| The second and concluding
part of our interview with Raghu Pillai, CEO, RPG - Retail.
Some say the corner shop will never get wiped
out in India. Comments. 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.
Retailing the world over has brought down inflation.
Do you foresee the same thing happening in India?
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.
Is there any peculiarity which you have noticed
that is typical of the Chennai shopper? 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.
What is it that Chennai has going for it, in
terms of the retail business? And what has it got working against
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.