It’s not just the foreign retail majors and their potential Indian partners who are waiting for FDI in multi-brand retail. Aditya Birla Retail (ABR), which opened its second hypermarket store in Delhi recently, is also watching the policy space keenly. CEO Thomas Varghese tells Nivedita Mookerji that the company is open to the idea of a tie-up with a foreign financial partner. Edited excerpts:
What is your reaction to the all-round indication that FDI in multi-brand retail is finally coming? Will the riders be a deterrent for the foreign players?
Yes, I think FDI in retail is finally coming. Even if FDI is allowed with riders, strategic investors will still come because the opportunity and size of the retail market in India is huge. If any international investor chooses to ignore this market, he will do it at his own peril.
What kind of impact will FDI have on Indian retailers?
We welcome FDI in retail as it will bring the much-needed funds into the sector. Of course it will intensify competition, but it is good as it will improve your performance.
Currently, who is your biggest competitor? Our competition is not so much with modern retail chains. Organised retail is still a very small fraction of the total market. Our competition is mainly with the unorganised stores.
What are the biggest challenges?
Getting appropriate real estate at the right place and right time is the number one challenge for us. Secondly it is about retention. In one hypermarket store itself, we employ as many as 220 people across various sections from cold chain to bakery to cash counters. Then of course, the government policy is also a hindrance. Not allowing FDI in retail is a big hurdle, and lack of systematic regulatory framework is another.
Coming to your company, what is Aditya Birla Retail’s expansion plan?
We plan to open 12 hypermarkets under the brand name More this financial year. We have recently opened one in Delhi, the rest will come up in Gurgaon, Mumbai, Hyderabad, Bangalore and Nashik. Till now, the group operated nine hypermarkets.
What are your plans for supermarket?
We already have 560 supermarkets, and plan to have a total of 700 by the end of this financial year.
What kind of investment are you looking at?
For hypermarkets, we spend around Rs 16 crore to Rs 17 crore on each one. So, the total investment would be around Rs 200 crore this year. In addition, we will invest Rs 60 crore on supermarkets. So, in total, we plan to invest Rs 300 crore this year.
What do your revenue figures look like?
We closed the financial year at a revenue of Rs 1,650 crore. We are targeting Rs 2,500 crore for the current year. While 15 to 16 per cent of growth is expected from the same stores that we had last year, another 30 per cent growth is likely through expansion. Overall, we plan to add one million sq ft of space this year.
There’s some talk about ABR getting speciality segments. Can you elaborate?
It’s at a very early stage, and I am not at liberty to discuss it.
Is initial public offering (IPO) something that the group is looking at right now?
IPO is out of question without the company being profitable. I have said earlier also, that around 2013-14, the company is expected to turn profitable. That’s our date of destiny, as I look at it.
But, do you need to go for an IPO at all?
Yes we do for sure. We need funds.
Are you in talks with any of the foreign players for a partnership, now that FDI may be permitted in retail?
No, we are not.
But, will you look at the option of getting into a partnership with a foreign player once that is permitted?
We may look at the option of getting a financial partner, while we run the business ourselves. Many international players would be ready for that arrangement, I guess.
Do you see potential for mergers and acquisitions (M&A) in the retail space now?
Logically speaking, yes there is potential. Realistically speaking, the quality of assets is a problem.
Is Aditya Birla Retail considering acquisitions in the retail space?
Yes, we have been getting many proposals. Last year we got five proposals, but nothing materialised as either their expectation was high or the quality of asset was poor. But I must say that some assets were quite good.
Would you say that Indian retailers are of international quality?
There are all kinds. But, some are definitely of international class and caliber.
What are your e-commerce plans?
We are about to start an e-commerce pilot in Bangalore next month. The e-commerce platform is only for hard goods and general merchandise to begin with.
What is the level of penetration of modern retail across some of the big cities in India?
Delhi is a clearly an under-served retail market, with modern trade penetration of just seven to eight per cent. Mumbai is a little higher than that. Bangalore is on top with 27 per cent penetration of modern retail, followed by Hyderabad at an estimated 23 to 24 per cent. Kolkata will be at the bottom of the list among the metros and mega cities.
