China overtakes Japan ?

I saw the following news flash on several news channels and almost every news paper I picked up today.

China overtakes Japan as No.2 economy

Well, if you wish to see how these countries did relatively, here is another one:

Let us skip our discussion on the figures above.
Moreover, the stats above say more than anything I can describe in the scope of a blog.

However, if you were an alien who just landed on earth and came across this article in the news paper that you received as the first thing upon landing. And incidentally you had a geographical map of the planet earth in the other hand.

You'd better be surprised!

How could this possibly be a news?
Wondering ?

The gross domestic output of a country with 6.5% of world's land area and 19.5% of the world's population has just crossed that of a country with 0.25% of world's land area and 1.86% of the world's population!

GDP: The gross domestic product (GDP) or gross domestic income (GDI) is a measure of a country's overall official economic output. It is the market value of all final goods and services officially made within the borders of a country in a year

Further, with such difference in the land areas and populations of different countries, GDP alone surely isn't a true reflection.
So let us look at Per Capita Income.

Per capita income means how much each individual receives, in monetary terms. It is the measure of the amount of money that each person earns in the country, of the yearly income generated in the country. This is what each citizen is to receive if the yearly national income is divided equally among everyone.

China's per capita income of $3800 per person is only a fraction of Japan's $40000 per person and America's $47000 per person. In case you are curious to know, India's per capita income is now in 4 figures (that's over $1000 per person)

But then, you can afford a lot more with $10 in India or China than you potentially could in the US. (i.e.: with $10 in your hands, you can eat more burgers or get more haircuts done in India than in US)

$10 in US not equal to $10 in India not equal to $10 in China (!!!)

To accommodate for this difference in the cost of goods and services, and in the absence of "one world" and "one currency", comes the concept of "Purchasing Power Parity"

Well, come to think of it, and it is this parity that has helped build a lot of export oriented/outsourcing based businesses across borders. (Other than those arising either from the abundance/uneven distribution of resources by geographies or from specialization in creation of products/technologies/services)

Coming back to GDP, Per Capita Income and Purchase Price Parity:

"With 90% of India's wealth and income in the hands of 10% of the people and the remaining 10% of wealth and income distributed amongst the remaining 90% of the population, all above parameters and figures are far from a true reflection and we continue to be the most unbalanced"

In short, these macroeconomic terms may still show economic progress with "the rich getting richer and the poor getting poorer"

Perhaps, we need not the mean or median but the standard deviation to measure ourselves.

Laundry Business

As if my idea of selling vegetables wasn't disturbing enough for my mom, I thought one step ahead and this time decided to do laundry for people.

Jokes apart, but: Why Laundry business of all things ?

One fine day, I decided to give a thought to various forms of services that were still unorganized. (Most service oriented needs of consumers appeared to be addressed in a pretty decent way through several online businesses such as bill payments, booking air/railway/bus tickets, matrimony, career/jobs, ordering food/flowers/books/gifts etc)

Several others that I considered but did not find as compelling or ripe (for various reasons like scalability, market size, feasibility or competition) were Spa, Saloon, various extra curricular activities, tuitions, security/maid agencies and electronics/electrical/plumbing repair services.

So Laundry Service, it was to be.

Sounds boring/dull ?
Well, this is by far the most interesting business proposition of all that I have made so far.

The Opportunity:

There was tremendous scope for improving the Quality and Experience of the customer as well as Organizing the laundry market and Scaling out.

Needless to say, majority of "apes" on this planet wear clothes and among them a vast majority (leaving selected few) do wash and change clothes regularly :)

In this part of the world, the advent of dryers for clothes (ones that dry clothes completely, or in technically correct language, ones that remove 100% moisture) never happened.
Of the washing machines that are available, even the costlier fully automatic ones only shrink the clothes off the water without drying them completely. Hence, we use the sun for drying clothes, by hanging them in balconies, terrace or open grounds.

People spend so much time and energy washing and drying clothes including those who have fully automatic washing machines. Moreover, if you visit any society/household, more than half the balconies can be seen being utilized for drying clothes, in most cases taking away the look and charm of the house (sometimes all the more when the wrong set of clothes are visible to the audience)

A good capacity washing machine along with a tumble dryer (though costly) can reduce your turnaround time to less than 2 hours (with just about an hour for washing and 40 minutes for drying clothes) Hence, a customer can get his/her laundry serviced and back within 2 hours in the best case, or the same day in most typical scenarios.

I can think of 3 different models for Laundry business:

1. ATM / Kiosk model
2. Washing Plant / Bulk model
3. Retail model

ATM/Kiosk model

More suited where services/manpower is extremely costly and real estate/rentals are relatively cheaper. Self service booths with washing machines and dryers that can be operated by customer using coins for instance. These are similar to ATM's or phone booths or video game parlors based on slot machines.

Washing Plant /Bulk model

If capital investment in not an issue and you are a man of contacts and marketing expertise, then this is by far the best model. This involves setting up a centralized plant for washing clothes, preferably outside the city to reduce costs, near a river for availability of water. The location must also consider proper disposal of waste water.
The model depends on bulk orders instead of managing small orders for thousands and millions of retail customers.
i.e.: Tie up with hotels, corporates, guest houses, railways, gyms, spa, saloons etc.
(For example, the gym that I visit alone gives 200 towels for washing every day @ INR 5/-)

This requires both expertise and the adoption of right technology in the arena of washing.
If your pricing, quality and management are good, there is every reason for various businesses to outsource this task to you, rather than doing/managing themselves. This creates value for the customers, thus a win-win for both the businesses.

After all, there is a reason why Outsourcing works well for so many businesses.

Retail model

This is by far the most interesting one of the 3 models, though the toughest and most engrossing one to execute. This one actually has maximum room for innovation and requires the maximum thought and activity. For one, the model is extremely service oriented. The way clothes are arranged, collected, returned and even politeness can turn the business either way.

Above all, this requires scaling out to thousands of retail customers through an awesome network/coverage for pick up and drop points, without which you end up with low volumes and a high cost on transportation. Looking to build something extremely efficient, such as the dabba wala chain in mumbai. The cleaning and drying can happen at various(strategically located) outlets or at a centralized location (depending on what is favorable). Tagging and tracking of clothes is of utmost importance as even 0.01% misplaces in a high volume business can kill your business.

The price point has to be extremely low, ideally around 5/-or 6/- per garment (Not only less than what the local vendors charge, but also lower than the what people shell at home on washing (tangible or intangible; consciously or subconsciously)

Since the organized market needs to be built out from scratch, it is best suited to start with (target first) the bachelors and working couples in metros (one; for their lack of time and two; for the higher disposable incomes, lifestyles and mindset) So start with cities like Bangalore, Hyderabad, Mumbai, Pune, Delhi, Gurgaon, Noida...

Come to think of it, and there is so much to experiment and innovate:

• Tie up with Libraries, Theatres, Movie Halls for a small outlet. People can drop clothes when they arrive and collect them while returning (turnaround 2 hours)
• Mobile Seva: Have a couple of washing machines and water tankers fitted on truck for promotion activities. Go to a society, wash, dry and return clothes in 2 hours.
• Once you have a sizable customer base, you can do so much more from adding more services/goods to print advertising on the back of the bill to getting brand partners (one of FMCG companies for detergents)
• In fact, with a network like that, you could tie up with Logistics companies for distribution of couriers to retail customers.

The right use of technology and process will be key to the success and scale out (whether it is barcode, RFID or manual labels for tracking, pigeon hole style for sorting clothes or SMS/emails for notifications to customers)

One way to grow fast and grow right is by integrating the numerous existing local vendors into the new system. (off course, in a way that is viable for both parties. Again, this will be a major win-win-win for all parties. One, the company for it gets an immediate reach; Two, for the vendor who doesn't face competition, or lose business or livelihood; Three, for the government and economy as the employed/self-employed rates remain unaffected)

There is also a 4th model, that is doing laundry at high prices and high margins (high quality of service ), limited volumes and thus creating a niche for yourself. But this is pretty much like dry cleaning prevalent in today's world.

Happy Laundering!

Vegetable Retail

The first real idea that I had for doing a business was around selling vegetables.

It was the year 2005. Most of my friends from graduation and I were employed at good companies where we spent more than half our days. The evenings and weekends were more fun, mostly attributed to the endless gossips, gaming, movies and a bachelor's activity in kitchen. Since many of us felt a nagging for doing something extraordinary (actually to be making a lots of money :)), our meetings soon became the forum for business ideas.

Apparently, most of my ideas were very conventional. Rather than crazy new inventions, they all covered activities/businesses that were already in place. (All my ideas were about one or more of the following: optimizing processes, redefining/improving user experience, automation, integration/unification, solving day to day problems, organizing an unorganized market etc)

My Vegetable Retailing idea had two dimensions:

1. First was my vision of an "Organized" vegetable retail market in India and the role of Reliance in it.
2. Second was that of creating a niche for myself (selling high quality vegetables at high prices (and high margins :)) for the high end customers (upper 2% of the market))

Coming back to the first part and answering the two obvious questions:

Why Vegetable Retail?

Well, I thought about the typical consumer spending patterns.

• People buy shoes/footwear once or twice a year (It is true for about 50% of the world population that has descended from Mars)
• People buy clothes once in a month or a quarter (again, the other 50% population that descended from Venus does this more often)
• People buy groceries weekly or monthly (typically)

(and all these naturally differ drastically in amounts and frequency for different people)

But one thing that no human can survive without is food.
Every single family that I have known buys vegetables at least once a week (in most cases, more often)

Another disheartening observation was to see how the Vegetable prices change between the time they leave the hands of the farmer and when they are finally bought by a retail customer for consumption. In some cases, I found what was sold by farmers at Rs 3/- per kg would retail anywhere between 10/- and 20/- in small towns and metros. (Poor farmers and Poor consumers!)

I realized there was a huge scope for backward integration. (Something on lines of what Amul has done for the dairy/milk sector)
Lastly, I'd expect higher operating margins for vegetable retail as compared to the other forms of organized retail.

Why Reliance?

Well, because I was a Reliance shareholder and strongly felt that this was the company that had the right scale that could completely transform the whole sector. (especially after having been positively impressed with their action and strategy in telecom market)

The question was: whether the presently scattered/unorganized vegetable retail market in India could be organized over the next decade.

Lets do a modest top down analysis to see the potential and market size:

Population: 110 crore (1100 million)
(Assuming that more than half the population does not eat food or grows its own food, we would still have about 50 crore (or 500 million) consumers)
Taking an average family size of 5, this translates into 10 crore (or 100 million) Families.
Assuming Rs: 10/- (or 20 cents) are spent everyday per individual on vegetables and fruits.
(This translates to Rs: 50/- per family per day and a monthly family expenditure of Rs: 1500/- on vegetables and fruits)

So 100 million families would spend about Rs: 15000 crore (or $ 3.2 billion) monthly on vegetables. That makes an annual market size of Rs: 180000 crore (or $38 billion)

If this market was to be Organized with the help of a superb backward network/integration, there was going to be value at least for the buyer(consumer) and the seller(farmers)

The major player could potentially grab about 20% of the market share as the market moved from unorganized to organized over the next 2 decades.
This meant sales of about Rs: 45,000 crore (or $9.5 billion)

Even at 10% profit margins, we are talking of a billion dollars in profits annually.

In fact, to be honest, I'd expect the market to be much bigger in the years to come. (at least 4 times the modest estimate above)

• The market increases when the remaining 600 million also start eating.
• The market increases with the development and improvement in lifestyles.
• The market increases when people start spending more than Rs: 10/- per person on fruits and vegetables.

Moreover, Intelligent players would not limit themselves to vegetables, they'd expand to fruits, regular grocery items, milk products etc

For Reliance, this would have meant growing a new business that could potentially be bigger than its existing business.

Eventually in 2006, Reliance did come up with its retail plans announcing "Reliance Fresh"

Needless to say, I was the most excited of all, as several close ones called me and asked if I had made my recommendation to Mr. Ambani :)

Over the last 3 years, my observation is that it has certainly not been as successful as I had imagined it would be. Backward integration is tough, specially when it comes at the cost of eliminating a lot of traders and middle men. Politics and resilience kicks in as soon as you begin realizing your ideas and plans. In fact, even of the front end, there is a lot of competition now, as more and more players have jumped into retail.

My idea for myself was that of forming a niche. That of having vegetable/fruit outlets in all higher end residential societies, starting from one society in one city and eventually expanding to more, pretty much organically.

In fact, there is also a good(fast growing) market for peeled/chopped/sliced/washed and nicely packed vegetables and sprouts etc that are "ready to cook". The value add here is more than obvious.

If you go up one more level up the value chain, you have "ready to eat, precooked/frozen foods" already retailed by several known brands :)

However, my software engineer friends were more interested in selling vegetables and groceries over the web/internet. I constantly argued that all the Indian women that I had ever seen buying vegetables, liked to feel/prick/stress-test every single tomato/ themselves before approving it for purchase. And this was not possible online!

However, my mom was pretty upset to know that I was planning to quit my job and start selling vegetables. (What have you done engineering for ?)

My plans of Vegetable Retailing like all other plans slowly faded away / died out, and I decided to continue my focus on consuming, one thing that I was really good at !

Car Market In India

Let us look at some statistics for cars in India and US

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
In the simplest of terms, the car ownership ratio between US and India is about 80:1
[This is also a measure of difference in lifestyles and the average resources consumed per human being :)]

Total cars sold in India (FY 2010): ~1.6 million
(Maruti sold highest ever number of cars(0.87 million) in India in FY 2010 while maintaining a 54% market share)

Total cars sold in China (2009): ~13.5 million
(China sees 45% growth in car industry year-on-year)

Total cars sold in US (2009): ~10.4 million
(Lowest level in 27 years; Down from 14.5 million cars in 2008)

In terms of the total number of cars, US car market has been more or less stable/saturated for the last few years.

In comparison, Japan had reached car saturation in 1990 itself !!!

Besides, did you know:

• There are more cars scrapped in US (~15 million) every year than the whole car population of India
• And there were more cars sold in China (~13.5 million) last year than the whole car population of India

Just like personal computers and mobiles, the world now has over 1 billion cars and is expected to hit the 2 billion mark for cars in a decade or two from now.

Does it mean that the car market in India like China, will follow US in car sales and car population and eventually have 20 times more annual car sales and 80 times increase in car population in a decade or two?

I believe NOT (In fact, I hope NOT)

Why NOT ?

Well, do we really need those many cars?

• One, in India it makes more sense to measure "cars per family" rather than "cars per person".
• Two, nearly 65% of India's population (~760 million people) lives in villages and small towns which are barely walking distance from start to end.

Besides, there are plethora of more reasons…

INFRASTRUCTURE
The biggest and the most immediate barrier is certainly the lack of Infrastructure. We are so stuffed that all of us cannot really move fast at the same time :)

With the state of the road infrastructure in India today and the ever increasing car density, in most cities, it has already become meaningless to commute to workplaces by cars.

SCALE
Can maruti or other companies scale out their manufacturing capacities by 10 or 50 times that fast. May be not. But in all likelihood, we will see an annual growth rate of at least 20% to 30% in the Indian car market for next decade or two.

FUEL
Perhaps, we would run out of fuel before everyone has a car. Fuel prices are on a constant rise. The Indian government bears the brunt of over Rs: 50000 crores (USD 10 billion) annually on fuel subsidy.

Can the government even think of affording 80 times this amount annually if the car population and fuel requirement go up 80 times to match the "cars ownership rate" of the US :) (Perhaps more, as this would most definitely lead to significant rise in fuel prices led by the humongous increase in demand)

(USD 800 billion or more: that's more than what it took to bail out the US economy from the 2008 housing debacle :))

AFFORDABILITY and LIFESTYLE
More than half the population still survives on less than $1 a day (can they think of affording a car, even if it is "Tata Nano" priced at just $2500) Moreover, we have more important problems to address first.

In fact, to be brutally honest: On an average, every Indian does not even have 50 sq feet of room/living space, which is what it takes to park a small car (Leave aside other basic needs)

On a lighter note, India actually has 10 times the number of motor cycles than the US :)

So you see, we have different "dynamics"!

And more than ever before, we need population control.
(India occupies 2.4% of the world's land area and supports over 17.5% of the world's population)
"ek minute artaalis bacche, kaise bitaayenge acche"

We need means of mass transportation for local commuting … such as metro, efficient bus/shuttle services and car pool efforts
(I know, I know, nearly 20 million people travel by Indian Railways every day… but that's not all local commuting; moreover, that's still not enough)

We need to improve/expand our infrastructure (Bridges, Railroads, Highways and Roads…)
We need alternate means of fuel.
We need government policies/subsidies to promote/encourage/accelerate all of the above.

[Did you know that the government in many places offers to purchase power from Solar based power plants @ Rs: 15/- to Rs: 17/- in comparison to under Rs: 6/- from coal/fuel/hydro based power plants. Now that's such a neat example!]
 
Wow… there are so many Opportunities all around us!

In fact, I am overly sure of seeing development/focus on all of the above needs over the next several years.

Err... in the midst of all this, I believe we completely forgot to think about "Global Warming" !!!