As consumer needs and wants change, the retail food industry is changing too.

Spearheading the change at Tata's retail arm Trent Hypermarkets is CEO, Jamshed Daboo, who insists that food retail is not a product that finds it way across the country. It is a 5 km radius that determines food retail, says Daboo. That is why the company has decided to have a more focused approach to business at its hypermarket format stores, Star Bazaar, and limit expansion to just four metros.

Despite the many challenges in retail, the CEO does not believe in putting the onus on the Government to create the necessary infrastructure.

Modern retail, he says, is the only segment that creates urban jobs, adding that 150 people are gainfully employed with the opening of each Star Bazaar store. In a tete-a-tete with Business Line , the CEO says most consumers love a good deal, and that it is time to get closer to the consumer. Edited excerpts:

What are the biggest challenges to your business?

Coming up with a right model is the biggest challenge today. Though modern retail today represents a reasonably small percentage of the total food retail, even in urban centres, there does exist an opportunity in the retail market, irrespective of the direction of the economy.

Modern retail entered India when the economy was on a high. As a result, several things were overlooked when one entered a State. Today, we have a real situation here. The models must reflect the real situation, so that one can benefit from the upside, and not use the upside as a reason for the business model. That's the stage we are in.

With just 15 Star Bazar stores in three years, is there any particular reason you have decided to approach the market slowly?

At Star Bazar we are cautious on growth. We are moving to find the right model, which is sustainable over the peaks and troughs with the right size of stores.

In various ways, though a lot of people (retailers) are trying to do the same, they attack it differently. I see the conditions in the economy ... as opposed to anything cathartic in terms of modern food retail. Taking a different stance is good, because it drives efficiency.

There are two elements in retail: a part of the bottomline is driven by variable and fixed costs. Scale only helps in the latter, not in the former. If your model cannot give you profitablity at some level on the variable costs, that scale becomes detrimental. That is where the confusion comes in, especially in food retail where the margins are low. Once you get over that hump, it is fine. In food retail, anything that goes beyond 4 per cent of sales does not make sense.

You have been slow with your expansion as compared to the competition - any particular reason?

We have been slow, from whose perspective? This is a nascent developing market. There is no mantra to this.

We don’t look at what others are doing. We look at what makes sense to us, in terms of good real estate, good price, good location, good rental deal and the right population.

We have chosen to be in four cities - Mumbai, Pune, Bangalore and Chennai. We want to develop the chain in these locations.

The reason for opening or not opening a store depends on finding the right location. We have identified enough locations in these metros, and will take it up as the opportunity arrives.

Why concentrate on just four cities? What about the customer base in North India or the East, is it not a focus for the company?

It is not that North does not have the customers. I think there is a huge customer base (untapped) in Colaba, in Mumbai north.

Building a customer brand is easier if you are present in a small number of cities. Retail is a very local business. Consumers don’t travel 10 km to buy food and grocery.

The reason why we have decided to tackle four urban centres is that the number of people in a 5 km radius is what determines food retail. The 5 km radius is available in these four cities - while Mumbai and Pune is one hub, Chennai and Bangalore is one hub. We have two hubs and two distribution centres. We will develop stores in these areas, the South and the West. So, for the foreseeable future, we will be present in these cities.

Of course, if Delhi had property at one-tenth the price, and demand was the same, then it would make sense to be there. There is no demand issue as such. We need to develop the infrastructure to meet the demand of the customer.

Who is your preferred customer?

The city customer is the right customer. Finding a right customer is never an issue. The issue is to find the right location, the right (store) size, right rentals and the right value property proposition. Rentals in India are amongst the highest in the world.

Real estate is not available at the prices we want. One may have 50,000 items on the shelves, but the top sellers would be just 3,000. But one needs to encourage consumption too. So, one of our approaches would be to look at maximum utilisation of space.

Since Indians shop in a reasonably narrow band of product range as compared to the rest of the world, we are cutting down our store space to 30,000 sq ft from 50,000 sq ft at present.

We need to maximise more on space given the way realty is developing. There is not enough vast space available, and if one wants to be closer to the customer, as we should be, since we are in the foods buisiness, the size of stores makes more economic sense. We are focussing on store performance.

What are the biggest issues facing retailers?

An emerging challenge that will come to our doors soon is that of staffing, though in the case of hypermarkets and in food retail, it is not that essential, because it is relatively a self-serviced model. But as you go higher up the value chain, in apparel and electronics, it becomes an acute situation. Generally, there is a problem of qualified people.

Attrition is high. In food retail, it is an entry level job and no one wants to be there forever. They want to move to apparel or jewellery retail. We are addressing the problem and looking at talent and seeing if we can make them store managers in seven years.

Modern retail however, creates urban jobs. At Star Bazar, we employ about 150 people per store.

There are two more challenges: one is property, which is getting worse. The second is the supply chain, which is more geared towards traditional retail, with a lot of middle men executing deals. The more modern retail develops on the front-end, better would be the back-end. It involves a pressure to develop the supply chain.

How do you power your business? What do you consider is the greatest opportunity?

Today, given the fact that retail is leapfrogging in India, a clean and modern shopping environment with a variety of products which fulfills the shopping basket is the first level of proposition that every retailer is catering to. Over and above that, what we want to do is to create a value proposition around ‘fresh’. It is one of the key drivers of footfalls and one of the key elements which customers see as a tangible element.

The supply chain in fresh food is where modern retail can play a major role. We want to take fresh food in India to the next level, with better prices and better availability.

Modern trade is more reasonably priced than the local market for a good reason. On an average, vegetables, fruits, meat and fish are cheaper by 10 to 15 per cent, as compared to the local market. Everyone loves a good deal. People do appreciate that.

You have been at the helm now for three years, joined in June 2010. With the benefit of hindsight, what would you have done differently?

I think the four city strategy should have been there from day one. We would have had a better presence within these cities, which means more people would have had access to our brand and the distribution centres might have been more developed.

With ecommerce gaining importance, mostly because of convenience and cheaper deals, are you looking at online as the future of retail?

Yes, we are contemplating that and will enter the online segment in the next year and a half.

Related Topics
comment COMMENT NOW