Business Today

No frills, all thrills

It’s not just in aviation or automobiles that businessmen are seeking out low-cost solutions. From housing to gyms, from entertainment to banking, a clutch of canny entrepreneurs is seeing big opportunity at the lower rungs of the proverbial pyramid. T.V. Mahalingam reports.

T.V. Mahalingam | Print Edition: September 21, 2008

It is said that Mumbai fulfils aspirations of most people who come to the city. Jobs, a lifestyle, an entry into Bollywood… you dream it, work hard enough, and Mumbai can give you the lucky break. But one thing that people in Mumbai really prize and yearn for but find the toughest to get is a home of their own, which remains a dream for many.

That aspiration may soon become more reachable. By early 2009, 300-500 sq. ft flats will be up for grabs on the outskirts of Mumbai (like Karjat) at an unbelievable price of Rs 3.5-5 lakh. The going rate currently for such homes in these regions is at least Rs 8-10 lakh (as most decent flats are a minimum of 600 sq. ft).

For the non-multiplex moviegoer: Talkie Town in Hyderabad

Opportunity: Entertainment
Entrant: Essel Group, with Talkie Town and Bioscope brands of cinema theatres and multiplexes
Offering: Cinema theatres and multiplexes in small towns with tickets priced between Rs 65 and Rs 100
Competitive edge: Multiplex tickets in such regions begin at Rs 120
Welcome to the world of lowcost housing. It’s a realm that has exclusively belonged to government bodies like slum redevelopment boards, which specialise in building ill-lit, cramped hovels. Perhaps no longer. A number of developers across the country see an opportunity in low-cost housing.

Affordable houses are set to spring up across the country, not just in metropolises like Mumbai or Bangalore but also smaller cities like Ahmedabad. “There is a huge deficit in urban housing—of about 24.7 million units, most of it amongst the poorer segments of society,” says Ashish Karamchandani, CEO, Monitor Group, India, a Massachusetts-headquartered consultancy, which is working closely with developers on this concept.

It’s not only in housing that companies are seeing a big market nearer the bottom of the pyramid (although not at the very bottom, not yet). Across service categories like organised retail, entertainment, fitness and banking, marketers have begun training their sights on consumers for whom the buzzword is affordability. And the target audience in this high-volumes play is not necessarily just rural folk, but also that set of the urban working class whose monthly take-home may not run into five figures.

Cut to Kishore Biyani’s Future Group, which runs the Big Bazaar chain of hypermarkets, amongst other formats. If you thought Big Bazaar is the place to go for mouthwatering discounts, you obviously haven’t been to Biyani’s no-frills KB Fair Price Outlets. Customers are expected to get their own carry bags. These outlets are not airconditioned.

Local brands are stocked and there are no complicated schemes. Only 300 items are stocked in a store. And there’s no home delivery. These outlets are typically located in high-volume residential areas. “It started from an insight that a large number of people instinctively reject mall offerings because they fear there is a catch somewhere,” says Damodar Mall, CEO, Innovation, Future Group. The cost per sq. ft of the KB Fair Price Outlet is Rs 387 compared to a neighbourhood supermarket that has costs in the region of Rs 2,000 per sq. ft, adds Mall. Capital employed is a fifth and operational costs are half of those of neighbouring supermarkets.

 The low-cost attraction

Why marketers are veering towards the bottom.

  • Over 80 per cent of Indian households earn less than Rs 10,000-12,000 per month.
  • Marketers are looking for new markets as urban centres come closer to saturation
  • By 2015-16, a little more than half the households in the Top 20 cities (as identified by NCAER and Future Group Research) will be middle class (annual incomes of $6,000-$30,000) compared to about 20 per cent in 1998-99
  • Indians are known to be one of the most price-sensitive customers in the world

Result? Prices are 10-15 per cent lower. Currently, there are about 125 such outlets in Delhi, Mumbai, Hyderabad and Bangalore. Mall sees 1,500 more such outlets coming up in these cities over the next 18 months.

Let’s move to another sector that’s perceived to be the domain of the well-heeled: banking. A number of public sector banks like Union Bank of India, Canara Bank and Indian Bank have opened branches in and around the much-maligned Dharavi slums in Mumbai. The latest addition to the landscape is a snazzy looking branch of a “newgeneration” private bank— Development Credit Bank (DCB).

“Dharavi has over a million residents and a turnover in excess of Rs 2,500 crore. We are trying to get the money from under the pillows and beds into bank accounts. According to a study we conducted, almost 45 per cent of all commercial establishments in Dharavi borrow money at interest rates as high as 5 per cent per month,” says Praveen Kutty, Head-Consumer Banking, DCB.

The bank is targeting the slum residents by offering a no-frills account that will have a minimum balance of just Rs 250 and a host of services including an account statement in the lingua franca of the slum—Hindi, Marathi, Telugu and Gujarati. “We have given out more account opening forms in the last one month than we have accounts in some of our branches,” adds Kutty.
The target audience of such marketers is often blue-collar workers and small-time entrepreneurs. “We are targeting factory workers and self-employed entrepreneurs who make between Rs 5,000 and Rs 10,000 a month,” says Taral Bakeri, a developer in Ahmedabad. Bakeri is coming up with 850 low-cost apartments on the outskirts of the principal city of Gujarat in areas like Isanpur, Lambha, Narol. The price tag for these homes: Rs 3-5.5 lakh.

No-catch comfort: A KB fair price outlet

Opportunity: Organised retailing
Entrant: KB Fair Price Outlets
Offering: Stocks just 300 items, in non-air-conditioned stores
Competitive edge: Prices are 10-15 per cent lower than those in supermarkets
The first of these flats will be ready for occupation a year from now. The Mumbai-based Matheran Realty announced that it will put up a township with 2,00,000 such apartments. Occupation is expected to begin by early 2009. Bangalore-based Puravankara Projects, which is known for its lavish housing complexes, has set up a 100 per cent owned subsidiary, Provident Housing and Infrastructure, for its foray into “affordable housing”. “We will come up with projects in Bangalore, Chennai, Hyderabad, Coimbatore and Mysore where apartments are priced at Rs 10 lakh, Rs 15 lakh and Rs 20 lakh, respectively, for one-, two- and three bedroom houses,” says Ashish Puravankara, Director, Puravankara Projects.

If so much action is concentrated around low-cost housing in the bigger cities, it isn’t without reason. “Over 80 per cent of India’s households make less than Rs 10,000-12,000 a month. As a result, most of the housing options available today are beyond their reach,” says Karamchandani of Monitor Group, which has conducted an extensive self-initiated study into the low-cost housing opportunity in India and is helping builders interested in such projects in an advisory role. Yet, the quest to woo the not-sowell-heeled with inexpensive services is not restricted to the big cities.

Inevitably, the small towners, who are increasingly aspiring in a way not too different from their cityslicker counterparts, are coming onto the radar of service providers. Entertainment is one such aspiration, and the nofrills mantra is on display here, too. Subhash Chandra’s Essel Group, which operates the premium multiplex chain Fun Cinemas mainly in the metros, has a two-pronged plan to tap the booming small-town segment. Essel has seeded two chains, Talkie Town and E-City Bioscope Entertainment, both targeted at non-urban India.

The business rationale is rather simple: There are over 10,000-odd screens in the country and 2,000-odd touring theatres. Of these, 80-85 per cent are in non-metros. Half of these screens are in towns that do not even have municipalities. “The theatres in these towns have primitive infrastructure, even though there is a huge audience for movies,” says Vishal Kapur, COO, Fun Cinemas, who is also overseeing Talkie Town.

Typically, the cost of setting up infrastructure for a multiplex in a small town (like Indore) is Rs 4-5 crore. “That drives ticket prices up to Rs 130 in a town that’s used to paying Rs 50 for a movie. Therefore, the success of multiplexes in these towns has been limited,” says Kapur.

Within reach: A low-cost apartment

Opportunity: Low-cost Housing
Offering: Apartments of 350-500 sq. ft between Rs 3 and Rs 5 lakh in the suburbs or on the city outskirts
Competitive edge: Apartments of this size are generally not built by developers as margins are wafer thin, and builders do not get financing
To address the gap, Fun Cinemas has been taking over single-screen theatres in towns like Gulbarga, refurbishing them and upgrading the technology. Currently, Talkie Town has 10 screens across five locations in Goa, Gulbarga and Hyderabad with tickets in the Rs 75-100 price band. Kapur says that Talkie Town will open 25 screens over the next year, and plans to scale up to 250 screens by 2011. ECity Bioscope, the other multiplex chain of the group, will be much more than just a theatre. “We are coming up with more than 30 such projects in Rajasthan. These will be centered around a multiplex but will also have family activity centres like retail space and food courts. The ticket will be priced about Rs 75-80,” says Vinod Menon, CEO, E-City Bioscope, which opened its first property in Jodhpur in January this year.

To be sure, the no-frills concept isn’t just an Indian phenomenon, which is best illustrated by the number of players in the global low-cost aviation sector. Recently, Snap Fitness, a US developer of no-frills fitness chains, announced plans to start operations in Mumbai and Bangalore. Snap’s membership fees will be priced at $30-40 (Rs 1,290-1,720) per month, compared to $50-75 (Rs 2,150-3,225) charged by its larger (and more feature-rich) peers. “The Indian market can support 500-1,000 units,” says Snap Fitness CEO Peter Taunton. More and more Indians will be eager to work out. Just as more and more will be eager to go out shopping (so what if they have to carry their own shopping bags), visit a multiplex, and of course own their own home. The bottom line: just bring it all within reach.

Additional reporting by Rahul Sachitanand

  • Print
A    A   A