http://online.wsj.com/article_email/SB118651168871890705-lMyQjAxMDE3ODA2OTUwMTkxWj.html
THE WALL STREET JOURNAL ONLINE, PAGE ONE
CHAOS THEORY
In India, a Retailer Finds Key to Success Is Clutter Consumers Like Noise,
Bins, Mr. Biyani Says; Narrowing the Aisles
By ERIC BELLMAN
August 8, 2007; Page A1
MUMBAI -- On a tour of one of his supermarkets, Kishore Biyani notes that
shopping carts are getting stuck in the narrow aisles, wheat and lentils have
spilled onto the floor, black spots cover the onions and it's difficult to hear
above the constant in-store announcements. He grins and congratulates the store
manager.
Mr. Biyani, 45 years old, has built a large business and a family fortune on
the simple premise that, in India, chaos sells.
Americans and Europeans might like to shop in pristine and quiet stores where
products are carefully arranged. But when Mr. Biyani tried that in
Western-style supermarkets he opened in India six years ago, too many customers
walked down the wide aisles, past neatly stocked shelves and out the door
without buying.
Mr. Biyani says he soon figured out what he was doing wrong. Shopping in such a
sterile environment didn't appeal to the lower middle-class shoppers he was
targeting. They were more comfortable in the tiny, cramped stores -- often
filled with haggling customers -- that typify Indian shopping. Most Indians buy
their fresh produce from vendors who keep vegetables under burlap sacks.
So Mr. Biyani redesigned his stores to make them messier, noisier and more
cramped. "The shouting, the untidiness, the chaos is part of the design," he
says, as he surveys his Mumbai store where he just spent around $50,000 to
replace long, wide aisles with narrow, crooked ones: "Making it chaotic is not
easy."
Even the dirty, black-spotted onions serve a function. For the average Indian,
dusty and dirty produce means fresh from the farm, he says. Indian shoppers
also love to bargain. Mr. Biyani doesn't allow haggling, but having damaged as
well as good quality produce in the same box gives customers a chance to choose
and think they are getting a better deal. "They should get a sense of victory,"
he says.
The approach has made Mr. Biyani rich. His company, Pantaloon Retail (India)
Ltd., is now India's largest retailer; it expects to report sales of more than
$875 million for the fiscal year ended in June. He and his family own a 42%
stake in Pantaloon, valued at about $630 million.
Mr. Biyani is proving that modern retailing, with a bit of spice, can work in a
country where traditional markets dominate. On the back of his success -- and
rushing to close his head start -- are some of the world's largest retailers.
While few may subscribe to Mr. Biyani's chaos theory of retail, all will be
struggling to find ways to attract the millions of Indian consumers who are
shopping at branded chain stores for the first time.
Wal-Mart Joint Venture
Wal-Mart Stores. agreed this week to set up a joint venture with Bharti
Enterprises Ltd. -- which runs India's largest cellular company -- that will
open wholesale stores to sell goods to small retailers, manufacturers and
farmers in India. Bharti plans to spend $2.5 billion to build a nationwide
network of supermarkets and small stores. Wal-Mart has to use this route into
India because Indian regulations don't allow multiple-brand retailers to sell
directly to consumers -- but they can run wholesale operations and provide
support to Indian retailers. Tesco PLC of the United Kingdom and Carrefour SA
of France, are also eyeing India. Petroleum refiner Reliance Industries Ltd.,
one of India's largest companies by market value, plans to spend more than $6
billion in the next five years to open thousands of supermarkets.
All are hoping to tap into the rampant consumer spending sweeping India amid
fast economic growth. India's total retail market is about $370 billion a year
and will expand more than 55% in the next four years, estimates Technopak
Advisors, a New Delhi-based retail consulting firm. It says sales of branded
chain stores now represent less than 5% of total retail sales -- but are
expected to grow more than five-fold by 2011, accounting for 17% of retail
sales.
Many more Indian women are working today and don't have the time to visit
several mom-and-pop stores. "I can't go to 10 different stores to get 20
different things. I'm a working mother," says Candice D'Souza, a 28-year-old
public-relations firm manager, who recently became a convert to Mr. Biyani's
Big Bazaar stores.
Wealthy Indians often employ servants who do most of the shopping. Many of Mr.
Biyani's unique touches are designed to make the household help, rather than
their employers, feel comfortable shopping. Indeed, he says that the greatest
potential pool of customers for retail chains in India comes not from the
wealthy but from those who work for them.
Mr. Biyani divides India's 1.1 billion people into three types of consumers.
"India One," as he calls them, are those with good educations, good jobs, and
much disposable income. They also are the target audience for many foreign
companies seeking to sell their wares here. Mr. Biyani estimates that such
customers comprise about 14% of the total population.
Where he sees the greatest sales potential is among consumers he calls India
Two: the drivers, maids, cooks, nannies, farmers and others who serve India
One. He estimates that 55% of Indians -- roughly 550 million people -- fall
into this category. They are seeing their wages rise and their children
frequently pursue further education and careers that will vault them up the
social ladder. India Three, he says, is the rest of the nation -- those at, or
slightly above, subsistence level, who don't represent much of a market for
modern retailers.
He thinks any retailer that tries to re-create a Western store in India will
miss most potential customers. "People like to do what they think works in the
West," but India is different, he says.
Mr. Biyani has been studying Indian consumers for more than 20 years. Though
many of his innovations are distinctly Indian, he credits icons of U.S.
retailing as his inspiration. His copy of Wal-Mart founder Sam Walton's book
"Sam Walton: Made in America" is battered from constant use. From Mr. Walton,
Mr. Biyani says he learned how to "rewrite the rules" in retailing. Mr.
Walton's photo hangs on his office wall below Mother Teresa's. He also has
written his own autobiography called, "It Happened in India."
In the 1980s, Mr. Biyani left his family textile business to launch a business
selling "stone washed" denim. He started his own line of shirts and trousers at
a time when few Indians bought ready-made garments, and later opened clothing
stores because he couldn't get others to carry his products. When he decided to
enter the supermarket business in 2001, his friends and executives told him
India wasn't ready. He thought otherwise.
Food Bazaar, Mr. Biyani's Western-style supermarket, now has 93 outlets in the
country. Big Bazaar, which sells household goods and clothes and frequently is
housed under the same roof as Food Bazaar, has 65 outlets. Mr. Biyani also has
expanded into other businesses, including restaurants, bars, property, mall
management, media, a private-equity fund and a bowling alley. All his
businesses are loosely gathered under an umbrella company called the Future
Group, based in Mumbai.
The Big Bazaar and Food Bazaar stores make up more than 60% of the annual sales
of Pantaloon, the main listed company in the group.
Public Market
Both Big Bazaar and Food Bazaar stores seek to invoke the atmosphere of a
public market, Mr. Biyani says -- albeit in the air-conditioned malls that are
springing up around India. The outlets have floors of gray granite tiling,
common in markets and train stations, so newcomers who have never been in a
large, modern store feel at home.
Instead of long aisles and tall shelves, the stores cluster products in bins
and on low shelves. With long aisles, he says, "the customers never stopped.
They kept on walking on and on so we had to create blockages."
The bins let customers handle products from different sides. Decades of
shopping from stalls also means that most customers feel more comfortable
looking down when they shop, he says. Narrow, winding aisles create small
traffic jams that make people stop and look at products. Last month, one of his
first stores in Mumbai changed from long, straight aisles to the haphazard
cluster design. "Sales are up 30% since the change," Mr. Biyani said, as he
struggled to walk through the knots of shoppers at the store.
Indian consumers aren't used to processed and packaged goods, so the stores
sell wheat, rice, lentils and other products out of large buckets. Housewives
want to grab handfuls, checking them out for pebbles, quality and smell, he
says. Mr. Biyani tells his staff not to tidy up, as he noticed that customers
are less likely to check out a product if it is in neat stacks. He scoops up a
handful of plastic razors from a pile in a bin. "When it is like this," he
says, "it feels like a good deal."
Because he says Indians like to talk and consult and bicker as they buy, the
stores have up to three times the number of employees per square foot than a
typical Wal-Mart. A few employees walk around the store using megaphones to
announce promotions, adding to the din from constant music and commercials
playing in the background. Mr. Biyani doesn't want his stores to be quiet or
relaxing. Many of the stores aren't air-conditioned -- on purpose.
The announcements and ads are done in India's many local languages to make
non-English speakers feel welcome. "We advertise in the language that people
dream in," says Mr. Biyani, who is proud he isn't one of the many business
leaders in India who has lived or studied abroad. Though he speaks the
language, "I don't dream in English," he says.
Mr. Biyani's chaos theory of retailing extends only so far. When it comes to
taking in money and making sure there are plenty of goods for customers to
peruse, his stores strive to be as efficient as any in the world. They run
software from German technology giant SAP AG to find out when a new brand of
noodle isn't selling well in Bangalore or the supply of curds is running low in
Kolkata. More than 50,000 items are delivered using just-in-time inventory. And
the stores have large numbers of cashiers to ensure that the checkout process
is fast.
Not all his efforts to replicate the feel of a market have worked. When
thousands lined up in front of each of his Big Bazaar stores for an annual sale
in 2005, he had to shut down stores early and call in the police to avoid
rioting. In Bangalore, the police forced the management of one Big Bazaar to
extend the sale by one day to calm the angry crowd. Now his annual sales run
for three days and he uses ropes to control the long lines.
The approach also has its limits. Mr. Biyani's department stores, called
Pantaloon, are aimed at wealthier Indians, who are likely to have either lived
or traveled abroad and expect a different shopping experience. There, floors
are scrubbed, the air is cool, and every item is carefully arranged on shelves.
As others now roll out their own supermarkets, Mr. Biyani says there is enough
business for everyone, but that it will take years for newcomers to catch up
with him. He also argues that India doesn't need foreign mass-market retailers
yet and is part of retail-industry associations that support restrictions on
foreign investment. He says foreigners might dump products on India to gain
market share and ruin Indian retailers before they have a chance to grow. He
has voiced concerns about foreign companies taking profits out of India.
In the meantime, he is taking his experiments into what Indian consumers want
into a different domain.
Former Milking Shed
Across Mumbai, on the site of a former milking shed, is Orchid City Centre
Mall. Mr. Biyani's Pantaloon Retail owns the mall and manages most of the
20-plus stores inside. It is a petri dish to test new retail formats and adapt
them for Indian consumers. It has the Future Group's own bookstore,
electronics, children's clothing, plus-size clothing, home furnishing and drug
stores as well as a video arcade, food court, gym, beauty salon and banquet
hall.
While he expects brisk demand for the banquet hall from weddings, he has
already figured out that his customers don't want $1.50 coffee. The gourmet
coffee shop has shut down and stands empty while he thinks of something else to
put in its place.
The biggest pull in the mall is still the chaotic Big Bazaar and Food Bazaar.
He put them on the top floor, to force shoppers to see the rest of the mall
when they come to buy rice. It seems to be working. The penthouse grocery store
is packed and the mall is crawling with shoppers pushing grocery carts.
"Nobody knows," what will sell until they try, says Mr. Biyani. "We all have to
discover by doing."
--Tariq Engineer contributed to this article.
Write to Eric Bellman at [EMAIL PROTECTED]
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