Raghu Pillai is president and chief executive officer of Reliance Retail Ltd, the retailer with the most aggressive roll-out plan in India. The company has said it plans to spend about Rs25,000 crore opening thousands of stores in India. It has also been the hardest hit by protests from small retailers who have vandalized its stores amid concerns that their sales and profits will get eroded by the big shops—something that has been validated by a government-commissioned study conducted by the Indian Council for Research on International Economic Relations (Icrier). Pillai spoke to Mint late on Wednesday, the day the paper carried an exclusive report on the findings of the Icrier study that is yet to be submitted to the government. Edited excerpts:
The Icrier study that came out today clearly says there will be an impact on small retailers. What’s your reaction to this?
I haven’t seen the study and I need to see it. At the end of the day, whenever there is a change there are always some shifts and balances. If you look at the overall macro picture, I believe even if organized retail grows to 5-10% in the next 5-10 years, we will only participate in the growth and will really not take market share from anybody. India is a growth story and there is an incremental market of a minimum of Rs40,000-50,000 crore of private consumption coming every year and clearly, there is no organized retailer who will get anywhere close to that size. I have to look at the study but in the total picture I don’t believe that it holds any water, from the conclusion that has come out in your paper. I still believe looking at the overall India picture, the kind of consumer market and the pace at which it’s growing, I would not agree with the study...of the proposition that organized retailers will hurt mom-and-pop stores in any material manner and perhaps in a long term.
The Reliance Retail CEO says that the company’s ultimate vision is that small retailers and farmers benefit
So how do you explain protests against organized retail, and particularly against Reliance?
Whenever there is change, there is always some fear of the unknown, that an existing mode of way of life is perhaps changing. As far as Reliance is concerned, we, rightly or wrongly, are always held to a different standard. As we are the prime mover and initial mover in organized retail, it’s also our responsibility to engage them and say ‘hey look (a) it’s good for the country and (b) it’s not going to do any material damage to the existing players’. Protests will happen and protests happened when banks were computerized. Today, if a bank is not computerized, it cannot exist. These kind of protests happen and it’s a part of the democratic process. I don’t believe people doing the protests know…if you ask them what will happen, they perhaps won’t be able to answer that. The kind of publicity they get, OB (outdoor broadcast) vans tend to be there even before the first stone is thrown. How does it happen? I want that answer.
Are you suggesting that some of the protesters are not traders?
Yes. It could be a local small-time politician wanting to come into the limelight in that particular area and this could be a good way to get out there. I am not saying that small traders at associations level have not expressed their concerns but there is an ongoing dialogue happening. It’s only happening in some parts of the country. There is nothing happening in Chennai, Bangalore or Hyderabad. I guess it’s a question of engaging with these people.
So is it affecting your overall roll-out plans?
Well, yes and no. At the end of the day, we could not open stores in the most populous state of Uttar Pradesh where we wanted to open x number of stores—we are not anywhere near that. We are behind schedule as far as West Bengal is concerned. We have to do slight changes as far as the format is concerned in Orissa. To that extent, yes, it has impacted the roll-out but not in the states in which we operate. In the overall context, yes. But we are not worried of what happens today ortomorrow—it’s not a six-month or 12-month plan. These are initiatives that take three-five years to execute as far as the scale of the operations is concerned.
But will you be able to scale the target you have set for 2011?
As far as acquisition of property is concerned, in terms of planning of the network is concerned, we are very optimistic that we will do that. Whether that happens in 2011 or 2012, it’s just matter of time and it doesn’t matter.
Going back, you said you want to engage people who are protesting?
We will do whatever it takes in terms of engaging them. Actually, after the stores are open it takes three to six months for everybody to realize that life is going on and people understand. At the end of the day, it’s not an initiative aimed at going and taking business away from small traders and the person who is rolling a cart down the road. It’s an initiative which is betting on India and the growth of India—the fact that we have today one trillion economy growing at 8%, private consumption is 45-50%, which is $500 billion growing at 10% and an incremental market of $50 billion coming. In the next five years, there will be an incremental market of $250 billion. So even if organized retail with huffs and puffs does a fantastic job in five years’ time, it could be $50-60 billion. So it’s just participating in the growth. There will be some imbalances in the urban areas but that’s part of the growth story.
How do you propose to engage the small and unorganized sectors?
Part of our investments in supply chain, in terms of procuring directly from the farmers, watching the farmers to improve productivity and doing a level of value-addition. Those are the initiatives which will come. Our initiatives are just a year old as we had set up our stores on 6 November. Our ultimate vision is that the small retailers and farmers benefit... B-to-B is a significant part of our business plan.
You have been in the business for almost a year. What is the biggest lesson you learnt?
One of the lessons I learnt here is ‘nothing is impossible.’ When Mukesh (Ambani), our chairman, said we want to roll it out, somebody like me, who has 8-10 years of retail experience, said this is almost suicidal. But I look back and see we have put in close to 2 million sq. ft of retail space, across 10 formats, 13 states, 43 cities and half a million customers a day. If you had asked me, could you do it, I would have said it is impossible. But the fact is, we have done it.
Do you see any changes in policy in retail?
Retail today is governed by 25 or 28 establishments. There is no retail policy except that FDI is not allowed. I am not privy to what policymakers are saying. We would like certain changes in policies such as the fact that there is a service tax on the rents we pay, which I think is almost absurd, and it significantly adds to our cost.
We would like to look at initiatives that encourage part-time employment which is peculiar to retail. Those are some small small things. We are not even going down the road of asking for the kind of incentives the software industry is having...about free land, income tax. Nobody is asking that because we are in an environment which makes it politically impossible to do that.