Three months ago, Raghu Pillai joined Future Group as chief executive and executive board member from Reliance Retail where he was the president and CEO. Pillai now supervises the group’s retail chain Aadhar, neighbourhood chain KB’s Fair Price, consumer durables chain Ezone, and Home Town. A retail industry veteran for 16 years, Pillai talks to Raghavendra Kamath about the issues the sector faces and how he plans to take the group’s retail ventures forward. Excerpts:
Are you disappointed with the delay in allowing foreign direct investment in multi-brand retail? Is it hampering the sector’s growth?
I am neither disappointed nor happy. It is the uncertainty and constant flip-flops that are frustrating. At the end of the day, I recognise that governments in large democracies like ours have their own compulsions, constraints and constituencies. But I would like to see closure on this in the short term.
Are declining home sales hurting homeware retailers like you?
No. Our home formats are doing extremely well and registering a significant year-on-year same-store sales growth.
How are you managing lower prices given the wafer-thin margins in food products and groceries owing to high food inflation?
We manage margins in the same way as we do in low-inflation periods. But value retailers must also be conscious of high prices. We have decided to sacrifice gross margins in sensitive items in the short run. Ultimately, retailers take home rupees and not margins. Beyond a certain point, demand is inelastic.
I think we have to start living with prices that tend to rise at a pace we have not seen in the past. But this has to be mitigated by effectively subsidising them for poor people. In India, the rich and middle classes have to learn to live with slightly higher prices.
What will be the Raghu Pillai imprint in Future Group’s value formats?
Future Group is well-positioned in terms of its format portfolio, geographical reach, property pipeline and brand and holds a dominant position in the value segment. But there should be an increased focus on the execution as other players start scaling up and world-class players enter the space. We need to strengthen our pipeline of future leaders to manage our growth. I hope I will play a role in this.
What is the course correction required to achieve the next level of growth in Future Group with other retailers getting as aggressive?
If you are asking me where do I see Future Group in the next six to nine months, we should focus on a significant improvement in working capital management, store-level profitability and a well-articulated strategy for the future. And all this must be done without diluting the basic DNA of a group that is extremely entrepreneurial.
The group has been growing at a blistering pace for the last ten years. Yet, there is room for growth. Though the base is higher – we will be a $3-billion group by June 2011 – we should add a topline of $1 billion every year. At that size and scale, our expertise and capabilities to manage certain systems and processes will become far more relevant and important. This is because you cannot run a Rs 20,000-crore company in the same way as a Rs 100-crore firm.
Recently, a global business consultancy conducted a perception survey among hypermarkets in Thane where consumers perceived Big Bazaar as the second-most expensive place to shop. Doesn’t the finding contradict the group’s stated value play around Big Bazaar?
I have seen the study. It all depends on the date and the product factored in for the survey. I certainly reject the fact that Big Bazaar is the most expensive across the portfolio of products. That proposition needs investigation. Big Bazaar is clearly positioned with great offers and great deals throughout the year.
Besides, the comparison is not correct. Apart from D Mart in Mumbai, others are out-and-out hypermarkets where 50 to 60 per cent of throughput comes from food. Big Bazaar is not a hypermarket. It is a value departmental store with a great focus on general merchandise, apparel and food. If you want to compare others with our format, then compare with Foodrite, our hypermarket in Mulund. Anyway, if consumers perceive us as more expensive, we must address it.
But if you visit Star Bazaars, they are far more superior to Big Bazaar in terms of ambience and offerings.
At the end of the day, Big Bazaar is one of the most successful formats in terms of recreating an Indian market place or a bazaar. Having said that, most of the Big Bazaar stores have been in existence for some time. I think a fair bit of work has been done to take them forward. We are addressing that.
Tomorrow, when you tie up with Carrefour and launch stores, what will happen to the positioning of Big Bazaar?
Though I can’t comment on the Carrefour tie-up, I do not think anything will change in Big Bazaar’s positioning, which is based on a great value proposition and department store-led strategy. It is only in the last couple of years that it forayed into grocery, food and fresh produce. Though I cannot say whether we will tie up with somebody or not, we are conscious of the fact that in the emerging retail market, we should have a strong hypermarket play — we have done this with Foodrite. Sooner or later, we will come out with a format that can compete with Star Bazaars. However, only time will tell if this will be with or without collaboration. But that is the format with which we will compete with hypermarkets; and Big Bazaar will run on its own.
With customers moving up the value chain, where do your value formats fit in?
To be fair, if you look at our formats, the only format that is in the pure value segment is Big Bazaar. We have a lot of formats such as Pantaloons, Home Town, Ezone that straddle the price points. Except Big Bazaar, all the formats are clearly positioned. We may not be in the uber-luxury or super luxury space, but, certainly, from the value to lifestyle segment, we are clearly positioned. Home Town has no comparison. Ezone sells more plasma TVs than anybody else. Other formats are influenced by Big Bazaar’s dominance, but Future Group has effective footprints in many other formats. For example, Pantaloon is recognised as one of the design leaders in the fashion and apparel segment. You are right, one of the challenge or opportunities is to cater to the growing aspirations of a large population.
Future Capital Holdings, the group’s financial services arm, is looking at an interplay with Big Bazaar and other outlets. Do you think the experiment, which hasn't worked well in the past, will work now?
I am not fully into the loop. But just because it has not worked in the past does not mean it will not work in the future. We are not afraid of failure. It is not end of the road.
Are you making any changes in your formats?
Change is a constant process but the basic DNA of the format is not being changed. So far as Aadhar is concerned, in which we have tested various permutations and combinations, we are studying those stores where we have a rural play. We are figuring out the right model, going forward. It’s work in progress.
