BIG BAZAAR Biyani's hypermarket chain has been a hit with middle-class consumers

WESTSIDE The Tatas' departmental store chain plans to expand to 100 stores by 2007

A state-owned cooperative retail chain launching revamped stores doesn't usually cause a stir in industry. Yet, when the loss-making Sahakari Bhandar opened the doors to its new-look stores in Mumbai on May 4th, there were many willing to swear that they had peered into the future of Indian retail. Behind the innocuous relaunch was the might of Mukesh Ambani's Reliance Industries, which has retail plans big enough to make Wal-Mart's Lee Scott sit up and take note (about that in a bit). Sahakari Bhandar, which has outsourced supply chain management to Reliance, is a proving ground of sorts for the private sector conglomerate. If the relaunch is any indication, then Reliance may be proving a bright student of the trade. For starters, the new Bhandars are swank with smartly turned out sales staff. There's a wide variety of products-ranging from groceries and frozen foods to household care and, surprise, music and films-ambience and hygiene have dramatically improved, and although there's no Reliance logo anywhere in the stores, the stamp of professionalism is everywhere.

Welcome to the brave new world of Indian retail, where new entrants such as Reliance and Bharti, besides many existing and future foreign retailers, will jockey with early birds like Kishore Biyani's Pantaloon Retail (now Future Group), K. Raheja Group's Shoppers' Stop, Tata Group's Trent, RPG's Spencer's and Micky Jagtiani-owned Landmark Group's Lifestyle stores, for a piece of the Indian consumer's swelling wallet.

To be sure, there's plenty of room for all. Organised retail in India today is virgin territory and the possibilities are limited by nothing, but the entrepreneur's own gumption. Consider the facts: According to various estimates, the overall retail industry in India is $206-350 billion-big (Rs 9,30,000-15,75,000 crore), but 3 per cent or less of it belongs to organised retail. There are more than 10 million kirana, or mom-n-pop, stores in the country, compared to less than 3,000 modern format ones. More importantly, if the economy maintains its pace, consumption could go up by another $157 billion (Rs 7,06,500 crore), according to estimates by Technopak, a Delhi-based consulting firm. With the result, the organised retail pie could swell to $30 billion (Rs 1,35,000 crore) by 2010, Ernst & Young estimates. Says Harminder Sahni, coo, Technopak: "Companies are in such a hurry that they aren't even waiting for detailed project reports before they start work. Everyone realises that time is of essence."

NEW, BUT BIG Reliance has the biggest retail investment plan by far.	Reliance's Mukesh Ambani: Plans to emerge as the biggest player by getting into a range of retail formats
Investment Planned: Rs 3,375 crore initially, going up to Rs 15,000 crore by 2007-08 Formats: Everything from hypermarkets to agri-products to consumer electronics Stores: 1,575 by March 2007 Turnover Target: Rs 90,000 crore by 2010

Big and small companies are literally scrambling to grab a piece of the retail gold mine. Reliance Retail (as it is likely to be called) wants to carpet bomb the industry with an initial investment plan of Rs 3,375 crore, going into everything from hypermarkets, supermarkets, convenience stores to produce exports. Eventually, which apparently means by April 2008, it hopes to sink in a staggering Rs 15,000 crore into retail. It has already brought on board some heavyweights from different industries, including Raghu Pillai from Pantaloon Retail, Gunender Kapur (Unilever), Rajeev Karwal (Electrolux) and Sriram Srinivasan (Indus League), among others. According to one report, Reliance Retail has even placed orders for five Boeing cargo planes to ferry perishable items from remote warehouses to its stores. The launch of the first Reliance store, a hypermarket, is expected in Ahmedabad during the last quarter of this calendar.

SAHAKARI BHANDAR Reliance, it seems, has decided to learn the ropes at the state-owned retailer

Telecoms giant Bharti, which already has a joint venture with the el Rothschild Group-controlled, ELRO Holdings India for exporting produce under the FieldFresh brand (Reliance has a Jamnagar Farms too), is said to be talking to three or four foreign retailers, including Wal-Mart, Tesco and Carrefour. "We are looking at all possible models and formats," says Rajan Mittal, a promoter family member and head of the retail foray, "and we'll be in a position to unveil our plans over the next four to six months." The Tatas aren't just expanding their Westside and Star India Bazaar chains, but also are said to be in talks with Home Depot for a tie-up. Similarly, the K. Raheja Group-promoted Shoppers' Stop and brand new hypermarket HyperCITY have ambitious expansion plans. Meanwhile, the current king of organised retail in India, Pantaloon's Kishore Biyani, has a Reliance-like carpet bombing strategy, but on a vastly smaller scale. He plans to invest Rs 500 crore by next April in growing his hypermarket chain Big Bazaar and apparel chain, Pantaloon (see Supersize Me). "Our intention," says Biyani, "is to be in the consumption space. We have completed the process of getting into new categories, though we will continue to look for more opportunities."

Pantaloon's Biyani: Plans to invest Rs 500 crore by April 2007 to grow his Big Bazaar and Pantaloon chains	Trent's Noel Tata: He's added hypermarkets (Star Bazaar) and music & book stores (Landmark) to his growing retail business	Shoppers' B.S. Nagesh: He was the first to launch a retail chain in 1994. By 2008, he'll have 39 Shoppers' Stops	Bharti's Rajan Mittal: He spearheads the telco's foray into retail, and is currently looking at all formats and talking to foreign players for a tie-up

Experimentation Galore

There's so much happening in retail that it's near impossible to list in a few pages what each one of the players is trying to do (that, in any case, is not the idea behind this survey). What's evident, though, is that the 12-year-old organised retail industry (Shoppers' Stop was the first launch way back in 1994) has entered a phase of super-heated growth. According to Technopak, $12 billion (Rs 54,000 crore) may get invested in retail over the next five years. Where will all that money go? Most likely into two of the most popular formats: Hypermarkets and supermarkets. In terms of product categories, half of the investment could be in food-related retail and the other half in non-food. The bias towards foods is easily explained. About 11 per cent of the organised retail sales come from foods and groceries, with apparel and consumer durables accounting for 39 per cent and 9 per cent, respectively (see The Organised Retail Pie). That, then, is 60 per cent of the market.

However, there will be plenty of formats in between hypermarkets and supermarkets. For instance, the Godrej Group runs a rural retail chain called Aadhar, which started off selling animal feed and fertiliser to farmers, but now also vends tractors and durables, and Nature's Basket, which retails fruits and vegetables. DCM Shriram Consolidated, too, operates a Hariyali Kisan Bazaar, which delivers a range of farm inputs. There are 24 such stores at the moment, but the company plans to open 500 centres in another five years. There will be several more niche retail chains such as these. Shoppers' Stop has launched a food and beverage chain called Brio, with an outlet each in Bangalore and Mumbai. "The dream is to make a billion-dollar company out of Shoppers' Stop," quips CEO Govind Shrikhande. Metro is a (cash-n-carry) retailer that only sells to businesses, while southern retailer Subhiksha has developed its own unique discount store format. Says Ireena Vittal, Partner, McKinsey & Co.: "The Indian organised retail industry is entering a phase of experimentation. Most of the local players don't have any historical experience of running a retail business, but they are very comfortable experimenting."

Perhaps the best example of an experimental retailer is Pantaloon's Biyani. In the eight years that he's been in the business, Biyani has built a retail empire with an astonishing variety of interests. He's into hypermarkets, malls (Central, and he recently acquired Crossroads from the Piramals) and apparel manufacturing, among others. Even the Tatas have diversified from departmental stores (Westside) to hypermarkets (Star Bazaar India), to books and music (via Landmark, where they acquired a 76 per cent stake last year.) Some day in the future, the retailers will want to consolidate and get out of areas where they don't have a clear advantage. But for now, everyone will want to do everything, simply because opportunities exist. Says Adi Godrej, Chairman, Godrej Group, "The market is largely underpenetrated, which means there can only be new opportunities."

REAL ESTATE AND MALL ECONOMICS

CROSSROADS Biyani paid a cool Rs 250 crore to buy this mall from the Piramals Retail, someone once said, is about three things: Location, location and location. In a real estate market gone crazy, retailers are finding rentals choking their profits. Consider Mumbai. Rentals in suburbs like Bandra and Juhu are in the range of Rs 150 to 250 per square foot. In Tardeo and Nariman Point, it's even higher at between Rs 250 and 400 per sq. ft. Says Ajay Bijli, MD, PVR Cinemas: "High land prices are pushing rentals beyond what retailers can afford." The only way a retailer can survive the squeeze is by being someone the developer of, say, a mall would want as an anchor tenant. A position that some players like Pantaloon, Trent and Shoppers' Stop seem to have attained. "The anchor tenants, who are responsible for attracting the greatest footfalls to the malls, pay rents 40 to 50 per cent lower than those of other smaller stores," says Nagarajan Narasimhan, Head of Research at CRIS INFAC. In an evolving retail market, the profit zone for a retailer moves from purchasing to supply chain and then to real estate. But in India, where rental costs can be between 8 and 15 per cent of total costs, retailers like Pantaloon's Kishore Biyani are already discovering that there's more money to be made leasing space than retailing.

Fear The Foreign Retailer?

HYPERCITY 50,000 customers landed up at this hypermarket on its opening weekend

There's little doubt that foreign retailers want a piece of the action too. A.T. Kearney's Global Retail Development Index 2006 ranks India, for the second year in a row, as the most attractive destination for mass merchandisers and food retailers. Single-brand retailers have already been allowed to own up to 51 per cent in their India ventures, and other categories such as apparel and consumer electronics may also be opened, since there are no kirana lobbies of any significance here (see "We Need Tear-free FDI In Retail" on page 102). "India is at the peak of attractiveness for retailers right now," notes Raman Mangalorkar, A.T. Kearney's Head of Consumer and Retail Practice in India.

As growth slows in their home markets, more and more foreign retailers will want to tap the Indian market. But don't expect them to sweep out their local rivals overnight. For several reasons. One, single-brand retailers in themselves are no major threat, since their fortunes will be determined by how well they build their brands and customer loyalty. For an Ikea or Starbucks, both of whom could be entering India soon, that may not be a problem, but how about a Marks & Spencer or Debenhams (the former is already present in India, while the latter has announced its intention to come)?

Regulatory reasons apart, the retail landscape in India is too complex for a new entrant to handle on his own. Acquiring and developing real estate alone can be a major challenge. That's possibly one reason why even Wal-Mart, the Big Daddy of retail, follows a partnership strategy for its overseas forays. Another big challenge for the foreign retailer would be to develop a value proposition that appeals to mass market consumers. Says McKinsey's Vittal: "It's too early to say who'll win or lose in the coming retail battles, but I think the local players could be the winners."

There are other hurdles that could trip up not just the foreign retailer but also the home-grown players. Supply chain is incredibly complicated, thanks to multiple regulations, poor roads, and a near absence of cold chains. Retail talent, especially at the middle and top levels, seems to be in short supply. Therefore, retailers flush with funds to invest may find that they have no management bandwidth. Importantly, no organised retailer in India has had to deal with a downturn. How they derisk their business models to cope with a slump will be important too. But as Technopak's Sahni says, "There are just too many opportunities in the industry right now to talk about losing." He could well be speaking for the industry.