The Third Place just got costlier!

 

On Monday, 29th April 2013, The Tamil Nadu Hotels Association (TNHA) observed a one-day strike to protest against the Central Government’s decision to impose Service Tax on their businesses. Speaking to the media, TNHA President M. Venkadasubbu said, “The TNHA had taken the lead to organise similar associations in all states in this regard and a federation, the Federation of Hotel Associations, had also been formed for the first time in the country.The announcement of Service Tax was made by India’s Union Finance Minister Mr. P Chidambaram in the Union budget and had already come into effect, beginning this month… (April 2013). The Service Tax of 12.36 per cent levied out of the 40 per cent of the sales proceeds is illegal and a big burden on consumers who are already forced to bear the brunt of price escalation due to inflation. While the hotels and restaurants were already paying VAT ranging from 2 to 14 per cent, the new Service Tax levied by the Central government would amount to double taxation,” he said. ‘This problem of double taxation was discussed at a meeting organised by the Federation of Hotel Associations (comprising office bearers and representatives of hotel associations from all states) in Mumbai last week and a unanimous decision was taken to launch a nationwide bandh if the Central government did not roll back the Service Tax.’

Eating out has become extremely expensive over the past decade. I remember, when I was in Graduate School, with pocket money of less than Rs. 300/- per month, we could meet most of our out-of-home expenses including filling fuel for our bikes. Not so these days. The purpose of having a meal outside home, The Third Place as it is called is not just eating. It’s all about building camaraderie and relationship/bonding with family and friends. Ray Oldenberg defined the third place as an alternative to Home and Workplace in his research paper in 1991. Oldenburg calls one's "first place" the home and those that one lives with. The "second place" is the workplace — where people may actually spend most of their time. Third places, then, are "anchors" of community life and facilitate and foster broader, more creative interaction.There were already numerous such spaces all over the world. Cafes, Restaurants and other Eating Spots are among the most sought after third-places. In India, cafes and eateries have burgeoned all over the country in the past few years. Café Coffee Day, India’s largest café chain has over 1,400 cafes across the country. Starbucks, Costa, Coffee Bean and Tea Leaf, Gloria Jeans, Mocha and many other such international and domestic café chains have their outlets spread across major cities, providing an opportunity to people to hang around and discuss everything under the sun – from personal banters to professional meetings to matrimonial discussions, one can find all of those out there. Apart from Coffee Shops, there are over half a million eateries of various shapes and sizes across the country which provide Food & Beverage options. For nuclear families, eating out is one of the biggest entertainment these days, what with very little time to spend with the family!

With the proposed new tax, food bills are expected to go up significantly to consumers. For example, on a bill of say, Rs. 1,000/- for a family of four, the Value Added Tax ranges from 2-14%, so lets assume its on an average of 8%. So, the bill goes up to Rs. 1,080/-. The service tax of 12.36% is applicable on 40% of the Sales, so that works out to Rs. 49.44, rounded off to Rs. 50/-. Hence the total bill to consumer now is Rs. 1,130/- just because this family chose to eat in an air-conditioned restaurant…where such a tax is applicable. The definition is quite clear – whether serving F&B in an air-conditioned area is a sale or a service. As per the recent amendment in the Law, its both. While food is cooked and sold, it is also served (by waiters) and hence considered a service. Also, the a/c facility is meant for seating and consumption, thereby making it amply clear that it is indeed a service. While this rule will bring about encouraging revenues to the Government, those that are meant to suffer are the middle-class consumers. For students and youngsters, visiting their favourite coffee shop or a fast food joint would get more expensive, thereby creating a dent on their pocket money. However, for the affluent and well to do, the proposed hike may not mean much, given that their spending power is relatively higher. In most cases, such individuals / families don’t even check the bill – probably pay (usually by a credit card) and sign-off.

While inflation and cost of consumption have gone up significantly, the income rates haven’t gone up proportionately. This has left the middle-class with fewer options for recreation. And Eating joints may not be the most preferred Third-Places anymore! For F&B Retailers, it means reduced number of visitors. And business too.

How Nokia lost connection!

“The problem with you is that you are atleast 5 years ahead in your thinking as far as Retail trends in India are concerned”, a former colleague of mine whom I don’t wish to name quipped many years ago when I was setting up the Retail business at Bangalore International Airport. This is a forum that records Retail thoughts and not meant for self-propaganda, but when I look back, it seems so true of what he had said. Even now, I am working on certain concepts and ideas which are years ahead of what others in the business are doing, much to the annoyance sometimes of my colleagues and business partners. Those who have worked with me / have known me for quite some time would certainly agree to what I am saying. And Nokia is a case in point.

Nokia,which enjoyed an over 70% market share around 2004 in India had experimented with various retail formats such as Nokia Distributors cum Retailers, Nokia preferred Retailers, Nokia Priority Centers and exclusive Nokia dealers. In 2004, they opened a new format called the Nokia Concept Store at Church Street in Bangalore. This was the time that call rates had dropped to low single digit rupees and consumers were lapping up mobile handsets like never before. The beauty of this Concept stores was for the first time, Nokia models that were kept on display were not dummies. They were real ones which the user could actually touch and feel, they way it would be when they owned it. The store was a super-hit. I upgraded from a 7780 to N72 at this particular store. Although it was a franchisee managed store, service was excellent with staff explaining the little nuances and details of the various models to customers. The staff would transfer contact details from one handset to another when you buy a new phone from the shop, a sort of value added service which no other Retailer provided then. The store was located in a mall which had very few footfalls but to its grand signage and visibility coupled with positive word of mouth, it attracted thousands of people thronging its stores each month.

In India, the mobile evolution probably has had four phases – from 1999 – 2002 was the time when it was a novelty. Wealthy businessmen and Corporate Executives had expensive bulky handsets to prove a point. From 2001 – 2005 was the time when affordability of handsets became the prime focus, with Reliance Communications launching their Rs. 500 scheme which was an overnight success. And from 2005 – 2009 when Style quotient became prevalent, what with various sizes, models and colors ruling the roost. From 2009 onwards, it was the turn of smartphones – handsets that went beyond texting and calling, the revolution led by Apple, quickly followed by Samsung and also by Blackberry to an extent. Nokia interestingly was the leader in the first two phases. They were still in Phase two when the third phase was on. And this probably led to customers dumping them to alternate brands and models. Nokia had as its brand ambassador the biggest showman of India in the 21st Century, the one and only Badshaah of Bollywood, actor Shah Rukh Khan. He was shown as using various Nokia handsets in public appearances, innumerous advertisements and commercials and so many Brand campaigns. Nokia was also the Chief Sponsor of the IPL Team owned by the actor, Kolkata Knight Riders. The team’s dismal performance in the first three seasons didn’t help the brand either.

In 2008, I was trying to create various new concepts at the Bangalore Aiprort and I had proposed an exclusively lounge / store to showcase the premium models of Nokia. This was the time when Blackberry phones were slowly sneaking into the corporate sector. During a chance meeting with their then India CEO Mr. D. Shivkumar, I shared this idea who immediately asked his colleagues to evaluate the proposal. The Regional Manager called me promptly and asked what was the rent for the proposed space, to which I replied that it would be ideal for him to come over to the airport so we could discuss in detail since the concept was not about a rental Retail space but rather a holistic Brand promotion approach. He informed me that the airport was about 50km one-way from his office and hence would be too far an affair to meet me in person and insisted I explain to him on the phone which I did. Sadly, he never called back.

D. Shivkumar, Senior Vice President of Nokia – Emerging Markets India, West Asia and Africa made headlines on Good Friday, 29th March 2013 with news of his resignation. The media went abuzz just the previous day that the company has been slapped a fine of Rs. 2,000 Crores (USD 400 million) for alleged violation of taxes. And all this amidst losing market share, (presently about 25%) to premium rivals such as Apple, Blackberry, Samsung, LG, HTC and other low-cost manufacturers of mobiles in India such as Karbonn and MicroMax. His exit comes at a time when Nokia is under siege globally struggling to combat the onslaught of smartphone makers led by South Korea's Samuang and US-based Apple. From over 40% market share globally in 2008, Nokia now commands less than a fifth of the total handset volumes as it products have of late struggled to capture customer imagination. "When I joined Nokia, India had about 80 million mobile phone subscribers. Today it is over 900 million. I believe that Nokia too had a role to play in this along with mobile operators. Over the last eight years, the major changes in the market is that it is driven by youth, style and technology," Shivakumar said.

Nokia’s Retail Strategy was a strong one. They appointed hundreds of Priority Stores, Distributors and Dealers including large format Retail Stores across the country such as Big Bazaar, Central Malls, Croma, EZone, Landmark Stores and also across ECommerce players such as Indiaplaza, Flipkart, etc. to name a few but somewhere the Brand failed to deliver with upgraded technology. This is a clear case where the front end of Retail is very strong but the business crumbles due to lack of product innovation & positioning and keeping up with times and competition. Around 2005-08, Nokia was focused on targeting the high-end customers with a new model every couple of weeks. Around the same time, Blackberry phones stormed the market. Emails, which were still new and a recent phenomenon of connectivity was an important aspect while choosing a mobile handset for consumers. Facebook, Twitter and Social Media overall where slowly gaining prominence and Nokia was floundering badly with their models. So they decided to shift focus to lower-end phones priced below Rs. 5,000 (USD 100). And today, that is indeed the market where they have highest share.

Retail penetration is foremost for any consumer brand. But then, it has to be backed by a strong line-up of models and technological innovation. I guess this is precisely why consumers disconnected with Nokia. Is there a chance to connect once again? Of course, there is hope. The mobile market in India is still nascent and there is so much that Nokia could do. I guess it is just a matter of time. Wishing them luck in times to come .

Alternate ECommerce–Auction Sites

There was a cover story about Alibaba.com, China’s largest ECommerce company in recent issue of The Economist. Quite a few facts. That it is turning out to be one of the largest ecommerce companies in the world, with sales of over $170 billion, which is Amazon and eBay put together. That it has a financing division, viz., AliFinance which provides micro credit to small firms and consumers; and that it has 6 million vendors registered on its site. What was started in 1999 by the firm’s founder, Mr. Jack Ma, an English Teacher as a B-2-B portal connecting small Chinese manufacturers to overseas buyers has now transformed into an internet behemoth. “EBay may be a shark in the ocean,” Mr Ma once said, “but I am a crocodile in the Yangzi river. If we fight in the ocean, we lose; but if we fight in the river, we win.”Taobao, a consumer-to-consumer portal not unlike eBay, features nearly a billion products and is one of the 20 most-visited websites globally. Tmall, a newish business-to-consumer portal that is a bit like Amazon, helps global brands such as Disney and Levi’s reach China’s middle classes.

Indiaplaza, which was also founded in 1999 back home in India is unfortunately facing its toughest time yet. With over 80% of its 150+ workforce having quit over the past six months, the company which pioneered ecommerce in India has no takers today. With a weak b-2-c model based on product listing by various partners, the company has just not been able to scale up over the last few years, thus allowing late entrants like flipkart, myntra, jabong and coupon sites like snapdeal and groupon to surge ahead. To be fair to Indiaplaza, most of the Ecommerce sites in India are on deathbed, awaiting Angels to come and save them. The top three players, Flipkart, Jabong & Myntra with sales of over USD 600 million collectively are only making losses and there no signs of any profitability in the immediate future. Offline Retailers have had a slow start without much success in this arena. Croma, part of the Tata Group’s Trent Ltd., Crossword, India’s largest book store chain along with Landmark and Shoppers Stop,  India’s largest Department Store chain are the only few large Retailers who have attempted an Ecommerce entry over the past years. With FDI in Retail not included for Ecommerce businesses, the Government’s backing has been minimal in this regard.

Even as I was thinking so, I came across an article which mentioned about an auction site named QuiBids (spelt as KweeBids). More out of curiosity, I set-up an account to know how this works. Registration was simple.GBP 0.40 is the value of each bid (for the UK Site) and can be bought online at the store in bundles that the user can choose, which in turn can be used while placing bids or while buying an item on the site after discounts and offers. The joining fee will be refunded in full or part thereof if bids are not placed for the said value. They have listed hundreds of items and all of them are on auction. The products are genuine and the processes are audited by Grant Thornton, one of the top audit companies in the world (I have personally seen the audit assurance report which is published on their website). One can bid an item only 5 minutes before the bid time comes to an end. Which means, users keep track of all those items on bid and are probably hooked on to the site all through, if they want to participate in the bidding process. Each time a bidder places a bid, the time slot for the auction increases by 20, 15 and 10 seconds in that order. If the number of bids the user holds is over, then he/she cannot participate in the bid anymore but the value in their account can be used against purchases. Also, the value of the product is discounted to the extent the bids are placed by users. Which means, if a product is priced at, say GBP 100, and the auction ends at GBP 32, with a discount of GBP 9, then the user can buy the product for GBP 91 (less the value that is already in the account). Shipping is charged depending on the size and weight of the product. All in all, it is a win-win for the company and the user. The company makes a thin margin on sale of such products while the loss on bid money is usually written off against a publicity fee paid by the brand to feature their products. And on top of it, users also buy the product which is at a discount for them but which fetches a margin for the company. In addition to this, users may also buy “bids” for set values, so as to keep on bidding. At the end of the day, a user will only gain from the tremendous discount that he gets out of the product even after buying bids.

The prose above may not be fully convincing, so do log on to www.quibids.com to explore.

According to their website,

“QuiBids was started in July 2009 as an attempt to improve the Internet auction model by making it more exciting, safer, and more reliable. We're based out of Oklahoma City, Oklahoma and our goal as a business is simple: To provide an exciting online auction model with better deals for the consumer than any other website in existence."

You can win all sorts of popular products at incredibly low prices. Look at our homepage to see what products are up for auction right now, and if one catches your eye, buy some bids for a low price! When you place a bid, we add a maximum of 10-20 seconds to the timer - to give someone else the chance to bid if they're interested. This is similar to the "Going Once...Twice...SOLD" approach of auctions.

If no one else bids and the timer reaches zero, you’ve won a sweet deal on QuiBids! If you don't win the auction, you never have to go away empty handed. Any time after you've placed your first bid in an auction, you can choose to buy the product for a discount using the Buy Now feature. This will help limit your losses so you don’t have to leave all your bids on the table. You’ll never have to pay more than the Value Price for any products on QuiBids.

I have never come across such an exciting business model which I can comfortably say is an alternate Ecommerce model. There is hardly any publicity that I see for this company or for this form of Ecommerce and yet there are hundreds of dedicated users who are constantly bidding to win their favorite products at rock bottom prices. I guess the typical profile of the customer would be in their 20s and this is almost like a contest for them! Internet penetration is quite important for the success of this model and I presume the success of this model in western countries, which is not so the case in India where most of the internet consumption still happens at workplace with curious onlookers peeping into each others’ desktops and laptops. With Wifi (at home) using the iPad and other tablets and 3G on mobiles such as the iPhones by Apple and Blackberry gaining popularity coupled with the deeper penetration of Android smartphones starting at $ 100 (Rs. 5,500), chances are more young ones in India will appreciate and participate in such promotions in times to come.

Indian Ecommerce players need to reinvent themselves to stay ahead in the game. Afterall, everyone remembers who is the biggest of ‘em all, and not really the one who started. Such is life.