RETAIL SPECIAL...Foreign Supermarkets Just Can’t Compete with Kirana Shops: Mittal

Foreign Supermarkets Just Can’t Compete with Kirana Shops: Mittal 

Bharti Enterprises’ VC & MD says it is natural that they are in talks with Walmart for the front-end

Rajan Bharti Mittal, vicechairman and MD of Bharti Enterprises, which has a joint venture with the world’s largest retailer Walmart for wholesale cashand-carry business, says allowing foreign investment in multi-brand retail will not displace neighbourhood stores because they just cannot compete with kiranas. Mittal has been one of the most vocal supporters of FDI in multi-brand retail and has held countless meetings with commerce and industry minister Anand Sharma and some state chief ministers to lobby for it. In an interview with ET’s Chaitali Charkravarty, he says the Bharti group is committed to retail business and it will finalise investment and rollout plans after discussions with Walmart in the coming weeks. Edited excerpts:
Bharti Enterprises is the immediate beneficiary of the policy that allows foreign retailers to own 51% in companies that sell directly to consumers. You have a foreign partner ready to buy into your retail business. Your comment?
You are saying this, because I have been vocal about it. The biggest beneficiaries of this landmark decision would be farmers and consumers. Farmers will get a much better price for their produce by selling directly to retail chains while avoiding the middlemen. Consumers will have access to a range of quality products at affordable prices. The country will benefit from a world class back-end infrastructure that will greatly reduce food wastage. Currently, more than 35% of fresh produce get wasted due to lack of an efficient supply chain infrastructure. With a number of large Indian retail companies working closely with international players, it is unfair to say that we are the immediate beneficiary of this policy decision. I have only 200 stores. There are bigger groups that will benefit through this policy. We have a partnership with Walmart in the back-end and when FDI in multi-brand retail is allowed in front-end, it is natural that the two partners will talk.
The perception is that Bharti Enterprises was keen on FDI in retail, perhaps even more than Walmart, because the business burns cash and, with telecom (Bharti Airtel) slowing down, the group does not want to invest so much in the high-gestation retail business. Your comment?
As you have mentioned, it is just a perception. We have a long-term perspective for the retail business and we remain committed to it. Bharti has always partnered with the best in class companies, be it Axa or SingTel or Walmart. The idea is to leverage the innovative practices, science and technology developed by these companies in their respective fields, for the benefit of Indian consumers.
As of now, only some states have said ‘yes’ to FDI in retail. Do you think states opposed to this policy will give in before the 2014 elections?
India is a big country. In any case, we can’t reach out to each and every state in a year and a half. We will start rolling out stores in states that have welcomed this policy. There are large states, like Maharashtra, Rajasthan and Andhra Pradesh which have said ‘yes’, and we have lots to do there. At the same time, let me point out that states are competing with each other; we have seen enough instances of chief ministers going out and seeking foreign investments. If farmers, consumers and job-seekers gain through FDI in Andhra Pradesh, it will be hard for neighbouring Karnataka to say, “Sorry, we don’t want it.” It is a good start and eventually people will see the result.
But two states where you have maximum presence — Uttar Pradesh and Punjab — are both opposed to FDI in retail. How do you plan to go ahead with foreign investment?
First, we have to start discussions with Walmart on these issues, which we will do in the next two weeks. Bharti Retail has 217 easyday stores. We have to see how many of them are in FDI-friendly states. We have to create structures accordingly to work around this constraint. Punjab is a high-consumption state; I doubt very much that it will continue to oppose FDI.
Will Walmart take a 51% stake in Bharti Retail? How much will Walmart invest in front-end stores?
The discussions have not started yet, but don’t assume it will be 51%. Every investment is store-dependent and every distribution centre is based on a cluster of stores around it. So, we will come back to you with investment figures and store rollout plan. The equal JV for cash-and-carry will remain as it is.
After the investment, will you retain your supermarket brand easyday, or will you change it to Walmart?
Walmart’s philosophy worldwide is to retain the brand name of local supermarkets it acquires or partners with. In Mexico, it has retained Bodega Aurrera and in South Africa, Maxxmart. Even in the UK, it acquired ASDA and has kept it like that. For the wholesale stores that we operate in India, Walmart had the option to go with its membership-based cash-and-carry store Sam’s Club, but chose the name Best Price instead. So, the easyday brand will remain as it is.
Can foreign supermarkets compete with kirana shops?
They just can’t. We can never be located at the doorstep of every consumer. Neighbourhood stores occupy 500-700 sq ft of space. If I have to open a store next to it, I have to take at least six of them to justify my cost structure. Where is the space?

ET120917