Profitability Enhancement

FMCG Supply Chains and the Rise of New-Age Sales Channels

FMCG Supply Chains and the Rise of New-Age Sales Channels
FMCG Supply Chains and the Rise of New-Age Sales Channels 1920 1080 qwixpertadmin

A Supply Chain Head of an FMCG company recently shared three seemingly unrelated concerns. Inventory levels were at a record high, yet key SKUs continued to go out of stock on quick commerce platforms. Marketplace sales were growing rapidly, but fulfilment costs and returns were eroding margins faster than anticipated. Meanwhile, warehouse teams that had successfully supported General Trade and Modern Trade for years were struggling to cope with the growing volume of small, fragmented orders from e-commerce and DTC channels.

If these challenges sound familiar, you are not alone.

For decades, FMCG supply chains were designed around a relatively predictable operating model. Products moved from factories to warehouses, distributors, retailers, and finally consumers. Success depended on manufacturing efficiency, distribution reach, inventory availability, and cost control. General Trade (GT) and, later, Modern Trade (MT) became the backbone of this model, enabling companies to scale through standardised planning and replenishment processes. That world is rapidly changing.

The rise of e-commerce marketplaces, quick commerce, B2B e-commerce platforms, and Direct-to-Consumer (DTC) channels has fundamentally altered how products are sold, fulfilled, and replenished. While these channels have opened new avenues for growth, they have also introduced a level of supply chain complexity that many FMCG organisations are struggling to manage.

The challenge is no longer about moving large quantities of products efficiently. It is about fulfilling thousands of fragmented demand signals accurately, quickly, and profitably across an increasingly complex channel ecosystem.

Why New-Age Channels Are Different

Traditional GT and MT channels operate on aggregated demand. Orders are typically placed in case quantities, replenishment cycles are predictable, and distributors often absorb inventory and demand variability.

New-age channels operate very differently. Demand is visible in real time, service failures are immediately measured, and supply chain performance directly impacts sales visibility. A stock-out on a marketplace listing can reduce search rankings. A missed replenishment to a quick commerce dark store can result in lost sales within hours. A delayed DTC order can negatively affect customer ratings and repeat purchases.

In effect, FMCG supply chains are evolving from bulk logistics networks to precision fulfilment networks.

The Emerging Supply Chain Challenges

Inventory Fragmentation

One of the most significant challenges is inventory fragmentation. Inventory is no longer concentrated within plants, depots, and distributor networks. It is spread across marketplace fulfilment centres, quick commerce partner distribution centres, dark stores, DTC warehouses, and traditional trade channels.

This creates multiple inventory pools with limited visibility across the network. Many companies simultaneously experience excess inventory in one channel and stock-outs in another, resulting in higher working capital and lower service levels.

Long Catalogue Complexity

Digital channels encourage broader assortments, channel-exclusive packs, bundles, premium variants, and regional offerings. While this improves consumer choice, it significantly increases forecasting complexity. Slow-moving and long-tail SKUs consume working capital, create warehouse inefficiencies, and increase obsolescence risk. Managing thousands of digital SKUs requires a very different planning capability compared to managing a focused GT portfolio.

Warehouse Operations Designed for the Wrong World

Most FMCG warehouses were built for pallet and case movement. New-age channels demand piece picking, kitting, bundling, labelling, and high order accuracy. Quick commerce further increases complexity through high-frequency replenishment cycles and smaller order quantities. Warehouses must now balance throughput with flexibility, speed, and accuracy.

Appointment Management and Compliance

Marketplace fulfilment centres and quick commerce distribution hubs operate through tightly controlled appointment systems. Missing a delivery slot can delay inventory availability by days or even weeks. In addition, channel-specific requirements around labelling, packaging, barcoding, and documentation create operational complexity that did not exist in traditional trade models.

Returns and Reverse Logistics

Returns were historically limited within FMCG supply chains. Digital channels have changed this reality. Consumer returns, rejected deliveries, expiry returns, and damaged shipments have become meaningful cost drivers. Reverse logistics processes often lack visibility, creating additional write-offs and operational effort.

OTIF as a Commercial Lever

On-Time-In-Full (OTIF) performance has moved beyond an operational metric. It has become a commercial requirement. Poor service levels can result in penalties, listing suppression, reduced visibility, chargebacks, and even SKU delisting. Unlike traditional trade, where relationships often provide flexibility, digital platforms operate through automated scorecards and service-level agreements.

How Mature Is Your Omni-Channel Supply Chain?

The shift in channel mix is forcing organisations to rethink the very purpose of supply chain management. Historically, the channels have evolved as given below:

EraDominant Business ModelSupply Chain Objective
1990–2010General TradeReach and Availability
2010–2020Modern TradeAvailability and Efficiency
2020–PresentOmni-ChannelAvailability, Speed and Accuracy
EmergingQuick Commerce & DTCAvailability, Speed, Accuracy and Agility

As channels evolve, supply chains must evolve with them. Organisations that continue to manage digital channels using GT-era processes will increasingly struggle with service levels, inventory productivity, and profitability.

Qwixpert has classified the supply chain maturity of the FMCG industry from level 1 to level 5 as follows:

LevelCharacteristicsTypical Symptoms
Level 1:
Channel-Specific Operations		GT, MT, E-commerce and Q-Commerce managed independentlyInventory duplication, firefighting, frequent stock-outs
Level 2:
Coordinated Planning		Shared forecasting and periodic inventory reviewsImproved visibility but still reactive
Level 3:
Integrated Fulfilment Network		Common inventory view, channel allocation rules, standard OTIF governanceBetter service and lower working capital
Level 4:
Demand-Driven Supply Chain		Near real-time replenishment, dynamic inventory balancing, demand sensingFaster response to channel volatility
Level 5:
Demand Driven Enterprise		Promise dates driven by inventory, capacity, constraints and service prioritiesCompetitive advantage through service, speed and working capital efficiency

Many companies are still in the early stages of this transformation.

The most successful organisations are increasingly moving beyond inventory planning toward integrated decision-making across inventory, capacity, fulfilment, and customer service. The most advanced Demand-Driven Enterprises are increasingly adopting Available-to-Promise (ATP) and Capable-to-Promise (CTP) capabilities to make inventory and capacity commitments dynamically across channels.

What We Commonly Observe

Across consumer goods, food and beverages, personal care, fashion, consumer durables, retail, and aftermarket supply chains, several recurring themes emerge. GT-centric planning continues to dominate despite rapid growth in digital channels. Inventory visibility remains fragmented across multiple nodes. Warehouses struggle to support unit-level fulfilment. OTIF measurement differs across channels. Most importantly, organisations often lack a clear understanding of the true cost-to-serve each channel. These challenges are not operational exceptions—they are becoming structural realities of the modern FMCG landscape.

Conclusion

The next decade of FMCG supply chains will not be won by organisations that simply move the most inventory. It will be won by those who can orchestrate inventory, fulfilment, capacity, and service seamlessly across an increasingly fragmented channel ecosystem.

As new-age channels continue to grow, supply chain excellence will increasingly be defined not by scale alone, but by the ability to balance availability, speed, accuracy, agility, and profitability simultaneously.

About the Authors

Qwixpert is a boutique management consulting firm focused on supply chain and operations transformation. The team has worked across FMCG, food and beverages, personal care, retail, fashion, consumer durables, automotive aftermarket, industrial products, and e-commerce sectors, helping organisations improve planning, inventory, warehousing, logistics, network design, and fulfilment performance.

Through engagements spanning traditional trade, modern trade, e-commerce marketplaces, quick commerce, DTC, and B2B channels, the team has observed first-hand how channel evolution is reshaping supply chain operating models and creating new demands on planning, inventory, warehousing, and service execution.

Spare Parts

Unlocking Lifetime Value for OEM’s: Machine Tracking Strategy
Unlocking Lifetime Value for OEM’s: Machine Tracking Strategy 600 450 qwixpertadmin

Strategic Context

The OEM’s relationship with a customer should not end at the point of sale of equipment—in fact, that’s when the value creation begins. In the construction and industrial machine sectors, the initial machine sale typically contributes just 10 – 15% of the company profit, while aftermarket services (parts, AMCs, rebuilds) can contribute upto 50–70%, if captured effectively.

Yet today, most OEMs treat the aftermarket as a siloed sales function rather than a strategic lever to drive lifetime value. This results in lost visibility, missed parts revenue, and limited brand loyalty, especially once the machine changes hands or exits warranty.

The visual below outlines a five-step roadmap to unlock lifetime value across the machine lifecycle – from first sale to long-term retention:

 

In this article, we focus on aftermarket monetization—an underleveraged yet high-margin lever available to OEMs.

The opportunity is especially critical in high-capex, long-life (15+ years) and business-critical machines used in mining, power generation, construction or marine transportation where uptime directly impacts customers operations and hence revenue. These machines often operate in high-wear environments: extreme temperature, pressure and corrosive environments making OEM-grade support essential and monetizable.

Qwixpert has developed and deployed a structured, end-to-end approach to help OEMs unlock this opportunity—by connecting machine tracking with delightful customer experience that will boost aftermarket sales.

Qwixpert’s Aftermarket Enablement Framework

The graphic below outlines an approach built to convert lost visibility into profitable aftermarket outcomes:

Step 0 and 1:  Reclaim Visibility – Locate Machines and Develop Machine Base

Industrial and construction machines typically lasts 10–15 years, with over 60–70% of the active fleet more than 3 years old. However, this is when OEM visibility tends to decline due to factors such as: ownership changes, fragmented or outdated data systems, staff attrition, and poor-quality legacy sales records.

To restore machine-level visibility across the network, there are three core activities that should be undertaken:

Step – 0 is a one-time foundational activity that requires cross-functional collaboration between Unit sales and Aftermarket team. This should be backed by a strong validation protocol to ensure that the data captured is clean and actionable without which the activity can be ineffective.

Step 2: Anticipate Demand – Track Usage and Plan Interventions

Unplanned downtime is among the costliest risks for machine users; for instance a mid-sized excavator failure on a critical site can lead to significant loss due to delays, idle labour, and penalties. To avoid this, most customers ensure timely replacement of parts either from OEM or other manufacturers. OEM’s often miss this opportunity due to lack of visibility on how machines are being used and when the parts are likely to fail.

To bridge this gap, the OEM’s can leverage on the data base to develop a prediction algorithm:

Illustration:

Illustration of a plastic moulding machine parts identification and prediction

Development of a prediction algorithm that generates trigger to field team will help OEMs stay ahead of failures, drive timely parts revenue, and strengthen their role as uptime partners.

Step 3: Drive Engagement – Monetise Through Targeted Aftermarket Actions

OEM’s often rely on generic reminders or dealer push to drive parts and service sales; but by leveraging the intelligence generated in Step 2, OEM’s can deliver proactive engagements and personalised offerings such as timely ‘nudge’ as machine nears service date or AMC proposals based on actual usage of machine will lead to better conversions.

A key success factor is timely response of the field team to the trigger and operations teams support to ensure availability of the part. Further, to ensure sustained success of this function, customer interactions (part sales, service visit or unfulfilled order) should be fed back into the analytical engine in order to improve it’s performance.

Illustrative flow for Maintenance Triggers

Qwixpert partnered with a leading construction equipment OEM to enable trigger-based customer outreach for oil and lubricant sales.
By identifying machines approaching service thresholds and driving timely, targeted engagement, the initiative expanded aftermarket coverage—bringing ~25% machines into the service funnel and boosting lubricant sales by over 12%.

Case Study

Conclusion: From Visibility to Value

As industrial and construction machines OEMs look beyond the initial sale, aftermarket monetization is no longer optional—it’s the primary path to margin growth and customer loyalty. Yet realizing this opportunity requires more than better data. Qwixpert has worked with leading OEM to operationalize this playbook—tracking machines in the field, building outreach processes, and enabling behavioural change through org structures, training, and system design. Our engagements indicated a potential to unlock a jump in aftermarket revenue, while positioning the OEM as a long-term uptime partner.

Do you know that you are running a warehouse at home?
Do you know that you are running a warehouse at home? 1920 1080 qwixpertadmin

Ola’s road to profitability: What lies ahead for one of India’s favorite unicorns?
Ola’s road to profitability: What lies ahead for one of India’s favorite unicorns? 1080 720 qwixpertadmin

Executive summary

Very few businesses can lay claim to changing the habits of a population. Ola, with its convenient and cost-effective cabs, has changed how India travels. However, the business is yet to sustain itself financially. With the increasing customer acquisition cost for their 4W intra-city taxis and the need to turn profitable, Ola ventured into more cost-effective mobility options (carpooling, autos, 2 wheelers). Recent numbers on # of rides per day show a certain stagnation – 3.5 million/ day in 2018 vs. 3.65 million/ day in 2019. A slew of regulations issued by the Road Transport Ministry aims to limit aggregator commissions to 20%, surge pricing to 1.5X, increase formalization of the workforce (drivers), and ensure driver and rider safety. These measures squeeze Ola’s margins on either side. Hence, the road to profitability has to take two paths – premiumization of existing offerings and efficiency in operations. 4 solution themes, Driver marketplace, Electric Mobility, Strategic Partnerships, and Analytics for premiumization, present themselves. There is significant value in investing in all four, as our analysis show.

Ola’s growth is staggering with several cost elements in check or along the path; Driver expenses as a proportion of revenues are the focus for profitability

The disruption in cab-rentals in India with the arrival of Ola in 2010 and Uber a few years later is well known. Their aggregator business model with an attractive combination of convenience and economic value for riders and the driver-partners has potentially changed riding habits for generations to come. Industry estimates indicate that Ola and Uber offer ~3.65 million rides every day, i.e., more than a billion rides every year.

Billions of rides every year offered by 2.5 million driver-partners is no small achievement. But for any business to sustain, it must be profitable. A glance at the FY19 financials for ANI technologies indicates that the Operating Margin is -54% (Fig 1). A comparative analysis of the same metric in the past suggests the Operating Margin has improved from -388% in FY16. The result has come on the back of a tremendous CAGR of ~39% in revenues (Fig 1).

Fig 1: Revenue and Operating margin – FY19 vs. FY16

Ride-hailing services have 5 primary operating costs (Fig 2)

Fig 2: ANI Technologies – Key Cost elements

Qwixpert team analysed the trajectory of each of these cost components for Ola (Fig 3). Sharp decreases in all cost elements indicate significant cost-cutting and efficiency improvement measures. “Driver expenses” remain critical to profitability.

Fig 3: ANI Technologies Operating margin waterfall (all values in % of revenues) – FY19 vs. FY16

Ola, in early 2020 decided to cap driver incentives to 5% of earnings, stating that the previous system, based on trips and logins, was seen as arbitrary and not to the liking of drivers. Commissions charged by Ola (i.e., Ola’s revenues) were simultaneously capped at a fixed 20% to ensure clarity among the driver community on their estimated daily and monthly earnings. These moves have led to driver’s earning falling, leading to lower cars on the road. This move could potentially manifest into a downward spiral with lower vehicles on the road, increasing waiting times for customers and hence higher churn, further impacting driver earnings.

Regulatory oversight into ride-hailing has increased. Parliamentary panels and Road Transport ministries have acted on appeals and complaints from the driver and rider community. New guidelines issued impact current margin improvement methods. Capping surge pricing, aggregator commissions (as a % of trip revenues), and the number of driving hours per day restricts earnings potential. Compliance with guidelines of daily driver log-in hours and social security benefits to drivers will increase costs.

The most critical dilemma that ride-hailing companies are trying to solve – Increase revenues and minimize driver expenses proportionate to incomes – has become more difficult.

Qwixpert explores four potential solution themes to achieve these twin objectives

  1. It is time for a marketplace model for drivers, and ride-hailing companies have every incentive to enable this

It is extremely crucial to understand the earnings profile of a ride-hailing driver. Considering a city taxi in an urbanized set-up like Delhi-NCR, where the driver works for 25 days in a month and is driving ten effective hours/ day, we have estimated earnings across 4 scenarios. In each of these scenarios, no additional incentives have been considered. A 3-year loan repayment period is considered, while the resale value is not included in the business case calculations.

Fig 4: Monthly earnings estimate for drivers-partners (w/o incentives)

Driver availability throughout the day and across locations is a key challenge. Hence, to incentivize drivers to stay logged in for longer and take those extra rides, bonuses based on total rides/day were introduced. The incentive system is neither sustainable financially for Ola nor safe for its riders (drivers staying on the road for long hours).

Getting new drivers on board to match the aggressive growth targets is also a challenge. High sign-up bonuses encourage drivers to take vehicle loans. Many drivers are unable to pay their EMIs as their loans are from local financers, charging high-interest rates. A marketplace model (Fig 5) will be useful in such a scenario.

Fig 5: The marketplace model

Since Ola allows multiple driver tagging to the same Vehicle (but only one at a time), smart fleet owners already use this model to maximize asset (taxis) utilization. Concerns regarding vehicle safety can be ensured by taking a security deposit from the 2nd driver and training and certifying driver-renters using Ola Skilling. Rent and/or revenue sharing models can be estimated using analytics.

Fig 6: Monthly earnings estimates for driver-partners (w/o incentives) – 2 drivers/ car

Qwixpert estimates a 200-270% increase in monthly earnings from a car through the marketplace model (Fig 6), as fixed costs of owning a car (Eg: EMI, taxes, Insurance) get apportioned over a larger revenue base. The marketplace model is a win-win for all: consumers (higher levels of service), drivers (higher incomes), and the aggregators (increased market access and reduced incentive payments).

  • Betting on Electric Vehicles and investing in them for long term

Total Cost of Ownership (TCO) analysis of EVs vs. ICEVs (Figs 8 & 9) for 4 wheelers and 2 wheelers indicates higher life-time value for the taxi segment, especially Taxis driven for longer distances every day. With the impetus from the Government to push EV adoption through subsidies, grants, and infrastructure-focused stimuli, EVs can generate significant earnings for the aggregators and the driver-partners.

Fig 7: TCO for 4W Sedan running ~150km/ day for 3 years      

Fig 8: TCO for 2W running ~100km/ day for 3 years

Ola’s strategic investment in Ola Electric Mobility is a step in this direction. A spate of investments from existing investors (Softbank and Tiger Global) and Global Auto OEMs (Hyundai and Kia) has made Ola Electric Mobility a Unicorn in its own right. Outside of investing in an all-electric vehicle fleet of cars, 2-wheelers, and autos, Ola electric is investing in support infrastructure, i.e., battery-swapping and charging stations. EV fleet can also be integrated into the marketplace model with a substantial increase in returns.

  • Strategic partnerships with select operators across the hospitality space can help tap into premium customers withncreased effectiveness

There are lots of synergies to be generated from strategic partnerships with hospitality services. Meru has tied up with MakeMyTrip (Fig 9) and is jointly promoting their cabs at airports through messages and email to customers who have booked tickets on MakeMyTrip. Their prompts across communication channels help reduce the traveler’s wait time once he/she lands. This example can be extended to other aggregators such as Zomato, where a customer booking a table at their favorite restaurant can be prompted to book a cab then and there. Analytics can be leveraged to prompt the rider after a reasonable amount of time, basis the type of destination, to book the return-cab. Partnership opportunities exist with BookMyShow, Booking.com, and other services of similar nature. Swiggy has also leveraged this synergy as customers booking an order are now given the option to watch a Netflix movie trailer.

Fig 9: Meru–MakeMyTrip partnership

  • Analytics at the front and center of revenue enhancement strategy

The alternative approach to proportionately reducing driver expenses is increasing revenues. The concept of surge pricing combines analytics with demand-supply economics. Incentivizing drivers who brave harsh weather and traffic conditions with higher fares and commanding a premium from customers for operating taxi services in such conditions are the key notions behind surge pricing. Likewise, ride-hailing services have also leveraged advanced analytics to ensure maximum driver availability at high demand routes, maximizing a driver’s earning potential and minimizing waiting times for riders. Qwixpert estimates several other applications, as below

  • Customer segmentation (categorizing customers into distinct segments) basis their ride-hailing behavior – Value conscious, service-oriented, etc. can yield a plethora of business benefits
    • Premiumization: Customers willing to pay a premium for higher service value can be actively encouraged to upgrade to higher-value offerings (Eg: Mini -> Prime)
    • Marketing effectiveness: Incremental RoI from marketing initiatives (Eg: Coupons) to acquire new riders or encourage existing customers to ride more
    • New product offerings: Frequent cancelations, surge pricing, and longer wait times lead to inferior customer experience for the office goer booking cabs every day. Meru reserve allows them to book cabs to and from the office for 30 days. Analytics helps identify and target the right customers to onboard, thereby enabling the service to scale fast. Over time, Meru can introduce carpooling services basis the office-goer demand footprint to maximize earning/ taxi and minimize carbon footprint.
  • Demand forecasting analytics: Time-series analysis of booking data can help forecast potential demand from different locations at various points in time. These forecasts can help
    • Re-route drivers basis demand to maximize driver earning and customer service
    • Target setting for driver onboarding teams using projections of current & future driver requirements
    • Build fungible driver business cases to assist driver onboarding teams
  • Geographic clustering analytics categorizing various cities into clusters based on demographic and macro-economic profiles can help during expansion/ new city launches. Combining geographic clustering with demand forecasting and customer segmentation analytics can accelerate new city launches and support operational decision making (driver onboarding, marketing effectiveness, driver re-routing) in the initial phase.

Conclusion

Outlook for mobility is muted now, especially with work from home continuing to be the norm in the service sector. However, with the active COVID-19 cases falling and several vaccines showcasing promise in 3rd stage trials, vehicular movement is expected to return to pre-COVID levels soon. Ola’s dream of turning profitable may not have materialized yet, and the COVID-19 pandemic has set them back by another year, if not more. But analysis of their financials indicates that they are on the right path. Besides, recent guidelines that limit earnings and increase costs will further impact profitability. Therefore, it is critical to look at long-term initiatives that focus on leveraging operational efficiencies and premiumization of services through incremental customer value. The four solution themes discussed – driver marketplace, electric mobility, robust data analytics, and strategic partnerships – can drive these objectives and achieve sustainable profitability.

Authors

Giridharan Raghunathan and Rahul Das

Sources:

  1. Ministry of Corporate Affairs, India
  2. Ola website
  3. Uber Website
  4. Meru Website
  5. Society of Manufacturers of Electric Vehicles
  6. Kapur, Narinder (2019), ‘SoftBank fires up Ola Electric with $250 mn capital infusion’ 2-Jul. Available at: https://www.vccircle.com/softbank-fires-up-ola-electric-with-250-mn-capital-infusion/
  7. Bhalerao, Sheetal (2020), ‘Ola Limits Driver Incentives To 5% Of Total Earning; Commission Charged From Drivers Fixed At 20% Across India’ 8-Jan. Available at: https://trak.in/tags/business/2020/01/08/ola-limits-driver-incentives-to-5-of-total-earning-commission-charged-from-drivers-fixed-at-20-across-india/
  8. Shrivastava, Aditi (2019), ‘Hail no more! Ola, Uber’s ride growth slows to a crawl’, 4-Jun. Available at: https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/hail-no-more-ola-ubers-ride-growth-slows-to-a-crawl/articleshow/69641990.cms
  9. PTI (2020), ‘MakeMyTrip ties up with Meru to offer services of sanitised cabs at major airports’ 10-Jun. Available at https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/makemytrip-ties-up-with-meru-to-offer-services-of-sanitised-cabs-at-major-airports/articleshow/76302163.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
  10. PTI (2020), ‘Meru Cabs launches office commute service Meru Reserve with no surge pricing feature’ 15-Oct. Available at: https://www.livemint.com/companies/news/meru-cabs-launches-office-commute-service-meru-reserve-with-no-surge-pricing-feature-11602758178351.html
  11. Singh, Shubham (2020), “Meru Cabs Looks To Add 10,000 EVs To Fleet, Sets Course On B2B Route”, Available at: https://inc42.com/buzz/meru-cabs-looks-to-add-10000-evs-to-fleet-sets-course-on-b2b-route/
  12. Upadhyay, Harsh (2020), “Transport ministry issues guidelines to regulate Ola, Uber; limits surge pricing” Nov-27, Available at: https://entrackr.com/2020/11/transport-ministry-issues-guidelines-to-regulate-ola-uber/

Minchin, Joshua (2020), “Ola and Uber face new regulations in India” Nov-30, Available at: https://www.intelligenttransport.com/transport-news/112231/ola-and-uber-face-new-regulations-in-india/

Simple ideas to improve warehouse efficiencies
Simple ideas to improve warehouse efficiencies 1536 1024 qwixpertadmin

Dear Supply Chain Head,

Given the current Covid-19 situation, I am sure you are facing a lot of uncertainties across the supply chain: workforce shortages, transport issues, government plans, demand and supply fluctuations. While there are discussions and speculations about the future, companies must undoubtedly focus on reducing cost, improve efficiencies, and manage their working capital well in the next 12 – 18 months, to emerge stronger out of this crisis.

The purpose of this series is to provide simple but effective ideas to help managers improve elements of their supply chain. In this post, I share a few ideas for enhancing warehouse performance.

It is becoming a challenge for e-commerce and consumer goods companies to fulfil orders due to the non-availability of resources in their warehouses, first and last-mile distribution. The labour shortage situation will take considerable time to improve as a lot depends on when the migrant workers can return from their native.  Also, the requirement of social distancing, if implemented well, will slow down processes and productivity levels. The onus is on the supply chain managers to not just resume warehouse operations well – with all the safety protocols but also to improve productivity levels to meet mid to long term goals of the businesses. Here are a few ideas to consider:

  • Cross Dock: Set up a cross-dock process for 20% SKUs that can deliver 50 – 60% volume – will help to move goods faster through the warehouse. The focus after the lockdown will be on top-selling SKUs – split orders in the Warehouse Management System if feasible to ease the process and improve productivity further. For large shipments, evaluate dropship directly from factories to distributors.
  • Improve Slotting: For a large warehouse with a high number of SKU’s, efficient slotting will improve productivity levels by 10 – 15%. Now is the right time to set up the process when the inventory levels are low, and locations are available to rearrange stocks.
  • Eliminate NVA’s: Map the value stream from Dock-in to Dock-out and eliminate non-value-added activities in the system, such as the unnecessary flow of goods, suboptimal picking, multiple scans, and manual processes.
  • Invest in Automation: Automate highly repetitive activities and manual efforts that do not add value to the processes. Semi-automated pack stations, auto-assigning tasks to operators by WMS based on a pre-defined algorithm, transport conveyors, put-to-light sorting/ order consolidation are some examples. If your order and volume complexities are high, evaluate investing in a highly automated warehouse.
  • Invest in training: This may sound counter-intuitive – why would I use the time to train instead of using the time for production? By training, I refer to building flexibility in the system. In a large warehouse, there are 40 – 50 different activities and managers should have the flexibility to move resources from one function to the other, depending on the workload. While training might take 2-3 weeks for existing staff, but the overall capability of the warehouse goes up. Use overtime and extra hours for training.
  • Communicate: Having run warehouses, I know it is important to communicate not just at an organisation level but also at an individual level. Make your front-line leaders accountable to have frequent and consistent touch points at all levels. Listen actively, get feedback from your staff, and solve their problems. Done well, not only will it improve employee morale and retain talent but also increase workforce productivity.

Depending on your industry and warehouse operations there could be more ideas ,but 20 – 25 % improvement in productivity is achievable. The key is to identify opportunities, spend time on planning now, and start implementing soon after operations resume.

I look forward to hearing your views on the above ideas and some more ideas if you would like to add.

In the next post, I will discuss the challenges and potential improvement opportunities in the logistics and transportation side of the supply chain.

– Rajan Ekambaram, Partner, Supply Chain Practice Qwixpert

Why a business case approach, to costs of owning an IPL team, is more prudent?
Why a business case approach, to costs of owning an IPL team, is more prudent? 1080 720 qwixpertadmin

Executive summary

In the previous article, the major revenue streams – Central Rights income, Sponsorships, Match day incomes were detailed and compared with mature leagues across the globe (Premier League, NBA, NFL, etc.). Growth opportunities were identified and enumerated. This article, discusses the 3 major expense streams – player fee, BCCI commission & other commission expenses. The critical question every franchisee faces with each cost element is the trade-off between the expense and its potential income generation capability. This article highlights these associations and integrates a business case approach to decision making on cost optimization.

Introduction

Franchises on an average spent around ₹430 crores1 ($90 million) to bid and purchase an IPL team 12 years ago. They come from backgrounds previously unconnected to cricket, the sports growing profile & popularity in the country testified a long-term investment. The business strategy to own a team varied across the franchises. 

Brand extension to the original business. Reliance used the platform to launch the brand in the sports industry. Vijay Mallya wanted to link the team to either Royal Challenger or McDowell no.1 for surrogate advertising to meet the Advertising Standards Council of India (ASCI). India Cements built marketing programs on the CSK- India Cements connection. Sun TV network purchased Sunrisers Hyderabad from its previous owner Deccan group with a strategy to increase revenue and eventually sell a stake of the cricket team for profit2. This strategy has been seen globally – For example: In the Premier League, Venky’s chicken own Blackburn Rovers. Etihad is using the 10-year agreement with Manchester City FC to brand the sports arena in the city as Etihad Campus and further improve the airline business in the region through a new hub and airport. Many of the Japanese baseball leagues are owned by companies and bear the company’s name like Chiba Lotte Marines which is owned by the Lotte group.

IPL’s Entertainment value as a key to its success. The founders believed a large part of IPL’s success will depend on its entertainment value as much as its sporting value. This led to the two biggest box-office draws of the country – cinema and cricket combining. Several high profile actors and actresses either partly own franchisees or have been/ are endorsers of these franchisees ever since its inception3.

While, yes, these strategies do make business sense. The key question is, on a standalone basis, is owning an IPL a valuable business proposition? It is indeed the case. On average, IPL teams have a strong 24%4 EBITDA. In comparison, Premier league teams EBITDA is 17.8%5 while most of the teams in other nascent leagues like Pro-Kabaddi League or ISL are yet to make money.

More than 90% of all the expense is from 3 major heads 

Player fee accounts to 30%-35%4 of the team revenue and is the largest expense

In comparison with other major global leagues, IPL’s player fee expense is the least. Most mature leagues like NFL, NBA & NHL spend >40%6 of their revenues on player fees

Since the first edition of IPL, there has been a cap on the total spend on players. Initially, the player fee cap was ~₹20 crores. Till 2014, the Indian domestic players were not included in the player auction pool and could be signed up by the franchises at a discrete amount while a fixed sum of ₹1 million (US$14,000) to ₹3 million (US$42,000)7 would get deducted per signing from the franchise’s salary purse. This received significant opposition from franchise owners who complained that richer franchises were “luring players with under-the-table deals”; following which the IPL decided to include domestic players in the player auction. In 2014, a strict overall team cap was set at ₹60 crores8 and grew around 3% per year. As shown in the chart below

Avg. Growth Rate – 3%

In 2018 the IPL- Star India broadcasting rights deal, generated a huge revenue and teams could afford to pay higher salaries. The BCCI increased the salary cap by ~21% (2017- 2018). In the 2020 edition of IPL, the team salary cap was ₹85 Crores9.

From 2015 to 2018, the median utilization of salary cap was ~88- 89%10 with RR, SRH, and KXIP below 83%. To ensure that teams spend a minimum portion of their budget on salaries and the general salary level increases, a salary floor was introduced in 2018, which increased the utilization to 99% in 2018.

Basis table positions, SRH seems to have achieved the best balance with player salaries, it has spent ~88% of the allotted player fee over five seasons from 2015 to 2019 and secured an average table position between 3-4. This has monetary advantages as teams earn money basis table position (being in the top 4 list). SRH had won the 2016 season and secured runners-up in 2018. RCB, on the contrary, has spent more than 95% of the salary cap and has secured an average table position between 5-6. Till the 2019 season, the total prize money was ₹ 50 crores. Winner getting ₹ 20 crores, runner-up ₹ 12.5 crores and 3rd & 4th getting ₹ 8.75 crores each. BCCI has decided to slash the prize money by half from the 2020 season11.

The distribution of budget across players tends to be rather unequal with a few highly sought-after players going for big bucks. The top 25 players get more than 55% of the salary share while the other 100 players share the remaining 45%. At a team level, ~50%12 of the salary cap is spent on the top 5 players.

Franchises like CSK, MI, KKR & RCB spend a major share of the player fee to have popular players like MS Dhoni, Rohit Sharma, Kieron Pollard, Virat Kohli or AB de Villiers in the team. These teams have the highest number of followers and are generating more sponsorship revenue and stadium ticket utilization compared to the rest of the teams.

Players fees is indeed a major expense component as top players usually come with high salaries. But they can contribute in two critical ways to revenues – increased fan following (directly correlated to major revenue streams – sponsorships & ticketing income) and prize money. Teams have to be astute about rationalizing the spend on players as one my end up being penny wise and pound foolish.

20% of the total revenue paid to BCCI as a commission is the second-largest expense

IPL was supposed to be an auxiliary project of BCCI. It now makes 16 times13 more profit in the 45-day window than the rest of the year. Major sources of IPL revenue for BCCI are Broadcasting Rights & Media Rights and Franchise fee together contributes to more than 88% of the share and title sponsorship which is 10% of the share14.

BCCI accords 50% of the total revenue from media and title rights, and league sponsors to the franchises as central sponsorship. ₹200-250 crores from 2018-2023 i.e. till the Star- IPL deal is active. Before the deal teams were getting ~ Rs 65 crores. In return, they collect a franchise fee of 20% of their total revenue from the teams14.

Globally sports leagues are managed in two ways it can be a single business entity where the team owners are shareholders in the league. There are no individual owners or investors, with all teams centrally owned and operated by the league. The league, not the individual teams, have contracts with the players. It functions as a highly centralized structure. The support staff is shared between all the teams and a single entity takes care of all aspects of team activities: Marketing, Promotion, broadcast and Intellectual property. The teams are not bound by anti-competitive laws. The business is also easily transferable and the entire league can be sold as one asset. XFL football league operates in this model

The second type is a central association that franchises the ownership of a team usually based on locality. The franchises have the contractual rights to own and operate the team. Most of the major global leagues are based on this model. The premier league, NBA, NFL, La Liga and most of the Indian leagues such as Pro-Kabaddi, Super league, and the IPL. Most of the global leagues do not collect franchise fees from the teams. But IPL does. With the reduction in prize money, in the future will the franchises demand for reduction in commission rate or follow the global trend of no franchise fee?

Commissions spent on event management, ticketing & sponsorship accounts to around 10%4 of the revenue

Teams typically outsource stadium & stand décor expenses to third party agencies. The type and cost décor are directly proportional to the ticket price of the stand. Event management expenses include expenses such as brand signages, cheer girls, generators, licenses & permissions and security.

For selling tickets online on Bookmyshow or Ticketgenie teams have to shell out commissions to these agencies. To get the right sponsors teams generally, outsource the rights to get sponsors to experts and share a percentage with them.

The split of expenses between the three categories varies between the team. Typically, the majority of the spend is from event management expenses, followed by either ticket sales commission or sponsorship commission.

These expenses are important and have several indirect benefits. For instance, creating the right environment for the spectators in the stadium drives the ticket sales as well as TV viewership leading to increased sponsorship incomes and future auxiliary brand extension opportunities. Managing the sponsors, allocating right player and player times to each sponsor, keeping the franchise & sponsor engaged through the year builds a connection between the two and is crucial & beneficial for both the parties. Franchisees need to access professional help and look at this expense strategically. A smooth management of these functions keeps sponsors, players and fans happy, encourages loyalty and steady income generation. Decisions to curtail these expenses, should assess their impact on income and not solely be taken on the outflow.

A large selection of important operational expenses account for approximately 10%

Support staff fee is the largest component in these expenses, ranging between 3%- 4% of the revenue and has been in this range from a couple of years across the IPL franchises.

Stadium rent accounts for less than 1% of the revenue. Till the 2019 season, teams used to pay ₹30 lakhs/home match to the state association as rent to use the stadium. It amounts to around 1% of the expense for the franchise. From 2020, IPL Teams have to pay ₹50 lakhs/home match to the state association. The fee is used for the upkeep of the stadium, ground and other facilities by the state association. 15

While four of the 32 NFL teams have a home ground, the rest of the 28 teams pay rent to use the stadium16. A team plays 8 – 10 games at home out of the 16 games of the NFL regular season. The average annual rent is approximately $ 2 million, i.e. about ₹1.5 crores per match17. Of the 30 teams in the NBA, 12 teams own a stadium and 18 teams rent a stadium. In a season of NBA which is played over six months, each NBA team plays 41 games at home. All the 20 teams in the premier league own a stadium & play 19 games at home. An IPL team plays only 7 games at home and the calendar is only for 2 months leading to a stronger business case for renting over owning a stadium

Summary

Assessing the expenses indicate an inextricable link of each expense head to several revenue streams. There are significant skews to certain costs (eg: player fees) and some expenses seem unavoidable (eg: BCCI commission). It is hence prudent for a franchisee to pivot their views on these costs by focusing not on optimizing them but by maximizing their returns. Every cost element in a franchisee’s P&L hence needs to be evaluated with its associated business case with a view on long term benefits prior to investing in them or rationalizing.

References

1. CricInfo Staff (2008) ‘Big business and Bollywood grab stakes in IPL’ ESPN CricInfo  24 Jan Available at https://www.espncricinfo.com/story/_/id/20427511/ipl-announces-franchise-owners

2. Leena, S. Bridget (2015) ‘Sun TV open to stake sale in Sunrisers Hyderabad: CFO, live.com, 4 August. Available at https://www.livemint.com/Money/HQhby1MGaO9UFuukWeTE9O/Sun-TV-open-to-stake-sale-in-Sunrisers-says-CFO.html

3. Kholi, Rajeev (2011) ‘The Launch of Indian Premier League’ Columbia.edu, Available at http://www.columbia.edu/~rk35/IPL.pdf

4. Financial reports from MCA filings of company financials

5. Deloitte Report (2019) ‘Annual Review of Football Finance 2019’, Deloitte.co.uk, May. Available at https://www2.deloitte.com/content/dam/Deloitte/cz/Documents/consumer-business/cz_annual_review_of_football_finance_2019.pdf

6. Sporting Intelligence ‘Global Sports Salary Survey 2019’. Available at https://www.globalsportssalaries.com/GSSS%202019.pdf

7. Wikipedia ‘Indian Premier League’   Available  at https://en.wikipedia.org/wiki/Indian_Premier_League

8. ESPNCricInfo Staff (2013) ‘Player Regulation for IPL 2014’ ESPN CricInfo 24 Dec Available at https://www.espncricinfo.com/story/_/id/21581720/player-regulations-ipl-2014

9. Wikipedia ‘List of 2020 India Premier League Personnel Changes’   Available  at https://en.wikipedia.org/wiki/List_of_2020_Indian_Premier_League_personnel_changes

10. Mishra, Aryan (2019) ‘IPL 2020: Complete list of all eight teams’ Inside Sports 20 Dec. Retrieved from  https://www.insidesport.co/ipl-2020-complete-list-of-all-eight-teams/

11. BS Web Team and Agencies (2020), ‘IPL 2020 champions’ prize money to be cut as Indian cricket hit by slowdown’ Business Standard, 4 March. Available at https://www.business-standard.com/article/sports/ipl-2020-champions-prize-money-halved-as-indian-cricket-hit-by-slowdown-120030400392_1.html

12. Sportekz (2020) ‘IPL 2020 Player Salaries’ SportEKZ 24 Feb. Retrieved from   https://www.sportekz.com/cricket/ipl-2020-players-salaries/

13. Basu Arani (2018) ‘BCCI set to earn over Rs 2000 crore from IPL’, Times of India, 13 Feb. Available at https://timesofindia.indiatimes.com/sports/cricket/ipl/top-stories/ipl-to-give-bcci-95-percent-of-its-surplus/articleshow/62894670.cms

14. Sharma, Rajendra (2018), ‘For once, each IPL Franchisee poised to earn 150+ Crore Profit’, Inside Sport, 2 May. Available at https://www.insidesport.co/ipl-franchisee-poised-%E2%82%B9150-crore-profit-0602052018/

15. Gollapudi, Nagraj (2020), ‘IPL halves play-off reward, hikes staging fee for franchises – owners object’, ESPN CricInfo 9 March. Available at https://www.espncricinfo.com/story/_/id/28872214/ipl-halves-play-reward-hikes-staging-fee-franchises-owners-object

16. Farmer, Drew (2019), ‘The NFL has 28 teams that don’t own their own stadiums’, Inside Sport, 8 Aug. Available at https://www.americabet.com/football/nfl/the-nfl-has-28-teams-that-dont-own-their-own-stadiums/

17. Las Vegas Review Journal (2017), ‘Stadium and rent details for all 32 NFL teams’, 6 March. Available at https://www.reviewjournal.com/sports/raiders-nfl/stadium-and-rent-details-for-all-32-nfl-teams/

How do IPL teams make money?
How do IPL teams make money? 1080 720 qwixpertadmin

Executive summary

IPL is now among the top 10 leagues in the world by broadcasting revenue. For a brand which is growing at an astonishing 22% year on year, Qwixpert explores the business behind the league. In 2 articles we wish to detail the financial business case of an IPL franchisee and what more can they do, to improve its lucrativeness. Here, in Part 1, the 4 major revenue streams – Central Rights income, Sponsorships, Merchandise sales and Match day incomes are delved into in detail and compared with mature leagues across the globe (Premier League, NBA, NFL etc.). While the much-improved central rights income has made every IPL franchisee profitable, teams need to continuously engage with fans outside the 2 month season while simultaneously addressing efficiency gaps and untapped opportunities in-season in line with global peers.

With a valuation of ~US $6 Bn, IPL is bigger than Ola, Swiggy and Oyo

For an Indian brand to have grown to ₹45,000 crores1 in 11 years sounds astonishing. That is precisely what the Indian Premier League (IPL) has done. IPL is now a household name and its brand value has been constantly on the rise. A recent report by Duff and Phelps indicates that IPL’s brand value is growing at ~22% YoY since 20141. Along with the league, franchisee brand values are also rising at an even pace. Mumbai Indians with a valuation of ₹810 crores and a growth of 7% over last year is the most valued franchisee 3rd year in a row. Kolkata Knight Riders (KKR) closely follows with a valuation of ₹746 crores1.

Graph 1: Average annual broadcasting revenue earned by top 10 leagues in the world

Any discussion about IPL begins with eye-popping broadcasting deal numbers – Star India’s contract with BCCI worth more than ₹16,000 crores for five years is as huge and has been a major contributor to the rapid growth of the league. This figure (~Rs. 3,200 cr. annually) pits IPL at No. 8 across all leagues globally as per data from ICICI securities2. This contract was four-fold more than the previous one of ₹800 Cr. with Sony pictures3 for 10 years.

Followed by tens of thousands at the ground every match and millions on screen, IPL is one of the most followed sports leagues across the globe

According to BCCI, IPL contributed to 0.6% of the Indian GDP4. BARC, which publishes viewership data, believes 462 million people watched IPL’s 12th season, up 12% from 2018. The finals between MI and CSK, was watched by a record 18.6 million simultaneously. With a total consumption of 338 billion minutes IPL 2019 was viewed for ~13% more minutes vs IPL 20185. IPL ranks fifth in the world in attendance for outdoor sports, with an average of 30,000 fans per match. And has a total attendance of 1.9 million for 60 games6.

Graph 2: Average attendance per game in top 5 international leagues

This massive viewership should not come as a surprise. The league is played during April and May when the schools are closed for the summer and during the evening prime time of 8PM. This has led to increased IPL penetration among women viewers while keeping its traditional base of kids and men intact. The fast-paced nature of the T20 game bringing together the best cricketers from across the world and popular movie stars as owners or ardent fans of franchisees have added to IPL’s ever-growing fan base.

Success of IPL depends on the success of its franchisees. While the franchisees are teams that fans root for, they are also business investments for their owners who evaluate not just league standings but also returns generated. To understand the success of IPL, it is therefore imperative to understand the financial performance of its franchisees.

In a 2-part analysis, we wish to break down these numbers – ones on their financial records to make sense of their valuations. Here we try to shed light on how franchisees generate revenue and what more can be done to further improve toplines.

Sports franchisees across the world have 4 major revenue sources and IPL is no different

Central rights income contributes to as much as 50% – 60% and has turned most franchisees profitable

As part of the revenue sharing agreement between BCCI and IPL franchisees, a portion of the broadcasting rights money from Star India is divided equally among franchisee teams. A part of the central sponsorship incomes is also divided among the franchisees. These are called central rights income and teams earn ~Rs. 200 – 250 Cr. annually.

This revenue stream contributes to ~50%-60% of total topline. In comparison with other international leagues such as NBA, EPL or NFL where the share is 45%-55%. Further, this has helped all teams turn profitable from IPL 2018 – a first since the inception of the league. Analysis by ICICI securities2, as shown below, on Sunrisers Hyderabad and Delhi Capitals highlights the impact between the years of transition.

Graph 3: 2018 vs 2019 – Revenue and PBT comparison for Delhi Capitals (DC) & Sunrisers Hyderabad (SRH)

Sponsorship Income

Any brand which wants to get associated with the teams and use players and other franchisee brand imagery pays “sponsorship fees”. This is the next biggest revenue source constituting 20% – 30% of the total. Qwixpert’s benchmarking exercise points to a similarity with major international leagues such as NBA, EPL or NFL who have a similar share (20%-25%). Franchisees can earn sponsorship through 4 key avenues, further classified into 11 sub-groups as shown below.

Figure 1: Eleven types of sponsorships in sports leagues

Financial express reports that in 2018, the total jersey sponsorship deal signed by all eight teams in IPL was in the range of ₹300-₹320 crores, growing by 44% over 2017. Mumbai Indians replaced its Jersey front sponsor Videocon with Samsung for ₹75 crores for three years8 (@₹25 crores each year). Same year CSK switched from Aircel to Muthoot Finance for ₹25 crores per year8. Comparatively, in the 2015-2016 season of EPL, revenue from jersey sponsorship was ₹1,820 crores. Case in point, Manchester United signed a seven-year deal with a US car manufacturer Chevrolet for a whopping ₹482 crores for branding on the front of jersey7.

Sponsors generally associate with franchises with similar brand imagery and target customer groups. Fans of a team can potentially be or are target customers for the sponsor. For example, Muthoot group which is a south India based firm, sponsors CSK whose fans are densely concentrated in the south.

ESP properties, the entertainment and sports division of GroupM, estimates that CSK, KKR and MI are the most followed teams across the country9

Graph 4: Number of followers on television and social media (Facebook, Twitter & Instagram)– 20199

Revenue from sponsorships are correlated strongly to the team’s followers as seen in the graph below.

Graph 5: IPL teams of followers on Facebook by % share of sponsorship revenue10 11 

Presence of marquee players and celebrity owners have a say in franchisee popularity. These marquee players give an upper hand to the franchises while negotiating with sponsors. In most cases, the sponsors are willing to pay a premium to be associated with that team.

Merchandise sales

Merchandising is majorly an unexplored area for IPL franchises with less than 1% of the revenue coming from this, compared to foreign leagues which earn 10% – 20%.

On one hand Sports franchisees can market and sell products themselves. Teams across major sports leagues such as New York Yankees (NFL), Green Bay Packers (NFL), Manchester United (EPL), Boston Bruins (NHL) etc. sell a wide range of own branded products from (doormats to car windshields) via their online stores with worldwide shipping and few Experience-centres/ showrooms. Among IPL franchises, Chennai Super Kings has its line of merchandises (men & women’s wear, watched, kids’ toys, collectables, school kit, board games, mobile case etc.) which are sold on their website and online platform – prepsportswear.com. Even teams with newer leagues such as Jaipur Pink Panthers (Pro-Kabaddi League franchisee) are selling merchandise on their official website & app.

On the other hand, some franchises/ individual players choose to enter into a fixed fee/percentage income arrangement with one or more companies licensing them to market branded products. Manchester United had entered into a £750 Mn merchandising deal with Adidas for 10 years in 2014, where Manchester United gets £75m ($128m) a season12. This is a 3-fold jump from its previous deal with Nike for £23.5 m a year12. Liverpool FC has collaborated with CRC Sports to open 3 retail stores in Thailand to sell co-branded products13.

Match day Income

Proceeds from ticket sales during the seven home matches contribute to ~15% – 20% of total revenues. Qwixpert’s analysis indicates mature leagues such as NBA or Premier League generate almost 1/4th of their revenues from ticket sales

Revenue generated is a factor of number of seats in the stadium and individual seat price. While the number of seats in the stadium is fixed, the key is to optimize the number of seats sold, which is constrained by the number of complimentary seats allocated and utilization of the available seats sold per match. Complimentary seats given out to sponsors, associations, players and others come with its pros and cons. The disadvantages are the potential loss of sale from these seats and an expense of 28% GST on the price of each ticket. Our project experience in Indian Sports League indicates an opportunity to rationalize the number of complimentary seats and reduce the loss from GST on complimentary seats.

Under-utilization of stadiums is a constant concern for IPL franchisees. Utilization is seen to be driven by opponents and their popularity/ rivalry. When popular teams play 95%+ utilizations are seen compared to 70%-80% utilization for other matches, bringing down the overall utilization of the stadium in the season.

IPL planning committee, with adequate push from franchisees, try and ensure scheduling of high profile matches during prime time (Friday/ Saturday 8PM) as much as possible. Promotional offers on ticket sales such as “buy one get one” or discounted rate sales are some tactics adopted by franchisees to drive up seat utilizations.

Ticket prizes typically range between ~₹300 and ₹40,000, varying for each stadium. For matches against popular teams, there is a high demand for tickets. Stand and seat level dynamic pricing can be evaluated to enhance utilizations and improve contribution per ticket. Mature leagues have been dynamically pricing tickets for 15+ years. In 2004, MLB (Major League Baseball) teams priced their tickets differently basis the season, day of the week, holidays, opposition quality & stars in the opposition15. Qwixpert’s proprietary algorithm helps franchisees gain ~10 – 15% more revenues from ticket sales by measuring price elasticity by evaluating the aforementioned factors and more.

Tracking ticket sale data live helps decide price dynamics. Shifting 100% of ticket sales to online platform aids in gathering data, which sports franchisees across the globe use to draw insights on customer behavior and aspirations to tailor their ticketing approach.

Prize money

The 4 teams qualifying for the knock-out phase are incentivized with an additional prize money. In 2019, the total prize money was ₹50 crores and were distributed as mentioned in Graph 6. IPL rules mandate that at least 50% of it is distributed to the players. Teams are also entitled to receive an additional prize money basis their league standings, prior to their final finish post the qualifier stage.

Graph 6: IPL 2019 Prize money

Other income

On match day open spaces in the stadium are rented out to food & beverage stalls or for stalls for brands who want to promote their products. An underutilized part of revenue levers, as major global leagues generate as much as ~5% of their revenues from concessionaire incomes14. Player trades mid-season between teams may generate incomes or expenses depending on the trade conducted.

Conclusion

Inspite of its overwhelming popularity and aggressive valuations, IPL remains a maturing league with several revenue growth opportunities for individual teams. Reducing dependence on central rights incomes and increasing saliency of other income levers will grow and sustain franchisee valuations. Match day revenue enhancement opportunities by plugging leakages and efficient utilization of seating exist. Further, franchisees have only skimmed the surface when it comes to merchandising and sponsorship revenues. IPL teams need to also evaluate themes around concessionaire incomes and leveraging social media to continuously engage fans throughout the season. With cricketing passions continuing to rise, India being able to unearth world beating talent at increasing frequencies and IPL style regional leagues mushrooming all around the country, the future is bright for the product. It is therefore imperative for franchisees to act along the major themes discussed here, in earnest to ride this wave, or should we say tsunami.

Stay tuned as we analyze the expenses in a similar vein in the second part of this study to recommend solution themes to improve franchisee profitability.

Author: Giridharan Raghunathan, Gopika Hemachander

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