With India – and the prospect of wide-ranging economic reforms in the country – in the international business headlines, there are few other more opportune times to meet Rakesh Biyani, joint managing director of Future Group, one of the country’s largest retailers.
Speaking to just-food on the sidelines of the World Retail Congress in London, Biyani outlines why he believes the Indian government is right to reform the country’s rules on foreign investment and potentially allow the world’s largest retailers into his own backyard.
Future Group, through listed subsidiary Pantaloon Retail, operates in a number of sectors, running department stores, electronics outlets and home improvement shops. However, it is also present in India’s fledgling food retail sector, with over 200 Food Bazaar stores offering the country’s consumers modern, organised retail.
This month, India’s retail industry has again become a major international business news story. On Friday, the Indian government tried again to relax rules on foreign investment in multi-brand retail outlets. A previous attempt had to be shelved late last year amid opposition from some politicians and from small traders fearful that the entry of the likes of Wal-Mart Stores, Carrefour and Tesco (which already have forms of wholesale ventures in India) into consumer-facing retail would hit India’s kirana or mom-and-pop stores.
The ruling coalition’s latest move to allow overseas investors to own 51% of multi-brand retail outlets met the same criticism, despite the new reform package containing conditions, including allowing individual states to block the relaxation of the rules. However, the government, led by Prime Minister Manmohan Singh, has stood firm. This week, a key member of the coalition said her party would quit the government. Nonetheless, 48 hours later, the country’s Department of Industrial Policy & Promotion issued a formal notice that said the reform would come into effect.
Twenty-four hours earlier, at the ExCel centre in London, the venue for this year’s World Retail Congress, Biyani tells just-food why the reforms are the right thing to do, echoing comments from local retail peer Rajan Bharti Mittal, vice chairman and MD of Indian conglomerate Bharti Enterprises.
“I think it’s here to stay. The worries that have been raised are not right. It’s not being represented in the right manner by these people,” Biyani says. “What we need to reflect is that we need to create new jobs. Retail can be a good employment generator. Where will the jobs be created?”
There are some concerns over the growth of India’s economy. Last month, Prime Minister Manmohan Singh’s economic advisory council said Indian GDP would increase 6.7% in the current financial year, high by Western standards but a level some argue is not enough to create enough jobs for a fast-growing population. The same set of forecasts from the council included an increase to its inflation estimate, which it now sees at 6.5-7%. For Biyani, the prospect of more investment in India’s retail sector can improve the country’s supply chain and play a role in bringing down prices.
“The basic reason of inflation is failure of the supply side. The supply side is not keeping pace with demand. Demand is here to stay. What we need to do is optimise the supply side. Wastage ranges from 25% to 35% depending on the life of the product you are bringing in,” he says, pointing out that “almost all the agricultural communities have given their thumbs-up to the FDI policy”.
Some politicians believe the reform will have a negative impact on suppliers. Nitish Kumar, Chief Minister of the eastern state of Bihar, said the changes will “make the farmer a slave in the end”. Mamata Banerjee, Chief Minister of West Bengal and leader of the All India Trinamool Congress Party set to quit the coalition, described the reform as “anti-people”.
Biyani takes a pragmatic view of the tone of the criticism. “When you think about it, what has happened in India, in a democratic country, carrying out change like this is difficult. Let’s look at this country. There is a need to carry out change in the health sector but no party is going to be able to do it because it is sensitive as it affects all citizens. In India, agriculture accounts for 50% of the population. It’s a hot topic.”
The government notification that reform will be implemented means it appears significant change is ahead for retailers present in India – and those keen to enter a market estimated at being worth US$500bn. For Indian retailers like Future Group, which has built businesses across the country, there is the prospect of fierce competition from some of the world’s largest and most powerful players. Is Biyani concerned?
“It doesn’t make a difference really. What we need to be great at our execution. We are a domestic company, we have a better understanding of the Indian consumer. We just need to be great at execution. We must match these companies. Strategically, we seem to understand Indian consumers better, we need to improve our execution skills and we should be able to compete in a market that is really wide.”
But while peers like Bharti and Tata have teamed up with Wal-Mart and Tesco on wholesale ventures, Future Group has built its business alone. Talks over a sourcing partnership with Japan’s Lawson Inc ended without a deal being done earlier this year.
Under the new regulatory regime, there could be more opportunities for Future Group to join forces with international retailers. Future Group has recently reorganised its retail assets to “simplify” the business and to bring more clarity to the business for investors, Biyani says, and it sees further expansion, not least to its food arm, which he describes as “profitable”. (He adds: “Some of the high-margin businesses where demand is not very high, that’s where the concerns are larger. Food is a good, profitable business.”).
This week, Future Group acquired Express Retail Services, which operates Delhi’s convenience store chain Big Apple. Biyani also outlines store targets for its Food Bazaar chain. “Currently we have around 200 Food Bazaar stores. Maybe the number in five years, add another 150 to that number,” he says.
But would Future Group look to team up with overseas retailers? “Partnership is based on merit, the direction the two companies want. We’re already alone. We’ve reached this level. If there is a merit in partnering, I’m happy to evaluate that. If somebody could bring more value addition to the base, why not?,” he says. “If not, we can continue doing what we’re doing and get even better.”