Ambitions of India's retail revolutionary

Mukesh Ambani, one of the country’s most powerful businessmen, has big plans for a sector dominated by small shopkeepers.


For future archivists of India’s economic development in the 21st century, exhibit one may well be a scribbled-on napkin from a Washington DC Starbucks.

It was just over a year ago, on July 18, 2005, as President George W Bush discussed the details of an historic civil nuclear agreement with Manmohan Singh, India’s prime minister. Two billionaire businessmen from the Indian delegation stepped out for a cup of coffee.

The two men were Mukesh Ambani, probably the most powerful businessman in India, and Nandan Nilekani, celebrated chief executive of software giant Infosys. For Ambani it was a chance to update Nilekani on his plans for his half of Reliance Industries.

A few weeks before, the petrochemicals to telecoms conglomerate created by his late father, Dhirubhai Ambani, had been split in two to resolve a feud with his younger brother Anil.

Ambani, who retained Reliance’s petrochemical and refining businesses, told Nilekani of his plans to revolutionise Indian retailing, a sector dominated by millions of “mom and pop” stores and unchanged in 200 years.

Organised retailing still accounts for only about 3 per cent of the industry’s $250 billion (£134 billion) revenues. India is one of the most fragmented and archaic markets in the world. Although malls are springing up, supermarkets barely exist outside the four largest cities.

Nilekani, who spends his life picking apart and redesigning supply chains, grabbed a pen. Drawing arrows and lines to connect India’s farmers to their market of 1.1 billion consumers, he urged Ambani to focus less on the big box at the front end of the supply chain and more on the hidden logistics critical to bringing world-class retailing to a country with negligible rural infrastructure.

“I still have that napkin,” says Ambani in the Mumbai headquarters of his group, which turns over $20 billion a year. In the coming weeks, the concept will be put to the test with the opening of the first few stores, to be branded Reliance Fresh, in three pilot states: Punjab, West Bengal and Andhra Pradesh.

Ambani has committed to investing $5 billion-$6 billion to create, within five years, a national “farm-to-fork” enterprise that he says will redefine India’s largest business group. The strategy has the backing of a government keen to push the development of impoverished rural sector.

The scale of Ambani’s ambition is legendary. In the 1990s he earned his spurs by masterminding the construction of a massive refinery at Jamnagar in Gujarat. At a time when refining was seen as a declining, low-margin industry, this was a business decision from left field.

In an equally ambitious venture, India’s Mr Big, as he was called on a recent cover of BusinessWeek, is developing infrastructure for a new industrial and IT city near Mumbai.

“Mukesh Ambani wants to be the richest man in the world,” says Adil Zainulbhai, head of McKinsey’s India practice. “Being in India today is like being in the US in the wild days of the dotcom era, when people got up and said, ‘I can change the world.’ Indian chief executives have outrageous aspirations. They have no fear. And Mukesh is just the biggest of them all.”

No sector is set to change more than the retail sector. For India’s estimated 10 million small shopkeepers, many of them first-time entrepreneurs who have left low-paying rural jobs, Reliance’s retail launch will sound the starting gun for a breakneck consolidation.

Analysts forecast organised retailing’s share will rise rapidly to 10-12 per cent in five years. The new chains, benefiting from scale economies and access to better terms of trade and finance, will put local shopkeepers to the wall.

For Indian businessmen such as Ambani, the attractions of the retail sector are obvious. Foreign retailers are for the moment largely shut out by the country’s restrictive investment rules. Supermarket groups such as Carrefour, Wal-Mart and Tesco that sell a range of branded products to end consumers are completely barred. Only single-brand retailers such as Louis Vuitton, irrelevant to the mass retail market, and cash-and-carry wholesalers such as Metro, have so far been allowed into India.

“It’s the wild west in the retail sector, completely open, and if you’ve got an idea that is better than somebody else’s you’ll succeed,” says Zainulbhai.

Protectionist policies have afforded Reliance and others three to five years’ grace to establish themselves. Ambani says he doesn’t fear the arrival of global players. “Foreign direct investment must happen. We must open up the retail sector. India’s market potential is huge and there is space for at least five to six players.”

Indian business houses are courting major foreign retailers that are looking to gain a foothold in a market with attractive long-term prospects. Yet Reliance is seen as the Indian group best placed to go it alone.

Reliance is confident it can acquire the skills, technology and knowhow without foreign direct investment in its retail subsidiary. “This is a mature industry with thousands of man years of management experience and we have hired guys from Wal-Mart, Tesco and Carrefour,” Ambani says.

Courtesy : Some link on the net?!?