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BW Businessworld

'Back-end Is Where We Add Value'

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The Walmart logo has six yellow lines radiating out. But the motif of Bharti retail's Easyday chain of stores has just three such lines — almost as if to protest against the government's decision not to allow foreign direct investment in multi-brand retail (supposedly to protect against any adverse impact organised retail may have on the neighbourhood kirana stores).

Since opening its first Easyday neighbourhood store in Ludhiana in 2008, Bharti Retail, which also operates Easyday Market and Easyday Hyper formats, has added 170 stores in about 30 months. Add to it the cash-and-carry stores of its 50:50 joint venture Bharti Walmart, the first of which opened in 2009, and together the two will close the financial year 2011-12 with 2.5-million sq. ft of retail space across 200 stores in India. Market leader Pantaloon Retail run by Kishore Biyani has built 16 million sq. ft over 20 years. Reliance Industries' Reliance Retail has built 6 million sq. ft over six years. Bharti's retail foray has provided huge learnings for its partner, the $419-billion Walmart: it plans to take the cash-and-carry format to markets in Argentina, Brazil and Mexico. Rajan Bharti Mittal, vice-chairman of Bharti Enterprises, spoke to BW's Rajeev Dubey on how Bharti is building its retail business:

How were you so convinced of all, there is no conflict between us and mom-and-pop stores. Honestly speaking, that is a fallacy, and I have been trying to tell everybody that our model is 3,000 sq. ft to 4,000 sq. ft, while kirana stores are 500 sq. ft that neighbourhood stores will work? They have not worked for organised retail so far...
India works very differently. First to 700 sq. ft. Really, they (kirana stores) are still operating within residential colonies. I cannot get a 3,000-sq. ft shop (in such locations). So, I believe there is no conflict. But, you do not have homes that stack up for weeks together. So, we believe, shopping will happen in mom-and-pop stores, and that is what has been happening traditionally.

Weekly shopping may happen if we are there, if Reliance is there, if More is there, or if Big Bazaar is there. And then you go larger with this category because you don't go for home shopping every day. You don't go for discretion shopping every day, or buy apparel every day. But you shop for your home needs every day. So, that is where that model has to work, and should work.

The neighbourhood requirements are to be met by the neighbourhood stores, and then you need a larger set of stores. Rather than going to 10 shops, I would rather go to a hypermarket with organised retail. I can get everything there. That is how it works.

What have been the learnings so far?
Oh, absolutely! We are not fixated on what we need to do. Now, our partners have never done cash-and-carry anywhere in the world. They don't do it — they are a retailer. But that was a new idea, a new concept. We built it, and made it completely India-centric: every detailing, every need. And we are seeing that model is very successful. They will now probably try to take this format to other markets such as Argentina, Mexico and Brazil, where they are retailing.

Are they trying to do that?
They will. Similarly, as we have franchised from them, they never do small stores, neighbourhood stores. They only do large boxes. For them, this is a unique, new model. They want to pick these learnings out of us as a franchiser, to take them to the other markets. So, the learning is happening on both sides. We are picking good practices from them, Indianising their problems and learning. So, we are open, always open to ideation.

Is quick ramp-up the most disruptive thing you are doing or are you doing something better than that?
Ours is primarily not a model of disruption. For two reasons: one, it's a very nascent industry. The organised retail is, let's say, 5 per cent. When there is a set market, you are a late entrant and you have something different to give — really speaking, that is a textbook disruptive model. In this case, fortunately, we are as much at the cusp of early entry into this business. But it is really an add-on, or differentiation. So, we belong to the category where all are coming to a space, which is going to ramp up, yet it is going to make space for both traditional as well as organised retailing. It is not either-or. There is no displacement. We have to co-exist.

So, we are here, really in two parts. One is enhancing traditional trade, which is going on through our cash-and-carry, back-end, all that stuff. The other is our retail business, Bharti Retail with the Easyday brand.

Traditionally, India has been a country of retailing. With modern retail and organised retailing, what do we bring on the table? That's our thinking. We are on our course of ramp-up. Where do we think that we add value? We believe that the back-end is something where we add value. Because at the end of the day, if your back-end is not stitched, not well structured, your front-end's likelihood of doing well is much lesser. And that's really where we believe we're making the difference in getting both the ends stitched up, and their difference is showing in our stores.

Our in-stock in the stores is far greater than you would find in the market space today. That is because we go into a territory, mark that territory with our back-end, which would mean warehousing, cold chains, back-end, farmers to be attached directly, procurement, direct store supplies, as well as through the distribution centre. And this is where we have community of interest or community of store. And then, we go to the next territory. So, with that differentiation, we believe, that we are trying to do that in a better way.

What are the numers like, per square foot?
Infill rates. (That means the availability of goods or products in the store or SKUs — stock keeping units). The benchmark is anywhere between 60 and 70 per cent, in our stores you will find almost 90 per cent. That difference is because of the back-end.

How many SKUs do you have in a typical store?
It depends on the store size. The smaller stores, what we call the neighbourhood stores, are between 3,000 sq. ft and 4,000 sq. ft. They carry between 3,000 and 3,800 SKUs. But as you go to the bigger store, which we call hyper and compact hyperstores, we will go up to about 18,000-20,000 SKUs, and when we will go to the next level of hyper, which will be more like 70,000-80,000 sq. ft, you will find about 32,000 SKUs. And when you look at our cash-and-carry, which is primarily targeted at redistributions, mom-and-pop stores, they are about 5,500 to 6,000 SKUs. So, it has been cut to what is the requirement of the businesses.

So, for the next calendar, do you have any numbers of new store additions?
In the next calendar, we should be adding another about 15 stores in cash-and-carry. That's our intention and we will add another 60 stores on both Easyday and Easyday market. So, about 75-100 stores will open up next year.

What is the strategy behind going to Tier-2 and tier-3 cities?
One, real estate is a challenge, especially in bigger cities and metros. Two, we believe that consumption is probably peaking in the tier-2 and tier-3 cities, while the whole value chain is missing there. Maybe if you sit in Delhi, by and large you will get everything. In smaller cities, people will have to step into bigger cities, or you don't get everything. Our belief is that we have to serve the smaller cities where, while the consumption remains, the availability is much less. It is not that we will not do big cities. So, it is not either-or. But as we open the territories, we go into those cities.
There was this fear that ticket sizes will be smaller, the transactions will be smaller…
That is true. The ticket size is smaller (in small cities), and so are the footfalls. But you also have to see real estate costs, the people cost. Also, the needs are very different.

There is no homogeneity in that sense…
This is where we say this business is about science and art both put together. Because what happens in north India and what you see down south is completely different. There is no one science of its own. You have to really cut through, dissect customer tastes, needs…. So, we keep all that in mind. If you look at my store in Bangalore, or let's say in Gurgaon, while I would say X per cent will be having similarities, but the foodstuff is localised, apparel is very localised. The colour, the look, the feel… So, that's where it's not just about opening a store. There is a complex science and art behind this.

Apart from the store infill number, are there any other ways in which you're trying to differentiate yourself?
There was one back-end. And then on the front-end, training of people is as important as display of products, pricing; these are all things, quality, private labels. So, these are all sub-segments, but they are as important. So how many brands of soap do you keep because people have varied preferences. How well are they displayed? What are the price points? Are you well priced in the market place? How is your customer service? Are you attending the customer well? How is your billing? Do customers trust your billing? A lot of people buy on personal trust and relationship. Then check-out times. We monitor every aspect of our customer centricity, because we believe there is a differentiation.


What about to order from home?
That we are in the process of putting up, because that is also going to play a big role. In the western world, e-shopping is becoming a disruptive force. In India, we still have this touch-and-feel outing. Is India a successful model? The answer is no for the category that we are talking about. I am not talking about hotel reservations or flight reservations.

Internationally, Walmart is also on the learning curve. They are more a brick-and-mortar company than an e-company, but they have started putting their mind behind it because that is also the future for those destinations.

How much revenue have you been able to ramp up from private label?
I wouldn't be able to give you a revenue figure, but we do about 16 per cent of our sales from private labels.

And how does the 16 per cent compare with Walmart?
Worldwide, they are anywhere between 20 and 40 per cent, 40 per cent on start-ups... so it is really on the maturity of the curve. I would believe that considering that we are two-and-a-half years old, I would say it is a good curve.

At what stage are shopping behaviour analytics?
We get a lot of data. We understand what they are buying. We do mystery shopping because we want to understand the quality. We want to understand the chain. We do speak to the customers as to what they feel about our stores, pricing, quality, and hygiene.

Also, retail market is lot different than you may see. Within Delhi, you could find 10 different markets. You could open a store where you don't realise — and it has happened — that there are more people from the Jain community. And you open a meat store there. Not only that meat will not sell, the people will not even come to your shop to buy other goods because they will believe it is all meat. There are these things that people do not understand.

Just to give you an anecdote... this is how they were planning to. I said, no, don't do that. Sub-segment it. So, where we are finding a 50-50 population, the entire meat section has been enclosed. If you don't wish to do that section, you are completely out.

What has been the impact of the slow-down on business in general, and on Bharti Retail in particular?
The general slowdown is a worry among business leaders. Sure enough, there is cause for worry. Consumption is still happening, but there is a lag effect. Also, we have to realise that the US and Europe don't seem to be coming out of the crisis easily. The US is still fragile. Europe is struggling. Will they turn around the next year, will they stabilise? We have to see. Similarly, export will get impacted. So, some slowdown has to happen, but considering what is happening around the world, thankfully, our internal consumption still remains intact. And that is why even if the nation can grow at 7 per cent next year, I would say we would have done commendably.

what HAS BEEN extent of slowdown in Bharti Retail?
I will be honest enough. Two, three things we have to understand.  Slowdown impacts in categories, not as a blanket. The kitchen has to run, food products, FMCGs, and those consumptions have to be done. Discretion spends are something where you start cutting. That's why car sales have slowed down, while the two-wheelers are still doing well. I have to say we haven't seen it in our business. We also have to understand
that we are a very small category within the large category.

Even in discretionary spends, are you not seeing any dampening effect?
Not much till now. You could find a certain slowdown next year, if the petrol prices remain where they are and the dollar remains where it is. You don't actually get to know that lag effect in a month or two. It takes about 4-5 months to come in.

My worry is in the last quarter we witnessed 6.9 per cent growth and what I hear is that in this quarter it is even lower. If that be the case, you will start seeing some impact in the next quarter.

(This story was published in Businessworld Issue Dated 13-02-2012)