India is exactly where China was eight years back. In the next three years, the modern trade format is set to explode; it will change the way the retail market behaves, said Rajeev Bakshi, managing director of Metro Cash & Carry. Excerpts from an interview:
How has the journey been so far in the last seven years? Don’t you think you were rather cautious in expanding footprint?
One has to look at things in the conjunction of the life cycle of the modern trade practice. If you look at the history in the last seven years and compare it with any other business, I would say we have actually done far better. Today, among the FMCG companies we are amongst the top three to four customers. You can check this with any Top 10 FMCG company. I can’t talk about my turnover.
Yes, we proceeded cautiously, but definitively. We have not gone into a boom and bust situation where retailers opened 800 outlets and closed 400. Two or three retail chains are totally shut down. We have never done that. We kept on waiting and inducing the consumer to change the habits. The amount of throughput we do through our distribution centres is huge. We are getting the model right. Simultaneously we are making the customer change the habits. We are making the model totally adapt to the Indian conditions.
Why is the modern retail format unable to script a success story? How much time will it take to do so?
Let’s look at what India’s GDP and per capita income are today, China was in this exact same spot eight years back. The gap between us and them has been exactly eight years since the last 15 years. India’s per capita GDP is at about $1,400 on a nominal basis. China had the same number in 2002. Once, basically, per capita GDP crosses $2,500-3,000, exactly what China has today, the modern trade formats explode big time.
There is going to be a purchasing power to purchase a full basket once a week. When you go to that level, the number products consumed increases dramatically. This will happen in sync with the customers’ demand for new products. The proliferation of assortment becomes so large that modern trade formats are the only solution for delivery for all of that. The mom & pop stores can not deliver that.
At a certain point, the entire thing explodes. Purchasing power, disposable income and the modern trade formats starts becoming much more relevant at that point. Over the next five years, India’s GDP will start catching up with China. India’s GDP is going to double in the next five years. So, the explosion will be tremendous.
But what is shackling things now?
It’s a very interesting situation. You can never measure the life cycle of a particular service in just seven years. Let’s take airlines. How long did it take to mature? Jet Airways and other airlines started in 1993-94. But the model matured only when the low-cost airlines came in 2004-05. It takes about 12-13 years for a new service model to mature accompanied by incremental purchasing power of the customers. As far as India is concerned, the model will explode when the per capita GDP touches $2,500.
In fact, it is already there since the urban per capita is already much more. The urban per capita is at about $5,000. It is closer to places like Bangkok. Therefore, right now is the right time.
What are the key issues players like you are facing today?
Apart from purchasing power, translation of that into buying habits and factors of production like land and labour. Labour is not very expensive in India. Land in urban centres is expensive. That has to match with the overall business throughput. Finding talent is definitely an issue particularly at the senior and middle management level that too trained for India. This is because the history of modern business formats in India is just five years old.
What do you think will happen in the next three years?
Currently, the modern trade throughput is about 5% to 6%. In the next three to four years, it would double. The number of items in a household would be at least 50% higher.
But, don’t you think the share of formats like yours still have less share in the market?
Relatively we are not small. In terms of development of modern trade formats, the percentage is still small. Relative to other formats, we are not small. We are among the top three or four of the FMCG customers. Don’t get misled by looking at Bangalore or Hyderabad.Bangalore is at about 20-25% of throughput for FMCG companies. Hyderabad it should be at 15%. The national average is at about 5-6%. That’s not the case nationally. Even in bigger cities like Mumbai, Chennai, Kolkata and Delhi that’s not the case. If you look at other towns even within Andhra Pradesh, there is hardly anything.
If you take a person in Hyderabad and another in Vijayawada and go to their houses, the person in Vijayawada will have half the number of items in his drawing room compared with the person in Hyderabad. The person in Vijayawada is not exposed to the modern trade. It is a function of lifestyle and availability of money. Vijayawada is definitely rich, but modern trade is still not suitable to him at this point. This is going to change in the next three years.
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