Hotline: 1800 102 2007
Hotline: 1800 102 2007
Search Business Opportunities
Business Categories
Sep, 07 2010

FOREIGN BRANDS: From drop to downpour

What began as a trickle in 2004-05 has now become a deluge. Foreign retail brands are lining up to enter the Indian market.

What began as a trickle in 2004-05 has now become a deluge. Foreign retail brands are lining up to enter the Indian market. While the large Indian consumer base is an obvious reason, there are other reasons galore too.

IT'S raining foreign brands in India. In May this year, Spanish fashion brand Zara opened its first Indian store. A month later, came Chinese clothing giant Yishion. They were preceded by at least three more  Diesel, Vero Moda and 7 For All Mankind, all of them set up shop in India this year. Pegged to grow at a CAGR of 40 per cent, the Indian retail sector has turned to be the stable growth ground for foreign brands accomplishing steady success. According to a recent data by the Ministry of Commerce & Industry, India's retail trade is estimated to grow at 13 per cent per annum from US$ 322 billion in 2006-07 to US$ 590 billion in 2011-12. Figures of the ITP Division, Ministry of External Affairs, states that the total estimated investment opportunity in the Indian retail sector is expected to grow around US$ 5-6 billion in the next five to six years and is expected to open up floodgates for several prospective investors.

Meanwhile, foreign brands that have already made their entry into the Indian market are on a growth spree, especially in the F&B, grocery, apparel, footwear and consumer goods sectors. According to a Technopak Report, food and grocery, clothing, footwear and consumer durables are the top four segments that will have a fair share of consumer spending by 2015. And going by industry estimates, these segments are poised for growth and most suited for foreign investment.

Anticipating threefold growth

The Investment Commission of India has predicted a threefold growth in the retail sector, pegging it to be around $660 billion in the next five years. Harish Bijoor, Brand Expert & CEO, Harish Bijoor Consultants Inc., says, “One of the key drivers for growth of international brands is brand image. A brand should enjoy a positive image across consumer markets worldwide. Heritage is yet another tag that drives purchase in this segment. The third driver is contemporaries in terms of utility, image and relevance.”

F&B: Delectable profits

Profit margins in food and beverage (F&B) segment are as as high as 40 per cent, making it a lucrative proposition for growth and investment. Industry sources indicate F&B as one of the key segments that remained recession-proof. Says Bijoor, “The bellies and bladders of Indians at large are craving for options. These options should be relevant, original and innovative.”

An ICRIER research shows a growth rate of 23.8 per cent in the organised food grocery and beverage segments in 2008-09 from just 1.1 per cent in 2003-04. International players such as Pizza Hut, KFC, McDonald's, Domino's, Subway, US Pizza and Texas Chicken, to name a few, have already made their mark in India. McDonald's that entered India as early as 1996 has around 185 restaurants across India.

Amit Jatia, Managing Director and Joint-Venture Partner, McDonald's India, South and West, comments, “McDonald's is committed to grow in India. We intend to open 35-40 restaurants across India this year alone and over the period of next five years, we aim to open about 180-190 restaurants more. This means we would be doubling the number of our restaurants.To support this growth, we are investing Rs130-150 crore this year. Over a period of next five years, the investment will go up to approximately Rs 550-600 crore.”

Yum Brands Inc, the owner of Pizza Hut, KFC and Taco Bell restaurant chains, is targeting a profit of 100 million dollars in India by 2015. Tim Jerzyk, Senior Vice-President, Investor Relations, Yum! Brands, had recently told a news agency, “We see the next 10 years as another great opportunity for us.” The company has plans to invest up to 120 million dollars more in the next five years. Yum! has over 70 KFCs and 160 Pizza Hut units in India. It recently opened its first Taco Bell outlet in March this year.

Sanjiv Pandey, Subway Marketing Manager, India, states, “India has the potential to become one of the largest markets for the Subway brand, outside North America. We feel our growth in India is going very well.”

The arrival and development of several coffee giants have enhanced the beverage segment, bringing the ultimate coffee culture in the country. Australian Coffee retailer, Gloria Jean's Coffees, entered India in 2008. After witnessing stupendous growth, the brand is now eyeing expansion. Defining the growth of the brand in India, Tony White, Regional General Manager, Gloria Jean's Coffees International, states, “We have hit the target and have aggressive plans to expand in all metro cities across India. At present, we have 12 coffee houses based in Mumbai, Bengaluru, Chennai and Hyderabad and will launch additional coffee houses in key locations in Pune and Delhi in the coming months. We expect to add an additional 28 coffee houses this fiscal year and have aggressive plans to ramp up outlet development in the coming years.”

The F&B retail segment continues to dish out a gamut of opportunities for several international brands planning India entry. Industry sources reveal that several food giants like Round Table Pizza, Carl's Jr, The Melting Pot, Starbucks Coffee, Sunrise Tacos', etc are mulling over entering India. Meanwhile, brands like California Pizza Kitchen have already announced its India plans. According to a FICCI-Ernst and Young Study (2009), the food sector in India is set to grow by a whopping 42.5 per cent from US$ 181 billion to US$ 258 billion by 2015, throwing up huge prospects for investment. Analysing the factors that make F&B a stable ground for foreign investment and opportunity, Bijoor avers, “F&B brands are the most comfortable splurges as they are relatively low-investment and low risk-oriented in terms of being locked into after a purchase. They, therefore, grow due to the regular nature of their use and consumption and due to the low risk of investment and lock-in.”

Apparel: Weaving growth

According to industry experts, the apparel segment holds the second largest share, which is US$ 29 billion out of the total US$ 410 billion Indian retail market, marked by a high growth curve. The apparel retail has witnessed a slow but gradual evolution with the entry of brands such as Adidas, Reebok, Levi's in the 1990s. However, post-1999 saw the arrival of brands such as Aldo, Burberry, Canali, Versace, Debenhams, Esprit, Gucci, Guess, Hugo Boss, Mango, Marks & Spencer, Tommy Hilfiger, Zara, Yishion to name a few.

Spanish brand Mango has been in India since 2001 and sees India as an appropriate growth ground for the brand. States Bart Denolf, Vice-President, Expansion Africa, Latin America & Middle East, Mango, “In 2001, when we opened the first store in India, Mango had already realised the huge potential of the Indian market.” Highlighting the growth plans of Mango in India, he elaborates, “We started in Mumbai and New Delhi because it was in those cities where our profile matched the most. Once our brand was consolidated in these tier I cities, we started opening in tier II cities like Pune, Hyderabad, Bengaluru, and other potential cities such as Ahmedabad, Chennai and Kolkata.”

Martin Jones, CEO, Marks and Spencer Reliance India, is elated over the brand's progress. “In the last financial year, we opened four more stores in India and this year, we opened two more stores. We now have a strong platform in place, from which we significantly look to expand our presence in this market,” avers Jones.

As per consulting firm Third Eyesight, there were over 200 international fashion brands present in the Indian market at the beginning of this year. So what is fuelling the growth of international brands in apparel retail? Explains Tarang Gautam Saxena, consultant, Third EyeSight, “India looks like a large market that can generate enough demand for the international fashion brands despite the heterogeneous consumer base. It is imperative for the international brands to understand their target customer and offer products to suit the tastes of the Indian consumers. One needs to look beyond the consumer numbers.” According to Purnendu Kumar, Associate Vice-President, Technopak Advisors, “The international brands should develop a model for a long-term growth to make a mark in India.”

Apparel sector has witnessed the arrival of the highest number of global apparel leaders. According to industry sources, leading names like Tween, Damat, ADV, GAP and Uniqlo are expected to enter India. Besides, Reliance Retail is in talks with US fashion brand Kenneth Cole and Italian bag maker Mandarina Duck to open their exclusive outlets in India.

So where lies the opportunity to invest in? Says Bijoor, “Global apparel brands in the mid-segment (price) stand a positive chance in the emerging Indian market. The mid-segment, therefore, is the opportunity segment for the global apparel brand. Apart from this, kids clothes offer more margin than adult-oriented garments. Parents in new India are willing to splurge that much more on their kids than themselves.”

Consumer durables: Rs 30,000-crore market

The consumer durables retail market has been inundated with major global players like Sony, LG, Samsung, Toshiba to name a few, with several others following suite to grab the growth opportunities that India presents. This segment has seen a marked growth with the presence of international players, who are facing a tough competition from the Indian counterparts. According to an exclusive research by FIHL, the retail market size of Indian consumer durables is of Rs 30,000 crore, out of which 10 per cent i.e. Rs 3,000 crore is of modern retail.

Enormous opportunities lie ahead in specialty retail categories like home furnishings, beauty, gifts, kitchenware, book stores and luggage too.

Entry strategies: Franchising leads the way

With stringent FDI rules, franchising has been the preferred route through which foreign retailers have entered India. Names like Pizza Hut, Mango and Versace had made their entry via franchising.

However, there has been a shift among international brands in the choice of the launch vehicle. More brands today are choosing to exercise ownership through wholly or partially owned subsidiaries and through joint ventures. Mothercare, the baby product retailer, which is present through a franchise agreement with Shopper's Stop has recently formed a joint venture with DLF Brands Ltd for expansion through standalone stores. Gucci, which had initially entered in 2006 with the Murjani Group as a franchisee, has recently changed over to luxury goods retail, and is now in the process of restructuring the relationship into a joint venture.

VF has also been reported to be looking to licence Nautica, Jansport and Kipling to a new partner. Until now, these brands were handled through the joint venture with Arvind Brands. Burberry that had entered India in 2006 through a franchise arrangement with Media Star opened two stores under this agreement. It has now set up a new joint venture with Genesis Colors and plans to open 20 stores across the country. Esprit has also been reported to have approached Aditya Birla Nuvo to deepen its engagement by moving from its distribution arrangement into joint venture.

According to the Food Franchising Report 2009, the greatest potential for foreign franchisors lie in the F&B concepts. Aileen Crowe Nandi, Principal Commercial Officer, US-Consulate General, Chennai, had earlier stated that franchise team in India has designed a unique programme named 'Focus Franchising' to help out franchisees establish new and profitable commercial relations with the US companies. Such initiatives are paving way for a hassle-free entry of foreign brands.

FDI in multi-brand retailing

With the government floating a discussion paper regarding permitting FDI in multi-brand retail chains, foreign brands can surely expect some good times ahead. According to the Department of Industrial Policy and Promotion (DIPP), there have been a total of 94 proposals till May 2010 in single brand retailing since 2006. Of this, 57 were approved. This itself speaks of the emerging positive scenario for foreign brands in India. According to early signs, 2010 could be an excellent curtain-raiser for a new decade of growth for international fashion brands in India.

More Stories

Free Advice - Ask Our Experts

ads ads ads ads