It's already played its ace - a partnership with the $312 billion Wal-Mart - but the Bharti Enterprises promoted Bharti Retail is holding the rest of its cards close to its chest.
The company announced an ambitious gameplan last week - an investment of Rs 11,250 crore (Rs 112.5 billion) for retail space of 10 million square feet by 2015, but didn't give too many details.
For instance, it's still not clear how the arrangement with Wal-Mart will shape up, though industry watchers are guessing there will be a 50:50 joint venture entity for the back-end with a licensing agreement for the front-end.
While the investment may not match those of Reliance Retail's, which is talking about an amount of Rs 25,000 crore (Rs 250 billion), it doesn't pale in comparison either. In fact, industry watchers say the space of 10 million square feet seems conservative for the capital outlay that the company is talking about.
Says Unmesh Sharma, who tracks the retail space at Macquarie Securities, "The company's capital expenditure and revenue targets of Rs 20,000 crore (Rs 200 billion) by 2015 seem too large for a retail presence of just 10 million square feet. Assuming a 50:50 ratio for owned to leased property, we believe the space being targeted should be much larger at around 35 million square feet by 2015."
Whether the stores will be co-branded remains to be seen, but that shouldn't matter too much. It's unlikely, say industry watchers that Bharti is banking on the Wal-Mart to bring in the footfalls, because that isn't really a big advantage when it comes to selling groceries.
Much like it is elsewhere in the world, Wal-Mart's USP in India too will be its price and with its global sourcing base, it should not be difficult for Bharti Retail to offer the best prices.
"There's no doubt that costs for imported items will be far lower, given the global level of Wal-Mart's operations," says Andrew Levermore, CEO, Hypercity, adding that procurement costs will also be much lower for goods that Wal Mart picks up both for India and other markets.
Levermore believes the savings could be anywhere between 1-20 per cent depending on the volumes and the kind of goods bought. Even while buying vegetables and fruit, which it would probably source only for India, Wal-Mart should manage to get good prices from suppliers.
Says N V Sivakumar, leader retail practice at Pricewaterhouse Coopers, "Retail is a capital intensive but low margin proposition - net margins can be as low as three to four per cent. So, Bharti has probably done the right thing by roping in Wal-Mart."
Moreover, it would be surprising if the world's largest retailer did not leverage its global vendor relationships with companies such as Procter &Gamble.
"While it's not that suppliers will not do for Reliance what it does for a Wal-Mart, there could be a slight difference," says Raman Manglorkar, head, retail practice at AT Kearney.
What's more crucial, however, according to Manglorkar, is the access that Bharti Retail will have to Wal-Mart's information technology systems.
Says he, "Foreign retailers are experienced they know how to make replenishments quickly, forecast demand and so on. Systems that have been tried and tested in other parts of the world can be put in place here in no time." That should help Bharti move quickly.
Besides, Bharti is attempting to create a supply chain - it has already started farming activity and according to industry watchers should be getting into contract farming. "Several players are also looking to finance farmers through micro-credit institutions as an option," says Sivakumar.
The key to success will of course be access to affordable real estate - hypermarket retailing becomes unprofitable if rentals are beyond Rs 40-45 per square foot say incumbents, adding that properties in prime locations are hard to come by. Bharti Retail is understood to have entered into agreements with real estate players.
Much like Reliance, Bharti too plans to have more than one formatthe big hypermarkets and the smaller convenience store - in a hub and spoke arrangement. Bharti's proven execution skills and consumer insights will also be called into play.
As Sivakumar points out," The dynamics of the Indian consumer market are quite different from that in the west and can be challenging." Bharti should be able to handle that.
