Bharti retail back on the block

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Bharti Retail announced its foray in the retail sector recently. The company seems to have overcome the political tempest created over its joint venture with Wal-Mart. Rajan Bharti Mittal, Joint MD, Bharti Enterprises, explains the entire strategic retail roadmap of his company.

After the announcement of the joint venture with Wal-Mart, the journey of Bharti’s retail venture hit a sort of roadblock – when UPA Chairperson Sonia Gandhi wrote a letter to the prime minister, asking him to categorically review the Bharti-Wal-Mart deal, besides the FDI policy in retail sector. This comes in the wake of the Left Parties’ rhetoric against FDI in general and the above-mentioned deal in particular.

Dressed in a crisp black suit, Rajan Bharti Mittal, joint managing director of Bharti Enterprises, showed no visible signs of pressure when he divulged the details of the roadmap of his company’s foray in retail sector in India.

The investment

Bharti Retail Private Limited will invest over $2.5 billion in its retail venture by 2015. Bharti plans to raise this money through various sources. “Equity, debts, internal accruals and working capital are some of the sources we are looking to raise funds from,” said Mittal.

Interestingly, this investment does not include the investment on real estate. Retail real estate is getting costlier by the minute, but the company has so far not made any commitments on this. “Bharti Realty, one of our resource companies, is looking at the different land banks and options that are available,” Mittal confirmed. He refrained from making any comments on investment in real estate. However, he accepted that this investment just looks at the front end and not the logistics, as logistics is a separate piece altogether. The venture has revenue targets of about Rs 20, 000 crore by 2015.

Vinod Sawhny, who was earlier joint president of one of Bharti’s telecom companies, will head the retail operations of Bharti Retail.

The format

Bharti is planning to have a pan-India rollout. It will launch retail outlets in multiple consumer-friendly formats, which will include hypermarkets (with retail space of 75,000 to 125,000 square feet) and supermarkets (with retail space of 30,000 to 50,000 square feet). For convenience stores it is looking at developing its own space, as well as partnering with existing local store owners across India through a franchisee model. These stores will include all food and grocery categories, fresh fruits and vegetables, meat and poultry, dairy products, staples, FMCG and processed foods, electronics and appliances, clothing and footwear, furniture and furnishing, and other household articles. “Our first store will be launched in Q1 of 2008 calendar year,” said Mittal.

By 2015, the company is looking to have total retail space of over 10 million square feet . Given the tremendous potential in the tier I and II cities, Mittal plans to initially target cities with population of over 10 lakh – and as the subsequent phasse of retail network is implemented, cities with population of five lakh will be targeted.

The Blueprint

The Indian retail industry is worth approximately $270 billion and is expected to cross $500 billon by 2015. The overall growth in the retail sector is about 13 per cent. The organized retail sector, which at present constitutes only a fraction of the total Indian retail industry, has registered robust growth of over 42 per cent in 2006.

According to Mittal, the increase in spending power, consumption power and disposable income of the Indian populace across various sections of the society, clearly needs to percolate in the retail sector as well. “The Indian economy is growing at about 9 per cent; the organized retail sector is expected to grow at 30 to 40 per cent annually. We believe that we need to partake in this growth in a big way.” He further adds that countries like China and Brazil have demonstrated how retail boom can give great boost to the economy. And he is sure that the same thing will happen in India as well.

Mittal looks at the entire venture from a very different perspective; he states that Bharti’s philosophy has always been to offer the consumer best quality, variety, range and choice of products at affordable prices. “In our retail venture, the consumer is of utmost importance. He/she will be able to buy everything from a pin to furniture under one roof. We aim at giving the consumer a great experience, good quality and range of products at an affordable price,” he adds.

Offering quality products at cheaper price is more of a compulsion for every retailer, if they want to survive in this industry for long. Bharti’s strategy in this regard is based on facts. Mittal points out that when the economy on the retail side opens, it will help small manufacturers, farmers and artisans in a big way. “The wastage in the farming industry is about 35 to 40 per cent, because there is no linkage to the mainstream. The small manufacturers and artisans are neither linked to the mainstream, nor do they have the wherewithal to do so on their own. This is where we will pitch in by providing the linkage to these sections, bringing their goods to the fore and giving them a better price in return.” Bharti also wants to encourage private labels by giving them a platform through the retail stores.

t the retail conference organized by ASSOCHAM earlier this month, Sanjeev Duggal, CEO and executive director, Bharti Comtel Limited, had spoken at length about the crunch of manpower in the retail industry. Duggal highlighted the shortage of talent in the retail industry. The huge gap between the supply and demand of trained, skilled and talented manpower in the retail industry cannot be fulfilled by the present workforce available. In their telecom business, Bharti needs around 20,000 trained people in the next few months. Mittal is not worried about the so-called talent shortage and high attrition rate in the retail industry. On the contrary, he believes that Bharti Retail will provide employment to over 60,000 people in the front-end and many more at the back-end. “This will create opportunity of employment for youth, women and ex-servicemen,” he says.

The Wal-Mart factor

One thing that everybody wants to know is to what level Wal-Mart will be involved in the venture, especially after Sonia Gandhi’s letter. To this, Mittal replied, “The retail venture is 100 per cent owned by Bharti and like any other Indian company, we are looking forward to doing business. For a business of this kind we need technology, processes, best practices and logistics, and we are in discussions with Wal-Mart in this regard. Besides this, we are also talking to them for setting up back-end and supply chain, as well as cash-and-carry, which exists in the country through other cash-and-carry resources.”

“You have to understand that these are two different ventures; Bharti Retail has to do its own job and the cash-and-carry has to do its own. These are not two divisions of the same business,” Mittal stressed.

This a clear departure from the earlier statement made by Sunil Bharti Mittal, which said that not only a joint venture with Wal-Mart was being worked out for cash-and-carry, but also a licensing agreement for the front-end was under discussion.

On being asked which brand name the company will use, Mittal said that a consumer research is underway and the brand name can be decided once the results are in. He added that even the Wal-Mart name can be used depending on the results of the research. For different formats, different strategy for brand names could be worked out. Presently, the investment on the back-end, where Wal-Mart will be involved, is being worked out.

The Interview

Karan, Sanjay and Nupur in talk with Mr. Rajan Mittal

Q. You mentioned that you want to take the mom-and-pop and kirana stores with you in this plan. Does that mean you will adopt what Hindustan Lever has done by converting kirana stores into super-value stores?

Ans: We have always believed in coexisting, and we believe that such a system can exist in this country. We will talk to these stores and try to bring them in our franchisee route, so that they can derive benefits of logistics and supply chain from us.

Q. How do you propose to develop the private labels that you have talked about, in terms of manufacturing and sales percentages?

Ans: When organized retail expands, the smaller manufacturers and artisans will derive huge benefits from it. And we will like to rope in these small artisans and manufacturers to provide us the private labels. A huge consumer research needs to done as to what does the consumer require and at what stage – once this is done, we will put the blocks together.

Q. What is your strategy with regard to the location? Are you looking at malls, high streets, or out-of-town locations?

Ans: Real estate companies are looking at all real estate possibilities. It will boil down to the consumer needs, according to which we will select the locations and try to provide the best experience to the consumer.

Q. You are already behind players like Reliance and Subhiksha. How do you intend to do the catching-up?

Ans: Organized retail has not really started in India , as you can gather from its present three-per-cent share. The retail pie is so big that everybody can have their share. By 2015 the total retail industry will be about $500 billion, out of which the organized sector will be only 20 per cent, which means roughly about $100 billion. So you can imagine the potential this sector has. Everybody has a place here.

Q. If Bharti Retail is a 100-per-cent Indian venture, then would you agree that the media misinterpreted it as a joint venture between Wal-Mart and you?

Ans: No, I would not say that. We are in discussions with them for logistics, supply chain, and cash-and-carry business. They (Wal-Mart) have nothing to do with the retail chain.

Q. In China , all the MNCs that have entered the retail sector are doing well and so are the mom-and-pop stores. For India , why is it said that the neighbourhood stores would die? Are these fears misplaced?

Ans: When something new comes in, apprehension is always there; but I feel that companies will coexist and do well. This is a huge market. People should look at the data before coming to any sort of conclusion. The same thing will happen in India , as has happened in China . The smaller stores will become more efficient and give better value to the consumer.

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