The retailer
EY’s publication in consumer
products and retail sector
January - March 2014
Foreword
Dear reader,
We are delighted to present to you the January–March 2014 edition of The Retailer, our
quarterly publication in the consumer products and retail sector.
As the Indian consumer market shows signs of a slowdown, several consumer companies are
increasingly looking at expanding their portfolios to sustain their growth momentum. The
article on “decoding the formula for successfully entering into new categories” provides an
overview of a tested and proven approach for introducing a new category in the Indian market.
The movement of goods has been posing a challenge for consumer product companies for
decades. The article on “goods movement in India” is a summary of a joint report published by
EY and RAI that aims to highlight key opportunities and challenges in the movement of goods in
the retail sector.
In our interview feature, Mr. Mark Ashman, CEO, HyperCITY Retail (India) Limited, shares his views on the Indian retail
market and his key takeaway from working in the Indian market.
Finally, we continue our featured section, the “Innovation board”, where we attempt to present to you snapshots of recent
innovations that have emerged in the Indian and global retail and consumer products sector.
We hope you enjoy reading this issue of The Retailer and look forward to your valuable comments and feedback.
Pinakiranjan Mishra
Partner and National Leader, Retail and Consumer Products
EY, India
Celebrating five years of The retailer
Contents
Decoding the formula for successful entry into new categories
4
Goods movement in India
9
Interview with Mr. Mark Ashman CEO, HyperCITY
15
Innovation board
17
Involve yourself:
We look forward to hearing your feedback and suggestions.
To contribute to editorial content, please contact Ashish Kakwani
T: +91 22 6192 0423
E: ashish.kakwani@in.ey.com
1
Decoding the formula for successful
entry into new categories
Indian consumer product companies sail in the same boat.
With growth slowing down in existing categories and increasing
competitive pressure, companies are looking at entering newer
categories. Multinational players are targeting to introduce a
larger part of their global product portfolio in India. However,
they are challenged by increasingly sophisticated and mature
home grown players aiming for a similar consumer base.
A quick assessment of a few consumer product companies in
India reveals a trend of expansion in new categories over the
past five years, as follows:
• Leading Indian FMCG company: 8–10 new categories
including skin care, hair care, biscuits, instant noodles, chips
and extruded snacks
• Leading global FMCG company: Even with presence across
20 consumer product categories, has expanded in niche
categories including liquid detergent, fabric softener and
fabric whitener
• Leading global FMCG company: Oral care, air fresheners and
hair color
• Leading confectioneries company: Biscuits
FMCG players have had a varying degree of success in their
attempt to enter new categories. This is despite a dominant
trend of increasing branded consumption in the country,
driven by favorable demographics, increasing trend of
indulgence, growth in per capita income and the spread of an
organized retailing environment. In the case of companies that
have not registered the expected growth, their failure could be
attributed to:
Reasons for failure
G
► aps in understanding the market landscape for the
particular category
I► nability to decode the value chain
I► nternal operational capability gaps
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EY works with consumer products companies to enable them
to mark a successful entry in new categories. To start off
with, it builds a detailed understanding of the value chain for
the particular category and works on a structured internal
assessment to identify gaps in the capabilities needed to operate
successfully in the category.
Category selection and opportunity
assessment
Opportunities for entry in new categories are identified based on
the context of the organization in question and are classified as
per the following framework:
1. C
ore: opportunities in present categories of operations,
with no new product creation; e.g., new SKU launch with the
same product/formulation
2. A
djacent: new products in categories with current
operations; e.g., hand and foot lotions by an existing skin
care/personal care major
3. U
nrelated: categories with no relation to the current
business; e.g., GSK’s foray in biscuits from malted
beverages under the Horlicks brand franchisee
Among these three, expansion in unrelated categories offer
the maximum opportunity for revenue growth; however, it is
relatively more time consuming and expensive, and entails a
higher risk of failure.
Topline expansion
A study published in a Harvard Business review states that
nearly 75% of consumer good and retail products globally fail to
mark a successful entry and are withdrawn within 12–24 months
of launch.
Adjacencies
Core strengthening
Present categories
Core
Adjacent businesses
expected to be
profit generators
Unrelated
diversification
Unrelated businesses
that promise growth
Non-core
A detailed category assessment is undertaken for the
shortlisted categories to understand demand drivers, local
market dynamics, product segments, channel structure and the
regulatory environment.
EY has assisted a multinational food player in developing its
portfolio expansion strategy for its India operations. A detailed
assessment of each category was undertaken based on the
following framework:
Category deep dive
Category Dynamics
• Size, growth, penetration & profitability
• Branded vs. Unbranded play
• Price Segments (Commodity/mass/premium) & shares
• Category pricing structure
• Players & market shares
• Regional shares and trends
Category Evolution
• Changes in penetration
• Changes in pricing
• Meaningful regional trends (if any)
Channel Structure
• Distribution reach ( Total , Urban & Rural)
• Channel shares
• Modern trade penetration
Regulatory Enviornment
• Govenment policies
• Taxation structure & Sops
Competitive Assessment
• Key players & financial assessment
• Product range & pricing
Value chain decoding
and sourcing, the ideal route to market and the requisite IT
capabilities to create a winning proposition in the market.
Value chain assessment is undertaken via an exhaustive
examination of each leg of the chain ranging from product
conception to after-sales service. A detailed assessment of
the value chain helps us answer the fundamental question in
terms of what it takes to win in the chosen category. These
assessments typically involve rigorous secondary research,
backed by primary discussions with a diverse base of industry
practitioners. Decoding the value chain helps create responses
to critical questions on product development, manufacturing
The common practice is a sequential assessment of the
capabilities. It is important for the capabilities across the value
chain to reinforce each other to ensure a coherent business
model. This makes the decoding process an iterative exercise.
Portfolio mix
Sourcing
Manufacturing
While decoding the optimal business model for a likely
category of interest, it is imperative that no constraints on the
organization’s existing capabilities are factored in. This ensures
that the value chain proposed reflects an organization’s best
chance of success.
Logistics
GTM
Marketing /
After-sales service
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5
Organization maturity assessment
Having created the winning formula for a category of interest, it
is equally important to lay down a roadmap for the capabilities
needed to translate the intent into reality. For this, EY uses a
proprietary maturity assessment framework that measures the
maturity of each business functions vis-à-vis an industry’s best
practices. The exercise helps unravel the most critical issue
of any gap between organization capabilities and the industry
standard.
The maturity assessment tool is used as a quick fire but
structured way of evaluating each function’s readiness to take
on the new responsibilities. The process involves the assignment
of scores to the current capability, against the desired capability
needed to operate in the category.
Let us examine this with an example of the sourcing and
manufacturing capabilities of an organization.
Value Chain component to
be examined
Capabilities needed in the
organization
Sourcing and manufacturing
Procurement of finished goods
Manufacturing setup
Operational capability for manufacturing
Vendor management process
Managing RM complexity
Working capital mangement
Each individual capability is a sum of multiple factors, which
are individually rated. Each measure is scored on a 1–5 rating
scale, with the measures being defined basis the industry best
practices.
An internal maturity assessment is undertaken in the form
of a workshop with the organization’s functional teams. The
workshop entails EY providing inputs based on the industry best
practices. The score for each measure is then put against the
industry rating to identify gap areas.
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Fig 3: Output template – maturity assessment
Procurement of FG
5.0
4.0
3.0
WC management
2.0
1.0
0.0
Setting up
manufacturing
Operational capabilities
for manufacturing
Managing RM
complexity
Vendor Management process
Industry Rating
Org. Score
Maturity assessment summary — value
chain elements
Product
development and
customer lifecycle
management
Sourcing and
manufacturing
GTM and logistics
• Each value chain element is made up of various capabilities
that are to be examined
• Each capability rating is a weighted measure of scores for
each of the constituent measures
• T
► he importance of each constituent measure can be
modified by giving them different weightage in the overall
score, making the model applicable across various product
segments
• An organization’s existing capabilities are rarely compatible
with the “asks” of the newer opportunities. An organization
typically evaluates all of the opportunities at one go, which
are then to be prioritized using multiple frameworks.
Parameters for evalution
Figure 5: Prioritization framework for each opportunity
Ease of
implementation
Low
High
Category attractiveness
Ease of implementation
• Scale and profitability
• Market cannibalization
• Returns on capital
• Competitive intensity - the
expenditure
• Strategic fit
• Strategic risks - regulatory
| consumer demand |
competitive risk
share of the top five players |
degree of unorganized play
• Consumer proposition
• Investment in sales promotion
• Distribution - width and depth
• Manufacturing complexity
Low
Category attractiveness
High
• RM/PM complexity
*Size of the bubble indicates projected category size
The framework is developed by articulating category
attractiveness and ease of implementation, based on the
opportunities’ parameters. The opportunities are then scored in
the context of the organization’s capabilities and goals.
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7
Fig. 6 illustrates the framework used to examine potential
entry options in a prioritized category (from the previous step),
factoring in both long- and short-term imperatives. Critical
success factors for each option are identified to ensure the
inclusion of “must have” industry beating capabilities.
A detailed assessment of the incumbent’s capabilities
examined against the requirements of new operations helps
an organization design the best entry option, with “long-term”
imperatives and an assured growth path.
Entry in a new category is a critical decision for a company,
given the costs and risks of failure. We have seen multiple
examples of companies failing to achieve the desired results due
to gaps in category understanding and the attempt to address
distinct segments in a category with standardized product and
service offerings.
Scope of operations
Portfolio focus
Narrow
Regional
Product Group A
Product group B
Wide
Pan-India operations
Large potential exists regionally
to increase penetration
Regional market –
no national brands
Extend portfolio to product group
B and migrate to mother brand
Mode
Acquisition
Ravi Kapoor
Associate Director
Ravi is an Associate Director with the
Performance Improvement practice
of EY India. He has over 14 years of
work experience, out of which he has
spent 8 years in the consumer products
and financial services sectors with
organizations such as Colgate Palmolive, PepsiCo and
ICICI Bank.
He has advised several local and MNC consumer product
companies in the Indian market and has assisted in
developing their growth strategies and transforming their
supply chain, and sales and distribution functions.
E: ravi.kapoor@in.ey.com
P: +91 22 6192 1595
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Build a national brand of
category B to build equity
with consumers Extend
brand to Category A with a
regional portfolio sourced
through local players
Mode
Organic, sourcing arrangements
/JV for Category A foray
Option 1
Build portfolio of strong regional brands
and extend equity to RTC/RTE space –
challenge to handle portfolio complexity;
migrate to central brand subsequently
Option 2
CSFs
Manufacturing
Marketing
Sourcing
CSFs
Innovation
Marketing
Sourcing
Akshat Srivastava
Senior Consultant
Akshat is a senior consultant with the
Performance Improvement practice
of EY India. He has over 6 years of
work experience in consumer products
domain of which he spent 3 years with
ITC limited.
Over the past 3 years with EY, he has worked with
several multinational and local players helping in portfolio
expansion and value chain assessment and transformation
of sales and distribution functions.
E: akshat.srivastava@in.ey.com
P: +91 22 6192 2325
2
Goods movement in India
About the report
Ernst & Young LLP and the Retailers Association of India
released the publication, Movements of goods in India, at the
annual Retail Supply Chain Summit in Mumbai on 5 December
2013. This article is a summary of the report and aims to
highlight key opportunities and challenges in the movement
of goods in the retail sector. It attempts to provide a base for
discussion among industry stakeholders to help them navigate
the complex structure of movement of goods in India, and make
them aware of related challenges and opportunities.
Current state of goods movement in
India
The existing road transport system
India has the second-largest road network in the world, spanning
over 4 million km. Roads constitute the most important mode
of transport in the country, carrying 60% of the country’s total
freight traffic and 85% of its total passenger traffic.
Road freight volume and the number of road vehicles are
growing at a CAGR of 9.1% and 10.8%, respectively; however,
the growth rate of the length of roads lags behind at 4%. This
indicates that the growth of road infrastructure is not keeping
up with the increase in demand.
India vs. other countries in terms of goods
movement
Logistics efficiency indicators
India — ranking
Logistics performance index (out of 155)
46
Quality of overall infrastructure (out of 148)
85
Quality of road infrastructure (out of 148)
84
Efficiency
indicators in road
transportation
India
Global
Average truck speed
(in kmph)
20–40
60–80 (developed
countries)
Average truck
distance covered in a
year (kms)
60,000– 1,00,000
4,00,000–6,00,000
Average truck
distance per day
(kms)
250–400
500 (BRICS)
Total length of
expressways (kms)
~1000
700–800
(US & Europe)
74,000 (China)
States
Octroi
Entry Tax
Waybill/Permits
In-bound
Out-bound
Andhra
Pradesh
No
No
Yes
Yes
Delhi
No
No
No
No
Gujarat
No
Yes
Yes
Yes
Karnataka
No
Yes
Yes
Yes
Madhya
Pradesh
No
Yes
Yes
Yes
Maharashtra
Yes
No
No
No
Punjab
No
Yes
Yes
Yes
Rajasthan
No
Yes
Yes
Yes
Tamil Nadu
No
No
No
No
Uttar
Pradesh
No
Yes
Yes
No
West Bengal
No
Yes
Yes
Yes
Source: State Legislations
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9
The tax and regulatory landscape in India
The respective state governments have the authority to impose
taxes on the sale of goods within a state (where the movement
of goods sold is within a single state’s jurisdiction). The Central
Government is empowered to tax the inter-state sale of goods
(where the movement of goods sold takes place between
and across one or more state boundaries, with sales having
occasioned this movement of goods), as well as pan-India supply
of services (by levying Service Tax). The multiplicity of indirect
tax-related legislations is, therefore, a direct consequence of
the constitutional structure of taxation in India. It is a significant
source of complexity for taxpayers in India, and leads to
substantial overlapping and sometimes double taxation of
various transactions.
Given the tax structure, goods being transacted within India are
often exposed to multiple taxes. The sale of goods within a state
is subject to a state-level VAT, which may vary from 4% to 15%.
Inter-state sales of goods are subject to Central Sales Tax (CST),
which varies from 2% to 15%. Furthermore, transportation
charges incurred on the movement of goods are subject to
service tax at an effective rate of 4.8%.
A number of state governments also levy an Entry Tax (ET)
of 2% to 5% on the entry of (notified) goods into a local or
municipal area in the state.
In India, goods in movement, in addition to being subject to
taxes, have to contend with intra-state and border check-posts
and have to deal with associated documentation including road
permits and waybills.
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On the compliance front, every state has its own requirements
in relation to registration and payment of tax, as well as tax
returns, forms, permits, audits, assessments, etc. Processes and
procedures can differ significantly across states.
Movement of goods in India —
challenges and opportunities
We have segmented the challenges into two major sections:
1. Business and operational
2. Tax, regulatory and interstate movement-related
Business and operational challenges and
opportunities
1. Infrastructure-related
Road network:
• Close to 40% of the time lost on road is due to stoppages at
state border check-posts alone.
• The share of surfaced road in the overall road network is a
mere 54%. India loses a significant amount of goods every
year due to congestion (and wastage of fuel) and the slow
speed of freight vehicles.
• Trucks ply at a slow average speed of 20 kms per hour
on Indian roads. Moreover, they ply for 20 days a month,
against an average of 25 days a month in other developing
countries.
Warehousing Infrastructure
• About 85% of warehousing is unorganized in India and has
led to a dearth of quality warehouse infrastructure in the
country.
• India’s warehousing sector is plagued by low capital and
operational efficiencies (low utilization and poor throughput/
unit space).
• Most warehouses are manually operated or have
inappropriate levels of automation.
• Seasonal fluctuations in demand patterns for certain
products
• Regional/Local variances in demand patterns
• Geographically widespread nature of the market
• Low adoption of forecasting tools
Inefficient supply chain management
• The pilferage of goods is a major concern for Indian retailers.
The quantity of products received in warehouses falls short
of the ordered amount. Moreover, once out of a vendor’s
location, retailers cannot track the status of goods in transit.
Cold chain and other infrastructure
3. Logistics service provider – related challenges
• India’s cold chain market is highly fragmented, with
organized players constituting only ~8%–10% share.
• Wastage levels of agricultural produce and perishables
are ~40%, and it is estimated that the current cold storage
infrastructure can only cater to 11% of the total produce.
2. Supply chain – related challenges
• Multiple intermediaries in supply chain
• There are as many as five intermediaries in a typical
supply chain for perishable commodities such as fruits and
vegetables. Not only do these intermediaries result in a
significant time lag in products reaching stores from farms,
but they also increase the cost to the final customer by
adding their own margins.
Collaboration and vendor management related challenges
• There is no common information exchange platform between
retailers and their vendors, which leads to the lack of
collaboration in the end-to-end supply chain.
• Retailers are unprepared and unaware of the delivery
schedules of suppliers.
• Another common issue is the non-availability of return loads.
• The practice of sending advance shipping notes is not being
widely adopted in India.
Demand forecasting complexities
Retailers find it difficult to forecast demand for products in
different regions due to:
• Unorganized and fragmented road transport market
• Around 75% of the trucking industry is dominated by small
transport operators with a maximum of five trucks. At the
other end of the spectrum, only about 4% own more than 20
trucks.
• This fragmentation leads to overloaded trucks and fatigued
drivers, since only one driver per truck is deployed on long
trips.
Only a few logistics service providers with pan-India reach
• A limited number of players have a pan-India presence in
the country. Retailers frequently have four or more logistics
providers catering to different regions.
Dearth of 3PLs specializing in specific product categories
• A few logistics providers have the requisite experience and
expertise in handling products in specific industry segments
such as food, apparel and fashion.
• E-tailers are facing challenges in their search for logistics
service providers that can cater to the former’s specific
needs in terms of reach to several pin code areas, lastmile deliveries, processing of cash on delivery and reverse
logistics capabilities to manage inventory returns.
Several retailers are on the lookout for logistics service
providers that could provide a variety of value-added services in
the form of warehousing capabilities, inventory management,
packing and assembly, cross-docking, customs clearance, etc.
Most providers only cater to a particular component of the
logistics value chain — transport or warehousing, translating into
a significant demand for integrated end-to-end logistics service
providers.
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11
4. Shortage of skilled manpower
c. Compliance management cost
According to a National Skill Development Corporation report,
various skill gaps in the road transportation sub-segment
include:
• Eligible input VAT is creditable with VAT payable, but the
credit of CST and ET paid is not available as an eligible input
tax credit, posing as an additional cost in the supply chain.
Furthermore, the lack of inter-creditability of VAT, service
tax, CST and ET leads to credit leakages, adding to the supply
chain tax cost.
• Inadequate knowledge of procedures, paperwork for interstate movement and taxation-related aspects
• Lack of knowledge of modern warehousing and inventory
management practices
• Inadequate knowledge of new technologies such as RFID,
GPS and vendor-collaboration platforms
• Inadequate availability of drivers to handle increasing
tonnage and high-capacity trucks, and understand and follow
GPS directions
• Drivers’ ignorance of safe driving practices and special
precautionary measures
Tax, regulatory and interstate movement
challenges
Most of the state VAT legislations and CST legislation and
compliance requirements were put in place between the
1950s and 1970s. These are in line with the then-prevailing
“manufacturing” practice, which involved the bulk movement
of goods in a full truck/container load format. Unfortunately, in
India, the basic concepts of the movement of goods’ regulations
are still outdated.
a. E-commerce incompatibility
• E-commerce retailers adopt various models of sale and
delivery. The essence of survival in the marketplace is
gauged by the speed (and accuracy) at which the ordered
goods reach consumers. As a result, it is difficult to fix one
set of governing legislations for the same set of goods.
This is because the various VAT/CST legislations are not
able to effectively accommodate the unique features of the
e-commerce industry. On account of these gaps, e-retailers
face regular routine issues at check posts, etc.
b. Check posts
• While check posts are not directly a serious hindrance to
the movement of goods, the associated regulations, lack of
automation (with the exception of a few states), inadequate
staffing, unexplained and in-ordinate delays in clearance
consignments, unbridled powers of the check post officer
to detain goods/levy penalty, detention of goods for
inconsequential reasons, etc., have, for decades, burdened
transporters. This has prevented the free movement of
goods across the country.
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• The regulatory complexity associated with the movement of
goods in India, coupled with a lack of clarity in legislations,
leads to businesses spending a large amount of money on
third-party consultants, legal counsels, etc.
d. Lack of procedural clarity
• Every state in India has put in place various forms, permits
and other documents that need to be produced/verified for
the unhindered movement of a consignment. Paperwork
includes the necessary invoice, self-declarations, permits
from tax authorities and forms (in the case of specified
goods).
• Businesses are plagued by the lack of clarity in the nature of
documents required for movement, the process of obtaining
these, as well as the items and persons liable to pay ET.
Transactions such as sales, leased goods and intellectual
property complicate matters further.
e. Automation
• Some states have made significant efforts to automate
processes pertaining to forms’ procurement, permit
procurement, online self-declaration, etc. However, the
process remains a manual one, or a combination of electronic
and manual in a large number of states, resulting in the
dealer spending substantial time and effort.
Possible interventions by state/Central
Government (s)
Businesses are pushing for a simplified tax and regulatory
framework; however, the federal structure of the country,
political conditions and the division of legislative power make
this a very onerous and cumbersome task. Nevertheless,
the Central and state governments could look to step in and
facilitate the free movement of goods across the country.
a. GST
• GST, by design, would transform the current indirect tax
system from an origin-based model to a consumption-based
one. GST is expected to replace the central excise duty (or
CENVAT), service tax, CST, etc., as well as state taxes such
as VAT and ET. GST is expected to facilitate the availability
of full-input tax credit on input taxes paid at the time of
purchase (of goods and services), as well as utilize the
amount toward output GST liabilities.
• GST might come as a breather and help with the
standardization, simplification and automation of compliance
requirements associated with the trading and movement
of goods, especially inter-state movement of goods. GST,
when implemented, is expected to automate most of the
compliance requirements (including of forms/permits/
way bills, etc.), thereby reducing the cost and effort for the
industry.
• The GST structure has been the focus of discussion and
debate for the Central and state governments for a number
of years. It is imperative that the governments find a
collective solution soon to the disputes on the GST structure
and proceed with implementation for the benefit of the
industry and the country at large.
b. Self-declaration
• Given that GST might still be a couple of years away from
implementation, state governments can adopt measures,
in the meantime, to simplify and strengthen the process of
moving goods across the country.
• Some states that have tested the model of self-declaration by
the dealer moving goods into and outside the state, without
intervention by VAT authorities, have been successful in
simplifying the goods movement process.
• In the self-declaration model, the dealer moves goods based
on a self-declaration (with the details of the goods moved),
which is available to the VAT authorities on-line for review/
scrutiny at any point in time. Such self-declaration can
be assessed for accuracy during the course of the annual
assessment process or during any of the audit/investigation
process.
• Given the success story of the self-declaration model, VAT
authorities in all of the states could consider its implementation
to expedite and simplify the movement of goods.
c. Cross-state automation
• The current requirements of statutory Form C (for charging
concessional rate of tax on inter-state sales) and statutory
Form F (for supporting sales tax exemptions on account of
stock transfers) are driven by the need of the VAT authorities
of the sending states to validate whether the concessional rate
and the exemption from CST on stock transfers have been
fittingly claimed.
• The lack of visibility into the dealer database in the buying
state triggers the need for the sending state to demand manual
copies of Form C/Form F (which have to be procured by the
dealer from the VAT authorities of the buying state) to validate
the claims to concession and exemption made by the sending
dealer.
• Automation of the VAT/CST registered dealer database (dealer
database) across the states and of the buy/sale transactions
in the sending and buying states, along with on-line interconnectivity between the states, could provide visibility to
both the sending and receiving states on the transaction being
undertaken. A review of the dealer database, either during
the process of assessment or at any other point in time, would
prove the eligibility of the transaction, along with allowing
dealers to avoid the cumbersome process of procurement and
issue for statutory forms for every transaction/consignment.
• Regardless of the implementation time of GST, states could
explore the suitability of undertaking robust cross-state
automation.
d. Check post improvisation
• Check posts have largely remained the same since their
creation. Nevertheless, a few states have managed to bring
in reasonable computerization to hasten the clearance of
goods and provide online data to VAT authorities for scrutiny.
State governments across the country could think about the
benefits of investing in deploying suitable computerization at
check posts, ensuring adequate staffing for speedy clearance
of goods and avoiding unwarranted/unjustified detention of
goods.
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e. Legislative prudence
• Central and state legislations governing the movement
of goods in India have not kept pace with the growth
and evolution of the marketplace, especially in the retail
industry. The legislations have not adequately accounted
for and adapted to the explosive growth of retail trade and
e-commerce.
• Another concern is that existing regulations are ambiguous
about documentation requirements. The resulting
consequence is open interpretations at the ground
level, leading to perceivably random delays and possible
detentions.
• With GST in sight, it seems to be the right time to ramp up
rules and regulations to provide clarity on procedures and
simplify the movement process.
Conclusion
India is positioned to become an economic super power in
the near future. However, the poor road infrastructure,
inadequate technology and service levels, scarcity in
manpower skills, and complex tax and regulatory policies,
especially with regard to the movement of goods within the
Indian boundaries, threaten to slow down this growth.
In this backdrop, corporate entities could consider
reviewing their supply chain and logistics operations.
They would then be in a position to identify improvement
opportunities in terms of collaboration with vendors,
enhanced sales and operations planning, and technology
deployment. The need of the hour is for the Government to
rapidly improve road infrastructure and take bold steps to
streamline the movement of goods in India.
Immediate and structured steps in the implementation
of GST may provide the much-needed relief to issues
associated with the movement of goods in India. Indian
businesses can only hope that GST is introduced at the
earliest and would pave the way for a simplified tax and
regulatory structure for the movement of goods in India.
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Deepak V
Associate Director
Deepak is an Associate Director in the
Tax and Regulatory advisory practice of
EY India and is based out of Bengaluru.
He has over 18 years of experience
across the Fast Moving Consumer
Goods (FMCG) sector and indirect tax consulting. He has
hands-on experience on various indirect taxes including
customs, excise, service tax, value added tax and the
foreign trade policy in industry and consultancy.
He is a commerce graduate and a member of the Institute
of Cost & Works Accountants of India, as well as of the
Institute of Chartered Financial Analyst of India (MBA –
Finance).
E: deepak.v@in.ey.com
P: +91 80 6727 5072
Inputs from Shradha Sancheti
Janak Patwari
Senior Manager
Janak is a Senior Manager in the
Performance Improvement practice of
EY India and is based out of Bengaluru.
He has over 12 years of consulting
experience across India, the UK, the
Middle East and North Africa. He holds an MBA from IIM
Calcutta and has worked extensively in the consumer,
industrial and real estate sectors.
During this illustrious career, Janak has advised several
consumer and logistics companies across the areas
of strategy, business processes reengineering, cost
reduction, supply chain, among others.
E: janak.patwari@in.ey.com
P: +91 80 6727 5398
Inputs from Avik Sarkar and Anoop Nagendra
3
Interview with Mr. Mark Ashman
CEO, HyperCITY
Mr. Mark Ashman is the Chief Executive Officer of
HyperCITY Retail (India) Ltd. He is an intuitive retailer with
his pulse on changing consumer needs. During his time at
HyperCity, he has focused on smaller hypermarket formats
of 50 k sq. ft. and 30 k sq.ft, which are well suited to the
Indian market and high-margin categories such as apparel,
home and private label. He has increased the level of
promotions to ensure that customers are able to enjoy great
value at HyperCity.
Furthermore, his initiatives of substantial operating cost
reduction and business remodeling have achieved nine
quarters of store-level profitability and have put the business
on track to achieve company-level profitability.
Under his leadership, the company has won “The Most
Admired Retailer – “Hypermarket” award at IRF 2012
and continues to offer its customers a truly international
shopping experience.
Previously, Mark was the CEO of Marks and Spencer
Reliance India Pvt Ltd, where he was instrumental in the
roll out of Marks & Spencer’s retail strategy in India, having
researched the Indian market and established a joint venture
between Marks & Spencer PLC and Reliance Retail.
Given the current economic and political situation,
what is your view on the growth of the India retail
sector?
There are as many predictions for the number of future
consumers, as there are languages in India, 16m affluent, 160m
middle class, 350m aspiring. All one can say with certainty is
that the Indian consumption story is happening now and can
only gather pace over the next decade. India has shed its pre
independence “consumption guilt” and has started to consume,
which is evident across multiple sectors, including retail.
Indian consumers share the same aspirations as consumers the
world over: to experience new products and services, to live
more convenient lives and to enjoy a higher standard of living
than their parents. Government policies or market sentiments
can, at worst, only slow down this exciting consumption story.
In India, the model for apparel retailers, either domestic or
international, is proven. Multi-brand food players will take a little
longer to refine their models and to correct some of their past
mistakes; nevertheless, within the next 15 months, profitable
hypermarket formats will emerge. However, foreign retailers
are likely to wait until they are confident that government policy
supports their entry in India and has the long-term interests
of multi-brand food operators in mind, which looks unlikely in
2014.
Do you expect global retailers to foray in the India
hypermarket and supermarket segment in 2014? If
yes, how would it impact the market structure?
This will not happen until the new government is in place and the
ambiguities in the current FDI policies are cleared.
Opening up the market to new international operators will
only help build capability and infrastructure for the industry. A
vibrant retail sector is good for consumers and for the economy.
Internationally, retail is the first step in the workplace and
provides part-time employment for many women and rewarding
careers. Many of today’s international retail CEOs started on the
shop floor. What is practiced today in modern retail quickly finds
its way into my local kirana. Having the infrastructure required to
The retailer |
15
support and operate modern retail stores, along with customers’
demand for new products and services, means that a larger
economic value is created in the support and supply industry for
modern retail.
What could be some of the concerns/challenges faced
by foreign hypermarket and supermarket chains in
India?
Assuming that government policy in FDI in retail becomes much
more transparent and aligned to supporting long-term industry
growth, the only challenge for international chains will be the
time taken to build a viable business of scale in India. Doing
business in India is hard work, ranking globally toward the
difficult end of the spectrum. What might be a simple straight
line from point A to B in other markets often becomes a zig- zag
of uncertainty, complexity and ambiguity in India. The trick is to
leverage the positives of the market, which will enable you to get
around the barriers.
In a country of shop keepers, a larger number of regional
players, particularly in the supermarket space, inspired by
international players, will operate dominantly. Primarily due to
their local connect and by being more flexible in location and
store size, they will be able to quickly build a critical number of
stores. Because they source and operate regionally, they will
have a better understanding of local customers and of product
offerings and service levels that would help attract and retain
customers.
What is your opinion on the opportunity for
hypermarkets in metros vs tier I cities? What are
some of the key differences in the consumer buying
behaviour in metros vs tier I cities?
HyperCity has stores in both tier 1 and tier 2 markets. For us,
consumer behavior is similar, but we have to understand that the
type of rice, or brand of pressure cooker varies by city, whether
it is a tier 1 or tier 2. We made a decision to focus our expansion
on metro cities, firstly because the sales ramp up after opening
is quicker in tier 1 markets and, secondly, because focusing
more stores in less cities makes sense from both a brand and
operating perspective. Shopping remains a family activity, and
the traditions of the past continue to play an important part in
what and where our customers shop. Opening a Hypermarket
surrounded by new high-rise residential will always create a winwin situation for retailers and consumers.
16
| The retailer
How do you expect the Indian retail sector to evolve in
the next five years? Do you foresee consolidation in the
sector?
The new government in May 2014 and the new policies will define
what will happen over the next five years in this sector. I anticipate
in future a couple of national domestic players and a couple of
international players. A round of consolidation is inevitable.
Today, we are all focused on international hypermarkets entering
India. One or more of the low-cost discounters will certainly enter
the market.
The other significant change will be the on-line delivery model/
multichannel retail. Non-store revenue for retailers is less than 3%,
which indicates a huge potential for growth.
I see this as being a natural fit for big operators to add scale
and reach for their existing physical stores and expand to new
markets. Putting down more physical space may not be practical or
affordable, as demand for good retail space will certainly outstrip
supply.
Customers currently visit hypermarkets twice a month on average.
Traffic congestion, lack of infrastructure and a time-poor customer
mean that there is significant opportunity to gain a higher share
of existing customers’ monthly spend through online ordering and
home or office delivery. Tablets and smart phones are making the
car, as well as the home and office ideal places to shop!
What is your mantra of success for the hypermarket
business in the India market?
Given the infrastructure challenge, high cost of real estate and
unique shopping patterns in India, our hypermarkets will need to
be smaller, with a more tailored product assortment and a food
mix of 55%. Margins are thin, implying that operating costs have to
be tightly controlled. The mantra would be to build your cost base
for a recession and reap the benefits in boom years.
The principles of retailing are the same in India as anywhere else
in the world. We need to understand our customers’ product and
service needs, offer them great value, be aware and be able to
respond to competition. At the end of the day, the answer as to
what is selling and what is not can be found in your stores, not in
an excel chart or power point presentation.
For India, players should be prepared to adapt, as blindly
replicating business models from other markets will not work. India
has taught me a lot, not least is the unique Indian skill of jugaad,
which I will always carry with me!
The retailer |
16
4
Innovation board
1
Greendust has created
a market for refurbished
consumer durables
Gurgaon-based reverse logistics company, GreenDust,
refurbishes rejected/defective/unsold/returned products from
OEMs and sells them as factory seconds through its brand,
GreenDust.
Factory seconds from Samsung, LG, etc., are inspected by
GreenDust. The problems are then fixed using genuine parts
from the company, followed by certification with a GreenDust
sticker.
2
Virtual Shopping Wall at
the Delhi International
Airport, India
E-commerce firm HomeShop 18 and Delhi International Airport
have introduced a virtual mall, Scan N Shop, at the Delhi
Domestic Terminal, T3. Premium products can be ordered from
the wall display by scanning the QR code using smartphones or
by calling HomeShop18’s call center.
http://yourstory.com/2013/06/10-in-store-innovations-fromemerging-countries-the-future-of-retail/
The reverse supply chain brings down supply chain costs by
25%, allows overall blocking of capital, helps capture lost profits,
improves cash flow from systematic asset recovery, increases
asset recovery by 50% and improves inventory cycles, thereby
lowering costs. Products on the verge of being scrapped are
brought back to the “new” condition and are sold after reducing
their pollution level. This allows manufacturers and retailers to
comply with e-waste regulations.
Challenges include treating reverse supply chain as a necessary
evil of the back-end process of a logistics process, lack of
commitment on the part of senior management in the form of
a dedicated team, lack of preparedness in terms of processes,
systems and infrastructure of the company to handle returns and
the amenability of customers.
http://articles.economictimes.indiatimes.com/2012-11-22/
news/35300753_1_hitendra-chaturvedi-logistics-businesslogistics-cost
The retailer |
17
3
Leveraging social media for
operations
Parle Agro launched a Twitter campaign in February 2010,
asking consumers and retailers to tweet about Hippo’s
availability on retail shelves to a specified Twitter web address
to increase the involvement of consumers. A core cell was set
up to pass information in the tweets to the respective areas’
sales and distribution teams.
The company claims to have received stock-related tweets
from 25 cities. The number of people tracking Hippo stocks
on Twitter was estimated to have equaled 45% of Parle Agro’s
foods sales team, and sales reportedly jumped by 76% after
February.
The responses were mostly from consumers in cities where
Hippo is present but temporarily unavailable. Retailers who
do not stock Hippo can be convinced to stock it, based on
consumer demand. The initiative also helped Parle Agro identify
markets where Hippo sells out fast.
http://trak.in/info/1196-indian-brands-innovative-advertisingsocial-media/
18
| The retailer
4
Pour your own beer
The Beer Café, a beer café chain, which opened its first large
format outlet – Biggie – in Delhi is the first one to bring in the
Pour Your Own Beer (PYOB) concept to India. One has to sign
up for a RFID- (radio frequency identification-) activated beer
card (for a minimum of INR500) at the cafe and swipe it against
the tap for a beer of choice to be served into the pre-chilled
mugs available at the counter. The idea is to offer varieties of
beer. The RFID gets charged only for the amount of beer tapped
out of it.
Beer Café is the sole partner of DraftServ, the US, in India,
which has pioneered PYOB, a cloud-based technology. Post-paid
RFID cards are offered elsewhere in the world. In India, Beer
Café has introduced pre-paid RFID cards, which can be filled and
refilled and used in all of the Beer Café outlets. With this PYOB
technology, outlets will be able to achieve considerably higher
efficiency in terms wastage reduction.
http://www.hospitalitybizindia.com/detailNews.
aspx?aid=18809&sid=24
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