ITC’s ‘holy smoke’ biz adds to the bottomline

Business Line:

If there is a product that requires lighting up, ITC will make it — cigarettes, of course, but also agarbattis and candles.

ITC officials say that the company’s leap into fragrant incense sticks received a telling comment from Sri Sri Ravishankar — “from smoke to holy smoke.”

In a business context, the contribution of Mangaldeep agarbattis to ITC’s turnover is a trifling Rs 40 crore to the company’s net sales of Rs 13,000 crore. However, the business is growing and is profitable. The three-year-old agarbatti division has now gathered enough momentum to grow, like its safety matches business did, into a medium-sized business in a few years.

Now, ITC wants to replicate the agarbatti model in its new candles business. The company got into this business only in November last year. A Bangalore-based company Wellburn makes the candles for ITC which are packed and exported under the brand ‘Expressions’. In November-March last year, ITC sold Rs 1.2 crore worth of candles.

US market

But the US market for aromatic candles is $3 billion big. Mr V. M. Rajasekhar, CEO of ITC’s agarbatti division, who is also incharge of the candles business, says that ITC saw an opportunity when the US imposed an anti-dumping duty on Chinese candles. The market held by the Chinese is now slowing moving into Vietnam and Thailand and ITC moved into for a bite.

However, why does a company of ITC’s size get into these little businesses? (There are many of them — stationery, greeting cards, and organic manure.) Mr R Srinivasan, Member, Corporate Management Committee, notes that first of all these businesses have a synergy with one of ITC’s main lines of operations — FMCG. Secondly, they are profitable, with prospects to grow to a few hundred crores of sales in good time.

Building managers

But according to Mr Srinivasan, more important than these considerations is the management-bandwidth spin-off that ITC gets from these divisions. “Each division is an incubation centre for a future manager,” Mr Srinivasan told Business Line. Professionals who manage these divisions, like Mr Rajasekhar, learn aspects of brand building, quality control, handling human resources, and above all, working under tight budgets.

Marketers adapt retail trends in changing times

ET: Monday
MUMBAI: Traditional shopping-streets, bazaars and markets, predecessors of India's organised retailing, have emerged as equal contributors to the country's retail eco-system and have become resilient.

India's leading high streets such as Connaught Place or Khan Market in Delhi, Mumbai's Linking Road, Colaba or Breach Candy, Brigade Road in Bangalore, T Nagar in Chennai, Kolkata's Park Street and Pune's F C Road have adapted themselves to cater to the changing aspirations of consumers as well as changing retail trends.

The appeal of the high street is expected to be enhanced in the future, a study conducted by international property consultants Jones Lange La Salle-Meghraj (JLLM) said.

"India's leading high streets have been at the forefront of India retail and consumer change and have demonstrated their resilient nature."

"The prime shopping street rentals across the board in these streets have almost witnessed an increase over the last few years ranging anywhere from 30% to up to 100%," said JLLM country head Anuj Puri in its study "Leading High Streets, Embracing Change."

In terms of rental benchmarkings, Delhi's prime shopping streets Khan market, Connaught Place and South Extension occupy the top three positions, followed closely by Linking Road, Colaba and Breach Candy of Mumbai.

Kolkata, Pune, Bengaluru, Hyderabad and Chennai also figure in the pecking order. More than 50% of the top 30 brands with high penetration are of international origin, while the rest are domestic brands.

High streets in particular enhance the retail appeal and attractiveness of a brand. Malls on the other hand, enhance the overall shopping experience for any brand.

But the ability and willingness of the buyers to spend and the catchment area are some of the key factors for growth of these high streets, Mr Puri said.

In terms of rental benchmarkings, Delhi's prime shopping streets Khan market, Connaught Place and South Extension occupy the top three positions, followed closely by Linking Road, Colaba and Breach Candy of Mumbai.

Malls in India are taking time to establish themselves as a one-stop destination. Also, the construction of a mall takes time. Moreover, usually high-end malls come up in some distant suburb or off-prime locations.

But high streets do not have that kind of customised environments. Pantaloons CEO Rakesh Biyani said, "High-street shopping areas are existing since ages.

It is expected that they will do well, in spite of organised retail coming in. Retailing is a new phenomenon as far as Indian consumers are concerned. But unfortunately there are not many high streets in India."

The retail supply is limited in inner city locations of high streets. With the customers base exploding over the years, there is a greater demand for products.

Despite the high valuations and the spectre sealing in the non-regularised commercial streets, Delhi's main high streets have been successful in targeting consumers, as well as national and international retail brands.

Innovative retail concepts trigger consumer frenzy

Source: ET, NEW DELHI:

They are making enough noise to pull people to malls, they are the toast of big retail set-ups and are a small but fast growing part of a multi-million dollar industry within the country. Yes, we are talking about recreational retail. From pottery-painting to portrait-making, creating toons or casting gold and silver impressions, there are a variety of concepts that abound in malls or exist as standalone ventures. In fact, a whole new concept of leisure retail beckons the Indian consumer like never before.

“Indian consumers are rapidly upgrading lifestyles and their recreational spend is growing by leaps and bounds. But entertainment options for them are still very limited. That’s when we decided to come up with Colour Factory, places where people can come and be themselves,” says Vikas Verma, Founder and CEO, Colour Factory. The company started operations in January 2006. At its stores, people can choose utility items such as cups and mugs and colour them at will with food-safe colours. These are then glazed, fired and returned to them within a week.

Verma noticed something similar in an outlet in Netherlands and brought the concept to India. “We are a small part of the Indian recreational industry that is approximately worth Rs 20,000 crore. We currently have five stores and plan to have five more by the year-end. The fact that we are growing at 70-80% per annum proves that people are liking the concept. We had set up a temporary camp in Meerut and people there too were extremely excited.”

Besides Verma, there are others who have some illustrious clients for their unconventional retail concepts. Ask Bhavna Jasra, CEO, First Impression, who casts 3D hand and foot-impressions in gold, silver and bronze. Bhavna, who started the concept six years back after chancing upon tiny foot impressions of a friend’s daughter in London, today counts famous names such as Abhishek-Aishwarya, Rani Mukherjee, Anil Kapoor and Subhash Ghai as her clients.

Says Bhavna, “I have been achieving steady 30-40% y-o-y growth over the last three years. It’s an extremely niche concept and I have deliberately kept it class rather than mass.” With a price point starting at Rs 15,000 for babies and Rs 30,000 for impressions of a couple holding hands, the concept no doubt is niche. But that hasn’t stopped its growing popularity and Bhavna has already introduced her second brand under First Impression called ‘Photo Concepts’.

Ditto for Meghna Pant, CEO and founder of Make My Toon, which is into the business of making customised cartoons online. The costs vary from Rs 3,000-10,000 depending on the clients’ needs. “We got a very encouraging response. We started a year back and at that time we barely got one-two orders a month as against 30-40 orders a month now,” she says.

But how effective are these concepts in a market where acceptance of unconventional business models is yet to pick momentum? “We have 50 people visiting our store everyday. The conversion rate is greater than 50%. This is an American concept but today’s Indians are ready for it. They are well travelled and give us great response,” says Surabhi Sawhney, director, StarShots, a store where people can get themselves properly modelled and have photographs clicked.

The fact that these concepts are affordable adds to their popularity. While a StarShots portrait costs anywhere between Rs 2,500 and Rs 5,500, Colour Factory’s products cost in the range of Rs 145-200. But even if they are priced in a higher range, the concept is unique and does draw eyeballs. “When I started six years back, the concept was novel. But now with increasing travel, exposure and awareness, the market has opened up considerably. I get at least 100-200 enquiries a month and convert close to 50% of them into sales,” adds Bhavna.

What’s more, their traction power also keeps mall management in high spirits about housing such retail concepts. “More than footfalls, such stores help drive interest to our mall. That is why they are so popular. We take extreme care before selecting the outlets. They are unique and that’s why they are here,” says Anjali Wadhawan, senior business development manager, Select CityWalk Mall in Delhi. The mall has invited some such stores to start operations in its premises. Their growing numbers and customer interest is a clear sign of the fact that leisure retail is definitely here to stay.

Strong consumer demand should help boost revenues

Growth in consumer spends and value generated by price hikes are expected to deliver steady growth for fast moving consumer goods (FMCG) companies in the quarter ended March, 2008.

The year-on-year average growth in the operating profit growth could be around 18 per cent on a net sales growth about 15 per cent while the net profit is expected to be about 20 per cent.

The better performers in the FMCG space could be Nestle and Godrej Consumer: the former is expected to post the highest growth in net sales over around 17 cent whiel the latter Godrej is expected to post the highest growth in net profit at 40 per cent. Both these firms should benefit from margin expansion resulting from price hikes taken by them to offset cost increases.

ITC may well post a decline in volumes growth due to the recent excise duty hike on non-filter cigarettes. However, together with the FMCG and other businesses, ITC should turn in a growth in net sales of over 11 per cent and growth in operating profit of close to 18 per cent. (Rs crore) Company Net sales Operating profit Profit after tax Q4FY08 E Q4FY07 Change % Q4FY08 E Q4FY07 Change % Q4FY08 E Q4FY07 Change % ITC 3,867 3,466 11.6 1,095 930 17.7 753 650 15.8 HUL 3,627 3,184 13.9 446 362 23.5 397 333 19.2 Nestle 1,054 899 17.2 220 178 23.2 139 111 25.4 Dabur 480 444 8.0 86 73 18.0 75 65 15.0 Marico 359 335 13.0 42 38 12.0 30 27 11.0 Tata Tea 287 251 19.0 18 15 26.2 11 2 636.3 GCPL 210 186 12.9 39 32 21.2 35 25 40.6

Price hikes taken in the detergent category and growth in personal care products business could help Hindustan Unilever deliver a growth in net sales of about 14 per cent and an operating profit growth of about 24 per cent.

Other companies which are expected to witness strong growth in earnings are Dabur, Marico and Tata Tea. However, Dabur's expected net sales growth of 8 per cent and operating profit growth of 18 per cent would be primarily volume-driven as it has not taken any price increase in this quarter.

Marico should deliver a revenue growth of 13 per cent and an operating profit growth of 12 per cent, enabled by the growth in sales of its functional foods and hair care brand Parachute.

For Tata Tea, the impact of profit from Glaceau stake sale could cause a jump of over 600 per cent in net profit. However, its operating profit due to better domestic performance could grow by 26 per cent and net sales are expected to grow by about 19 per cent.

State Bank of India takes no-frills ATM to rural masses

India's largest bank is turning to one of the country's smallest technology companies for a new minimalist cash machine it hopes will solve the subcontinent's chronic financial services shortage.

State Bank of India (SBI) has 10,000 branches, the second largest network in the world, but struggles to reach the farming communities that make up 70 per cent of India's population.

About 85 per cent of India's workers are employed in the "unorganised sector" – where wages are paid in cash – and at least half do not have a bank account. Hoping to reach the underbanked masses, SBI is trialling a new automatic teller machine (ATM) that costs a tenth of the price of conventional models and is cheap enough to deploy in areas where the average transaction is 100 rupees (£1.25).

Built around a pared-down software platform and connected to a bank via the web, the Gramateller ATM makes do without the frills found on its Indian city cousins, such as the ability to make payments to the local temple.

Instead it includes features useful for country living. A fingerprint scanner provides an identification system suitable for a country where 70 per cent of the population is illiterate. It runs on just 60 watts of electricity – a fraction of the 3,000 watts required by a conventional ATM – to cut the cost of supplying backup power in areas where blackouts are common. The new generation ATM also emits far less heat, which means unlike a traditional cash machine, it does not need to be housed in an air-conditioned closet.

Moreover, though it will only handle a single denomination of currency, the Gramateller can take deposits and deal with dirty and crumpled notes – helpful, since rural users are often suspicious that crisp new cash is forged.

The machine has been developed by Vortex, a Madras-based technology start-up funded by a 2 million rupee (£60,000) investment from Aavishkar, a specialist "micro venture capital" firm that is backed by groups including Deutsche Bank. ICICI, India's largest private bank, is also piloting the technology while one of Indonesia's largest retail banks has told Vortex it will "buy as many ATMs as the company can build" – provided the Gramateller passes its current field tests.

"Manned branches are too expensive; conventional ATMs cost too much and are not equal to the challenges of rural environments," Lakshmimarayan Kannan, of Vortex, said. "We built the Gramateller to bring banking in reach of those not covered today."

Comparisons with developed economies suggest the market for the minimalist ATM is potentially massive. In the US, where credit cards are common, there is a cash machine for every 1,000 people. In India, where cash is still king, there are only about 30,000 machines in the entire county – one for every 43,000 people – and most are densely packed into big cities.

However, the Gramateller is only one of several "branchless banking" models being tested around the world. In the Philippines, for instance, Globe Telecom customers can operate electronic accounts through mobile phones and similar systems are being used across Africa. In India ICICI already uses microfinance institutions, which specialise in granting tiny amounts of credit, as retail agents.

Against mobile-phone based systems, the Gramateller may be relatively vulnerable to thieves. However, Mr Kannan points out that it will carry only about a fifth of the amount of money found in a city ATM. "There won't be a need to have very much cash in our cash machine," he said. "Actually, there are likely to be plenty of assets around it worth more."

ITC to expand its retail footprint

ITC`s lifestyle retailing business division is planning to expand its retail footprint further by setting up more Wills Lifestyle, John Players and Miss Players stores across the country, reports Economic Times.

The company has also embarked on an active exercise to create a stronger brand and retail identity for Wills Lifestyle, which it wants to position as a more international and aspirational brand.

ITC has piloted a new store concept with FRCH Design of the US, a specialist in store and mall design. Three concept stores have already been launched, two in Mumbai and one in Delhi. It is also working with the UK`s Elemental Design and The Friedman Group from the US in areas like product presentation, visual merchandising and retail training.

The company intends to increase the number of Wills Lifestyle stores from 250 to 400 by the end of 2008-09.

Fortis HealthWorld enters rural India with Godrej Aadhaar

Fortis Group company Fortis HealthWorld Ltd (FWHL) on Monday said it has tied up with the rural retail initiative of Godrej Agrovet Ltd, Godrej Adhaar, to open pharmacies in rural areas.

By setting up FHWL pharmacies jointly with Godrej Adhaar, the company seeks to empower the rural India mainly the farming community by providing all encompassing health needs under one roof, FWHL said in a statement.

These stores will also be equipped with a wide range of fast moving health good and support systems. To start with these Aadhaar Pharmacies are being launched at the key Aadhaar centres, at Taran Taran, Batala and Mehta Chowk in Punjab, it added.

"This partnership with Godrej Aadhaar is an integral part of our commitment of providing world class pharmacy and allied services to rural India," FWHL CEO Ashish Kirpal said.

"The rural market in India holds huge potential for pharma industry. Godrej Aadhaar with its extensive reach in Rural areas is uniquely positioned to provide a platform for products and services for rural areas," Godrej Agrovet Ltd CEO B S Yadav said.

Fortis HealthWorld is the retail arm of the Fortis Group, which is planning to set up retail network of health stores across the India.