager K Srivastav while speaking to the media told "We are looking for similar tie ups and currently negotiations are on," but refrained form revealing the names that had been consulted. According to him '' There are around 480 retail pharmacy stores which have the mandatory licence Schedule X for selling the drug and it is likely to go up as more people have applied for the permit." Natco had a turnover of Rs 400 crore in FY 09 and hoping to increase it to Rs 600 crore in the coming year.

National Health regulator DCGI has allowed only six companies i.e. Cipla, Hetero, Natco, Strides Acrolab, Ranbaxy and Roche to sell the drug in the country. Against H1N1 Flue Strides Acrolab, Cipla and Hetero these three companies have already announced that they have produced the Oseltamivir capsules, the lone medicine available.

Reliance Retail to revive West Bengal projects soon BARASAT (West Bengal): Reliance Retail, part of Mukesh Ambani-led Reliance Industries, is looking at reviving its West Bengal projects "in a major way", a top official said here Saturday. "We are currently working on how best we can come back to the state in a major way. It's all currently on the drawing board," Tarun Jhunjhunwala, president of Reliance Industries, told reporters. The company hs faced several political hurdles in its bid to sell farm produce in the state. At present, it has two brands operating in the state - Reliance Fresh and Reliance Digital. The company is also planning to acquire real estate. "We have exhausted the space for our Reliance Fresh format and so if we plan to expand this format, we have to buy real estate," Jhunjhunwala said. Regarding its stalled project to re-develop a municipal market at Park Circus in Kolkata, he said the company was now at an advanced stage of negotiation with the authorities to settle the dispute. He expressed hope that the issue would be resolved soon. 'Walmart keen to expand in India' Walmart Stores, the world’s largest retailer, is keen to expand in China and India, chairman S Robson Walton said in Kuala Lumpur. "Internationally, we’re focusing on larger markets," Mr Walton told delegates at a Forbes Global CEO Conference in the Malaysian capital on Wednesday. “China is a big opportunity for us. We're just getting started in India, where we see great opportunity over the long term,� he said, without giving details on its expansion plans. Walmart, which competes with France’s Carrefour SA in China, is accelerating expansion in Asia that Walton expects will lead the global economic recovery. China’s retail sales rose 15.4% in August from a year earlier, the biggest gain this year after accounting for seasonal distortions, according to the Chinese statistics bureau on September 11. Bentonville, Arkansas-based Walmart operates at about 630 locations in China, India and Japan, according to its web site. About 24% of Walmart’s net sales came from its international division in the quarter ended July 31, the company reported last month. Walmart sees opportunities in the healthcare business, Mr Walton said, without giving details.