10 SWOT Analysis India

8/3/2019 10 SWOT Analysis India

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cosmopolitan scene of cluttered chaos just the sort of thingto warm the heart of India's master retailer, K is ho re B iv an i.

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The Big Bazaar hypermarkct is just one of the manysuccessful store form ats B iyan i has introduced to Indianshoppers since he elllcrged on the modern retail scene with

his Panta loons menswear shops in 1997. In the past decade,he has moved from aposition on the periphery of theindustry to its very forefront, being named India's "RetailFace of the Year" for four years in a row (20()4-()7) andInternational Retailer of the Year by the U. S.-based NationalRetail Federation in January 20()7. With 1110rethan 1,000stores at March 2008 and plans for hundreds more by 20 1O ,Biyan i' s listed Fantaloon R e ta il ( In di a) Ltd. is the flagship ofhis Future Group and is valued by the market at aboutU S $1 .6 5 b il li on .I

Where onc e 110 one wanted to talk. to Bivani, now a media.

SCrUlTIenve lops him at eve ry public appearance. Despite beingthe industrv's rock star anti ma jor drawc ard a t c onference s a ndev ents, he rema ins u nassumin g and self-effacing. "I am a falliblehuman beillg," he told th e 20()7 rndia Re tail Forum in Murnbai.H 've m ad e a lot of m istak es I fall into that categor)c Bu t \velearn by (ioing."~

Bivan i says he is alm ost paranoidabout l os in g t ou ch \yi tht .he p ub li c . "Our business is entire ly dependent on observingp eo pl e, u nd c rs ta nd i ng tlu-ir cmotions an d catering to their

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Bivani says his group isexperimentinj; with different formatsand learning 11(,\\' things e\rery day: "N obody h as perfecte d thea11of retailing," he ob se rve d a t the retail f or um . 1 3i va nirna" not

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be perfect, but he's not 511)' about his ambitions. "We want to""

0\\,11 the Indian c ustom er's wallet, wherever he chooses toS}'Cl1d it," is his oft-repeated mantra. Indeed, t he F ut ure G rou pidentifies its vision as follows: "Deliver evervthing 7 evervwherc,

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eV-er)Tt ime to eyery Indian COnSUll1Cr in the 1110St profitablemanner." That 11clps expla in whv well over lO() mi ll ion shop-pers visited B iv an i' s s to re s in 2 () () 7. I f the C011SUI11Cr doesn't

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have the read)! cash to spend straight a\vay, the group 's FutureMoney ope ration opera tin g exclusively fro 111 Pantaloon

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l' H E IN C U M B EN T 5 : B I Y A N I ~ R A H E JAl GO ENK A

Retail's stores v v 1 1 1lend it to them. "The consumption b00111will drive retail gro\vth in India. \tV c ne ed to look at innovative\ va ys o fmakiru; money available to th e COnSU111er," Biyani savs.'

Bg aspirations

Being number one can mean constantly lookjng over yourshoulder to see "That the opposition is doing. But the ever-smiling Biyani dismisses any notion that he migh t be afra idof comp etition, wheth er it be from dome stic or internation alentrants. Asked if he w orrie s ab out the newcomers, h i sresponse is to the point: "Not at all." So V\ ,11a tdoes 11e \vorryab out? "I think the expectations within the retail industry inIndia are too high," he replies." But not the consumers'expectations? No, he is absolutely bullish about th econsumers' willinyness to spend. He tempers that with theknowledge that modern Indian retai ling is still at a nascentstage. Biyani descr ibes India as a society with very higaspirations but 0111), a relative handful of its 1.2 billionpeople have much 1110ncy to spend, even w iththe rapidgrovvth of what is called the In iddle class. H We have to give1110re1110ney to India 2 .f). . .the star\~ing class, n he savs. "' India

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needs b ig changes , bccaus it is desigI1ed so differently froi nthe United States. The spen(iing class needs to get to 25( J i>()fth e population, to make a subst an tial baseof consumers. Itwill be a while before \\'C get there.

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One of Bi)rani '5 top executives, Big Bazaar (:EO R ajanMalhotra. later adds a p os ts cr i pt to his boss's C0l11 I11ents () ncompct it ion and the ,,,,ay forward: "You've got to realize, this[modern Indian retail] is a bicyc lethat bCC0l11CS a nlope dthat becomes a motorbike that hcromes a car that beC0111CSa jet that takes off.We're s ti ll a c ou ple of steps ahead ofthenew players. But it's not about being number one in the

-marker, it's about a market t at is gro\ving to a hu ge size .":

A huge size indeed. Bvt l end of 201O , w hen B iy an i ~sexpansion plans are nearing t -?ir peak. heaims to be in I ( ) ()In dia n c ities by then th e otal retail spend in India iexpected to be about USS5L j b illio n. Mode rn re ta il's share


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T HE I NC UM B EN TS : B IY AN I1 R A H EJ A ~ G O t _N K A'>.n~ . . ~'"T..~

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!NDIA~SS TO RE WAR S

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products), which raised US$] 23 million from (in initial publicoffer ill Januarv 20()8 that valued it at U S $I .: 2 b ill io n;Future

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l)rands, which handles all brands owned or ll1anagcd by thegroup; Future S pace (lnanagenlcnt of retail real estate); FutureLogistics (supply chain and distr ihution): and Future Media,

which develops and manages retail media spaces.Consumer lending is clearly the next big thing for Biyani,

and it could well end up bei11gmuch more profitable than thecore rctailil1g business, where nlargins are always underpresslirc. To give the 11e\Vbusiness a high-octane start, Biyanibrought in Samccr Sain (a well-credent ialed former GoldmanS achs executive) as CEO and co-founder of Future Capital.Sai11 has an equi ty stake in the C01l1pany that w as worthUS$163 million ill earl)! 2008. In June 2007, Future Capitallaunched Future Moncv with the aim of becoming Ot tC ofIndia's leading retailer s of financial products and services. It s95 outlets (as at. Jal1l1aryT 2() 08) all sit within I J a11 taloon Retail 'sarra~' of shops, giviI1g it easy access to Bivani' s huge customerbase. As the b us in es s g ro \\ 's , Future Capital plans to ad do ut le ts o ut si de the Pantaloon Retail network. wi th a goal of40() bv 2010. It s two main products are consumption loansfor up to 5(){),()(){) rupees to finance h0111C durables, furnitureand other consumer goods. and personal loans. which arcunsecur ed credit lines to individual customer- for up to7 S ( ) ,( )( ) ()rupees. It has all agreen1en t v v it h I(] (~I R ank for aF utu re C ard ,a c re dit c ar d o ffe ri ngloyalty points to Clist0J11CrS,

F uture C apital says its in-store presence w il] help dri\'cc or isu ru cr s pe nd in g by "pro\'iding c u st o r ne r wit h the meansto finance their purchases atth e site whcr th e conxurnpt iond ec ision is m ade ." It also plans to offe r h0111C equity loans,secured by property. It s p us h to make credit 1110rl' availablein India replicates wh.u ot her re taile rs have donesuccessful1\' ill nu n urr mnrkcrs Stich as North Anu-ric a and

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Europe) but there arc risks nonct hr levs.At the India l~ctaiI FOrUI11, } )iv an i \\'as asked: "Wh\' is

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l)iyani rcspoI1cicd that the group would n ot " fo ol is hl y lendI11011CV to aI1\'OI1C w ho conics in thL' door," and its owndatab~lse alrcadv gave it enough checks an d balances. H( ~r~'d tis the wav forward. Yo u have to build up the risk n1anagc-

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merit syste111s. For example, \ve go to a customcrs house

when \VC deliver the product. That gives us a good idea oftheir credit worthiness. L en di ng 1 11 0n eyfor a product is less

] I di h "1 -+riskv t ra n just en rng out cas .According to Future Capital, the perception of credit in

India has changed significantly in recent years, an d retailcredit is being used to fulfill the aspirations of India'sgro\ving m id dle class. "T his isparticularly true wit h reg~l1-d_to consumers under fl1e age of 3(), who represent 61 < Y oofIndia's total population," it said in its share offer prospectu s.Bu t even with this rapid gro\vth, F utur e Capital sa)Ts thatcredit penetration in india is st ill "relatively 10\\'." (:itil1g

International Monctarv Fund data, it said r etaillc");:U1S

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represented only 1()9'6of GIJI"l in India in2 00 5, c 0l 11 pa re dto27q1) in el lle rging Asia an d S89{) in mat ure markets. I)

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A share of every rupee

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Future so eager to fi nancc con su III pt ion '( Arc w not indanger o f h ea d in g towards a c re di t c risis lik e the sub-primeone \\'C arc s ec i n g in t he U. S. 11O\\'?"

/\ n ()the r () f I) iv a 11 i' s k l' V C x c c u t i\' t' sis l 'v1a v II r - [0 S h 11i\\.~ l.. , . , .

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Pa n t a I00 n R e t a il 's v ic c l' r c sid C 11 . .. \\/ car c \'c ry b u 11sh ()nt he In dian st or v because conxumpt icm is so strong," he t ol c l

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t 11e I 11d iaR e t ail F()r u 111 . ..1 'h c ron sun 1c r '\ vant S 1() SP C I1l Lan d \YC are in the gro\yth phase 110\\', rolling ou t mt m:stores, and getting into new areas such as self financing, "i0that wlun a cust omcr goes into a store a nd \\'a nts to hu v alar~e it en: like a sofa, at the deskI1c:\t to t h sale s p oin t, the

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customer can arrange a loan to bu y the itcn1." -I()shni \ \" : l lr('pea t s B i ani's C() 11 S tan t n 1C Ssag c: .. \\\:. \ \ all t t () h C i11 l'\. ' r ydomain, an d to get a share o f e \re ry rupee spent by c\'l'ryIndian consumer." 1(1

I)v the end of 20()7, l)iy li \\'as inclined to speculate OJ1J -

w hat Ind ia 111ight s ee h ap p in modern retail. V\lriting in 11[(Economic '1Z}}lCS, he observe. i ha : C '\'e ry m ajo r change is, hynature, divrupt ivc. H It b r in g :- , a b ou t social u nre st, sk cp tici ,m

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(~::'~~j IN DIA'S S TO RE WAR S T HE I NC UM BE NT S: B IY AN I] R AH EJ A. G OE N K A

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r et ail. I- -Icc ite s the perception of an organized retailer as on ewho holds a high level of informat ion on cus tomers. "Hut so

does unorganized retail," he says.~ ~

"There arc 1 2 m il li on retailers in Ind ia. Perha ps 20-L2 l !r()by 2() 15 will be organized. That still leaves around 8()%

unorjjani zcd. So who's really bigger, and what will happen toit ? , " he asked at the In dia Re ta il FOrUl11. Nage sh say s oftenthe second genera tion of a farnilv running a kirana (cornerstore) docs not want to work ill l lnorganized re ta il , wherehours are long, expansion is limited and rewards 111ight l)eslim. "So we have to modcr nizc this as well. The point is,

(\\'h ich had 22 depart m ent stores at t he end of L0(7) an dth e other retail forrnats the group runs, including itsI I}'pcr(~ity hypermarkets (first opened in Malad, Mumbai in2(){)6), its 46 Crossword book & music shops, its largeHomeStop lifestyle stores, Mothcrcare (baby products),Arcelia (jewelry), an d c afes (Brio, Desi). I t a lso operates oneof the biggest malls in Mumbai (Inorbit), runs the Timezoneamusement centers in a joint venture with Australia's Leisure& Allied Industries, and has another joint venture,11) 'perCi ty Argos, with Bri ta in 's H0111e Retail group, whichruns the leading catalogue retai le r Argos.

Where Biyani is perennially tieless and prefers to dresscasually, Nages11 is the consummate retail professional,always impeccably attired and wit.h ever\, fact, trend,

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historical detail and gro,vth ou tloo k. at h is f il 1g er ti ps ale gac)r of his long experienc e in the industrv Ba ngalore-born

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Nagesh, who holds an MBA from Bcnares Hindu Universitv,,opened the first Shoppers Stop department store at Andheri,Mumbai in 1991. For the job, he \vas headhunted fromfootwear retailer Carona bv the real estate rvcoon C;.L.

_ , . . . ..'

Rahc ja (who se brother Chandru Raheja 110\\' heads 1(. RahejaCorp. after the familv split up the business in 19(6). .lhatf ir st s to re at Andhcri \\'as a breakt hrough formodern retail inInd ia. I--I re \vas a elc an, effic i ent shop offcri ng four level s ofu p-to -th e-m in utr m crc han dix r.wit l: \\'cll-gr00I11Cd, .ut iculatcan d helpful staff. 'The j\ndheri Shoppers Stop 111avb e s m al le r

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t ha n 111a 11y 0 f th e Iat e r de part n1L'11t store S , but i t has aged

r ea so na b1 y \ \'( '11. I trcruaiu-, a place w h e re u p pc r-n u dd l r- c la ssfan1i1es on J\;1umh.ii s north side like to shop poring oyerdesigner c lot he. mavhe picki ng up a I)VI) at P lane t 1\'1 onthe top flo or, be fo re fin ishin gwit l: lunch at the l~ ()lnha\' l)Iuc

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c ha in r es ta ur an t around the back of the building. Nagcshbelieves modern retail is 111()ving trorn the "c xc itc mc nr "staget () the r ea l i st i c s ta ge . H It's not easy t () fill a 1 ( ) O, ()()O-squarc-foot store," he xavs.:"

. . . . .

Nagcsh, nam ed Ind ia's "R etailProfessional of th e Year" inL005, says th at e ve n after al l his ye ars in t he b u si ne ss , he is still

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With the back.ing of'Chandru Raheja anti Raheja's sons Raviand Nccl (both of \VhOn1 are executives i11 the group), B.S.Nagesh is embarking on a major expansion that will seeShoppers Stop Ltd. lift its reta il spac e fro m 1.36 m il li on s q ua re

feet at the end of 2()07 to about 6.8 million square fcet in2010. Fr0l11 a total of 130 stores, th e 1(. Rahcja Corp. groLlpwill gro\\' to 320 stores; including S() Shoppers St()Pdepartment stores catering to high-end consumers, and aslllany as 60 HvpcrCitv stores targeting the "va lue" segn1ent ofth e market, along with its E:xp rc s sC- : i t yconvenience stores. Inpursuit of that "value" shopper. I---Iypcr(:ity (~ E(_) A ndrcvvLc\ 'crrnore sa\'s h is te am tracks a hasket of consumablc on a

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Endnotes

1 . Market capitalization at Manl: 'j , L008.2 . K isho rc B ivan i: address to India Retail Forutu. iv luI11bai , Sept l' lnh l 'r

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),2()()7.3. Kishorc Bi\ 'an1 . It 1- l t l l ' pCl lCdin India (~L'\\- l)l'lhi: Rup. . &. Co, 1()()7L

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p. 47.4. Bivani, address to In dia R et ail FOrU111, op.l'it .- Bi~ '(_ 'ln i. in terv irvvwitl: author at India Retail torun1. ~tun,h~ti, ScptcI111x,t".). .

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) . L ( ){ )7 , :t6. Bi\ 'anl, rcm.oks to (..2&/\ session. India Retail Foruin. 0.hllnhai,

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Scptelnbcr 5,200;. , ./. R ajan M alhotra. C :EC ), Big Bazaar. remark- at India R etaIl loru ni.

IVlu111bai,Septl'lnbl'r ), L.O();.8 . F utur e (~ apital initialpuhlic offer pr()spect_u~, ()ct:)ber 200;, .', _9. Biyani q uoted in "Biyani (:hall(~ing I Iu\\' lui ur (JfOUp Runs, III 7 h i'

F i o l e sof l i l t / i l l , Ap r il 12. 2007.Biyani',It H l ll JI Jt 'l 1t 'd i llIJltiill. r ~)1,ibid: p, (}9.~ 1 l I t) ')I 1ll '1 1)' -~ .~ 1 t) t)I t) 1 (_ + ~ ~ ) + - ~)

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\'il t al, q u()t l' d in Biyani, I t I lt lj11J(Jlld ill flit/iii. }i, ~ 1 , , .,\r\'ind Singh~11. Ch~lirlna)), Tl'l'hl$)p~\k i\lh'i",()r..,. t l ' k p \ 1 u I H ' l!ltl'r\'lL\\

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t "~ Ram.. Prasad (;ocl1ka is patriarc h and .hauman crru-ri t uxof the lJSSJ-hiIJiol1-turno\'cr lZP(; ( _; r( )l lp ~ h ut leavcs itsrunning to his t\\TO so ns I I arsh (group ch.ur num ) an d Sanjiv(vice-chairnlan). O ver the past decade, the R P(~ C ;roup has

U I1(ic rgone a m ajor rcstrucr uring, quitting S0111e old-stylebusinesses and focllsing on where it sees the best gro\\thpros~)ccts. Part of this involved rnerging it s reta il interes tsin to its listed utility C0l11 pan)' CESC (forrncrly Calcut taElectric Supply Corp.) in 111id-20()7 to create a conglolneratc\\ 'i th po\\ 'cr, rea l estate anti retail businessc-.:" The cash flowfrom t he f )o \\ 'e r business is to he lp fund its re t ail expansion ."lhc (~()enkas, like ot her groups fac ing the t11rcat of IlC\\'retail cornpctitorx. have aggressive plans to muscle up, w iththe aim of gro\ving from 5()O stores in 111 i d - 2 C ) O Hto as 111anya s I 5()() l)~/ M arch 200


9/29

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I~ li a 11C C 's n c \ vcst S tor c s. r rh c siz e has g( )n cup, .l h is storeru 1 1 S t () 3 , H O ()sq u arc feet. 13ut , as alwav, t h e s to re Illanagersays "cleanliness is of pri mc importance" as he pat rols theaisles. There arc discounts of 25{~ ) on "0\\,11 brand" groceryitems. Along wit h the frozen and dairy products, foodand other staples C OB lepackaged or as a "'veigh your

" ..own option.Reliance's point man for retail in the state of Andhra

Pradesl. (where Hvdcrahad is the capit al) is \fenugopa1K orn andu r i, chief cxccu t iv c, cust ornc r operations.Komanduri describes Hvderabad as an advanced retail

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market. highly cosmopolitan, with a population of 6. Smillion that is rcpresent at ive of all scgrncllts of Indiansociety. ( M ult i le (reta il) forma ts have been in existenceh er e for a \vh i c, III e an i n g the in ten sit Y ()f t h c c()n1 pet it i()ipretty high," he says. So whv \vas Hydcrahad first? "It just

so happened that R elian ce H..ct ail \vas opening in fiv or si xstates at about the s.un t imc. Our tean1 \vas jus t a hitfaster," Kom auciu r i confides during an int ervicvv in late2()()7,' Kornanduri sa\'s Rcl iancc ha s lea rued a lot fro III it ". ,

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II dcrahad entry. H- IllC feed hac k \\'C get Irorn ell s t ()mr rs is'v vh v s ho ul d \\'C go to ot lur stores. w hv can't \\'C gc t it all1 1l'IT" 1 ina R.e li a 11 e Fr es h J ? 1 S nth at has led t () t h l' S t () resgetting large r, A ll the nevv ones arc h ct \\ 'C ' cl l ) ,( )( )( ) an dI O,()()() square feet. \\'e are stocking 1110rl'groceries, no t justfa st -1 n ( )\ i g c( )nS II n 1( ' r g()()d s . N()\\' \\ C 'rl' .~'l' k i11g t () tap in t ()a h ollse hold's i CrCI11ental con sum pt ion . "

Multiple formats

B y th e second quarter of1()( )ti, Rclianr.: ha d rolled out I I ofits formats: Flesh (food and groce ries), Ma rt (h vp crm ark ct ),l)ig ita l (c on su me r durahlcs). Trcndz (clothing), Footprint(s ho es) , \\Tc lln cs s ( hc alt hc ar c) , ]c\\"cls (jc\\'clry), Tillleout(watches) , Super (1l1 i11i-mart l, Aut oZ one (autornot iv e ) , an diSt ore (A pple product s)(sec '"Etble4 . I ). It a Iso has a husi ncss-to-business tormat , l \angcr larmx, v vh ic h s el ls fresh products

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N E W C O M l R S ~ ~~[LIANCETHE GOLIATH

to st rcct vendors and ot her small traders at t he s tart of t heday. I ts first hvpcrmarr , opened in Ahnu-c labad inAUgllst20"()7, was I 65 . ooosqllarc feet and carried c)5 . oooi erns. Bythe end of 2()08, the first of Reliance's 23(),()()O-square-fectstores will open. Compare that with Bivani's first lj ig Bazaarhvpcrmart in 2001, which was just 36,()()O square feet, t heItP(~ group's first Giant hvpe rma rkets (n ow branded asSpencer's Hyper), which run to 75,OO() square feet, or the12(),()()()-square-foot Hvpert.Iity, opened hy 1 (. R ah e]a C orpatM um bai's M alad in 2()()6. R eliance has alsorelaunche d it stextile brand Vimal, opening a series of menswear retails ho \Vr 00 111 S i ncities such as Ahmedabad, B an ga lo rc , M u mb ai ,Chcnnai, r~angalofe, a~ld Cochin in 2007-{)8. H. lianrc plansanother I R Vimal stores in 2()()H-()9. Separately, in April2()()H, l~ritish retailer Marks & Spencer announced it wouldenter a 5 1 :4 9 joint venture w it h R .c lia nc eto se t up a chain ofM&S st orcs in Indi a. The venture aims to open at least 50

stores over a five-vcar period ....Amh.u ii sa\'s the idea for a H..liancc-k-d "retail rcvolut ion"

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evolved fro 111 what he calls In d i.i s nc \\' parad ij~ 111i11 t heconsumption of goods and scr\'icc\. "-rite India ()f t ( )day isth.uart t.'rizl'd hv h i g h ra t('s of l'C0I10J11 ir (~r()\ vt 1 1 ,t hll r i~(' () f ;t

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ncvv C0l1slll11ing c lass, fre er a\'ailahility of credi t. .uid t hrunfulfilled desire for I1C\\' C0l1SU111Cr l'\pLril~l1c(,S." h ll t() ldshareholders in June 2()()(), (~crtail1l\', the C0l1SUI11cr

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organized retail se ctor an "cxplosiv,: gro\\'th opporturutv;' wir han expec tation thatit w ill h av e ~t C0l11pound annual gr()\\lhrate of ()ti(x') over a four-year period to n1id-2() I I, 011 t h.: hack

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of favorable- dt'll1ographics and a gn)\\'ing propcnsity forconsumers of all ages a nd c la ss es to ~ . -nd 1110rc, Shanll:l note sthat in retail, R e l ia n ce I nd u st ri es "ail ,to do what it docs best;that i s, u se its financial p()\\'cr and ( -cut i on s ki ll s to create :: lparadign1 shift in the b usine ss an dc .turr rapid gro\\th, "'-

EV(,11 so, Sharlna b el ie ve s H. .cli.inr iII not h .rv r an e asyrun,Set t ing aside the problems of pol i i ca i r isk , Sh .nma idcn t if ie ~

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f resh model runs on a franchising format. rrhe franchisee111anagers typically ~\rl' l um a kiran background, or hayc\ \'orkc d in retai I 111anagenlel1t. S o w hat w 'vc done is taken-omc members ofthe cxtended familv in th e kiran trade,

.

who are \\' illing to become franchisees, an d handed over the

reins of our Fresh stores for them to run. And this pilot hasbeen very successful." 11 Komanduri says people fr0111 a kininabackgrOtlnd intui tivclv unders tand the bus iness, and, ha\'ingbeen in the locality, also understand the customers' needs.I)ut t he v also need to unders tand the Reliance wav of business,

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so Reliance has invested heavily in high-level training."\\le give them extended training of s ix w ee ks t o u nd er st an d

modern tec hniq ues. \V carc f~lirly IT-driven in ternlS of thestore, so they haveto understand thebilling svstcm-: an d th er ep or ti ng p ro ce ss es .In tc r ms of basic customer interaction, vv c\van t customers to have a standard experience across th ecountry, S O \VC need to se t up that leve l of expericnce, Ou r

goal is to ensure that cvcr vbod v w alk s the ralk."!:.,.. ""

Amh.mi c all s r et ail t h e \ \' or ld 's 1110St e111pioYlllCl1t-intcnsi\,('industrv So a ke y part of his ambitious r et ail p la n is ~'talcntt ran-format ion and dc\'clopnlCl1t P on a s ui ta bl y r na s- .i vscale,.." ( ) u r plan is to pro\'idc t r.iini ng and cdur.u ion OppOft un it ic s ()na dist rihutcd Iearning plat form through claxxroom, c-kam ing andpersonalized coaching in an 'c.un \\'hile vou learn' franlC\\ork," he.,.t()Id IZcliaI1l 'C'shareholdlT'-,,:: 'I"hc au u \"as f()f )()() ,()()() young1n(,11 and w on u-n, m.unlv lroru underl )r i\ 'i leO- l' ti back trnn llH .l s

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acr()~s India. to gain an education an d job skills that \\'()tddhring CC0I10111ic \\'ell-heing to their Iamilic-: an d social

t ran ~fornl a t i o n t () t he ir corn 111un i ies.By late 2007, th e progranl \\'as \\"l'll undc}"\\'aY. III

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l lvdvrahad. site of the first IZcliancc Fresh stores, Koruanduri~

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explained the prac tic al h um .m rcsourcl'\ diI11CI1S]0I1 of anindust ry that \\'a~ bot h naSCl'nt and d Cl11and ing. "(;ettingpeople with th e right skill sets is d iffic ult, an d attrition is\'cry C0111nl011 here. \\/c ll-ed uc a ted pcop Ie have lots ofc1l1ployn1ent opportunities in the c ity. R ct ai] isq uiu: hardwork standing all day, long hours no t everyone prCfl)rSt hat. So \\'(' have picked up enough pcople wi t l: a basil'

education from thehinterland, whcr 0ppoltunitics arc fc\\'cr,and gi\'en t hem rigorous train ing, \\'c don't lose t he111 so

qllickJ~,:The fi11ishcdproduct is so radica lly different to t he r .n vmaterial the young people \\'C have c0l11ing to us, they takepride in the place where they a re , an d they stay witl. us." 1- 1

I(0111an(_iuri says Reliance policy is that it will not hire.,.I

.mvouc under 18 , and they must have re ac he d th e 1Othstandard (gra(ie) in education. "A lot of peqple make greatsacrifices to pass their 1Oth and 12th standard, but afte r thatthev often don't have the \"hcre\\'ithal to go .mv furt her, and.,.

~

they need to support the rest of the familv." Komanduri sa~!s.

that in Andhra Praciesh, Reliance works \ \' it h v ol un ta rv (llld

social service a gc nc ie s~ inrural villages to locate people \"}10want enlployn1cnt. "These people have fire in t he ir b elly (llldthey want to make a di fference . For t he m, c om in g to th e city,

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workinv with a bi nam e lik eH..lianrc. it makes a big diltcrcuo,'(~ (~ (

to their societies. "T~hcirparents,when they sec it on u lcvisio n.

take pI~ide in saying "n1y child \\'orks in this chain.' It is a higthing. When these young people C0I11C' to uS 1 often they don':speak English. \t\'c g i Y C them confidence their hody lal1gual~l'c hang es, the ir ability to C0111J11Ullicatl', it all t11akcs a higdifferl'nce" \\!e\'l' lost S()111C o r t hc m to other n-t.ulcr-; hi no\'erall it is \'cry rl'\\'arding to Sl'C them gro\\," h.: say s,; )

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I f H.cliancL' created johs for souu'. it \\'as \'i('\\-l)d in parts (dIndia as taking a\\ay th e livcliho()ds () f or hcrx. lnl'ludin,~p us hc ar t y cn do rs , sn1~dl st allh old ers. an d m .u kvt111iddlc111l'11,\\'110 could se c t he ir 1 11 ar gi ns \'anishin,'S, B~ ' t lu: t inu: of i hc()ctobcr 2()()7 Reliance annual gcnl)Ltl 111l'l'ting, Ambam \\a~\\'cll a\\'arc of th e opposition his rl't~lil plan Lll('d ill ~()111t'quarters. These concerns, he averred, had"sensitized l\cliaIH.-cto enhance thelevel of cngagcrncnt ~l i inclusivcncs v v i th a llc on st itu en ts ." N ot in gthat all big ch.: ~ csbrought challenges,A 11 1ba n i sa id : "\"1l' ar c s en s iti\' t ( t h l' in t l' l' t s ()f S 11 1a 11shopkeepers. Our retail init iativ e \\' ill no \\'ay jcopardil.l'their interests and that of s111al i \l'n


15/29

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NEWCOMERS: R E L I A N C ETH E GOLIATH

Depot for o ff ic e p ro d uc t s, and wi t l: Pearle Europe for (~)re-glasses. Th e 1\1&S H..eliance joint venture, in which the U . IZ .retailer has a majority stakc of 5 191),aims to open at least 50new stores in India bv 2()12-13.

.i

Macquaric Sharma is not convinced Arnbani and his teamcan n1ect the Reliance rollout t imcrable. (~iting both a lack ofoperational history in retail, and the scale of Reliance'sexpansion plans, Sharma expects a delay of up to 36 111ont11sin implementat ion. This is his abase-case" scenario, whichwould see Reliance Retail achieve 100 million square feet oftargeted retail space by March 2014, and have a value toequity holders of US$4.5 billion (Macquarie expects aninit.ial public offer for Reliance Retail could take place earlyin 2()09). Macquarie's "optimistic" scenario would sec adelay of 18 months rather than three years, and would valueequity at US$5.7 bil lion. Its "blue-skv" scenar io, wi th no

,

delay meaning Reliance Retail reaches its I )O millionsqllare feet target by March 20 1 I applies a value ofUS$8.9 bi ll ion. But it sees only a 100/0 chance of thishappening, as against 6 ( ) 9 1 ofor its base-case scenario and

3 0 % for its optimistic scenario.:"Again,st this back.ground of doubt and political opposition,what does Ambani t.hink? Ncar the end of his October 2()()7address, this is what he told Reliance shareholders: U Westand committed to what we have set out to achieve. It is 111V

Endnotes

I. Unmesh Sharma, three reports: Ride the R etail Tide (Mu mb ai :Macquarie Research Equities, February 14, 2(07); F o o d R et ai l: ~ (~ p orth eC)ppOItunifJ '(Mumbai : Macquar ie Research Equit ies. fv1ay:9, 2,00 I); and\i\'cltchouttor t he R e ta i l G o l i at h( rv 1a cq ua ri c R e sc ar cl . L q uu i cs ,Scptclnbcr

17, 2007).2. Mukcsh Ambani, "Embarkinj; on a Retail Revolution," address to

shareholders a t Rel iance Industries annual general 111eeting, rV1U111bai,

June 27, 2000. .,3. Arvind Singhal, chairman, Technopak, telephone interview \\'ith

author, March 15 j 2007.4. Arvind Singhal, c on vers at ion w it h au th or. N ew De lh ], No ve mbe r 1,

2 0( ) 7 .5 " K is ho re Bivani, address to India Retail Forum. M nmb ai , Scpu-mbcr 5)

w

2()()7.

6 . r v1 uk cs h A m ba ni .address to Reliance shareholders at annual gl'ncrall1)ceting, Mumba i, June 27 j 2006. . _

7. \leungopal Komanduri, chief executive. r ustorner uperatIons lorRel ia~lce Industr ies, interview with author. H)'derabad, Septenlher 7,

:2()()7.

N. Unnlcsh Sh.irm. '-'\{ctchout f c n "the R e ta i l G o l ia tl , (\lul1"1!)ai: ;\lacquaric,

Research Equ i t ic s. S c pt c nl he r 17 1 LOO I ). "' ), f\ lu kc sh A mb an i. address to Stanford in India mnov.u i.: contCl"L'l1Cl'.

t vl um ba i, J anu.uv 15 , L00 7 .10. i\1ukesh A rn ba ni , " Al wa vs Irn'cst in Businesst ' \ of thl' Future ~u)d in

...

-E1.1ent," in tc rvic vv in. \ ioJ l ( ' j 'L i / l 'Inagazint', Januar: 1(l()7.. . .. !p . - .

i 1. I(0111anduri, op. cit.11. ih i(j~

I :~ . A m hani address toR e l ia nc e s ha r (' h ol d l' r~ , JUIll' ' J .7 . ~()()h.14 . K 0 t11a nd u ri , o p.cit.

i )1d .

"

conviction that the organized retail initiative will gain(

nl0111entUJ11 oncet he b en ef it s ar e fullv understood. A nd the_..

benefits it will bring to al l sections of societv will be fully-

appreciated. "P le nty o f p eo plehave bet a ga in st t .h e I ~e li an cena111C in the

past, only to be brought undone by the group's tenacity',f ire po we r, a ndvvil] to w in in the face of opposition. Ambanistrack record suggests the number-one retail spot i s h is for thetak..ing (no doubt, with some 1110re speed bun1ps along the

(

w av ). O ne such bump \vas t he rising price of 01L whichprompted Rel iance to announce in lat.eMarch 2()()S that itwas shutting most of its petrol outlets (which arc no t eligible- (tor a price su bsid y), th ere by pUtti11g at risk S0111C of itsc..Reliance A 1 Plaza high\vay res t stops . Ambani has alsoshow n his\villingness to go outside the R eI iance stand-alonemodel, setting l1p joint ventures in 2()()8 w ith M arks&Spencer i n c lo th in g and homcwarcs, with U . S.-based Office

Mukcsh Arnbani. "Toward-. a Quant an l.cap." . tddrl 'ssholders at Reliance I nd us tr ie s a nn ua l gCllcral 11lL'l,ting.

October 12 , 2007.

. . 1 ~

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17 . D r. S . L.Rao, con1n1cntar \, in B u s i l l C S S H ' o r l dr

18. Svvaminat hu n A. Aivar, "Ambani needs t...' f i le '[iJJZf!S of J I 1 d i a ,()ctober 7 ~2007.

j... '

19. Bijot! l(u rien , e ma i 1correspondence wi th ~lL ( ). U n m es h S harrna, V \'t rt ch o u t fo rt hr R c tiI c; ;

. . . .

Research Equities, Scptenlher 17 , 2007).

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18/29

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of supermarkets and hvpcrmarkcts over the next fiveyears,and, at th e same timc, has tied up with th e worlds biggestretailer, U.S.-based Wal-Mart, for a wholesale cash-and-carryoperation and technology transfer agreenlent. The Wal-Martdeal which Mittal quickly secured in late 2006 after earliertalks with U .1(. retailer Tesco foundered on issuessuch as

branding and royalty payments involves a delicate dancearound the realities of the Indian political scene. Thoughmodern retail will briIlg jobs and ne w skills, i l1 a ny m i ll io n s ofexisting l ivelihoods arc at stake in the modernization process,and any overseas entrants must tread warily. Wal- Mart inparticular has been t he targ et of global angst, pilloried bygroups such as India FDI Watch, which opposes all foreigndirect investment in Indian retail and sees WaI- Mart as leadinga "race to the bottom" ill wages and working condi tions . ( 'Wedo not want to become the next country to have our culturaltraditions, workers' rights, environment and independence des-

troyed by Wal-Mart," it says. ' For now, India's foreign invest-ment regulatiolls limit offshore retailers to franchises, \\'holesalingand 5 I % of certain tYIJes of single-brand outlets which iswhy the Bharti group's wholesale cash- and-carry jointventure with Wal-Mart will carrv the Bharti name out front,

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giant's years of big-store expertise. The t\VO sides firstannounced their joint venture in Noven1bcr 2006, wit hMittal confidcntlv talking about the rollout of hundreds of

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superstores between 2()()7 and 20 12 that would "probablycarry both brand names. ,,J By AUgllst 2007, the deal hadevolved into t\VO specific agreen-lents: a 50-50 joint venturefor a wholesale cash-and-carrv business that would sell to

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both kirana corner stores and Hhart i's own branded retailstores (the first of which opened in April 20()8 under the"Easy Day" brand); and a technical arrangement designed togi\re Bharti access to W: ~ -Mart's much-admired knowledge ofback-end infraxtructurr such as supply chain management."Vval-Mart's global cxp' . is in supply chain and logistics willbril1g enhanced efficit cies across the retail ecosystem."

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Mittal said at the time. "This venture prornises to bring greatv ah .u : t o m illio ns of farmers, artisans, small manufacturersand retailers across India. "3

Despite the rnutual admiration on show at their August20()7 .announcement, some industry observers wonder ifthe timing is right and whet.her the t\VO sides can make the

joint venture fly. Will Wal-Mart's austere "vays and back-end expertise give Bharti a competitive edge, or will havitlga large overseas partner prove a millstone on the domesticpolitic scene, where local agitation and emotions are easilystirred '?

R. Subramanian, founder of the Chennai-hased discountsupermarket chain Suqhik_sha, notes that local pr ocurement ofrice and other staples is not Wal-Mart's strellgth.-i There couldbe a question, too, over just how committed Wal-Mart is tothe partnership, when its stated long-term goal is to have itsO\,'TI brand riame prominent across India. And where does

Bhar ti's fr esh food experiment fit into the venture' s agri-cultural sourcing p la ns ? S t il l, the Mittals are seen as a "solid"bus iness fa 111i ly,with the r ight track r ecord in customer serviceand an eye for where the next gro\vth opportunities 11 l i g h tIJCfound. Technopak's Arvind Singhal believes the formidablecombination of Bharti and Vval-Mart eventually will find a

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place near the top of the retail tree, though still sorne \yaybehind R eliance. I-Ieenvisages the 13harti stores and tilLw holesale joint venture in total could be turning overU 558-1 () billion within five vears.) Existing retail leaders,..suc h as K ishore Hivani of Future C roup and B.S . Nageshof

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Shoppers Stop , say they are not worried about v\!al~~1art oro th er f or ei gn r et ail ers .They m ain tain th at e stab lish ed localplavers are still a fe\\' steps ahead of the newcomers and thatanvw av, there is'-


19/29

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20/29

Brooding presence

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So far, Bhart.i' s partne r V val-M art has been 1110rc of abrooding presence in the inlaginations of th e ant i-over scasinves tment brigade than a r et ail reality on the ground. "rhefirst o f t he joint venture's wholesale cash-and-carry stores isnot due to open until th e end of 20()S, and onlv another I()to 15 stores will follow in the next seven years, enlployingabout S,()OO pcop . None of the stores will be in a T n-r Icity, ll1eaning th e ig metros of M umbai. D elhi, Kolkat a,Chennai. I)angalo , and Hvderabad arc out. St ores willrange f rom SO,()()C () 1OO,()()O square feet and will sell fruit

an d \'c(Tctahles, groceries, sta})lcs, stat ioru-rv, foot w v ar,t ( .

clothing, C0l1S11111cr dur.iblc. and other ge ne ral 1 11 crc han disl' .Their Cllst0111Cr base will be kiran stores, f ru it and \ 'cgc ta l) Icresell ers, restaurants, hot els, other business owners. andreta ilers such as Bharti Retail.

The first of Bharti Retail's I )()O/o-o\vned-and-operatcdstores opened in AI)ril 2008 in the north-Indian city ofLudhiana. under the brand name "Easy Dav "These food andgrocery stores arc between 2,50() and 4,500 square fee t andare cicsigned to meet daily needs. The separate wholcvalcash-and-carry venture will invest in setting up an efficientsupplv chain t o link farmers and small manufacturers directly

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to retailers. A k.ey go~l of the suppl v chai n is to minimize\vastage, particularly of fresh foods and vegetables, For itspart, Vval-Mart says t}1 joint venture will help lift theefficiency of suppliers. "We would also like to leverage our

globalscale to transform S 0 111e o f

thesesuppliers into

exporters with access to our global markets ove r t ime." \Val-Mart Storrs vice-chairman [\,1 i e Duke said at the time. 1 )\;\'al- J 'v 1a rt , \\T hich had total global sales to January 2008 ofUSS375 b illio n, w il] hu vgoods fr0111 Indian suppliers wort h.. (_a h 0 u t L TS S 2 hillio n i 1 2 0 ( )8 . a It h ()ugh t ha t i l hva rfe d by t 1 1CL1SS1N billion of goods it sources from C h i n . In th e rrc~h

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food an d \'cgctahlc sector alone, there is plenty of r00l11 f()rgn)\\ct h . I nd i is the world S number-one producer o f b a na n as ,hut ranks onlv -l-lt h as an cxporter. Likcwi-e. it is number or:

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in pea production, but only 17th in exports; number one inr aulitlovvcr production, but only 42nd in exports. andnumber fiyc in pineapples, hut only 19th in exports.I(!

Tl: c join t vcn t u rc gi\'es \\r~d Mart a foothold in t he Ind ianmarket and r im to learn -';OIl1C 1110rC about its p()tcnti~dCtlsto111crs, whil it continues its lobbying of the Indiango\ 'Crnn1cnt for full unrestric ted retailcntr).~ That is unlikelyto happen before 201 () at t he e arlie st. l)u t there is just achanc(' the ru Irs 111aV case hcfor r t he end of t hr decade,

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do not get jobs, they wil! be knocking on the door of societyto dCllland their xl ia r , an d if t hcv cannot do it in the right\\l(_l)' thcv wi]] do it in th e \\Tong wav If \\'e fail it this, India's, . ( ....htlgC den10graphic asset will turn into a liability," hewarned. 1 ')

Mit tal knows t ha t a "continent of couxumcrs" will underpinhis retail amhitions, and is confident that India will have theworld's third-largest economy behind the U.S, a nd China-by 2035" But he a lso knows that if India's gro\vth is notinc lusive , the d ispari ty between urban and rural inC0111CS willbe a cause for concern. H It i s a pa inful process, but 320 mill ion

voungster need to get into gainful cmplovmcnr.." he sa)'s,l)oint.ing out that every rural dweller \\'110 sees his income riseb eC 0 11 1C Sa c on su me r o fmore goods and services. I j

There are plenty of people who are Mittal supporters,incl uding internati onal busi ne ssmen such as (_~ra ig Ehrl ich,

chairman of the telecorn industry bod", GSM Association.~ ~Ehrlich, who is a consultant and director for Hong Kong-- < . .based H utchison Whampoa, said of MittaI, when heaw arded him the 2008 C;S!v1J-\ Chairman's Award inBarcelona, Spain: "He i s now extending his Midas touch toInd ian re tail and Indian agriculture. I just know hewill dofor these t \\'0 sectors what he ha s done for mobile an dIndian ConSUl11CrS will be the big \vinncrs."I~

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21/29

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N EW CO ME RS . B H AR Tr S W AY W IT H W AL -M A RT

father, Sat Paul MittaI, \\'ClS a parliamentarian, first in thePunjab legislative council and later in th e In dian nationalparliamcnts llppcr house, the Rajya Sabha. In 2()04, the SatPanl Mittal Scl100l was openeci in his honor in Ludhiana. Ithas the goal of being 011e of India's best educational

institutions north of Delhi.Fitti11gly, the village of Ladhowal on the northern outskirts

of Ludhiana is the setting for Mit ral's Bha rti Group to makeits first significant push into agribusiness. This is itsFieldFresh Foods joint venture, set up initially with theU.I(.-based Rothschild fam ily (E LR o H old ings), which, in

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l ate 20()7, sol d most of its hal f share to the Sin.gapore-1istedfood processing company Del Monte Pacific. Del Monte isu lt imate ly owned by the Campos family of the Philippines,with Joselito D. Campos as chief executive." The FieldFreshventure began as an exporter of fresh fruit and vegetables tothe U.I(., the Micidle East and EllfOIJC, but has since added afocus 011 the rndian domestic market. Centerpiece of theLadhowal operation is a fresh produce packhouse, opened inOcto ber 20() 7, that link in w ith Bharti' s retail asp irat ion s .Bhart i's a gribusine ss he ad, Ra kesh }3. Mittal. said at the t imc:"It will provide th e much-needed strength to cold chaininfrastructure in the stat.e and help us better scr\'e ourcustomers in India as \\'el l as international markets. "~-l -rheSO,()O()-square-foot pack house i s de signed to pro long theshelf life o f fre sh produce and provide more re liab le q uality. Itc an h an (l ie I tons of va rious vegetables perhour and has acold storage capacity of 5()() ton s. F ie ld F re shhas pcrrnisxio r'

from the Punjab govcrnn1ent to buv direc t lrom farmers ill(_ ~th e state. 1t says stud ie s sh ow Iarnu-rs can get m urh biggera nn ua l r et ur ns fr0I11 high-value crops. In ste ad of,say, 14,OO()rupees all acre for wheat. or 20,()()O rupees fr0I11 rice, farnlerswho plant baby corn can expect annual returns of 35,OO()rupees an acre. A key part of the FielclFresh project is servingthe Indian business-tn-business segn1cnt, so inst.itutiona 1shoppe rs ca n expect to s e e h ig h -v a lt le frui t a nd vege tab les(n1~u1goes, snovvpeas, French beans , baby con), cherrv t0111atoCS.,

(_ ~,/

c0I11pl ete (i a study for th e Int ernat iona l Food Policy ResearchInstitute on the impact of sup erma rket de vel opmen t in India,say Vvalton began his ex pansion from that single store by"building a chain of kirana stores ill the surrounding townsand then states." When he opened his first Wal-Mart

supermarket in 1962, he bought dire ctl y from suppl iers andcut costs by building a distribution center network, They notethat "Walton focused his e ffort on vi lla ges and small towns,considered an impossible strategy at the t ime." From tw okirana employees in 195(), Wal-Mart would beC0111e theworld's largest priva te employer, wi th t\VO million people. 2L

Fields of green

W hile India waits for W al-Mart to hit its stride, the se eds ofbig agribusiness plans are being sown in Punjab in India'snorth. Punjab is the country's best-known agricul turalstate the heart of the 196()s Hgreen revolut.ion ," when ne wseed vari eti es and Iarminj ; t ec hnique s rai se d crop yields andbrought the promise of freedom from hunger to n1any Indianfamilies, Wit11 th e help o f A rn cr ic an agronon1ist NormanBorlaug, farmers in Punjab \vere able to doubl e t heir wheatand rice vields. But four decades on, S0111e of the social

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t ensions wrouyht by that agricultural e xperim ent linger.Intensive farm inj; req uires c onstant and S Olllc tinlC Scostlyinpu

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10 SWOT Analysis India