Corporate: Strategy - RPG's grand retail vision unfolds

The fate of Sanjiv Goenka's retail foray hinges largely on his ability to segregate various brands and woo customers from all income segments.

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During a recent family holiday, Sanjiv Goenka, the 38-year-old Vice-Chairman of RPG Enterprises, found that he spent most of his time either answering urgent e-mail or talking on the phone with his senior managers. ''These days there is so much happening that I don't want to stay away from work,'' he says. That's an understatement. The non-stop buzz in RPG Enterprises currently is about the Rs 6,000-crore group's mega-ambitions in retailing.

Not without reason. The cash registers at the group's eight MusicWorld outlets in Ahmedabad, Bangalore, Calcutta, Chandigarh, Chennai, Delhi, Ernakulam, and Hyderabad are recording average daily sales of Rs 1 lakh each. And its 54 FoodWorld and Health & Glow outlets are earning hefty margins of 25-30 per cent. Why, as early as in 1998, FoodWorld's M.G. Road branch had reported an average throughput per square foot that (when adjusted for purchasing power parity) was comparable to those of mega-supermarkets in the US.

No wonder then that Goenka has plans to emulate the US giant Walmart's (retail) model in India. On the anvil is a Rs 3,000-crore retail empire that would include 300 outlets in 40 cities over the next five years. These forays would be made through the group's retail flagship, Spencer & Co, which had only nine retail stores in Chennai and Bangalore-now increased to 66-when the RPG Group acquired the company over a decade ago. Here's a peek into Goenka's blueprint:

Branded Wholesale Bazaar, RPG's hypermarkets will help Spencer build an integrated pyramidal retail chain of hypermarkets, supermarkets, music stores, drugstores, e-tailing initiatives through myfoodworld.com, musicworld. com, and saregama.com. Besides, the hypermarkets-each spread over 50,000-1.50 lakh square feet-would help cut costs and in building an internal supply-chain for all its retail outlets. The reason? Bulk purchases will allow the group to buy as many as 7,000 products at discounts of 10-20 per cent. Agrees Goenka: ''We might buy Rs 300-400 crore worth of goods from a company like Hindustan Lever alone.'' Arrangements have been worked out with contract farmers too.

Cost benefits would also accrue to other stores within the chain, as they would, in turn, buy from the hypermarkets. Explains Arvind Singhal, 42, Managing Director, KSA Technopak, a global retail consultancy firm: ''The scale of operations of hypermarkets leads to greater buying power as well as lower logistics costs.'' Next step: value-added free services throughout the retail chain. For instance, all Health & Glow stores are manned by qualified pharmacists and beauticians who offer free medical advice to customers. And MusicWorld plans to offer ATMs and co-branded credit cards to buy products at interest rates of less than 2 per cent.

However, the RPG Group would still have to travel up a learning curve to stabilise its retail operations. Admits Goenka: ''There is no hard-and-fast rule as to what type of products can be stocked at hypermarkets. We are studying consumer preferences before finalising a typical product-set.'' So, Goenka and his team hope to learn from experience when the first hypermarket opens in Hyderabad in six to eight months. This will be followed by openings in Bangalore and Pune. The RPG Group also hopes to gain insights from Dairy Farm's retail chains in Malaysia (Giant) and Australia (Big Fresh). From the demand perspective, globally, cash and carry hypermarts are popular, especially in countries with a mature retail environment.

There is no doubt that the retail market in India is huge. According to a study by management consultancy firm, at Kearney, the marketsize for 2000 has been pegged at Rs 4,00,000 crore in 2000. In a number that is relevant to organised retailers like RPG, though, only Rs 20,000 crore of this amount is accounted for by the organised sector. This is likely to double in the next five years, at an annual growth rate of 20 per cent. However, unorganised retailers and smaller retail chains have inherent advantages that include low-cost structure, negligible real estate and labour costs, low tax liabilities, and a familiarity with customers.

The biggest challenge for RPG's retail push lies in its ability to offer superior service and a wider range to customers without charging more than the neighbourhood retailer does. At one level, experiential learning acquired from its existing stores can help RPG address this issue. For instance, it realised that it makes sense to sell pani-puri, a traditional Bengali and Marwari snack, in smaller packs in southern India. Goenka says the group is creating a database based on information collected from its existing outlets. With nearly 1,500 families visiting each outlet every month, the database could prove a veritable goldmine.

At another level, the only way in which the RPG Group can hope to compete with low-cost operations is by creating an efficient supply chain. The hypermarts will play a large part in this: any organised retail chain requires a critical mass before it can integrate and automate its supply chain. However, the success of hypermarts in the first world is built around the existence of suburbs. Working couples from the US suburbs drive to the nearest hypermart (in their Chrysler mini-vans) once a month and stock up on groceries and the like. Spot any in India?