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Sep, 07 2011

CRACKING BIZ DEALS DOWN SOUTH!

Franchisors seeking potential partners for their brand will now prefer a franchise on MG Road or Brigade Road in Bengaluru rather than having a store in Cannaught place, New Delhi. There are scores of reasons for this shifting preference like low rentals

SIZZLING opportunities are waiting down South, as the southern trio of Bengaluru, Hyderabad and Chennai are witnessing a retail boom. Besides the US President Barack Obama, franchisors, too, are eyeing the Silicon Valley. Lucrative business opportunities are pulling retailers and franchisors across various industries and territories here. Franchisors are now making their way down South to seek partners. According to a recent research, these cities are projected to touch over USD 20,000 million by 2011. Also, the organised retail sector, with compound annual growth rate (CAGR) of 20 -30 per cent, is all set to witness the maximum number of large format malls and branded retail stores in South India, followed by rest of India.

In the past, these cities had witnessed exponential growth and are expected to have high returns in the coming years. A few cities down South have suddenly picked up pace in terms of retail revolution due to high literacy rates, low population and high levels of urbanisation. Besides, low rentals and vacant retail space are the key reasons for this trend. Looking at the lucrative opportunities not just South Indian brands like Classic Polo, Naturals, Everonn etc are strengthening their brand's presence, but a majority of renowned brands from other parts of India are also eyeing a large share. Franchise brands like Liberty, Nirula's, Gitanjali Jewels and a few others are also planning for an aggressive expansion.

Talking about opportunities in South, Samir Kuckreja, Chief Executive Officer and Managing Director, Nirula's, says: “Dynamic change and brand culture is one of the reasons for growth and development across South Indian cities. We are planning to open a few outlets in South soon and have already finalised one in Hyderabad.”

Whereas, Usha Periasamy, Vice-President (Operations & Brands), Royal Classic Groups, avers: “Presently, we are concentrating on South India. This year, we have plans to open minimum 25 franchise stores in South India. Like all major brands, we, too, are planning to focus on tier-II and III cities. Currently, we have a good number of stores in tier-II cities, while tier-III cities will be our special objective for this year. The aim is to have one store per district across the South.”

When asked about opportunities for franchisors on southern soil? Purnendu Kumar, Associate Vice-President, Technopak Advisors, says: “South India had a head start in terms of organised retails with retailers like Foodworld, Nilgiri's, Trinethra, Varkey's, Subhiksha, Viveks, Girias etc started in the late 90s and early 2000. Some of the key enablers include better infrastructure, reasonable retail rentals, fast urbanisation and also young professionals in cities like Bengaluru, Hyderabad, Chennai etc. All these cities have a bright future ahead.”

However, in recent years a lot has been happening in the northern and western regions of India, primarily, due to entry of large corporates in the retail industry and also increasing number of shopping malls. However, in metro cities like Delhi and Mumbai there is lack of space and thus its quite a challenge to set-up stores due to high rentals. South Indian cities are relatively less congested and can provide real estate at reasonable levels.

According to Venkat, Chief Operating Officer, Arvind Retail Ltd: “We are the leading value retail player in the South and we want to further consolidate our position by targeting more franchise stores in the tier-II and III cities in the South before moving to other parts of the country.” Let's find out the raison d'être for franchisors foraying into South.

Realty check

Gone are the days when retailers were in two minds to explore the market down South. Now, the retail trend is trickling down from North and the retail landscape in the South is growing beyond the Capital and business Capital. One of the prime reasons for franchisors exploring the southern market is affordable space. The surging real estate prices and roving rentals in the northern and western parts are making investors turn to South. “A combination of reasonable rentals/strong consumer sentiments have made South India an important destination for retailers,” says Pattabhi Rama Rao, President, Australian Foods India Pvt Ltd. Commenting on the same, C. K. Kumaravel, Managing Director, Naturals Beauty Salon, says: “The southern territory is likely to emerge as a favourable destination for retailers mainly because of three reasons, low rentals, changing consumer culture and affordable labour.”

From unorganised to organized

South Indian shores are witnessing a lot of movement. Being the IT hub, a lot of people across India have migrated to the South, which has created ripples across the retail landscape. This has made the market more organised. Majority of brands are moving down South because these cities have a mix crowd to cater to. The family-run businesses are all set to be moulded in franchising business model to be more organised. Commenting on the same, Kuckreja avers: “The scope in South India is widening. There are primarily three major cities that are on the priority list of business players in South- Chennai, Hyderabad and Bengaluru. As a lot of young population is migrating and settling there, this in turn is developing a retail and consumer culture.”

Customise to capture

The retail culture across the South has witnessed a sea change, as people have come out of their conservative cocoon and have donned a contemporary avatar. Urbanisation and increasing disposable incomes have made way for franchisors to foray into the South. There are franchisors, who are not making any alterations in their products and services, but many of them will be customising their products and services before starting their southern journey. According to Amrish Masalia, COO, Nakshatra: “We offer an array of designs in gold and diamond, but as there is more demand for gold in South Indian market, so we will stock more gold products . We will be retailing close-setting jewellery at our stores in the South as per consumers' demand. Also, there will be merchandise-mix and change in the store layout.” Whereas Venkat says: “Our communications are customised to regional languages as demanded in South. In Tamil Nadu we look at a television as a leading medium during festive seasons. Also, our merchandise, too, are customised as per the southern market demand.”

South India has joined the transformation towards organised retail market and the nation is witnessing this change. The categories and sectors that lead the pack are F&B, education, apparel, health and beauty and jewellery. Nowadays, quite a lot of retailers are exploring opportunities to spread out in this region, which is largely untapped. The consumer culture is buoyant and seems to be gaining momentum. After exploring the territory well and reviewing major franchisors across the nation, we have evaluated that the retail landscape across the South is dominated by unorganised and local brands than organised brands. So, to fill the gap, franchisors must grab lucrative business opportunities across the South and leave no stone unturned to settle in the southern soil.

City No. Of malls in 3Q 2010 No. Of malls by 4Q 2012 Retail hotspots

Bangalore 20 - 35 Whitefield, Outer ring road and Hebbal

Chennai 8 - 15 Old Mahablipuram road,

Great Southern Trunk road

Hyderabad 10 - 16 Hitech city, Gachibowli and Kukatpally

Cities Gross rents

Chennai - 135

Hyderabad - 127

Bengaluru - 178

Mumbai - 228

Delhi - 237

FactFile

1. Rental values in all retail markets except Hyderabad and Chennai increased in the second quarter of 2011. Rental values in Bengaluru witnessed an increase of 3.5 per cent.

2. 18.3 million sq.ft of retail space encompassing 52 retail malls is expected to become operational in 2011, Bengaluru is likely to witness a completion of 3.3 million sq.ft of retail space.

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