‘No Right Business Model For The Indian Markets’

After a rather long struggle beginning 2010, RP-Sanjiv Goenka Group scion Shashwat Goenka has finally turned around the loss-making retail chain, Spencer’s. Spencer’s Retail was one of the first players to bring large format retail to Indian consumers, but an aggressive expansion strategy plunged the venture into losses. Goenka took up the challenge of reviving Spencer’s fortune and turned it EBITDA positive. In a conversation with Himani Chandna, he talks about his plans to boost Spencer’s revenues, drive the company’s recent foray into FMCG and script the next wave of growth at the RP-SG Group.

Edited excerpts:

You were labelled one of the youngest chiefs of modern retailing in India in 2013 when you took charge of  Spencer’s Retail. What has been your journey like in the last four years?
The journey has been interesting, of course.  What helped me most was the nine-month training across the company before I took charge of Spencer’s. Consultancy firm McKinsey was working with us at that point of time, and I started working with it to understand the strengths and loopholes in our entire business.

I got a generic and more holistic view of our group companies. Then in April 2013, I was given charge of Spencer’s, a 150-year-old brand.

What was the mandate given to you and what has been the progress?
The only mandate given to me by my father was to make this business profitable. At that time, we had invested a lot in the business and we were seeing good growth in sales, but from the profitability angle, our performance wasn’t appreciable. Thankfully, the business is now EBITDA positive.

Considering that you studied abroad,  was it difficult to understand the business models in the Indian markets?
That is true. I have spent years finding the right business model for our retail venture. And not just the right business model but also understanding the Indian consumer and their consumption behaviour were all a challenge at first. In the western world, once you have designed a business model for a store, you can replicate it across formats.

Is India a difficult market to understand?
In India, it is like multiple countries in one country. I eventually learnt that there is no right model. You have to basically adapt to the local environment. To my surprise, I learnt that even parts of the same city respond in various different ways. Business model changes even in the catchment area of five to six 6 kms.

Amid the challenging markets, what helped you drive the change?
The industry that we operate in, helped me turn the tables.

In retail, from experimentation to implementation, everything happens swiftly, and we even get to see the results much faster than in any other business. The turnaround time of seeing  whether a (certain) initiative is working or not is very quick.

Many of your co-workers at RP-SG Group are probably of your grand-father’s age. How difficult is it to drive your point while taking a business decision?
This was one of the concerns in my mind before I took over Spencer’s. It wasn’t easy for me to understand how you work with people who are much older than you and far more experienced. My priority was to understand the business first. Dad told me to use logic and numbers to drive arguments. If I have a decision to make, it has to be based on pure logic. My decision can never involve any personal thought process; I would never want to consider my decision just because I am saying so. If the logic is wrong, prove it and move on.

How did you drive change at Spencer’s and what is the next target?
We have about 125 stores across the country. We have stores in three formats – hypermarket, super market and dailies. Earlier, the strategy was to focus on all formats equally, but now we are focusing more on the hypermarket business, which are spread across 18,000 square feet. We have identified cities to penetrate deeper into. Overall, we are eyeing expansion in the Northeast and in Southern India. We have exited Western India completely. The idea is not to chase expansion beyond 35 cities for the next two years as we want to get benefits of economies of scale.
We have plans to launch 10 to 15 stores every year, over the next four to five years.

How do you plan to drive the FMCG segment?
Initially, FMCG will be dominated by health products. We have bought a controlling stake of 70 per cent in the packaged foods company, Apricot Foods, for Rs 440 crore. The Rajkot, Gujarat-based privately held company sells affordable consumables under the brand E-Vita. It produces snacks priced at Rs 5 per pack. Playing on high grammage and low price, the brand will be used by our group to sell affordable snacks.

In total, we are eyeing a revenue of Rs 10,000 crore from FMCG in the next five years, including growth from acquisitions as well as in-house products.