Retail is being redefined by young turks of business
Mar 07 2012, 11:18 | By CNBC-TV18
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This week on Young Turks, CNBC-TV18 continues to focus on organized retail and the opportunities it throws up for young entrepreneurs. The show analyses whether the government’s claim of organized retail to generate more employment and encourage more entrepreneurship holds true. It explores the entire retail ecosystem right from the small & medium size vendors to private labels that are vying for shelf space, to the global retail joints who are changing the rules of the game.
Kanhai Home Décor shifts focus to expansion in domestic market
35-year-old Mukta Sharma along with her husband Rajat Lodha tapped into the growing home décor market with their brand - Kanhai. With a portfolio of over 500 products, Kanhai is sold across 10 cities in India and exported to the US, Europe, Canada, Australia and South Asian markets today.
Theirs is an unusual love story which blossomed on the design table and culminated in marriage and a home décor brand. Sharma and Lodha took over Kanhai from their friend and the founder Kavita Datta in 2006. Kanhai creates home accessories, lamps, jewellery, handmade glass and acrylic beads. However, the duo's entrepreneurial start was not easy.
Sharma: In 2006 when we took over from Kavita, it was all very comfortable. We were exporting, we were doing large volumes but then the dollar got hit and the entire western melt down happened. We were on the brink of shutting down the business. We were just losing money on a daily basis. Even though we had planned to expand looking at bigger volumes but it did not work out that way. That is when we started looking at the Indian market and we shifted the entire business into the local retail. These niche stores have their own set of clientele who are the exact people that we are looking for. Therefore, these become the perfect platforms for us. As far as we are concerned, we offer them a 30% of the retail price. This reduces our risk in terms of investment and generates enough profits for us to break even and continue putting back that money in the business. This is to keep it growing, keep our focus just on manufacturing, and not worry about other things.
Q: Available in stores like Zaza, Tarini, Rio Grande, Kanhai today has gross revenues of Rs 27 lakh and generates profits of Rs 10 lakh. And this Mukta believes has been possible because of their tie-ups with stores like Zaza Home in the capital. The Zaza Home of Christine Rai, the partnership with Kanhai has been a win-win?
Rai: We have a lot of publicity and I think the product is popular. It has worked very well for both of us. In Zaza what helps us is that we work with young people with good ideas. Therefore, we encourage them to give us new products but I do not need to get involved in integrity, so that is a great benefit to us. I hope it is good for them because when we might be having an exhibition or a bazaar, then they feel a little of an incentive to bring in new products.
Q: While the couple designs the product, students from design and schools like NIFT often intern with them. Mukta believes this infuses a fresh perspective to their work. Over 300 artisans work with Kanhai in UP to manufacture the beads used in their designs. The finishing is done by this team of 10 at Kanhai’s workshop in Delhi. With products ranging from Rs 100 to Rs 10,000 – how are Mukta and Rajat in the process of cutting up the flap to maintain margins?
Sharma: The biggest cost saver is obviously not having your own standalone shop. There are other cost challenges such as the labour cost, which has been going up. The living cost is ever increasing. Hence, what we have done is we have cut down on the number of permanent employees. We end up outsourcing part of the work and that does help us to bring down the cost. Then we also source products in bulk quantity. It is not as if you are putting extra effort in making just one piece. You produce large scale though you might be just selling small scale. We are not spending on advertising. We have also worked on our packaging but we do save cost in terms of paper and the kind of printing that we go for. Thus, we just make a standard printing that can go on every product.
Capturing the beauty of a design is what this young entrepreneur does on her time off. Having shifted the focus to the domestic market, Mukta is working on snapping up more shelf space. Soon you will find the Kanhai brand across 20 more stores and even on the web as Mukta puts together the virtual retail shop. This young couple is now on the lookout for investors to fund Kanhai’s expansion plans.
Read the stories of Victoria Foods and Skype in the next page...
Victoria Foods emerging victorious with Udit Jain
At 21, Udit Jain kneaded his way into his family business Victoria Foods, which is largely in the business of wheat and pulses. Established in 1975 Victoria Foods has been a household name for agro products with its brand Rajdhani. For the last 10 years, Udit spent time understanding the art of kitchen warfare and has cooked up a game plan to modernize the age-old practice of selling pulses. He has made Victoria Foods, the largest supplier to the Indian Army, Kendriya Bhandar, Wal-Mart, Big Bazaar, Mother Dairy and many more. With 18 core products ranging from flour, pulses, rice, salt, sugar, vermicelli and soy products, Victoria today has three facilities in Delhi, Kundli and Jalgaon with a daily production capacity of 440 tons each. At Rs 330 crore today Victoria Foods is now looking at touching revenues of Rs 1,000 crore by 2015
Jain: As per the market, we are one of the largest suppliers to the top retailers in India today. We have a very good control over the entire process. We do everything from sourcing the first accessible point, be it the farm level or the first mandi level to the retail directly. So we do the entire processing, milling and the packaging everything on our own. Nothing is outsourced. So that’s how we are trying to gain in the industry. We have modernized the ancient process of milling and eating the same grain. It is the same daal that you would have eaten 30 years back, but it’s been packed hygienically. It has been processed in the state of the art facility and brought to you by the modern trader.
Along with modernization of his facilities, Udit has followed best practice guidelines drawn up by retail giants like Bharti, Wal-Mart to ensure that his facilities maintain the highest standards of hygiene. His labour policies benefit workers like Parshuram who has seen Victoria Foods grow and change in the last decade.
Parshuram: I have worked for Victoria Foods for 12 years. Our salaries have improved. Products for Bharti Wal-Mart and other big companies are made here. We get facilities like PF and ESI.
Udit believes bagging a spot in the supply portfolio of modern trade has ensured that his products are in demand through the year. This has helped him achieve the turnover of Rs 330 crore in a low margin business. As they say you get by with a little help from your friends and if your friend is a retail guerrilla, life is better.
Savage: We believe in working very closely with SMEs and with farmers to improve the efficiency of the supply chain. We want to help them look at their business and grow with us in a productive and sustainable way. That means sharing data and information with them, helping them with technological expertise, helping them plan their resources so they can increase their profitability. It also means making sure that they train their staff and hone their management skills.
With a pan India distribution, a network of over 920 distributors and 1,500 wholesalers, Udit is now looking to set-up a new plant at his Jalgaon facility in Maharashtra by the end of the month.
Jain: It is our mission to touch Rs 1,000 crore in 2015. We want to be the topmost player in the pulses industry and then of course I will buy a Ferrari for myself.
Nurturing a growing business and a growing family is tough work but Udit is trying to find the balance. As he gears up for a new decade of Victoria Foods he has his eyes set on entering newer global markets and even listing his company.
Check out the Skype story in the next page...
Skype Venture Capitalist Mark Tluszcz looks for world changing ideas in Internet economy from India
Co-founder and CEO of Luxembourg-based venture capital firm Mangrove Capital, Mark Tluszcz has invested in about 60 companies in the internet and software space. Best known for his bet on Skype, Mark has also been scouting for opportunities in India. In 2011, Mangrove Capital invested in Nimbuzz, a leading communication and entertainment platform and global online apparel, the holding company of Indian shoe e-tailer bestylish.com. With internet users in India touching the 100 million mark and growing, Mark is bullish on the Indian internet economy.
Q: You have invested in nearly 60 companies, companies like Skype. What do you look for when you put your money into a company? What is the checklist that you have?
A: The most important thing we look in company is the ambition and the vision of the founders because after all any successful start-up at the heart is successful because of its founders. So, we look number one for ambition, number two for vision and third for drive.
Q: Clearly you are on the lookout for internet companies, but within a group how do you identify companies that are different innovative and standout in the clutter?
A: We have two strategies, one is, we think half of our businesses have to be very weird and when they are weird there aren’t that many competitors because they tend to be pretty unique ideas. Skype was an idea like that. At the time if anybody had told you, you are going to make a phone call using a computer – people would have said I think you are a bit crazy that’s really not going to work. The other half of the ideas in fact are ideas where there maybe a lot of people typically in the e-commerce where you are selling stuff. Again, it always comes back down to the same thing, it is to drive the innovation and the energy of the individual who is going to run the company because we have an expression that the mind is full of great ideas. At the end of the day it’s the people driving them that make all the difference.
Q: You made quite a killing with Skype. What made you that big on Skype?
A: The ambition of the founder was I want to change the world. I want to make free calling for everybody and that just kind of tickled my fancy when I met them the first time. The moment I met them for the first meeting, I said I want to invest in these guys and we did it quickly, we did it fast. Then of course history has a lot to say about it now, but vision was the most important thing.
Q: Explain to us how Mangrove Capital nurtures its portfolio companies. What kind of support besides the money do you actually give?
A: We tend to think ourselves as intrusive investors. We don’t want to run the business, but by intrusive I mean is we have day-to-day conversations with our early stage investments. In the internet things are moving so fast, trends are changing so fast, you have to be on top of the matter very quickly. Hence particularly at the early stages we make sure that the founder sticks to his vision, but yet at the same time understands that there are some moving parts out there that he has to react to. So, I would say we are extremely involved. Most of the businesses we fund would look for that from an early stage investor. We are very honest. We usually tell the people that we are going to invest and say make sure you speak to a couple of our other invested companies so that you understand the style we have. We certainly don’t want to run the business, but we want to be very involved and be that path that allows them to go to their dream to some extent in reality.
Q: So put down a number. What is your investment outlay for India?
A: We have become very interested about India. As you know, we have invested in a company called Nimbuzz successfully here. We invested last year into company called bestylish.com. Yes, we are extremely bullish about the Indian market. We believe that it is at a cusp and we will see our role as enabling if you will – services to a much larger community. We focus very much on what we call free services. That is something like Nimbuzz where you actually develop a product then you make it available for free. We give users the ability to use things without having to pay for it. We expect to be investing quite a lot in 2012 into 2013 into the Indian market.
Q: Also give us a sense of the kind of average investment that you are looking to make in individual companies?
A: We expect to be launching a fund in India at the end of the year or early next year. We expect that to be on the tail end of our foundation. My partners and I have created a foundation namely to empower women around the globe. We want to make that our entry point into the Indian market before we set up our operations here. As an early stage investor we think of a starting point is anywhere between USD 500,000 and a million dollars. Now if we like the business we will continue investing through the life cycle of that business usually upto USD 10-15 million.
Q: So what to your mind makes Indian internet companies different from the others across the globe? Of course it is the size of the Indian market, which is growing currently, hugely under penetrated. But most second generation Indian internet companies are largely focused on the e-commerce space, whereas in Europe and the US we see more of Skype, Twitter, and Facebook. So where would you place India's emerging internet economy?
A: We will see in the next decade, several billion dollar companies being born in India and exporting everything, they are doing. Obviously the guys who are focusing on e-commerce as I do with shoes through bestylish.com do so because there is an untapped need here in the market to provide that service through the internet. Innovation will eventually come. We are beginning to see it in some of the companies we are looking at today. We fully expect though India to produce some of the most innovative companies in the next decade. It is again our vision of being able to conquer the world with a product, which is what we did with Skype; we think we are going to find something like that in the next 10 years.
Q: You have been operating more or less largely in the European market place. How do you intend adapt your investment strategy to cater to the entrepreneurial system, which in a sense is less organized and a bit more chaotic?
A: We do spend half of our time in Europe but we also spend some of our time in Russia and in India wherein we find these two markets as somewhat similar. The European or even the US internet market is also not super organized. I think we browbeat ourselves a bit too much here. We have to adapt this to make sure that when we look at these internet businesses we always think they are global, fantastic. However, if they can be successful in India that would be obviously better. So understanding the local market is important. As you know we have two investments here, and as we get closer to the end of the year, we will intend to set up operations here for which we are going to have Indian partners involved because we have to be very sensitive to local cultures and local ways of doing business.
Q: So what is the next big thing on your agenda?
A: Businesses that take advantage of the full strength of the mobile device are the businesses that I am extremely interested in today. Automobiles are looked upon as kind of dumb old computer terminals too. In the next three to five years, we are going to see much innovation to the car, which is another space we look at.
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