“There is no reason why we cannot be on par with the MNC companies and grow even larger than them with our brands.” –Kishore Biyani, Founder and CEO, Future group.

Kishore Biyani, the Rajah of Retail in India, has always harboured dreams of creating strong portfolio of consumer brands by leveraging on his group’s strength in retailing.

To give fillip to his ambition of creating strong Indian brands, Biyani on the 20th November, 2008, announced his plans to create brands across categories that would generated around Rs 10,000 crore in sales revenues by 2012. The brands, among others, will be created across FMCG (chocolates, soaps, detergents, beauty products, etc), Durables (consumer electronics and home appliances), and apparel (sportswear, lingerie, etc) categories.

“Having achieved stupendous success in some of our consumer brands, such as Tasty Treat, Fresh & Pure, DJ&C, Koreo etc, we felt that it was the right time to extend it to broader categories such as health & beauty, dairy, apparel, accessories etc. Hence, we have drawn up an ambitious plan of achieving Rs. 10,000 crores in the next four to five years. Through our consumer brands, we will be able to offer our consumers, best of the products at much more reasonable prices”, said Mr. Kishore Biyani, Group CEO, Future Group.

The group has decided to spend Rs 200 crore every year until 2012 on creation and promotion of its private brands.

Apart from improving margins, private brands will also begin to have lion’s share in group’s business volumes. Against present contribution of 12 to 13 per cent, private labels’ share will increase to as high as 30 per cent of the total revenues.

Justifying the need for creating consumer brands, Santosh Desai, CEO & MD Future Brands said,

“India is still an unbranded country with only 8 per cent of goods being branded. There is now a strategic approach to building private brands as it would drive our margins and we would have better negotiating powers with manufacturers.”

The consumer brands will be created and nurtured by Future Brands, an independent company created for the purpose by Biyani in 2006. This company, among others, has been entrusted with the task of creating, developing, managing, acquiring and dealing in consumer brands. Biyani has even roped in Santosh Desai– one of the best brains in the business of creating brands– to head Future Brands as its CEO & Managing Director. Santosh Desai, an IIM Ahmedabad graduate and a hard core adverting veteran of over two decades, before joining the Future group, was heading McCann Ericson’s India business as its President and COO.

Apart from Desai, Biyani has also hired the services of industry veterans like S. Ravindranath (Ex-Head-Foods, HUL) and Peter Baker (Ex-CEO, Dabur H&B stores). Besides, the group also has access to the expertise of consumer sector professionals like Damodar Mall (Ex-HUL), Sadashiv Nayak (Ex-HUL), Shashi Kalathil (Ex-Head Marketing, Pepsi), and Kailash Bhatia (Founder, ColorPlus) to build its consumer brands.

Future Brands has begun with a strong back-up of in-house brands like John Miller, Bare, DJ&C, Buffalo, Knighthood, RIG, Indigo Nation, Scullers, Urbana (in the apparel category); Tasty Treat, Care Mate, Fresh n Pure, Clean Mate (in the FMCG category); Dreamline (in the general merchandise category), Koryo , Sensei and IQIP (in the consumer durables and electronics category). Future group has also co created ‘Sach’ — a venture with cricket legend Sachin Tendulkar.

Global economic crisis, worst since world war II, may after all bring some cheer for hard-pressed consumers!

The sharp drop in prices of raw material inputs like metals, chemicals, and crude oil, has resulted in consequent decline in manucturing costs of a large number of manufactured household products like utensils, plasticware, and synthetic textiles.

Kishore Biyani-led Future group has decided to pass on benefits price declines to its consumers.

“We are getting benefits due to fall in most of the materials like polyester, steel, copper and polymer. We have cut prices in some categories,” said Kishore Biyani, Chief Executive Officer of the Future Group.

While, the prices of metals like steel and copper, according to a BS report, have gone down by 30-40 per cent, the cut in prices of crude oil-based plastics like Ethylenes and Polypropylenes has in the past quarter been as high as 70 to 80 per cent.

The group is planning to offer more price cuts depending on further decline in prices of commodities being used as raw material inputs of manufactured products.

“We will give discounts in more categories as we get them at better prices,” says Rajan Malhotra, CEO of Big Bazaar retail chain.

Future group is also likely to make substantial indirect savings as a consequence of collapse in commodity prices. For example, the group is likely to make a whopping saving of around Rs 20 crore this fiscal on the cost of plastic carrying bags. This, according to the report, represents a saving of 30 per cent on purchase value of such bags.

“There is a lag effect between fall in commodity prices and merchandise prices. We have seen a 10 per cent cut in merchandise prices and expect it to go down by 25 to 30 per cent further,” says Malhotra.

Price decline is also benefitting the group in bringing down the capital cost of creating new stores. Future group, according Biyani, is saving as much as 30 per cent on the cost of furnitures and fixtures, elevators, escalators, etc, which account for around 40 per cent of the cost of setting up a store. The group, according to the plans already announced, is expecting to add floor space of around one million sq ft every month in the next five months, representing an increase of 40 to 50 per cent of in the existing space of 11 million sq ft by March, 2009.

Worsening economic situation is forcing retailing companies to revisit their growth strategies.

The new mantra of growth, tried and successfully tested by many retailers worldwide, appears to be increasing the share of private labels in overall sales. While, on the one hand, one is able to offer these goods at 10 to 20 per cent lower price than their branded counterparts, on the other, one is also able to increase the profit margins by 10 to 25 per cent on such products.

Why is then this not applied universally by all retailers?

Well, for this model to yield dividends, two basic requirements must be satisfied. While, it requires large volumes to save on manufacturing oveheads, it also requires large number of distribution points to save on distribution costs.

Among the large private label players one can think of UK’s Marks & Spencer, which offers almost all of its products, barring a few food and grocery items, under its own labels. In India, Westside, the Tata group’s department format store, has been able to apply this strategy successfully for a range of lifestyle fashion products.

Even, Pantaloons, Reliance, Spencer’s, and Shoppers’ Stop have also dabbled in retailing of products under their own labels. While, most retailers have dabbled into private labels in fashion category, notably apparel and accessories, Future group has gone ahead with private labels for durables and ready to eat snack foods. Future has introduced durables under Koryo and  snack foods under Tasty Treat brands.

Future group has even set up a separate company under the leadership of Santosh Desai called Future Brands’ to professionally manage the business of in-house brand and to look out for avenues to extend their reach beyond the confines of group owned retail chains.

While, we will separately carry the story of Future group riding high on the back of private labels, which it expects to generate revenue of 10,000 crore (or, $2 billion) in the next four years, we understand that Vishal Retail too wants to explore a new distribution model that will take its private labels to outside its chain by outsourcing distribution activities to a third party.

It will be interesting watch the evolution of private lable business in India as Indian consumers while being very brand conscious are at the same time equally savvy for their ‘value-for-money’ shopping approach.

Future group, according its Chairman Kishore Biyani, may be forced to postpone the long term target period of achieving Rs 30,000 crore ($6 billion) turnover by as much as six months, due to slowdown in economy in the coming months. He revealed this in a recent media interview. For the financial year ending June, 2009, group’s flagship, India’s largest listed retail company, Pantaloon Retail had achieved a turnover of Rs 5049 crore. (Over $1 billion)

The Economic slowdown, which has been necessitated as a consequence of collapse of global economy will result in slower than earlier predicted growth of Indian economy. The era of 9 per cent GDP growth is over and according to current estimates this year’s growth may range between 6 and 7 per cent.

This according to Kishore Biyani will mean less money for spending in the hands of consumers.

Future group had recently announced expansion of retail space in the next 3 to 4 years. The group expects to more than double the space currently occupied by its various format from 11 million sq ft to 26 million sq ft.

Future group, one of the pioneer retailer of the country operates multiple lifestyle and value retail formats across the country, prominent among which include Pantaloons, Big Bazaar, Food Bazaar, Home Town, and e-Zone retail chains. The group has also launched a new lifestyle retail format called ‘Ethnicity’ a month or so in Ahmedabad.

Future group is currently operating over 1,000 stores across 63 cities in India, employing over 30,000 people.

Brindco, the leading importer of wines in the country, which likes to call itself as a different kind of Alcobev (alcohol+ beverage) company that offers finest wines, rarest malts, and world class beers, has tied up with Reliance Fresh, the neighbourhood, food and grocery, convenience format retail chain of Reliance group to exclusively handle the sale of imported wines at its new sub-format upmarket stores called “Signature.” The first Signature outlet of Reliance Fresh is located near the Kemp’s Corner area of Mumbai.

Reliance Fresh is planning to soon have 100 “Signature” stores operating across the country. These stores will offer high-end local and imported foods and beverages, including, packed vegetables, wines, beverages, dairy and bakery products, among others. These stores will be competing with upmarket food stores like Nature’s Basket and imported food sections of Spencer’s. These stores cater to the needs of quality conscious high networth individuals (HNIs) who are least sensitive to high prices,

Organised retail is, thus, going to soon revolutionalise sale of alcohols in India.

Reliance, according to an IWA  report, is initially expecting to stock 100-odd labels of entry-level, quaffable, wines in its wine section. This section will be separately located in the store. Brindco could introduce several new value-for-money labels of wines in these stores.

According to Puneet Verma, General Manager for wines and beverages, Reliance Retail may eventually stock 400-500 labels. ‘Initially, we shall stick to the labels available as many importers have not been able to replenish their stocks with the excise technical complications.’

Brindco, according to Verma, are Reliance’s front-end partners. Apart from back end operations, wine selection and promotions will be handled by Reliance under Brindco’s advice. Wines would be sources from the global basket.

The organised Retail is expected to revolutionise the sale of wines in India with a new dimension added to the product availability and variety. So why did they take so much time to start when people like Godrej, Spencer’s and Big Bazaar have taken the lead? ‘Our first job was to establish the Signature stores which are slightly of different format. Getting the licenses is another issue. We applied for the excise license to sell wine in July and got it only last week. We have gone ahead with super-speed to open the store with wines stocked up, early next week. That is quite an achievement,’ says Puneet.

Reliance plans to open about 100 such Signature stores in India during the coming months, making a significant potential addition to the wine sales.

What is more significant, however, is the fact that bulk of the $65 billion (Rs 3.25 lakh crore) increase in processed food segment will come from modern (organised) retail.

“The increasing contribution of food processing sector would largely come from the organised sector,” says the report.

The key growth drivers for the food industry in India, among others, would include, higher disposable incomes, shifts in spending orientation, increased food retailing in organised sector, increased export opportunities, favourable regulatory environment, favourable government support, and increased investment inflows.

“The major challenges faced by the sector are low level of research and development, industry academia gap, skill and technology gaps and meeting global quality standards,” says the report.

Coimbatore-based Royal Classic Group, which makes Classic Polo brand of men’s apparel and operates 62 retail outlets across the country, despite healthy growth in sales this year, wants to take ’cautious’ approach for its expansion plans. Classic Polo also has a store in Singapore.

“We are cautious because of external conditions,” said R. Sivaram, Executive Director of the group.

The decision to adopt cautious approach, according to an HBL report, has been taken despite the brand having clocked a healthy growth of 60-65 percent during the first half of this fiscal. Even Diwali sales this year were better than the previous year.

Explaining the reasons for caution on expansion Sivaram said, ‘Our target audience is those in the 20-40 age group. A majority of youngsters of this age profile work for a BPO or KPO, and this is one sector that seems to be in deep trouble due to uncertainty and job loss. Our concern is there.”

The group has been registering high growth since it began retailing in India from 2001. The growth has mainly been attributed to the company’s loyalty programme which allows straight discounts of 5 to 15 per cent to different categories of customers. ”Our loyalty programmes are straight and a runaway success,” says Sivaram.

Pantaloon Retail, part of Kishore Biyani-led Future group, as reported earlier, has completely pulled out of Alpha Future Airport Retail. It has sold its entire equity stake in the joint venture to its erstwhile partner Alpha Group.

“It is a friendly transaction and we have asked them to manage the company on their own. We are moving out of airport retailing,” said Kishore Biyani, Managing Director of Pantaloon Retail.

Alpha Future Airport Retail, an equal joint venture between the two groups was incorporated in November 2006. It was engaged in retailing foods, beverages and consumer goods at Indian airports. The company had obtained concessions for operating retail shops at Delhi’s new airport.

Shopper’s Stop, among the largest department store chains in the country, is also engaged in airport retailing through ‘Stop & Go’ brand shops set up through an equal joint venture with a Swiss group. The JV is known as ‘Nuance Group India Pvt Ltd. (NGIPL)’. The shoppers Stop joint venture has secured 5 to 7 years of retailing concessions for operating retail stores at newly built airports of Hyderabad and Bangalore. Shoppers Stop JV occupies around 75,000 sq ft of retail space.

Only a few days back, we had carried a source-based story that suggested Reliance Retail closing down 25 stores with 25 more being on the anvil.

We now understand that the turmoil could be much bigger than what was anticipated earlier.

According to a source-based report, published a few days ago by Mint, “Reliance Retail has embarked on a restructuring exercise that involves shutting, relocating or resizing at least 200 of its smaller stores.”

Most of the stores under restructuring exercise of the company are reported to be part of its food & grocery, neighbourhood, convenience, retail chain ‘Reliance Fresh.’

Reliance Retail, which currently operates around 800-odd stores across 60 cities in 14 states, according to the report, wants to focus on making existing stores profitable and has, therefore, either temporarily halted or scaled down its expansion plans.

“The company will relocate some unprofitable stores and even close down a few, and some of the smaller stores will be integrated into the larger hypermarket format,” adds the report.

Giving specific information on resizing of expansion plans of the company, one of the sources familiar with the developments is believed to have told the newspaper that an initial plan to have 70 small stores in Pune, which already has 20, has been pared to about 30. Even in Mumbai, the initial target of opening 100 stores has been scaled down to around 70. Mumbai currently has about 40 outlets. The company is also cancelling realty agreements now considered expensive and not in sync with current times.

That the business of Reliance Retail is not in the pink of its health also becomes clear from the statement recently made by Bijou Kurien, its President & CEO (Lifestyle), ”Some of our formats are just completing a year now. But certainly our sense - even compared to what it used to be in April, May & June — in October especially during Diwali season there is a slight decline.”

Add to this the source-based report telecast yesterday by business channel CNBC TV18, which suggests Reliance Retail curtailing down of procurement orders on its suppliers by as much as 25 percent.

According to the report, a Rs 200-crore company based in South India, which bagged its first order from the retailer last year, has witnessed its delivered orders up to June for about Rs 10 lakh, coming down to Rs 3 lakh in September and Rs 1 lakh in October, with no orders being placed for November. Another company in Kerala told the channel about its volume of business with Reliance Retail decreasing by 20%. For the past two months, this company has not received any orders from the retailer.

When asked to comment, Reliance Retail has avoided the issue saying, “Reliance Retail has operations in 60 cities spanning 14 states with extensive supplier network across categories. Order or re-order are operational decisions and taken by the supply-chain management team based on the requirement for the particular product or category.”

“Everybody has to readjust the pace and speed with which they are growing.” said R Subramanian, Founder and Managing Director of Subhiksha Retail, while talking about the current scenario of resource crunch. He was responding to a question asked by a reporter who was conducting his interview for BS.

Brushing aside the question regarding stake sale in his firm, Subramanian said, “No. It is the worst time for sellers right now. Instead, you will see us looking for opportunities after six to nine months.”

Although, still bullish on expansion of his chain, he said, “We are waiting for the property prices to crash further.”

Referring to deferment of diversification plan to set up a two million sq ft large retail chain of durables, Subramanian said, “It makes sense to wait for some more time if you make a savings of 20-30 per cent on your rental costs.” Subramanian is expecting a crash of 35-40 per cent in rentals.

Talking about ongoing funds crunch, Subramanian felt that, “Things were much difficult in September and October. Now, it is much better. We will wait for another two to three months to decide how to go about it.”

Explaining the retail chain’s recent move to withdraw from the fruits & vegetable business, Subramanian said, “Fruit and vegetables is a neutral margin business and we keep it to draw traffic to our stores. Besides, fresh produce retailing is a very regional opportunity.” Earlier, the company had explained the closure of this business saying, it was an add-on business and did not form a part of its core business.

On being asked about relocation or closure of any of his stores, Subramanian said, “When you have 1,500 stores, it is all part of the business. If you pay Rs 40 per sq ft and get a deal for Rs 30 next door, we will definitely shift.”

Economic slowdown has been affecting different retailers in different ways. While, Kishore Biyani’s Future Group is still bullish on retail business, having registered a record growth of 87 percent in sales for its value formats in October, 2008, Reliance Retail, another big ticket retailer, a part of Mukesh Ambani-led Reliance group, is not so happy with its lackluster festive season performance. According to unconfirmed reports it has even begun to close down non-performing stores.

Spencer’s Retail, the retailing arm of RPG group owned by CESC, which apart from being one of the country’s oldest retailers is also among the large retail players, according to an ET report, is also not happy with its festive season performance this year.

“Earlier we used to have bumper sales on all 7-8 days leading up to Diwali. But this year, we saw such sales only on Dhanteras (two days before Diwali),” said Sanjiv Goenka, Vice Chairman, RPG Enterprises, who heads the group’s retail business.

In view of challenging ecomic environment the group has, therefore, decided to pare its revenue target for this year by as much as one-fourth (22 percent) of the total. It has recast its annual target of Rs 1,800 crore to Rs. 1,400- Rs. 1,500 crore.

In view of the downward revision of revenue forecast fopr the year, the group in a review of performance of its retail stores, has also decided to close 56 (or 12 percent) of its stores in the last three months.

“The 56 stores were non-performing stores. In many cases the rents were high and in some others the revenue from the stores were not picking up and so we took the decision to close them,” said Goenka.

Apart from its flagship food, grocery, and general merchandise retail chain Spencer’s, the group is also operating music and leisure chain ‘Music World’ and books chain ‘Books & Beyond.

It must, however, be acknowledged that despite this temporary blip in the business the group is continuing with its growth strategy and will invest Rs 2,500 crore on expansion of its retail network in the next two years.

“We have currently 400 stores across the country having a total retail space of 12.7 lakh sq ft. Our plan is to take the number to 450 by end of the current fiscal in March 2009 and then have 750 stores by March 2010,” said Goenka.

According to reports circulating among the real estate owners, the group is also aggressively pursuing the policy of renegotiating and rationalising lease rentals on the properties it has hired in the past few months. The current rates are “just not acceptable,” says Goenka.

In view of tough capital market environment, the group has also postponed its plans for raising the capital through IPO.

Bharti Wal-Mart, the 50:50 cash and carry joint venture between India’s telecom behemoth Bharti Enterprises and world’s largest retailer Wal-Mart, which has scheduled to rollout its first wholesale store from Punjab in India in the first half of calendar 2009, has announced to begin registration of membership for bonafide business owners in Punjab.

Cash & Carry is a B2B format of retail business in which only registered members who purchase merchandise in bulk for their own use or for resell to customers through legitimates businesses activities like small retail shops, restaurants, canteens, hostels are allowed to make purchases in bulk. In the US and other countries even household customers are also allowed to make bulk purchases by becoming members of C&C stores.

In India, however, only those legitimate businesses that are registered with designated authorities, among others, like VAT, Shops & Establishment, Municipal Corporation, under regulalations framed by state governments, are permitted to buy their requirements from such establishments. In some cases, a state government, as recently happened in case of Metro C&C in West Bengal, could put restriction on minimum quantity, value, or some other combination of such purchases.

In any case, C&C wholesalers apart from offering advantages of efficient supply chain including logistics, warehousing, and bulk purchases, also offers advantages of unmatched one-stop convenience of choice, quality and hygiene, in their stores.

Bharti Wal-Mart’s C&C, which plans to offer a wide range of 6,000 to 10,000 food and non-food items, will benefit over 50,000 business owners from its membership.

Over 90% of the goods and services to be offered at C&C stores, according to company sources, are expected to be sourced locally. Apart from keeping costs to a minimum, this will also help in growth of the local economy and creation of job opportunities for the local population as each C&C store is likely to provide direct employment to over 170 persons.

“When we announced the JV in August last year we gave ourselves a window of 18-24 months to launch our first wholesale cash-and-carry store. We are firmly on track and we have begun registration of membership in Punjab in advance of the store opening to enable us to better forecast and serve the needs our commercial customers. The assortment, service and store layout of our wholesale stores will be customised to the specific needs of commercial customers who can walk in to the store and source high quality products in the quantities they need and at the time they require, all under one roof.” said Raj Jain, Head of Wal-Mart’s operations in India, while talking about the joint venture’s C&C plans.

The Bharti Wal-Mart JV has already opened a Distribution Centre near Chandigarh and more distribution centres are expected to be opened in due course. Each Distribution Centre will cater to the requirements of large retailers like Bharti Retail, which is operating a food and grocery chain called ‘Easy Day’ and of small traders through C&C stores run by the joint venture within a radius of 100 to 150 Kms.

The JV has planned to open seven wholesale cash-and-carry stores in the next seven years. It will eventually provide employment to around 5,000 people.

The main cause of diabetes, as every one knows, is obesity. Obesity, in fact, has now assumed epidemic proportions.

Casual Male– a fashion retail group– which specialises in retailing apparel and accessories for over-sized (read: big and tall) people, however, is delighted, because, Casual Male, and its counterparts like Zara, see an opportunity in growing population of obese people.

The US-based Casual Male, according to an IHT report, is happy selling merchandise that caters to the needs of its large-sized customers.

World Health Organization (WHO), an agency of the United Nations, defines a person as obese if he or she has a body mass index of more than 30. David Levin, President and Chief Executive of Casual Male, however, considers a person large, who has a waist of more than or equal to 42 inches (107 cm), or has height of more than or equal to 6 feet 2 inches (1.9 meters).

The 15-member European Union is expecting the number of obese adults (by WHO definition) to swell from 130 million now to 150 million by 2010. Obesity rates, though, vary greatly by country, from 10 percent of the population in France to 22 percent in Britain and 25 percent in Greece.

According to Levit, mainstream European retailers have largely ignored this clientele. It is no wonder, therefore, that Casual Male’s London store is one of the highest-selling stores among 500 stores of his retail chain worldwide.

Buoyed by lurking opportunity, the retailer, this October has already unvailed his brands in five major countries of continental Europe- Germany, France, Italy, Spain and the Netherlands.

Casual Male Retail Group is the US$465 million largest specialty retailer of big and tall men’s apparel, with over 520 store locations throughout the United States, London, England and Canada, along with substantial e-commerce and catalog operations. Casual Male operates under the trade names of Casual Male XL, Rochester Big & Tall Clothing and Sears Canada-Casual Male.

The monthly retail sales figures in the US for October, 2008 are out and they are much lower than predicted earlier. October retail sales were 2.8 percent lower than in September this year. Analysts were predicting a decline of 2.1 percent, however, the fall is much more steeper than expected. In fact, this is the worst decline in 16 years (since, 1992).

The retail sales figures in the US are quite important as they represent more than two-thirds (70 percent) of the country’s GDP. Retail sales are indicative of the direction in which the US economy is going.

Automobile sales were the worst hit as auto and auto parts sales dropping by a huge 5.5 percent from September, 2008 and 23.4 percent from October, 2007. The quantum of slump was mostly on account of sharp decline in car sales. Auto retail sales, excluding car sales, were lower by only 2.2 percent over their last month sales.

Fuel sales were equally disastrous as they fell 12.7 percent in October over their sales in the previous month. This is attributed to escalation in fuel prices.

There was a silverlining, though, in case of food and grocery. Not only their sales increased by 5 percent over the previous year but they also remained steady over the previous month. Similarly, health and personal care product sales also increased by 4 percent over the previous year.

Pantaloon Retail, the country’s largest retailer, part of Kishore Biyani-led Future Group, despite global economic slowdown that may last over a couple of years, is continuing with its expansion plans undeterred.

 Pantaloon Retail has planned to expand its retail space from 15 million sqft to 26 million sqft in the next 3 to 4 years.

This expansion. according to a CNBC TV18 report telecast on Friday the 14th, will require an investment of US$ 750 million. Of this, $150 million (or 20 percent) will be contributed by the promoters, while US$ 300 to $400 million will be generated from internal accruals of the company.

For the balance requirement of $200 to $300 million, the company according to the report is prepared for diluting the stake to a strategic investor. Alternatively, the company may also decide to raise debt, and therefore, further leverage.

It is, however, interesting to note that Pantaloon for the first time is not averse to diluting its stake in favour of a strategic investor.

It may be mentioned here that over the past few months, Pantaloon’s share price has declined to less than a third (Rs 229) against its peak of Rs 795. The current share price, however, is 30 percent better than the lowest price of Rs 177.