Ringing of the cash register. sweet sound. March 2018 issue

Ringing of the cash register. sweet sound.

Imports of electronic cash registers (ECR) and point of sale (PoS) terminals has become a lucrative business, especially over the last year, thanks to the acceptance of retail automation, implementation of GST and the government’s thrust on making India a digital economy. An analysis of whether it makes sense to import these products in volumes. And from which supply markets.

By Niladri S. Nath | October 2017 Issue | The Dollar Business

 

Growing up, you may remember walking to the local kirana store, where along with the comforting smell of spices and soaps you would be welcomed by the sight of a calculator and a meticulously handwritten bill. Not any more.

Welcome to digitisation. Today, retail stores and even small neighbourhood stores are moving towards electronic cash registers to tally up bills. Hand-written receipts are being replaced by itemised printed bills. These machines are also a familiar feature at most restaurants and smaller eateries where they are used to print cash receipts or tokens to manage orders. Electronic cash registers (ECRs) are steadily becoming a standard feature across all retail formats, and across tiers.

While ECRs are used for cash payments, with the growth of credit and debit card payments, ECRs with PoS terminals, the hand-held debit and credit card machines have also become quite ubiquitous. And since domestic manufacturing in this sector is lacklustre, rather non-existent, it is no surprise that imports of these machines have been on the rise, with China, Vietnam and Malaysia being the sourcing destinations of choice for importers. Together they fulfilled 98% of India’s demand for imported ECRs and PoS terminals in FY2017.

A quantum leap

Looking at the numbers, one can say without a doubt that last fiscal has proven to be quite the turning point for importers – in FY2017, India’s imports of ECRs registered a y-o-y growth of 288.20% .

Although importers are not expecting such a large-scale increase in the coming years, they are confident that the growth in imports will remain healthy and steady in the near future. “One shouldn’t expect such a gigantic uptick in imports next year. But, the growing adoption of ECRs and PoS terminals in the domestic retail market will keep the numbers strong in the future,” says D. Baskaramoorthy, Vice President – Sales & Services, Posiflex Technology India Pvt. Ltd., a PoS terminal manufacturing brand from Taiwan. “The supply of ECR and PoS terminals is mostly dependent on imports. So, the growth in retail will surely have a positive impact on the imports. In the last three years, we have been witnessing 25-30% growth in business. And, in FY2018, we expect a 35% y-o-y growth,” adds Baskaramoorthy.

Growth triggers

The question now is what triggered such a massive import influx and will the imports business still be worth the investment in the next five years? Demonetisation is said to be a major reason for the sudden rise in imports of PoS terminals.

One of the aims of demonetisation, as announced by the government in November 2016, was to promote a digital and cashless economy. As a result, PoS terminals became one of the tools necessary for retailers to keep up with the hi-tech mode of transactions. “The importers actually struck a deal with the banks to supply PoS terminals to the banks and imported them in large numbers,” says Bhaskar Venkatraman, Group CEO and Director of Millennium Retech Ventures India Pvt. Ltd., a Chennai-based importer of ECR and PoS terminals.

After demonetisation came the Goods and Services Tax (GST), which has made ECRs and PoS terminals more relevant than ever before. “To file a GST return, retailers must keep their accounts in order, making these devices even more indispensable,” explains Baskaramoorthy.

Sounds logical! However, the key factor which will drive domestic demand for ECR and PoS terminals going forward is the growth of the Indian retail sector, both the organised and unorganised retail segments, and the adoption of retail automation products by retailers. As per a 2016, Federation of Indian Chambers of Commerce and Industry (FICCI) and PwC report, the domestic retail sector in India is likely to double to $1.1-1.2 trillion by 2020 from $630 billion in 2015, growing at a CAGR of 12%.

The India Brand Equity Foundation (IBEF) estimates that the share of organised retail sector will grow to 24% in FY2020 from the 8% in FY2015. The projection indicates a high adoption rate of new systems, processes and technologies by Indian retailers. More specifically, the report also states that the transformation from manual accounting to machine-led systems will gain momentum. These numbers certainly indicate that importers of ECRs will continue ringing in profits in the near future.

"China-made ECRs are 20-30% cheaper than ECRs from other countries"

 

The dragon rules


At the global level, China holds a significant share of the exports pie. In CY2016, China accounted for 30% of the world’s exports of ECR, by value – followed by Vietnam with a 14% share. In India too China’s dominance is rather overwhelming, though Vietnam has been giving it a stiff competition of late. Although China shipped 50% of the total ECRs imported by India in FY2017, Vietnam continues to capture a significant share by fulfilling 37% of the import requirement.

Ringing of the cash register. sweet sound.

Price is the only factor which is keeping China ahead of other sourcing destinations, feel importers. “Products from China are 20-30% cheaper compared to products from other countries,” says Mohit Kaushik, CEO of Swaggers Technology, a Delhi-based ECR importer whose business has been witnessing a dramatic growth because of GST.

However, while comparing the quality of imports from China and Vietnam, Baskaramoorthy says that companies from Vietnam and Taiwan focus on quality whereas the Chinese ones stick to the volume game. “The companies in Vietnam and Taiwan invest a lot on research and development. Hence, they can’t offer products at a lower price like the Chinese,” he adds.

In China, Guangzhou and Shenzhen are the leading sourcing destinations. Importers usually take trips to these cities to finalise the deals. A trip which they say is worth the costs involved.

Overall, importers say that importing these machines is usually challenge free, barring the usual procedure-related issues with Customs and issues related to efficiency at ports. GST (18% IGST) too has not been a major deterrent to the import of these machines.

Although large-scale importers are not facing any issue with Bureau of Indian Standards (BIS) certification, for medium and small-scale importers like Mumbai-based Rais Pardesi, Owner of Real PoS Technology, the cost of getting a BIS certification is a crucial factor. “The manufacturer and importer bear the cost of BIS certification equally. The actual cost of a BIS certification is Rs.45,000. However, if you hire a consultant to get the certification done, the cost goes up to Rs.1,20,000,” he explains.

In addition, according to Dinesh Bhatia, Director of Grandmaster Innovations Pvt. Ltd., importers usually face documentation related issues with manufacturers and exporters in China while applying for BIS certification. However, importers say that these challenges seem minor compared to the opportunities they offer.

Opportunities galore

The domestic market for ECRs and PoS terminals is maturing fast, says Venkatraman. “The acceptability of ECRs and PoS terminals has increased tremendously in the unorganised retail sector. Earlier, there was a lot of reluctance in using these machines amongst small retailers. They were under the impression that these devices were only for big retail houses. There was also a lack of effort on their part to understand the operations and utility of these devices. But things have changed for the better. We don’t have to educate them anymore, they now know about the benefits these machines can bring to their business,” he adds.

Ringing of the cash register. sweet sound.

Interestingly, some importers are also importing various components of ECRs and assembling the machine in the country to cater to the local markets. They import completely knocked down (CKD) and semi-knocked down (SKD) units, mainly from China.

Big potential

Not only is the potential huge, the margins are equally attractive in this business. Importers make anywhere between 8% and 30% in profits, depending on the region and market competitiveness. Some importers also provide after-sales service to their clients.

Venkatraman feels the domestic ECR and PoS terminals market is growing at a healthy rate of 15-20%, year-on-year. “The traders who are still not initiated into retail automation are now upgrading themselves to ECRs to have better control over their businesses,” he adds. 


Ringing of the cash register. sweet sound.

The domestic ECR and PoS terminal market is growing at a healthy rate of  15-20%, year-on-year.

 


In addition, the retailers who are ahead of the curve are switching to full-fledged PoS systems. Newer forms of PoS have also emerged in the market such as devices to convert any computer to a PoS or tablets with the software and facilities to send an electronic bill to the customers thereby saving on paper and space. The importers are confident of new and continued opportunities for both basic as well as sophisticated models.

With the absence of domestic manufacturing and the growth in popularity of credit and debit cards, importers feel that cashless India just might be their ticket to becoming cash-rich! Good idea.

“Retail automation is driving growth”

Ringing of the cash register. sweet sound.

Anil Kumar Samineni
Director,
Park Systems



TDB: Has demonetisation turned out to be a growth driver for electronic cash registers and point of sale terminals?

Anil Kumar Samineni (AKS): I think the growth isn’t driven by demonetisation, rather by the growth of the organised retail sector. Large-format stores such as Spencer’s, More, etc., have penetrated across tiers with stores equipped with retail automation products. This trend has also motivated other retailers from the unorganised segment to switch to electronic cash register (ECRs) and/or point of sale (PoS) terminals. The transformation started a few years ago and it is now reaching its peak. The implementation of GST has also played its part. But it’s the changing mindset of retailers that is the main driver of demand for retail automation products. No doubt, GST and demonetisation have added to the numbers. But, proliferation of organised retail has been the main driver of growth.

TDB: Which retail segment was the first to move to ECRs and PoS terminals?

AKS: I think hospitality and food and beverage sectors were the early adopters of ECRs and PoS terminals. The trend is catching on and almost all the retailers now want ECR and PoS terminals at their stores. Everyone wants to switch to retail automation. ECR and PoS terminals enhance the profile of any retailer. I have been importing retail automation products, including ECRs, for five years and have witnessed a 20% year-on-year growth. I expect to see an even higher growth rate in the years to come.

TBD: What makes China a destination of choice for sourcing retail automation products?

AKS: It’s the price that makes the difference in the case of these devices. China-made ECRs are 30% cheaper than those manufactured in other countries. On an average, we import 2,000 ECRs annually from China. Our buying cost is around $90 per unit.

TDB: We understand profits can range between 30% to 40%. Isn’t that high?

AKS: It’s not a huge margin. It includes various operational costs including after-sales service. The net margin is lower at about 20%. If you don’t get that kind of margin, you won’t be able to operate. The clients need continuous support for updating their billing system.

TDB: Your outlook on the future?

AKS: I believe demand for retail automation products will continue to grow as the market matures. In addition to ECRs, importers should look at PoS systems that boast of more advanced technology. These machines are the future.

 

 

 

“The future looks very promising”

Ringing of the cash register. sweet sound.
Dinesh Bhatia
Director, Grandmaster
Innovations Pvt. Ltd.

 

TDB: How has GST impacted the demand for ECRs and PoS terminals in the domestic market?

Dinesh Bhatia (DB): Although most importers are of the view that GST has impacted imports of ECR positively, my personal view is that GST, in a way, poses a challenge to ECR imports with its multiple tax slabs. For example, in case of an ice-cream vendor, GST is different for chocolate ice-cream and vanilla ice-cream. So, it’s very difficult to calculate them on ECR. However, we are in discussions with our manufacturer in China about recalibrating the ECR to accommodate various slabs of GST. GST has also spurred the growth in the import and sale of PoS machines in certain retail segments. Changing the billing system is easier for PoS terminals.

TDB: What are the things one should keep in mind while importing retail automation products from China?

DB: One needs to be very careful. Almost all manufacturers in China claim to offer quality products. The importer should visit the manufacturers to check if they can meet their requirements. Another important aspect is getting the BIS certification. The documentation process is quite cumbersome. The manufacturers in China must provide numerous documents during the process of getting BIS certification. In most of the cases, the Chinese companies source manufacturing equipment from multiple vendors in China or from other countries and that makes sourcing quality certificates from the vendors for all the equipment acquired a difficult task.

TDB: What margins can one expect in ECR import business?

DB: The margin varies from product to product. It ranges between 20% and 30%. The margin includes after-sales service. However, the margin could be lesser in a highly competitive and price-sensitive market like New Delhi.

TDB: Do you think the market will grow even faster in the future?

DB: The future looks promising. In my opinion, almost 90-95% of the domestic retail market is unorganised and most of that market functions without proper billing solutions. So, it’s a huge opportunity. Going forward, we are aiming at a 25-30% year-on-year growth in our business. Over the past seven years, demand has been growing steadily thanks to increasing awareness. The new generation of retail marketers wants to be organised. They understand the importance of good billing infrastructure. This will make the demand see an upward trend.