January 1, 2012
The WordPress.com stats helper monkeys prepared a 2011 annual report for this blog.
Here’s an excerpt:
The concert hall at the Syndey Opera House holds 2,700 people. This blog was viewed about 43,000 times in 2011. If it were a concert at Sydney Opera House, it would take about 16 sold-out performances for that many people to see it.
Click here to see the complete report.
December 13, 2011
This question has been asked by many of my students. I also hear such lines in many discussions over the economy ranging from tea stalls, dinner parties to business school boardrooms – “SENSEX is going down, economy is not good”!, How justified is it in thinking that movements in SENSEX reflects the state of the economy?
To answer this question, we need to put things into perspective. We first need to understand what SENSEX is. SENSEX, in a very simple language is an index representing the movement in the share price of major companies listed in the Bombay Stock Exchange. (The same discussion can be held over NIFTY, which is a similar index for National Stock Exchange).It is one number, that represents the whole share market. The movement of SENSEX tells you if the prices of shares listed on the stock exchange are going up or down as a whole. Now let us see, what is stock market, of which Bombay stock exchange is an example. Stock market is a platform where buyers and sellers of shares meet and carry out their transactions of buying and selling of shares.
Now let us understand who are these buyers and sellers of shares. These buyers and sellers are investors who either are in possession of some shares of any number of companies or are willing or looking to buy shares of companies. An important fact to understand is that all these players are in the market to earn profit and are looking for signals to find the right time to sell and buy. Every one of these players is looking to buy at a low price and sell at a higher price.
Now, what drives the movements of the share price? It is a simple demand and supply mechanism. For this we, first need to understand that Demand for shares is created by Buyers of shares and Supply of shares is created by Sellers of the shares. Therefore Demand of shares will go up/down if number of Buyers increase/decrease. Similarly, Supply of shares will go up/down if number of Sellers increase/decrease.
Like any good, price of a share will go up if:
- Demand of share goes up, supply remaining same (No. of Buyers > No. of Sellers)
- Supply of share goes down, Demand remaining same (No. of Buyers> No. of Sellers)
Similarly, price of a share will go down if:
- Demand of shares goes down, supply remaining same (No. of Buyers < No. of Sellers)
- Supply of shares goes up, Demand remaining same (No. of Buyers < No. of Sellers)
Having got this concept clear, let us now understand what will cause the number of buyers and sellers to go up or down. For that let us understand what they have in their hand: SHARE. Now, what is a share? Simply speaking, a share of a company is an instrument of ownership of shareholding in the company. So if I buy Rs 5,000 worth of share in a company, whose share price is Rs. 100, I become an owner of 50 shares in that company, to the value of Rs. 5,000. I will earn profit if I am able to sell that share at any price above my investment i.e at any price above Rs 50. And of course, I will bear a loss if I sell the share at any price below my investment i.e at any price below Rs. 50.
Now the behaviour of these buyers and sellers in the market basically reflects their opinion on future of the company’s share that they are holding. So they act on what is very popularly known as “market sentiments”. These market sentiments are nothing but “feelings” of buyers and sellers on whether price of shares will go up or down in the future. These sentiments are created by various news that can have an impact on the fortunes of the company in question. These news can be any news that can affect the performance of the company whose shares are bought and sold.
Now we need to understand, what are these news that shape the market sentiment. These news can be divided into three types:
COMPANY NEWS: These are developments related to the company that reflect/affect the performance of the company. Simply said, these are internal factors that affect company performance. This can be company’s results (Annual or Quarterly), Legal proceedings, Signing of a new deal, Merger and Acquisition etc. e.g. if the company’s financial results are good and surpass the expectation of the market, the price is likely to go up.
INDUSTRY NEWS: These developments are related to the industry of which the company is a part of. An example can be government announcements relating to the industry. E.g. the government announces the raising the FDI limit in retail sector. This news is positive for the industry as more foreign investment is going to come into the sector so the share prices of all the retail companies in general are expected to move up.
ECONOMY NEWS: These developments are related to the economy wherein announcements of important macro-economic indicators like GDP growth, Inflation, Fiscal Deficit, Foreign exchange stability, Industrial Output etc. affect the expectations of future performances of the companies. Let’s say RBI increases interest rates because of rising inflation. This increases the borrowing cost of companies which is expected to add to their cost of production and bring down their profits. This will bring down share prices of most of the companies in the market. Nowadays, Indian stock markets are affected by not only the macroeconomic indicators of Indian Economy but also those of the global economy. E.g Of late, debt crisis in the eurozone has been adversely impacting the share prices in the Indian stock markets. This is because companies nowadays are impacted by developments all across the world as due to globalisation, their business interests are spread globally.
Now having understood the dynamics of share market and what drives the prices of shares in these markets, let us come back to our original question. Can SENSEX be quoted as an important barometer of the Indian Economy.
The answer to this question is: While SENSEX (for that matter any index reflecting stock market performance) is a good indicator of the performance of the economy, it can never be, or at least should never be taken as a barometer of the Indian economy. It is important to understand that movement in share prices always reflect “market sentiments” of investors. It is what the investors think that is reflected in the share price movements. In a way that is an opinion of the market on the expectations about the future performance of companies listed on the stock exchange. Movements in share prices can always indicate economic health, but never measure it. Measurement of health of an economy should always be left to key economic indicators and not share price movements that reflect sentiment. So, if you are an investor, you should follow key macro-economic indicators (among other two factors i.e. company news and industry news) that will tend to give you the directions that the markets are likely to take in the future. If you are studying the health of the economy as a student/analyst, then again taking SENSEX as a measure will be ill-advised, taking it as indicator will be preferable.
So, the next debate you join regarding the state of the economy, never quote SENSEX as the barometer of economic health but as an indicator!
December 13, 2011
In the recent days, there have been ample signs that the Indian economy has entered a phase where its economic growth has begun to show signs of a slowdown. GDP growth estimates from various quarters have entered the zone of 7-7.5 percent from the highs of 8-8.5 percent in the last 3-4 years. The Index of Industrial Production has been showing signs of slowdown in the industrial output. Now why has this been happening? The government is blaming the global debt crisis, particularly in Europe for various ills that the Indian economy is facing. While global factors cannot be ignored in the analysis of this slowdown, a closer look will reveal that much of our problems are self-inflicted.
Indian economy has been facing one major problem that has become a major pain for the Indian consumer and has now become a major headache for the government as well. That problem is of inflation. The prices of all major commodities, especially necessities have been steadily rising from the last two years and are showing no signs of a decline. The food inflation has entered double digits and touched the peaks of 13% in November. The reason for such price rise still remains a mystery. The government thinks that this inflation is demand-driven. This means that people are demanding too many goods and services, therefore their prices are rising. In economic theory, when the demand of goods goes high, supply remaining the same, the prices of goods go up. So according to the experts in the government, incomes of people are increasing all across, especially in the rural regions, given the employment generation schemes like NREGA, which is making them demand more higher quality food, especially the protein-rich variety, and this boost in demand is increasing the prices of commodities especially food items.
Now given this logic, the government has chosen the appropriate textbook remedy of demand-driven inflation: raising interest rates. The logic is simple: Rate of interest is a price of holding money. If I take a loan from bank, I will have to pay a rate of interest for the period for which I am taking money, so that’s my cost of holding money. Since the government thinks that it is this too much money in my hands that is making me demand more and driving the prices up, it increases my cost of holding this money which is interest rates. So given my increased cost of holding money, I will reduce my demand for money, which will reduce my demand for goods and services, and will ultimately reduce the prices of goods and services in the economy. So here’s the bitter medicine for inflation. Question is: Has it worked? The answer is: No, and worse, it has had its side effects. Let us see what we are talking about. The economy has two major players apart from the government: consumer and producer. Let us analyse the situation from their point of view one by one.
The consumer
Now, in the beginning of this story, the consumer is already facing high food prices. He hopes that they will come down as it is putting increasing pressure on his wallet as has to keep on increasing his spending on food items, as their consumption cannot be decreased. And he hopes that the government will do something about it. So what the does the government do? It raises interest rates. Wait, why? Oh, that’s because the government thinks that you have too much cash in your wallet and that is raising the prices up. But wait, what is the impact? The consumer gets a call from his bank that his EMI payment will increase on the floating interest rate home loan he has taken. Also, the EMI that he had set aside for the car he plans to buy for his new year is going to be higher than he had planned. There is more, he has to wait till he buys the LCD TV on EMI because now the increased EMI would not fit in his budget.
It does not stop there. The petrol prices go up. Why? Because the government no longer controls the prices of petrol. And why are they going up? Because the oil companies are facing huge losses and the government cannot fund them anymore. So now, the hapless consumer has to shell out more for those litres of petrol that he cannot reduce consuming.
So what has happened with our aam aadmi. For him, the food prices were already up. The fuel goes higher and higher. And the so called remedy of increasing interest rate has increased his EMIs as well. So his wallet has been attacked from all corners: Food budget, Fuel Budget and EMIs. Not good news.
The producer
Let us consider a case of a manufacturer. Rising inflation has been hurting him because the consumer has reduced his demand for goods and services because he is busy managing the budget for necessary items like food and fuel! Inflation is directly affecting him because the prices of raw materials is rising and adding to his cost. On the top of that, he imports his raw material from abroad and the weakening rupee is adding more to his cost because he has to pay more in rupee terms for his import. He looks to government for support to reduce the inflation, which is his cause of worry from both demand and supply side. What does the government do? Raise interest rates. So now the producer gets a call from his bank that the term loan he was planning to take for expanding his plant and the working capital loan he had applied for to keep running his business smoothly will now cost more.
So what has happened to the producer? He was already suffering from decreasing demand on the consumer’s front and increasing cost on the raw material front which was squeezing his profits and now the cost of funds that he desperately needs to run his business has also gone up. So his profits will take more beating. He cannot pass on this increased cost to the consumer because the consumer, who is already reeling under rising cost of food and fuel, will certainly reduce his demand for his product. Not good news as well.
The Diagnosis
There are two problems with government’s remedy here: the logic of that remedy and its effects.
Coming to the logic first, to begin with, if this inflation was demand driven, two years of sustained rise in interest rates would have some effect in terms of reducing it. Secondly, the spikes in the prices of food items like milk and vegetables in the retail market have been too drastic and sudden to be explained by increase in demand. It is foolish to suggest, that suddenly people have started demanding more food. Thirdly, the divergence between the wholesale price and retail price of vegetables are pointing towards a problem in the supply chain, demand has nothing to do with it. Indeed, the irony is that given all the amount of increase in food prices, the producer of food, the farmer is not getting any richer. So the demand logic does not really hold its ground. All the evidences point towards the inflation problem being a supply side problem.
Now, coming to the effect, raising interest rates has led to increase in the problems of both the consumer and producer, as we have seen above. It has done no good to the economic system of India, indeed, it has only harmed it. We have to remember the fact that the key player in the economic growth of India in the last two decades has been the Great Indian Consumer. In a blog article written in May 2011, I had warned that the government policies are playing havoc with the consumer and it is likely to impact the economy in a big way, and I have been proved correct. If we leave the consumer with too little money to demand goods and services, apart from basic necessities, it is not going to be good for anybody. On the top of that, if there is more price rise on account of increased production cost as a result of hike in interest rates, the consumer will demand even lesser. The structure of our economy is so consumption-driven that we cannot afford to have the consumer demand going down. Blaming him for the rise in price and punishing him even more is not going to lend any support to him for him to increase his demand for the goods being produced, which will ultimately only drive the economy down. What needs to be done is to look at the real issues: why are food prices showing sudden spikes? What is wrong with the supply chain? What role are the middle men in food supply chain playing in increasing the price from the wholesale market to the retail market? Why, despite, adequate production, we are still witnessing rise in food prices? Is there a way to improve the agricultural marketing system for the farmers? Can we make a mechanism where the farm output can be directly procured from the farmer, give him a fair price and reduce the role of middlemen in the supply chain? Can we have a second look at our tax structure in fuel sector to reduce the burden on common man? Can we cut wasteful expenditures and projects like Air India and instead spend that money elsewhere like Oil companies?
These are some hard questions that need to be answered if we are really serious about reducing inflation. Otherwise, we will keep announcing that rising interest rates are going to tame inflation in the coming quarter!
November 28, 2011
NEW DELHI: Far from the days of selling sachets of shampoo for 50 paisa or detergent for one rupee, FMCG firms like HUL, Emami and ITC are increasingly moving towards selling premium products to align with the aspirations of modern day Indian consumers.
Interestingly,the fast moving consumer goods (FMCG) firms are no longer targeting the only urban markets for the premium products. The rural masses are equally potential consumers of such products as their incomes and spending power increase.
HUL, a heavyweight in the FMCG space that has been focussing on making products affordable and make money out of it, is taking the lead in tapping opportunities in the upper segment as the Indian market evolves.
“India is changing and the beauty of India is that the dichotomy and paradox of opportunities (it presents)…Now there is opportunity at the top end…premiumisation is important,” (A) Unilever Chief Operating Officer Harish Manwani had said.
In the personal space, HUL has been pushing sales of its premium products like Dove and Pond’s Gold Radiance to counter P&G’s ‘Olay’ range.
Similarly, homegrown major Emami is also gearing up to cash in on the opportunities at the upper end of the pyramid.
“We are looking at entering the premium category in personal and healthcare segment. Besides, we will also consider some kind of collaborations with UK-based companies,” Emami Ltd Director Aditya Agrawal told PTI.
Analysts said the push for premiumisation has been intensifying over the past two-three years.
“There has been an increasing trend among consumer firms pushing their premium products. In the last two-three years, three-fourth of the advertising budget of most consumer firms are spent towards promoting premium products,” IDFC SSKI Securities Managing Director Nikhil Vora said.
He said move to sell premium products is not restricted only in urban markets.
“As income level in the rural areas also increases, there is propensity to spend more. So most FMCG firms are trying to upgrade the choices of consumers in those markets,” he added.
According to market research firm Nielsen, FMCG market in rural India is expected to grow more than tenfold to USD 100 billion in the next 15 years.
Mukul’s comments:
(A) The Indian Consumer presents a very interesting picture to the industry. On one end is the huge middle class segment which is very particular about getting value for its money. On the other end, rising incomes are pushing the consumer towards a position where he does not mind paying a little extra for premium products. And the good news for the industry is that more and more people are joining the upper middle class and upper class segments and they want to be second to none when it comes to consumption of branded products. This phenomenon explains the five-fold increase in the footwear industry, tremendous growth in luxury watch market, and as described in this article, promising growth in the premium segment of the FMCG industry. Rise in premium markets is also pointing out to a changing profile of Indian consumer towards a younger, tech savvy and brand-conscious consumer who does not flinch in spending more on a premium brand. There are two interesting aspects to this: One, this tendency to demand more premium products is now even extending to necessary products like food, where consumers are showing readiness to spend on quality food items even at a higher price. Second, the myth that premium products are reserved for only urban and metro markets is being busted as rural demand for these products is also rising, giving spreading industrialisation and rising rural incomes as also is the participation of Tier-2 cities in the growth of these premium product markets. As the incomes rise in these cities, the young, well-earning crowd wants to match its metro counterpart in spending and brand usage, which is driving the growth in these markets.
November 28, 2011
NEW DELHI: Indian FMCG firms are turning to efficient cost management and local procurement of raw materials to offset increasing pressure on margins due to the weakening of rupee that has spiked input costs.
Having already taken a series of price hikes this year, the firms have little room to take a similar step and are worried that their bottomlines could be hurt.
“The impact of this depreciation can be mitigated through better cost management and feasible pricingchanges. The extent of mitigation will depend upon the ability of the respective business to cut costs or take up prices,” Marico CFO Milind Sarwate said.
He, however, hastened to add that FMCG firms cannot be oblivious to the expectations of the consumers in order to sustain demand over the foreseeable future.
“If that has to be tapped unhindered, businesses cannot pass on all the forex-led cost push on to the consumers. Therefore, this forex push could hurt bottomlines too,” Sarwate said.
Emami Director Aditya Agarwal said input costs have already gone up as the rupee weakened against the dollar.
“We are exploring ways on how we can use raw materials from India instead of importing them. We are looking for substitutes here..,” he said.
In the last quarter, Emami’s net profit was down by 5.07 per cent to Rs 50.64 crore as a result of foreign exchange loss and high input cost. Similarly, another domestic company Godrej Consumers Product(GCPL)’s net profit were marginally down by 2.56 per cent to Rs 131.07 crore.
In the last few months, FMCG firms, including Hindustan Unilever, Dabur, GCPL and Emami have increased prices of their various products between 3 per cent to 10 per cent.
GCPL, which registered a foreign exchange loss of Rs 16.57 crore in the quarter ended September 30, 2011, said the weakening of rupee has also impacted the raw material cost, thereby increasing the cost structure of the company.
Earlier this month, while speaking to analysts Godrej Group Chairman Adi Godrej had stated that the company has covered its near term exposure on oil payables till December 2011, well before the rupee depreciation started in August.
“The global environment continues to be uncertain. As always, we will continue to closely monitor the situation and take actions to limit any adverse impact from current fluctuations, as necessary,” he said.
The Indian rupee has been losing ground to the US dollar and touched a record low of Rs 52.50 per US dollar this morning on the Interbank Foreign Exchange today on sustained demand for the American currency.
Mukul’s comments:
The weakening of the Indian rupee is hurting the industry as it imports many if its raw materials. Now, it is not possible to keep on passing on this rise in cost to the consumer in the shape of increasing product prices, because that will severely affect the demand, more so in highly competitive industries like the FMCG industry. To counter this, the companies in the FMCG industry are looking to buy their raw materials from the Indian marker itself rather than importing it. This will reduce their cost and save them from the adverse impact of weakening rupee.
November 28, 2011
KOLKATA: Shekhar Bajaj regularly accompanies his wife on her shopping trips to Big Bazaar and other shops to talk to consumers about their choice of products. “What could be a better way to get the consumer’s voice?” says the 63-years old CMD of Bajaj Electricals, who organises open customer forums wherever he goes for dealer meets and has already met some 10,000 customers this year as he looks for ways to protect his firm’s leadership in the 5,200-crore small appliances market.
“If you are directly involved with them (consumers), it’s an added advantage since the market is becoming hyper competitive,” says Bajaj, first cousin of Bajaj Group chairman Rahul Bajaj.
Dutch MNC Philips is literally breathing down his neck after it acquired Preethi, a leading kitchen appliances brand in the South, earlier this year.
“Its one brand we have to be cautious about,” says Bajaj, who plans to use a combination of Bajaj in the mass segment and Morphy Richards in the premium segment to take on Philips-Preethi.
Japan’s largest durable maker Panasonic too has become aggressive in India and home-grown brands such as Havells are venturing into this segment, making the 2,741-crore Bajaj Electricals to bet on consumer-driven innovation to protect its turf.
“We want to protect our territory by strengthening and launching newer products, and be a brand which is close to consumers. It’s like creating a strong wall to prevent the multinationals and new players from entering our turf,” Bajaj told ET after a customer meet in Kolkata.
Bajaj Electricals is setting up its first dedicated R&D centre near Mumbai and finalising fresh investment plans to help its revenues grow almost 10 fold to 20,000 crore by 2020, says Bajaj.
Bajaj versus Philips
The overall small appliances market is estimated at 5,200 crore, growing 15-18% a year. The premium segment grows around 30% a year. Main brands in the industry are Bajaj, Philips, Panasonic, Preethi, Morphy Richards, Usha and Maharaja Whiteline, besides scores of regional brands.
Bajaj and Philips are neck and neck in the small appliances market comprising kitchen appliances such as food processor, juicer-mixer and toasters, and domestic appliances such as geyser, room heaters and coffeemakers.
Philips India president (consumer lifestyle) Anjan Bose says the company is making aggressive, focused investments to expand its product portfolio and strengthen its distribution network.
Bajaj says the combination of Bajaj and Morphy Richards – the UK-based brand with whom Bajaj Electricals has an exclusive sales and marketing partnerships in India – can tackle the Philips-Preethi threat. “We want to sandwich Philips-Preethi combine with these two brands,” says Bajaj.
“If I had launched a premium segment, users wouldn’t accept it since people perceive Bajaj as a value-for-money brand. However, they are ready to pay a premium for a foreign brand like Morphy Richards with added features.”
Sure enough, Morphy Richards is growing 35% a year and Bajaj Electricals has started manufacturing Morphy Richards products in India. Thi will help the brand respond quickly to market demands.
Innovative Products
Bajaj Electricals-the largest player in small appliances, the second largest in luminaire and the third largest in fans-undertakes extensive consumer research and leverages direct meetings with customers to get newer product ideas.
“For instance, one customer suggested that we make geysers more senior citizens friendly as they have a problem to switch it on and off. It’s a fantastic idea and we are in the works,” says Bajaj. “Even if we get 1% of the 20 crore senior citizens buying this product, it will be blockbuster.”
It was such an insight that led the firm to recently foray into water purifier market with its Zerobac, which at 599 is priced much lower than Hindustan Unilever’s Pureit and Eureka Forbes.
Mukul’s Comments:
This is a classic case of oligopoly were there are only a few sellers selling a product which is not highly differentiated. Here, price is not the only factor on which the producer can compete so they have to take different factors into account, like brand positioning and innovations in product usage, whhi is what Bajaj is trying to do to face stiff competition from MNCs.
November 28, 2011
NEW DELHI: Makers of consumer durables and mobile phones have increased product prices by up to 10% due to the weakening of the Indian rupee, which has made imports costlier.
LG, Whirlpool, Onida, Godrej and Karbonn Mobiles have increased prices, while Samsung, Micromax, Philips and Panasonic are planning to do so.
“Rupee depreciation is taking a toll on cost of production because imports have become expensive. It is partially being passed on to consumers,” says YV Verma, chief operating officer at the country’s largest consumer durables maker, LG Electronics India.
The Korean company has increased the prices of its refrigerators, washing machines and microwave ovens by 4-5%, or Rs 300-500, for entry-level models, for the third consecutive month.
The rupee plunged to a 32-month low of Rs 51.35 against the US dollar on Friday, as foreign institutional investors continued to pull out dollars.
Escalating Prices of Raw Materials too Hurt Margins
The rupee has fallen 15% since July, making it the worst-performing currency in Asia this year. Several experts now expect it to slip below its lowest level of Rs 52.20 to the dollar, recorded on March 2, 2009, after Reserve Bank of India Deputy Governor Subir Gokarn last week said the apex bank is unlikely to intervene in the foreign exchange market to shore up the rupee.
Besides the falling currency, companies are hit by escalating prices of raw materials such as steel, aluminium and copper, LG’s Verma says.
LG has kept prices of mobile phones and flat panel televisions unchanged.
Its competitors Whirlpool and Godrej too have increased the prices of refrigerators and washing machines: Whirlpool by 2-3% and Godrej by 3-5%.
“Prices are being looked at closely on a month-to-month basis owing to volatility in the commodity market and depreciation in rupee against the dollar,” says Whirlpool of India VP (corporate affairs & strategy) Shantanu Dasgupta.
Frequent price increases have hit demand because consumers are grappling with economic issues of inflation, rising fuels prices and mounting interest rates.
“On the industry level, price increases have started to impact sales, but then passing on the cost burden is inevitable considering margins have started to come under pressure,” says Godrej Appliances VP (sales & marketing) Kamal Nandi.
Godrej, which largely imports high-end products such as frontloading washing machines, has increased microwave oven prices too by 3-5%.
India’s over-1,200 listed companies, except those in banking, finance and oil & gas industries, reported 28.5% year-on-year fall in combined net profit for the quarter ended September, as reported by ET last week. The drop was sharper than the fall during the 2008 economic crisis.
Mukul’s Comments:
The industry has been hit by three major economic phenomena which are both a result of domestic and global factors:
Inflation: Inflation in India has been rising steadily for the last two years. Whatever be the reasons, this is not good news for the industry because of two reasons: One, rising prices will reduce demand. And this is truer if the prices of essential, necessary items like food and fuel are increasing. This is because, the consumer, with his limited income will then have to increase his spending on the essential items and that will leave him with lesser amount of money to spend on other consumption, like eating out, buying new clothes etc. the consumer will put off these purchases for a later period which is severely going to affect the sales of the industry. Second, rise in prices will lead to central bank increasing the interest rates so that the public demand lesser money, which is assumed to be fuelling inflation. But this rise in the interest rates increases the borrowing cost of the industry which needs capital to expand its production and other activities, which leads to delay in projects which impacts economic growth.
Rising commodity prices: This is a global phenomenon impacting the industry worldwide. Commodity prices have been rising around the world from a long time. Raw materials such as aluminium, lead, copper, steel have been becoming more expensive in the global market. Rise in prices of these items increases the overall cost of the industry.
Weakening Rupee: More bad news is that many raw materials are being imported from abroad. But payment for these imports goes in dollars, which has been rising against all major currencies of the world. Against the rupee it has risen sharply from Rs 45 to Rs 52, just in a matter of a few months. This hurts the importing industry as they have to shell out more in terms of rupee for any item they import in dollars.
Conclusion: Thus we see that industry right now is facing a tough time from all fronts. Its demand is getting affected due to general rise in prices, technically known as inflation. From the supply side, its raw material prices are rising and in the top of that the rupee has been falling which is making the import of these raw materials even more expensive. So its costs are rising day by day, but there is a limit to which it can pass on this cost to the consumer, because if it increases the price of the product, it will further reduce the demand.
November 28, 2011
At Vacheron Constantin’s headquarters, scores of young men and women sit hunched over their work stations. Loupes screwed to their eyes, ears plugged to music these young people are busy bevelling, stippling, rapt in concentration. For what will finally emerge is no ordinary wrist watch but, as connoisseurs say, a piece of art.
Tucked away in the rolling plains of Plan-les-Ouates, just outside Geneva, the Swiss watchmaker’s modern steel and glass building is in stark contrast to the work that goes on inside. Vacheron is one of the new entrants in the Indian world of luxury watch market. Of the Rs 10,000-crore luxury industry, luxury watches’ share is 5-10%. The brand is careful to not be clubbed with other luxury brands. “We would prefer to be a niche player. Our watches are meant for collectors. We’re not looking at double-digit growth,” saysChristian Selmoni, artistic director of the company.
THE ELITE CLUB
Well, but if the market grows in double digits, they are not complaining. As Manishi Sanwal, general manager,Tag Heuer India, one of the early entrants in the market, claims that the Swiss watch market is growing 30% year-on-year.
Puritans would scoff at clubbing Vacheron, Jaeger-LeCoultre(JLC), Harry Winston and Audemar’s Piguet with Tag Heuer, Omega or Rado, but the understanding of luxury watch market in India is more widespread and complex. And more brands are now available from Chopard to Richard Mille to Piaget, Hublot, Blancpain, Cartier.
“It’s a complicated market. There are niche makers with more than a century of history in watch making, those who revel in their craftsmanship of complications, entry-level luxury watches and then the jewellery watches, where price has no limit,” says Sandeep Kapoor, MD of Delhi-based Kapoor Watch Co, one of the first retailers of luxury watches in India.
Kapoor notes that the base category starts at Rs 1 lakh and usually finds takers with the young professionals. Then there are the need-specific buyers, people who travel all the time need dual-time or perpetual calendar watches. And few buyers now ask for a brand based on its history of craftsmanship. It’s the last category that niche brands like JLC and Vacheron are targeting. JLC now plans to penetrate Tier II cities like Pune, Bangalore and Hyderabad via multi-brand outlets.
WOMEN POWER
Tarun Sharma, country head for JLC, which starts at Rs 2.25 lakh, says in its four years of existence in India, the luxury market has not only grown but matured. Omega and Tag are reaping the rewards for being the first movers in the market. Tag today has 80 points of sale and has managed to spread to Tier III cities like Indore, Kanpur and Jammu. Sanwal claims the market grew by 25% last year itself.
Tag plans to launch India-inspired themes and is noting increasing sales among women with nearly 28% of revenues coming from this segment. “Price influences buying decisions but a watch that comes for under Rs 2 lakh is finding many takers,” Sanwal adds. Tag starts at Rs 1.5 lakh.
Mukul’s Comments:
This is a classic example of luxury goods as an exception to law of demand. Luxury goods are those goods which are purchased not for necessary consumption but for reputation and status. Thus more the price of the good, it attracts more demand in its segment of consumers as they are being bought exactly because their prices are too high.
November 28, 2011
MUMBAI: Inflation is all around us. Every visit to the market brings shock at newlyraised prices. So would you then voluntarily pay Rs 75 for a litre of milk when you can get a packet for Rs 25 or a tetrapak for Rs 44? Or Rs 60 for a loaf of sliced bread when you can get one for Rs 16? How about Rs 50 for six eggs that might cost Rs 24 otherwise? Or Rs 50 for a bottle of water that might otherwise cost around Rs 15 – and not for imported brands like Evian, whose prices might soar due to excise duties and the falling rupee.
All these prices are for shudhIndian products only. Of course, they are hardly run-of-the- mill products. The Rs 75 milk comes from a herd of Holstein cows at a farm at the foot of the Sahyadri mountains not far from Pune. It is packed under absolutely hygienic conditions and rushed to Mumbai, reaching the city just 8-10 hours after milking (regular milk takes 36-48 hours).
And no time is spent on shop shelves because the bottles are delivered direct to the doorsteps of consumers who have subscribed to the service, which currently operates in south Mumbai only.
DANZ bread also goes direct to consumer. The product, now being test marketed in Mumbai, claims to be made from a mix of five wholegrains and seeds, with no potentially-harmful chemical additives, and will reach you two hours from being packed. Keggs is the brand name for eggs with distinctive light brown shells that come from special chickens raised by low-income farmers, who let the birds range around and eat a mixed diet, the exact opposite of the cramped, unhealthy battery farms that produce most eggs. Keggs are not home delivered, but are sold at gourmet food stores in Delhi and Mumbai.
Mulshi Springs water came about when entrepreneurNaveen Luthra learnt that a property he owned in the Sahyadris had a spring that produced abundant pure, great-tasting water. He started bottling this, both as Mulshi Springs and L’Quila for some like Trident hotels. It is currently retailed at on-ly a few places, like the weekly Organic Farmer’s Market in Mumbai, but Mushtaq Rauf, VP, marketing for Mulshi Springs, says several customers order crateloads directly: “We have a customer with a two-year-old child who has only drunk Mulshi Springs.”
Nishtha Soli has a similar story with her daughter. She was getting Pride of Cows milk for her daughter, who couldn’t finish a whole bottle before it went waste. Soli asked if the company could pack half-bottles and when they declined, she stopped taking it. But her daughter hated the taste of other kinds of milk and now Soli is re-subscribing.
I figure it’s better than the cupcakes and other foods she might be eating,” she reasons.
Soli, who’s an investment banker, learnt about the milk from a mailing list for expatriates and Indians who, like she and her husband, have returned from living abroad. Many of the people on the list have got used to having much better-quality basic foods, she says, and aren’t happy with what is available here.
Stories about high antibiotics and pesticide residues in the food we eat make them even more receptive to healthy alternatives (Pride of Cows, for example, ensures that any cow being treated with antibiotics is taken out of the milking pool). “If the quality is assured, then I think customers like this are fairly price-insensitive,” says Soli.
Mukul’s Comments:
This is a classic case of exception to the law of demand. The law of demand says that as the price of any product goes up, the quantity demanded falls down. But in this case higher priced food items are getting purchased more by the consumers, as for them quality has become the priority over price. This shows that health is becoming a luxury good. This is because ordinary food items sold in the market do not usually conform to high hygienic standards and there is always a risk of health. Selling specilaised food items with a quality assurance has become a lucrative business as people are becoming more health conscious and they are willing to even pay a premium for that
November 28, 2011
NEW DELHI: Bottled water major Bisleri International is planning to set up its own exclusive retail outlets –’Bisleri Shopees’ — in India as it looks to counter shopkeepers pushing rival brands.
“Opening ‘Bisleri Shopees’ require a lot of working and deployment strategies to be in place, which is presently being worked upon,” Bisleri International Director Anjana Ghosh told media.
She, however, did not give further details as to by when the company is likely to open the first store and also the number of outlets planned.
Ghosh said the reason behind the plans to set up exclusive outlets is to provide consumers Bisleri products ‘at the right price’ and also avoid losing out to rivals who are pushing their brand by giving bigger margins to shopkeepers.
“The inability of other branded water to create value for their brand has left them with no alternative but to buy out the retailer by giving him high margins,” she said.
Every consumer asks for Bisleri but is given some other product perhaps where the retailer gets a better margin, she added.
“Water is an impulse purchase, hence consumer can’t wait and is cheated by the shopkeeper,” she said.
Bisleri competes with the likes of PepsiCo’s ‘Aquafina’, Coca Cola’s ‘Kinley’ and UB Group’s ‘Kingfisher’ in the bottled water segment. Comments from these companies could not be immediately obtained.
Besides, the company has been looking at expanding its product portfolio and is planing to launch fruit-flavoured water in the country.
Mukul’s Comments:
This is a classic example of Oligopoly market structure, wherein, the competitors of Bisleri are finding it difficult to compete with Bisleri on both the price and brand terms. Thus, they are resorting to “non-price competition” by offering the retailer higher margins to sell their bottled water instead of Busleri. To counter this, Bisleri is also adopting non-price competitive methods by opening their own exclusive stores to sell Bisleri bottles instead of relying on regular retailers.
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