I

B l o o m b e r g M a r ke t s
May 2006 77

ndia Goes Shopping

Buoyed by a 62 percent rise
in per-capita income
in six years, Pantaloon and
fellow retailers are expanding
to fend off homegrown
hopefuls and international
threats such as Wal-Mart.

By Abhay Singh and

Subramaniam Sharma

‚Bobby Gupta says he’d never seen a more massive crowd

than on Jan. 26, when Big Bazaar, India’s largest chain of dis-
count stores, held its biggest-ever sale. Two million people
jammed Big Bazaar’s 24 locations across India, forcing three-
quarters to shut early when employees couldn’t subdue the
mobs. In Bhubaneswar in eastern India, hordes of bargain
hunters jostled to grab cut-rate jeans, pressure cookers and
mobile phones. “Half the town was in that store,” says Gupta,
27, a businessman who was shopping that day. “A lady in the
toys section fainted.”
Indian consumers, once relegated to sorting through mom-
and-pop stores and roadside markets, are shopping with a ven-
geance at new malls, discount centers and combination food
and department stores called hypermarkets. India’s annual per-
capita income has climbed 62 percent to 25,778 rupees ($581.37)
during the six years ended on March 31, 2006, the government
estimates. India’s middle class, 216 million strong, is clamoring
for the latest in flavored toothpaste and flat-panel TVs.
India’s retailing overhaul is another sign that the world’s
biggest democracy is lurching toward modernization, as it has
done with computers, telecommunications and aviation. By
2010, there will be 351 million middle-income Indians in 65
million households, up from 40 million households today, New
York–based consulting firm McKinsey & Co. predicts.
Right now, Indians do as much as 97 percent of their
spending at small, independently owned neighborhood

Pantaloon Managing Director Biyani

surveys a Big Bazaar store in Mumbai.
PHOTOGRAPHS BY NAMAS BHOJANI
 Bloomberg Markets B l o o m b e r g M a r ke t s
78 May 2006 INDIA GOES SHOPPING May 2006 79

shops. People pick up lentils in one spot, towels in another health care and transportation rose 5 percent to an estimat- storage mean that a quarter of the na- Bazaar are bad for traditional merchants.
and sandals in a third. They make their way along streets ed $219 billion in 2005. Of that amount, retail chains took in tion’s farm produce goes bad before it ������������� “We are opposed to any kind of chain of
crowded with cars, scooters and rickshaws and jam into tiny just $8.2 billion, according to Technopak Advisors Pvt., a gets to market, the government esti- ��������������������������� retail stores, whether Indian or foreign,”
stores or narrow stalls packed to the rafters, bargaining with Gurgaon, India–based consulting company. Retailers’ share mates. Laws such as the Standards of ��������������������������� says Khandelwal, sitting in his hardware
the proprietor to complete the daily shopping. of consumer spending may increase to $25 billion by 2010, Weights and Measures Act of 1976 con- shop in New Delhi, which is stocked to the
�������������������������
“If you believe in the Indi- Technopak estimates. trol information on packaging and how ������������������� roof with boxes of door knobs and han-
an consumer, if you believe “India is clearly a country products are sold, relegating India to ar- �������������������������� dles. “Ultimately, it is detrimental to the
�����������������
in his growing wealth, then that is very attractive,” says chaic practices. A retailer can’t use the domestic traders.”
you will believe in organized ‘This country has no human Beth Keck, director of inter- abbreviation MFD in place of manufac- ����� Khandelwal, 45, has allies in India’s
retail,” says Pauli Laursen, resources in terms of skilled people national corporate affairs at tured by, and writing the size of a shirt in �� communist parties, which support the
who helps manage $6.5 bil-
to operate retail, and you have to Bentonville, Arkansas–based inches instead of centimeters is against Congress Party–led government in par-
lion of stocks and bonds at Wal-Mart. the law. Each of India’s 29 states inter- liament. “No one is coming here for phi-
Sydinvest Asset Management build the supply chain,’ Nagesh says. Investors think so, too. prets the statutes differently, Pantaloon lanthropy,” says Dipankar Mukherjee,
in Aabenraa, Denmark. They’re driving up shares of Managing Director Kishore Biyani says. 62, a member of India’s upper house of
Big Bazaar’s parent, Panta- India’s retailers are forced to build ���� parliament from the Communist Party of

H
omegrown retailers and foreign hopefuls are rushing loon Retail India Ltd. The stock of the Mumbai-based com-
to ring up profits from India’s shopping spree. Mum- pany surged 153 percent in the year ended on March 3, to
bai-based chemicals and petroleum giant Reliance In- 1,774.45 rupees. ICICI Venture, the private equity arm of
dustries Ltd. plans to spend a total of 150 billion rupees by ICICI Bank Ltd., the biggest Indian lender that’s not con-
March 2007 to open 1,575 warehouse-style stores in towns trolled by the government, says it has made five times its
and large villages across India, people familiar with the com- 2001 investment in Pantaloon. Bala Deshpande, ICICI Ven-
pany’s plans said. In January, Reliance announced an initial ture’s director of investments, declined to say how much the
$750 million investment. firm invested.
In December, Wal-Mart Stores Inc., which reported $312 Subhiksha Trading Services Ltd., which runs 145 discount
billion in sales in the fiscal year ended on Jan. 31, applied to grocery and pharmacy stores in the southern state of Tamil Nadu,
India’s central bank to open an office to study the Indian plans to spend 2.2 billion rupees on 650 new stores this year.
market. The application is under review. The Chennai-based company intends to sell shares to the public
The numbers explain their enthusiasm. Spending by Indi- worth as much as $35 million by May. Mumbai-based RPG
ans on products and services outside of education, housing, Enterprises, which took in $1.89 billion of revenue from tire
manufacturing, power genera-
tion and other areas in the year
ended on March 31, 2005, plans
to invest 4.5 billion rupees to ex-
pand its Spencer’s chain. Spen-
cer’s features Big Bazaar–type
shops, supermarkets and conve-
nience stores. It will raise money
from a share sale and through
private equity, Vice Chairman
Sanjiv Goenka, 45, says.
Vishal Retail Pvt., which
competes with Big Bazaar
through its Vishal Megamart
chain, is in talks with private
equity investors to raise as
much as 500 million rupees,
says Chairman Ram Chander
Aggarwal, 41, who declines to
name the investors. He plans
an initial public offering worth
as much as 1.5 billion rupees.
Crowds of unruly shoppers
aside, the threats to India’s re-
tail ambitions are plentiful.
Indians do as much as 97 percent of their spending at small shops and markets, such as this one in Noida.
Poor roads and inadequate
their distribution networks and ware- ���� ��
India, Marxist. “I’ll welcome foreign in-
��
houses from scratch. Space in India’s vestment, whatever the industry, as long
teeming cities is limited. And because re- as it creates an asset, creates employ-
��� ��� ����
tailing is a new industry, it’s hard to find ment and gives us technology.”
��������������������������������������
professional managers and clerks as Then there’s the cultural upheaval. Even
stores compete for educated workers. as Indians mob Big Bazaars and dress up
“This country has no human resources inFILE termsindbar4
of skilled the family for an outing at new malls, Subramanian says the
SIZE
people to operate retail, and you have to build the 11p8supply
x 19p6 trend may not reflect how Indians will shop day in and day out.
NOTES
chain because there is none,” says B.S. Nagesh, 46, CEO of Many prefer to buy fresh food in small quantities and are happy
Shoppers’ Stop Ltd., which runs 19 department stores. to order from the shop around the corner, which delivers every-
“Every state and every store goes through a different license, thing from milk and eggs to flashlights.
so even the largest player has to start fresh every time he Pantaloon’s Biyani says he recognizes the hurdles to intro-
opens a new store.” ducing modern retailing to a nation raised on corner shops.
Wholesalers and distributors, afraid the new chains will shut “These are the constraints of our business; we are trained to
them out, are adding to India’s
growing pains. These groups
act as middlemen and take a
cut of sales. Now, chains such
as Subhiksha are buying direct-
ly from drugmakers and con-
sumer product companies,
luring customers with average
discounts of 10 percent and
eliminating the distributors.
“There was a lot of resis-
tance from traders who didn’t
like our discounting,” says
Managing Director R. Subra-
manian, 39, who founded the
company in 1997. “They tried
to organize supply boycotts to
make sure we didn’t discount.
We had to go to court to en-
sure we got our supplies.”
Praveen Khandelwal, New
Delhi–based secretary general
of the Confederation of All
India Traders, which represents
about 50 million small shop-
Shoppers jam a traditional street market after work to pick up vegetables and fruit.
keepers, says chains like Big
 Bloomberg Markets
80 May 2006 INDIA GOES SHOPPING

our goods reach in time at a

lot of places.”
Biyani is tackling India’s
limited retail real estate with
plans to build 51 malls. And
the company has joined with a
Mumbai-based management
school to offer diplomas in re-
tail management. During the
one-year course, students
work two days a week at stores
run by Pantaloon to gain prac-
tical knowledge.
More pressing to Biyani is
how to deal with Wal-Mart and
other hovering international
competitors. In January, India
took the first step in opening
retailing to foreign investors.
The government now allows
overseas businesses to own 51
percent of companies that sell
products under a single brand.
Harsh Bahadur, head of Metro’s cash-and-carry business in India, says it has been slow going for the That means a company such
German company. as German sporting goods
maker Adidas-Salomon AG,
manage them,” says Biyani, 44, seated in a conference room which now sells through franchisees, could offer Adidas-
in a glass-paneled building in Mumbai’s Jogeshwari neigh- branded products through stores it owns.
borhood. Around the office, employees in Indian garb are

R
working on henna designs and other crafts to celebrate etailers such as Wal-Mart that provide a range of
traditional day, one of the company’s theme days that lead up goods made by different manufacturers under one
to a celebration of the year’s achievements. roof are still barred from opening stores in India.
Biyani says he’s skirting the country’s transportation “There’s a tearing hurry,” says Biyani, dressed in long-
and distribution bottlenecks by turning them to his ad- sleeved shirt and trousers. “We should be large enough before
vantage. “We get 40 percent of our deliveries by three- anybody comes in—whoever that may be.”
wheelers, handcarts and cycles,” he says. “We don’t have the Biyani says he plans to more than triple his 26 Big Bazaars
best of roads, trucks or systems, but we still manage to make to 80 by 2008. He’s targeting 83 Indian cities that have

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�����������������������������������������������������������������������������������������������������������������������������������������������������������

���� ������
 Bloomberg Markets
82 May 2006 INDIA GOES SHOPPING

says. “Kolkatans were hungry. They had not seen anything

������������� like this.”
���������������������������������������� Biyani says he chose Kolkata because even though it’s In-
dia’s second-biggest city, other retailers had neglected it. From
����� ���������������������� ��� �������������� 1997 to 2001, he opened 14 Pantaloons stores across the coun-
���������������������� ����������������������
try. He says he realized that if he wanted to get bigger, he’d
��� have to sell all types of merchandise—a tactic he embraced
����� after reading Wal-Mart founder Sam Walton’s autobiography
Made in America: My Story (Doubleday, 1992).
���

M
����� uch like Walton had done before opening his first
��� Wal-Mart, Biyani studied other retailers. He spent
��� ��� ���� ���
six months dissecting a family-run discounter
� � � � � � � � � � � � � � � � � � � � � � � � �
called Saravana Stores in Chennai. Saravana, which covers
��� ��� ��� ��� five floors and a basement, stocks appliances, utensils and
����������������� groceries as well as clothes, jewelry, toys and eyeglasses. It
sells Indian sweets and fast food on one of its floors and has
populations of more than 500,000. Vishal Retail says it plans 120 people to manage crowds. “We learned from them that
FILE
to double its 24 stores by March 2007. RPG Enterprises says you can sell utensils and fashion together,” Biyani says.
indstk4
SIZE
it expects to add new Spencer’s outlets and 4.5 million square
21p10 x 15p7
Biyani says Saravana also showed that a store could be on
NOTES
feet (418,000 square meters) of retail space in the next three multiple floors and that it has to be near a transportation
and a half years. hub because many Indians don’t own cars. Bags should be
Shoppers’ Stop plans to double its 19 department stores sealed at checkout so that people can enter and exit multiple
by 2008. And it will add as many as four Big Bazaar–style times. Stores must cater to children and not just adults be-
discount stores in the year beginning on April 1, Nagesh says. cause Indians shop in families. “Indians come dressed up for
Subhiksha is opening new stores this year in Delhi and in the shopping,” Biyani says. “In every store, you’ll see a mother in
states of Andhra Pradesh, Gujarat, Karnataka and Maha- a sari with a child in the shopping trolley and the whole fam-
rashtra, Managing Director Subramanian says. “India is the ily happily shopping.”
last big chunk of consumers left in the world,” Biyani says. In 2001, Biyani opened the first Big Bazaar in Mumbai and
“The potential is huge.” followed with two more in the space of 22 days. That year, Pan-
Biyani developed his re- taloon’s average stock price
tailing inclinations through was 17.78 rupees, one-hun-
his family’s roots in textiles. dredth of the price on March
The Biyanis owned a Mum- ‘India is the last big chunk of 3. Today, the 44 percent hold-
bai-based trading company consumers left in the world,’ ing of Biyani and his family is
called Bansi Silk Mills. A year
Pantaloon founder Kishore valued at $472 million.
after graduating with a bach- The few international
elor’s degree in commerce Biyani says. ‘The potential is huge.’ companies that have set up
from Mumbai’s H.R. College stores in India aren’t finding
of Commerce and Economics a similar path to riches. Since
in 1981, Biyani created a unit to supply stone-washed fabrics 2000, India has allowed foreign cash-and-carry wholesale
to companies that made jeans and jackets. He went on to be- stores such as Düsseldorf, Germany–based Metro AG, the
come the sole distributor for denim made by Arvind Mills world’s third-largest retailer, to operate in the country. Metro
Ltd., India’s biggest textile company by market value. stores sell to companies and other retailers, which get a free
In 1987, Biyani began producing ready-made trousers membership by showing their business license. Consumers
using the Pantaloon brand name. The business brought in can’t shop at them.
about 30 million rupees in annual sales, spurring Biyani to Metro opened two cash-and-carry locations in India in
branch out through a shirt brand called John Miller and a October and November 2003. Since then, it has been slow
jeans brand called Bare. In 1997, after five years of trying to going. Laws such as the Agricultural Produce Marketing
sell through franchisees, Biyani started a clothing store Committee Act restricted Metro to government-controlled
called Pantaloons in the eastern city of Kolkata. He says he markets for fruits and vegetables. Even if Metro had been
made the switch after he tired of managing as many as 70 willing to buy from government markets, the law prevented
franchisees that didn’t display products correctly or manage the company from selling the fruits and vegetables in its
money well. “We offered a good-looking, large store with stores. Metro decided not to stock produce. “We were frus-
reasonably fashionable products at affordable prices,” he trated,” says Harsh Bahadur, 50, managing director of Metro
 Bloomberg Markets
84 May 2006 INDIA GOES SHOPPING

Cash & Carry India Pvt., who says agricultural commodities

typically account for 20 percent of a store’s revenue.
In Russia, where Metro started its wholesale business
nine months before it entered India, the company has 24
stores. As of January, local governments in nine Indian states
changed the agricultural act to allow wholesalers and retail-
ers to bypass government-regulated markets. They can now
buy produce directly from farmers and sell it from their
stores. Metro plans to spend 300 million euros ($357 mil-
lion) during three years to open in more locations.
Changing the way Indian consumers shop may be the big-
gest challenge to both foreign and domestic retailers. “I’m not
convinced that for food and grocery, big box–style retail will
work in India,” says Raman Mangalorkar, head of the retail
practice at management consulting firm A.T. Kearney Inc.’s
Mumbai office. “In America, you drive in your pickup truck,
load up from Wal-Mart or Costco, and you go back home and
store it. I don’t think that is going to happen here.” In India,
refrigerators and cars are small, traffic is heavy and people
tend to like fresh food, he says.

S
ubramanian, at discount grocer Subhiksha, doesn’t
expect habits to change. “Today, an Indian consumer
feels very excited about going to a mall,” he says. “They
will tire of it.”
Subhiksha is opening stores that run from 1,500 to 2,000
square feet in small shopping centers in residential neighbor-
hoods. Subhiksha is a no-frills operation: The stores, which Praveen Khandelwal says retail chains hurt small merchants.
are similar to convenience stores found in U.S. strip malls,
aren’t air-conditioned, and customers pay extra for bags. “We to its more than 6,000 worldwide locations, would shake up
don’t make a Taj Mahal out of our store,” Subramanian says. the pace even more. “We are hopeful the Indian government
“In a grocery store, the involvement levels are so low, people will liberalize direct investment,” Wal-Mart’s Keck says. “The
get in, get out quickly.” country has had good experience with investment liberaliza-
The greatest competition for Biyani may come from compa- tion in other areas. This is just another area for opening up.”
nies that are just starting to knock on India’s retail door. In its Biyani isn’t waiting for Wal-Mart. He’s already putting
150 billion–rupee push, Reli- its methods into practice—
ance will focus on consumers even if the execution may
outside cities such as Banga- need some tweaking.
lore, Mumbai and New Delhi. ‘In America, you drive in your pickup “We get everything under
Reliance, India’s second- truck, load up from Wal-Mart or one roof,” says Vivek Kashyap,
biggest company by market Costco,’ a consultant says. ‘I don’t national sales manager at
value, plans stores in two for- Timken India Ltd., the local
mats: a Big Bazaar–style setup think that is going to happen here.’ unit of the biggest U.S. maker
spread over 150,000 square of roller bearings. “The kids
feet and 75,000-square-foot enjoy it,” says Kashyap, ac-
supermarkets. The retail foray will require 500,000 employees. companied by his wife and two children, who’d just finished
Reliance has already hired 6,000 managers from India and braving the Gurgaon Big Bazaar.
overseas, people familiar with the matter said. On Jan. 28, the last day of the Big Bazaar sale, the store in
“2006 will be the inflection point for retail in India, and the Gurgaon was packed. On the lower floor, wire bins were loaded to
catalyst will likely be Reliance,” says Arvind Singhal, chairman their brims with jeans, shirts and shoes. Square signs on plastic
of research firm Technopak. “So far, very incremental invest- sticks stuck out of the bins to advertise promotions. One sign had
ments have been made in India by modern retailers ranging a “buy one, get one free” offer on sweaters. Another showed the
between $5 million to $50 million a year. The pace of change price for a pack of five pairs of socks marked down to 169 rupees
and the penetration have been very slow.” from 199 rupees. The ladies’ handbag rack was a mess, with purses
Wal-Mart, which draws 318 million shoppers each week flung onto the floor. Belts were in a similar state of upheaval.
 Bloomberg Markets
86 May 2006 INDIA GOES SHOPPING

On the level above, people hunted for groceries, comput-
ers and gold jewelry. Some products were displayed side by
side with no apparent link. Toothpaste shared a rack with
computer peripherals; the gold jewelry store called Gold Ba-
zaar was opposite the luggage section.
Biyani says that in spite of the apparent chaos, there’s a
method to his strategy for Big Bazaar. “We learned one basic
formula for retailing from Walton’s book, which has stood us
in good stead in all times,” he says. “Your operations can be
made right tomorrow. But if you get your merchandising
wrong, there will be no chance to run your stores ever.” That
means that figuring out what people want comes first.
Biyani says Pantaloon is a company of observers who are
always on the lookout for signs of how consumers shop. “The
customer will teach you everything,” he says.
Pantaloon’s office is called Knowledge House, reflecting
Biyani’s philosophy. Posters of his favorite sayings hang on
the walls. “The best way to predict the future is to create it,”
one says.
Biyani says the next step for Pantaloon is to introduce
specialty retailers. Home Town stores will sell everything
from doors to hammers. Biyani plans eight by the end of
2008. He intends to open 65 gold jewelry stores called Na-
varasa by March 2008.
Chains of furniture stores and consumer electronics shops
will be next. Biyani plans to spend 8 billion rupees by June
2008 on expansion. About 5 billion rupees will come from
cash flow. The company completed a 2.24 billion–rupee
rights offer on Jan. 31.
“Biyani is able to strike a chord with the customer; it’s a
skill,” says Rakesh Jhunjhunwala, a private investor who
owns 1.9 percent of Pantaloon stock. “I predict in five years
he will be four times the size of his nearest competitor.”
For Jhunjhunwala’s assessment to come true, Biyani may
have to start watching what his competitors are up to with the
same zeal with which he observes shoppers at Big Bazaar.„
ABHAY SINGH is a senior writer at Bloomberg News in New Delhi.
SUBRAMANIAM SHARMA covers India in New Delhi.
abhaysingh@bloomberg.net
ssharma@bloomberg.net

B LO O M B E R G T O O L S

Comparison Shopping for Retail Stocks

India’s retail revolution may present opportunities for in- Industries Ltd., a Bangalore-based company that makes
vestors. To use the Relative Value function to assess Pan- watches and watch parts. To sort the list so that compa-
taloon Retail India and other publicly traded Indian nies with the highest 12-month stock return appear at
retailers, type PF IN <Equity> RV <Go>. Click on the the top, click on the Total Return 1 Year Pct column
arrow to the right of Sector, and select BICS Subgroup. heading and select Actual Descending.
As of early March, the Relative Value report listed Bom- Type TOP ASIA <Go> to read headlines of the day’s
bay Swadeshi Stores Ltd., Piramyd Retail Ltd. and Panta- most-important Bloomberg News stories related to Asia.
loon. To see data such as market value and price-to–book For a list of headlines for the latest Bloomberg News sto-
value ratio, click on the Options button, select Copy Tem- ries related to retailing, type NI RET BN <Go>.
plate and click on From Example RV’s. Then click on Valua- JOHN DIXON
tion Measures. In the 12
months ended on March 3,
Pantaloon shares gained
152.7 percent. Shares of
Bombay Swadeshi increased
32.5 percent during the
same period. Piramyd Retail
sold shares in an initial pub-
lic offering on Dec. 7, 2005.
To expand the report to
look at consumer products
companies, click on the
arrow to the right of Sec-
tor and select BICS Group,
as shown at right. The new
list includes Mumbai-based
jewelry maker Goldiam In-
ternational Ltd. and Titan

For a g raph that com pares the retu rns of Pantaloon Retail stock
and its benchmark index, type PF IN <Eq u ity> RG <Go>.