A ‘bitter’ tale of two companies...
...where both seem blinded by legal gains, thus forgetting there are real ‘competitors’ to contend with

Silent waters run deep – a cliché pertinent to the recent developments in the Food & Beverage (F&B) industry in India. And here we are talking about the discord between the Wadia Group and its French JV partner – Groupe Danone, which has (as reported by a leading Indian pink daily newspaper) agreed to return the Tiger brand to Britannia in a move to resolve the bitter long-standing issue of royalty payments between the two partners, subject to certain clauses.

The two companies have been at constant loggerheads over some issue or the other since 2002, since Sunil Alagh exited as CEO of Britannia Industries after a heated disagreement between the Wadias and Alagh-led management. Danone has never been too pleased with this turn of events. On the other hand, the Wadia camp argues that as Danone registered the Tiger trademark in 74 countries, it was not brought to their official notice despite the brand having been created by Britannia in the 1990s. Moreover, Britannia even refused to reveal price sensitive information to Danone for the first time in August this year, due to which the latter did not book Britannia’s sales for its Q3 consolidated results. Clearly, rift s showing in this 12-year old alliance.

And today, when Britannia has got back the Tiger brand (which contributed 30% of its annual revenues of Rs.17.65 billion in 2005-06), does the situation get any better? The company is barely recovering from the impact of aggressive competition, especially ITC with its Sunfeast range. Sumeet Budhraja, FMCG Analyst, Edelweiss Securities Pvt. Ltd. told B&E, “...of course the way ITC is catching up the market, it can be a problem for Britannia in future.” Britannia’s recent financials do indicate bottomline pressures, which in turn can be attributed to rising commodity prices and the battle for defending market share. Profits for Britannia have dropped by 1.6% during 2006 to touch Rs.1.46 billion and by a spine-chilling 51.5% for the quarter-ended September 30, 2006, to Rs.212 million as compared to 2005. And problems with Danone don’t seem to cease! Danone’s recent plans to buy off a 5% stake in bionutrients company Avesthagen on November 24, 2006, have been blocked by the Wadias, who cite it as a breach of contract. Speculations are already rife that the relationship is now on the rocks.

In terms of what the two stand to lose, Danone may not find a partner the likes of Britannia for the Indian market. Britannia will, on the other hand lose the kind of reach and scale it gets through Danone, which is the world’s second largest biscuit & cereals manufacturer. And seeing the competitive quagmire Britannia finds itself in, surely it needs more friends than foes at the moment.

This ‘Thomas’ doesn’t doubt much!
Perhaps it gets no time as it’s too busy ‘Cook’ing up ways to grow...

(column by M. Arun)

The Indian economy is booming, and so is the rising propensity of Indians to spend and this is directly impacting the tourism sector. Even net foreign exchange earnings are increasing phenomenally at around 20% annually. Thomas Cook (India), now under Dubai Financial LLC, is one company moving ahead with aplomb to capitalise on the opportunities. The company was recently involved in two major M&A deals – its merger with LKP Forex followed by its acquisition of Travel Corporation (India) Ltd. (TCI) for Rs.1.83 billion.

The company’s acquisition of TCI will facilitate a more ‘integrated operation’ for its travel business (which contributes to 78.5% of its revenues) and would help it gain advantage in the already booming travel & tourism industry in India. Expressing optimism about the potential, Udayan Bose, Chairman, Thomas Cook India Ltd. stated, “In view of the increase in inbound tourism that the country is witnessing, for us to be able to offer two platforms for inbound traffic will be a big advantage in the market.”

The merged entity will be in a position to provide the lowest possible price packages to its customers. Thomas Cook’s recent merger with LKP Forex – a major foreign exchange dealer – coupled with its buying of a 76% controlling stake in the Visa service-provider TT Enterprises are steps to provide a more ‘complete portfolio’ of services to customers. This would assist its financial services unit, which operates at high profit margins of around 57% on revenues.

Thomas Cook (India) also plans to increase its count of travel destinations (latest being Israel) to gain competitive advantage via a combination of financial services, logistics, operational integration & travel offers to the maximum possible domestic & international locations. This company is certainly very paranoid about missing the tourism bus!

(End of M. Arun column)

All’s well that...
....ends up in ‘wool’len wear!

(column by Preeti Chaturvedi)

Winter is here and so are the wool manufacturing & processing companies. And the Ministry of Textiles was not far behind for it noted a significant increase of 7.3% in the production of wool during the first quarter of 2006-07 over the same period last year. And it’s certainly not true that it is just during the previous year that this industry has actually done well, for it has performed much better than most of the sectors in the Indian economy for years now. For instance, during 2004-05, the exports in the woolen textiles grew by 20% compared to the previous year!

But then, there are critical challenges for the industry. Dr. S.K. Chaudhari, Regional Director, Woolmark Company (India) observes, “The task at hand is to successfully achieve internationalization and innovation and the industry has to gear up for this challenge.” Another major force needed for the industry to thrive is ‘strategic alliances’ coupled with ‘newer market entries’.

Thankfully, many entities have seen the light of day. Raymond recently announced a 50:50 joint venture with Italy’s leading woollen fabric manufacturer, Lanificio Fedova, which will help strengthen its presence in the shawls and jackets segment. In 2005, leading industry major, Oswal Group (now renamed Malwa Group) came out with its new range of denim coloured ‘Indigo Wool’. Rishi Oswal, MD, Oswal Group says, “We would be targeting markets like Europe and Japan for branching out into the upper echelons of the woollen fabric segment.”

Today, even leading fashion designing schools like NIFT are introducing their students to finer elements of design using wool as a medium to capitalise on the opportunity presented by the elite casual wear segment. And today, despite Italy, Taiwan, Hong Kong and Mauritius collectively accounting for 80% of the world’s total exports in knitwear, India too has displayed great potential, which of course will materialise only with proper initiatives. Only then can the industry be worth its weight in wooler gold!

(End of Preeti Chaturvedi column)

Lower than the lowest of all...
Air Sahara is taking the low price route to register market share gains, but it needs to do much more

Eleven months after Air Sahara had agreed to a sell-off bid to Naresh Goyal’s Jet Airways, and six months after the Rs.23 billion deal finally fell apart, the Subroto Roy-owned Air Sahara seems to be stopping at nothing to make up for the damage to its business as well as to its image. The airline recently announced on December 4, that it is currently in talks for a tie up with the upcoming low cost airline Indus Air, where it would provide operational support to Indus Air. For once, the company is also standing out in the face of all competition, as it is decidedly going against the current price fare hikes in the industry. And in the process, it has in fact pipped even the leaders of the price game to the proverbial post!

On one hand, even low-cost carriers have agreed to apply air congestion surcharge of Rs.150 per ticket (in addition to the Rs.750 per ticket ATF surcharge). Au contraire, Air Sahara has introduced a 30-day apex scheme (known as ‘Steal-a-seat’ scheme) on quite a few of the key routes which include Mumbai, Delhi, Hyderabad, Bangalore, Goa, Kolkata, Hyderabad and Chennai. The scheme will offer air travel services during the first three months of 2007 at prices which will be around 80-90% lower than normal carrier fares and 25-30% below what even the low-cost carriers would be charging on these very routes. Capt. G. R. Gopinath, MD, Air Deccan opines, “The economics is simple. Our costs are half of those of a scheduled airline. We will continue to sell tickets at a cost plus; if someone wants to sell at a lower price, he is welcome...” And Air Sahara (not that it needs an express invitation from the competition!), has clearly made up its mind to take up the challenge.

And while this is clearly a strategy to revive its frail market share which today stands at just 8.8% (as compared to a healthy 14% in December last year), this tactic by Air Sahara is certainly not giving its financials a shot in the arm for now. Looking at the simple cost plus premium relationship, this ploy looks quite misplaced but consider that even today, Air Sahara operates at a capacity of just 30-35%. Hence even if it sells tickets at prices lower than its cost, it still makes economic sense as it only means added revenues through much anticipated augmentation in sales. Alok Sharma, President, Air Sahara, asserts thus, “The discount is not being borne at the cost of profitability. The airline has set (for itself) a decent target of revenue generation...”

However, one does wonder how compromising on margins at this juncture was needed, given that the domestic aviation industry is already entering a peak season and excess capacity will hardly be the topic of discussion in corporate boardrooms! It will surely entice a lot of customers to fl y with Air Sahara considering that the other airlines have increased fares simultaneously. Is this a move strong enough to guarantee that the carrier gets some grip over the growing aviation industry?

As has been the case with the US aviation industry, low cost airlines in India too have been shedding a lot of ink; red ink that is. It really needs no rocket science to understand that going ballistic on a low price strategy in isolation, will not be the key to take Air Sahara back to those golden days, although it could surely lead to some short term market share gains. Rather than jumping on the bandwagon of Air Deccan, Go Air et al, Air Sahara needs to create more sustainable differentiators that will firmly entrench its position in the mindset of customers. The company has already borne the brunt of one major debacle with the failed Jet Airways deal. Certainly it would not want to come face to face with another one anytime soon.