"We don’t operate on the price parameter"

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At a time when discount retailing is the latest buzzword in the organised sector, Spencer’s has dared to not play up the price point in a price conscious country. Rather the 100-year-old British brand, which was acquired by the $3.4 billion RPG Group in the 1980s, swears by the quality of its range and shopping experience in its stores. Operating 27 big retail formats, Spencer’s count of small stores is 373 under various names like Spencer’s Express, Daily, Fresh depending upon the size and location. Headquartered in Kolkata, the Spencer’s brand also has a specialty books, music and mobile store. The company plans to invest Rs 2,500 crore to ramp up its total number of stores by 2010. Having given India its first hypermart in 2000, the company pioneered quite a few other concepts as well, such as running a live bakery and kitchen section at its stores. In a tete ’a tete with FE’s Surabhi Agarwal, Samar Singh Sheikhawat, vice-president, marketing, Spencer’s Retail, talks about the company’s future plans, the challenges from the supply side and the protests from the unorganised sector. Excerpts:

What are the different formats that you have?

We have small, medium and large format, food and grocery retail stores. Besides, we also run a non-food arm—which is lifestyle. Under Spencer’s we also have books and music business. Music has been hived off as a separate business called Music World. The books business—Books and Beyond—is also new, under which we have a couple of stores. Our latest foray into retail, RPG Cellucom is through a joint venture (JV) with Cellucom from Dubai, under which we retail mobile handsets, accessories and other electronic gadgets.

But, the largest part of business and the fastest growing is Spencer’s retail. Our large stores are called Spencer’s Hyper and these are 25,000 sq feet and over. The smaller ones, called Spencer’s are 2000-12,000 sq feet and are essentially neighbourhood. To date, we have about 373 small and 27 large formats. But, the number is changing everyday. We are launching about 30-40 stores a month.

What is growing faster—small or big format stores?

You’d be surprised to know, the big. That’s why, this year we are planning to take their number to 75 (from the present 27) and also double small formats (from 373 to 600).

Where are these stores located?

We are currently present in 62 cities and may go up to 80. We follow the cluster strategy. We have to cover the whole of the catchment area. So Delhi would work only if we also have a Spencer’s in Faridabad, Noida, Gurgaon and Ghaziabad, or Meerut for that matter. Our policy is to saturate the cluster with different format stores. At present Spencer’s has 29 clusters across India.

How is this market organised? How do you rate yourself among organised retailers such as Subhiksha, Reliance Retail etc?

They are not our competitors. At the bottom of the pyramid are the kirana stores. Then come entry level, modern trade brands such as Subhiksha, Reliance, Big Bazaar, Wal-Mart, More etc, because their reason for existence is price. What most of them follow is a single-point, communication platform, that is, every day low price (EDLP) strategy or what is known as the Wal-Mart strategy. They compete on price, period. The last on the scale is luxury retail, names like Armani’s, the Versaces or the Hugo Boss’ of the world. Spencer’s positions itself in between EDLP and luxury brands.

You do a lot of SMS, Internet activation, don’t you?

Yes, we have a loyalty programme called Happyties. We also do a lot of outdoors, hoarding, road shows, food festivals, in-store decoration, virtual merchandising etc. Apart from that we advertise on print medium and cable television. We plan to be on TV, as well in the future.

What portion of your sales goes into marketing activities?

Nearly 2-3% of our sales turnover. Since we are launching new stores almost everyday the sales turnover keeps changing but on an average it is Rs 100 crore per month. We grew by over 75% nationally, in 2007-08 versus 2006-07.

What are the unique challenges on the supply side?

Supply chain management is the trickiest part of this business. Different product categories will have different supply chains. Foods and vegetables, being perishable obviously cannot be stocked indefinitely. On the other hand, apparel work on a six-month cycle. Managing the supply chain, because of infrastructure hurdles is only part of the problem. Specific to every organisation, you have to manage your warehouses etc. Retail is a very complex business. It entails buying in bulk from hundreds of vendors, selling in hundred stores to millions of consumers. So, complexities of the operations are huge. We grow our own fruit and vegetable supply at a farm in Bangalore. Almost 75% of our stock is sourced from there.

Any protests from the custodians of the unorganised sector?

Not really because we never bought directly from the farmers. When there were protests in UP last year, but not a single Spencer’s store was targeted. The same was the case in West Bengal. Some players sell produce lower than the price at which they procure from the farmer. We don’t do that.

Is that what triggered this sort of a violent reaction?

To be honest, there is no single issue. Essentially the problem is lack of communication. Today, organised retail contributes only 4% to the sector, which is estimated to be worth Rs 1,00,000 crore. If Rs 4,000-5,000 crore is organised then the balance Rs 95,000 crore is still unorganised. In this context, the potential of organised retail to generate employment, to grow the market and eliminate wastage from the system is huge. These benefits significantly outweigh the negatives. Having said that, we have peacefully co-existed with traditional trade for almost twelve years now.

We also have research that shows that traditional stores do well if there is a Spencer’s in the vicinity. Attribute it to category expansion.

You said that you don’t play the price game. But then, aren’t you losing out on a big consumer segment?