Author: Priya Sheth

IKEA lowers prices by 20-35% in Indian market

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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This is the first time ever Swedish furniture giant IKEA has decided to lower prices in the Indian market. This is not a sale or short-term discounting offer, IKEA has decided to lower prices of products by 20-35 percent as part of its New Lower Prices Initiative. This price cut will be applicable to some products, said IKEA.

These price cuts come at a time when the Indian retail industry is going through its worst phase ever. Owing to the Coronavirus outbreak and lockdown, retail stores like IKEA were permitted to re-open on June 8.

However, IKEA says that it was planning this affordability initiative much before the pandemic. “We have been working on the lower price initiative much before COVID-19 happened. The timing of this price reduction fits well as there are economic challenges & discretionary spends are under pressure. We see home as being ‘centre stage’ now,” said Kavitha Rao, Country Commercial Manager, IKEA India.

When IKEA first opened doors in India in 2018, it announced that 1,000 products at the store will be priced below Rs 200. This pricing strategy was formulated keeping in mind the price conscious Indian audience it was catering to. The organised home furnishing market in India has been growing at 20-22 percent per annum and includes retail chains Home Centre, HomeTown and online retailers such as Pepperfry and Urban Ladder.

Since its re-opening after the lockdown, IKEA has been flooded with orders for ‘work-from-home’ furniture. “Work-From-Home furniture has seen a 3x-5x increase in demand. Work desks, ergonomic chairs, table organisers and table lamps are seeing a huge uptake,” said Rao. E-commerce and omni-channel are seeing good traction both in terms of number of orders and value, said IKEA.

As far as expansion plans go, IKEA continues to be on track with store openings and investments in India. “We are committed to India in the long term and have a multi-channel strategy. Online will be a big part of growth for IKEA in the future. We see 30-40 percent sales coming from the online medium in the long term,” said Peter Betzel, MD, IKEA India in an interview to CNBC-TV18 in October 2019.

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No takers for lipstick? Here’s how work-from-home is changing dynamics of cosmetics industry

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The work-from-home era has changed the way India works, eats, sleeps and looks. Growth rates for India’s 45,000 crore beauty and cosmetics industry have tapered over the past few months. Sector experts say the industry, which was growing at 15-20 percent, is now struggling to get back to pre-COVID levels. The non-essentials space, especially in colour cosmetics, has taken the biggest heat.

“The biggest challenge we have seen is on colour cosmetics given that everyone is staying at home and not going out. We believe that has been a temporary blip and that make up will be back as festivals are around the corner. We are still scraping through Q3 managing the topline but believe we will move into a growth trajectory in Q4,” said Pankaj Sharma, Director – Consumer Division, L’Oréal India.

While the months of April and May saw an 80 percent loss of business for most players, many categories have now started recovering. Two such categories have been — skin care and hair care.

“Hair colours being a discretionary category got impacted in the first quarter, especially in April and May. In the past few years in India, the entire penetration of hair colours has been through Rs 30 sachet packs. Given the challenges in terms of income, it is sachets that will gather more momentum & drive growth,” said Sunil Kataria, CEO – India & SAARC, Godrej Consumer Products.

To tide over this slowdown in demand, companies have launched sachet packs of premium products both in the hair care and skin care range. Retailers who were forced to shut shop during the lockdown have re-adjusted inventory levels to match demand.

“We are definitely not even thinking about growth right now. Step number one is to get back to 75% of our pre-COVID sales which we expect to get back by season time – sometime Nov or Dec,” said J Suresh, MD & CEO, Arvind Fashions, which runs Sephora in India.

“We have readjusted the current inventory in line with the current sales so that we adjust our future orders. We can’t do much about the inventory we are already holding & have been able to control the inventory flow,” he said.

Just like for other sectors, sales in the online or e-commerce space have boomed. Most beauty brands saw sales in the online space driving growth.

“In April, we were down by about 80 percent compared to February. February mind you was also our best ever month because it’s a month that goes into Valentines Day. In May, we were down by 30% of pre-COVID levels and in June we started hitting our pre-COVID levels in terms of net revenue. July we have gone ahead of our pre-COVID levels by 15-20%,” said Manish Taneja, co-founder and CEO, Purplle.com, which is an online marketplace for beauty products backed by JSW.

With the festive season around the corner, most retailers and brands have pushed new launching schedules to the last quarter of this calendar year, with the hope that the tide will turn and sales will come back!

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Ready to zoom: India’s packaged food market is poised to double

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The ready-to-eat and convenience food market has literally exploded over the past 3-4 months. Major players in the ready-to-eat space expect revenues to double year-on-year if this growth trajectory continues.

“We see this market doubling by December next year. The first two weeks were all about essentials. Following that we have seen growth rates for this category at about 100 percent in kirana stores,” said Sachid Madan, CEO, F&V and Frozen Foods at ITC, who expanded their offerings in the frozen foods space to over 102 cities in India.

MTR Foods has also seen a stellar growth rate over the last few months and expects growth to be in the range of 15-18 percent going forward. “We needed to ensure that capacity had to be ramped up. We have seen a growth of 200% in e-commerce and it is now 5% of our business,” said Sanjay Sharma, CEO, MTR Foods.

A huge demand has been seen in the frozen parathas, idli batter and the packaged mithai categories. ID Fresh Food, which makes idli & dosa batter, malabar parotas and filter coffee, expects business to double month-on-month, going forward.

“If business continues like this then we will should be a Rs 1,000 crore company in 3 years,” said PC Musthafa, CEO & co-founder, ID Fresh Food.

Red Seer Consulting estimated the ready-to-cook market to be valued at Rs 2,100 crore in 2019 and expects that it will reach Rs 4,800 crore by 2024. However, these numbers may be achieved sooner owing to the accelerated growth rates that players are seeing now.

However, Kantar Worldpanel CEO K Ramakrishnan said, “The true test with regards to the growth of the RTE market lies when out of home consumption begins to take off.”

With the ready-to-eats and ready-to-cook space booming, players have been working on pushing new products into the market so as to avoid food fatigue.

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Patanjali Ayurved clocks best-ever Q1 amid lockdown

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Owing to the spike in in-home consumption amid the coronavirus outbreak, Baba Ramdev’s Patanjali Ayurved clocked its highest-ever revenues in Q1FY21. The Haridwar based company is said to have reported revenues in the range of Rs 2000 – Rs 2200 crore for the three month period ending June 2020. Patanjali Ayurved reported revenues of Rs 3652 crore in the first half of FY20.

Categories especially in the essentials and staples space saw a huge demand. Categories like ghee, toothpaste, and atta saw a spike in demand in the last 3-4 months.

Just like other FMCG companies, lockdowns and localised lockdowns disrupted supply chains and distribution for Patanjali Ayurved.

“We have been working on strengthening our supply chain and have built an automated distribution network with the help of our in-house IT company Bharuwa solutions,” said an official close to the development.

Patanjali Ayurved is also working on improving its direct distribution reach and is in talks with retailers to install POS machines at outlets.

With a large number of orders coming in from the online space, Patanjali Ayurved expects about 20 percent of its revenues to come from the digital channel in 2-3 years. To accelerate growth through this channel, Patanjali launched a trial version of its ‘Order Me’ app.

“We are getting 4000-5000 orders a day via the Order Me app and plan to launch it soon commercially,” said a person close to the developments.

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Local lockdowns disrupt recovery for retailers: RAI survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Operational challenges faced by retailers due to localised lockdowns seem to have hampered business in the month of July. These roadblocks come at a time when the industry was just marginally recovering from the loss of business in the last 3-4 months.

A survey by the Retailers Association of India (RAI) indicates that signs of marginal recovery were observed in the month of July. After witnessing losses of more than 80 percent in the month of April, these losses have narrowed to 63 percent in July.

Despite these localised lockdowns, categories like food & grocery and consumer durables showed continued recovery. Categories like sports goods, beauty and wellness as well as apparel continued to face stress in the second half of July.

“With Unlock 3.0 now being rolled out across the country, there is a possibility of significant sales recovery for retail businesses. However, localised lockdowns, weekend curfews and not allowing formats like food courts and cinema halls to restart are creating roadblocks on the path to revival. It is observed that in places where the local authorities have been supportive, there is confidence in the minds of consumers. If the retail industry continues to be under pressure, it will have a serious rippling effect on other sectors such as manufacturing, entertainment and artisans among others,” said Kumar Rajagopalan, CEO, Retailers Association of India.

Region-wise, impact on business, retailers in East India having a turnover of Rs 20-300 crore were the worst hit, with business losses at 73 percent, YoY. Businesses with a turnover of over Rs 300 crore in West India saw degrowth of 64 percent.

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Ready to eat market zooms 60-70% amid COVID-19 outbreak

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reema Shah, a 45-year-old home-maker, has been a brand loyalist. For the last 20 years, she has stuck to brands like Amul for butter, Fun Foods for mayonnaise, and Britannia for biscuits. But, a lot has changed in the last four months.

“The store I used to buy all my grocery from, suddenly has so many new brands. So for instance, if the store doesn’t have Fun Foods pizza sauce, the kirana store will send Wingreens or if he doesn’t have Safal frozen peas he will send Frost Garden peas,” said Shah.

“I’ve never heard of these brands but now have started using them since many products have been in short supply,” she said.

This not only signals the growing demand for ready to eat, packaged and frozen foods but is also an indicator of the increasing number of players in the ready to eat space.

A report by RedSeer consulting indicated that India’s ready to cook market stood at Rs 2,100 crore in 2019, and going by growth rates assessed last year, it was poised to reach Rs 4800 crore by 2024. However, it is believed that we may achieve this number much sooner as the Covid-19 outbreak has accelerated the consumption of ready to eat in India.

Retailers say that they have seen a growth of 60-70 percent in the ready to eat and frozen foods space in the last two months. In the months of April and May, demand for these products had doubled. “The spike in demand and the lack of products from established players, opened up the doors for small and mid-sized players who had a reasonable local presence and were able to get products to stores on time,” said a leading retailer.

“At one point when I went grocery shopping, I didn’t recognise a single brand on the shelf. There were so many local brands that had replaced the established brands. They were much cheaper than the regular brands I used to consume,” said Shreya Gandhi, a resident of South Mumbai.

With supply almost back to normal in most parts of the country (barring regions where there have been local lockdowns), small and mid-sized players are working on lucrative trade structures to get retailers to stock their products.

“I don’t mind experimenting with the products of new companies. Many of them have good, home-grown products and they offer both a better margin and also have good return & refund policies,” said a kirana store owner.

Products like frozen parathas, idli batter, packaged Mithai, flavoured cheese are seeing good demand. The future consumer has seen a 50-70 percent growth in the ready to eat and frozen foods space. Similarly, Metro Cash and Carry has also seen a demand spike in these categories.

“There was a 40 percent increase in the demand for Packaged, Frozen, and Luxury food items. This significant rise in demand can be attributed to people wanting a change from regular home-cooked food. Most customers were buying processed cheese, pasta, ready to eat kebabs amongst other such food items,” said Arvind Mediratta, MD & CEO, METRO Cash & Carry India.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Amid COVID crisis, ITC focuses on enhancing capacity of essential products, collaborations to meet consumer needs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In the backdrop of the COVID-19 outbreak in India, cigarettes to hospitality company ITC said that the macro-economic environment was challenging as it was marked by deceleration in economic activity accentuated by a sharp decline in consumption, especially in rural areas.

In these challenging times, ITC is focused on enhancing capacity of essential products and collaborations to meet consumer needs. Like several other FMCG companies, ITC developed direct to home distribution models like ‘ITC on wheels’ and partnerships with food aggregators to boost availability of products.

Having launched over 60 new products during FY20 and several more hygiene products during the lockdown, ITC said that its brands represented annual consumer spends of over Rs 19,700 crore. Its packaged food brands like Aashirvaad clocked Rs 6,000 crore in terms of consumer spends. Brands like Sunfeast clocked over Rs 4,000 crore and Bingo clocked Rs 2,700 crore in terms of consumer spends.

However with the outbreak of COVID-19, “FMCG industry growth decelerated sharply during the year due to sluggish demand conditions, tight market liquidity and delayed monsoons. Rural growth stood at 0.8x of urban markets in FY20 compared to 1.4x in FY19,” said ITC in its latest annual report.

ITC too faced challenges in its Education and Stationery Products businesses as it coincided with the peak season.

The revival of growth momentum in the FMCG industry is dependent on restoration of normalcy and improvement in consumer sentiment.

While essential items, health and hygiene related products are expected to sustain the recent buoyancy in demand, out-of-home consumption categories are likely to experience a more gradual recovery, said ITC.

Persistent weakness in the demand environment coupled with growth in illicit cigarette trade weighed on performance of the cigarettes business.

All cigarette manufacturing facilities as well as the contract-manufacturers of cigarettes had to shut down operations during the last week of March 2020. However, ITC said that all factories are now operational. The hotels business too faced severe challenges owing to drop in tourism amid the Coronavirus outbreak.

Going forward there are a large number of challenges that the economy continues to face. “There is heightened uncertainty around the timing and shape of the recovery trajectory. The Indian economy is expected to face multi-dimensional challenges like health crises, job losses, labour force displacement, lower productivity,” said ITC

There is also likely to be pressure on spending and this could weigh on consumption expenditure in the short to medium-term. “Further measures may be warranted going forward to improve demand, drive consumption and revive the Indian economy,” said ITC.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Army canteens see 50% decline in footfalls since re-opening

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Government-run Canteen Stores Department (CSD), which runs army canteens in the country and is the single biggest customer for FMCG companies, has seen a 50 percent decline in footfalls.

This decline in footfalls is because of the cautious consumer sentiment as well as the localised lockdowns in the country. CSD sales have historically contributed to about 5-7 percent of overall sales for most FMCG companies.

This decline in demand at canteens has also led to an overall dip in procurement levels from consumer goods companies. Army canteens not only stock FMCG products but also white goods and other retail merchandise. Since the re-opening of canteens, demand has primarily been for food items and toiletries. CSD, which generates an annual turnover of Rs 17,000 crore, also introduced ‘mobile trucks’ to ensure that goods reach consumers at their blocks or complexes. However, no online ordering options have been permitted at this point.

FMCG companies believe that it may take at least two quarters for demand to come back to normal. “The dip in demand from this channel has been a combination of two factors. One is of course that consumers have become cautious to step into stores etc and secondly a lot of ex-servicemen who are above 65 years of age have started ordering on e-commerce portals. So in a sense, sales have shifted,” said an industry official.

Sales decline from CSD has been significant for several consumer goods companies, especially in their non-foods portfolio. For Marico, “CSD business during the quarter was nearly reduced to its half. It had a meaningful impact on the overall volume growth of India business.”

FMCG major Hindustan Lever said that it doesn’t share individual channel sales figures. I said, “There has been an impact on sales given that the unit run canteens were closed for more than 6 weeks at a stretch and defence cantonments were out of bounds during the lockdown. We are hopeful that demand will pick up over time with the economy progressively opening up and restrictions getting lifted.” ​

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

COVID impact: Delivery boys stare at uncertain future as quick service restaurants’ sales dip

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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For Riyaz Naqvi, a 25-year-old delivery boy with a leading pizza chain, months from March to June have not been easy. “I started off as a delivery boy for a food aggregator service and then got a better offer with a pizza chain so I took up this job,” said Naqvi, who stated off by making 20-25 pizza deliveries a day. These have gone down by almost 50 percent. “If this continues, we don’t know how safe our jobs will be,” says Naqvi.

Dip in business seen over the past few months has been reflective of the state of India’s quick service restaurant industry. Yum! brands reported a 74 percent year-on-year (YoY) and 66 percent YoY sales decline for KFC and Pizza Hut, respectively. Westlife Development, which runs McDonald’s in West and South India, reported a sales dip of 75 percent and a same store sales growth (SSSG) decline of 54 percent.

Although dine-in’s were shut, online channels and other convenience platforms raked in some business for these restaurants. “Digital sales were a big driver of the dramatic improvement in sales from the initial impact of COVID-19, reaching an all-time high of $3.5 billion for the quarter, an increase of more than $1 billion over the prior year,” says David Gibbs, CEO, Yum! during its second quarter earnings.

“Dine-in has remained shut all through April and May’ 20. However, we are seeing some encouraging signs in delivery, especially in the smaller towns many of our stores are now back to their pre- Covid-19 delivery sales,” says Jubilant Foodworks in a statement to the exchanges in June.

Introduction of drive-through’s and ‘on-the-go’ orders were some levers that helped sales too. For instance, Westlife Development introduced ‘On The Go’ in more than 170 restaurants in June.

However, online is still a small business for most quick service restaurants or QSR and a big bulk of their business still comes from in-store sales. Intermittent lockdowns in many regions have made consistent business revival tough for India’s Rs 32,880 crore QSR market.

“There is tremendous amount of uncertainty and volatility at this point. It is going to take time for sales to ramp up. We hope that in-store sales will come back in the next 6-12 months,” says Amit Jatia, vice-Chairman, Westlife Development.

This uncertain scenario has had an impact on overall store expansion plans as well. Yum! Brands, which had been on expansion mode for the last few quarters, shut down some stores in the second quarter of CY20. At the end of Q1CY20, Yum! Brands which operates KFC, Pizza Hut and Taco Bell, had 967 stores in India. This came down to 942 stores at the end of Q2CY20.

McDonald’s, which typically opens about 25-30 stores in a year, had set a target of 500 stores by 2022. Things may not go as planned but the company is confident of aggressive growth once things stabilise. “We will use this time to re-imagine our supply chain. We have already brought down fixed costs by 30-35% and will re-evaluate ways to bring down costs further,” says Jatia.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow