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Vinod Sawhney, president and CEO of Bharti Retail - this company will own the retail stores while Wal-Mart will help in logistics and sourcing at the backend through a JV- has been running around talking to potential franchisees, land and mall owners and suppliers so that he can meet his deadline of January 2008.
Excerpts from a conversation with Surajeet Das Gupta:
Your retail plan looks like a repeat of what you did in telecom...
It is virtually building everything ground-up like we did in telecom. When mobile services started, the penetration of telecom was 1 per cent. Today, we have reached a robust penetration of 15 per cent. Similarly, in retail, the penetration of organised retail is not more than 3 per cent. However, by 2010 we expect this to go up to 12-15 per cent. After all, in China organised retail penetration is already 20 per cent. However, unlike telecom where we had to build the network from scratch as there was nothing available, in retail you already have a $300 billion retail business existing in India, which we expect would go up to $400 billion by 2010.
What are the reasons for your optimism?
There are many reasons why we think the organised retail sector will boom. In India consumption as a percentage of GDP is 62 per cent while in China it is only 42 per cent so people are buying things. We already have a GDP growth of 8 per cent and we expect this to go up to double digits in the coming years. Also, the top two segments of the consumer class in India in terms of consumption is 50 million strong.
There are 45 million consumers who have a consumption of $4,000 to $10,000 annually, while there are 5 million consumers who spend over $10,000. This is the class which we will tap. India also has the highest retail density in the world with over 12-15 million retail stores all across the country. So there is a huge market.
You are entering at a time when real estate prices are at their peak and your competitors already have land banks which were built earlier at cheaper rates. How will you overcome this problem as your cost of setting up a store would be higher than the competitors'?
Yes, real estate prices are a challenge as they are 5-6 per cent of the investment cost. However we expect a let-up and stabilisation in prices-our expectation is that they will fall by 10-20 per cent. That is why we have not created a large land bank though everyone is rushing in. So we will not be at a disadvantage at all. We will look at both leasing and buying real estate. We are open to joint ventures with land owners for hypermarkets, the franchise route for small convenience stores and becoming anchor tenants in large shopping malls.
But what happens if your assumption of a fall in real estate prices does not hold good?
If that happens we have to get a model under which we can drive more footfalls in our stores so that we have a better topline. It has to be a fine balance between convenience for customers and real estate prices. After all, as you move further from the centre of the city, the prices of real estate fall, but then we have constraints in terms of infrastructure which has to be taken care of.
The big debate is that organised retail would kill kirana shops which would be unable to take on the big boys. What is your position on this?
The kirana shops are generally not more than 500 square feet while our smallest outlets will be over 2,000 square feet, so I do not think they will be competing with us as they have a different niche. Also many of them might also want to become part of our franchise and upgrade which will give them more money. However even after the big boys like us come in, 85 per cent of the outlets will still be small kirana retail stores so I don't think they will get affected.
How do you differentiate your retail chain from the others, as all the big boys are coming in?
Our focus is on the best price, the best experience and the best quality. These are the three pillars. Our focus is also on customer needs at the moment. We are dividing cities where we go into trading zones and hope that each of them would have three different outlets-convenience stores, mid-sized stores and hypermarkets. Of course the products we stack up will depend on the relative affluence in these trading zones.
There are amazing regional variations among states on the kind of products they are looking for. For instance, our study showed that peoples want fast checkouts from stores-we are working on the backend to ensure that we can achieve this objective. We have realised that easy surfing of the product is very essential for a consumer. We are working on that. We want the hypermarkets to be a destination for the entire family, so that every family member has something to look forward to. We will have food courts, toys, books, pharmacy, car accessories and so on. If customers are looking for free home delivery we will offer that too.
How do you ensure that your prices will be the cheapest?
We will leverage the advantage of global sourcing, which our tie up with Wal-Mart would provide. Also, the disintermediation of the supply chain would help in reducing prices and giving farmers more money. At the backend we are also looking at reducing wastage from the farm gate to the store-that again will reduce cost. We would leverage the advantages we have through Bharti Field Fresh so that we can get fresh as well as processed products.
But considering that all other retail companies would also do the same, how do you ensure that farmers stay loyal to you?
We foresee the telecom experience being repeated in retail as well. The key to achieve customer loyalty is to get his patronage and deliver what you promise. Can you deliver him fresh vegetables only in the morning or throughout the day-these are the logistical challenges that will make a difference between one chain and another.
Will you also go in for speciality stores in this phase?
We are not looking at speciality stores at the moment. However, we are studying what products fall under the affordable luxury category, and whether these should be made available in other stores apart from the hypermarkets.
