Tech is the Best Way

Too many Beer Bars bringing own (craft) beer

“I studied in Shimla,” he says. “I had a lot of friends from the North-East. There is something Western about that area, the hip-hop culture. I knew some people in Assam, so we took a chance and it worked. We did it very differently. We took a little more than one-third of the hoardings in Guwahati [the largest city in Assam] for about 20 days and advertised our brand. Being a non-metro, the promotion cost me just Rs 10 lakh.”

But you can’t promote alcohol in India…

“We didn’t say craft beer on the billboards. Just the name Simba (and its logo) started the conversation in town and made people curious. Those billboards opened the doors of distributors for us and that’s how we arrived.”

The word arrive doesn’t quite cut it.

In 2017, Simba, the craft beer brand sold by Sona Beverages, entered Assam. As of July, it sold 70,000 cases in the state, up from just 800 in July 2017. A case has 12 bottles of 650 ml each. That’s sales of 8,40,000 bottles of Simba every month. That’s 28,000 bottles every day. About 1,166 bottles every hour. Not bad for a craft beer brand that’s just two years old. Better still, not bad for a beer company you may not have even heard of, whose most distinguishing feature is its mascot—a lion with Aviators.

The company has a long road ahead of it though. In June this year, it ventured into the metro cities for the first time, launching in Delhi and Gurugram—and the competition is fierce. Bottled craft beer is an increasingly crowded segment, and Simba is just one in a slew of brands that launched in the past three to four years.

At the same time, the overall beer market in India is on the decline. And on top of that, liquor regulations in India are notoriously difficult to navigate, varying wildly from state to state. As the (supposed) Chinese proverb goes, interesting times.

A drunken dream (and other stories)

Every bar in every city stands witness to countless drunken tales.

There’s one story which is incredulously famous. Friends meet. Drink a hell lot of craft beers, only to be inspired by the thought, what if this could be us. After all, how difficult could it be? It is just beer. We’ll make it, sell it, drink it, and once we strike it big, we will tell the world our rags to riches story. The morning after, things become a little more real. And what was once a great drunken tale fades into legend. Legend into myth. Myth into, we are too old for this shit.

Not with Bhatia though.

His family’s association with alcohol spans 60 years. His grandfather entered the alcohol retail business in 1947; later, the family acquired a company called Sona Traders (a liquor distributor) in the 1980s, the company which lends its name to Simba’s parent.

Not a drop to drink

Bhatia had never tasted alcohol before he started his research on craft beer in 2009.

In 2009, Bhatia was studying economics and finance at the University of Exeter, but he had other things on his mind—the craft beer revolution had just begun in the UK. He came up with the idea for his own brand and, during a trip home that year, he applied for a licence to open a brewery in Raipur.

Three years later, in 2012, he had finally got all the permissions. By 2014, he had set up the brewery, at a cost of Rs 60 crore ($8.4 million), of which Rs 40 crore ($5.6 million) came from a bank loan. Time to make some beer. Only, not Simba. Not yet.

Brew up

“A new brand wouldn’t have been able to use the entire capacity of Sona’s brewery, which was 150,000 cases (1.8 million bottles) a month and we didn’t have the money to burn,” says Bhatia The capacity has since been doubled to 300,000 cases (3.6 million bottles) a month.

"SABMiller made us efficient and eventually, taught us what optimal production is. It gave us a head start in business"


And so, Sona Beverages started out by contract manufacturing for the Indian subsidiary of SABMiller, the UK-based beer maker that was acquired by rival AB InBev in a $103 billion deal in 2016, creating the world’s largest beer company. For two years, Sona stuck to making Fosters, Haywards and Budweiser for SABMiller and learnt everything there is about manufacturing beer.

In 2016, the family exited the retail and distribution businesses, and Bhatia launched Simba in their home state of Chhattisgarh. He claims to have captured 50% of the entire beer market in the state within a year. In its second year, the brand moved to Goa. Immediately after that, Assam. In January this year, Simba expanded to Jharkhand, followed by Delhi and Gurugram in June and, as of two weeks ago, Bengaluru.

Simba, Bhatia says, currently sells 200,000 cases (2.4 million bottles) every month—80,000 in Chhattisgarh, 70,000 in Assam, 10,000 in Goa, 30,000 in Delhi and Gurugram, and the rest in Jharkhand.

In the year ended March 2017, Sona Beverages recorded a revenue of Rs 33.7 crore ($4.7 million) and a net loss of Rs 59 lakh ($82,523), according to the company’s regulatory filings, sourced from The company hasn’t filed its financial reports for 2017-18 yet; Bhatia, though, says the firm has turned a profit, and revenue rose to Rs 76 crore, with Simba accounting for Rs 66 crore ($9.2 million), more than 10 times what it was the previous year. Sona exited the contract manufacturing business in March 2018.

Now, the company is targeting Rs 150 crore ($21 million) in revenue in 2018-19. By expanding its reach in the metros—growing its Delhi, Gurugram and Bengaluru business and entering Mumbai, Kolkata and Hyderabad.

Bring your own (craft) beer

Unlike in most countries, where beer accounts for the lion’s share of alcohol sales, spirits (excluding imports) lead the market in India with a 65% share by volume, followed by beer which stands at 34%, says Rajat Wahi, a partner at consulting firm Deloitte India. Of that 34%, craft beer accounts for only about 1-2%.

45 million hectolitres

The size of the Indian alcohol industry, of which beer accounts for 15 million hectolitres, according to data from Deloitte.

And the past two years have not been kind to the Indian alcohol industry. Growth slowed in the wake of demonetisation, a Supreme Court-ordered ban on liquor sales near highways and all-out prohibition in Bihar and growing calls for the same in states such as Tamil Nadu, as well as a hike in excise duties in Maharashtra.

Beer, in particular, was hit hard, as consumption fell 0.4% in 2016—the first decline ever—and about 10% in 2017, according to Deloitte.

The silver lining that industry executives are betting on is that the fall in consumption is mainly in the lower end of the market. “The consumption is impacted in the mass beer segment, not in the premium ones,” says Bhatia.

Craft beer, which primarily falls in the premium segment, is growing at a good pace, says Deloitte’s Wahi. Little surprise then that it has become a gold rush.

Launched in 2015, B9 Beverages-owned craft beer brand Bira dominates the bottled craft beer segment, and since then, many new craft beer brands have been emerging in the metro and tier-I cities, including Delhi-based White Rhino and Witlinger, and Mumbai-based White Owl.

The latest to jump on the bandwagon is none other than United Breweries, India’s largest beer maker, accounting for almost half of the overall beer market. In February, the company announced it would launch its own craft beer by the end of the year.

“In past few months, 21 home-grown brands have approached us to retail their beer. The consumer is evolving and there is certainly a demand, but we hope it does not become overkill,” says Rahul Singh, the founder and chief executive officer of beer chain The Beer Cafe, which has 35 outlets across 12 cities.

Hurdle, hurdle, hurdle

Everyone wants a piece of the pie but, as Singh puts it, not everyone understands the complexity of the Indian liquor market. For one thing, liquor is one of the most regulated sectors in retail, ruled by state laws—29 states, 29 different liquor policies.

Also, liquor distribution has its own challenges. “The game of alcohol is in distribution which needs political relationships. A good chunk of Indian markets are where the government is the sole liquor distributor. In the majority of cases, one needs connections,” says Arvind Singhal, chairman at retail consulting firm Technopak Advisors.

For Simba’s Bhatia, his family’s long history in liquor distribution gave him a leg-up, particularly in their home ground of Chhattisgarh. The tougher part came after. New states, new policies and new connections.

“Assam is working out well for us, but you need time and patience to build these markets, specifically because of government policies,” he says. It took more than six months for Simba to get a licence for Delhi and Gurugram. And a similar time frame for Bengaluru.

A further challenge for brands is that most restaurants and bars in metro cities charge them to place products at their outlets. “Discounting your product and losing money on it is inevitable in Delhi,” says Bhatia, adding that beer makers also have to pay an upfront amount of Rs 15 lakh ($21,024) a year for each variant to the Delhi government, plus import and excise duties. In Chhattisgarh, it comes to Rs 1 lakh ($1401) a year for each variant, plus duties, he says.

For Simba, its success in smaller towns and cities gives it a revenue stream it can use to bankroll its ambitious expansion plans. And Bhatia’s grounding in liquor distribution may help the firm weave its way through the jungle that is the alcobev business.

But it’s not alone, and it’s an uphill climb to profitability in the metros.

Take the case of Bira maker, and market leader, B9 Beverages, which is backed by venture capital firm Sequoia Capital. In the year ended March 2017, Bira’s revenue grew more than sevenfold to Rs 31.9 crore ($ 4.4 million) from Rs 4.1 crore ($573,466) in the previous year. At the same time, its losses mounted, rising from Rs 12.3 crore ($ 1.7 million) to Rs 55 crore ($7.7 million). Evidently, you need deep pockets to run in the big cities.

“I will build the brand my way, with a bottom line as strong as the top line. Yes, we will have an external investor because we will need one to grow. But on our terms,” he says confidently. “We will survive (and thrive) in metro cities and in a few years, we will have an IPO too.”

Dream11: Luck, interest and deep pockets

Headquartered in Mumbai, Dream11 was officially incorporated in 2007, but it was in 2012 that the company found its true calling, when Harsh Jain and Bhavit Sheth, the longest-serving directors in the firm, decided to pivot to a freemium fantasy cricket game on Now the leader in India’s fantasy sport space, Dream11 has grown from 2 million users in 2016 to over 20 million in 2018. It holds 90% of the market share with revenues going up from around Rs 83 lakh (~$114,245) in FY15 to Rs 62 crore (~$8.5 million) in FY17. This leap is nothing short of gargantuan.

Fantasy sport platforms allow users like Somani to act as owners of their own sports teams. On Dream11, he gets 100 credit points to make a team of 11 players in a match. A fantasy team can have players from both the competing teams and the performance of that virtual team is then based on how the real-life cricketers play in the match. Points are then awarded for the players’ batting, bowling, fielding, economy rate and strike rate. The team which scores the most points wins the tournament. Depending on the tournament structure, there can be a single winner to thousands, where the money from the pot is distributed as per the rank of a team.

Somani’s friend, Kiran Chawla (name changed), a 24-year-old sales executive at Amex, Gurugram, says that this makes watching the matches more fun because it gives a sense of having some skin in the game.

Once again, we had to change a name. And with reason. Because fantasy sport is very much in bed with betting. Even English comedian and host of HBO’s Last Week Tonight, John Oliver, thinks so. He dedicated an entire segment to fantasy sport where he drew parallels with traditional gambling games. Oliver starts to describe fantasy sport by saying that these are “the most addictive thing you can do on your phone, other than, perhaps, cocaine.”

Gambling, games where the outcome predominantly depends on chance, is one of the most restricted and harshly regulated industries in India. Only three places—Goa, Daman & Diu and Sikkim—allow casinos to operate within their jurisdiction.

Dream11 is also restricted on the Google Play Store. What then made it grow so fast in a country quick to narrow its gaze at all forms of sports betting?

A Punjab and Haryana High Court verdict.

An individual called Varun Gumber had lost Rs 50,000 (~$696) on Dream11 and had appealed to the court to initiate criminal proceedings against the site under the Public Gambling Act of 1867. The court rejected the complaint observing that it is a game of considerable skill. This is all that fence-sitting entrepreneurs wanted to hear. Harsh Jain acknowledges this in an ET interview; he says it kept their ‘Dream11 alive.’

Jain, also the chairman of Indian Federation of Sports Gaming (IFSG), in an interview with Moneycontrol in June, noted that until September 2017 there were just 10 fantasy sport platforms in India. Today, there are over 70.

The growth of fantasy sport in India though has largely gone unnoticed. While venture capitalists are now starting to see this fast-growing market as a promising investment opportunity, the future for Dream11 and the like is uncertain as they operate in a regulatory grey area. No one knows how various state governments will view this going ahead.

We reached out to Dream11 for a meeting but the company declined. A detailed questionnaire also didn’t elicit a response.

Luck, interest and deep pockets
Dream11 has had a dream run of its own in the last couple of years. Piggybacking on the growth of the Indian Premier League (IPL), Hotstar and other enabling factors like smartphones and the internet, it has, so to speak, hit it out of the park.

Data provided by research firm Venture Intelligence shows that Dream11 has secured an undisclosed amount of funding from early-stage venture capital firm Kalaari Capital and San Francisco-based investment firm Think Investments. It has also raised $22 million from private equity firm Multiples Alternate Asset Management.

But those might pale with the scale of its next funding.

Recent news reports suggest that it might be in talks with Chinese internet firm Tencent Holdings for an investment of $100 million. This could peg Dream11 at a pre-money valuation of $400-$450 million.

On the back of the money raised, Dream11 has been doing some aggressive marketing. In FY17, the company spent Rs 10 crore (~$1.4 million) on advertisements, Rs 35 crore (~$4.9 million) in promotional credits and Rs 13 crore (~$1.8 million) in customer incentives, roughly 74% of their total expenditure. Enough to rope in Bhogle and the former captain of the Indian cricket team Mahendra Singh Dhoni as brand ambassadors.

“Getting Dhoni was a masterstroke,” says a former product manager of a fantasy cricket platform. He requested not to be quoted.

“What’s really impactful in cricket is TV marketing. Cricket happens on TV and with Dhoni on the screen, you have India’s smartest captain ever asking your target audience whether they are smart enough for this game or not. The star potential is crazy,” he adds.

It apparently doesn’t take much for fantasy sport to take off.

“Fantasy sport is a very lucrative category globally and frankly it is not a surprise because it brings together aspects of social gaming, research and skill, luck and gambling and your deep interest in a sport together, which makes it a fun activity,” says Nitin Sharma, who is a technology investor and founder of Incrypt, a new “blockchain investment network” in Bengaluru. Sharma also plays fantasy football leagues with his friends and has been keeping an eye on the developments in the space in India.

In North America alone, there are 59.3 million fantasy sport users and in the US it is a $7.22 billion industry, as stated in market research firm Nielsen report.

Sharma says that on the skill vs. luck spectrum, fantasy sport is arguably more about skill compared to other types of wagering games, fantasy sport is “really cool”. “Like [fantasy sport providers] FanDuel and DraftKings in the US, this is a phenomenon and a serious part of the season experience,” he adds.

Apart from the free practice matches, players have to pay an entry fee to the platform in order to play. It can range from Rs 13 ($0.18) to Rs 10,000 (~$139) and you can compete with thousands of users for the same pot. Besides, one can play within a closed circle of friends and customise the entry fee to their liking.

The economics is pretty straightforward. You provide an opportunity to people to gamble with small amounts of money and, in turn, get to keep a rake—a term borrowed from poker which means the fee taken by the organiser of the game—of around 15-20% from various pots.

“In addition to the rake, on [fantasy sport platform] HalaPlay we have an additional revenue stream in the form of a subscription or season pass,” says Shubhankar Bhattacharya, venture partner at Kae Capital and investor in HalaPlay, Dream11’s closest competitor.

“If you want to play the entirety of IPL then you can put an additional Rs 500 (~$6.97) or Rs 1,000 (~$13.93) subscription fee which gives you a discounted entry and other perks as well throughout the whole season. This is a pure income stream and it does not go into the pot,” he adds.

Out with downloads, in with sideloads

Now, revisit that 20 million number. This is despite the restriction on the Google Play Store. And Android, according to web traffic analysis tool StatCounter, rules over 90% of the mobile operating system market in India.

Google has a long list of conditions that need to be fulfilled by a fantasy sport company to get its app listed. One of the conditions is that the “app listing must clearly display information about responsible gambling”.

Dream11 though is doing just fine without Google’s support.

The fact that India’s Android market is a very sideload-happy market—shared from a device to another—has worked well in Dream11’s favour. “The distribution barrier isn’t that high for Android apps in India; people love sharing apps. That’s why you have apps like SHAREit,” the product manager quoted above says.

The company has provided a direct download option for its app on the website. One just needs to enter their mobile number or give a missed call on a 1800 number and a download link is sent to their Android phone. Also, there is a bonus of Rs 100 (~$1.39) to both the user and the friends they invite to download the app.

Sideloading motions to a larger threat to Google’s Play Store. Unlike Apple, which doesn’t let iPhone users download games and other apps from outside its app store, on Android one just needs to change a phone setting to install an app from an unknown source.

Interestingly, Dream11 exists on Apple’s iStore, a marketplace, which, last month, removed 25,000 illegal gambling apps from its China store. This came after local news reports accused Apple of allowing gambling apps listed as official lottery apps on its platform.

The Ken reached out to both Google and Apple for their perspective but received no reply.

These companies tend to scale very fast as long as they have the model correct.


Smelling opportunity
Dream11 sure looks like it’s flourishing without much support from these giants. However, the massive traction aside, profitability continues to evade it. The company had a loss of Rs 5 crore (~$696,621) in FY16 which went upto Rs 15.7 crore (~$2.2 million) in FY18. It has even adopted a Swiggy-like approach and giving discounts to bring people on board, familiarising them with the idea of fantasy sport, says Bhattacharya.

“Once it has a steady group of people who come to the platform at a low acquisition cost, then the business will turn profitable as the model by itself allows you to make a pretty decent margin,” he adds.

It further helps the fantasy sport space that there is a pre-existing audience playing online games umbilically attached to betting. The wide audience for these games such as online poker and rummy in India make the next market for fantasy sport to tap into.

$130 billion

A 2016 report by the International Centre for Sports Security (ICSS) says that the betting market in India could be worth over $130 billion.

Natarajan says that the recent exits from online rummy site Ace2Three and mobile game developer Nazara Technologies has piqued the interest of investors in this sector.

Venture Intelligence shows that Matrix Partners India registered a 22X exit from Ace2Three when it sold its stake to Canadian firm Clairvest for Rs 154 crore (~$21 million). Matrix had invested Rs 7 crore (~$975,270) in 2011. Additionally, Matrix Partners also received Rs 35.8 crore (~$4.9 million) in dividend from the company.

WestBridge Capital registered a 40X part exit when it sold shares worth Rs 330 crore (~$45.9 million) in Nazara to IIFL Venture Capital.

Two years ago, no one was looking at this space, and suddenly, people have woken up to the fact that there is this unusually large market for fantasy sport, Bhattacharya says. Not just cricket, this model can expand to any professional sport. Dream11 already offers fantasy football—of interest to over a million people—and Kabaddi on its app.

Fantasy sport websites, in general, are not licensed by sporting associations. Some of the sporting associations have their own platforms while others tie up with existing websites as ‘official fantasy partners’. For instance, Dream11 is the official fantasy sport partner of National Basketball Association (NBA), Indian Super League (ISL) which is the men’s professional football league in India and the Caribbean Premier League (CPL), an annual T20 cricket tournament held in the Caribbean.

“Fantasy sport platforms increase viewership and engagement to sports which, in turn, increase advertising revenue for the various sporting leagues. This is why Dream11 has the support of both IPL and Hotstar,” Bhattacharya says.

Going ahead, if the law of the land permits, then platforms like Dream11 could also get a license for betting like FanDuel and DraftKings.

In 2015, Ed Miller, author of numerous books on poker strategy, and Daniel Singer, senior adviser of the McKinsey & Company Global Sports and Gaming Practice, published a report which said that in the first half of the 2015 Major League Baseball (MLB) season, 91% of daily fantasy sport player profits were won by just 1.3% of players.

These 1.3% players also accounted for 40% of fees and the bulk of this top-tier spent an average of $9,100 on fees, on which they realised profits of $2,400, while accounting for 23% of all fees and 77% of the profits.

“I know a person who left his investing job after playing fantasy football for some time. He felt that he could statistically model a number of variables and keep on winning. It worked for him and he made some $600,000 in a year,” Sharma says.

But not all can afford to take such a risk in order to win.

Players on Dream11 seem to face the same problem. Both Somani and Chawla, who play mostly during the IPL season and place small bets which go up to Rs 100 ($1.39) per match, concur. They barely win, and on a net basis, their bets have resulted in losses.

When asked how much time they spend on selecting their teams, they say that they pick players based on recommendations given on various forums and sites.

And yet, losses mount. Why do only 1.3% make it?

The product manager explains that similar to poker, fantasy sport has a ‘fish and shark funda’. A fish is a player who does not know how to play poker too well. A shark, of course, is a pro. The shark not only knows the risk and ratios of various card combinations but is also skilled enough to read the opponents’ physical gestures to predict their next move.

“In fantasy sport, a fish is someone who will make one team, bet Rs 10 (~$0.14) on one match in the hope of winning Rs 1 lakh (~$1397). Whereas, a shark would make six teams—the maximum number of team combinations one can have for one single game—bet Rs 600 ($8.39) in the hope of winning Rs 900 ($12.58),” he says.

Unlike the real world, where sharks and fish don’t usually sit at the same table, in fantasy sport, the digital platform brings them together. This leaves the fish at a massive disadvantage.

I, an obvious fish, tried the app for a week. I participated in 12 matches. Barring two practice matches, the rest were for money. At times, I picked a team at random, and at other times, I used the recommendations from the sites Somani and Chawla mentioned. I lost every single match. It was fortunate that I was betting to experiment with Rs 20-25 ($0.28-0.35), unlike other players on the platform.

The Nielsen study mentioned above reports that 89% of the people who’ve ever played fantasy sport continue to play it. This means that even if they abandon a platform they tend to find themselves trying their luck on another. HalaPlay and others are trying to capitalise on this to snatch some market share from Dream11, Sharma says.

“Even I have played 10-odd games on Dream11 and I have never won,” Bhattacharya says.

“The universe of people who have actually won is very small,” he adds. “This came out as a huge pain point in this market.”

HalaPlay’s early adoption and traction came from people who were not winning on Dream11. The platform has different structures for risk-averse players. For example, they have a 2X league where 40% of the players get a guaranteed payout and a 5X league where 18% get a guaranteed payout.

Then there is also the problem of seasonality. “IPL is Dream11’s earning time. Rest of the year, they try to earn some money from tournaments like KPL [Karnataka Premier League] and they don’t add much to their revenue,” the product manager says. “The year-round cricket and diversifying into other sports like football and kabaddi has given them the answer to the question, ‘What do we do for the rest of the year?’ but it has not solved their profitability or seasonality problem.”

Walks like a duck, talks like a duck

Under our archaic and hazy gambling laws which date back to 1867, fantasy sport are interpreted as ‘games of skill’ and not gambling – this was the law that was quoted by Punjab and Haryana HC during their aforementioned verdict.

“In summary, Indian gambling laws are confusing, based on an outdated concept and have not lived up to the technological changes that have come up in the recent years,” says Jay Sayta, who is a sports lawyer and also reports on India’s gambling laws on his website

Besides, it’s not like they’re uniform either. In fact, far from it.

A ‘game of skill’ or not, Indian states have separate laws that may not work in the favour of fantasy sport firms. In Telangana, Odisha and Assam you can’t even play a game of skill for payment. This makes Dream11 and other fantasy sport platforms illegal in these states.

Then there are also states like Sikkim which have laid down some laws for online gaming but with a catch—the games can be played only in an intra-network and not a public network. Casinos, for example.

“It’s a question of boundary. At which point regulations become onerous,” says Abhinav Shrivastava, a lawyer engaged as a Counsel with Bengaluru-based firm LawNK.

“You have an industry that is relying on the expectation that it is legal, based on the judicial treatment of games of skill and fantasy sports in particular. And now, all of a sudden, you have a prohibition out of the blue which invalidates your entire business model, that’s not justified,” he says.

An unregulated and cash-rich business growing rapidly but underground, away from the government’s eye, could face a sudden clamp down. After all, in India, there are more examples of bad regulation than good, especially with new sectors that don’t fall under the ambit of our outdated laws.

“For example, the Andhra Pradesh government came up with regulations which are so restrictive around the microfinance sector that the industry severely contracted there. Regulations should support the industry by introducing standards and good practices, not kill it,” Shrivastava says.

“The answer should not be to ban everything. Regulations should be made in a manner which protects the interests of the users and also allows the industry to flourish,” Sayta says.

“Users should not be cheated or short-changed in these games, and as people are depositing their money on these platforms, it needs to be ensured that the company does not use these funds in its own marketing or promotion,” he adds.

The fantasy gaming companies have formed a self-regulatory body, but Sayta feels it is not enough. Formal regulations are in order, he adds.

Gambling enterprises, wherever they are legal, are regulated to protect people. That needs to happen here, albeit not as a knee-jerk, but steadily and with well-thought-out guidelines. A sudden decision, ironically, could prove a gamble.

Amazon and Shoppers Stop: Will this Blending Work?

The pioneer of the one-stop departmental store concept in India back in 1991, Shoppers Stop started small in Mumbai’s Andheri, initially selling only men’s wear, before slowly expanding to women’s and children’s. By the time it listed on the stock exchanges in 2005, it was cool, premium and aspirational, even though it had just 16 stores across India.

But in just five years it would descend into a tailspin of falling profits due to high-interest costs on its debt and sales not keeping up. By 2017 it reported a loss of nearly Rs 20 crore ($2.8 million). This would cascade into accumulated debt of over Rs 550 crore ($75.6 million) by the time Amazon decided to swoop in as a knight in shining armour.

Online retailers have realised that they can’t grow beyond a point and that’s why they are buying stakes in physical retailers

Govind Shrikhande, former managing director of Shoppers Stop.

“Over the years, I think it’s lost its experience,” says the head of omni-channel operations of a large retail company, who did not want to be named. “Until and unless, you are a local loyalist, you don’t go to these stores. At least the cool people don’t.”

But why would Amazon, the infinitely-patient, cash-spewing, take-no-prisoners giant want to invest in an Indian apparel and fashion chain struggling to regain its mojo? What possibly could the company that beat all its established competitors in the world’s most competitive and innovative apparel market, America, want with a middling chain in India?

The answer to that starts with sour grapes and thwarted ambitions.

Thrice bitten, fourth-time shy

Amazon has done a tremendous job of scaling up in India in just five years, running neck-and-neck with Flipkart (now owned by Walmart). But there is one area where it struggles and lags woefully—fashion apparel. After years of dogged effort, Amazon’s market share in fashion is estimated to be just about a third of Flipkart’s.

Although, it has had pretty bad luck with acquisition attempts, probably the result of a corporate culture that prefers to build and overrun, than buy.

It tried to buy a stake in online grocery company Big Basket earlier this year, only to lose out to Chinese internet and e-commerce company Alibaba in February. Then, in April, it tried to buy Flipkart, but by May, arch American nemesis Walmart made a quick move and snatched Flipkart from under Amazon’s nose in a whopping $16 billion deal.

Shoppers Stop is barely Amazon’s first try at fashion. In 2014, it attempted to buy Jabong, only for Flipkart’s subsidiary Myntra to scoop it up.

As a result, Amazon doesn’t have the kind of deep partnerships Flipkart enjoys with fashion brands thanks to Myntra and Jabong, says Vikram Bhat, who served as the vice-president of product management at Myntra. Bhat also previously worked as the chief product officer at Aditya Birla Online Fashion. Amazon has been working over the last few years to tie-up with brands exclusively, expand its own fashion team by hiring stylists from other companies.

Meanwhile, Flipkart claims it has hit an annualized “revenue run rate” of close to $2 billion and a 70% share of the online fashion market, including subsidiaries Myntra and Jabong. (Amazon continues to claim it’s ahead of the Myntra-Flipkart pack in fashion, on a standalone basis, in terms of “units sold, gross merchandise sales and customer share”.)

So, perhaps, even though Amazon may have saved Shoppers Stop, the latter could really help save face for Amazon. Using Shoppers Stop’s knowledge base, Amazon wants to get to know the Indian fashion shopper better. Because, to conquer India’s retail market, Amazon will have to conquer fashion retail, too.

Despite all its investments, innovation and efforts, Amazon continues to face a pesky problem. Bargain hunters. “People who shop at Amazon are discount and value seekers, who do not have any brand loyalty at all,” says another former Aditya Birla Online Fashion official, who requested not to be named. “That’s the only set of people who are right now coming to Amazon at mass.”

Right from its “landing page” (the home page for its fashion section) to the catalogue of products, Bhat says is very underwhelming. “It’s the worst fashion landing page,” he says.

But discount-seeking customers, bad design and poor catalogues are all interrelated, as rival Myntra can show. It attracts a significantly richer customer base on the basis of a vast selection of premium brands, all tied in through one of the best-designed websites or apps for fashion retail.

Thus, to fix one, you fix the others, too.

It’s not that Amazon isn’t trying to remedy this. But what it lacks is good data on the behaviour and preferences of premium customers for premium brands. This is partly where Shoppers Stop comes in.

Shoppers Stop claims it has a loyal customer base that contributes to 75% of its total sales and doesn’t mind paying full price. That’s the kind of premium customer Amazon could use.

On the one hand, Shoppers Stop would sell its full catalogue on and Amazon would meanwhile install experience centres or kiosks inside all Shoppers Stop stores in India. Through these centres, Amazon would showcase its Kindle e-reader, Echo speakers and its other products. In return, Shoppers Stop would get instant access to Amazon’s nearly 150 million registered users in India. That’s a huge jump from the nearly 14 million people who visit its current website.

Amazon is learnt to be currently attempting a new shopping experience design through user data learnings via the Shoppers Stop partnership. When Amazon learns more about the fashion buyer in India, it can assess the data about customer preference and use its Prime customer loyalty program to target those customers, says the head of fashion business at one of the largest retailers in India.

With data-based knowledge via Shoppers Stop, Amazon, according to multiple retailers we spoke to, eventually wants to roll out its own private brands, as in the US. Even though it is estimated to be the number 1 apparel retailer in the US by the end of 2018.

Lastly, the partnership with an established departmental store chain could get Amazon some buying power, especially for fashion products, Bhat notes.

A floundering pioneer

Two weeks after the Amazon deal, Shoppers Stop sold its 51% stake in Hypercity—a chain of large-format grocery hypermarkets it started in 2006—to competitor Future Retail. In return, Shoppers Stop got an infusion of cash and shares in Future Retail. This was even after concerted efforts, Hypercity couldn’t report an operating profit in the last three years.

The sale also removed Hypercity’s debt of over Rs 125 crore ($17.2 million) from Shoppers Stop’s consolidated balance sheet. Shoppers Stop also cashed out of two joint ventures, one with Nuance Group’s duty-free stores in Bengaluru’s international airport, and another in the family entertainment space called Timezone.

The genesis of all these ventures can be traced back to 2005 and Shoppers Stop’s popular ‘First Citizen’ program—that helped frequent shoppers gain points that could be used as currency. Spurred on by the premise of loyal customers shopping across multiple formats, Shoppers Stop’s parent, the K Raheja Group, expanded into newer retail formats such as grocery, food and beverage and family entertainment centres through Shoppers Stop, apart from its shopping mall and other real estate businesses. Like its peers Reliance Industries-controlled Reliance Retail and Kishore Biyani’s Future Group, all besotted with owning all possible retail formats under their own brand umbrellas, the Raheja Group went all in too.

In May 2006, it launched its hypermarket format store, Hypercity, in Mumbai. Then Shoppers Stop launched its home improvement concept store HomeStop, before entering into airport retail through a joint venture. It then segued into family entertainment with Timezone and set up spaces like bowling alleys inside malls.

This expansion coincided perfectly with the onslaught of venture capital-funded e-commerce fashion retailers like Myntra and Jabong who used discounted prices, fast delivery and vast assortments to wean customers away from established physical retailers. This impacted established retailers across the board, including Shoppers Stop.

An analyst at a Mumbai-based brokerage agrees. “I think, at some point of time, they have lost their mojo relative to others.” As it got distracted with mindless expansion, Shoppers Stop’s private brands business started floundering. From being nearly 21% of total sales 10 years ago, it fell to only 10% by 2018. Margins and profitability have been falling too.

“You don’t make a margin by carrying powerful brands,” says the official from the large retailer quoted above. “Because powerful brands dictate the terms at which you can retail their products, and how much they want as a percentage of the margin, how much profit they want to make. You make money when you have what is technically called a private label [or brand].”

There is only so many third-party brands that a retailer can sell. At Shoppers Stop’s competitor Tata Trent’s Westside, the private brand sales form 90% of total sales, while at Landmark Group’s Lifestyle stores, it’s 50%. Shoppers Stop is aiming to bring its private brand share back to 20%.

“Private label is where they [SS] have been languishing if I compare them to others, especially Westside,” the analyst quoted above said. The company is now trying to boost its private brands, fashion and beauty or non-apparel business and is doubling down on its omni-channel play to get its mojo back. The Ken reached out to Shoppers Stop and sent a detailed questionnaire, but the company did not respond.

“You can have any flavour, as long as its Omni 2.0”

By 2015, Shoppers Stop’s in-store sales growth had halved to 5% from the year ago, thanks to aggressive competition from online players like Myntra and Jabong. So it decided to pick a horse to ride into the e-commerce battle, e-commerce site Snapdeal. The battle was “omni-channel sales”—a seamless offline-to-online shopping experience.

In hindsight, it made a terrible choice of horse though, because Snapdeal itself floundered and is currently a barely recognisable shell of its former self. Which meant that after three years of its omni-channel effort (let’s call it Omni 1.0), Shoppers Stop’s omni-channel sales were an abysmal 1.5% of total retail sales of Rs 1,048 crore ($144 million) in the June quarter.

But if Amazon can get a fourth chance with Shoppers Stop, no reason why Shoppers Stop can’t get a second one with Amazon

Shoppers Stop told analysts in July that the Amazon partnership could help it achieve the target of 10% omni-channel sales earlier than 2020. It topped that up by announcing that for the June quarter, its omni-channel sales rose by nearly 50% compared to the preceding quarter. Now, Shoppers Stop is eyeing Amazon’s reach in Tier-II and Tier-III cities, which make up nearly 65% of the e-commerce retailer’s sales in India.

Quite a mutually symbiotic relationship, this.

Shoppers Stop’s customers can now buy a product online and collect it from the physical store, which the industry lovingly calls “click and collect”. But this is a difficult strategy to implement. The Tata Group’s retail subsidiary Trent tried it at its Westside chain of apparel stores and failed, said P Venkatesalu, the company’s CFO to attendees of a retail CFO summit in Mumbai at ITC Maratha on 4 September.

“In-store pick-up is never a successful strategy in India,” says Bhat “It’s not very valuable [to a customer].” What’s of value is being able to order a product that is not in stock and get it delivered home.

Shoppers Stop has also set up a new private brand team. It has hired new designers and set up a studio to improve its private label business which has been losing its share in its overall sales. Having your own private brands allows you to control costs, and as a result keep prices low. That’s the only way to eventually boost margins in the face of a discount war from online retailers.

In the last few years, stores that have not been making money have been shuttered.

Shoppers Stop’s last goal is to bridge the gap between Tier-I and Tier-II cities through Amazon. This way it won’t have to spend precious capital to set up stores. Amazon meanwhile claims it can service “100% pin codes” in India.

The former managing director at Shoppers Stop, Govind Shrikhande, sees another opportunity in the Shoppers Stop-Amazon marriage: marrying their respective customer loyalty programs – First Citizen and Amazon Prime. There could be exclusive launches or merchandise planned in the future as well, he adds.

This exclusivity is what makes a fashion brand endearing to a customer. The likes of fashion brand Zara can command a high premium on their products because they refuse to discount their products. And brand affinity is what will make customers come back for more. Shoppers Stop realises that and is investing to expand its reach. It will have to move away from being a brand aggregator and create brands of its own, just like Westside managed to do over time. But for now, the company wants 20% of its total sales to come from private brands.

It will be hard for Shoppers Stop to pull a Macy’s or a Nordstrom and become a complete omni-channel player. These department store chains used their own stores as distribution channels to establish their online presence. Bhat says this is the model that most western retail chains have used to ward off competition from online retailers like Amazon. They run a complete offline to online model through which they sell customers products at full price.

But in India, because of the size of the market that is left unconquered, and the need for capital by physical retailers to invest, the omni-channel model will be different. Here, it’s more of a “you scratch my back and I’ll scratch yours” strategy for global investors and physical retailers, says the omni-channel head at the large retailer.

In a way, Shoppers Stop and Amazon are exchanging real estate; Shoppers Stop’s storefront for’s virtual real estate. To put it in perspective, the total number of e-commerce shoppers in India are just 100 million, Bhat says. Out of this, fashion buyers are closer to 50 million. Out of this customer base, Flipkart has nearly 55% of the online fashion market, while Amazon has just 17%. There is a point after which no amount of discounting would add new consumers because the pie is so small.

So Amazon is attempting an approach keeping the Indian shopper in mind. It is stepping out of the cloud, into a physical store, to learn more about the Indian consumer, who still loves to shop offline.

With the knowledge and learnings from the Shoppers Stop investment, Amazon’s next round of investment in the fashion and lifestyle space in India is bound to be more informed. Could that involve buying out Shoppers Stop? As things stand now, a foreign entity can own only 51% in a multi-brand retailer, but this comes with local sourcing conditions, like 30% of the purchases for the business have to be local.

For now, Amazon’s investment in Shoppers Stop has certainly borne fruit—a 50% rise in the market value of Shoppers Stop in the past year alone. And the more Shoppers Stop grows its business, the better a return Amazon gets on its investment.

Shoppers Stop, as it stands, is an easy bet for Amazon, a willing guinea pig even. Till such time, the e-commerce giant looks into another round of investment in its own fashion business and launches private labels. Till then, it will sit tight inside the glass walls of Shoppers Stop stores, looking around, looking out, quietly observing the Indian shopper.

HRX Celebrity Brand: A pretty face and then some

Last week, actor Tiger Shroff launched his clothing line “Prowl” in partnership with Mojostar, a celebrity-driven house of brands. This is the first company (formed as a joint venture between celeb management firm Kwan Entertainment and merchandising firm Dream Theatre) whose sole purpose for existing is to create new celeb-brands. It has also launched “Just F” with actor Jacqueline Fernandez.

Since 2016, many actors and some cricketers have launched brands to latch onto a segment that, so far, has remained largely untapped. In fact, celeb-led brands, in the overall Rs 4,000 crore ($556 million) licensing and merchandising market, are so nascent that analysts, executives, and consultancies don’t know the estimated size of the market.

But celebrities seem convinced that there is money to be made, just like actor Hrithik Roshan has through his brand HRX. Launched in 2014, activewear and fitness brand HRX is a joint venture (70:30) between Roshan and his talent management agency Exceed Entertainment. The company has gotten some things right in the past four years. It managed to get e-commerce platform Myntra on board, first as a licensee, and later, as a majority investor (51%). In the year ended March 2018, HRX crossed a turnover of Rs 140 crore ($19.5 million) in apparel, says Afsar Zaidi, founder and managing director at Exceed Entertainment. He adds that his brand is profitable and projects a doubling of turnover next year. That’s just from the apparel business. HRX also launched workouts and healthy meals in 2017 in partnership with, a Bangalore-based health startup run by Mukesh Bansal, Roshan’s longtime collaborator.

Buoyed by the success of HRX, Zaidi is now planning another apparel brand with a top Bollywood actor, the details of which Exceed didn’t share with The Mobdro.Buzz.

And not just Zaidi. The apparent success of HRX, marked by a strong investor, a popular name and decent turnover, is what most celebs and companies entering this space want to ape. “To be fair, HRX has been a pioneer,” says Jiggy George, managing director and founding partner at Mojostar and founder at Dream Theatre. “It started off much earlier. Though it was harder in the beginning, HRX has got it right now, with a strong investor.”

But celebrity licensing is not an easy task. It is difficult to create brands that are extensions of a celeb’s appeal for many reasons. The history of advertising and marketing is littered with examples of products suffering from tricky celebrity associations (and vice-versa). There is also the tall task of making money. Celebrity brands have limited appeal compared to mainstream ones; they usually only strike a chord with the people who relate to celebrities. With no dearth of competition in the categories like clothing or footwear, such brands have their work cut out to succeed.

HRX: A pretty face and then some

HRX was conceptualised in 2013 when Zaidi decided to extend the brand “Hrithik” to something bigger, as a part of the celebrity management exercise. The idea was to build something around an artiste.

“They wanted to create a property that can be extended to many spheres—apparel, gym equipment, smart devices, deodorants and innerwear,” says Gautam Kotamraju, the then chief creative officer and head of private brands at Myntra and now, business head at Cure.Fit. “But they didn’t have a product, a design or a retail footprint, which is when Myntra and Exceed met.”

HRX approached Myntra because it wanted to sell only online. It had its reasons, the most important being the low investment needed and a larger reach. No marks for guessing that selling offline in retail stores is a more expensive affair. An area in a multi-brand store like Shoppers Stop or Central costs about 35-40% of the maximum retail price of the products (given a minimum guarantee), plus the brand needs to hire its own sales staff, according to an industry executive, who didn’t want to be named. For a brand like HRX that had no prior experience of retail or clothing, online was a safer option.

Next was the task of identifying a gap in the retail market, somewhere at the intersection in the Venn diagram of Myntra and Roshan’s persona. Both parties settled on fitness clothing that allowed the consumers to move freely. “At the time, Myntra was selling casual and formal but nothing sports casual or athletic. For Hrithik, the category made sense because it matched his persona,” says Kotamraju. The space was dominated by global brands Adidas, Nike and Puma. HRX wasn’t supposed to be just gym wear; rather, it was gym-to-street-to-work-to-bar wear, also known as athleisure, perfect for everyday use. Additionally, the brand planned to sell casual wear as well but a primary focus was athleisure.

And boy, did the segment do wonders for HRX.

HRX was a brand purely modelled on a celebrity. Of course, Being Human was around but it was a part of a larger charitable initiative


At present, activewear, pegged at Rs 5,000 crore ($695.1 million), is the fastest-growing category at an annual rate of 13%, according to data from retail consulting firm Technopak. The apparel segment overall is growing at 11%. Over the past two years, brands like Monte Carlo, Indian Terrain, Numero Uno, Van Heusen and US Polo Association (you name it, they’ve done it) have launched activewear collections as sub-brands. HRX, too, rode the wave, and it continues to. “The last two years have actually done pretty well for HRX,” says Zaidi. The Mobdro.Buzz could not independently confirm the revenue of HRX as the financials of the brand are a part of Myntra’s books, which is the licensee and now, and a majority investor in the brand.

At first, Myntra came on board as the manufacturer and sole retailer of HRX. It was purely a licensing deal. “And back then, Myntra wasn’t a Flipkart-owned company. We believed in the brand and went ahead with the launch. It was also about seeing how big is this really going to become,” says Kotamraju.

After Myntra got acquired by Flipkart in 2014, it continued to observe HRX’s success. Finally, in 2016, it acquired a 51% stake in the brand. “The move was self-explanatory. Something was working really well and we wanted to invest and officially own it,” Kotamraju adds. Roshan owns 70% of the remaining stake, and Exceed Entertainment, the rest. Between partnering with HRX as a licensee and owning the brand, Myntra also conceived another celeb-brand All About You with actor Deepika Padukone. Unlike HRX, All About You is a women’s western wear brand launched in a category which already had multiple global brands operating in it.

HRX had acquired two things that worked well for the brand: a strong investor and an emerging category it was operating in.

Fashion and fitness

The Myntra-HRX story is about fashion. Well, mostly.

There is another story in HRX, of fitness. When Bansal (then co-founder of Myntra) quit Flipkart and started his new venture, in 2016, Roshan and his team immediately recognised the synergies, says Bansal. “He [Roshan] is very deep into fitness. So, when we started, it was a no-brainer we had to partner with him,” he adds. In this collaboration, that has 70 gyms across India, offers HRX-branded meal packs and workouts apparently designed by Roshan.

What started as a small engagement led to a Rs 100 crore ($13.9 million) endorsement deal in August 2017 that includes an equity stake in as well as royalties. Apart from that, HRX also tied up with electronics maker Xiaomi to launch an exclusive edition of the latter’s fitness band.

Both the deals mark the expansion of HRX beyond apparel. There is more to come. This year, a line of innerwear. “After ‘Being Human’, [Salman Khan’s brand launched in 2012], HRX has emerged as quite a powerful brand,” says Arvind Singhal, chairman at retail consulting firm Technopak Advisors.

Drawing inspiration from HRX, many brands have been launched in a fashion similar to that of HRX. “But mostly, these brands have seen limited success,” adds Singhal.

Go all out or go home

A number of brands have come up since 2016. Count ’em: Actor Shahid Kapoor’s activewear brand “Skult” in 2016; Anushka Sharma and Sonam Kapoor’s women’s brands “Nush” and “Rheson”, respectively; cricketers Yuvraj Singh’s “YWC”, Virat Kohli’s “One8” and Mahendra Singh Dhoni’s “Seven”, all in the sports or athleisure space, and Sachin Tendulkar’s “True Blue” in menswear.

All these brands have been launched in collaboration with retailers or manufacturers. For the latter, it’s a chance to leverage the popularity of the celeb to sell more; for the celebs, it’s an opportunity to remain relevant and make some money.

But these brands have it tough because although the athleisure category is growing, the market is already crowded with traditional retailers eyeing a share of the pie. HRX was the first celebrity brand in the athleisure space, launched on the cusp of the global athleisure boom in 2014. It was forward-leaning, occupied a niche and got people’s attention with clothes designed by a retail powerhouse. It got the first mover advantage. Other brands launched at the same time—Kohli’s “Wrogn” and Salman Khan’s “Being Human”—also excelled with their unique selling points. Being Human supported education and healthcare; Wrogn, with Universal Sportsbiz Private Limited, promoted the questioning of the status quo.

Our approach is a little different. We are not looking to build brands for celebs; we are just looking to build good brands


Mojostar, whose sole business is setting up new celeb-brands, is looking for unoccupied spaces like cosmetics or fitness, says Anirban Blah, managing partner at Mojostar and founder of Kwan Entertainment. In 2018, it launched two fitness brands—”Just F” with Jacqueline Fernandez and “Prowl” with Tiger Shroff—and is planning a third. Unlike HRX, which turned to Myntra for its manufacturing and retail prowess, Mojostar plans to do it all—the investment, product development, design, manufacturing and marketing.

Whether Kwan and its collaborator, Dream Theatre, a licensing agency, can match the success and fashion know-how of a dedicated retail giant like Myntra remains to be seen. It may be challenging given that Mojostar has just a handful of employees. Myntra has thousands. Moreover, back in 2014, HRX was it for both Myntra and Zaidi; they did not have any other celebrity brands to work on. “We weren’t just skin deep but really knee-deep in the brand,” says Kotamraju, formerly of Myntra.

I have seen many licensed properties and I have seen many celeb-brands launch but I don’t think any team has worked like we did


All HRX collaborators from Myntra to stress that the brand’s success is in part due to Zaidi’s and, even more, Roshan’s absolute commitment to the brand. When HRX launched, Roshan and his management team gave up endorsing competing apparel brands. For instance, Roshan endorsed formal apparel for J Hampstead but not casual wear. More recently, he has given up innerwear brand Macroman as HRX is planning an innerwear line. Endorsements that did not align with HRX’s message of fitness and breaking limits are ignored.

“There was no access problem with Hrithik,” Kotamraju says. “He was a call/ text away. No calendars and no managers were involved.”

Other celebrities may not be as dedicated to their brands. Kohli, for example, is seemingly everywhere these days, hawking everything from Manyavar (ethnic wear) to Volini (an anaesthetic spray by Sun Pharma). Shroff continues to endorse the menswear brand Forca. While this may earn the celebs crores of rupees—Kohli apparently made Rs 143 crore or $20 million from brand endorsements in 2018, according to Forbes Magazine—it may not ensure the long-term future of their brands once they are on the way out.

It is for that day brands need to plan. After all, all celeb brands, including HRX, are competing in a space where there are global giants, from Adidas to Puma to H&M, each making a revenue of more than Rs 700 crore ($97.3 million). If the ultimate goal is to compete with them, the brand has to outlive its origins. If the goal is smaller, just to appeal to selective audiences who associate with the celebrity, then they can stay the course.

“In a larger sense, celeb-led brands have a lesser appeal than the mainstream brands; these cater to a small set of consumers that can relate to the celeb,” says Singhal. “It would be surprising if any of the celebrity-owned brands could grow big enough to compete with the pure, retail ones,” he adds.

Zaidi and Roshan know this and plans are afoot to transcend the actor. In 2015, HRX hired Tiger Shroff—because he carries an image similar to Roshan’s—as its brand ambassador in 2015, which Singhal of Technopak believes is an important move in making a brand self-sufficient. Shroff was associated with HRX for 18 months before he went on to launching Prowl with Mojostar. HRX also sponsors sporting events, at times without Roshan’s participation. “We sponsored Indian women’s rugby team and Paralympics, without Hrithik,” says Zaidi.

Globally, the few celebrity-driven brands that have become mainstream are the ones that have gone beyond the celeb. Did you know Lacoste was founded by tennis player Rene Lacoste, also known as “the Crocodile”? Wimbledon champion Fred Perry founded “Fred Perry”. Actor Jessica Alba started The Honest Company, a natural food and beauty goods brand. But many other celebrity associations remain restricted to endorsements, limited edition product lines or niche markets.

Will India be any different? It’s too early to tell and there are so many celebrities rushing in that it will be a while before the water finds its level. And when it does, it will take a lot of effort to separate the celebrity from the brand and give it a longer lease on life.

The Beer Cafe Report Card - What's New?

Nobody before betting on beer as much as The Beer Cafe did. And it has been at it for a good five years, painstakingly adding one cafe after another. Today, after 40 cafes spread across Delhi NCR, Mumbai, Bengaluru, and a few other cities, the company says it has had enough. There is a natural limit to the number of beer cafes this country can take. At least for now. So The Beer Cafe is doing the next best thing it knows. It is getting into the beer business. If you indulge Rahul Singh, the founder of The Beer Cafe, he’d tell you it is the next best thing. After all, how difficult can it be? He already owns the real estate, now he just needs to bottle his own beer, get people drunk, and roll in money. But is it that simple?

“A beer brand is the most obvious extension of The Beer Cafe,” says the 48-year-old Singh. In his office in Gurugram, cramped with book and beer shelves, Singh apologises for the bad coffee. “Beer is our forte,” he says. “It only makes sense to start making one now.”

That could be true. Except it isn’t. Beer isn’t the company’s forte. Building restaurants is. And for a while, even this hasn’t played out well.

The dining business in India faces multiple issues. There is not one problem but a whole bunch that hinder the growth and scaling of businesses—high rentals, inept pricing, changing regulation and laws. Pressured by these, many dining companies have had to shut shop over the years. The Beer Cafe is no different. Post the 2016 Supreme Court-mandated liquor ban near highways, the company had to close nine outlets. In the process, it lost about Rs 8 crore ($1.1 million). In the year ended March 2017, the revenue of BTB Marketing, the company name of The Beer Cafe, stood at Rs 78.1 crore ($10.7 million) with losses of Rs 21.6 crore ($2.9 million), according to RoC documents sourced from In the current financial year, Singh claims that his company has turned profitable, but says there isn’t much more room for growth. “After all, how many The Beer Cafes can I open?” he asks.

And so, the allure of beer.

The company’s beer will be called Indie18. Indie for the music, and 18 for the 18 years of Generation Z. Singh says, for a start, The Beer Cafe will import the beer from Europe. The sourcing has already been figured out but Singh doesn’t want to give away too much, except that the launch is sometime in February 2019.

I will never set up my own brewery. First, it involves high capital expenditure. Second, a political decision can finish my business anytime.


In more ways than one, The Beer Cafe is going the Starbucks and the BrewDog way. Just in reverse. Starbucks started as a retailer of coffee beans and later, shifted focus to cafes. BrewDog, owner of the top-selling craft beer in the UK, first took the market by storm with its beers, following up with bars. Services complementing products.

One can argue that making and selling beer isn’t a 21st-century problem. Our ancestors did it. And their ancestors before them. The question is whether making their own beer is really a way out for BTB Marketing? There is no dearth of competition; the craft beer segment is getting increasingly crowded with a new company entering the space every few months. And then, there is this whole other task of marketing and selling it.

Chug, chug, chug

The last two years haven’t been easy on the estimated $57 billion food services industry. First, it was demonetisation in November 2016 that reduced footfall in restaurants. In the first week, business at certain outlets was down by as much as 50%. It has been two years since then but the misfortunes of restaurateurs haven’t ended.

Immediately after demonetisation, the industry was hit by the highway liquor ban, which was partially lifted later. Another nail in the coffin was the goods and service tax that removed input tax credit in its revised norms, thus increasing the costs of restaurants. Like they say, bad luck comes in threes.

To arrest the last of these hiccups, restaurateurs have repeatedly requested the government to re-introduce input credit tax, but their demands have fallen on deaf ears.

But, this malaise hasn’t just sprung up over the last two years. These recent complications come over and above prevailing issues like real estate. “We have first-world rents and third-world sales,” says Singh. “At least 25% of my revenue, if not more, goes into the rental expense, which ideally should be a single-digit percentage.”

There are pricing problems too. “A lot of restaurants outprice themselves and, hence, the business gets limited to only a few markets,” says Gaurav Marya, chairman at franchise solutions company Franchise India Holdings Ltd. Franchise India manages more than a hundred food and beverage brands. “Additionally, there are restaurants which are predominantly dependent on high youth spend,” he adds.

It’s tough to run a restaurant, tougher when you are selling alcohol. There are liquor laws; one for each of the 29 states. Restaurants selling alcohol can’t stock liquor, and neither can they exchange the stock between two outlets. Every outlet needs a separate licence. Consequently, every The Beer Cafe restaurant has different products and a different menu card that changes every month. There are some legal surprises, too, such as the highway ban or calls for complete prohibition in states like Bihar and Tamil Nadu. If nothing else, there are sudden dry days for reasons like state elections.

In such cases, dining companies usually look for alternate ways to earn a buck—adding new restaurant brands (in different segments) to their existing portfolios, overseas operations or launching a product that complements the existing services.

Out with the cafe, in with the beer

The Beer Cafe launched with an idea to be a neighbourhood chain. “Like a Cafe Coffee Day, but for beer,” says an industry executive, who has worked closely with Singh. In the five years since its launch, The Beer Cafe has managed to open 40 outlets in 11 cities and plans to close this year with 12 more. “I could have opened 100, had the law been less complicated,” says Singh, with a tinge of regret that he couldn’t anticipate the struggle against some troublesome laws.

In the legal mayhem, scaling is an uphill task. But, Singh has a vision—130 The Beer Cafe outlets in the top 30 retail cities by 2023. After that, it’s a blind alley. “Opening 100 restaurants in India is feasible, the next 100 is back-breaking,” says a former venture capital firm executive, asking not to be named. “And that’s where growth goes for a spin.”

Enter Indie18, BTB Marketing’s plan-B. An imported beer in four variants that Singh expects will account for 50% of his company’s revenue by 2020. And eventually be bigger than his restaurant business.

I will not be making the best beer in town, just the beer that Indians can drink. And I won’t call it a craft beer like others do without any actual definition.


The so-called craft beer business—India doesn’t have a definition for craft beer—has been on the rise in India, and is dominated by B9 Beverages-owned Bira91. Over the last few years, there have been at least 20 new beer brands that have come up across the country, including White Rhino, Simba and Arbor. The market is getting crowded and The Beer Cafe, too, wants to wield a sword in this battle.

It may be a good move for Singh, who has been dealing with beers and craft beer disruption for five years now. He brags that he has unlearnt more than he has learnt from all the beer companies that have launched and expanded with The Beer Cafe over the years.

To start with, Singh, who is also the president of National Restaurants Association of India (NRAI), wants to sell Indie18 only in The Beer Cafe outlets, other restaurants and hotels, rather than through independent retailers or liquor shops. At least, to begin with. Getting your liquor placed in hotels and restaurants requires a lot of investment, especially in metro cities; every company has to discount the product and burn cash just to get visibility in restaurants. But Singh’s plan may work through his NRAI connections, as well as through his own outlets which he says were responsible for 40% of Bira’s sales in its first year. The Ken couldn’t confirm this claim independently from Bira.

Singh says that he won’t push his product over others’, and it will ultimately be the customer’s call. Well, he might not need to. A 330ml Indie18 will be priced at Rs 195 ($2.6) in The Beer Cafe outlets, sitting pretty between a Kingfisher at Rs 145 ($2) and a Bira Blonde at Rs 245 ($3.4).

By doing so, Singh can earn better margins than his competitors on certain variants. For instance, The Beer Cafe makes anywhere between Rs 210 ($2.9) and Rs 230 ($3.17) on a 330 ml Bira, depending on the variants. “With my own beer, the margins will be higher, at the company level, because I will save on the money paid by the beer makers to the restaurants,” he says, as he goes through this month’s menu card for a nearby The Beer Cafe outlet.

Price is right

The retail price of a 330 ml Indie18 bottle will be the same as Bira.

So far, so good. The tougher part will come later when Singh starts retailing his product. Distribution of liquor is a gruelling task. While the government is the sole liquor distributor in a lot of states, there are private distributors in others. Both are hard nuts to crack and need connections, in addition to investment to cater to state laws. The licence fees, excises, import duties, lower margins, and not being able to control the selling points are just a few of the stumbling blocks in the off-restaurant liquor trade.

There is another problem brewing in the beer industry. In 2016, for the first time ever, beer consumption fell 0.4% in 2016 and then, about 10% in 2017 because of state bans, high excise duties, and demonetisation, according to data from consulting firm Deloitte. For now, industry executives are convinced that this drop is in mass-market brands and not in the premium segment, of which craft beer is a small part.

Coming back to competition and retail, Singh would need money to sell and promote Indie18. And for that, sometime next year, BTB Marketing plans to be back in the market for a fundraise.

A valuation and an exit
In the last two years, BTB Marketing has had a hard time raising funds at a good valuation. “The highway liquor ban screwed us,” rues Singh. As did demonetisation. The food services market has been recovering since, with multiple investments taking place in the last few months.

Since 2012, BTB Marketing has raised Rs 84 crore ($11.5 million), according to data from 40% of BTB Marketing is owned by venture capitalist Mayfield, while Singh holds a 45% stake. In its last round of investments, which concluded in March 2017, BTB raised Rs 10 crore ($1.3 million) from venture-capital firm RB Investments. Singh claims that the valuation of the company for that round stood at Rs 350 crore ($48 million).

Rs 3 crore

The amount of revenue earned by a The Beer Cafe outlet annually, as per current estimates from the company.

With its own beer brand, The Beer Cafe has more to leverage and will seek a much higher valuation and give its five-year-old investor Mayfield a good exit. Typically, venture-capitalists take an exit within five to seven years of investment. A person aware of the developments at The Beer Cafe said that Mayfield has already been looking for an opportunity to exit and the plan to launch Indie18 is a precursor to that. “It’s a valuation game. A product owner is bigger than a service provider. Plus, the craft beer industry is doing well,” he adds, asking not to be named.

Singh has a calculated answer: Valuation is a consequence. So does Vikram Godse, managing partner at Mayfield Advisors. “The craft beer business will be evaluated as a fresh investment as and when BTB Marketing comes up for a new round of investment.”

“As far as The Beer Cafe is concerned, going by its growth trajectory, we will re-invest,” he adds.

In the year ended March 2018, Singh claims to have achieved a milestone of Rs 100 crore ($13.7 million) in turnover. The next one is Rs 1,000 crore ($137.6 million), which can’t be crossed with The Beer Cafe alone; Indie18 is a ride to fast track this target. 2019 will see a new war break out between craft beer brands. In this crowded but growing segment, Indie18 will have its work cut out—to gain popularity, climb profitably, and fill the emptiness that The Beer Cafe never quite could.

PE/VC Secondaries in India is the truth

The decade-old ripe venture capital investing business in India is now going through a churn as most funds are coming to an end of their lifecycle. With that comes the pressure to return capital to the investors. With exits far and few, some of the funds are now busy closing asset sales or selling their entire funds to other private equity funds, also known as secondaries.

NEA’s India fund has been on the block for some time now since Bala Deshpande, its senior managing director, and three other teammates from NEA decided to launch their own fund early last year. Deshpande and her team though are still managing NEA alongside their new fund raise. Currently, Deshpande and her team are on road to raise nearly $250-300 million for their fund MegaDelta Capital Advisors. An email sent to Bala Deshpande and an SMS sent to NEA officials in the USA on 17 September went unanswered. Amit Gupta, founding partner at NewQuest, declined to comment on any specific deal.

NEA had entered India in 2006, by launching NEA IndoUS Venture Partners led by Vinod Dham and Vani Kola. Kola went on to launch her own fund Kalaari Capital in 2012. NEA’s India investment figures are not available publicly, but globally, NEA manages around $20 billion across 16 funds. According to The Wall Street Journal, NEA had raised a $3.3 billion fund last year. Globally, NEA is a multistage investor in the technology and healthcare sectors.

In India, even though the fund is undergoing a sale process, it continues to participate in follow-on rounds of its existing portfolio companies. In fact, NEA had introduced NewQuest’s partner Amit Gupta to most of the investee portfolio company founders some time back. Gupta was in India during the first week of September for deal negotiations, the first person added.

A fortnight ago, one of NEA’s investee firms, Manu Agarwal-led Naaptol Online Pvt Ltd, managed to raise nearly $15 million from its existing investors. Naaptol is an omnichannel shopping platform which counts Mitsui & Co., JP Morgan and NEA as its investors. Omnichannel platforms are those which use both online and offline mediums for sales. “The company has raised $15 million on pro-rata basis of which $11 million has already come in from other two investors, the rest $4 million, supposed to come in from NEA, will come through once they complete their transaction process,” said a third person familiar with the matter.

He added that once the transaction is closed, a decision will be made on the transfer of board rights. At present, NEA has a board seat at Naaptol.

If this is a coincidence of secondaries, here’s another tale. Naaptol’s other investor, financial services firm JP Morgan, wasn’t really its original investor. It’s only in 2015 that its original investor, Menlo Park-based early stage investor Canaan Partners, led by Rahul Khanna in India, sold its entire portfolio to its existing limited partner (LP) JP Morgan Asset Management and disposed of the fund. In private equity parlance, a transaction where one PE/VC funds stake is bought by another fund, it is known as a secondary deal. Essentially, the asset or the entire fund is changing hands for the second time with another fund buying it.

There are broadly seven types of funds strategies in the world. Early-stage venture capital funds, venture capital funds, private equity, fund of funds, growth private equity, buyout funds and secondaries.

There are various types of secondaries. First, where a PE or a VC fund sells its existing stake in one of its portfolio company to another fund. Second, where a fund is fully sold off with all its assets to another private equity fund with all the rights and powers of the fund manager. When someone sells the remaining assets of an ageing private equity or venture capital fund, it’s known as a tail-end transaction. This helps them move on to raise another fund.

The deal between NEA and NewQuest Capital is the second type of secondary deal as it aims to provide solutions to an existing general partner (GP). A general partner is the fund manager.

Apart from Naaptol, NEA’s portfolio firms include Hyderabad-based infrastructure firm Vishwa, digital firm ValueFirst, specialised in-vitro fertility firm Nova IVI Fertility, renewable energy firm Infinitas, aviation engineering firm Air Works, among others.

Some of the investments in NEA’s portfolio are a decade old. And they are yet to be exited. These firms include ISGN, a knowledge process outsourcing firm, and enterprise mobility solutions firm ValueFirst.

The New (con)Quest of secondaries

NewQuest Capital Partners is a pan-Asian secondaries firm which is currently deploying from its third fund, a 2016 vintage fund with asset under management (AUM) of $540 million. NewQuest has a total AUM of $1.3 billion. Earlier this year, global private equity firm, TPG, invested in the secondaries specialist firm, and as part of the deal, NewQuest will work closely with TPG across Asia.

“In the last six-seven years, we have deployed over $500 million in India across deals which include buying out assets from other PE funds as secondary deals, co-investments. As the market matures and becomes attractive, we feel there are good deals to be done; India is becoming a larger market for us,” says Amit Gupta, founding partner of NewQuest Capital.

NewQuest has done direct deals in India where they own and manage the asset, co-investments and also provide solutions to VC funds, where they become the significant or sole limited partner and continue to leverage on the selling fund’s existing GP relationship.

According to VCCEdge NewsCorp, last year, it acquired the India portfolio of venture fund Draper Fisher Jurvetson (DFJ) for an undisclosed amount.

“It is only six to seven years back that secondaries started gaining traction, not just in India but across emerging Asia. This a reflection of a maturing private market in Asia. In Europe and the US, nearly 40-45% of exits happens through secondaries, but in India, that pool is very small. But with the increase in exits, this will grow further,” adds Gupta. Gupta here is talking about secondary asset sales.

At present, China holds the largest market share in terms of NewQuest’s investments, followed by India with nearly 35% of the firm’s capital commitments, and it is only slated to increase further.

Gupta explains, “Since January this year, we have deployed more than $130 million and we are looking to commit additional $200 million by March, including co-investments.”

NewQuest usually holds assets for three to five years and has made returns of 18-20%. The fund is actively eyeing deals where it can buyout GPs.

One of the reasons for the rise of secondaries in India, where funds are fully sold out, is that most companies where venture capital funds have invested are yet to mature and VC funds have come close to the end of their fund life.

“Most VC funds have come to the end of their lifecycle and are seeking an extension of another 12-18 months to close sales,” says an investment banker who advises specialist secondary funds in India. “Some of these assets are bad investments which won’t make any money but there could be some which will in a few year’s time. Hence, secondaries specialists are keen to pick these portfolios.”

One part of the argument is true that companies have taken time to mature, but some funds have found it difficult to clock exit (even after a decade of investing) as some of these investments have turned sour.

Because these are leftover assets or assets which are yet to mature, secondaries funds buy them at a huge discount to their mark-to-market value.

The banker further explains, “Most of the secondary deals where specialist funds buy these bunch of leftover companies or funds entirely, pay roughly 20-50 cents to a dollar.”

It ideally means an investor who had paid a dollar in the fund will take home not more than 50 cents after ten long years, at times 12 years. To add to the sorry state of returns is the currency depreciation. Between 2006-08, a dollar meant anywhere between Rs 44-39 apiece. Today, one dollar is equivalent to Rs 72.66. The returns, as you can see, are completely dismal. And this is without accounting for taxation. All in all, it’s a sordid story for LPs who are taking money home from these vintage venture funds who have failed to do well.

But Gupta argues that there is a misconception that secondaries happen at huge discounts.

“There have been deals which we have done close to cost base. Most asset sales that we have been part of, have been through some sort of process, and in those cases, deals have happened more at the market price. Discounts are more common in cases where LPs are selling stake, although discounts are declining.”

Some of the secondary funds which are active in India include NewQuest Capital, TR Capital, HarbourVest Partners, among others.

According to VCCEdge NewsCorp, four funds have been sold out since January this year. Financial services firm Edelweiss’ alternate asset arm, Edelweiss Alternate Asset Advisors, has acquired two real estate funds of Milestone Capital. US-based General Infrastructure Partners has bought out private equity fund IDFC Alternatives’ infrastructure fund. And secondaries specialist TRG Capital has acquired JP Morgan’s Asia infrastructure fund which includes its investments in India.

IDFC Alternatives is also in the process of selling off its real estate fund and general private equity fund.

In fact, in its quest to find more deals and deploy significant capital, NewQuest and TR Capital have established full-fledged offices in India. NewQuest launched its India office last year with Sachin Khandelwal leading the practice. Khandelwal was previously working as a principal at consulting firm Bain & Co. They have a team of eight investment professionals in India.

“By and large, what they are acquiring [in India] are still some time away from maturing, and if you see, the people who are running NewQuest are ex-bankers from India and who have the ability to undertake deep due diligence for these assets and they understand the Indian market,” said an investment banker who has previously worked with NewQuest to sell off a fund portfolio.

He further explains that when they buy a portfolio from a fund, most of them are stressed assets, only a few would be able to deliver returns, hence their returns expectations is lower at 20-25%, far lesser than pure private equity investors.

As the first decade of the Indian startup ecosystem comes to a close, investors believe that most of these companies would take another four-five years before they are listed on the public markets. Or, for that matter, when a meaningful exit is recorded. With more investors seeking liquidity from vintage funds, secondaries should gain more momentum in India in the next few years, bringing in more new institutional investors in the country.

D-Mart Success: What makes it so valuable?

And yet, D-Mart, a chain of hypermarkets and supermarkets, which has 155 stores at present, has not had to shut down a single store in 15 years. It said as much at its initial public offering (IPO).

While the rest have struggled to stay afloat, D-Mart has only grown. Phenomenally. In the last six years, the company’s revenue has grown at a compounded annual growth rate (CAGR) of 38% and its profits have grown at a rate of 54%.

D-Mart has negligible debt on its books and is profitable in one of the world’s most cut-throat markets. Its domestic competitors, such as Reliance Retail and Future Retail, are larger in size. Plus, foreign e-commerce giants such as Amazon and Alibaba are also eyeing a slice of the offline retail pie. Let’s look at these competitors.

D-Mart has the least number of stores in the above sample set but clocks the maximum revenue per store at Rs 105.1 crore (~$14.5 million). Compared to this, Reliance Retail, the largest retailer in terms of number of stores and revenue, generates Rs 9.75 crore (~$1.4 million) on each store, almost 11 times lower than D-Mart.

D-Mart’s operator company, Avenue Supermarts, had a unique listing as well. The stock opened at Rs 604.40/share ($8.37/share), a gain of 102% over its offer price of Rs 299/share ($4.14/share). A record debut on the bourses for an offer of its size.

Dalal street also values the company uniquely. From its offer price, the stock has rallied over 400% and is trading at levels of Rs 1523/share ($21/share), with a market cap close to Rs 1,00,000 crore (~$13.9 billion). At current levels, the price to earnings ratio stands at 111, and for financial years 2019 and 2022, it is estimated at 90 and 63 times respectively, as per brokerage firm HSBC Global Research.

Looked at through the lens of earnings and cash flow, D-Mart’s valuation in the market makes it the most expensive retail company in India. But is there another perspective from which one could value it?

Also, to what extent do potential competition from e-commerce giants and the ground reality really affect D-Mart’s valuation?

But first, how did D-Mart get here at all?

Slow and steady to the top

There is nothing fancy about my neighborhood D-Mart store, never has been. Like most people in Mumbai, I usually visit it on weekends, and like most places in the city, the store is a sea of humans. There’s barely any room to move my trolley, let alone talk to a busy employee.

But today it’s different. I’m here on a weekday, a Tuesday evening. The store is not packed. The employees are friendlier, willing to talk. “There is no burden on us to achieve any target, we are not asked to try to sell more to a customer or convince them into buying something,” one employee says.

“Most of our time is spent on inventory management and making sure that every rack is adequately stocked with all the variety of brands we have in that category,” says another.

The store is cluttered. But this is efficient inventory and space management. D-Mart has the largest average store size, highest EBITDA per store and per square foot and the highest revenue per square foot in the industry.

The first D-Mart store was opened in Powai, a suburb in Mumbai, by veteran trader and value investor Radhakishan Damani, and Damodar Mall, the current CEO of Reliance Retail.

Damani entered the stock market as a bit of a rookie in his thirties. Inspired by the legendary value investor Chandrakant Sampat, he started investing in quality companies.

At the age of 45, he strode into the organised retail space. With a conservative policy on new store openings, prioritising sustainability and profitability over scale, 17 years later, Damani now sits at the helm of the Indian retail market.

What really worked in D-Mart’s favour is that, by and large, they own the property on which the stores are built. This is different from its competitors who follow a rental model.

“When Mr Damani built D-Mart, instead of renting property—and rental income tends to be a fairly large operations expense for a retailer—he actually went out buying land,” says an investment banker, who requested not to be named as he is not allowed to talk to the press.

Damani, he adds, was essentially positively financing his debt. He built an asset base, and at the same time, eliminated a lot of operating expenses.

Huge rental expenses take away a retailer’s ability to offer cheap products to the customer. With low operating expenses, D-Mart was able to sustain its pricing strategy of ‘everyday low prices’.

“They cracked the unit-economics by a combination of a) low-cost no-frills operations and b) maximising throughput by offering ‘everyday low prices’. They became the destination supermarket in every catchment they operated. Despite lower gross margins than peers, their higher inventory turnovers led to higher returns on capital,” says Savi Jain, co-founder of portfolio management service 2Point2 Capital.

Also, unlike the rest, who were in a hurry and taking on heavy debt on their books, Damani took one step at a time and ensured a strong balance sheet.

Damani and Mall would travel to various markets in Mumbai to interact with wholesalers and traders, and in 2002, they took the retail plunge and set up the first D-Mart store. Shortly after, Mall walked away. No one knows why.

From the first store’s internal accruals, they bought land and opened another store. And so on. “This is why D-Mart had less than 100 stores before it went public despite being in the business for over 10 years. But they were and still are the most efficient and profitable retailer in India,” Jain says. With this approach, D-Mart was able to become debt free just after its IPO. The company used the bulk of the proceeds to pay off debt and the rest was used to expand beyond Maharashtra and Gujarat.

But D-Mart’s ownership model isn’t for everyone, “as [the others] already have huge debt on their books and taking on debt is now becoming more expensive along with real estate,” says Tushar Jain of brokerage firm IIFL.

D-Mart’s expansion has been very calculated. It will open 70% of the new stores in existing geographies and is very cautious about entering new markets. In line with its focus on value retailing, the company has a cluster-based scaling strategy. This allows them to have synergy within their supply-chain. “With this approach, D-Mart can order and warehouse in bulk. The bulk purchasing also gives them better bargaining power and steeper discounts with wholesalers,” Jain from IIFL adds.

"Retail is not a margin game, it's a volume game,"


D-Mart’s choice of location for its stores is also peculiar. It is present mostly in suburbs and does not have outlets in towns. It targets residential areas with a majority of lower-middle and middle-class consumers and offers them the best deals in the market, developing strong brand loyalty.

Another strong differentiator is D-Mart’s relationship with its vendors and distributors. “Unlike other retailers, D-Mart pays its vendors on time. So, with most of the other guys, the invoice is raised and cleared after three months but because D-Mart pays on time, vendors are super loyal,” says Mukesh Singh, co-founder of online grocery and consumer product goods retailer ZopNow.

This gives D-Mart access to goods that have a limited inventory. “Let’s say only 1000 packets of Aashirvaad Atta is remaining in the city and every retailer wants to refill their inventory with it. In such a scenario, nobody but D-Mart will have access to it. Because the vendors know that this guy pays on time,” Singh adds.

As Brokerage firm Systematix Institutional equities, in a March 2017 report, notes, “[D-Mart] has been able to get decent discounts from a wide range of suppliers, given a policy of prompt payments within seven to eight days, unlike competition that follows 30-45 days of credit period.”

Of course, this means revenue growth and profitability. And it further gives D-Mart the best retail sale per square feet, EBITDA margin, and lowest rent as percentage of total sales across the industry.

What makes it so valuable?

In the last quarter of calendar year 2016, Warren Buffett’s Berkshire Hathaway sold 90% of its Walmart stock. While many tabloids in the west ran with headlines saying that Buffett just confirmed the death of retail after this sell-off, Damani, his Indian counterpart, was in the process of getting his retail company listed on the bourses. The kind of response the public offer got—oversubscribed 104 times on the last day of the bidding—showed that India’s retail story had only just begun.

However, the company is still very early in its growth cycle and so it is assessed in market cap terms relative to the potential size of the organised retail opportunity in India, and not just on traditional financial figures.

$13 billion

D-Mart's market cap stands at Rs 94,445 crore (~$13 billion) as per Wednesday's closing price

“Companies like Reliance Retail and Future Retail have way more stores each because they followed the asset-light model and also had access to capital from their promoters. However, they were nowhere as profitable as D-Mart,” Jain says.

“The market view is that D-Mart has a long runway for a multi-year growth as it scales beyond its home state of Maharashtra, one of the reasons why the market values the stock so exorbitantly. It believes that D-Mart can replicate its profitable unit economics across hundreds of more stores across India,” he adds.

India’s retail sector is valued at $672 billion. In terms of market size, India ranks fifth globally and is growing at an annual rate of 12%. Out of this, the organised retail market is currently valued at $60 billion, merely 9% of the sector. This is significantly lower than developed nations like the US, where it stands at 85%.

“When a company is in its growth phase, especially in India, which is still very early in its consumption life cycle compared to other emerging markets, traditional multiples don’t necessarily work,” the investment banker says.

In India, the household debt to GDP is just 16% whereas the emerging market average is about 40%. “Indian households still have the attitude of save first and spend later, and at present, it is on the cusp of a change in consumption pattern,” the banker says.

As the per capita income of the country grows, consumption will start to increase as well, and “if I have a high-quality company like D-Mart, where the per capita income of 1.3 billion people is going up, the tailwind is amazing,” he adds.

Still pinches?

While the street might have incorporated all the possible tailwinds, has it fairly priced the headwinds while valuing D-Mart? In bull markets, while the going is good, the market will not ask that difficult question.

Disposable income visibility, job visibility also drive consumption and they are getting more marginal. The stock is expensive, the valuation in the stock market is not in sync with their maturing margins, the investment banker says.

In its maiden investor meet earlier this year in March, D-Mart’s CEO Neville Noronha, said that the current level of margins—gross margin of 16% and EBITDA margin of 9% in FY18—are high and there is no scope for further improvement.

Same-store sales growth (SSSG) has been on a constant decline; it has dropped from 26% in FY14 to 14% in FY18. This fall will be steep going ahead if the old stores continue to dominate the overall store count. D-Mart needs to expand in other states to have controlled SSSG. But this may not be feasible as the new stores being added are larger, and with rising land costs, the pace of store expansion could suffer.

As per the management, D-Mart prefers the store-ownership model for expansion, but it would also consider renting if shops are available at attractive prices.

Though the company may prefer the ownership model, Jain from 2Point2 Capital is of the opinion that D-Mart will have to rent properties as well, which it already has started doing. He explains that it won’t be possible for D-Mart to scale the business by just buying more properties as capital is limited and prime properties may not be easy to come by.

Also, there is a mad rush by others to capture the market. Apart from behemoths like Future Retail and Reliance retail, private equity funds, too, want a piece of the offline retail pie. Samara Capital recently acquired Aditya Birla’s More in partnership with Amazon to play this space.

An even bigger threat is from online players such as Amazon and Flipkart who have just started delivering groceries. They are willing to let go of profitability for long periods of time in order to acquire customers. “These competitive threats from both offline and online players can negatively affect D-Mart’s growth and profitability, and is not priced into D-Mart’s valuation,” Jain adds.

D-Mart’s success is directly linked with the price they have offered their consumer so far. “With a rental model, will they be able to give the ‘everyday low price’ deal?” the banker asks.

While D-Mart is expanding to newer clusters, most of its growth has been from tier-1 cities. “Penetrating into tier-2 and tier-3 cities would be a challenge for [D-Mart] because people tend to get loyal with an existing brand or chain of stores and capturing customers from them won’t be easy,” Tushar Jain says.

The threat of e-commerce. Or not?

What made Buffett lose faith in Walmart, a company he had invested in 2005, was the rise of e-commerce and the disruption it brings.

Traditional retail was an endangered lot last year, but the predicted death of brick-and-mortar stores never happened. Some international retailers did file for bankruptcy and some have even closed, but in India, traditional retail has continued to grow, and on the contrary, e-tail firms have had to fight for survival. Today’s consumer is extremely demanding. They want touch-and-feel, comfort, cheap price. Everything.

Both offline and online players seem to have realised that a marriage is the best way forward.

A merger of these two worlds, omnichannel commerce. “Consumers are moving between online and offline channels and hence omnichannel commerce is the preferred route to targeting varied consumers across geographies” Aashish Kasad, Partner Tax and Regulatory services, EY India says.

D-mart is betting on omnichannel with its D-Mart Ready stores. Started in December 2016 with a separate arm called Avenue E-commerce Limited, a total of 58 300-400 square foot ‘hole-in-the-wall’ stores are being used as delivery centres in various Mumbai suburbs. Customers can place their orders online and can collect it from these pick-up points, or with some extra money, get it home-delivered.

But it’s in test phase.

D-Mart’s philosophy is to keep the omnichannel profitable. “In order to keep the channel profitable, D-mart charges for online deliveries, a service that it provides from limited locations near its existing stores. It may not be able to compete effectively with online players with such a strategy,” Jain says.

Large retailers who have established their presence in India, will gain more synergies with their suppliers and supply-chain by expanding into tier-3 cities and promoting omnichannel retailing


“At the end of the day, what Mr Damani will ensure that even if e-tailing fails, he would have pioneered the traditional retail model, and if e-tailing succeeds, then he can adapt to it in a profitable way,” the investment banker says.

So, is D-Mart ironclad? No.

There are two Ds to D-Mart. Damani and ‘D’amodar Mall, who is now heading Reliance Retail. He has both D-Mart’s secret sauce recipe and Reliance’s capital. And Jio. An e-commerce alliance leveraging Jio’s mobile network and customer base to the retail arm can give Reliance a unique position like no one has in the market.

Also, Future Retail’s EasyDay store expansion is being seen as the perfect Kirana replacement. D-Mart has enough competition eyeing its spot.

You see, bulls can’t run wild forever, and at some stage, there is going to be a repricing of risk in the market. Though D-Mart might not see the same extent of correction as its rivals, better valuations can be expected as growth in the company matures.

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