Excerpts from an interview given to CNBC-TV18
Why are you not looking for a joint venture partner?
Birla: I don't think we found the need for one. We think we have the competency that is required and we understand the consumer sufficiently well, but we will have to hone our understanding from a retail point of view as we go along. We didn't really find that a JV partner from overseas could really add value to this venture.
Is it that only or is it complications around FDI, getting licenses, keeping the partner happy even while you are not giving him equity in the front-end etc?
Birla: No not that, but very clearly we think that we can do this alone.
Reliance has got a head start, Bharti has got Wal-Mart, what do you have?
Sinha: We have our own abilities to roll it out. As Mr. Birla said, retail is a local business and I believe we have the ability of developing our own supply chain and making sure that it extends back to the farmers and provides an alluring proposition to our customers.
How are you going to compete because you have Wal-Mart doing large cash and carry sort of backend for Bharti, and there is Reliance talking about doing two parts of the retail business - the supply chain and the front end?
Sinha: Firstly, it is not that we have just woken up overnight and decided to get into retail and secondly, some of our competitors are yet to start, so to that extent they are behind us and thirdly, as anybody else has the ability of investing in a supply chain, we have the ability as well and we will do that. Fourth, it ultimately depends on what sort of experience you provide to your consumers and our intention is to provide a better experience to our consumers, in terms of pricing power position, in terms of value for money and in terms of the service we will provide to our customers.
What will be the structure of this supply chain? Are you also going to do intermediate cash and carry stores?
Sinha: I don't think cash and carry is an important part of the supply chain. I think it is something that you can do to address one part of the customer requirement, which is more an institutional customer base. At this point, we are targeting the retail customers who are by far the larger part of the market. Cash and carry really does not figure as part of the supply chain construct. What you need to do is to make sure you have your own access to farmers, to mandis etc.
How are you doing that?
Sinha: We are doing that by actually reaching out to the farmers. So, the idea is to do that and over time build up relationships. Over and above that, you also have to source from the rest of India, source from overseas and of course scale is important there, but so is understanding of what customers are going to buy.
Considering this is a long stretch break-even project, is the Group never going to invest in it, and is it all going to be family capital income?
Birla: You never say never, but as of now, I don't see any investments from the group companies.
You don't think the group companies would have benefited?
Birla: Like I said earlier, companies have their own plans, which obviously have first priority on their cash flows.
When do you intend to go public with this?
Birla: I don't think we have a need to go public.
So, Rs 7,000 to 9,000 crore (Rs 70 billion to Rs 90 billion) is going to come entirely from you, i.e. the equity part of it is going to come entirely from you?
Birla: No, like I said, a lot of it will be debt.
How much in this business is equity and debt?
Sinha: There is no exact number but 1:1 is a safe number to assume for any business but ultimately, a large part of it will come out of debt and the balance will be equity.
In the past year-and-half, everyone's been jumping into retail. You found Mr Sinha from within the Group to manage this, but what has been your experience in getting other talent? Have you looked at the overseas market to pick up talent in spaces that India doesn't have any experience in - like merchandising?
Birla: We have looked at competencies where you don't have talent available in the country for obvious reasons because there has not been need for those competencies in the past. We have looked at getting those competencies through recruiting experts.
The other challenge is real estate.
Sinha: Prices have gone way out of control and these prices are very hard for any retailer to be profitable and so one has to be very judicious about going and acquiring real estate at this point in time.
Do you have any that you require?
Sinha: We have because we are going to be launching in Pune shortly.
That is about four stores?
Sinha: No we are talking about 15-20 stores, so we have already acquired that space and will be launching very soon.
There has been buzz around Pyramid Retail and if you want to move really fast in many parts of the country, you may want to get a head start by buying out, what is the strategy going forward on that?
Sinha: Buying is not easy. Whenever you think of buying, you have to think about integration as well and if you buy the stores that don't have the kind of fixtures, fittings and merchandising you are looking for, then it's a challenge to get it up and running.
Does the entry of Bharti-Wal-Mart JV frighten you at all?
Birla: No, like I said, across sectors where you have foreign competition, its going to be the same thing here and we are looking at providing the consumer with a world-class benchmark experience, so I don't think Bharti-Wal-Mart should scare us at all.
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