Big Bazaar is planning to position itself as a value retailer after being hived off as an independent company within the Future Group. While a new company has been floated under the name of Future Hypermarket, the retailer is now considering a new name to represent its discount format.
Speaking to Business Line, Mr Rajan Malhotra, Chief Executive Officer, Big Bazaar, said, “Although we have registered a new company under the name of Future Hypermarket, we intend changing its name. Big Bazaar is not a hypermarket and is more of a value-for-money format and that is what the new company would stand for.”
Currently, Big Bazaar contributes 64 per cent of the Future Group’s total turnover of Rs 7,000 crore. With its standalone status as a company, Big Bazaar is expecting to drive greater efficiencies in its back-end operations. As Mr Malhotra says, “There would be clarity for the concept as we become a separate company. There would be back-end efficiency in our operations.”
With amalgamation of formats under various heads ranging from Food Bazaar to Furniture Bazaar, Big Bazaar is looking at distinguishing itself as a ‘value’ retailer in its segment rather than being clubbed with the rest of the existing hypermarkets in the country.
Besides, it is looking forward to re-launching its private label, DJ & C, as a national brand by giving the brand rights to Future Brands (the group vertical handling brands in the group). Targeting the youth segment, DJ&C is today worth Rs 200 crore in Bazaar’s kitty. “We intend re-launching it as a national brand through other retail outlets by the end of this month. We believe Big Bazaar has moved into a mature phase and that is a compelling reason to launch our youth brand at a national level. The DJ&C brand has crossed a turnover of Rs 200 crore and now has enough pull to take it to its next level,” states Mr Malhotra.
New categories
Having forged long-term relationships with a host of FMCG players through MoUs, Big Bazaar is open to new categories being tested through its formats. “We are open to the highest selling brands such as Pears and Dove opening the new age categories at our stores,” says Mr Malhotra.
Meanwhile, Big Bazaar has roped in cricketer and India ODI captain Mahendra Singh Dhoni as the brand ambassador for its extensive collection of fashion apparel.
Wednesday, June 25, 2008
Monday, June 9, 2008
Seven elements of a timeless brand
A brand is like a human being — it has a personality, a lifespan, emotions and rationality. It is also like a building with intricate architecture.
A brand is an experience. A consolidated experience is the equity formed of the brand; this fosters a strong relationship between the consumer and the brand, which can last for a lifetime.
Brands determine what we eat, what we wear, what we drive, enjoy, and more than ever, how we lead our lives. Brands give us our hopes, our aspirations and our dreams. Therefore, brands ultimately become integral parts of our lives.
So, if the experience with the consumer is right over time, it tends to be part of his or her being. There are some brands which create that experience, fondness and relationship with the consumer. There are others that fall by the way.
We often confuse the leadership of a brand in the market with invincibility or long life. However, a market leader can also die a quick death. BPL, Fiat and Dalda are some cases in point. A brand that has been nurtured well, however, may or may not be a market leader, but it will continue to reign. And, more often than not, it will be one of the top five brands in its space.
What is pertinent is high brand recall among consumers. This recall also needs to have adequate emotional content for it to last.
So, how does one build a timeless brand?
Innovate: A brand that continues to reinforce positive experiences over time and surprises the consumer each time with new and consistent offerings will never die quickly. And innovation doesn’t mean just product innovation. Innovation involves the brand interface with the consumer, the brand experience, its look and feel, its physical availability and its pricing. Brand communication has to be equally innovative.
Brand expression: A brand must express the desired character and identity of a consumer. The brand and identity the consumer aspires for must go hand in hand. If they don’t, then the brand is not “my brand”.
Emotional connect: The brand must have an emotional bond with the consumer, along with a rational connect. Harmony between the two gives it strength, energy and passion. Understanding what gives the consumer emotional satisfaction is important. Brand behaviour has to be such that the consumer always feels secure and satiated.
Ownership: One has to ensure that the consumer is proud to own the brand. If he buys a branded shirt, he should be proud to wear it. If he removes the logo, then it shows that while he connects with the brand at a rational level, where he likes the quality, the brand does not appeal to him emotionally, which is why he doesn’t want to be seen wearing it with the logo.
There must be creation of ownership; the consumer should feel like he owns the brand.
Value delivery: Every brand has a value — the brand creator and brand operators know that. The consumer must get 100% of that value through the process of interface with the brand. That’s where the internal branding comes in. People within the organization must understand the value and nuances of the brand and be able to deliver 100% of it. So, if all the other aspects are strong, but the internal branding process within the company is weak, then you may lose the sting, or sharpness, of an everlasting brand. For, what you deliver falls short of what the brand actually was conceived to stand for.
Relevance: It has to be youthful, and by that I don’t mean that the brand has to be young in age. It has to continue to be relevant to consumers. The brand must understand consumer behaviour as it is relevant today and all its parameters, aspects, rational or emotional, must adjust to the times. If they don’t, the brand gets old and dies. You have to rejuvenate, and make sure the brand remains young...even for a hundred years.
Communication: What we call advertising, below the line and above the line, has to have an understanding of what the consumer wants the brand to be seen as. If there is a disconnect between what the brand wants to be seen as and what you’re delivering, the brand will lose equity. Many campaigns that win awards seriously lack this understanding from the consumer’s perspective.
Lastly, the brand must have humane elements to it. A brand is like a human being — it has a personality, a lifespan, it has emotions and rationality. It’s also like a building with intricate architecture.
A plethora of elements help add or reduce meaningful and economic longevity to a brand. Sometimes, of course, mercy killing becomes essential to help the new generation of brands to prosper. However, the patriarch brands will continue to deliver succour to the enterprise over a long period
A brand is an experience. A consolidated experience is the equity formed of the brand; this fosters a strong relationship between the consumer and the brand, which can last for a lifetime.
Brands determine what we eat, what we wear, what we drive, enjoy, and more than ever, how we lead our lives. Brands give us our hopes, our aspirations and our dreams. Therefore, brands ultimately become integral parts of our lives.
So, if the experience with the consumer is right over time, it tends to be part of his or her being. There are some brands which create that experience, fondness and relationship with the consumer. There are others that fall by the way.
We often confuse the leadership of a brand in the market with invincibility or long life. However, a market leader can also die a quick death. BPL, Fiat and Dalda are some cases in point. A brand that has been nurtured well, however, may or may not be a market leader, but it will continue to reign. And, more often than not, it will be one of the top five brands in its space.
What is pertinent is high brand recall among consumers. This recall also needs to have adequate emotional content for it to last.
So, how does one build a timeless brand?
Innovate: A brand that continues to reinforce positive experiences over time and surprises the consumer each time with new and consistent offerings will never die quickly. And innovation doesn’t mean just product innovation. Innovation involves the brand interface with the consumer, the brand experience, its look and feel, its physical availability and its pricing. Brand communication has to be equally innovative.
Brand expression: A brand must express the desired character and identity of a consumer. The brand and identity the consumer aspires for must go hand in hand. If they don’t, then the brand is not “my brand”.
Emotional connect: The brand must have an emotional bond with the consumer, along with a rational connect. Harmony between the two gives it strength, energy and passion. Understanding what gives the consumer emotional satisfaction is important. Brand behaviour has to be such that the consumer always feels secure and satiated.
Ownership: One has to ensure that the consumer is proud to own the brand. If he buys a branded shirt, he should be proud to wear it. If he removes the logo, then it shows that while he connects with the brand at a rational level, where he likes the quality, the brand does not appeal to him emotionally, which is why he doesn’t want to be seen wearing it with the logo.
There must be creation of ownership; the consumer should feel like he owns the brand.
Value delivery: Every brand has a value — the brand creator and brand operators know that. The consumer must get 100% of that value through the process of interface with the brand. That’s where the internal branding comes in. People within the organization must understand the value and nuances of the brand and be able to deliver 100% of it. So, if all the other aspects are strong, but the internal branding process within the company is weak, then you may lose the sting, or sharpness, of an everlasting brand. For, what you deliver falls short of what the brand actually was conceived to stand for.
Relevance: It has to be youthful, and by that I don’t mean that the brand has to be young in age. It has to continue to be relevant to consumers. The brand must understand consumer behaviour as it is relevant today and all its parameters, aspects, rational or emotional, must adjust to the times. If they don’t, the brand gets old and dies. You have to rejuvenate, and make sure the brand remains young...even for a hundred years.
Communication: What we call advertising, below the line and above the line, has to have an understanding of what the consumer wants the brand to be seen as. If there is a disconnect between what the brand wants to be seen as and what you’re delivering, the brand will lose equity. Many campaigns that win awards seriously lack this understanding from the consumer’s perspective.
Lastly, the brand must have humane elements to it. A brand is like a human being — it has a personality, a lifespan, it has emotions and rationality. It’s also like a building with intricate architecture.
A plethora of elements help add or reduce meaningful and economic longevity to a brand. Sometimes, of course, mercy killing becomes essential to help the new generation of brands to prosper. However, the patriarch brands will continue to deliver succour to the enterprise over a long period
Thursday, June 5, 2008
SELLING DREAMS: Realtors are increasing ad spend.
Brand-building bug bites mid-sized real estate developers
If advertising is all about selling dreams, little wonder that mid-sized real estate developers are roping in well-known advertising agencies to help them sell dream homes.
Consider this: Taneja Developers and Infrastructure has appointed Rediffusion DY&R to manage its advertising account and Omaxe is handled by Lowe India. Besides using the print and radio to promote their offerings, companies such as Parsvnath have broken into the big advertising league with a spate of television commercials that ensure high recall and visibility.
"The real estate sector has witnessed a tremendous growth and companies are striving to differentiate themselves and their offerings from competitors. There is a focus on building a strong brand identity, and leave an impression on prospective buyers," said Mr Pradeep Jain, Chairman of Parsvnath Developers, which recently slotted its advertisement to coincide with the live coverage of the Union Budget by various news channels.
The shift from standalone project based ads to a holistic corporate campaign is also being driven by the fact that developers are working on multiple projects to meet the accelerating demand. Parsvnath's advertising spend is expected to almost double this year from Rs 15-20 crore in the last year.
According to Mr Atul Phadnis, Chief Evangelist, Media e2e, real estate industry is estimated to spend about Rs 300-350 crore in 2006-07, a growth of 30-35 per cent.
One of the reasons for appointing large agencies is because companies are offering premium properties, he felt.
"The stakes are very high and therefore there is need to establish the premium value. Hence professional agencies are being appointed," he said.
Agrees, Mr Ajay Khanna, Executive Director of DLF Retail developers.
"The mid-sized firms are revisiting their traditional advertising strategy to take into account the upmarket positioning of products. Also in some cases, the intention to go public in future may drive the need for aggressive brand-building exercise," he said.
Moreover, property developers have realised that television complements both print and radio.
"What started off with simple property shows during non-prime time has resulted in increased enquiries and sale," said Mr Phadnis.
However, there are some who are treading the beaten path and prefer to attract buyers through local advertising. "Our campaign is still market focused and we are sticking to local advertising strategy for most of the projects, with exception to commercial projects which need to be advertised on a broader scale," said Mr Niranjan Hiranandani, Managing Director of Hiranandani Constructions Ltd.
If advertising is all about selling dreams, little wonder that mid-sized real estate developers are roping in well-known advertising agencies to help them sell dream homes.
Consider this: Taneja Developers and Infrastructure has appointed Rediffusion DY&R to manage its advertising account and Omaxe is handled by Lowe India. Besides using the print and radio to promote their offerings, companies such as Parsvnath have broken into the big advertising league with a spate of television commercials that ensure high recall and visibility.
"The real estate sector has witnessed a tremendous growth and companies are striving to differentiate themselves and their offerings from competitors. There is a focus on building a strong brand identity, and leave an impression on prospective buyers," said Mr Pradeep Jain, Chairman of Parsvnath Developers, which recently slotted its advertisement to coincide with the live coverage of the Union Budget by various news channels.
The shift from standalone project based ads to a holistic corporate campaign is also being driven by the fact that developers are working on multiple projects to meet the accelerating demand. Parsvnath's advertising spend is expected to almost double this year from Rs 15-20 crore in the last year.
According to Mr Atul Phadnis, Chief Evangelist, Media e2e, real estate industry is estimated to spend about Rs 300-350 crore in 2006-07, a growth of 30-35 per cent.
One of the reasons for appointing large agencies is because companies are offering premium properties, he felt.
"The stakes are very high and therefore there is need to establish the premium value. Hence professional agencies are being appointed," he said.
Agrees, Mr Ajay Khanna, Executive Director of DLF Retail developers.
"The mid-sized firms are revisiting their traditional advertising strategy to take into account the upmarket positioning of products. Also in some cases, the intention to go public in future may drive the need for aggressive brand-building exercise," he said.
Moreover, property developers have realised that television complements both print and radio.
"What started off with simple property shows during non-prime time has resulted in increased enquiries and sale," said Mr Phadnis.
However, there are some who are treading the beaten path and prefer to attract buyers through local advertising. "Our campaign is still market focused and we are sticking to local advertising strategy for most of the projects, with exception to commercial projects which need to be advertised on a broader scale," said Mr Niranjan Hiranandani, Managing Director of Hiranandani Constructions Ltd.
Wednesday, March 26, 2008
India is 3rd most brand conscious country
An improving economy and the rapid opening up of the Indian market has given rise to a group of affluent consumers who are more than eager to adopt the latest fashion trends. According to the latest Nielsen Global Luxury Brands Study, 35% Indians who participated in the survey agreed to buying designer brands. This is the third highest percentage globally with Greece leading the countries with 46%, followed by Hong Kong with 38%. Despite the prevalence of imitation designer-branded goods in some markets, surprisingly more than three-fourth of Indians surveyed do not think that imitation products match up to the real deal.
The top brands that Indian consumers spend on are Calvin Klein (34%), Gucci (25%), Diesel (24%), Christian Dior (16%), and DKNY (10%). India has also made it to the top ten markets globally for some of the brands. India ranks third highest globally for people who buy Gucci products. It ranks sixth for Calvin Klein, ninth for Diesel, and tenth for Fendi for buying these brands globally.
“People are travelling overseas more frequently now and quite likely their interactions with foreign brands have increased considerably. Moreover, foreign brands are synonymous to status and our survey finds that 57% of Indians surveyed buys designer brands as a status symbol. The number of outlets that these brands have opened up in the country in recent times is a testimony in itself of the increasing fashion consciousness amongst Indians,” said Vatsala Pant, associate director, client solutions, The Nielsen Company.
Though 73% Indians feel that designer brands are usually overpriced for what they are, 35% also believe that designer brands are of a significantly higher quality than standard brands. India stands eighth globally which thinks designer brands are quality products and invest in it despite of the price. About 45% Indians think that only fashion conscious people consider buying designer brands.
“There seems to be a huge market potential for luxury brand line extensions into every corner of the home and office and cross-over between brands and products is certainly an opportunity to drive the demand for these products,” added Pant.
The top brands that Indian consumers spend on are Calvin Klein (34%), Gucci (25%), Diesel (24%), Christian Dior (16%), and DKNY (10%). India has also made it to the top ten markets globally for some of the brands. India ranks third highest globally for people who buy Gucci products. It ranks sixth for Calvin Klein, ninth for Diesel, and tenth for Fendi for buying these brands globally.
“People are travelling overseas more frequently now and quite likely their interactions with foreign brands have increased considerably. Moreover, foreign brands are synonymous to status and our survey finds that 57% of Indians surveyed buys designer brands as a status symbol. The number of outlets that these brands have opened up in the country in recent times is a testimony in itself of the increasing fashion consciousness amongst Indians,” said Vatsala Pant, associate director, client solutions, The Nielsen Company.
Though 73% Indians feel that designer brands are usually overpriced for what they are, 35% also believe that designer brands are of a significantly higher quality than standard brands. India stands eighth globally which thinks designer brands are quality products and invest in it despite of the price. About 45% Indians think that only fashion conscious people consider buying designer brands.
“There seems to be a huge market potential for luxury brand line extensions into every corner of the home and office and cross-over between brands and products is certainly an opportunity to drive the demand for these products,” added Pant.
Wednesday, March 12, 2008
Launching new brands is getting increasingly difficult
V Ravi, managing director, Indica Research Consumer Insights, presents an expert’s view of the Business Standard Annual Brand Derby results
This year’s findings are starkly contrasting to the findings from previous studies in that corporate rebrandings have stolen the show – with three such rebrandings coming within the top 5 slots. This year’s findings are a testimonial to the emergence of strong attention to corporate rebranding by major corporates and their meticulousness in ensuring ‘great care’ to communicate the rechristened brand with an emotional connect.
We also believe that the findings are also a reflection of the difficulties in creating successful new brand launches (other than Bingo and Maruti SX4) by companies across sectors. This is clearly illustrated by the fact that less than a third of the consumers rated the launch of any new brands other than Bingo and Maruti SX4 as being ‘very successful launches.
The ranking of the various brands in terms of success might lead to an interpretation that the core success factor this year has been high decibel communication. However, quite a few brand launches with high decibel campaigns have not been seen a successful – indicating that high decibel communication does not have a direct correlation with ‘success’ or ‘lack of success’. It is perhaps the simplicity of the communication and the connect with the target audience that has been the differentiator between the winners and also rans.
The study has also thrown up several other additional findings: It seems to have become increasingly difficult for the FMCG sector to create successful new brands – with all new FMCG launches (including brand extensions) excluding Bingo being rated as substantially successful by less than a third of this audience.
Interestingly, despite the strong passion that Indians have for cricket as a game, the Star Cricket channel has been seen as only moderately successful – perhaps a reflection of the absence of major properties involving ‘Indian cricket team’ during the initial year of its launch (a reflection that the passion is largely restricted to India being a participant in the matches and not so much to the game per se).
The emergence of the online market is illustrated by the perceived relatively higher success of an online gaming portal like ‘Zapak’ as compared to brands like Minute Maid, Olay Total Effects or even a Mahindra Renault Logan.
The greater perceived success of i-pill compared to several high profile FMCG brands is testimonial to the a product addressing a strong need - much more than several other launches.
Reliance Fresh emerges as one of the more successful despite facing problems in terms of expansion of its presence across markets – a testimonial to the future of Indian retail?
If this year’s Brand Derby is a reflection of the trends for the future, there are several lessons to be learnt by marketers to create successful brands in an increasingly difficult market place
This year’s findings are starkly contrasting to the findings from previous studies in that corporate rebrandings have stolen the show – with three such rebrandings coming within the top 5 slots. This year’s findings are a testimonial to the emergence of strong attention to corporate rebranding by major corporates and their meticulousness in ensuring ‘great care’ to communicate the rechristened brand with an emotional connect.
We also believe that the findings are also a reflection of the difficulties in creating successful new brand launches (other than Bingo and Maruti SX4) by companies across sectors. This is clearly illustrated by the fact that less than a third of the consumers rated the launch of any new brands other than Bingo and Maruti SX4 as being ‘very successful launches.
The ranking of the various brands in terms of success might lead to an interpretation that the core success factor this year has been high decibel communication. However, quite a few brand launches with high decibel campaigns have not been seen a successful – indicating that high decibel communication does not have a direct correlation with ‘success’ or ‘lack of success’. It is perhaps the simplicity of the communication and the connect with the target audience that has been the differentiator between the winners and also rans.
The study has also thrown up several other additional findings: It seems to have become increasingly difficult for the FMCG sector to create successful new brands – with all new FMCG launches (including brand extensions) excluding Bingo being rated as substantially successful by less than a third of this audience.
Interestingly, despite the strong passion that Indians have for cricket as a game, the Star Cricket channel has been seen as only moderately successful – perhaps a reflection of the absence of major properties involving ‘Indian cricket team’ during the initial year of its launch (a reflection that the passion is largely restricted to India being a participant in the matches and not so much to the game per se).
The emergence of the online market is illustrated by the perceived relatively higher success of an online gaming portal like ‘Zapak’ as compared to brands like Minute Maid, Olay Total Effects or even a Mahindra Renault Logan.
The greater perceived success of i-pill compared to several high profile FMCG brands is testimonial to the a product addressing a strong need - much more than several other launches.
Reliance Fresh emerges as one of the more successful despite facing problems in terms of expansion of its presence across markets – a testimonial to the future of Indian retail?
If this year’s Brand Derby is a reflection of the trends for the future, there are several lessons to be learnt by marketers to create successful brands in an increasingly difficult market place
IBM to launch institute for business value
IBM will launch the IBM Indian Institute for Business Value (IBV) to address the growing demand for high-value services by clients in India.
According to a release issued by IBM today, IBV, IBM’s "business think tank", will create fact-based, industry and service area specific thought leadership materials that will enable clients to realise business value.
"Our India clients, and those keen to enter or expand into the Indian market, view the rapid expansion of the economy as an opportunity to grow their businesses. The challenge they will face is a clear understanding and insight into the industry segments in India. With the launch of IBV in India, IBM intends to provide local insights and better understanding that will enable clients to have a headstart," said K S Raghunandan, director - solutions, IBM India and South Asia.
The first IBV India study will be on "Healthcare India" focusing on required transformation of the Indian healthcare system to improve accessibility, affordability and sustainability, while delivering enhanced value to all key stakeholders. Additional studies from the retail and energy and utility industries will follow this year.
According to a release issued by IBM today, IBV, IBM’s "business think tank", will create fact-based, industry and service area specific thought leadership materials that will enable clients to realise business value.
"Our India clients, and those keen to enter or expand into the Indian market, view the rapid expansion of the economy as an opportunity to grow their businesses. The challenge they will face is a clear understanding and insight into the industry segments in India. With the launch of IBV in India, IBM intends to provide local insights and better understanding that will enable clients to have a headstart," said K S Raghunandan, director - solutions, IBM India and South Asia.
The first IBV India study will be on "Healthcare India" focusing on required transformation of the Indian healthcare system to improve accessibility, affordability and sustainability, while delivering enhanced value to all key stakeholders. Additional studies from the retail and energy and utility industries will follow this year.
Saturday, March 8, 2008
RC&M Delhi, Ogilvy Outreach bag rural marketing awards
RC&M Delhi picked up five trophies and Ogilvy Outreach four at the first ever Rural Marketing Case Studies Awards held at the Leela Kempinski on Wednesday. The awards were hosted by the Rural Marketing Agencies Association of India (RMAAI)."The overall objective (of RMAAI) is to protect and promote rural marketing," said its President, Mr R.V. Rajan.
Among RC&M's five trophies were three golds. The agency won gold for Best Innovative Marketing Initiative for its Toofan case study for Mahindra & Mahindra. The same campaign earned it a gold for Implementation of the Year. RC&M also won for Most Effective Use of Event Marketing for Grameeno Ke Beech.
Ogilvy Outreach won gold in the Most Effective Use of Sales and Promotion and Point of Purchase category for Samajdhar Wheelawati. The agency's remaining three awards were silvers.
Other winners were MART, which was given a Special Jury Award for its HPCL Rasoi Ghar case study in addition to the gold it earned for Best Long-term Rural Marketing Initiative, and ICICI, which won for its No White Spaces Strategy case study in the Best Integrated Rural Marketing Campaign category.
In all, RMAAI received 52 entries in seven categories from 13 agencies and five clients. However, no awards were issued for the Most Effective Use of Direct Marketing (print) category. The awards were judged by Mr Harish Bijoor, Ms Rama Bijapurkar and Mr Sunil Alagh.
"I am extremely happy with the response today," Mr Rajan said. "Our target was 125 (delegates attending). We have achieved it. The quality of response was excellent in terms of entries as well."
Among RC&M's five trophies were three golds. The agency won gold for Best Innovative Marketing Initiative for its Toofan case study for Mahindra & Mahindra. The same campaign earned it a gold for Implementation of the Year. RC&M also won for Most Effective Use of Event Marketing for Grameeno Ke Beech.
Ogilvy Outreach won gold in the Most Effective Use of Sales and Promotion and Point of Purchase category for Samajdhar Wheelawati. The agency's remaining three awards were silvers.
Other winners were MART, which was given a Special Jury Award for its HPCL Rasoi Ghar case study in addition to the gold it earned for Best Long-term Rural Marketing Initiative, and ICICI, which won for its No White Spaces Strategy case study in the Best Integrated Rural Marketing Campaign category.
In all, RMAAI received 52 entries in seven categories from 13 agencies and five clients. However, no awards were issued for the Most Effective Use of Direct Marketing (print) category. The awards were judged by Mr Harish Bijoor, Ms Rama Bijapurkar and Mr Sunil Alagh.
"I am extremely happy with the response today," Mr Rajan said. "Our target was 125 (delegates attending). We have achieved it. The quality of response was excellent in terms of entries as well."
Thursday, March 6, 2008
Indian Premier League team sponsorship is value for money
League needs critical mass
Going through the franchise prospectus, put out by IPL, one can’t help but be awed by the hyperbole put out by BCCI. Paying the BCCI their pound of flesh hasn’t really worked too well in the recent past –– either for Nimbus or Nike. Percept and WSG are still recovering from their attempted forays into monetising BCCI ground sponsorship rights. Not quite the golden goose (that) the BCCI had led them to believe!
Now let’s look at what prospective IPL team owners can look forward to earning on their asset. There are two channels of revenue slated for the Indian Premier League teams, central and local. Central (which the BCCI will sell and share with teams) includes media, sponsorship and suppliers, and local (teams will be responsible for selling) includes things like stadium ticket sales, local sponsorship, concessions, merchandise et al.
It is apparent that until the league picks up a critical mass and builds equity in its local market (anywhere from five to 10 years in an evolved market), the teams will be heavily reliant on central revenues to sustain themselves. Now if a franchise owner bids Rs 220 crore ($55 million) and wins say the Bangalore franchise for 10 years, his annual expense, apart from the Rs 22-crore franchise fee, would be players’ salaries (approx. 15 x $250,000, which is the average player salary announced) thus amounting to Rs 15 crore. Stadium leasing, coaches & official salaries and other miscellaneous expenses annually would amount to another Rs 5 crore, conservatively. That’s a total of Rs 42 crore payout annually.
Now let’s see what can be expected as ROI? Even if the BCCI sells the TV rights for say Rs 750 crore for five years like it claims, that’s Rs 150-crore per annum from TV revenue. Eighty per cent of that, split 8 ways is Rs 15-crore annually per team as its share. If sponsorship and suppliers yield the board another Rs 25 crore annually, 60% of that split eight ways is about Rs 2 crore for each team. A franchise owner can expect Rs 17 crore from central revenue. The Rs 25-crore shortfall on ROI annually will have to be derived from local revenue.
From seven home games with an average sellout of 10,000 tickets priced at an average of Rs 200, the franchisee can expect Rs 1.4 crore. With all other sources adding up to another Rs 3 crore, optimistically, the franchise will stand to lose about Rs 20 crore annually.
A good case study in analysing new leagues and their challenges would be Major League Soccer in the US. Ten years after its launch, it is still losing money but hopes to break even by 2010. An argument could be made that soccer is not the No. 1 sport there like cricket is here, but sports is an evolved format in the US and fans support city teams, go to stadiums and buy merchandise unlike here, so it balances out.
Going through the franchise prospectus, put out by IPL, one can’t help but be awed by the hyperbole put out by BCCI. Paying the BCCI their pound of flesh hasn’t really worked too well in the recent past –– either for Nimbus or Nike. Percept and WSG are still recovering from their attempted forays into monetising BCCI ground sponsorship rights. Not quite the golden goose (that) the BCCI had led them to believe!
Now let’s look at what prospective IPL team owners can look forward to earning on their asset. There are two channels of revenue slated for the Indian Premier League teams, central and local. Central (which the BCCI will sell and share with teams) includes media, sponsorship and suppliers, and local (teams will be responsible for selling) includes things like stadium ticket sales, local sponsorship, concessions, merchandise et al.
It is apparent that until the league picks up a critical mass and builds equity in its local market (anywhere from five to 10 years in an evolved market), the teams will be heavily reliant on central revenues to sustain themselves. Now if a franchise owner bids Rs 220 crore ($55 million) and wins say the Bangalore franchise for 10 years, his annual expense, apart from the Rs 22-crore franchise fee, would be players’ salaries (approx. 15 x $250,000, which is the average player salary announced) thus amounting to Rs 15 crore. Stadium leasing, coaches & official salaries and other miscellaneous expenses annually would amount to another Rs 5 crore, conservatively. That’s a total of Rs 42 crore payout annually.
Now let’s see what can be expected as ROI? Even if the BCCI sells the TV rights for say Rs 750 crore for five years like it claims, that’s Rs 150-crore per annum from TV revenue. Eighty per cent of that, split 8 ways is Rs 15-crore annually per team as its share. If sponsorship and suppliers yield the board another Rs 25 crore annually, 60% of that split eight ways is about Rs 2 crore for each team. A franchise owner can expect Rs 17 crore from central revenue. The Rs 25-crore shortfall on ROI annually will have to be derived from local revenue.
From seven home games with an average sellout of 10,000 tickets priced at an average of Rs 200, the franchisee can expect Rs 1.4 crore. With all other sources adding up to another Rs 3 crore, optimistically, the franchise will stand to lose about Rs 20 crore annually.
A good case study in analysing new leagues and their challenges would be Major League Soccer in the US. Ten years after its launch, it is still losing money but hopes to break even by 2010. An argument could be made that soccer is not the No. 1 sport there like cricket is here, but sports is an evolved format in the US and fans support city teams, go to stadiums and buy merchandise unlike here, so it balances out.
Wednesday, February 27, 2008
Apparel brands button-up focus in 2007
Extending themselves to a wider section of consumers
Bangalore, Dec. 27 The branded apparel industry witnessed a flurry of activities this year, both on the product and retail fronts. As brands vied with each other to get a chunk of the consumer’s wardrobe, it was heartening to see consumers once again gaining centre-stage.
For a brief while, brands seemed to think they could ride on brand equity alone and consumers would lap up anything. Not anymore.
With so many choices around, brand loyalty is a thing of the past, something that has forced brands to take consumers more seriously than ever before.
Long content with a niche tag, apparel brands are now stepping out of their ivory towers — to extend themselves and reach out to a wider section of consumers.
While ‘serious’ brands became nattier with youth extensions, some economy brands realised ‘mass’ does not mean low-design and poor fashion.
While Excalibur from Arvind Brands got trendier post-revamp, Peter England — the mass brand from competitor Madura Garments — entered the sub-premium category with its ‘Elite’ brand.
A large part of the brand focus this year was on youth. Says Mr Ashish Dikshit, President, Madura Garments, Lifestyle and Retail: “With more youngsters coming into the workforce, the youth cannot not be ignored. Especially since they have aspirations to own brands and have international exposure and greater awareness.”
For instance, Louis Philippe (from Madura), a brand with a formal imagery, came out with Lp — a sub-brand for the younger consumer. Allen Solly too targeted the youth with its Solly Youth collection.
Womenswear also got a good look with brands such as Excalibur, ColorPlus and Wrangler entering the fray, after Solly and Arrow made the plunge a few years ago.
Says Mr J. Suresh, CEO, Arvind Brands — Brands and Retail: “Most brand extensions have happened in two areas — extension into women’s range, recognising the potential of women’s western clothing which will see huge growth with increase in working women, and product/imagery upgradation as a result of Indian consumers becoming more sophisticated and brand conscious.”
Changing perception
Brands increasingly want to be perceived as ‘lifestyle’ brands offering everything from apparel to accessories, catering to varied consumers.
For instance, Flying Machine does not want to be known as just a denim brand. It prefers to be called a ‘casual wear’ offering botttomwear, knits, jackets and accessories. Brands like Arrow too have embraced the lifestyle proposition with zeal.
International brands also began making their presence felt this year. While Nautica and Esprit are slowly finding their feet in the Indian market, Diesel, US Polo and Cherokee are set to enter India next year.
This year saw a massive retail expansion drive. Several exclusive brand outlets (EBOs) cropped up in major cities and even smaller towns and cities.
Says Mr Vikram Rao, Business Director-Textiles & Branded Apparel, Aditya Birla Group: “EBOs allow brands to express themselves better with customised services. Consumers are getting more demanding and like to buy in a world-class ambience with a great service culture.”
Apart from a domestic retail push, companies like Arvind, Madura Garments, and Royal Classic Group are also eyeing a large presence overseas.
Value retailing
The apparel industry is also taking value retailing seriously. A far cry from dingy discount stores, formats like Brand Factory (from Future group), Megamart (from Arvind) and Coupon mall (from Prateek Lifestyle) provide consumers a superior shopping experience and bring in a touch of organisation into value retailing.
This year is only an indication of things to come. The ‘retail’ and ‘brand’ stories promise to get sharper and shriller. We haven’t heard the last of consumerism and mall culture!
Says Mr Rao: “With the economy growing and disposable income going up, the outlook for the apparel industry is bright; the industry will witness double-digit growth. More international brands will enter the market to tap specific target customers.”
But with fuelling real estate costs, “branded business has to become more efficient so that brands deliver healthy profits. Retail management needs to get sharper to turn around every store,” cautions Mr Dikshit.
If this year was for brand building, next year will see brands consolidating themselves. Ultimately, it’s the profits that count. And whether these brands can cash in on brand conscious India, only time will tell.
Bangalore, Dec. 27 The branded apparel industry witnessed a flurry of activities this year, both on the product and retail fronts. As brands vied with each other to get a chunk of the consumer’s wardrobe, it was heartening to see consumers once again gaining centre-stage.
For a brief while, brands seemed to think they could ride on brand equity alone and consumers would lap up anything. Not anymore.
With so many choices around, brand loyalty is a thing of the past, something that has forced brands to take consumers more seriously than ever before.
Long content with a niche tag, apparel brands are now stepping out of their ivory towers — to extend themselves and reach out to a wider section of consumers.
While ‘serious’ brands became nattier with youth extensions, some economy brands realised ‘mass’ does not mean low-design and poor fashion.
While Excalibur from Arvind Brands got trendier post-revamp, Peter England — the mass brand from competitor Madura Garments — entered the sub-premium category with its ‘Elite’ brand.
A large part of the brand focus this year was on youth. Says Mr Ashish Dikshit, President, Madura Garments, Lifestyle and Retail: “With more youngsters coming into the workforce, the youth cannot not be ignored. Especially since they have aspirations to own brands and have international exposure and greater awareness.”
For instance, Louis Philippe (from Madura), a brand with a formal imagery, came out with Lp — a sub-brand for the younger consumer. Allen Solly too targeted the youth with its Solly Youth collection.
Womenswear also got a good look with brands such as Excalibur, ColorPlus and Wrangler entering the fray, after Solly and Arrow made the plunge a few years ago.
Says Mr J. Suresh, CEO, Arvind Brands — Brands and Retail: “Most brand extensions have happened in two areas — extension into women’s range, recognising the potential of women’s western clothing which will see huge growth with increase in working women, and product/imagery upgradation as a result of Indian consumers becoming more sophisticated and brand conscious.”
Changing perception
Brands increasingly want to be perceived as ‘lifestyle’ brands offering everything from apparel to accessories, catering to varied consumers.
For instance, Flying Machine does not want to be known as just a denim brand. It prefers to be called a ‘casual wear’ offering botttomwear, knits, jackets and accessories. Brands like Arrow too have embraced the lifestyle proposition with zeal.
International brands also began making their presence felt this year. While Nautica and Esprit are slowly finding their feet in the Indian market, Diesel, US Polo and Cherokee are set to enter India next year.
This year saw a massive retail expansion drive. Several exclusive brand outlets (EBOs) cropped up in major cities and even smaller towns and cities.
Says Mr Vikram Rao, Business Director-Textiles & Branded Apparel, Aditya Birla Group: “EBOs allow brands to express themselves better with customised services. Consumers are getting more demanding and like to buy in a world-class ambience with a great service culture.”
Apart from a domestic retail push, companies like Arvind, Madura Garments, and Royal Classic Group are also eyeing a large presence overseas.
Value retailing
The apparel industry is also taking value retailing seriously. A far cry from dingy discount stores, formats like Brand Factory (from Future group), Megamart (from Arvind) and Coupon mall (from Prateek Lifestyle) provide consumers a superior shopping experience and bring in a touch of organisation into value retailing.
This year is only an indication of things to come. The ‘retail’ and ‘brand’ stories promise to get sharper and shriller. We haven’t heard the last of consumerism and mall culture!
Says Mr Rao: “With the economy growing and disposable income going up, the outlook for the apparel industry is bright; the industry will witness double-digit growth. More international brands will enter the market to tap specific target customers.”
But with fuelling real estate costs, “branded business has to become more efficient so that brands deliver healthy profits. Retail management needs to get sharper to turn around every store,” cautions Mr Dikshit.
If this year was for brand building, next year will see brands consolidating themselves. Ultimately, it’s the profits that count. And whether these brands can cash in on brand conscious India, only time will tell.
Tuesday, February 26, 2008
Fruit punch
A look at why beverage companies are adding fruits to the drinks trolley
This juice is worth its squeeze. At least cola majors Coca-Cola and PepsiCo think so. A couple of weeks back, when beverages giant The Coca-Cola Company announced its results for the October-December 2007 quarter, it attributed the growth in its Indian market to its mainstay brand Coca-Cola and its expanding portfolio of fruit drinks (beverages with 20 per cent fruit pulp).
Fruit drinks are increasingly filling the crates that were otherwise capped with fizzy carbonates in the Indian market. In October 2007, Coca-Cola India took its orange fruit drink Minute Maid national after a carefully phased launch that first covered major cities. Last month, PepsiCo rolled out its fruit drink, Tropicana Twister, nationally.
PepsiCo also announced that it expects to treble its turnover in the next three years, expecting a good portion of this increase to come from fruit drinks. Coca-Cola India has meanwhile launched its second communication campaign for Minute Maid and the company has also finished its test-marketing 200 ml carton packs of “Mazaa Aam Panna” in Agra, Bhopal and Bareilly. The company plans to launch the drink this summer.
The action by the global giants is partly in response to the local players. In March 2007, homegrown beverages major Dabur had launched Real Twist, its fruit drink in three flavours – Mango-Orange, Mango-Apple and Mango-Pineapple.
“Growth in the fruit drinks segment has been accelerated by increased consumption by teenagers in the last two years. With Réal Twist, we are meeting the needs of teenagers who were looking for a product that is different and with which they can associate,” says K K Chutani, general manager-marketing, Dabur India.
It’s also because the fruit drinks segment is ripe for plucking. At Rs 1,200 crore, the juice and juice drink category is among the fastest growing segments of the approximately Rs 9,500 crore packaged beverages category. While fruit drinks as a category is growing at 18-20 per cent, carbonated soft drinks are growing at 6-8 per cent.
However, more than 90 per cent of sales happen through the unorganised route — juice centres, street corner shops and so on. It’s this 90 per cent that companies are tapping. “Hygiene is a huge issue at most of these outlets. A well-packed fruit drink can surely tap this market,” says Venkatesh Kini, vice-president-marketing, Coca Cola India.
Competitors agree. “It’s the fastest growing liquid beverage category. The young consumer has clearly displayed a liking and a need for fruit drinks,” says Sucheta Govil, executive director- innovation, PepsiCo India.
The other part of the strategy is to cater to the evolving consumer tastes. “The Indian consumer of today is clearly seeking healthier alternatives,” says Sharda Agarwal, a former marketing director of Coca-Cola India and a co-founder MarketGate Consulting.
“Bottled water and fruit-based drinks are benefiting from the healthier tone that Indian consumers have taken. Moreover, the soft drink market is maturing,” agrees Sunil Alagh, chairman, SKA Advisors.
Hence, TV campaigns of both companies emphasise the presence of fruit. For instance, Pepsi’s campaign shows a young boy sipping from a bottle of Tropicana Twist only to find pretty girls hurling oranges at him, in a way symbolising the fruit rush that the consumer gets after drinking the juice. “We plan to spread awareness about health benefits of fruit and fruit juices through various nutritional programmes,” says Govil.
Coca-Cola India’s campaign for Minute Maid shows fruit pulp disappearing from oranges only to be found in the drink, promoted widely as Pulpy Orange. The company focused a large amount of it promotions on sampling.
Apart from television and print advertisements, Coca-Cola India distributed free samples to consumers at malls, offices, shopping arcades multiplexes and other places in most major metros to create awareness. “We distributed more than a million free samples. Once consumers taste our product they would be hooked to it,” says Kini.
But the same confidence seems to be missing on ground. In a dipstick study conducted by Business Standard, It was found that close to 50 per cent of restaurants, bars and hotels surveyed did not stock the new variants launched by Pepsi Co or Coca Cola India.
Bar and restaurant owners believe that these drinks are of little use to them as customers prefer carbonated drinks as they mix well with other spirits. They also believe that most of their customers are not in an health conscious frame of mind at their joints and hence most do not see any value in stocking these drinks.
Hotel owners are also of a similar opinion that customers trust them on hygiene, but would not prefer such fruit drinks due to the preservatives present in them. Says one, Fresh fruit juice always tastes different, these drinks are just not the same.
Another points out that their fresh fruit juice are higher ticket items at Rs 30-45 a glass than these drinks. “Fruit juice and fruit drinks will sell more at kirana and convenience stores. They require the more traditional FMCG medium of distribution,” agrees MarketGate’s Agarwal.
But the other 50 per cent who stock support the products are positive. Pepsi retailers are optimistic that there will be demand for the drink once the advertising and campaign picks up. Minute Maid retailers claim that they already sell 1-2 bottles in the same time in which they sell 10-12 bottles of Coke or Sprite.
Further they believe that sales are low because its winter. It’s a common belief amongst them that once summer sets in demand will surely increase for these drinks. Hotel owners in affluent areas claim that they are already experiencing a pull for the drink.
This pull is essential as the focus on fruit drinks is also an attempt at portfolio diversification. Both Coca-Cola and PepsiCo discovered this, much to their discomfort, when consumers started to shy away from Colas following reports of contaminated water in the carbonates— twice in the last five years. A diversified portfolio, consultants believe, will empower companies when crisis strikes.
Both companies decline that this is the real reason behind pushing fruit drinks. They say that they are merely leveraging the market opportunity. Says Kini, “The market for carbonated drinks is 10 times larger than the fruit drinks segment. We are launching this product because our research shows that the Indian customer is ready.”
Globally, however, both Coca-Cola and Pepsi have no qualms in accepting that their focus is on building a strong portfolio of non-carbonated drinks. Coca-Cola’s global strategy has been to target newer markets with carbonated drinks and to build a strong non-carbonated drink brands and healthier carbonated drinks like diet-colas, sugar-free drinks and so on.
The results are also showing globally. For instance, Pepsi’s juice brand Tropicana Premium’s global sales is higher than carbonated drinks like Mirinda and 7Up. Also sports drink Gatorade and Diet Pepsi rank second and fourth in terms of world wide retail sales clearly signifying the shift towards health drinks.
Non-carbonated drinks is also more profitable. In 2007, 62 per cent of the volume sales of PepsiCo Beverages North America were accounted for by carbonated drinks, while non-carbonated merely contributed 38 per cent. However, in terms of revenue, non-carbonated drinks contributed to 69 per cent while carbonated drinks generated only 31 per cent.
While it’s too early to compare volumes in India, the pricing of the products can shed some light on the attractiveness of the segment. While a 500 ml bottle of Pepsi or Coke costs Rs 20, a 350 ml PET bottle of Tropicana Twister costs Rs 22, while Minute Maid costs Rs 25 for a 400 ml PET bottle.
While Coca-Cola and PepsiCo are climbing up the price ladder, Dabur is driving its price point down with Real Twist. That’s because the company has traditionally marketed fruit juice and nectar, which contain 80 per cent or more of fruit pulp.
After targeting, housewives, children and senior citizens with its premium juice offering Real and its variant Real Activ, the company has extended its portfolio with Twist to reach out to the youngsters. Real Twist is priced at Rs 45 for 1.2 litres on the other hand its fruit juices like Real and Real Activ are priced between Rs 72 and Rs 85 per litre.
Even PepsiCo and Coca Cola India are looking at the age group of 18-29 years and 20- 29 years respectively. Both companies have also tweaked the taste of their global products to suit the Indian palate.
“Indians like their juice with more orange and more sweet. Hence, we have made it so,” says Coke’s Kini. Will consumer response be equally sweet?
This juice is worth its squeeze. At least cola majors Coca-Cola and PepsiCo think so. A couple of weeks back, when beverages giant The Coca-Cola Company announced its results for the October-December 2007 quarter, it attributed the growth in its Indian market to its mainstay brand Coca-Cola and its expanding portfolio of fruit drinks (beverages with 20 per cent fruit pulp).
Fruit drinks are increasingly filling the crates that were otherwise capped with fizzy carbonates in the Indian market. In October 2007, Coca-Cola India took its orange fruit drink Minute Maid national after a carefully phased launch that first covered major cities. Last month, PepsiCo rolled out its fruit drink, Tropicana Twister, nationally.
PepsiCo also announced that it expects to treble its turnover in the next three years, expecting a good portion of this increase to come from fruit drinks. Coca-Cola India has meanwhile launched its second communication campaign for Minute Maid and the company has also finished its test-marketing 200 ml carton packs of “Mazaa Aam Panna” in Agra, Bhopal and Bareilly. The company plans to launch the drink this summer.
The action by the global giants is partly in response to the local players. In March 2007, homegrown beverages major Dabur had launched Real Twist, its fruit drink in three flavours – Mango-Orange, Mango-Apple and Mango-Pineapple.
“Growth in the fruit drinks segment has been accelerated by increased consumption by teenagers in the last two years. With Réal Twist, we are meeting the needs of teenagers who were looking for a product that is different and with which they can associate,” says K K Chutani, general manager-marketing, Dabur India.
It’s also because the fruit drinks segment is ripe for plucking. At Rs 1,200 crore, the juice and juice drink category is among the fastest growing segments of the approximately Rs 9,500 crore packaged beverages category. While fruit drinks as a category is growing at 18-20 per cent, carbonated soft drinks are growing at 6-8 per cent.
However, more than 90 per cent of sales happen through the unorganised route — juice centres, street corner shops and so on. It’s this 90 per cent that companies are tapping. “Hygiene is a huge issue at most of these outlets. A well-packed fruit drink can surely tap this market,” says Venkatesh Kini, vice-president-marketing, Coca Cola India.
Competitors agree. “It’s the fastest growing liquid beverage category. The young consumer has clearly displayed a liking and a need for fruit drinks,” says Sucheta Govil, executive director- innovation, PepsiCo India.
The other part of the strategy is to cater to the evolving consumer tastes. “The Indian consumer of today is clearly seeking healthier alternatives,” says Sharda Agarwal, a former marketing director of Coca-Cola India and a co-founder MarketGate Consulting.
“Bottled water and fruit-based drinks are benefiting from the healthier tone that Indian consumers have taken. Moreover, the soft drink market is maturing,” agrees Sunil Alagh, chairman, SKA Advisors.
Hence, TV campaigns of both companies emphasise the presence of fruit. For instance, Pepsi’s campaign shows a young boy sipping from a bottle of Tropicana Twist only to find pretty girls hurling oranges at him, in a way symbolising the fruit rush that the consumer gets after drinking the juice. “We plan to spread awareness about health benefits of fruit and fruit juices through various nutritional programmes,” says Govil.
Coca-Cola India’s campaign for Minute Maid shows fruit pulp disappearing from oranges only to be found in the drink, promoted widely as Pulpy Orange. The company focused a large amount of it promotions on sampling.
Apart from television and print advertisements, Coca-Cola India distributed free samples to consumers at malls, offices, shopping arcades multiplexes and other places in most major metros to create awareness. “We distributed more than a million free samples. Once consumers taste our product they would be hooked to it,” says Kini.
But the same confidence seems to be missing on ground. In a dipstick study conducted by Business Standard, It was found that close to 50 per cent of restaurants, bars and hotels surveyed did not stock the new variants launched by Pepsi Co or Coca Cola India.
Bar and restaurant owners believe that these drinks are of little use to them as customers prefer carbonated drinks as they mix well with other spirits. They also believe that most of their customers are not in an health conscious frame of mind at their joints and hence most do not see any value in stocking these drinks.
Hotel owners are also of a similar opinion that customers trust them on hygiene, but would not prefer such fruit drinks due to the preservatives present in them. Says one, Fresh fruit juice always tastes different, these drinks are just not the same.
Another points out that their fresh fruit juice are higher ticket items at Rs 30-45 a glass than these drinks. “Fruit juice and fruit drinks will sell more at kirana and convenience stores. They require the more traditional FMCG medium of distribution,” agrees MarketGate’s Agarwal.
But the other 50 per cent who stock support the products are positive. Pepsi retailers are optimistic that there will be demand for the drink once the advertising and campaign picks up. Minute Maid retailers claim that they already sell 1-2 bottles in the same time in which they sell 10-12 bottles of Coke or Sprite.
Further they believe that sales are low because its winter. It’s a common belief amongst them that once summer sets in demand will surely increase for these drinks. Hotel owners in affluent areas claim that they are already experiencing a pull for the drink.
This pull is essential as the focus on fruit drinks is also an attempt at portfolio diversification. Both Coca-Cola and PepsiCo discovered this, much to their discomfort, when consumers started to shy away from Colas following reports of contaminated water in the carbonates— twice in the last five years. A diversified portfolio, consultants believe, will empower companies when crisis strikes.
Both companies decline that this is the real reason behind pushing fruit drinks. They say that they are merely leveraging the market opportunity. Says Kini, “The market for carbonated drinks is 10 times larger than the fruit drinks segment. We are launching this product because our research shows that the Indian customer is ready.”
Globally, however, both Coca-Cola and Pepsi have no qualms in accepting that their focus is on building a strong portfolio of non-carbonated drinks. Coca-Cola’s global strategy has been to target newer markets with carbonated drinks and to build a strong non-carbonated drink brands and healthier carbonated drinks like diet-colas, sugar-free drinks and so on.
The results are also showing globally. For instance, Pepsi’s juice brand Tropicana Premium’s global sales is higher than carbonated drinks like Mirinda and 7Up. Also sports drink Gatorade and Diet Pepsi rank second and fourth in terms of world wide retail sales clearly signifying the shift towards health drinks.
Non-carbonated drinks is also more profitable. In 2007, 62 per cent of the volume sales of PepsiCo Beverages North America were accounted for by carbonated drinks, while non-carbonated merely contributed 38 per cent. However, in terms of revenue, non-carbonated drinks contributed to 69 per cent while carbonated drinks generated only 31 per cent.
While it’s too early to compare volumes in India, the pricing of the products can shed some light on the attractiveness of the segment. While a 500 ml bottle of Pepsi or Coke costs Rs 20, a 350 ml PET bottle of Tropicana Twister costs Rs 22, while Minute Maid costs Rs 25 for a 400 ml PET bottle.
While Coca-Cola and PepsiCo are climbing up the price ladder, Dabur is driving its price point down with Real Twist. That’s because the company has traditionally marketed fruit juice and nectar, which contain 80 per cent or more of fruit pulp.
After targeting, housewives, children and senior citizens with its premium juice offering Real and its variant Real Activ, the company has extended its portfolio with Twist to reach out to the youngsters. Real Twist is priced at Rs 45 for 1.2 litres on the other hand its fruit juices like Real and Real Activ are priced between Rs 72 and Rs 85 per litre.
Even PepsiCo and Coca Cola India are looking at the age group of 18-29 years and 20- 29 years respectively. Both companies have also tweaked the taste of their global products to suit the Indian palate.
“Indians like their juice with more orange and more sweet. Hence, we have made it so,” says Coke’s Kini. Will consumer response be equally sweet?
Monday, February 25, 2008
Online Education Takes Off in India
Indian schoolchildren use a laptop to browse a new self assessment and diagnostic Internet site tool in Hyderabad.
It's a Sunday afternoon and class time for 39-year-old IT worker Seema Shetty. Her feet curled under her in a swivel chair, she sits in front of a computer monitor, adjusts a set of headphones, and scribbles in a notebook. Shetty, who works for consulting firm Mastek in Mumbai, is in a virtual classroom in the Vile Parle suburb, where a dozen computers link students to some of India's elite management institutions. Today's class is a three-hour general management lecture, part of the online education course conducted by the Xavier Labor Relations Institute in Jamshedpur, in the remote northern Indian state of Jharkhand.
A consultant for various industries from insurance to banking, Shetty signed up for an online certificate course to "learn more about my clients' business requirements," she says. By enrolling in the 14-month, six-hour-per-weekend online course, at a cost of $4,600, she can further her education without having to take a two-year career break to get an MBA. Learning online, says Shetty hopefully, "will definitely boost my job prospects."
Shetty is part of a growing tribe of working professionals and students in India who have enrolled for online education certification. While it's difficult to determine numbers of students, the online education market in India today generates about $200 million in revenue, and industry experts expect it to touch $1 billion by the end of the decade. The winning proposition: Getting knowledge from top-notch professionals without disrupting fast-track careers.
Slaking a Thirst for Knowledge
Mostly it's courses in engineering, management, finance, human resources, and mass communications available to individuals who feel they need some polish and a deeper understanding of their chosen subjects. Institutions, too, are big users—most are short of staff and overwhelmed by the demand from students who want to be equipped with the best possible education to further their job prospects in India's rapidly expanding economy.
Online education addresses some of India's shortcomings: a dismal education system, limited reach, and a severe paucity of faculty. "Even students from smaller engineering colleges feel they can now access the same courses our top students are exposed to," says Kanan Moudgaliya, head of the distance learning initiative at the Indian Institute of Technology (IIT) in Mumbai.
The efforts to boost graduate education have begun right at the top. India is booming, and as new industries such as retail, real estate, and infrastructure grow, the talent crunch grows, too. In 2003, New Delhi made education a priority, boosting spending from 3% of gross domestic product to 5%. Upgrading the quality of higher education was key to its agenda. That's when the IITs and the leading business schools went online with their courses. There's both Web-based education, which puts course material online for students to download, and there's virtual learning—the kind that Shetty is undertaking.
Foreign Universities Heed the Call
The biggest and most popular providers of online education are the IITs, leading business schools like the Indian Institutes of Management (IIMs), and private schools such as Sikkim Manipal University in northern India. In addition there are private online education services such as Educomp Solutions, Everonn Systems, and TutorVista. Last year, Rubin Das, 29, a midlevel restaurant manager at Mumbai's Grand Hyatt hotel, was one of the 120 students who enrolled for the online general management course for young managers at IIM-Calcutta.
It's a Sunday afternoon and class time for 39-year-old IT worker Seema Shetty. Her feet curled under her in a swivel chair, she sits in front of a computer monitor, adjusts a set of headphones, and scribbles in a notebook. Shetty, who works for consulting firm Mastek in Mumbai, is in a virtual classroom in the Vile Parle suburb, where a dozen computers link students to some of India's elite management institutions. Today's class is a three-hour general management lecture, part of the online education course conducted by the Xavier Labor Relations Institute in Jamshedpur, in the remote northern Indian state of Jharkhand.
A consultant for various industries from insurance to banking, Shetty signed up for an online certificate course to "learn more about my clients' business requirements," she says. By enrolling in the 14-month, six-hour-per-weekend online course, at a cost of $4,600, she can further her education without having to take a two-year career break to get an MBA. Learning online, says Shetty hopefully, "will definitely boost my job prospects."
Shetty is part of a growing tribe of working professionals and students in India who have enrolled for online education certification. While it's difficult to determine numbers of students, the online education market in India today generates about $200 million in revenue, and industry experts expect it to touch $1 billion by the end of the decade. The winning proposition: Getting knowledge from top-notch professionals without disrupting fast-track careers.
Slaking a Thirst for Knowledge
Mostly it's courses in engineering, management, finance, human resources, and mass communications available to individuals who feel they need some polish and a deeper understanding of their chosen subjects. Institutions, too, are big users—most are short of staff and overwhelmed by the demand from students who want to be equipped with the best possible education to further their job prospects in India's rapidly expanding economy.
Online education addresses some of India's shortcomings: a dismal education system, limited reach, and a severe paucity of faculty. "Even students from smaller engineering colleges feel they can now access the same courses our top students are exposed to," says Kanan Moudgaliya, head of the distance learning initiative at the Indian Institute of Technology (IIT) in Mumbai.
The efforts to boost graduate education have begun right at the top. India is booming, and as new industries such as retail, real estate, and infrastructure grow, the talent crunch grows, too. In 2003, New Delhi made education a priority, boosting spending from 3% of gross domestic product to 5%. Upgrading the quality of higher education was key to its agenda. That's when the IITs and the leading business schools went online with their courses. There's both Web-based education, which puts course material online for students to download, and there's virtual learning—the kind that Shetty is undertaking.
Foreign Universities Heed the Call
The biggest and most popular providers of online education are the IITs, leading business schools like the Indian Institutes of Management (IIMs), and private schools such as Sikkim Manipal University in northern India. In addition there are private online education services such as Educomp Solutions, Everonn Systems, and TutorVista. Last year, Rubin Das, 29, a midlevel restaurant manager at Mumbai's Grand Hyatt hotel, was one of the 120 students who enrolled for the online general management course for young managers at IIM-Calcutta.
Thursday, February 14, 2008
A brand is a pre-made decision
A brand is a brand when consumers buy it without a single lingering thought or doubt.
Spoilt for choice? Or does no brand exist in your psyche?
When is a brand a brand?
Revathi, this is a philosophical question. Let me answer it with as little philosophy in the answer as possible.
I believe a brand is a brand when it is perennially in your dominant psyche. It need not be a purchase, but it very definitely needs to be a dominant thought. This will irritate the sales guy at the forefront of the marketplace. As it will the top-line sales seeking CEO. But this is true. Branding, in reality, has very little to do with sales. Very little to do with buying and selling. The day you as a brand manager understand this, despite the bullying influence of your CEO from above and the sales team from below, you have arrived.
The brand is a pure form, a form that does not need the sanctification of a purchase to endorse that the brand is a brand.
I believe a brand is a brand in the real sense of the term when you buy it without a thought, even. Without even a thought to linger and say that there is a competing product to buy. A thought that cannot be shaken or stirred, come what may.
The brand is a convenience. People like you and I are always on the run. We are forever living lives that demand decisions of every kind, every now and then. You need to decide what shirt to wear in the morning and what trousers to match. You need to decide which movie to see, which to avoid. Which friend to meet and which to run away from.
In your choice of brands as well, as a consumer, you are forever deciding. I believe a brand is a brand when you stop deciding which brand to buy altogether. When the decision comes by rote, it is indeed a brand.
In many senses then, in a category where there are no choices at all, there is a brand! When Milkmaid was all alone as a condensed milk, there was just no decision to take. In came Mithai Mate, and you had a choice. If you continued to ignore Mithai Mate despite the allure of the company Amul, despite good quality cues, despite the allure of its advertising, and most importantly despite the allure of its price even, then Milkmaid is indeed a brand.
A brand is a brand, therefore, when you stop deciding. A brand is a pre-made decision. An unquestionable one. Unchallenged.
Look around our lives. How many of these exist in your brand psyche? Two? Three? Out of 800-plus that are dominant in our everyday lives? None?
How come the cola companies in India are on a spree of looking nice and sounding right? Why all this CSR advertising?
- John A. Challadurai, Tiruchi
John, I do believe the cola category in India is going to fast become what I call the ‘socially ostracised’ category. These are categories of non-healthy foods and beverages, as are sugar, oils, paan and gutkha.
Liquor and cigarettes are the prime occupants of this category. The cola is about to join this category. This is therefore pre-emptive action. Good and sound. Sadly, companies today seem to adopt CSR stances only when pushed against the wall. On very few occasions out of their own volition.
What’s the role of CSR in modern marketing society? What’s the theory behind it all?
- R. N. Singh, Delhi
Singh Saab, there are simply three marketing formats to follow in a society as it morphs. In the early stage, society is all about I, me, myself! At this stage in consumer societal evolution, the marketer gets away using the language of hedonism and pleasure. The ‘I, me, myself’ kind of product and service works well. The ‘Axe’ effect works here!
And then there is the stage when the consumer has gone beyond that basic stage. He is now concerned about the people around him. His loved ones. His family of four. His extended family of four more, mother, father, father-in-law and mother-in-law.
This kind of man likes brands to be inclusive in their language, tone and tenor. This kind of man wants products that are good for the entire family! Never mind the rest of society, just as long his close-knit family is taken care of, he is fine! The Annapurna atta story works here!
And then there is man who is more conscious of more people around him. This is the kind of guy who is bothered about the good of his immediate neighbourhood and society! He wants his entire neighbourhood to be happy! The ‘Lifebuoy’ ‘clean the neighborhood’ story works here!
There is macro-man then. This is the kind of person who wants the good of his immediate society and his entire planet. This is the kind of guy who wants to use bio-based detergents that don’t hurt the eco-system! The ‘Surf Excel’ “Do bucket paani bachana hai” theme works here!
And finally there is Cosmos man! Concerned about the cosmos, much of which he does not know even! We are yet to get there!
CSR works at every level. CSR is an inclusive process. A process that embraces the good of society in a very inclusive manner. This inclusiveness could start at the level of the immediate family and morph to embrace the entire cosmos.
CSR plays a vital role in taking commercial brands out into the commercial marketplace with a theme that is appealing to the sense and sensibility of the modern consumer. CSR is therefore a valuable tool that marketers can use to market their brand of soap, detergent, sugar and tea with equal panache and commercial effectiveness.
CSR is not at all about running public hospitals and schools alone. CSR is not about sending tsunami relief material to the trouble spots of the world. That is old hat! It is much more!
The modern consumer understands CSR that much more intimately when you touch his life with a wee bit of CSR in your soap. A wee bit in your shampoo! The future of marketing is full of CSR! Of a different kind!
Spoilt for choice? Or does no brand exist in your psyche?
When is a brand a brand?
Revathi, this is a philosophical question. Let me answer it with as little philosophy in the answer as possible.
I believe a brand is a brand when it is perennially in your dominant psyche. It need not be a purchase, but it very definitely needs to be a dominant thought. This will irritate the sales guy at the forefront of the marketplace. As it will the top-line sales seeking CEO. But this is true. Branding, in reality, has very little to do with sales. Very little to do with buying and selling. The day you as a brand manager understand this, despite the bullying influence of your CEO from above and the sales team from below, you have arrived.
The brand is a pure form, a form that does not need the sanctification of a purchase to endorse that the brand is a brand.
I believe a brand is a brand in the real sense of the term when you buy it without a thought, even. Without even a thought to linger and say that there is a competing product to buy. A thought that cannot be shaken or stirred, come what may.
The brand is a convenience. People like you and I are always on the run. We are forever living lives that demand decisions of every kind, every now and then. You need to decide what shirt to wear in the morning and what trousers to match. You need to decide which movie to see, which to avoid. Which friend to meet and which to run away from.
In your choice of brands as well, as a consumer, you are forever deciding. I believe a brand is a brand when you stop deciding which brand to buy altogether. When the decision comes by rote, it is indeed a brand.
In many senses then, in a category where there are no choices at all, there is a brand! When Milkmaid was all alone as a condensed milk, there was just no decision to take. In came Mithai Mate, and you had a choice. If you continued to ignore Mithai Mate despite the allure of the company Amul, despite good quality cues, despite the allure of its advertising, and most importantly despite the allure of its price even, then Milkmaid is indeed a brand.
A brand is a brand, therefore, when you stop deciding. A brand is a pre-made decision. An unquestionable one. Unchallenged.
Look around our lives. How many of these exist in your brand psyche? Two? Three? Out of 800-plus that are dominant in our everyday lives? None?
How come the cola companies in India are on a spree of looking nice and sounding right? Why all this CSR advertising?
- John A. Challadurai, Tiruchi
John, I do believe the cola category in India is going to fast become what I call the ‘socially ostracised’ category. These are categories of non-healthy foods and beverages, as are sugar, oils, paan and gutkha.
Liquor and cigarettes are the prime occupants of this category. The cola is about to join this category. This is therefore pre-emptive action. Good and sound. Sadly, companies today seem to adopt CSR stances only when pushed against the wall. On very few occasions out of their own volition.
What’s the role of CSR in modern marketing society? What’s the theory behind it all?
- R. N. Singh, Delhi
Singh Saab, there are simply three marketing formats to follow in a society as it morphs. In the early stage, society is all about I, me, myself! At this stage in consumer societal evolution, the marketer gets away using the language of hedonism and pleasure. The ‘I, me, myself’ kind of product and service works well. The ‘Axe’ effect works here!
And then there is the stage when the consumer has gone beyond that basic stage. He is now concerned about the people around him. His loved ones. His family of four. His extended family of four more, mother, father, father-in-law and mother-in-law.
This kind of man likes brands to be inclusive in their language, tone and tenor. This kind of man wants products that are good for the entire family! Never mind the rest of society, just as long his close-knit family is taken care of, he is fine! The Annapurna atta story works here!
And then there is man who is more conscious of more people around him. This is the kind of guy who is bothered about the good of his immediate neighbourhood and society! He wants his entire neighbourhood to be happy! The ‘Lifebuoy’ ‘clean the neighborhood’ story works here!
There is macro-man then. This is the kind of person who wants the good of his immediate society and his entire planet. This is the kind of guy who wants to use bio-based detergents that don’t hurt the eco-system! The ‘Surf Excel’ “Do bucket paani bachana hai” theme works here!
And finally there is Cosmos man! Concerned about the cosmos, much of which he does not know even! We are yet to get there!
CSR works at every level. CSR is an inclusive process. A process that embraces the good of society in a very inclusive manner. This inclusiveness could start at the level of the immediate family and morph to embrace the entire cosmos.
CSR plays a vital role in taking commercial brands out into the commercial marketplace with a theme that is appealing to the sense and sensibility of the modern consumer. CSR is therefore a valuable tool that marketers can use to market their brand of soap, detergent, sugar and tea with equal panache and commercial effectiveness.
CSR is not at all about running public hospitals and schools alone. CSR is not about sending tsunami relief material to the trouble spots of the world. That is old hat! It is much more!
The modern consumer understands CSR that much more intimately when you touch his life with a wee bit of CSR in your soap. A wee bit in your shampoo! The future of marketing is full of CSR! Of a different kind!
Building power brands in services
The challenges vis-À-vis product branding…
Services are intangible: The perception of services is built over time through experience.
Pepsi vs Coke, Rin vs Tide, Nokia vs Samsung, LG vs Whirlpool, Ford Ikon vs Hyundai Accent… building perceptual differences is the name of the game in brand building. The stories of brands battling it out for consumer share of mind are legendar y and generations of marketers have grown up on these. Product features combined with advertising-led image are the fundamental tools that build power brands in products, even in this internet age.
Jet vs Kingfisher, Spice Jet vs Go Air, Barista vs Café Coffee Day, Pizza Hut vs McDonalds, Lifestyle vs Shopper’s Stop, LIC vs ICICI, Airtel vs Hutch (Vodafone)… there is another set of brands that are also battling it out for consumer share of wallet and share of heart. Some of these service brands are battling it out on experience while others are focusing on advertising image.
A more interesting question, however, is the relative power of the product brands vis-À-vis the service brands. In Interbrand’s 2007 ranking of global brands by brand value, in the top 20 list there are 12 product brands and seven services brands; and in the top 50 list there are 36 product brands and 21 services brands. While services businesses contribute way more to the global GDP, when it comes to brand value, product brands significantly outperform services brands. Interbrand has not yet brought out a list of India’s top brands by value. But, if they did, one wonders whether the service brands would have a place close to the product brands or would they be far behind?
This is not an academic or rhetorical question. With India’s economy rapidly transforming itself to a services-led one and the billions of rupees of investment intended for the new sectors (financial services, organised retail, media, entertainment and lifestyle), the imperative to build power brands in services is strong. However, this begs the question whether service brands should be built the same way as product brands. If not, then what are the differences between brand-building in products and in services?
A brand is the sum of tangible and intangible values and associations that differentiate it from other available offerings in the market. Products are made in the factory but brands are made in the minds of consumers.
The task of product branding is to build intangible values and associations around the tangible product in order to differentiate it from physically identical products that are available. Thus, a Nokia-branded cell phone suggests something different to a buyer and owner than a Samsung-branded cell phone, even if the quality level and feature set of the two phones are identical. Or detergent powder branded Tide vs the same powder branded Wheel signal powerful perceptual differences. Emotional benefits, sensory cues and brand personality leveraged in advertising are powerful ways to add layers of emotional meaning and intangible values to the basic product and differentiate it.
Product branding is easier than service branding because it is easier to achieve congruence between advertising message and product experience.
Since advertising claims are derived from the product itself and product quality is not variable, what consumers expect from the product based on its advertising is what they will experience when they buy the product. This congruence means that it is far easier for product brands to build consumer trust and confidence, the foundation of branding
On the other hand, services are intangible. They are experienced only at the various points of delivery, in real time, as they are being delivered. There is also significant variability in service delivery that a customer experiences even from the same service provider at various points in time. Perceptions of service differentials are built more through actual experience than through advertising. Hence the task of branding services is not to add more intangibility through advertising emotional benefits and brand personality.
On the other hand, the critical task of services branding is to bring tangibility to the intangible. It is to create markers at each point of service delivery that highlight the brand differentiators. These markers when noted, remembered and talked about by consumers build perceptual differences between service brands. Thus, the task of service branding is the very opposite of product branding.
In the Kingfisher vs Jet instance, the King of Good Times brand concept of Kingfisher has been translated into a number of tangible differentiators at all stages of service delivery. From referring to passengers as guests to greeting passengers upon entry to the airport and carrying their luggage, from the glamorous red uniforms of the stewardesses to the in-flight entertainment, there are markers to be noted, remembered and discussed.
There is far greater variability in service delivery creating mismatch between advertising claims and actual service experience. This leads a number of service brands to focus on broad emotional theme-led communication which don’t make any specific claims related to service quality. As with products, the expectation is that such advertising will build salience and affinity for the service brand, but the ROI of such investment for a service brand will certainly be far lower than for a product brand.
While advertising is relevant and can be helpful for service brands, there are many powerful services brands that have been built with little or no investment in advertising. Starbucks and Google immediately come to mind. This is because, service brands are best built bottom up – leveraging experiential differentiators rather than top down, via advertising campaigns.
Services are intangible: The perception of services is built over time through experience.
Pepsi vs Coke, Rin vs Tide, Nokia vs Samsung, LG vs Whirlpool, Ford Ikon vs Hyundai Accent… building perceptual differences is the name of the game in brand building. The stories of brands battling it out for consumer share of mind are legendar y and generations of marketers have grown up on these. Product features combined with advertising-led image are the fundamental tools that build power brands in products, even in this internet age.
Jet vs Kingfisher, Spice Jet vs Go Air, Barista vs Café Coffee Day, Pizza Hut vs McDonalds, Lifestyle vs Shopper’s Stop, LIC vs ICICI, Airtel vs Hutch (Vodafone)… there is another set of brands that are also battling it out for consumer share of wallet and share of heart. Some of these service brands are battling it out on experience while others are focusing on advertising image.
A more interesting question, however, is the relative power of the product brands vis-À-vis the service brands. In Interbrand’s 2007 ranking of global brands by brand value, in the top 20 list there are 12 product brands and seven services brands; and in the top 50 list there are 36 product brands and 21 services brands. While services businesses contribute way more to the global GDP, when it comes to brand value, product brands significantly outperform services brands. Interbrand has not yet brought out a list of India’s top brands by value. But, if they did, one wonders whether the service brands would have a place close to the product brands or would they be far behind?
This is not an academic or rhetorical question. With India’s economy rapidly transforming itself to a services-led one and the billions of rupees of investment intended for the new sectors (financial services, organised retail, media, entertainment and lifestyle), the imperative to build power brands in services is strong. However, this begs the question whether service brands should be built the same way as product brands. If not, then what are the differences between brand-building in products and in services?
A brand is the sum of tangible and intangible values and associations that differentiate it from other available offerings in the market. Products are made in the factory but brands are made in the minds of consumers.
The task of product branding is to build intangible values and associations around the tangible product in order to differentiate it from physically identical products that are available. Thus, a Nokia-branded cell phone suggests something different to a buyer and owner than a Samsung-branded cell phone, even if the quality level and feature set of the two phones are identical. Or detergent powder branded Tide vs the same powder branded Wheel signal powerful perceptual differences. Emotional benefits, sensory cues and brand personality leveraged in advertising are powerful ways to add layers of emotional meaning and intangible values to the basic product and differentiate it.
Product branding is easier than service branding because it is easier to achieve congruence between advertising message and product experience.
Since advertising claims are derived from the product itself and product quality is not variable, what consumers expect from the product based on its advertising is what they will experience when they buy the product. This congruence means that it is far easier for product brands to build consumer trust and confidence, the foundation of branding
On the other hand, services are intangible. They are experienced only at the various points of delivery, in real time, as they are being delivered. There is also significant variability in service delivery that a customer experiences even from the same service provider at various points in time. Perceptions of service differentials are built more through actual experience than through advertising. Hence the task of branding services is not to add more intangibility through advertising emotional benefits and brand personality.
On the other hand, the critical task of services branding is to bring tangibility to the intangible. It is to create markers at each point of service delivery that highlight the brand differentiators. These markers when noted, remembered and talked about by consumers build perceptual differences between service brands. Thus, the task of service branding is the very opposite of product branding.
In the Kingfisher vs Jet instance, the King of Good Times brand concept of Kingfisher has been translated into a number of tangible differentiators at all stages of service delivery. From referring to passengers as guests to greeting passengers upon entry to the airport and carrying their luggage, from the glamorous red uniforms of the stewardesses to the in-flight entertainment, there are markers to be noted, remembered and discussed.
There is far greater variability in service delivery creating mismatch between advertising claims and actual service experience. This leads a number of service brands to focus on broad emotional theme-led communication which don’t make any specific claims related to service quality. As with products, the expectation is that such advertising will build salience and affinity for the service brand, but the ROI of such investment for a service brand will certainly be far lower than for a product brand.
While advertising is relevant and can be helpful for service brands, there are many powerful services brands that have been built with little or no investment in advertising. Starbucks and Google immediately come to mind. This is because, service brands are best built bottom up – leveraging experiential differentiators rather than top down, via advertising campaigns.
Saturday, February 9, 2008
5 principles of marketing
Philip Kotler was once told, "I thought you were the author of one book (Marketing Management) and 34 versions of it." The man who's been called the "messiah of marketing" smiles as he recalls the incident, but there's an element of truth in that quote.
Marketing has undergone a sea change in the three decades since Kotler's first book - now considered a Bible for all marketing management students - hit the stands. Today, Kotler says he would be embarrassed if someone asked him to autograph the first edition of the bestseller.
In Mumbai to address a seminar on "Marketing For Results", Kotler says even his 4Ps theory (product, price, place and promotion), that's taught in every kindergarten marketing course, could do with some additions.
"Several Ps are missing. People, packaging...," he proceeds to take class on the A-B-Cs of marketing. The three As that every marketer should swear by are "awareness, availability and access" and the CCDV concept is to "create, communicate and deliver value".
'India is on a roll'
The problems for marketing? "It has become a one-P discipline. Selling," Kotler declares. Maybe he means "peddling", because the guru is clearly unhappy with the stop-gap approach many managers adopt these days: "Marketing professionals lack accountability and hence take short term decisions."
Kotler recommends that CEOs should get a pay-out several years after they leave an organisation, which may engender more long-term decision-making.
Some lessons from the day-long seminar:
Lesson 1: R&D must be market-ready
Kotler had a poser for his audience. His question: "If you were the chief marketing officer of your organisation, who would you prefer to be close to? The CEO, CFO, CIO (chief information officer) or the CRO (chief research officer)?" There was no single opinion, so Kotler decided to have the final say. He would have had it, anyways.
According to Kotler, the CMO needs to be close to everybody from the CEO to the CRO. Typically, the CFO does not see logic in investing behind brands because he is not close to marketing. And, there is an 80 per cent failure rate in new products.
"The R&D is farthest away from customers, hence they often get it wrong," he explained. Now, even in research-focused organisations like IT giant Microsoft, "marketing has become the front door and their new product success rate has become higher".
Lesson 2: Number-crunching is more than just calculating market shares
"In B-schools most students choose marketing because they did not like accounts," quips Kotler. He recommends that instead, most marketing professionals must be "clued into finance" so that the other functions in the company take marketing seriously.
"The CMO must demonstrate the return on marketing investment," he says. Kotler recommends the creation of a marketing scorecard that captures the number of new customers added every year, measures the satisfaction level of current customers and indicates the brand health.
Lesson 3: The co-creation mantra
"Make your business a workshop where your customer can draw what he wants," recommends Kotler, adding "marketing is the delivery of experience". His example is the Four Seasons hotel chain that customises hotel rooms for its guests. Whenever possible, the next time the guest visits the hotel, he gets the same room.
"While the aim of business is to create satisfied customers, the truth is companies continue to lose unsatisfied customers."
The message: plug the leaks by exceeding customer satisfaction and customer delight, moving to a higher level - customer astonishment. Kotler feels that iconic brands like Harley Davidson and iPod reach these higher levels.
What else? Devise a net promoter score to track customer satisfaction levels. Round up your most loyal customers. Ask them if they would recommend your products to others and become promoters for your brand. If the number of those promoters is increasing, it's a good score. Otherwise get the point.
Lesson 4: Expand market size
Kotler begins this lesson with the story of Jack Welch, the legendary CEO of General Electric who made it a thumb rule that GE would only operate in businesses where it was a dominant player.
When Welch asked his managers about GE's market share in their business, the executives would give impressive numbers in the range of 50 per cent.
Welch would reply, "I think it's only 10 per cent. We have not tapped the rest of the market." Kotler's point: in your rush to hit the bull's eye, don't miss out on the markets that surround the sweet spot. The dart board is bigger. There are more places to hit.
Lesson 5: Strategic trajectory for Indian brands
Indian companies face two challenges - defending their markets against the invasion of foreign labels. The second is to develop strong global brands themselves.
According to Kotler, the trajectory for Indian brands is to move from being seen as low-cost average quality products, to low-cost superior quality and finally to higher-end products.
He gives the example of Haier, the Chinese consumer durables company, which has successfully acquired a global brand status. In its first stage, Haier fixed quality. In the second stage, the company diversified its product basket from just making refrigerators to mcrowaves, dishwashers, vacuum cleaners and other products.
The third stage was to globalise. Most importantly, Kotler recommends that Indian companies must lean on research. "Instead of reducing marketing to advertising and selling, it makes sense to stick to research," says the 75-year-old, with child-like enthusiasm for his pet subject.
Marketing has undergone a sea change in the three decades since Kotler's first book - now considered a Bible for all marketing management students - hit the stands. Today, Kotler says he would be embarrassed if someone asked him to autograph the first edition of the bestseller.
In Mumbai to address a seminar on "Marketing For Results", Kotler says even his 4Ps theory (product, price, place and promotion), that's taught in every kindergarten marketing course, could do with some additions.
"Several Ps are missing. People, packaging...," he proceeds to take class on the A-B-Cs of marketing. The three As that every marketer should swear by are "awareness, availability and access" and the CCDV concept is to "create, communicate and deliver value".
'India is on a roll'
The problems for marketing? "It has become a one-P discipline. Selling," Kotler declares. Maybe he means "peddling", because the guru is clearly unhappy with the stop-gap approach many managers adopt these days: "Marketing professionals lack accountability and hence take short term decisions."
Kotler recommends that CEOs should get a pay-out several years after they leave an organisation, which may engender more long-term decision-making.
Some lessons from the day-long seminar:
Lesson 1: R&D must be market-ready
Kotler had a poser for his audience. His question: "If you were the chief marketing officer of your organisation, who would you prefer to be close to? The CEO, CFO, CIO (chief information officer) or the CRO (chief research officer)?" There was no single opinion, so Kotler decided to have the final say. He would have had it, anyways.
According to Kotler, the CMO needs to be close to everybody from the CEO to the CRO. Typically, the CFO does not see logic in investing behind brands because he is not close to marketing. And, there is an 80 per cent failure rate in new products.
"The R&D is farthest away from customers, hence they often get it wrong," he explained. Now, even in research-focused organisations like IT giant Microsoft, "marketing has become the front door and their new product success rate has become higher".
Lesson 2: Number-crunching is more than just calculating market shares
"In B-schools most students choose marketing because they did not like accounts," quips Kotler. He recommends that instead, most marketing professionals must be "clued into finance" so that the other functions in the company take marketing seriously.
"The CMO must demonstrate the return on marketing investment," he says. Kotler recommends the creation of a marketing scorecard that captures the number of new customers added every year, measures the satisfaction level of current customers and indicates the brand health.
Lesson 3: The co-creation mantra
"Make your business a workshop where your customer can draw what he wants," recommends Kotler, adding "marketing is the delivery of experience". His example is the Four Seasons hotel chain that customises hotel rooms for its guests. Whenever possible, the next time the guest visits the hotel, he gets the same room.
"While the aim of business is to create satisfied customers, the truth is companies continue to lose unsatisfied customers."
The message: plug the leaks by exceeding customer satisfaction and customer delight, moving to a higher level - customer astonishment. Kotler feels that iconic brands like Harley Davidson and iPod reach these higher levels.
What else? Devise a net promoter score to track customer satisfaction levels. Round up your most loyal customers. Ask them if they would recommend your products to others and become promoters for your brand. If the number of those promoters is increasing, it's a good score. Otherwise get the point.
Lesson 4: Expand market size
Kotler begins this lesson with the story of Jack Welch, the legendary CEO of General Electric who made it a thumb rule that GE would only operate in businesses where it was a dominant player.
When Welch asked his managers about GE's market share in their business, the executives would give impressive numbers in the range of 50 per cent.
Welch would reply, "I think it's only 10 per cent. We have not tapped the rest of the market." Kotler's point: in your rush to hit the bull's eye, don't miss out on the markets that surround the sweet spot. The dart board is bigger. There are more places to hit.
Lesson 5: Strategic trajectory for Indian brands
Indian companies face two challenges - defending their markets against the invasion of foreign labels. The second is to develop strong global brands themselves.
According to Kotler, the trajectory for Indian brands is to move from being seen as low-cost average quality products, to low-cost superior quality and finally to higher-end products.
He gives the example of Haier, the Chinese consumer durables company, which has successfully acquired a global brand status. In its first stage, Haier fixed quality. In the second stage, the company diversified its product basket from just making refrigerators to mcrowaves, dishwashers, vacuum cleaners and other products.
The third stage was to globalise. Most importantly, Kotler recommends that Indian companies must lean on research. "Instead of reducing marketing to advertising and selling, it makes sense to stick to research," says the 75-year-old, with child-like enthusiasm for his pet subject.
360 degrees and more
Call it total branding or 360-degree advertising. Branding strategies that go beyond the usual print or television campaigns seem to have caught the advertiser's fancy.
Amara Raja Batteries' retail outlet
THERE are several car drivers and two-wheeler riders in Chennai who would have got chilled bottles of mineral water at traffic junctions this summer, courtesy Amara Raja Batteries. The bottle came with a small note which said: `At 40 degrees Celsius, if your car has an Amaron battery, it doesn't need water, but you do.'
Similarly, Nerolac Paints is trying to reposition itself as a larger-than-life brand through its new advertising campaign which talks about Nerolac adding colour to everyone's life. The company's new brand ambassador, Amitabh Bachchan, signs off by saying, `Yeh rang hai jo har ek zindagi ko choota hai'.
The company recently carried forward its positioning of touching every individual's life by associating itself with an organisation for underprivileged children in Mumbai called Akanksha. It set up huge canvases in different parts of the city and called upon people to dip their hands into a can of Nerolac Paint and leave an imprint on the canvas. The company promised to donate Rs 2 for every colour imprint to Akanksha.
These are but just a couple of instances of 360-degree advertising, where the key advertising message is delivered in different ways and through various other media. "Most companies today expect their advertising agencies to think beyond the usual TV and press campaigns," says Indu Balachandran, Creative Director, JWT, Chennai.
Balachandran says that though most companies have been using media other than advertising to reach their target audience, clients over the past couple of years have been more focused about translating their key advertising message through other media. "For instance, the branding exercise that we had done for Parry's Coffy Bite was an argument on whether it was coffee or toffee. This was not only brought alive in our advertising campaign but also taken forward by sponsoring school-level debates, as debates are all about arguments."
"A 360-degree campaign nails the key brand message in the minds of the consumer in different ways," she adds. JWT has branded its 360-degree services as Thompson Total Branding.
In fact, the term 360-degree is the proprietary brand name of Ogilvy & Mather (O&M). Says R. Krishna Mohan, Executive Director, Ogilvy & Mather, "A lot of agencies offer complete branding services, but we at O&M try to bring alive the brand promise at every point the customer comes in contact with the brand," he says. "We try to surround customers with the brand message. We make sure that the message doesn't crowd him, but is available when it is most relevant," he adds.
Suguna Swamy, Former Creative Director, O&M, says, "360-degree is a single idea interpreted uniquely through respective medias. The 360-degree way intensifies brand experience."
A total branding campaign would therefore involve all the wings of an agency - creative, media, PR and direct marketing - working towards a single goal, which is to translate the brand values of a certain product through different media.
"You take the same brand idea through different platforms. The promotion needn't necessarily be done through an ad campaign. It could be done with the help of a PR exercise or a direct marketing campaign," says Nirvik Singh, Chairman, Grey Worldwide.
What is most important in a 360-degree campaign is that the message is delivered at a time when it is most important to the consumer, says O&M's Mohan. "If I could deliver a sachet of coffee with a packet of Aavin Milk at a consumer's doorstep, I would be doing it at a time when a steaming hot cup of coffee is his topmost priority," he adds.
Mohan quotes instances from a 360-degree campaign which O&M had done a couple of years ago for ANZ Grindlays Home Loans. "Before working out a 360-degree strategy, we usually track the various moments of truth when a consumer comes in contact with a brand in a day, a week or a month. In the case of ANZ Grindlays, we realised that the first contact of the consumer with the product is when he sees the ad and calls up the bank for information. Therefore, we gave the operator a script and told her how she should take the call and made sure that she didn't ask the customers unnecessary questions."
"As the brand promise of ANZ Grindlays Home Loans was `Going beyond expectations', we tied up with architects, paint companies, flooring and sanitaryware companies and got a good price on these products for all those who took an ANZ home loan. A consumer who decides to buy a house will definitely need an architect and paint. Therefore, by getting into an affinity market tie-up with all these segments, we were able to bring the brand promise alive," he adds.
So, what do clients have to say?
While the advertising agencies are all for the total branding concept, the companies also seem to be equally excited about it, and feel that a 360-degree branding exercise is essential.
S. Ramachandra, Executive Vice-President, Amara Raja Batteries, says that for a low-recall segment like batteries, a 360-degree branding exercise is essential for the consumers to remember the brand. "We did a number of exercises at various points of consumer contact. We started off by giving a distinct look to our exclusive retail outlets, we even created innovative battery cases and also labelled our products in black, in order to stand out. To increase the brand's recall we also distributed puzzles in Shatabdis, so that the passenger could spend time solving puzzles during their six-seven hour train journey."
"In order to position ourselves as a larger-than-life brand, it was essential for us to embark on a total branding exercise, apart from just running a print or TV campaign," says Anuj Jain, Vice-President (Marketing), Goodlass Nerolac.
Jain says the company's recent campaign, wherein the public in Mumbai were asked to leave imprints of their hands on canvasses set up in various parts of the city, was a great success. "We got around 40,000 imprints and were able to contribute around Rs 2 lakh to Akanksha, which went a long way in translating our positioning as a larger than life brand," he says.
The World Gold Council also did a 360-degree campaign to promote the usage of gold. The challenge here was to remove the notion that gold was slowly become passé. Though Sanjiv Agarwal, Managing Director (Indian sub-continent), World Gold Council, feels that a 360-degree campaign is an ideal way to translate the brand's ideologies, he also foresees some problems in the long run. "If you take up a 360-degree campaign, you are no doubt able to convey your core message through different media, and it also means a one-time brief to all the divisions of the agency, but as all of them are different business units, having their own financial bottomlines, accountability could become an issue in the long run."
However, Swamy, former Creative Director, O&M, says accountability will not really be an issue. "It all depends on how the client drives the point into the agency about how consistently he wants his core message to be conveyed through all the media."
Is 360-degree advertising a costly proposition? Mohan of O&M claims that a client spends much lesser on a 360-degree campaign, as it is a combined package. Hiring individual agencies for various jobs, he says, would be much more expensive.
"We have done an extensive 360-degree campaign to promote O&M's Eco-Village in Kodaikanal, for which we have spent only Rs 3.5 lakh in the last one year." 360-degree advertising delivers a lot more for a lot less, he says.
Amara Raja Batteries' retail outlet
THERE are several car drivers and two-wheeler riders in Chennai who would have got chilled bottles of mineral water at traffic junctions this summer, courtesy Amara Raja Batteries. The bottle came with a small note which said: `At 40 degrees Celsius, if your car has an Amaron battery, it doesn't need water, but you do.'
Similarly, Nerolac Paints is trying to reposition itself as a larger-than-life brand through its new advertising campaign which talks about Nerolac adding colour to everyone's life. The company's new brand ambassador, Amitabh Bachchan, signs off by saying, `Yeh rang hai jo har ek zindagi ko choota hai'.
The company recently carried forward its positioning of touching every individual's life by associating itself with an organisation for underprivileged children in Mumbai called Akanksha. It set up huge canvases in different parts of the city and called upon people to dip their hands into a can of Nerolac Paint and leave an imprint on the canvas. The company promised to donate Rs 2 for every colour imprint to Akanksha.
These are but just a couple of instances of 360-degree advertising, where the key advertising message is delivered in different ways and through various other media. "Most companies today expect their advertising agencies to think beyond the usual TV and press campaigns," says Indu Balachandran, Creative Director, JWT, Chennai.
Balachandran says that though most companies have been using media other than advertising to reach their target audience, clients over the past couple of years have been more focused about translating their key advertising message through other media. "For instance, the branding exercise that we had done for Parry's Coffy Bite was an argument on whether it was coffee or toffee. This was not only brought alive in our advertising campaign but also taken forward by sponsoring school-level debates, as debates are all about arguments."
"A 360-degree campaign nails the key brand message in the minds of the consumer in different ways," she adds. JWT has branded its 360-degree services as Thompson Total Branding.
In fact, the term 360-degree is the proprietary brand name of Ogilvy & Mather (O&M). Says R. Krishna Mohan, Executive Director, Ogilvy & Mather, "A lot of agencies offer complete branding services, but we at O&M try to bring alive the brand promise at every point the customer comes in contact with the brand," he says. "We try to surround customers with the brand message. We make sure that the message doesn't crowd him, but is available when it is most relevant," he adds.
Suguna Swamy, Former Creative Director, O&M, says, "360-degree is a single idea interpreted uniquely through respective medias. The 360-degree way intensifies brand experience."
A total branding campaign would therefore involve all the wings of an agency - creative, media, PR and direct marketing - working towards a single goal, which is to translate the brand values of a certain product through different media.
"You take the same brand idea through different platforms. The promotion needn't necessarily be done through an ad campaign. It could be done with the help of a PR exercise or a direct marketing campaign," says Nirvik Singh, Chairman, Grey Worldwide.
What is most important in a 360-degree campaign is that the message is delivered at a time when it is most important to the consumer, says O&M's Mohan. "If I could deliver a sachet of coffee with a packet of Aavin Milk at a consumer's doorstep, I would be doing it at a time when a steaming hot cup of coffee is his topmost priority," he adds.
Mohan quotes instances from a 360-degree campaign which O&M had done a couple of years ago for ANZ Grindlays Home Loans. "Before working out a 360-degree strategy, we usually track the various moments of truth when a consumer comes in contact with a brand in a day, a week or a month. In the case of ANZ Grindlays, we realised that the first contact of the consumer with the product is when he sees the ad and calls up the bank for information. Therefore, we gave the operator a script and told her how she should take the call and made sure that she didn't ask the customers unnecessary questions."
"As the brand promise of ANZ Grindlays Home Loans was `Going beyond expectations', we tied up with architects, paint companies, flooring and sanitaryware companies and got a good price on these products for all those who took an ANZ home loan. A consumer who decides to buy a house will definitely need an architect and paint. Therefore, by getting into an affinity market tie-up with all these segments, we were able to bring the brand promise alive," he adds.
So, what do clients have to say?
While the advertising agencies are all for the total branding concept, the companies also seem to be equally excited about it, and feel that a 360-degree branding exercise is essential.
S. Ramachandra, Executive Vice-President, Amara Raja Batteries, says that for a low-recall segment like batteries, a 360-degree branding exercise is essential for the consumers to remember the brand. "We did a number of exercises at various points of consumer contact. We started off by giving a distinct look to our exclusive retail outlets, we even created innovative battery cases and also labelled our products in black, in order to stand out. To increase the brand's recall we also distributed puzzles in Shatabdis, so that the passenger could spend time solving puzzles during their six-seven hour train journey."
"In order to position ourselves as a larger-than-life brand, it was essential for us to embark on a total branding exercise, apart from just running a print or TV campaign," says Anuj Jain, Vice-President (Marketing), Goodlass Nerolac.
Jain says the company's recent campaign, wherein the public in Mumbai were asked to leave imprints of their hands on canvasses set up in various parts of the city, was a great success. "We got around 40,000 imprints and were able to contribute around Rs 2 lakh to Akanksha, which went a long way in translating our positioning as a larger than life brand," he says.
The World Gold Council also did a 360-degree campaign to promote the usage of gold. The challenge here was to remove the notion that gold was slowly become passé. Though Sanjiv Agarwal, Managing Director (Indian sub-continent), World Gold Council, feels that a 360-degree campaign is an ideal way to translate the brand's ideologies, he also foresees some problems in the long run. "If you take up a 360-degree campaign, you are no doubt able to convey your core message through different media, and it also means a one-time brief to all the divisions of the agency, but as all of them are different business units, having their own financial bottomlines, accountability could become an issue in the long run."
However, Swamy, former Creative Director, O&M, says accountability will not really be an issue. "It all depends on how the client drives the point into the agency about how consistently he wants his core message to be conveyed through all the media."
Is 360-degree advertising a costly proposition? Mohan of O&M claims that a client spends much lesser on a 360-degree campaign, as it is a combined package. Hiring individual agencies for various jobs, he says, would be much more expensive.
"We have done an extensive 360-degree campaign to promote O&M's Eco-Village in Kodaikanal, for which we have spent only Rs 3.5 lakh in the last one year." 360-degree advertising delivers a lot more for a lot less, he says.
Thursday, February 7, 2008
All about the low-cost Ginger hotels
It is considered auspicious to tag on a "1" to a number ending in zero. All the hotels in the Ginger chain have 101 or 201 rooms, but the decision hasn't been guided by any religious sentiment. There's a more practical reason: the last room is specially designed for physically challenged guests.
The other 100 or 200 rooms are strictly no-frills and that's exactly how Ginger likes it. The chain -- run by Roots Corporation, a subsidiary of Indian Hotels Limited, which also runs the Taj group of hotels -- is now four years and eight properties old. It's a slow start, but Ginger is, dare we say it, all gingered up for the future.
Another eight hotels will be up and running by March 2008, says Roots CEO Prabhat Pani, and the total count will go up to 50 by 2010. The Strategist took a peek at Ginger's spicy recipe for expansion and growth. Here's what we found.
The price proposition
Ginger's expansion couldn't have been better timed. Research firm KPMG estimates the demand-supply mismatch to be far more acute in the budget segment than in the luxury segment. Just about 40,000 rooms are available currently in the economy and budget categories; compare that with the 430 million domestic tourists that criss-crossed the country in 2006.
Says Nandita daCunha, manager, KPMG, "The opportunity in the space is huge, which is why international players like Accor or Choice Hotels are also looking to scale up operations in India."
Ginger, which operates in the three-star category, prices its rooms competitively -- single rooms cost Rs 999, while a double room won't set you back by more than Rs 1,799, inclusive of taxes. And the tariffs are the same whether you're in Bangalore or Bhubaneswar, and whether it's January or June.
That's different from how another newcomer in the budget hotel category, the Red Fox chain run by Krizm Hotels, operates. Single rooms at the Hyderabad, Jaipur and Delhi properties of the chain will cost about Rs 1,500. "But we will be flexible about the pricing," adds Chairman Patu Keswani.
Keswani reasons that since labour in India is relatively cheap, it makes sense to offer some limited services and charge a little extra. Ginger's Pani, on the other hand, believes that the young traveller doesn't mind doing things on his own and so he'd rather have price as a USP. Which is why even food is affordable(there's no room service): Rs 80-150 for the buffet.
Full house
course, a cheap meal isn't going to be enough to tempt guests to stay longer. And given its value-for-money pricing proposition, it is critical for Ginger to constantly push up occupancies.
Explains Mona Chhabra, vice-president, Ernst & Young, "Since it is a fixed price model and tariffs cannot be increased even if there is a sudden surge in demand, occupancies need to be high throughout the year."
There's another reason why Ginger needs to be able to display the "no vacancy" sign frequently: budget hotels can't depend too much on the food and beverages (F&B) segment to bring in revenues.
Margins on F&B are about a third of those for rooms because while the operating cost for rooms is low, the raw material cost for food is high. So while F&B would typically fetch over 20 per cent of revenues for a five-star chain and, in many cases, as much as 35 per cent, a budget hotel earns less than 15 per cent of its topline from F&B.
KPMG's daCunha believes that given the current shortage of rooms, Ginger can succeed with a fixed priced model. "However, in a downturn, they may want to work with a variable price model much like low-cost airlines do," she observes.
Pani reckons that occupanies need to average 70 per cent around the year for the hotels to make money and is pencilling in a 50 per cent gross margin a couple of years down the line, once costs are absorbed over a larger base.
In the right places
And that's why Ginger is targeting either smaller business centres like Tirupur or Durgapur or tourist destinations that attract visitors round the year. That is also why it has a property at Nashik, Maharashtra -- given its proximity to popular pilgrimage Shirdi -- but not Manali, which is deserted in the winter.
"We cannot afford to look at places where we don't clock 70 per cent occupancies through the year," agrees Pani. In fact, the Haridwar property, set up earlier this year as an experiment, hasn't been doing too well because the flow of tourists has been unexpectedly seasonal. On the other hand, Goa may bring in good returns since the state is beginning to see some serious business traffic.
Compare that strategy with Red Fox's. The chain plans to be in locations where it sees any kind of demand, even bigger cities like New Delhi. "We're simply looking at high-demand areas and if the real estate is too expensive, we don't mind being situated in the suburbs," explains Keswani.
If Red Fox is looking at location from a macro point of view, Ginger is taking the micro approach -- properties need to be close to the business district; metros and large cities are, therefore, out for the most part.
Even the choice of small town is determined by the level of potential demand -- Ginger hopes to tap demand in very small towns where a big corporate project may be planned. "Instead of the company having to build and run a guest house for its executives, executives can camp at the Ginger hotel," says Pani.
Getting real
The idea really is to try and minimise real estate costs, which as Krizm's Keswani points out, account for 50 per cent of the cost of a room in India compared with as little as 15 per cent overseas. Pani estimates that for the model to be viable, monthly lease rents need to be well within Rs 50 a square foot.
So Ginger is looking at ways to get around buying or leasing expensive property. For instance, it has decided to set up a hotel on the fourth and fifth floors of a mall in Ludhiana. While Ginger saves on real estate costs, the owners of the mall are able to use the space more efficiently.
Also, being located in a mall, Ginger needs to focus even less on food since the mall would most certainly have a food court. "We do make arrangements for food even when we're located in a mall, but mainly we will need to focus on breakfast," explains Pani.
The mall idea seems to be catching on -- Red Fox, too, has opted to build hotels on malls. But it is going a step further by first constructing a couple of malls and then selling them off, retaining just the top floors for the hotels.
Ginger is also working with public sector organisations such as Indian Railways (IR) to convert some of their properties into hotels -- the Rail Yatri Niwas in the capital will soon be turned into one. Ginger will run the hotel in return for a fee.
In addition, Pani plans on entering into management contracts with existing hoteliers who will use the Ginger brand and marketing network in return for a fixed fee or a revenue-sharing agreement.
Netting in customers
Real estate costs are just one worry. Given that room rates are extremely competitive so as to be within reach of the target audience, Ginger needs to rein in other costs, too. Since the chain caters to a tech-savvy crowd, Ginger believes it can increasingly sell a larger number of rooms online, thereby saving on commissions to travel agents.
Website sales are as high as 15 per cent in some places like Bangalore, and Pani believes that a higher share of website sales would not only bring down costs but would mean greater control over the inventory. Ginger is also getting into deals with corporates for block bookings and in some cities like Bhubhaneshwar, the bulk of the business has come via this route. Travel portals are next on the agenda.
Meanwhile, it's ensuring costs stay at the minimum at the properties, too. As the firm's television commercial (released in last month by creative agency Lowe) so humorously captured, there is no valet parking and no bell boys. That's no tips to fork out for the guest, and no salaries to pay for the hotel.
Since the spend on aesthetics need to be contained, all properties look more or less the same with standard rooms, corridors and lobbies. But that doesn't mean Ginger is cutting down on essentials. In fact, it is taking care to see that it provides everything that younger, tech-savvy travellers today need most -- what the hotel terms "smart basics".
That means a flat TV and Internet and Wifi connections in all rooms, an ATM on premises and a gym (swimming pools are too expensive). There's no room service but basic tea and coffee making apart, there's also a dial-a-meal facility: guests can order meals from local restaurants and collect them from the front desk. "Our brand stands for informality, simplicity and modernity," explains Pani.
The target guest is young, so Ginger needs to ensure it stays young and trendy, too. There's a Caf� Coffee Day on the premises at the Thiruvananthapuram property: a coffee shop that can theoretically stay open 24 hours helps improve visibility and draws in outsiders.
The Pune property has a lounge of sorts, with video games, but there are no bars yet. Since nearly 15-20 per cent of Ginger's clientele comprises foreigners, that's probably next on the to-do list.
The other 100 or 200 rooms are strictly no-frills and that's exactly how Ginger likes it. The chain -- run by Roots Corporation, a subsidiary of Indian Hotels Limited, which also runs the Taj group of hotels -- is now four years and eight properties old. It's a slow start, but Ginger is, dare we say it, all gingered up for the future.
Another eight hotels will be up and running by March 2008, says Roots CEO Prabhat Pani, and the total count will go up to 50 by 2010. The Strategist took a peek at Ginger's spicy recipe for expansion and growth. Here's what we found.
The price proposition
Ginger's expansion couldn't have been better timed. Research firm KPMG estimates the demand-supply mismatch to be far more acute in the budget segment than in the luxury segment. Just about 40,000 rooms are available currently in the economy and budget categories; compare that with the 430 million domestic tourists that criss-crossed the country in 2006.
Says Nandita daCunha, manager, KPMG, "The opportunity in the space is huge, which is why international players like Accor or Choice Hotels are also looking to scale up operations in India."
Ginger, which operates in the three-star category, prices its rooms competitively -- single rooms cost Rs 999, while a double room won't set you back by more than Rs 1,799, inclusive of taxes. And the tariffs are the same whether you're in Bangalore or Bhubaneswar, and whether it's January or June.
That's different from how another newcomer in the budget hotel category, the Red Fox chain run by Krizm Hotels, operates. Single rooms at the Hyderabad, Jaipur and Delhi properties of the chain will cost about Rs 1,500. "But we will be flexible about the pricing," adds Chairman Patu Keswani.
Keswani reasons that since labour in India is relatively cheap, it makes sense to offer some limited services and charge a little extra. Ginger's Pani, on the other hand, believes that the young traveller doesn't mind doing things on his own and so he'd rather have price as a USP. Which is why even food is affordable(there's no room service): Rs 80-150 for the buffet.
Full house
course, a cheap meal isn't going to be enough to tempt guests to stay longer. And given its value-for-money pricing proposition, it is critical for Ginger to constantly push up occupancies.
Explains Mona Chhabra, vice-president, Ernst & Young, "Since it is a fixed price model and tariffs cannot be increased even if there is a sudden surge in demand, occupancies need to be high throughout the year."
There's another reason why Ginger needs to be able to display the "no vacancy" sign frequently: budget hotels can't depend too much on the food and beverages (F&B) segment to bring in revenues.
Margins on F&B are about a third of those for rooms because while the operating cost for rooms is low, the raw material cost for food is high. So while F&B would typically fetch over 20 per cent of revenues for a five-star chain and, in many cases, as much as 35 per cent, a budget hotel earns less than 15 per cent of its topline from F&B.
KPMG's daCunha believes that given the current shortage of rooms, Ginger can succeed with a fixed priced model. "However, in a downturn, they may want to work with a variable price model much like low-cost airlines do," she observes.
Pani reckons that occupanies need to average 70 per cent around the year for the hotels to make money and is pencilling in a 50 per cent gross margin a couple of years down the line, once costs are absorbed over a larger base.
In the right places
And that's why Ginger is targeting either smaller business centres like Tirupur or Durgapur or tourist destinations that attract visitors round the year. That is also why it has a property at Nashik, Maharashtra -- given its proximity to popular pilgrimage Shirdi -- but not Manali, which is deserted in the winter.
"We cannot afford to look at places where we don't clock 70 per cent occupancies through the year," agrees Pani. In fact, the Haridwar property, set up earlier this year as an experiment, hasn't been doing too well because the flow of tourists has been unexpectedly seasonal. On the other hand, Goa may bring in good returns since the state is beginning to see some serious business traffic.
Compare that strategy with Red Fox's. The chain plans to be in locations where it sees any kind of demand, even bigger cities like New Delhi. "We're simply looking at high-demand areas and if the real estate is too expensive, we don't mind being situated in the suburbs," explains Keswani.
If Red Fox is looking at location from a macro point of view, Ginger is taking the micro approach -- properties need to be close to the business district; metros and large cities are, therefore, out for the most part.
Even the choice of small town is determined by the level of potential demand -- Ginger hopes to tap demand in very small towns where a big corporate project may be planned. "Instead of the company having to build and run a guest house for its executives, executives can camp at the Ginger hotel," says Pani.
Getting real
The idea really is to try and minimise real estate costs, which as Krizm's Keswani points out, account for 50 per cent of the cost of a room in India compared with as little as 15 per cent overseas. Pani estimates that for the model to be viable, monthly lease rents need to be well within Rs 50 a square foot.
So Ginger is looking at ways to get around buying or leasing expensive property. For instance, it has decided to set up a hotel on the fourth and fifth floors of a mall in Ludhiana. While Ginger saves on real estate costs, the owners of the mall are able to use the space more efficiently.
Also, being located in a mall, Ginger needs to focus even less on food since the mall would most certainly have a food court. "We do make arrangements for food even when we're located in a mall, but mainly we will need to focus on breakfast," explains Pani.
The mall idea seems to be catching on -- Red Fox, too, has opted to build hotels on malls. But it is going a step further by first constructing a couple of malls and then selling them off, retaining just the top floors for the hotels.
Ginger is also working with public sector organisations such as Indian Railways (IR) to convert some of their properties into hotels -- the Rail Yatri Niwas in the capital will soon be turned into one. Ginger will run the hotel in return for a fee.
In addition, Pani plans on entering into management contracts with existing hoteliers who will use the Ginger brand and marketing network in return for a fixed fee or a revenue-sharing agreement.
Netting in customers
Real estate costs are just one worry. Given that room rates are extremely competitive so as to be within reach of the target audience, Ginger needs to rein in other costs, too. Since the chain caters to a tech-savvy crowd, Ginger believes it can increasingly sell a larger number of rooms online, thereby saving on commissions to travel agents.
Website sales are as high as 15 per cent in some places like Bangalore, and Pani believes that a higher share of website sales would not only bring down costs but would mean greater control over the inventory. Ginger is also getting into deals with corporates for block bookings and in some cities like Bhubhaneshwar, the bulk of the business has come via this route. Travel portals are next on the agenda.
Meanwhile, it's ensuring costs stay at the minimum at the properties, too. As the firm's television commercial (released in last month by creative agency Lowe) so humorously captured, there is no valet parking and no bell boys. That's no tips to fork out for the guest, and no salaries to pay for the hotel.
Since the spend on aesthetics need to be contained, all properties look more or less the same with standard rooms, corridors and lobbies. But that doesn't mean Ginger is cutting down on essentials. In fact, it is taking care to see that it provides everything that younger, tech-savvy travellers today need most -- what the hotel terms "smart basics".
That means a flat TV and Internet and Wifi connections in all rooms, an ATM on premises and a gym (swimming pools are too expensive). There's no room service but basic tea and coffee making apart, there's also a dial-a-meal facility: guests can order meals from local restaurants and collect them from the front desk. "Our brand stands for informality, simplicity and modernity," explains Pani.
The target guest is young, so Ginger needs to ensure it stays young and trendy, too. There's a Caf� Coffee Day on the premises at the Thiruvananthapuram property: a coffee shop that can theoretically stay open 24 hours helps improve visibility and draws in outsiders.
The Pune property has a lounge of sorts, with video games, but there are no bars yet. Since nearly 15-20 per cent of Ginger's clientele comprises foreigners, that's probably next on the to-do list.
New Green Revolution
The number of corporations-domestic and MNC-making a beeline for the agriculture sector is on the rise.
Together, they look set to forge anew every link of its value chain. The re-invention of Indian agriculture foretold.
On the outskirts of Aligarh in the state of Uttar Pradesh, some 185 km from New Delhi, lies the nondescript, dusty township of Hathras. From its narrow crowded roads, chaotic traffic with cars, two-wheelers and cattle jostling for space and rows of small shops spilling into the road selling everything from groceries to vegetables to cycles and pressure cookers, you wouldn't really think that there was anything unique about it. But visit its farms, which produce potatoes, chillies and wheat, and amidst which stands the imposing green and yellow building of Choupal Saagar (an ITC rural retail initiative) some six km off the main town centre, and you'll get the surprise of your life. Spread over 4.28 acres, the local Choupal Saagar wholesale-cum-retail store has already become the one-stop shop that acts not only as the lightning rod for the aspirations of the region's semi-urban and rural populace, but also as a catalyst that's taken farming some way already along the gilt-paved road of high-technology. Inside, the Choupal Saagar's shelves are crowded with groceries (not just from the ITC stable, but other brands as well), footwear (old-style Bata, still a favourite, competes with newer labels for attention), toys, apparel (John Players), and even video and audio systems, computers and mobile phones (Nokia phones seems like the obvious choice). The sense of flux you get is a little disorienting.
A few thousand kilometers away, the Chairman of Reliance Industries, Mukesh Ambani, is busy inaugurating another of the red and green Reliance Fresh stores in Hyderabad (there are 11 in all in the city)-another milestone in what is a massive agri-initiative. The 3,000 square feet store sells a range of vegetables (many exotic from the average Hyderabadi's point of view) --leek, celery, Brussels, sprouts, zucchini, pak choy, Chinese cabbage and imported fruit like kiwi, avocado and grapefruit-- at astonishingly affordable rates. The retail chain's motto Grahak Devo Bhava (customer is God) could well have been emblazoned on the wall behind the counter. You realise an agri-retail revolution is well and truly under way.
This comes on top of a second Green Revolution that has brought reforms to the very heart of the economic hinter-land-the fields where farmers have hitherto tilled their lands untouched by the onward march of modernity. Riding this wind of change are the bigwigs of India Inc, from the Reliance Group to the Bhartis to the Mahindras to the Godrejs to MNCs like PepsiCo. All of them major corporate players with enormous resources at their disposal and who have the know-how to remake the face of Indian agriculture. More importantly, with their big-ticket investments, these entrepreneur-farmers are all set to change the fortunes of an industry that has consistently lagged the GDP growth for decades but still employs 67% of the country's population. These corporates are looking at all aspects of this value chain, from research and development to distribution of seeds, fertilisers and pesticides to helping farmers improve irrigation and avail the latest technologies to providing market information and credit facilities to contract farming to processing to setting up cold chains and warehouses to transporting to exporting and finally retailing the produce. And they are throwing in big money in what is being described as the "farm-firm-fork" triangle by most experts.
Reliance has plans to launch many more in-house brands to retail its own produce rather than too much of branded products. Right now its private label for grocery is Reliance Select and it will be shortly launching Fresh Plus, a bigger version of Reliance Fresh, which is to cater to food and grocery, pharmacy and apparel. Mukesh Ambani outlines his vision for the sector, saying: "Conceptually, Reliance is creating a virtuous cycle of prosperity by bringing farmers, small shopkeepers and consumers in a win-win situation. With our new initiative, Reliance will forge strong and enduring bonds with millions of farmers and transform the relationship with consumers to a new level." Reliance's "agri-intervention model" envisages establishing links with farms across several acres in Punjab, West Bengal, Maharashtra and elsewhere with rural centres (district centres) providing goods for farmers and handling their produce. Its new supply chain-which will include state-of-the art cold storage and refrigerated vans for transportation-promises to be a new pipeline that would bring the produce from the areas of cultivation to Reliance's retail outlets. By 2010, the company plans to have its footprints in 784 towns and cities with 40 more stores slated for Hyderabad alone.
Other corporates are not lagging behind. Bharti's Field-fresh too has ambitious plans to set up retail outlets in the country, although they remain extremely tightlipped about it. However, the future could see FieldFresh stores selling veggies and fruits at prices that are comparable with those on the streets-the local sabzi-wala. It could also have cold chains and is likely to lease refrigerated trucks for transporting fruits and vegetables. But as of now, the focus is clearly on exports. Says Rakesh Bharti Mittal, Vice Chairman, Bharti Enterprises and Director, FieldFresh: "Currently, we are looking at exporting 10% of our total produce, which will largely happen from the Amritsar airport. The logistics for this operation are being developed. In two-to-three years, we should be exporting as much as around 50% of our produce."
lTC's International Business Division has plans to develop Choupal Fresh, a fresh food fruit and vegetable initiative for sophisticated metro dwellers. Says S Sivakumar, Chief Executive Officer, lTC's International Business Division which is managing the Choupal initiative: "Choupal Fresh is a new and unique format. These stores operate as wholesale stores between 5 am and 7 am and is open for the retail customers for the rest of the day." lTC's vast experience in backward integration with farmers and managing supply chain dynamics, courtesy its e-Choupal rural initiative, should help make it a grand success. Says Y C Deveshwar, Chairman, lTC, of-this potent weapon in his arsenal: "The e-Choupal infrastructure is potentially an efficient delivery channel for rural development and an instrument for converting villages into vibrant economic units." Having already set up stores in Hyderabad, Pune and Chandigarh, the company is now looking at the other metros like Kolkata. And the model will be something akin to Choupal Saagar story, with all the cold chains and associated farmer clusters.
Godrej Agrovet, a part of the Godrej group, was the first of the block to sell fresh fruits and vegetables in the urban market through its Nature's Basket retail outlets. These outlets, in turn, started sourcing some of their products from Aadhar, Godrej's rural outlet. Not only does Aadhar act as a retail outlet for the farmers-selling animal feeds, agricultural appliances, pesticides, fertilisers and consumer durables-but it also is a sourcing base of fruits and vegetables from nearby villages.
The group has ambitious agri-business plans. Says Adi Godrej, Chairman, Godrej Group of Companies: "Organised retailing is growing very rapidly. Consumers find it very comfortable and convenient mode of shopping. We see a tremendous future in speciality food retail." The fruits and vegetables sold in Adhar are procured mainly through tie-ups with farmers, who come to Godrej Agrovet's distribution centre, do all the sorting and grading of the fruits and vegetables that are then transported to Aadhar outlets.
There is however no written contracts with the farmers, but it works on the basis of mutual interest and on the demand and supply system. Explains C K Vaidya, Managing Director, Godrej Agrovet: "We have a system of generating estimates of demand, which is then converted into orders for the farmers and brought to the distribution centre.The company which has 30 Aadhars all over Maharashtra, Gujarat, Punjab and Haryana, plans to ramp it up to 1,000 in the next five to seven years."
Facelift for the farm
The change is a welcome one. "We are de-risking the farmer's life in every possible way", points out a visibly enthusiastic Rohtash Mal, Chief Executive Officer, Field Fresh Products. By tying up with hundreds of farmers, (signing a lease) the company is not only assuring them a fixed return, but also promising to buy up all their produce at pre-determined prices. Better still, the company always pays a little more than the prevailing mandi price for the produce. This ensures that the farmers never get a raw deal. "And since it is our business to get the produce to the market, even the logistics problems that used to dog the farmer are taken care of," adds Mal.
All these improvements are more than what the government itself has been able to offer the sector. By moving in and taking over the supply chain in agriculture, corporate India is also breaking the stranglehold of middlemen and loan sharks who not only exploited the farmers, but also routinely marked up prices by as much as 60% without actually adding any value. The modern distribution channels, warehousing and cold storage facilities will also ensure that the produce remains fresh and reaches retail outlets faster. Over the years, they could eliminate the wastages that have for long plagued the procurement system. In the bargain, they open up export possibilities in crops currently beyond the country's horizon. Some companies have already begun to seize this opportunity. For instance, at FieldFresh's 300-acre research centre at Ladhowal (near Ludhiana), womenfolk from nearby villages of Birmi and Phillaur, are growing okra, brinjal, baby corn and chillies, which are being sold not just in other parts of India (in itself an achievement), but in the difficult-to-crack European markets. Not just that, FieldFresh has tie-ups in place with agri companies overseas to help it grow the best-quality European carrot (Sumick of Australia) and baby corn and snap peas (Bomford of UK). "By 2008, we expect to be exporting as much as around 40% of our total produce," says Mal.
FieldFresh's Ladhowal initiative has also demonstrated to farmers that crop diversification helps retain the fertility of top soil, arrest water depletion (Punjab is losing two feet of groundwater every year) and generate higher incomes for farmers. "Farmers can increase their annual income by a minimum of 30% if they shift from rice and paddy to horticulture. Besides, they have the advantage of raising three crops a year," says Mittal. The company has already tied up with more than 100 big farmers, each of whom work with several smaller farmers to make contract farming happen. Adds Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo India: "Potatoes alone can double the return for the farmer, if he decides to switch to them from growing wheat and rice. Chillies too are a more paying alternative." Seth should know, since it was his company that initiated the concept of corporate farming in India way back in 1989. PepsiCo is currently growing citrus near Jalandhar, the seeds for which operation come from Tropicana (a Pepsi company) in the United States Says Seth: "This operation will not only sustain our orange juice business within India but will act as a supply source to our markets in the neighbouring countries, and even in Europe." By 2011, the food and beverages multinational's India arm will also be able to process its home-grown oranges. The company's exports from India totaled $40 million last year.
Corporate farming, most experts acknowledge, could be the answer to India agricultural crisis. After all, it involves involvement at every point in the value chain of corporates more capable of running risks and sustaining losses than small farmers-from the supply of high-quality seeds to fertilisers to the transfer of technology with the promise of buying the produce at a pre-determined price. One good instance of how corporate involvement helps raise farmers' incomes comes from Bipin Solanki, Deputy Managing Director of Mahyco Monsanto Biotech. He estimates that the farmers who had planted BT cotton in 2006 are likely to earn an additional Rs 7,026.5 crore on around 8.6 million acres planted with the seeds. He points out that this would be a 36% rise over the Rs 2,100 crore income the same acreage generated in 2005.
Others such as the Global Green Company, an LM Thapar Group company that is engaged in contract farming, have joined the export bandwagon and are raking in big bucks from international markets. Global Green, which vaulted to the position of the third-biggest pickle maker in the world after acquiring Belgium-based Inter-garden Group (it was ranked number 10 before) in August this year, has contracts in place with 12,000 farmers in the southern states of Tamil Nadu, Karnataka and Andhra Pradesh. The company has been exporting gherkins, silver onions and jalapenos to 23 countries through 15 global retail chains and is looking to expand its activities further. Says Vineet Chhabra, Managing Director, Global Green: "We are looking at investing in drip irrigation in a bigger way as the product portfolio has grown from being limited to only gherkins to include jalapenos, beans and tomatoes, which enables crop rotation."
Also in the game is Mahindra Agri-Business (formerly Mahindra Shubhlabh Services), which is targeting the international market through its contract model. The company plans to get farmers who have been using over-strained potato seeds for several generations to switch to high-yield ones and to extend this to cover 300 acres (it has 22 acres under the crop currently). "This will help produce 6,000 tonnes of potatoes that we plan to export to Pakistan, Bangladesh, Afghanistan and Middle East. We have a price advantage of $100-150 per tonne over potatoes that come from European nations," says Vlkram Puri, the company's Chief Executive Officer.
Roads To Change
Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was cigarette major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customised knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. In addition, the new storage and handling system offered as part of the initiative preserves the identity of different varieties right through "the farm gate to the dinner plate".
More recently, the company entered the processed food space. "We have a tie-up with the Kitchens of India and Aashirvaad (both ITC operations) to supply for their' ready-to-eat lines of business and Choupal Fresh cash and carry stores for fresh fruits and vegetables," says lTC's Sivakumar. The company has lined up mega plans for the future. By 2010, the company hopes establish 20,000 e-Choupals in 100,000 villages involving 10 million farmers. The cost: Rs 5,000 crore in the next five years.
Although fertiliser major Tata Chemicals has also taken the contract farming route-it has 45,000 acres under contract in Punjab, Haryana, Uttar Pradesh, West Bengal and Jharkhand-it follows a different model. Under the terms of the contract, the company acts as a technology provider and facilitator of cultivation, while allowing buyers to buy the crop directly to the farmers. For the services rendered, both the farmers and the buyers have to pay a fee to Tata Chemicals. Since the fee is small, the parties involved have taken to the service in a big way. Says Kapil Mehan, Chief Executive Officer (Fertiliser Business), Tata Chemicals: "The retention rate among farmers, which used to be 20-25% a couple of years ago, has risen to 50-60% with the new model's introduction."
A Tectonic Shift
The factors that have triggered this onrush of investment are many and varied. Foremost among them being the realisation by India Inc that agriculture is a big business in the developed world, involving huge value creation, before the products reached shop-shelves. In sheer potential, India could become the food basket to the world-a supplier of high-value food products that fetch revenues running into billions. After all, the country has all the cultivable land (52% of the total land is under cultivation compared to the global average of 11%) required, the climatic conditions appropriate, and then, of course, there is the labor cost advantage.
To unlock the full potential of this business, the country would require huge dollops of investment in a number of areas. One such choke point is the storage system. While the country produces around 134.5 million tonnes of fruits and vegetables-it is the second-biggest in the world cold storage facilities exist only for 10% of the total produce. This results in enormous loss through wastages. Fixing this chink in the country's supply chain alone could alter the sector's dynamics radically.
Further, the globalisation of trade along with the rising need of most food retailers in the country for high-speed transportation means the emergence of a huge market for companies that specialise in supply logistics. That of companies sourcing millions of dollars worth of fruits and vegetables all the year round. This has sparked off a boom in food transport logistics business: a storage centre for perishables at Jawaharlal Nehru Port Trust in Kandla; announcement of plans by National Agricultural Cooperative Marketing Federation of India (NAFED) to set up packing houses and warehouses in central and western India; Mitsubishi move to put together a fleet of cold chain trucks, and Reliance's moves to set up its own supply chain backbone are all a pointer to that.
There are major (regulatory) hurdles to surmount yet before really big-time investments from India Inc can happen in the agri-sector. Even in Punjab, which leads the field among the states, corporates cannot lease land for more than 30 months, which poses uncertainties for corporate investors. As Mittal of FieldFresh explains: "Drip irrigation costs Rs 50,000 per acre and if one wants to use it on 1,000 acres, it will cost no less than Rs 5 crore. We feel that to make the best of drip irrigation, which saves water substantially, collaborative farmers should get some subsidy as well." The fact that agriculture is a state subject further complicates the field. "We don't deal with one regulatory system, but 28 of them. So this creates problems in having a clear-cut strategy," says Mahindra Agri-Business' Puri. Then there is the fact that the debate on opening up the agriculture sector is far from closed. Is it the answer to India's ongoing agrarian crisis? Critics point to the fact that agriculture growth in the last nine years (1997 to 2006) have been just around 2%. Says CPI(M) Politburo Member and Member of Parliament, Nilotpal Basu, "If companies start dictating not only what the farmer should produce and how much, but control the supply chain, farmers will have little freedom of choice. It could result in what are effectively procurement monopolies."
These clouds on the horizon have failed to dampen the sunny spirits of India Inc's new farmers. They are in the game for the long run--and the stakes are too high for them to let small things get in the way. They are intent on remaking the face of Indian agriculture and have the were withals to accomplish their objectives. In doing so, they will generate enormous spinoffs for a large number associated with the agricultural sector, even if the numbers run into a few lakh rather than a few crore initially. Alongside employment generation, the initiatives of Bharti, Reliance and others like them would result ultimately in economies of scale and crop diversification-gains that have eluded successive governments over the past six decades.
Together, they look set to forge anew every link of its value chain. The re-invention of Indian agriculture foretold.
On the outskirts of Aligarh in the state of Uttar Pradesh, some 185 km from New Delhi, lies the nondescript, dusty township of Hathras. From its narrow crowded roads, chaotic traffic with cars, two-wheelers and cattle jostling for space and rows of small shops spilling into the road selling everything from groceries to vegetables to cycles and pressure cookers, you wouldn't really think that there was anything unique about it. But visit its farms, which produce potatoes, chillies and wheat, and amidst which stands the imposing green and yellow building of Choupal Saagar (an ITC rural retail initiative) some six km off the main town centre, and you'll get the surprise of your life. Spread over 4.28 acres, the local Choupal Saagar wholesale-cum-retail store has already become the one-stop shop that acts not only as the lightning rod for the aspirations of the region's semi-urban and rural populace, but also as a catalyst that's taken farming some way already along the gilt-paved road of high-technology. Inside, the Choupal Saagar's shelves are crowded with groceries (not just from the ITC stable, but other brands as well), footwear (old-style Bata, still a favourite, competes with newer labels for attention), toys, apparel (John Players), and even video and audio systems, computers and mobile phones (Nokia phones seems like the obvious choice). The sense of flux you get is a little disorienting.
A few thousand kilometers away, the Chairman of Reliance Industries, Mukesh Ambani, is busy inaugurating another of the red and green Reliance Fresh stores in Hyderabad (there are 11 in all in the city)-another milestone in what is a massive agri-initiative. The 3,000 square feet store sells a range of vegetables (many exotic from the average Hyderabadi's point of view) --leek, celery, Brussels, sprouts, zucchini, pak choy, Chinese cabbage and imported fruit like kiwi, avocado and grapefruit-- at astonishingly affordable rates. The retail chain's motto Grahak Devo Bhava (customer is God) could well have been emblazoned on the wall behind the counter. You realise an agri-retail revolution is well and truly under way.
This comes on top of a second Green Revolution that has brought reforms to the very heart of the economic hinter-land-the fields where farmers have hitherto tilled their lands untouched by the onward march of modernity. Riding this wind of change are the bigwigs of India Inc, from the Reliance Group to the Bhartis to the Mahindras to the Godrejs to MNCs like PepsiCo. All of them major corporate players with enormous resources at their disposal and who have the know-how to remake the face of Indian agriculture. More importantly, with their big-ticket investments, these entrepreneur-farmers are all set to change the fortunes of an industry that has consistently lagged the GDP growth for decades but still employs 67% of the country's population. These corporates are looking at all aspects of this value chain, from research and development to distribution of seeds, fertilisers and pesticides to helping farmers improve irrigation and avail the latest technologies to providing market information and credit facilities to contract farming to processing to setting up cold chains and warehouses to transporting to exporting and finally retailing the produce. And they are throwing in big money in what is being described as the "farm-firm-fork" triangle by most experts.
Reliance has plans to launch many more in-house brands to retail its own produce rather than too much of branded products. Right now its private label for grocery is Reliance Select and it will be shortly launching Fresh Plus, a bigger version of Reliance Fresh, which is to cater to food and grocery, pharmacy and apparel. Mukesh Ambani outlines his vision for the sector, saying: "Conceptually, Reliance is creating a virtuous cycle of prosperity by bringing farmers, small shopkeepers and consumers in a win-win situation. With our new initiative, Reliance will forge strong and enduring bonds with millions of farmers and transform the relationship with consumers to a new level." Reliance's "agri-intervention model" envisages establishing links with farms across several acres in Punjab, West Bengal, Maharashtra and elsewhere with rural centres (district centres) providing goods for farmers and handling their produce. Its new supply chain-which will include state-of-the art cold storage and refrigerated vans for transportation-promises to be a new pipeline that would bring the produce from the areas of cultivation to Reliance's retail outlets. By 2010, the company plans to have its footprints in 784 towns and cities with 40 more stores slated for Hyderabad alone.
Other corporates are not lagging behind. Bharti's Field-fresh too has ambitious plans to set up retail outlets in the country, although they remain extremely tightlipped about it. However, the future could see FieldFresh stores selling veggies and fruits at prices that are comparable with those on the streets-the local sabzi-wala. It could also have cold chains and is likely to lease refrigerated trucks for transporting fruits and vegetables. But as of now, the focus is clearly on exports. Says Rakesh Bharti Mittal, Vice Chairman, Bharti Enterprises and Director, FieldFresh: "Currently, we are looking at exporting 10% of our total produce, which will largely happen from the Amritsar airport. The logistics for this operation are being developed. In two-to-three years, we should be exporting as much as around 50% of our produce."
lTC's International Business Division has plans to develop Choupal Fresh, a fresh food fruit and vegetable initiative for sophisticated metro dwellers. Says S Sivakumar, Chief Executive Officer, lTC's International Business Division which is managing the Choupal initiative: "Choupal Fresh is a new and unique format. These stores operate as wholesale stores between 5 am and 7 am and is open for the retail customers for the rest of the day." lTC's vast experience in backward integration with farmers and managing supply chain dynamics, courtesy its e-Choupal rural initiative, should help make it a grand success. Says Y C Deveshwar, Chairman, lTC, of-this potent weapon in his arsenal: "The e-Choupal infrastructure is potentially an efficient delivery channel for rural development and an instrument for converting villages into vibrant economic units." Having already set up stores in Hyderabad, Pune and Chandigarh, the company is now looking at the other metros like Kolkata. And the model will be something akin to Choupal Saagar story, with all the cold chains and associated farmer clusters.
Godrej Agrovet, a part of the Godrej group, was the first of the block to sell fresh fruits and vegetables in the urban market through its Nature's Basket retail outlets. These outlets, in turn, started sourcing some of their products from Aadhar, Godrej's rural outlet. Not only does Aadhar act as a retail outlet for the farmers-selling animal feeds, agricultural appliances, pesticides, fertilisers and consumer durables-but it also is a sourcing base of fruits and vegetables from nearby villages.
The group has ambitious agri-business plans. Says Adi Godrej, Chairman, Godrej Group of Companies: "Organised retailing is growing very rapidly. Consumers find it very comfortable and convenient mode of shopping. We see a tremendous future in speciality food retail." The fruits and vegetables sold in Adhar are procured mainly through tie-ups with farmers, who come to Godrej Agrovet's distribution centre, do all the sorting and grading of the fruits and vegetables that are then transported to Aadhar outlets.
There is however no written contracts with the farmers, but it works on the basis of mutual interest and on the demand and supply system. Explains C K Vaidya, Managing Director, Godrej Agrovet: "We have a system of generating estimates of demand, which is then converted into orders for the farmers and brought to the distribution centre.The company which has 30 Aadhars all over Maharashtra, Gujarat, Punjab and Haryana, plans to ramp it up to 1,000 in the next five to seven years."
Facelift for the farm
The change is a welcome one. "We are de-risking the farmer's life in every possible way", points out a visibly enthusiastic Rohtash Mal, Chief Executive Officer, Field Fresh Products. By tying up with hundreds of farmers, (signing a lease) the company is not only assuring them a fixed return, but also promising to buy up all their produce at pre-determined prices. Better still, the company always pays a little more than the prevailing mandi price for the produce. This ensures that the farmers never get a raw deal. "And since it is our business to get the produce to the market, even the logistics problems that used to dog the farmer are taken care of," adds Mal.
All these improvements are more than what the government itself has been able to offer the sector. By moving in and taking over the supply chain in agriculture, corporate India is also breaking the stranglehold of middlemen and loan sharks who not only exploited the farmers, but also routinely marked up prices by as much as 60% without actually adding any value. The modern distribution channels, warehousing and cold storage facilities will also ensure that the produce remains fresh and reaches retail outlets faster. Over the years, they could eliminate the wastages that have for long plagued the procurement system. In the bargain, they open up export possibilities in crops currently beyond the country's horizon. Some companies have already begun to seize this opportunity. For instance, at FieldFresh's 300-acre research centre at Ladhowal (near Ludhiana), womenfolk from nearby villages of Birmi and Phillaur, are growing okra, brinjal, baby corn and chillies, which are being sold not just in other parts of India (in itself an achievement), but in the difficult-to-crack European markets. Not just that, FieldFresh has tie-ups in place with agri companies overseas to help it grow the best-quality European carrot (Sumick of Australia) and baby corn and snap peas (Bomford of UK). "By 2008, we expect to be exporting as much as around 40% of our total produce," says Mal.
FieldFresh's Ladhowal initiative has also demonstrated to farmers that crop diversification helps retain the fertility of top soil, arrest water depletion (Punjab is losing two feet of groundwater every year) and generate higher incomes for farmers. "Farmers can increase their annual income by a minimum of 30% if they shift from rice and paddy to horticulture. Besides, they have the advantage of raising three crops a year," says Mittal. The company has already tied up with more than 100 big farmers, each of whom work with several smaller farmers to make contract farming happen. Adds Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo India: "Potatoes alone can double the return for the farmer, if he decides to switch to them from growing wheat and rice. Chillies too are a more paying alternative." Seth should know, since it was his company that initiated the concept of corporate farming in India way back in 1989. PepsiCo is currently growing citrus near Jalandhar, the seeds for which operation come from Tropicana (a Pepsi company) in the United States Says Seth: "This operation will not only sustain our orange juice business within India but will act as a supply source to our markets in the neighbouring countries, and even in Europe." By 2011, the food and beverages multinational's India arm will also be able to process its home-grown oranges. The company's exports from India totaled $40 million last year.
Corporate farming, most experts acknowledge, could be the answer to India agricultural crisis. After all, it involves involvement at every point in the value chain of corporates more capable of running risks and sustaining losses than small farmers-from the supply of high-quality seeds to fertilisers to the transfer of technology with the promise of buying the produce at a pre-determined price. One good instance of how corporate involvement helps raise farmers' incomes comes from Bipin Solanki, Deputy Managing Director of Mahyco Monsanto Biotech. He estimates that the farmers who had planted BT cotton in 2006 are likely to earn an additional Rs 7,026.5 crore on around 8.6 million acres planted with the seeds. He points out that this would be a 36% rise over the Rs 2,100 crore income the same acreage generated in 2005.
Others such as the Global Green Company, an LM Thapar Group company that is engaged in contract farming, have joined the export bandwagon and are raking in big bucks from international markets. Global Green, which vaulted to the position of the third-biggest pickle maker in the world after acquiring Belgium-based Inter-garden Group (it was ranked number 10 before) in August this year, has contracts in place with 12,000 farmers in the southern states of Tamil Nadu, Karnataka and Andhra Pradesh. The company has been exporting gherkins, silver onions and jalapenos to 23 countries through 15 global retail chains and is looking to expand its activities further. Says Vineet Chhabra, Managing Director, Global Green: "We are looking at investing in drip irrigation in a bigger way as the product portfolio has grown from being limited to only gherkins to include jalapenos, beans and tomatoes, which enables crop rotation."
Also in the game is Mahindra Agri-Business (formerly Mahindra Shubhlabh Services), which is targeting the international market through its contract model. The company plans to get farmers who have been using over-strained potato seeds for several generations to switch to high-yield ones and to extend this to cover 300 acres (it has 22 acres under the crop currently). "This will help produce 6,000 tonnes of potatoes that we plan to export to Pakistan, Bangladesh, Afghanistan and Middle East. We have a price advantage of $100-150 per tonne over potatoes that come from European nations," says Vlkram Puri, the company's Chief Executive Officer.
Roads To Change
Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was cigarette major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customised knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. In addition, the new storage and handling system offered as part of the initiative preserves the identity of different varieties right through "the farm gate to the dinner plate".
More recently, the company entered the processed food space. "We have a tie-up with the Kitchens of India and Aashirvaad (both ITC operations) to supply for their' ready-to-eat lines of business and Choupal Fresh cash and carry stores for fresh fruits and vegetables," says lTC's Sivakumar. The company has lined up mega plans for the future. By 2010, the company hopes establish 20,000 e-Choupals in 100,000 villages involving 10 million farmers. The cost: Rs 5,000 crore in the next five years.
Although fertiliser major Tata Chemicals has also taken the contract farming route-it has 45,000 acres under contract in Punjab, Haryana, Uttar Pradesh, West Bengal and Jharkhand-it follows a different model. Under the terms of the contract, the company acts as a technology provider and facilitator of cultivation, while allowing buyers to buy the crop directly to the farmers. For the services rendered, both the farmers and the buyers have to pay a fee to Tata Chemicals. Since the fee is small, the parties involved have taken to the service in a big way. Says Kapil Mehan, Chief Executive Officer (Fertiliser Business), Tata Chemicals: "The retention rate among farmers, which used to be 20-25% a couple of years ago, has risen to 50-60% with the new model's introduction."
A Tectonic Shift
The factors that have triggered this onrush of investment are many and varied. Foremost among them being the realisation by India Inc that agriculture is a big business in the developed world, involving huge value creation, before the products reached shop-shelves. In sheer potential, India could become the food basket to the world-a supplier of high-value food products that fetch revenues running into billions. After all, the country has all the cultivable land (52% of the total land is under cultivation compared to the global average of 11%) required, the climatic conditions appropriate, and then, of course, there is the labor cost advantage.
To unlock the full potential of this business, the country would require huge dollops of investment in a number of areas. One such choke point is the storage system. While the country produces around 134.5 million tonnes of fruits and vegetables-it is the second-biggest in the world cold storage facilities exist only for 10% of the total produce. This results in enormous loss through wastages. Fixing this chink in the country's supply chain alone could alter the sector's dynamics radically.
Further, the globalisation of trade along with the rising need of most food retailers in the country for high-speed transportation means the emergence of a huge market for companies that specialise in supply logistics. That of companies sourcing millions of dollars worth of fruits and vegetables all the year round. This has sparked off a boom in food transport logistics business: a storage centre for perishables at Jawaharlal Nehru Port Trust in Kandla; announcement of plans by National Agricultural Cooperative Marketing Federation of India (NAFED) to set up packing houses and warehouses in central and western India; Mitsubishi move to put together a fleet of cold chain trucks, and Reliance's moves to set up its own supply chain backbone are all a pointer to that.
There are major (regulatory) hurdles to surmount yet before really big-time investments from India Inc can happen in the agri-sector. Even in Punjab, which leads the field among the states, corporates cannot lease land for more than 30 months, which poses uncertainties for corporate investors. As Mittal of FieldFresh explains: "Drip irrigation costs Rs 50,000 per acre and if one wants to use it on 1,000 acres, it will cost no less than Rs 5 crore. We feel that to make the best of drip irrigation, which saves water substantially, collaborative farmers should get some subsidy as well." The fact that agriculture is a state subject further complicates the field. "We don't deal with one regulatory system, but 28 of them. So this creates problems in having a clear-cut strategy," says Mahindra Agri-Business' Puri. Then there is the fact that the debate on opening up the agriculture sector is far from closed. Is it the answer to India's ongoing agrarian crisis? Critics point to the fact that agriculture growth in the last nine years (1997 to 2006) have been just around 2%. Says CPI(M) Politburo Member and Member of Parliament, Nilotpal Basu, "If companies start dictating not only what the farmer should produce and how much, but control the supply chain, farmers will have little freedom of choice. It could result in what are effectively procurement monopolies."
These clouds on the horizon have failed to dampen the sunny spirits of India Inc's new farmers. They are in the game for the long run--and the stakes are too high for them to let small things get in the way. They are intent on remaking the face of Indian agriculture and have the were withals to accomplish their objectives. In doing so, they will generate enormous spinoffs for a large number associated with the agricultural sector, even if the numbers run into a few lakh rather than a few crore initially. Alongside employment generation, the initiatives of Bharti, Reliance and others like them would result ultimately in economies of scale and crop diversification-gains that have eluded successive governments over the past six decades.
New Green Revolution
The number of corporations-domestic and MNC-making a beeline for the agriculture sector is on the rise.
Together, they look set to forge anew every link of its value chain. The re-invention of Indian agriculture foretold.
On the outskirts of Aligarh in the state of Uttar Pradesh, some 185 km from New Delhi, lies the nondescript, dusty township of Hathras. From its narrow crowded roads, chaotic traffic with cars, two-wheelers and cattle jostling for space and rows of small shops spilling into the road selling everything from groceries to vegetables to cycles and pressure cookers, you wouldn't really think that there was anything unique about it. But visit its farms, which produce potatoes, chillies and wheat, and amidst which stands the imposing green and yellow building of Choupal Saagar (an ITC rural retail initiative) some six km off the main town centre, and you'll get the surprise of your life. Spread over 4.28 acres, the local Choupal Saagar wholesale-cum-retail store has already become the one-stop shop that acts not only as the lightning rod for the aspirations of the region's semi-urban and rural populace, but also as a catalyst that's taken farming some way already along the gilt-paved road of high-technology. Inside, the Choupal Saagar's shelves are crowded with groceries (not just from the ITC stable, but other brands as well), footwear (old-style Bata, still a favourite, competes with newer labels for attention), toys, apparel (John Players), and even video and audio systems, computers and mobile phones (Nokia phones seems like the obvious choice). The sense of flux you get is a little disorienting.
A few thousand kilometers away, the Chairman of Reliance Industries, Mukesh Ambani, is busy inaugurating another of the red and green Reliance Fresh stores in Hyderabad (there are 11 in all in the city)-another milestone in what is a massive agri-initiative. The 3,000 square feet store sells a range of vegetables (many exotic from the average Hyderabadi's point of view) --leek, celery, Brussels, sprouts, zucchini, pak choy, Chinese cabbage and imported fruit like kiwi, avocado and grapefruit-- at astonishingly affordable rates. The retail chain's motto Grahak Devo Bhava (customer is God) could well have been emblazoned on the wall behind the counter. You realise an agri-retail revolution is well and truly under way.
This comes on top of a second Green Revolution that has brought reforms to the very heart of the economic hinter-land-the fields where farmers have hitherto tilled their lands untouched by the onward march of modernity. Riding this wind of change are the bigwigs of India Inc, from the Reliance Group to the Bhartis to the Mahindras to the Godrejs to MNCs like PepsiCo. All of them major corporate players with enormous resources at their disposal and who have the know-how to remake the face of Indian agriculture. More importantly, with their big-ticket investments, these entrepreneur-farmers are all set to change the fortunes of an industry that has consistently lagged the GDP growth for decades but still employs 67% of the country's population. These corporates are looking at all aspects of this value chain, from research and development to distribution of seeds, fertilisers and pesticides to helping farmers improve irrigation and avail the latest technologies to providing market information and credit facilities to contract farming to processing to setting up cold chains and warehouses to transporting to exporting and finally retailing the produce. And they are throwing in big money in what is being described as the "farm-firm-fork" triangle by most experts.
Reliance has plans to launch many more in-house brands to retail its own produce rather than too much of branded products. Right now its private label for grocery is Reliance Select and it will be shortly launching Fresh Plus, a bigger version of Reliance Fresh, which is to cater to food and grocery, pharmacy and apparel. Mukesh Ambani outlines his vision for the sector, saying: "Conceptually, Reliance is creating a virtuous cycle of prosperity by bringing farmers, small shopkeepers and consumers in a win-win situation. With our new initiative, Reliance will forge strong and enduring bonds with millions of farmers and transform the relationship with consumers to a new level." Reliance's "agri-intervention model" envisages establishing links with farms across several acres in Punjab, West Bengal, Maharashtra and elsewhere with rural centres (district centres) providing goods for farmers and handling their produce. Its new supply chain-which will include state-of-the art cold storage and refrigerated vans for transportation-promises to be a new pipeline that would bring the produce from the areas of cultivation to Reliance's retail outlets. By 2010, the company plans to have its footprints in 784 towns and cities with 40 more stores slated for Hyderabad alone.
Other corporates are not lagging behind. Bharti's Field-fresh too has ambitious plans to set up retail outlets in the country, although they remain extremely tightlipped about it. However, the future could see FieldFresh stores selling veggies and fruits at prices that are comparable with those on the streets-the local sabzi-wala. It could also have cold chains and is likely to lease refrigerated trucks for transporting fruits and vegetables. But as of now, the focus is clearly on exports. Says Rakesh Bharti Mittal, Vice Chairman, Bharti Enterprises and Director, FieldFresh: "Currently, we are looking at exporting 10% of our total produce, which will largely happen from the Amritsar airport. The logistics for this operation are being developed. In two-to-three years, we should be exporting as much as around 50% of our produce."
lTC's International Business Division has plans to develop Choupal Fresh, a fresh food fruit and vegetable initiative for sophisticated metro dwellers. Says S Sivakumar, Chief Executive Officer, lTC's International Business Division which is managing the Choupal initiative: "Choupal Fresh is a new and unique format. These stores operate as wholesale stores between 5 am and 7 am and is open for the retail customers for the rest of the day." lTC's vast experience in backward integration with farmers and managing supply chain dynamics, courtesy its e-Choupal rural initiative, should help make it a grand success. Says Y C Deveshwar, Chairman, lTC, of-this potent weapon in his arsenal: "The e-Choupal infrastructure is potentially an efficient delivery channel for rural development and an instrument for converting villages into vibrant economic units." Having already set up stores in Hyderabad, Pune and Chandigarh, the company is now looking at the other metros like Kolkata. And the model will be something akin to Choupal Saagar story, with all the cold chains and associated farmer clusters.
Godrej Agrovet, a part of the Godrej group, was the first of the block to sell fresh fruits and vegetables in the urban market through its Nature's Basket retail outlets. These outlets, in turn, started sourcing some of their products from Aadhar, Godrej's rural outlet. Not only does Aadhar act as a retail outlet for the farmers-selling animal feeds, agricultural appliances, pesticides, fertilisers and consumer durables-but it also is a sourcing base of fruits and vegetables from nearby villages.
The group has ambitious agri-business plans. Says Adi Godrej, Chairman, Godrej Group of Companies: "Organised retailing is growing very rapidly. Consumers find it very comfortable and convenient mode of shopping. We see a tremendous future in speciality food retail." The fruits and vegetables sold in Adhar are procured mainly through tie-ups with farmers, who come to Godrej Agrovet's distribution centre, do all the sorting and grading of the fruits and vegetables that are then transported to Aadhar outlets.
There is however no written contracts with the farmers, but it works on the basis of mutual interest and on the demand and supply system. Explains C K Vaidya, Managing Director, Godrej Agrovet: "We have a system of generating estimates of demand, which is then converted into orders for the farmers and brought to the distribution centre.The company which has 30 Aadhars all over Maharashtra, Gujarat, Punjab and Haryana, plans to ramp it up to 1,000 in the next five to seven years."
Facelift for the farm
The change is a welcome one. "We are de-risking the farmer's life in every possible way", points out a visibly enthusiastic Rohtash Mal, Chief Executive Officer, Field Fresh Products. By tying up with hundreds of farmers, (signing a lease) the company is not only assuring them a fixed return, but also promising to buy up all their produce at pre-determined prices. Better still, the company always pays a little more than the prevailing mandi price for the produce. This ensures that the farmers never get a raw deal. "And since it is our business to get the produce to the market, even the logistics problems that used to dog the farmer are taken care of," adds Mal.
All these improvements are more than what the government itself has been able to offer the sector. By moving in and taking over the supply chain in agriculture, corporate India is also breaking the stranglehold of middlemen and loan sharks who not only exploited the farmers, but also routinely marked up prices by as much as 60% without actually adding any value. The modern distribution channels, warehousing and cold storage facilities will also ensure that the produce remains fresh and reaches retail outlets faster. Over the years, they could eliminate the wastages that have for long plagued the procurement system. In the bargain, they open up export possibilities in crops currently beyond the country's horizon. Some companies have already begun to seize this opportunity. For instance, at FieldFresh's 300-acre research centre at Ladhowal (near Ludhiana), womenfolk from nearby villages of Birmi and Phillaur, are growing okra, brinjal, baby corn and chillies, which are being sold not just in other parts of India (in itself an achievement), but in the difficult-to-crack European markets. Not just that, FieldFresh has tie-ups in place with agri companies overseas to help it grow the best-quality European carrot (Sumick of Australia) and baby corn and snap peas (Bomford of UK). "By 2008, we expect to be exporting as much as around 40% of our total produce," says Mal.
FieldFresh's Ladhowal initiative has also demonstrated to farmers that crop diversification helps retain the fertility of top soil, arrest water depletion (Punjab is losing two feet of groundwater every year) and generate higher incomes for farmers. "Farmers can increase their annual income by a minimum of 30% if they shift from rice and paddy to horticulture. Besides, they have the advantage of raising three crops a year," says Mittal. The company has already tied up with more than 100 big farmers, each of whom work with several smaller farmers to make contract farming happen. Adds Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo India: "Potatoes alone can double the return for the farmer, if he decides to switch to them from growing wheat and rice. Chillies too are a more paying alternative." Seth should know, since it was his company that initiated the concept of corporate farming in India way back in 1989. PepsiCo is currently growing citrus near Jalandhar, the seeds for which operation come from Tropicana (a Pepsi company) in the United States Says Seth: "This operation will not only sustain our orange juice business within India but will act as a supply source to our markets in the neighbouring countries, and even in Europe." By 2011, the food and beverages multinational's India arm will also be able to process its home-grown oranges. The company's exports from India totaled $40 million last year.
Corporate farming, most experts acknowledge, could be the answer to India agricultural crisis. After all, it involves involvement at every point in the value chain of corporates more capable of running risks and sustaining losses than small farmers-from the supply of high-quality seeds to fertilisers to the transfer of technology with the promise of buying the produce at a pre-determined price. One good instance of how corporate involvement helps raise farmers' incomes comes from Bipin Solanki, Deputy Managing Director of Mahyco Monsanto Biotech. He estimates that the farmers who had planted BT cotton in 2006 are likely to earn an additional Rs 7,026.5 crore on around 8.6 million acres planted with the seeds. He points out that this would be a 36% rise over the Rs 2,100 crore income the same acreage generated in 2005.
Others such as the Global Green Company, an LM Thapar Group company that is engaged in contract farming, have joined the export bandwagon and are raking in big bucks from international markets. Global Green, which vaulted to the position of the third-biggest pickle maker in the world after acquiring Belgium-based Inter-garden Group (it was ranked number 10 before) in August this year, has contracts in place with 12,000 farmers in the southern states of Tamil Nadu, Karnataka and Andhra Pradesh. The company has been exporting gherkins, silver onions and jalapenos to 23 countries through 15 global retail chains and is looking to expand its activities further. Says Vineet Chhabra, Managing Director, Global Green: "We are looking at investing in drip irrigation in a bigger way as the product portfolio has grown from being limited to only gherkins to include jalapenos, beans and tomatoes, which enables crop rotation."
Also in the game is Mahindra Agri-Business (formerly Mahindra Shubhlabh Services), which is targeting the international market through its contract model. The company plans to get farmers who have been using over-strained potato seeds for several generations to switch to high-yield ones and to extend this to cover 300 acres (it has 22 acres under the crop currently). "This will help produce 6,000 tonnes of potatoes that we plan to export to Pakistan, Bangladesh, Afghanistan and Middle East. We have a price advantage of $100-150 per tonne over potatoes that come from European nations," says Vlkram Puri, the company's Chief Executive Officer.
Roads To Change
Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was cigarette major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customised knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. In addition, the new storage and handling system offered as part of the initiative preserves the identity of different varieties right through "the farm gate to the dinner plate".
More recently, the company entered the processed food space. "We have a tie-up with the Kitchens of India and Aashirvaad (both ITC operations) to supply for their' ready-to-eat lines of business and Choupal Fresh cash and carry stores for fresh fruits and vegetables," says lTC's Sivakumar. The company has lined up mega plans for the future. By 2010, the company hopes establish 20,000 e-Choupals in 100,000 villages involving 10 million farmers. The cost: Rs 5,000 crore in the next five years.
Although fertiliser major Tata Chemicals has also taken the contract farming route-it has 45,000 acres under contract in Punjab, Haryana, Uttar Pradesh, West Bengal and Jharkhand-it follows a different model. Under the terms of the contract, the company acts as a technology provider and facilitator of cultivation, while allowing buyers to buy the crop directly to the farmers. For the services rendered, both the farmers and the buyers have to pay a fee to Tata Chemicals. Since the fee is small, the parties involved have taken to the service in a big way. Says Kapil Mehan, Chief Executive Officer (Fertiliser Business), Tata Chemicals: "The retention rate among farmers, which used to be 20-25% a couple of years ago, has risen to 50-60% with the new model's introduction."
A Tectonic Shift
The factors that have triggered this onrush of investment are many and varied. Foremost among them being the realisation by India Inc that agriculture is a big business in the developed world, involving huge value creation, before the products reached shop-shelves. In sheer potential, India could become the food basket to the world-a supplier of high-value food products that fetch revenues running into billions. After all, the country has all the cultivable land (52% of the total land is under cultivation compared to the global average of 11%) required, the climatic conditions appropriate, and then, of course, there is the labor cost advantage.
To unlock the full potential of this business, the country would require huge dollops of investment in a number of areas. One such choke point is the storage system. While the country produces around 134.5 million tonnes of fruits and vegetables-it is the second-biggest in the world cold storage facilities exist only for 10% of the total produce. This results in enormous loss through wastages. Fixing this chink in the country's supply chain alone could alter the sector's dynamics radically.
Further, the globalisation of trade along with the rising need of most food retailers in the country for high-speed transportation means the emergence of a huge market for companies that specialise in supply logistics. That of companies sourcing millions of dollars worth of fruits and vegetables all the year round. This has sparked off a boom in food transport logistics business: a storage centre for perishables at Jawaharlal Nehru Port Trust in Kandla; announcement of plans by National Agricultural Cooperative Marketing Federation of India (NAFED) to set up packing houses and warehouses in central and western India; Mitsubishi move to put together a fleet of cold chain trucks, and Reliance's moves to set up its own supply chain backbone are all a pointer to that.
There are major (regulatory) hurdles to surmount yet before really big-time investments from India Inc can happen in the agri-sector. Even in Punjab, which leads the field among the states, corporates cannot lease land for more than 30 months, which poses uncertainties for corporate investors. As Mittal of FieldFresh explains: "Drip irrigation costs Rs 50,000 per acre and if one wants to use it on 1,000 acres, it will cost no less than Rs 5 crore. We feel that to make the best of drip irrigation, which saves water substantially, collaborative farmers should get some subsidy as well." The fact that agriculture is a state subject further complicates the field. "We don't deal with one regulatory system, but 28 of them. So this creates problems in having a clear-cut strategy," says Mahindra Agri-Business' Puri. Then there is the fact that the debate on opening up the agriculture sector is far from closed. Is it the answer to India's ongoing agrarian crisis? Critics point to the fact that agriculture growth in the last nine years (1997 to 2006) have been just around 2%. Says CPI(M) Politburo Member and Member of Parliament, Nilotpal Basu, "If companies start dictating not only what the farmer should produce and how much, but control the supply chain, farmers will have little freedom of choice. It could result in what are effectively procurement monopolies."
These clouds on the horizon have failed to dampen the sunny spirits of India Inc's new farmers. They are in the game for the long run--and the stakes are too high for them to let small things get in the way. They are intent on remaking the face of Indian agriculture and have the were withals to accomplish their objectives. In doing so, they will generate enormous spinoffs for a large number associated with the agricultural sector, even if the numbers run into a few lakh rather than a few crore initially. Alongside employment generation, the initiatives of Bharti, Reliance and others like them would result ultimately in economies of scale and crop diversification-gains that have eluded successive governments over the past six decades.
Together, they look set to forge anew every link of its value chain. The re-invention of Indian agriculture foretold.
On the outskirts of Aligarh in the state of Uttar Pradesh, some 185 km from New Delhi, lies the nondescript, dusty township of Hathras. From its narrow crowded roads, chaotic traffic with cars, two-wheelers and cattle jostling for space and rows of small shops spilling into the road selling everything from groceries to vegetables to cycles and pressure cookers, you wouldn't really think that there was anything unique about it. But visit its farms, which produce potatoes, chillies and wheat, and amidst which stands the imposing green and yellow building of Choupal Saagar (an ITC rural retail initiative) some six km off the main town centre, and you'll get the surprise of your life. Spread over 4.28 acres, the local Choupal Saagar wholesale-cum-retail store has already become the one-stop shop that acts not only as the lightning rod for the aspirations of the region's semi-urban and rural populace, but also as a catalyst that's taken farming some way already along the gilt-paved road of high-technology. Inside, the Choupal Saagar's shelves are crowded with groceries (not just from the ITC stable, but other brands as well), footwear (old-style Bata, still a favourite, competes with newer labels for attention), toys, apparel (John Players), and even video and audio systems, computers and mobile phones (Nokia phones seems like the obvious choice). The sense of flux you get is a little disorienting.
A few thousand kilometers away, the Chairman of Reliance Industries, Mukesh Ambani, is busy inaugurating another of the red and green Reliance Fresh stores in Hyderabad (there are 11 in all in the city)-another milestone in what is a massive agri-initiative. The 3,000 square feet store sells a range of vegetables (many exotic from the average Hyderabadi's point of view) --leek, celery, Brussels, sprouts, zucchini, pak choy, Chinese cabbage and imported fruit like kiwi, avocado and grapefruit-- at astonishingly affordable rates. The retail chain's motto Grahak Devo Bhava (customer is God) could well have been emblazoned on the wall behind the counter. You realise an agri-retail revolution is well and truly under way.
This comes on top of a second Green Revolution that has brought reforms to the very heart of the economic hinter-land-the fields where farmers have hitherto tilled their lands untouched by the onward march of modernity. Riding this wind of change are the bigwigs of India Inc, from the Reliance Group to the Bhartis to the Mahindras to the Godrejs to MNCs like PepsiCo. All of them major corporate players with enormous resources at their disposal and who have the know-how to remake the face of Indian agriculture. More importantly, with their big-ticket investments, these entrepreneur-farmers are all set to change the fortunes of an industry that has consistently lagged the GDP growth for decades but still employs 67% of the country's population. These corporates are looking at all aspects of this value chain, from research and development to distribution of seeds, fertilisers and pesticides to helping farmers improve irrigation and avail the latest technologies to providing market information and credit facilities to contract farming to processing to setting up cold chains and warehouses to transporting to exporting and finally retailing the produce. And they are throwing in big money in what is being described as the "farm-firm-fork" triangle by most experts.
Reliance has plans to launch many more in-house brands to retail its own produce rather than too much of branded products. Right now its private label for grocery is Reliance Select and it will be shortly launching Fresh Plus, a bigger version of Reliance Fresh, which is to cater to food and grocery, pharmacy and apparel. Mukesh Ambani outlines his vision for the sector, saying: "Conceptually, Reliance is creating a virtuous cycle of prosperity by bringing farmers, small shopkeepers and consumers in a win-win situation. With our new initiative, Reliance will forge strong and enduring bonds with millions of farmers and transform the relationship with consumers to a new level." Reliance's "agri-intervention model" envisages establishing links with farms across several acres in Punjab, West Bengal, Maharashtra and elsewhere with rural centres (district centres) providing goods for farmers and handling their produce. Its new supply chain-which will include state-of-the art cold storage and refrigerated vans for transportation-promises to be a new pipeline that would bring the produce from the areas of cultivation to Reliance's retail outlets. By 2010, the company plans to have its footprints in 784 towns and cities with 40 more stores slated for Hyderabad alone.
Other corporates are not lagging behind. Bharti's Field-fresh too has ambitious plans to set up retail outlets in the country, although they remain extremely tightlipped about it. However, the future could see FieldFresh stores selling veggies and fruits at prices that are comparable with those on the streets-the local sabzi-wala. It could also have cold chains and is likely to lease refrigerated trucks for transporting fruits and vegetables. But as of now, the focus is clearly on exports. Says Rakesh Bharti Mittal, Vice Chairman, Bharti Enterprises and Director, FieldFresh: "Currently, we are looking at exporting 10% of our total produce, which will largely happen from the Amritsar airport. The logistics for this operation are being developed. In two-to-three years, we should be exporting as much as around 50% of our produce."
lTC's International Business Division has plans to develop Choupal Fresh, a fresh food fruit and vegetable initiative for sophisticated metro dwellers. Says S Sivakumar, Chief Executive Officer, lTC's International Business Division which is managing the Choupal initiative: "Choupal Fresh is a new and unique format. These stores operate as wholesale stores between 5 am and 7 am and is open for the retail customers for the rest of the day." lTC's vast experience in backward integration with farmers and managing supply chain dynamics, courtesy its e-Choupal rural initiative, should help make it a grand success. Says Y C Deveshwar, Chairman, lTC, of-this potent weapon in his arsenal: "The e-Choupal infrastructure is potentially an efficient delivery channel for rural development and an instrument for converting villages into vibrant economic units." Having already set up stores in Hyderabad, Pune and Chandigarh, the company is now looking at the other metros like Kolkata. And the model will be something akin to Choupal Saagar story, with all the cold chains and associated farmer clusters.
Godrej Agrovet, a part of the Godrej group, was the first of the block to sell fresh fruits and vegetables in the urban market through its Nature's Basket retail outlets. These outlets, in turn, started sourcing some of their products from Aadhar, Godrej's rural outlet. Not only does Aadhar act as a retail outlet for the farmers-selling animal feeds, agricultural appliances, pesticides, fertilisers and consumer durables-but it also is a sourcing base of fruits and vegetables from nearby villages.
The group has ambitious agri-business plans. Says Adi Godrej, Chairman, Godrej Group of Companies: "Organised retailing is growing very rapidly. Consumers find it very comfortable and convenient mode of shopping. We see a tremendous future in speciality food retail." The fruits and vegetables sold in Adhar are procured mainly through tie-ups with farmers, who come to Godrej Agrovet's distribution centre, do all the sorting and grading of the fruits and vegetables that are then transported to Aadhar outlets.
There is however no written contracts with the farmers, but it works on the basis of mutual interest and on the demand and supply system. Explains C K Vaidya, Managing Director, Godrej Agrovet: "We have a system of generating estimates of demand, which is then converted into orders for the farmers and brought to the distribution centre.The company which has 30 Aadhars all over Maharashtra, Gujarat, Punjab and Haryana, plans to ramp it up to 1,000 in the next five to seven years."
Facelift for the farm
The change is a welcome one. "We are de-risking the farmer's life in every possible way", points out a visibly enthusiastic Rohtash Mal, Chief Executive Officer, Field Fresh Products. By tying up with hundreds of farmers, (signing a lease) the company is not only assuring them a fixed return, but also promising to buy up all their produce at pre-determined prices. Better still, the company always pays a little more than the prevailing mandi price for the produce. This ensures that the farmers never get a raw deal. "And since it is our business to get the produce to the market, even the logistics problems that used to dog the farmer are taken care of," adds Mal.
All these improvements are more than what the government itself has been able to offer the sector. By moving in and taking over the supply chain in agriculture, corporate India is also breaking the stranglehold of middlemen and loan sharks who not only exploited the farmers, but also routinely marked up prices by as much as 60% without actually adding any value. The modern distribution channels, warehousing and cold storage facilities will also ensure that the produce remains fresh and reaches retail outlets faster. Over the years, they could eliminate the wastages that have for long plagued the procurement system. In the bargain, they open up export possibilities in crops currently beyond the country's horizon. Some companies have already begun to seize this opportunity. For instance, at FieldFresh's 300-acre research centre at Ladhowal (near Ludhiana), womenfolk from nearby villages of Birmi and Phillaur, are growing okra, brinjal, baby corn and chillies, which are being sold not just in other parts of India (in itself an achievement), but in the difficult-to-crack European markets. Not just that, FieldFresh has tie-ups in place with agri companies overseas to help it grow the best-quality European carrot (Sumick of Australia) and baby corn and snap peas (Bomford of UK). "By 2008, we expect to be exporting as much as around 40% of our total produce," says Mal.
FieldFresh's Ladhowal initiative has also demonstrated to farmers that crop diversification helps retain the fertility of top soil, arrest water depletion (Punjab is losing two feet of groundwater every year) and generate higher incomes for farmers. "Farmers can increase their annual income by a minimum of 30% if they shift from rice and paddy to horticulture. Besides, they have the advantage of raising three crops a year," says Mittal. The company has already tied up with more than 100 big farmers, each of whom work with several smaller farmers to make contract farming happen. Adds Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo India: "Potatoes alone can double the return for the farmer, if he decides to switch to them from growing wheat and rice. Chillies too are a more paying alternative." Seth should know, since it was his company that initiated the concept of corporate farming in India way back in 1989. PepsiCo is currently growing citrus near Jalandhar, the seeds for which operation come from Tropicana (a Pepsi company) in the United States Says Seth: "This operation will not only sustain our orange juice business within India but will act as a supply source to our markets in the neighbouring countries, and even in Europe." By 2011, the food and beverages multinational's India arm will also be able to process its home-grown oranges. The company's exports from India totaled $40 million last year.
Corporate farming, most experts acknowledge, could be the answer to India agricultural crisis. After all, it involves involvement at every point in the value chain of corporates more capable of running risks and sustaining losses than small farmers-from the supply of high-quality seeds to fertilisers to the transfer of technology with the promise of buying the produce at a pre-determined price. One good instance of how corporate involvement helps raise farmers' incomes comes from Bipin Solanki, Deputy Managing Director of Mahyco Monsanto Biotech. He estimates that the farmers who had planted BT cotton in 2006 are likely to earn an additional Rs 7,026.5 crore on around 8.6 million acres planted with the seeds. He points out that this would be a 36% rise over the Rs 2,100 crore income the same acreage generated in 2005.
Others such as the Global Green Company, an LM Thapar Group company that is engaged in contract farming, have joined the export bandwagon and are raking in big bucks from international markets. Global Green, which vaulted to the position of the third-biggest pickle maker in the world after acquiring Belgium-based Inter-garden Group (it was ranked number 10 before) in August this year, has contracts in place with 12,000 farmers in the southern states of Tamil Nadu, Karnataka and Andhra Pradesh. The company has been exporting gherkins, silver onions and jalapenos to 23 countries through 15 global retail chains and is looking to expand its activities further. Says Vineet Chhabra, Managing Director, Global Green: "We are looking at investing in drip irrigation in a bigger way as the product portfolio has grown from being limited to only gherkins to include jalapenos, beans and tomatoes, which enables crop rotation."
Also in the game is Mahindra Agri-Business (formerly Mahindra Shubhlabh Services), which is targeting the international market through its contract model. The company plans to get farmers who have been using over-strained potato seeds for several generations to switch to high-yield ones and to extend this to cover 300 acres (it has 22 acres under the crop currently). "This will help produce 6,000 tonnes of potatoes that we plan to export to Pakistan, Bangladesh, Afghanistan and Middle East. We have a price advantage of $100-150 per tonne over potatoes that come from European nations," says Vlkram Puri, the company's Chief Executive Officer.
Roads To Change
Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was cigarette major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customised knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. In addition, the new storage and handling system offered as part of the initiative preserves the identity of different varieties right through "the farm gate to the dinner plate".
More recently, the company entered the processed food space. "We have a tie-up with the Kitchens of India and Aashirvaad (both ITC operations) to supply for their' ready-to-eat lines of business and Choupal Fresh cash and carry stores for fresh fruits and vegetables," says lTC's Sivakumar. The company has lined up mega plans for the future. By 2010, the company hopes establish 20,000 e-Choupals in 100,000 villages involving 10 million farmers. The cost: Rs 5,000 crore in the next five years.
Although fertiliser major Tata Chemicals has also taken the contract farming route-it has 45,000 acres under contract in Punjab, Haryana, Uttar Pradesh, West Bengal and Jharkhand-it follows a different model. Under the terms of the contract, the company acts as a technology provider and facilitator of cultivation, while allowing buyers to buy the crop directly to the farmers. For the services rendered, both the farmers and the buyers have to pay a fee to Tata Chemicals. Since the fee is small, the parties involved have taken to the service in a big way. Says Kapil Mehan, Chief Executive Officer (Fertiliser Business), Tata Chemicals: "The retention rate among farmers, which used to be 20-25% a couple of years ago, has risen to 50-60% with the new model's introduction."
A Tectonic Shift
The factors that have triggered this onrush of investment are many and varied. Foremost among them being the realisation by India Inc that agriculture is a big business in the developed world, involving huge value creation, before the products reached shop-shelves. In sheer potential, India could become the food basket to the world-a supplier of high-value food products that fetch revenues running into billions. After all, the country has all the cultivable land (52% of the total land is under cultivation compared to the global average of 11%) required, the climatic conditions appropriate, and then, of course, there is the labor cost advantage.
To unlock the full potential of this business, the country would require huge dollops of investment in a number of areas. One such choke point is the storage system. While the country produces around 134.5 million tonnes of fruits and vegetables-it is the second-biggest in the world cold storage facilities exist only for 10% of the total produce. This results in enormous loss through wastages. Fixing this chink in the country's supply chain alone could alter the sector's dynamics radically.
Further, the globalisation of trade along with the rising need of most food retailers in the country for high-speed transportation means the emergence of a huge market for companies that specialise in supply logistics. That of companies sourcing millions of dollars worth of fruits and vegetables all the year round. This has sparked off a boom in food transport logistics business: a storage centre for perishables at Jawaharlal Nehru Port Trust in Kandla; announcement of plans by National Agricultural Cooperative Marketing Federation of India (NAFED) to set up packing houses and warehouses in central and western India; Mitsubishi move to put together a fleet of cold chain trucks, and Reliance's moves to set up its own supply chain backbone are all a pointer to that.
There are major (regulatory) hurdles to surmount yet before really big-time investments from India Inc can happen in the agri-sector. Even in Punjab, which leads the field among the states, corporates cannot lease land for more than 30 months, which poses uncertainties for corporate investors. As Mittal of FieldFresh explains: "Drip irrigation costs Rs 50,000 per acre and if one wants to use it on 1,000 acres, it will cost no less than Rs 5 crore. We feel that to make the best of drip irrigation, which saves water substantially, collaborative farmers should get some subsidy as well." The fact that agriculture is a state subject further complicates the field. "We don't deal with one regulatory system, but 28 of them. So this creates problems in having a clear-cut strategy," says Mahindra Agri-Business' Puri. Then there is the fact that the debate on opening up the agriculture sector is far from closed. Is it the answer to India's ongoing agrarian crisis? Critics point to the fact that agriculture growth in the last nine years (1997 to 2006) have been just around 2%. Says CPI(M) Politburo Member and Member of Parliament, Nilotpal Basu, "If companies start dictating not only what the farmer should produce and how much, but control the supply chain, farmers will have little freedom of choice. It could result in what are effectively procurement monopolies."
These clouds on the horizon have failed to dampen the sunny spirits of India Inc's new farmers. They are in the game for the long run--and the stakes are too high for them to let small things get in the way. They are intent on remaking the face of Indian agriculture and have the were withals to accomplish their objectives. In doing so, they will generate enormous spinoffs for a large number associated with the agricultural sector, even if the numbers run into a few lakh rather than a few crore initially. Alongside employment generation, the initiatives of Bharti, Reliance and others like them would result ultimately in economies of scale and crop diversification-gains that have eluded successive governments over the past six decades.
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