31 December, 2009

Organized Indian Retail – yesterday, today and tomorrow...

As I write this column while the first decade of the new millennium is transiting, I can’t but recall the way the last ten years have gone by for the Indian Retail Industry. As a child, I used to visit the PDS outlets to buy rice, sugar and kerosene (to heat water on a pump stove). A few years later, I would cycle a couple of kilometers from my house to a particular shop in Mandaveli, where a modern PDS store was opened – called Subiksha. Although organized better than a PDS outlet, the charm of shopping still didn’t exist; the concept was driven on the premise of “value”. Almost everything that was sold was 10% cheaper than many other grocery stores and the owners had played well to the sentiments of the price-conscious Madrasis. In 1996, the first wave of Organized Retail actually started off in India. Calcutta based Goenkas (of The RPG Group), who had interests in music, tea and tyres ventured into modern retailing. Accepting the invitation of their former CEO Mr. Raghu Pillai, Ace Carnatic musician, late Ms. M.S.Subbulakshmi inaugurated the first organized kirana store called “Foodworld” at RA Puram, an upmarket neighborhood of South Madras. And the rest, as they say is history.

A few years later, I had the rare opportunity to work in that same store for more than a year as Store Manager. It was at this place, my love for retailing and consumerism was born. As the store was already five years old, a relayout was being planed and I played an important role in that activity. With my own hands, I drew the relaid floor plan and planogram – the former Controller of Operations made me do that exercise outside his cabin – to plot various categories in a Supermarket in a manner in which (men and women) consumers would shop. That’s when I understood what Organized Retail was to be, how people shop. I am still trying to get clarity – don’t know when I would.

RPG had already tied up with DFI – Dairy Farm International (Hong Kong) as regards the FDI regulations and the foreign entity was providing backend support for various formats that was launched by the group. In 1997, two new formats were created – Music & Leisure and Personal Care & Grooming under the trade names of “Musicworld” and “Health & Glow” respectively. During the same time, when the internet revolution was taking off, Mr. VG Sidhartha, a visionary businessman set-up internet coffee cafes at Bangalore to cater to the growing need of youngsters who were trying their best to catch up with the Western world. Today, his efforts have paid-off – with over 840 cafés across the country and a handful in Austria and Pakistan, Café Coffee Day is the largest coffee café chain in the country today!

Meanwhile, elsewhere in Kolkata, a shrewd Marwari businessman who was toying with the idea of selling trouser lengths and shirt bits had already entered into Organized retailing with a readymade garment store, called Pantaloon Shoppe. Sensing the bigger opportunity that lay ahead, he conceptualized a new model called “Big Bazaar” – a Hypermarket which was the first of its kind in the country that sold everything that one wanted to purchase for the household at prices that were cheaper and better compared to similar local wholesale markets. While the Goenkas tested the Supermarket format in the south, Mr. Kishore Biyani tried his Hyper concept in 2001 in Kolkata – another conservative consumer segment. The idea though was simple and common to both businessmen – if it could work in such sensitive markets, it could work in bigger open markets too. A large format Pantaloon Department Store that had everything to drape for the whole family, was opened in the crowded neighborhood of Gariahat, also in Kolkata. In 2002, the first ever Hypermarket in South India was launched in Hyderabad under the name “Giant” by the RPG Group. A new wave of consumerism had already started off. Mr. Biyani launched his new grocery model Foodbazaar in 2002. The Times Group (a media powerhouse which publishes newspapers and manages TV channels) had also ventured into organized retail – by opening a music store in Mumbai called Planet M. TATAs, whose business interests range from steel to salt, and the most respected business family in the country was also testing waters into organized retail. With its first family department store “Westside” already working well in Bangalore, there were plans to extend the business to other cities. And Rahejas, whose already successful department store concept “Shoppers Stop” was the first one to expand on a pan-India level under the able leadership of its former CEO and Customer Care Executive, Mr. BS Nagesh, now the Vice-Chairman of the Retail entity which has multiple formats under its fray.

And many other local retailers such as Viveks (in Chennai) and Vijay Sales (in Mumbai) were expanding in their respective geographic regions. The next few years saw a flurry of Retail Stores being opened – across various formats. The Organized Retail Industry, which was not even approximately valued till 1999, was estimated to be around $ 2 Billion in 2001 and has now grown to over $ 135 Billion (in estimates, including services). Biyani once again launched a new format – a seamless Mall called “Central”, loosely based on the iconic Bangkok Central. The specialty of the Mall was all the brands were next to each other, without walls, but had common billing points in the same floor. This saved time and effort for shoppers and the size of the mall need not be too big. Again, I was fortunate to be part among the core group leading this revolution, since its inception. Meanwhile, the other players had strengthened their presence across verticals. India’s oldest organized retailer Madura Garments from the house of well respected Aditya Birla Group, had grown by then from strength to strength with hundreds of points of presence across the country and had two large formats – Planet Fashion and Trouser Town under its operation. They entered the food and grocery retail formats with More. Supermarkets and Hypermarkets – an attempt that has still not taken off the way they had wanted it to. Another manufacturer cum retailer, Arvind Brands, had also scaled up its retail presence and was fighting head-on with the international fashion brands such as Benetton, Levi’s, Pepe, etc. who were consolidating and growing their respective businesses.

Electronics Retail was the next big bet – with mobile call rates having fallen to single digits per minute, and mobile handsets becoming more popular than landline telephones, selling mobile phones was not just a fancy, but the easiest thing (atleast many thought so!). And with higher GDP rates between 2002 – 2006, consumption increased, which witnessed better Demand-Supply match and hence, electronics manufacturing became more and more viable, leading to crash in prices. For example, a 29 inches Samsung CRT TV that cost upwards of Rs, 20,000 in 2004 fell to less than half its price by 2008. And so was the case in laptops, refrigerators, etc. Home appliances such as Mixer Grinders and Iron machines were no more planned annual purchases – were more “by the way” ones. In 2006, India’s largest business house by size, Reliance Industries ventured into organized retail, experimenting various concepts – grocery at Hyderabad, Technology at Bangalore. Meanwhile, several luxury brands entered India – they couldn’t ignore this market anymore.

The period from mid-2006 to late 2008 saw the highest realty rates in the market. Mall Developers were quoting lease rates that defied conventional logic – and Retailers were embracing them with both hands. There was a stupid competition of one-upmanship especially among the Fashion Brands – who paid more for a particular property – as merely being present was everything. No exaggeration, I have seen it personally, even present in a few discussions. Bizarre! During this period, many businesses changed hands, some saw M&As, some ventured into Retail just for the heck of it.

Also it was the time when the first Greenfield Private Airport at Bangalore was pioneering the newest business concept in India – Travel Retail. The Airport’s Retail areas today are testimony to the continuous efforts taken by the Management Team at BIAL – the airport operator, to create the best Retail footprint among the airports in India. This is among the most cherished and most fulfilling professional experience for me till date. The challenge was to explain to the head honchos of various established Indian Retailers and propose to them to lease space at the airport – these were the most evolved and well-travelled individuals, but most of them failed to believe in the dream. Very few were convinced and for them, it has worked superbly. Around the same time in 2006, global retailers of repute, including Walmart, Carrefour and Tesco were considering India seriously. Metro AG from Germany which had entered India in 2002 with its Cash and Carry model couldn’t grow beyond its first two stores in Bangalore for a few years due to FDI regulations. They still do not operate more than five outlets in India – a similar fate that Walmart had to face when they opened in Germany in the 90s and eventually closed. Walmart entered into a strategic tie-up with Telecom major Bharti Group, while Carrefour preferred to go on its own with its C & C model and is said to be in advanced stages of talks with Mr. Biyani’s Future Group as of last month.

And then Aug. 2008 arrived. The sub-prime crisis in the US had a cascading effect. Millions lost jobs in the US, Europe and Far East. Countries which were feeding western consumption like China and India took a hit on their exports – India especially on the IT / ITES front – an industry that provides direct employment to over a half a million people in India. Consumption slowed down; no growth rates for Retailers. 2009 was the worst year for the trade. Mr. Biyani was recently quoted saying “I think 2009 came in and gave a slap on our face.” So true. Several Retail businesses tumbled. The non-serious ones exited quietly while the focused ones grew their might with perseverance and continue to remain in business to explain their successful efforts.

Thousands of people are already working in the organized Indian Retail Industry to-date and this is only expected to increase – to about 15% of total employment in the country by 2020, if not earlier. What has happened seems like a true roller-costar ride. Over the past 45 minutes that I have been typing this article, I could remember only a few best moments of the Great Indian Retail Story that is yet to be fully told. The next decade would answer that, for sure. And you and I would be a part of this success story, I hope. The world will watch in awe the way Indian consumerism has taken off and would take lessons too. As the most prominent figure of Indian Retail often says, “We are a country of shopkeepers and hence we don’t need outsiders to teach us the way we do – we will do it our way”.

Long Live Indian Consumerism! Long Live Indian Retailing. Jai Ho!

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