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FEB. 25, 2007
 Cover Story
 BT Special
 Back of the Book

Trading with ASEAN
In the recent Indo-ASEAN summit, ASEAN was, for the first time, on the defensive. India has agreed to bring down its negative list of imports to 490 items in the free trade agreement with the 10 ASEAN nations. But India’s step towards free trade was not matched by the ASEAN nations, as more than 1,000 items still figure in the negative list of the ASEAN. In 2005-06, India’s total trade with ASEAN was at $22 billion (Rs 99,000 crore), against just $7 billion (Rs 31,500 crore) in 2000-01.

Exchange Deal
Indian markets are on a roll. Global stock exchanges and financial institutions’ interest in the Indian stock exchanges goes to show the long-term growth potential of India Inc. The year has started on a positive note. The NYSE and three global financial institutions have each picked up a 5 per cent stake in the NSE. The deal will open exciting vistas in global co-operation for the NSE, and at the same time could improve the fortune of smaller exchanges in the country.
More Net Specials
Business Today,  February 11, 2007
Hyderabad Retail Hot Spot
Back in the mid-90s, Chennai used to be the organised retailer's dream market. Ten years on, it is Hyderabad that has emerged as the springboard for some of the biggest retail plans.
Pick and choose: Of the 56 Reliance Fresh stores in the country, 21 are in Hyderabad
Drive some 10 minutes from the Hyderabad airport into the city, and you enter the new and happening 'shopper's belt'-it's a 5 km-long stretch that starts at Begumpet and goes all the way up to Banjara Hills, Hyderabad's best-known neighbourhood. Dotting the stretch are a variety of malls and stores-there's Shoppers' Stop and Pantaloons at Begumpet, rival Lifestyle a few blocks further down. Then you go past some local malls like Babukhan, Amrutha and Kalanikethan and reach Kishore Biyani's Hyderabad Central. It is close to Banjara Hills, where GVK is now busy building its 650,000 sq. ft mall. Footfalls are not a problem on the belt. From afternoon right until the shutters come down around 10 p.m., you'll find these temples of consumerism packed with ardent devotees. Walk into a mall like Central, and you'll find the place swarming with shoppers-young couples, middle-aged men and women with kids in tow, and the omnipresent mall rats.

Retailers are, of course, not complaining. In fact, the modern retailers, who first arrived in the city tentatively way back in 1997, seem to be revelling in their discovery of Hyderabad. Indeed, in some sense, the city has become the launch pad for players with national plans. Choupal Fresh, ITC's fresh food retail chain, was kicked off from Hyderabad in August last year; Reliance Retail chose the city as well to launch, two months later, its own fresh food chain, Reliance Fresh. And in January this year, the Aditya Birla Group snapped up city-based grocery chain Trinethra Super Retail's 170 stores (spread across four South Indian states) for an undisclosed amount to signal its entry into food retail. When other established retailers such as Sanjiv Goenka's RPG and Trent (of the Tatas) wanted to launch their hypermarkets and retail outlet six and eight years ago, respectively, they chose Hyderabad too.


There are several reasons, but here are some of the more important ones.

Real Estate is Relatively Cheap: Compared to a rental of Rs 85 to Rs 250 per sq. ft per month in Bangalore or Rs 215 to Rs 305 per sq. ft in Mumbai for prime areas, rentals in Hyderabad are still affordable at Rs 65 to 120 per sq. ft

It's Sufficiently Cosmopolitan: Acceptance of modern retailing is pretty high in the city, thanks to its diverse crowd employed in knowledge industries such as IT and pharma. According to Technopak, Hyderabad ranks fifth in terms of market potential value

It's Not a Discount Market: While the penetration of organised retail is high, there is not much of discounting that happens here-a problem that retailers in cities such as Bangalore have to deal with

It's a Growing Market, but Off-sight: How does that help retailers? Basically it allows them to experiment with their formats and fine- tune them till they are good enough to be rolled out nationally. So a mistake won't be fatal

Most of the big players have a presence in the city.

Reliance Retail: Reliance Fresh was launched in Hyderabad in October 2006 and has 21 stores (around 50,000 sq. ft) in the city. This is out of the 56 stores that Reliance has across the country, covering a total area of 120,000 sq. ft.

Aditya Birla Group: Has acquired 90 per cent stake in Trinethra Super Retail, which has 63 stores in Hyderabad out of a total of 170 in South India. The Group intends to commit all the necessary resources in terms of funds and efforts that this space would need

Future Group (Pantaloon Retail): Currently has two Big Bazaar, one Central, two Pantaloons, one Brand Factory and four Food Bazaar outlets and specialty retail formats like Collection I and EZone. By the end of 2007, it plans to open another 5 Big Bazaar, 3 Pantaloons and 8 Food Bazaar outlets

RPG: Has been in Hyderabad for over seven years now and has 15 stores covering a total trading area of 1.5 lakh sq. ft. The company plans to double this to 3 lakh sq. ft by June this year

Trent (Tatas): Has been present in Hyderabad with its Westside outlet since 1998, which is spread over 12,000 sq. ft. This is its second store after Bangalore and the company plans to open more stores in the future

Landmark (Lifestyle): Has one major outlet here, the second in the country after the flagship store in Chennai. Spread over 47,000 sq. ft, it opened in 2001

Shoppers' Stop: Opened in 1998 (its third outlet to be launched in the country), the store is spread over five floors and covers an area of 66,000 sq. ft. There are plans to add another store in the city this year

Subhiksha: Made its foray into Hyderabad in October 2006 and in the last four months has set up 34 outlets, covering a total area of 54,000 sq. ft. Plans to have 42 stores in Hyderabad by March this year

A local retailer thinks up innovative ways to lock in customers.

Sitting in the conference room on the second floor of their Spartan office in Punjagutta, executives at Heritage Foods are keeping an eye, literally, on their nine stores across Hyderabad. They have the option to either centrally monitor or have distributed monitoring (using their laptops). Several windows open up on the screen showing the different outlets and one can zoom in on any one of them for a closer look. This monitoring results from being connected to a network of close circuit television (CCTV) cameras showing everything that's happening at the stores, including customer traffic, queues at the check-out counters, and even cleanliness of the stores. "Monitoring helps us better understand the shop floor realities and increase our speed of response," says S. Jagdish, Vice President, Retail Division, Heritage Foods (India). CCTVs are a small part of the technology that Heritage uses. Its retail business runs on JDA Retail ERP package, and its dairy division uses Oracle Apps 11i ERP. Heritage has also invested in a virtual private network, which connects all stores, warehouses and offices, using a 2-MBPS (mega bits per second) link.

In response to competition from bigger players, Heritage intends to grow home delivery as a business stream. It even runs a call centre that can take customer orders (minimum value Rs 200, with an option to pay by credit card at home upon delivery) and make sales calls to customers. Customers of Heritage Dairy (everyday milk buyers) can place grocery orders via the milk vendor or, shortly, online. "The crucial issue," says Jagdish, "is trust, and we want to ensure that the customer gets the same deal and quality sitting at home." Apparently, one way to deal with competition is to make sure that your customers never have to leave home for their daily needs.

Is Hyderabad's emergence as the new retail hot spot a matter of design or chance? When big money is at stake, few retailers leave anything to chance. Therefore, if Hyderabad finds itself today as a test market for modern retailing, it's for good reason. "In Hyderabad, both the share of organised retail (modern trade) and the share of consuming population is twice that of other cities," says Kishore Biyani, Chairman, Future Group, which includes Pantaloon Retail of Big Bazaar fame. "There are several other factors in favour of Hyderabad at the moment," adds R. Subramanian, MD, Subhiksha Trading Services. "One of them is that the city has relatively low property prices and rentals compared to the other big cities," he says. For instance, according to real estate consultancy Cushman & Wakefield, high street rentals range between Rs 65 and Rs 120 per sq. ft, while at malls, rentals cost Rs 100 to Rs 150 per sq. ft. In bigger cities such as Delhi or Mumbai, high street rentals start at Rs 200 or so per sq. ft.

No, it's not a railway station: The two Big Bazaar outlets in the city have seen sales grow at a phenomenal rate
That means retailers, who typically measure their performance on sales per square foot of retail space, get better return on investment in Hyderabad than most other cities. In terms of share of rentals to sales, those in the trade put the figure at 5 per cent for Hyderabad, compared to 3.5 per cent of Chennai and 7.5 per cent of Bangalore. On the face of it, Chennai appears cheaper, but here's where Hyderabad scores: It is not a major discount market like Chennai or Bangalore. Again, retailers estimate that store discounts in Chennai are as high as 4 per cent, compared to 1-1.5 per cent in Hyderabad and Bangalore. Finally, getting your store up in the city takes less time compared to some others. Reliance Fresh opened in Hyderabad first largely because it managed to get the back-end and the front-end in place here earlier than in other locations. "We recommend Hyderabad as a pilot city to many of our clients because it has a diverse and interesting mix of consumers, and that allows retailers to test a lot of parameters (be it demographic, income-related or cultural) in just one market," says Harminder P. Sahni, COO, KSA Technopak.

Garden fresh and no dearth of demand: ITC's Sivakumar
The 'interesting mix of consumers' that Sahni talks about is the large cosmopolitan crowd that Hyderabad boasts of, thanks to its it and pharmaceutical industries. The interesting point, however, is that since it is a less 'mature' metro than Mumbai or Bangalore, retailers can come in with pilot formats and fine-tune them along the way, without upsetting or surprising consumers (see Why Retailers Love Hyderabad). Says S. Sivakumar, Chief Executive of ITC's agri-business division: "The cosmopolitan nature of Hyderabad lends itself to multiple learnings that could be of use when rolling out to other locations." Raghu Pillai, President & Chief Executive (Operations & Strategy) Reliance Retail, points out something that must be unique to Hyderabad: "We have found that while there could be micro-level detailing and changes in terms of products demanded, the demand at stores is quite location-neutral. The demand for fruits and vegetables, for example, is equally encouraging, be it Banjara Hills or Chintal Basti (a lower middle class neighbourhood)."

Willing Consumers

Ready to deliver at your doorstep: Heritage's Jagdish
Retailers who have been in the city far longer say that the city has been a consistent performer. A case in point: Lifestyle International. It arrived in the city way back in 2001, and has seen its sales of apparel and children's products grow faster than in other cities. A majority of its loyalty card customers come from the city. "Lifestyle Hyderabad is our best performing store in India," says Shankar Suryanarayan, Vice President (Marketing), Lifestyle International, which has just revamped its 47,000 sq. ft store in the city.

Pantaloon's Biyani also says that same-store sales growth in Hyderabad is the highest among all Big Bazaar locations. "Our second Big Bazaar came up in Hyderabad and is at Abids (an old shopping area). It happens to be at the centre of the city, where resident population does not increase much. Yet, our sales at the store continue to grow at a phenomenal rate," he says. That has to do with the profile of the consumers in the city (see Southern Promise). Compared to 26.50 per cent in Bangalore, more than a third of Hyderabad's consumers are in sec A & B; the average monthly spend on food and groceries by sec A&B households in Hyderabad is Rs 4,900, compared to Rs 3,500 in Chennai and Rs 4,320 in Bangalore.

However, the city's advantages may not last forever. As more and more organised retailers pour into the city, history of other former retail sweet spots such as Chennai will repeat itself here. Rentals will go up, discounting will become fiercer, and consumers will get more demanding and less loyal. "Please remember that at the end of the day, it is not like a factory location that you have one location and you are stuck there," says Sivakumar of ITC. "You need to be elsewhere as well and it is just a question of sequencing."

Hyderabad needn't rue its inevitable evolution. Retailers will keep investing in the city for different reasons. Biyani's Future Group, for instance, plans to open another five Big Bazaar stores (there are two already), three more of Pantaloons (two currently), one Home Town (home improvement store), and two malls (being developed by its property arm Kshitij Retail), besides others. "All this put together, we are making close to Rs 1,000 crore investment in the city," Biyani says. Mall rats, rejoice.

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