Gurcharan Das, eminent thinker, author, and management guru, published a book a few years ago, India Grows At Night. The story of India’s retail sector is one very apt example of the same. While the Central government continues (as it has over the last 20 years) to tie itself in knots while trying to understand what the retail sector is all about, and keeps coming out with policies and press notes relating to this sector that are more complicated and impractical than the previous ones, India’s retail is now entering its own version 4.0. Potentially, this would be the most transformational version when compared with the first three.
Version 1.0 was when Shoppers Stop opened its first and India’s first modern department store in 1991 in Mumbai. The 1990s saw the founding and emergence of several other retail chains that included Pantaloons, Foodworld (part of RPG Group), Subhiksha, and Westside (Trent). Of these early pioneers, the founder of Pantaloons (now a part of Aditya Birla Retail) carried on to build what is now known as the Future Group and is India’s second largest brick & mortar retail business (after Reliance Retail). Shoppers Stop and Westside have also continued to expand, though perhaps both could have a bit more by way of growth and scale.
Version 2.0 was in the 2000s with the arrival of global retail giants such as Metro Cash and Carry, Marks & Spencer, and many others. D’Mart also opened its first door in the early 2000s. The big news of that period was the announcement of the entry of Reliance into the retail sector in 2005 with an audacious vision and mega investment plans. This entry from Reliance also gave India’s retail sector a much-needed respectability boost since, until then, large Indian business groups had typically shied away from entering the retail sector. Reliance’s announcement led to the arrival of several new entrants that included Aditya Birla Group (through More Supermarkets and Hypermarkets), Bharti Group (in partnership with Walmart), Tata Group (in partnership with UK’s Tesco), and Mahindra Group (through a greenfield retail venture named Mom & Me) amongst others. The French retail giant, Carrefour, also made an entry in 2010.
While the Indian Government continued to “sleep” and Indian politicians remained completely blindsided with their obsession to somehow prevent foreign capital enter India’s retail sectors, Indian retail’s version 3.0 was very much in the making in the 2010s. The seeds were laid in 2007 by two young, ambitious entrepreneurs (Sachin Bansal and Binny Bansal) who founded Flipkart. Expectedly, India’s politicians and bureaucrats (and unexpectedly, many of India’s physical modern retail leaders) chose to remain ignorant or dismissive of the potential of e-commerce (and, specifically, e-retail). Hence, while they slept, Flipkart (and subsequently many others) continued to build upon their dream. From the physical retail side, perhaps the three who continued to evolve and grow steadily and strongly were the Future Group, Reliance Retail, and Avenue Supermarkets (D’Mart).
There have been two game-changing events in the last 18 months that are now laying the foundations of version 4.0 of Indian retail. The first was the nearly stealthy public listing of Avenue Supermarkets in March 2017 which saw the company being initially valued upwards of `35,000 crore and, in no time, steadily touch nearly Rs 100,000 crore in market capitalisation, thereby giving a glimpse into the shareholder-value creating potential of a well-run retail business in India. The second game-changing event was in May 2018 when Walmart announced its majority-stake investment in Flipkart, valuing the business at nearly $21 billion, showing the confidence and optimism of international retail giants and investors in the potential of India’s consumption story and thereby India’s retail opportunity. This announcement did wake up the Central government and it did what it does best—set up a “task force” to look into coming up with a suitable e-commerce policy for India. Expectedly, the first draft version of this proposed policy was riddled with confusion and impracticalities and hence a new version is now being deliberated upon.
What will make Indian retail version 4.0 fundamentally different from the previous ones is the sheer scale of investment (still coming into India from global sources of capital, despite the restricted FDI policy). Giants such as Walmart, Amazon, Alibaba, Tencent, and Softbank are prepared to commit billions of dollars to stay in the race and try for the pole position. Homegrown physical retail giants also have the choice to raise global capital through strategic partnerships, as Shoppers Stop has done (giving a 5% stake to Amazon) or completely exit (such as the recent one by Aditya Birla group from its More retail business). Reliance may not need external capital to fund its own retail ambitions, but should it wish to, it can easily raise billions of dollars by a small dilution of its holding.
The second big difference is the emergence of large retail ecosystems (beyond so-called omni channels). Amazon already has one, and Flipkart may also morph into a similar enterprise offering a host of services that include insurance, payments, entertainment, education, etc. Reliance is already working on putting various building blocks of an exceptionally audacious (no surprises here) ecosystem that can provide to its hundreds of millions of Jio platform users a wide range of merchandise and services. A few dark horses are also likely to emerge in specific segments, such as food and grocery, that could include BigBasket, Swiggy, and even Ola.
The third big difference would be that, unlike markets such as China, US and elsewhere, the competitive intensity for the share of consumers’ wallet is expected to be much higher in the next few years. With no apparent limitation of capital and talent, the big retail players are expected to fight hard and that can only be good news for the 1.35 billion Indian consumers (and tens of thousands of start-ups supporting this emerging version 4.0 retail ecosystem), whether India’s politicians and bureaucrats like it or not!
By Arvind K Singhal, Chairman and managing director of Technopak.
