IIPM ARTICLE BROADCAST

Monday, August 09, 2010

The curious case of gourmet food

While many international restaurant brands are already in India, a host of others are lining up to commence operations. But almost every CEO B&E met for this story lamented the over-policing by the government... We take a quantitative stock analysis! by Vareen Gadhoke Ray & Swati Sharma

This growth has had several socio-economic implications, in terms of employment opportunities to a large populace, consumption of goods & services of other players in the food chain and revenues contributed to the government kitty. Take this, on an average, a mid-size restaurant of a seating capacity of 80 people in India employs about 70-80 individuals (directly or indirectly). However, a large sized restaurant can employ about 100-120 people per outlet. Overall, the industry employs around five million people directly (as per National Sample Survey Organisation), in addition to many more who are employed with the ancillary industries and various support functions like logistics suppliers. This figure is further expected to increase to approximately 20 million by 2015, taking into account the growth the restaurant industry would be witnessing.

The Plush Palate

The restaurant industry contributes to the economy in myriad ways, from employment to tax revenues, to being a buyer of goods & services from several other industries. Moreover, its contribution to the overall delight of consumers is undeniable, with eating out being one of the top three leisure activities enjoyed by Indians across the country (as per India Leisure and Entertainment Report 2008-09, The Knowledge Company). Industry players tell us how one factor that has contributed to the same are the extended hours that restaurants are willing to be open for. Even a QSR like McDonald's is changing to that newish triviality. “We plan to keep our stores open from 7am till midnight enhancing convenience for consumers,” says Vikram Bakshi, MD, McDonald’s India.

With increase in disposable incomes of the average Indian consumer, the market size and potential of restaurants is only expected to rapidly grow in the future. The propensity to eat out increases with affluence levels; however, eating out is also a very prominent leisure activity among the lower SECs as well. States Gaurav Jain, Director, RTC Restaurants (that owns Sbarro & Ruby Tuesday), “Eating out is directly related with affluence. People at all levels of society are looking at an experience; a good time; a change when they go out.”

Consumers are travelling more often and demand innovation. Mexican, Thai, Korean & Japanese are the most popular newer international cuisines; even more niche ones like Malay & Lebanese. Both Indian and international cuisines and cooking styles are learning and benefiting from each other. International chains like McDonald’s & KFC are introducing local tastes and flavours. At the same time, restaurants such as Bikanerwala & Haldiram’s have learned from western counterparts in terms of selling traditional road-side cuisines and dishes in a clean and hygienic manner through commercial modern format set-ups.

The Equity Gameplan

Anticipating a further boom in the domestic consumption story, a number of private equity deals have been finalised in the restaurant space. The most recent equity deal concluded was Coffee Day Holdings, where three PE major – New Silk Route, Kohlberg Kravis Roberts & Standard Chartered PE have invested about Rs.8 billion for around 25% stake in the company. Other PE players active in the Indian restaurant business are Kotecha Capital (Rs.5 billion) Indivision (Rs.1.5 billion) and SAIF Partners (Rs.900 million).

Apart from PE, companies are trying other possible routes to raise capital. Fast food chain, Domino’s Pizza has recently had a successful IPO and raised close to Rs.12 billion, becoming the first restaurant company to go public in India.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Saturday, August 07, 2010

‘V’iciously ‘A’bnormal ‘T’ax!

Inter-State VAT variations are proving to be the chronic ulcer for trade and commerce in the country. And the problems are visible. Will the yet to be implemented GST prove a breather? by Savreen Gadhoke

Kerala’s coconut farmers also faced troubles when the State Government levied 12.5% VAT on copra and other coconut products. Subsequently however, the government was forced to waive-off the tax to support exports to Tamil Nadu.

While Tamil Nadu levies a VAT of 12.5% on automobiles, marbles, tiles, refrigerators, ACs and timber, the State of Puducherry charges just 4%. So why would you buy your next car or your new twin-door refrigerator in Tamil Nadu? A VAT of 12.5% is levied on silk in Karnataka, J&K and Maharashtra, while in Delhi, Punjab, Himachal Pradesh, West Bengal, Andhra Pradesh, Goa, Bihar & Uttaranchal, the tax applicable is just 4%. Tyres and tubes attract 8% VAT in Haryana, while in Delhi they attract 4%. The stark difference shows up as on as much a burger at Kentucky Fried Chicken (KFC). Delhi levies a tax of 12.5% on a KFC snack, while the hungry buyers end up shelling out 13.5% more as tax in UP! Naturally, these differences in VAT hamper sales of certain commodities in select States. “Traders are at a disadvantage due to variations in VAT. If any commodity is charged 12.5% somewhere and the neighbouring states charges 4%, certainly, the higher VAT state will lose. And, if that commodity is a high value product, the difference is much. So, obviously the buyer will get it from the adjoining state,” says D. P. Nag, Secretary, Bengal National Chamber of Commerce and Industries. The culprit – the Constitutional Right that the States have, exercising which, they can to charge VAT. And this causes discrepancies in prices, despite there are friendly treaties and trade agreement between neighbouring States.

Be that as it may, VAT, which was implemented with a view to simplify the taxation structure has had negative impacts on certain businesses. However, efforts are being made by various State Governments to keep the VAT rates in sync with the neighbouring States. For instance, the Chief Ministers of Delhi, Haryana and UP are soon scheduled to meet to mull over how to reduce variations in VAT levied on diesel, so as to save the aggrieved diesel retailing lot of Delhi. But the truth is: despite efforts on the part of the State machineries, uniform tax remains the only working hypothesis. There is some hope with the Ministry of Finance’s target of implementing Goods & Services Tax (GST) by 2011, which will impose uniform tax rates at a national level. But as market experts believe, it seems a far-fetched dream for now. “At this juncture, no state can be tamed. The GST regime is showing some hope, but the road to that is not as easy as we have a Quasi-Federal Constitution. Under this, states enjoy some autonomy, particularly in List II, where states enjoy full rights to tax as per their whims. Will any state want to lose that autonomy?” questions Ramendra Nath Ganguly, Former Assistant Commissioner – Sales Tax, Ministry of Finance.

A uniform GST is a dream. The asymmetrical VAT is reality. Simply said, the answer lies in market economics, and only the simple Marshallian Law of Demand and Supply can perhaps wipe off what the traders hate for now.

With regional inputs from N. Asokan (Chennai), Anu Warrier (Kerala) and C. S. Bhattacharjee (West Bengal)

Savreen Gadhoke

Friday, August 06, 2010

Walk out, or not?

If generation X thought ‘family is foremost’, for generation Y, are parents a pest?

Oprah: So now both of you are living with your (Abhishek’s) parents…
Aishwarya Rai and Abhishek Bachchan: Yeah.
Oprah: Now how does that work?!
Abhishek: You live with your family?
Oprah: No…
Abhishek: How does that work?!

…and there was a roaring applause. For years now there have been discussions and debates over India aping the West, and one of the bones of contention being youngsters wanting to separate from their families and lead an independent life. I was often puzzled when my friends would want to have a separate home, until one day I had an elaborate discourse with my cousin who is now happily settled in the US. “The motivation to move to the US was the thought of being away from my parents”, he’d mentioned. “For one, it’s an escape from the everyday explanations of one’s whereabouts. Apart from that, I wanted to handle my own life without being pestered about issues like cleaning, studying, spending money, watching TV or calling friends over. I used to have an argument almost every second day with my parents, but now that I’m away, our relationship is beautiful.” With the newer generation striding ahead of the past generation, such problems are prevalent in most homes. Sushma Virk, school teacher and mother of twin girls, gives a parent’s point of view, “There’s a point in time where parents have to control the children; probably during those early teenage years. And then there are times, early 20 onwards, when parents have to listen to the children because then they are mature enough to understand what’s good for them.” On being asked if she’d allow her girls to separate if her rules don’t go down well with them, Sushma said, “Not at all! As far as possible I will try to find a middle path. I guess this is the time when children want to have fun. So, why not let them live their way?”

People all over the world look up to India’s culture, especially because of our strong family bonds, and it’s a sad sight when tiny tiffs lead one to an impulsive decision of walking out of home. Opines Dr. Sanjay Chugh, “Living on your own makes you learn new things about life and your own self. It makes you more independent, self-reliant and responsible, if the freedom is rightly used. All these are desirable qualities, that’s why, if there is opportunity along with resources, rarely would anyone like to ignore it.” But the days ahead might not turn out to be all rosy. “Separating is an important decision and so, the family’s mental preparedness is crucial. If both the parents and the child are mentally and emotionally ready, then the whole shift could be far more peaceful and stress free. If not, the chances of emotional breakdowns are high”, said Sanjay.

To avoid reaching a crossroad of heartaches, both parents and children need to realise that where there’s love and understanding, a little adjustment can definitely be accommodated.

Spriha Srivastava

Thursday, August 05, 2010

ONE YEAR AFTER LTTE

One year after the Tigers were silenced, the victorious Mahinda Rajapakse is stronger than ever. But as the Tamil Diaspora nurtures the dream of a Tamil Eelam, N. Asokan finds that only a meaningful political solution can bring permanent peace

The Fourth Eelam War in Sri Lanka finally came to an end on May 17, 2009, with the LTTE international relations head, K.P. alias Selvarajha Padmanathan, announcing that “The LTTE have decided to silence the guns.” Over 25,000 Tamils died in the final three months of the Fourth Eelam War which started in 2006. LTTE had waged armed struggle against marginalisation of minority Tamils in the island nation for almost three decades. From a position of controlling over 15,000 square kilometer, they were pushed to 2 square kilometer at the end of the War, with scores of Tamil civilians moving along with them. The end of LTTE came when its supremo Veluppilai Prabhakaran’s body was identified from the Nandhikadal lagoon.

Selevaraja Padmanathan, who was trying to revive the struggle with support from the Tamil Diaspora, was also arrested in Malaysia and brought to Colombo. As the first anniversary of the end of the war passes, the island nation has witnessed a series of important events in the last one year. In the political front, riding over the euphoria of triumph, Mahinda Rajapakse secured a massive victory in the presidential elections, he arrested war hero-turned political opponent Sarath Fonseka. Rajapakse’s party also secured a massive victory in the parliamentary elections. Rajapakse and his brothers have brilliantly strengthened their individual positions in no time.

But what has happened to the Tamils battered by the war? As the war progressed, LTTE was continuously on the run in the northern areas. It had already withdrawn from the east as their renegade ‘Col Karuna’ teamed up with Colombo. As a strategic move, it took three lakh Tamils along with it when it withdrew from its operational headquarters at Kilinochi. For three months, all these men, women and children were continuously on the run. These civilians became sitting ducks for the Lankan forces’ heavy artillery and planes. Everyday, scores of people died. When it was all but obvious that the LTTE would be defeated, they escaped the clutches of the Tigers and came to the side of the Lankan army. The strategy of the Tigers had been to get international involvement to force a ceasefire and simultaneously trying to bring about a possible turnaround in the fate of the war. It did not follow the script. Even the emotions whipped up in the state of Tamil Nadu in the run-up to the parliamentary elections did not yield the desired results. The octogenerian leader, M. Karunanidhi, addressed Tamil sentiments by taking part in a three-hour fast.

Wednesday, August 04, 2010

‘Smart’phones or just a ‘dumb’ call?

Michael Dell is betting big on smartphones to make up for the lack of any ‘killer app’. Is this a two-years-too-late strategy? by Neha Saraiya

On a fine Tuesday afternoon in Tokyo, a year back, Michael Dell made public his intentions to enter the smartphones market. The world was taken aback. Not because this sounded like a far-fetched dream for Dell, who had been facing some tough quarters in the laptop market of late, but because this announcement came some good quarters too late, for speculations about Dell’s intentions to acquire Palm had been doing the rounds for quite some time then. Cut to the present, his wish to get into the smartphones arena has turned out to be real; getting hold of Palm didn’t. [Hewlett-Packard, the number one vendor in the PC market acquired Palm for $1.2 billion on April 28, 2010.]

Truth is that even 13-months after Dell first announced its entry into the mobile category (a period during which it has already launched a pair of smartphones – one with Google’s Linux-based Android OS – the Dell Mini 3i smartphone, which was launched in the Chinese market in November 2009 and another – the Dell Aero smartphone, which will soon hit US market through AT&T), many in the industry still doubt its future. The whisper in the woods at present however is that Dell is planning to launch five new smartphone models within the next 12 months, which include four Android OS-based and one Windows Phone 7 OS-based smartphones. Ron Garriques, President of Dell Global Consumer Group says, “Our entry into the smart phone category is a logical extension of Dell’s consumer product evolution over the past two years.”

To hit back hard at critics, Dell is also exploring strategic tie-ups to move into newer geographies, the latest being announced on April 14, 2010, with telecom provider Telefonica. The strategic implication of this deal is that, while it will improve Dell’s chances at newer hardware and services, on the other it will give Dell’s smartphones access to the Latin American and European markets. Dell is also looking at strengthening its presence across emerging Asian economies like China & India. So can smartphones do to this once-Lord-of-the-PC-Ring, what the iPhone did to Apple (the iPhone is the highest selling product under the Apple unbrella today, acccounting for 40.33% of its revenues in Q1, 2010)?

From a category perspective, Dell may just have taken the right gambit. As per the Q1, 2010 report by IDC, the global smartphone market grew by twice as much as the overall mobile phone market on a year-on-year basis (56.7% vis-a-vis 21.7%). Better still, as compared to the previous year, the quarter gone by saw smartphones account for 18.8% of all mobile phones shipped during the quarter, as compared to 14.4% a year back. Also, all the other players have contributed in a fairly equal proportion to this growth. While Apple grew by 131.6%, other players like Motorola, HTC, Nokia and RIM also maintained high double-digit improvements in volumes (growth figures of 91.7%, 73.3%, 56.9% and 45.2% respectively). The report also highlighted how a total of 54 million smartphones were shipped in the first quarter of this year – an increase of 56.7% from the same quarter a year ago. These are statistics enough to prove a heated-up table, enough to justify Dell’s timing to call it a bluff, with smartphones market on a higher growth trajectory as compared to even the overall mobile phone market.