The diversified steel-to-telecom Essar Group, with revenues of $ 15 billion, is readying to consolidate its retail initiatives under one roof to maximise synergies and explore new avenues of growth. To shape its plans, Essar is forming a centralised retail think-tank at a group level to strategise the conglomerate's future course of action.
"While business divisions will continue to operate independently, the retail think-tank will set out overall direction and focus. It is likely to report directly to the promoter directors of the Essar Group," said a group official, requesting anonymity.
Aloke Gupta, director of Café Coffee Day, one of the most successful coffee retail chains in the country that is now expanding into Europe and the Middle East, is expected to join Essar this month to head the think-tank. Gupta was earlier a key Vijay Mallya lieutenant at United Spirits, Whyte & Mackay and later Kingfisher Airlines. When contacted, Gupta, however, refused to comment on what he described as "speculative news".
Currently, Essar's retail play is principally spread across three verticals: steel, mobile phones and oil marketing. All three independently decide growth plans. Essar Steel, for example, has 470 retail outlets near industrial clusters branded Essar Hypermart and Essar Expressmart.
Despite niggling problems associated with petroleum retail in the country, Essar Oil has over 1,340 branded retail outlets nationwide.
But it wants to gradually scale up both in India and abroad. Recently, Essar unsuccessfully bid for BP's petrol pumps in five African countries.
Competing with IOC and BPCL, Essar has also bid for Shell India's 20 petrol pumps that have been put on the block. It constantly evaluates such options for inorganic growth, especially in emerging markets.
With close to 1,400 Mobile Stores that retail handsets, Essar is also the largest organised retailer in the country in that category. It recently raised Rs 100 crore from IL&FS to expand its business. Moreover, to explore synergies between consumer durables and IT-telecom retailing, Essar acquired Impact Retail's chain of X-Cite electronics stores, a franchisee of Kuwait's Alghanim Industries, in December 2009. X-Cite will have eight stores, mainly in Indian metros, each spanning 95,000 sq ft.
Now, with each of these verticals achieving scale, Essar believes it's time for an overall group retail strategy. The think-tank will, therefore, identify cross synergies at existing and future locations, as well as expansion of its retail stores. It will also leverage the group's strengths to obtain better terms while identifying real estate for retail. And that's where Gupta's depth of experience in retail will come in handy.
Essar Group watchers say the man behind this initiative is Vice-Chairman Ravi Ruia's son Rewant, who has so far maintained a relatively low profile compared to cousins Prashant and Anshuman. At 27, he is the youngest scion of the Ruia family and plays a key role to charting out the globalisation strategy of the group. He looks after the North American operations of the group, along with its minerals business, group branding and retail operations, especially the flagship Mobile Stores.
"The front end of each of the verticals should be separate, although there could be common learnings from mobile and consumer durables retailing. You can, theoretically, have a mobile store within a consumer electronics one. At the backend, ideally, the strategy should be common: to exploit logistics, supply chain and real estate, as in a low-margin business. These things are critical," said Pinakiranjan Mishra, partner & national leader for the retail and consumer products practice at E&Y.
Independent analysts, however, said if Essar wants to turn its retail initiatives into a billion-dollar enterprise, then they would have to explore the high-volume food and grocery retailing space. But in a tightly regulated yet fiercely competitive market, the question is, should Essar actually dream of having hypermarkets?