RAGHU PILLAI ON RETAILING TODAY

The second and concluding part of our interview with Raghu Pillai, CEO, RPG - Retail.

I completely agree. There is a huge political movement that says, 'Don't allow Foreign Direct Investment (FDI) in retailing, don't allow large corporate houses to go into retailing, because all these guys (the corner shop guys) will die and fall down on the way side'. That's absolute rubbish! If you just look at the size of the market, which is, a million crore, even in our wildest dreams, in 15 years time, what would be the size of the consolidated retail business - Rs 20,000 crore, RS 50,000 crore, RS 1,00,000 crore... There is no company in India which is RS 1,00,000 crore. Even if ten players come in, they can at best build a business of RS 1,00,000 crore, that's less than 10% of the total market, today. 15 years from today, the market size will be RS 2 million crore. So its absolute humbug.

One only has to look at the US. I think the Indian market will go very much the US way. Its not Singapore or one of the European countries, where you start driving in the morning and you reach the end of the country at the end of the day. Its a large diverse country like the US. There the big stores and the small stores, flourish. In fact in the US the small stores are dominated by the Indians. So, I don't believe, the corner store will die. There will be some who will shut down, but then, there is always some fallout with change. But people who are able to deliver value will never die.

Take Chennai for instance, the total grocery market in Chennai, is about RS 250 crore a month. We do RS 6 crore. I dont' think anybody is going to shut down in five years. In five years probably we will do RS 20 crore in Chennai. By then the market will be RS 400 crore. We are talking about a retail consolidation of 8-9 %.

Lets take a city like Hongkong, which is pretty much like Chennai. For a 6 million population, Hongkong has 600 supermarkets. Average size is 15,000 square feet. And yet the total market they control is under 15%. 85% of the grocery market is still run by 'Mom and Pop' stores. So its absolutely some vested interests who are driving this move that FDI will kill the small retailer, it will not. It hasn't happened anywhere else in the world, and it will not happen in India.

It should, it will. The thing is we need more players. Its a million crore market. One person cannot do it. It requires more players, you need to grow the size of the pie, the size of whatever share this format takes of the total food pie. Fundamentally what retail consolidation does is it debilitates the intermediaries. Typically, how do fruits and vegetables reach your house? It goes through five cycles - from wherever its grown it goes to a consolidator or an agent, the agent sends it to the district headquarters wholesaler, who sends it to Koyambedu. At Koyambedu a semi-wholesaler, picks it up and sells it to a retailer, and the retailer sells it to you. In the US, if a person buys a kilogram of tomatoes for say RS 10/-, the farmer gets RS 6/-. Here the farmer gets RS 3/-. Its like each guy is pinching some part of it, without adding value. Its not that they are processing it, or preserving it. They are just taking advantage of the fragmented nature of the retail industry.

We deal with 400 farmers directly. We are buying products directly from them. If we are able to buy this product from them, we are able to save this whole cost in between. We are able to give the farmer more money and yet charge lower prices to the customer. So thats what, retail does. That's how it brings down the prices. Worldwide, consolidated retail has almost, always brought down the prices.

Chennai shoppers are great tryers. We are able to introduce new products and get a good trial rate in Chennai, compared to Bangalore or Hyderabad. They are great value seekers. For some reason, in Chennai, more families come to shop than in any other place. Maybe its a reflection of alternative recreation activity available in Chennai. Certainly, we seem to get a lot more 'husband, wife and two kids' coming. The Chennai shopper is as smart or as savvy as his/her counterpart elsewhere in the country.

The fact this, in many ways, is the 'Mecca' of retail in India. Its got very transparent land use laws, real estate prices are reasonable. Availability of real estate is a bit of a constraint right now, but that should improve dramatically. Power is not yet an issue. Fundamental infrastructure is there. The workforce is there. The Government is reasonably proactive in terms of looking at changes and amendments in the Shop and Establishment Act to cater to this new kind of format. Compared to the rest of the country, I think Chennai has a very enabling retail environment. That's why we have so many retail players in Chennai.

One thing that we are lacking in is availability of good real estate. More malls, more shopping centres will help trade and commerce, will increase revenue for the Corporation and the State Government. Also, more pragmatic laws, as far as liquor is concerned. For example, beer and wine, why shouldn't we sell it like Coke? We are not talking about whisky or rum, we are talking about basic beer and wine. Uttar Pradesh (UP) has done it. When UP can do it, I am sure Tamil Nadu can do it. The revenue for the Government has gone through the roof there. So we need pragmatic laws.

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