Two years ago, no one took Kishore Biyani seriously. His company, Pantaloon Retail, was seen as a one-man show. Biyani himself was regarded as unpredictable, and not a long-term bet. Today, he is the biggest retailer in India. In two years, Kishore Biyani has bounced back to become India's largest retailer. Here's how the maverick ignored conventional wisdom on retailing, and won.

By M. Rajshekhar

The makeover of 26, Residency Road is almost complete. On this Thursday morning, Bangaloreans walking down this tree-lined avenue slow down to stare at the megalith that has replaced the old Victoria hotel. It's a sharp, new mall. The sort with escalators and huge grey metal flanks clamped to the walls outside.

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All around it, people are zipping around in what can only be termed as desperate hurry. Labourers are clearing the dirt from the cobblestones that surface the driveway. Nearby, a mason is relaying a slab at the fountain. Truckloads of merchandise are arriving. Most onlookers take all this in, correctly conclude that the store is about to open, and walk on.

Other, more observant, watchers notice a somewhat nondescript man sitting on a ledge between the fountain and the steps that lead up to the mall. He doesn't seem to be doing much. Every few minutes, he pulls out a cellphone - one of three he carries - to ask about the latest election results, and how the stockmarkets are doing. For, on this Thursday morning, the final election results are being tallied, and it looks like the Congress might win after all. But there are more interesting sights that engage everyone's attention, and the man escapes most people's scrutiny.

That seems to be something of a running motif throughout Kishore Biyani's life. Ask people who India's largest retailer is, and chances are they will say B.S. Nagesh of Shoppers' Stop or RPG Retail's Raghu Pillai. And yet, it is Biyani who is the largest player in the Indian market today. This June, when he announces the 2003-04 results of his company Pantaloon Retail, his topline will be about Rs 650 crore. A clear Rs 100 crore more than RPG's, the second largest player in the Indian market. Shoppers' Stop is in third place with revenues of Rs 400 crore.

Back in 2002, when Businessworld last wrote about him, the 'bania' from Mumbai was in much the same position as the Congress Party was before the elections. No one took him seriously. Biyani hung around the periphery of the retail industry, which was dominated by personalities like the suave Nagesh, unlike whom, he was taciturn to the point of being tongue-tied. He fidgeted constantly during formal meetings, which made the task of carrying out any serious conversation with him quite an ordeal. Little wonder, he seldom received invitations to speak at industry seminars.

No one quite liked him either, because the man strongly believed - and said so bluntly - that his peers in the retail business were mere copycats. "Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing," he would say to anyone who cared to listen. His search for the ideal model also meant that he took colossal risks - something that scared away most financiers used to dealing with more conventional businessmen. On top of that, Biyani made no bones about the fact that he liked to run a one-man show. "I use people as hands and legs. I prefer to do the thinking around here," he once famously said. As a result, both professional managers and investors avoided him. And few people gave him any chance of succeeding.

Between then and now, a lot has changed. Biyani has moved centrestage. Today he has three highly successful retail formats: the Big Bazaar hypermarket; Food Bazaar, that straddles the food and grocery business; and his original Pantaloons apparel stores. The property opening in Bangalore is his fourth model, a mall called Central. By the end of next year, he expects to have 30 Food Bazaars, 22 Big Bazaars, 21 Pantaloons and four Centrals. Right now, he has 13 Food Bazaars, 9 Big Bazaars (the 10th is opening next week in Nashik), 13 Pantaloons and one Central. Between them, Biyani's stores occupy 1.1 million sq. ft of retail space. By the end of next year, they will occupy 3 million sq. ft.

With the opening of Central, Biyani says his portfolio is complete. Even as his competitors like the Rahejas (who own Shoppers' Stop) embark on new formats (food and grocery), Biyani says that his appetite for experimentation is now sated. "I will no longer try out newer formats. My focus will be to consolidate our operations." Don't take him too literally, though. What he means is that he will continue betting on new opportunities ranging from gold to car accessories, but not on quite the same scale as, say, his first Big Bazaar or his first Food Bazaar. Instead, he will concentrate on ramping up each of his four main formats.

Drawn by his growth, in the last two years well-known financial institutional investors like Goldman Sachs and Citigroup Global Markets have picked up stakes in his firm. And when the stockmarkets looked buoyant just a few weeks before the poll results, the Pantaloon stock was among the best performing on the BSE. It quotes at Rs 311 today, up from Rs 51.25 a year ago. Things are going so well now that Biyani has stopped talking about selling out to foreign retailers when they come in.

"Things have really fallen into place in the last two years," he says. It is noon, and we are walking through the mall. Inside, the whole place is a mess. There are less than 30 hours to go before Bangalore's newest and largest mall opens for business. And, so far, nothing is in place. The escalators are not working. The shelves are still coming up. The merchandise is still coming in. The stuff which has come in hasn't been unpacked yet. Cardboard cartons, plastic sheets lie everywhere. And yet, there is something oddly relaxed about Biyani's demeanour. He wonders about the stockmarket. Why is it rising? Can Manmohan Singh be the next PM?

Perhaps Biyani is in an unusually good humour because he knows that the chaos will settle down soon enough. Just like it has with his entire business. A big factor, he says, was Big Bazaar Mumbai. The format was a huge gamble, says Bala Deshpande, who served as ICICI Venture's representative on the Pantaloon board. Around 2001, when the first Big Bazaar opened, Pantaloon's topline was Rs 180 crore. The company needed money to expand, but had just Rs 4 crore of profits. The share price was low (Rs 18), so it could not have raised much from the bourses. Biyani would also have had to part with a lot of equity - his family and he hold 40% in Pantaloon today. Biyani took a Rs 120-crore loan that pushed his debt exposure to as high as 1.5. If Big Bazaar hadn't worked, he would have ended with huge debts and a loss.

But, as it turned out, the store clicked. In week one, the first Big Bazaar store pulled in over a lakh customers, and did a crore in turnover. By the end of the first year, Biyani had opened three more Big Bazaars. Riding on the hypermarket, Pantaloon saw its turnover of Rs 286 crore (2001-02) climb to Rs 445 crore (2002-03). Investors began to take notice. They also became more comfortable with the idea of him being a maverick. Says Biyani: "Investors look for growth. And there are not many growth stories in Indian retail. Most companies are growing very slowly."

It helped, also, that around the same time, Biyani began to pay a lot more attention to what the investors wanted. Says Deshpande: "As the new investors came in, they told him that he needed to delegate in order to grow." And so, he went on a hiring spree. Biyani pulled in the head of Globus, Ved Prakash Arya, to handle operations; Jaydeep Shetty from Inox to create new brands; Sanjeev Agrawal to handle marketing; Kush Medhora from Westside to look after new store rollouts; Ambrish Chheda came in to look after Food Bazaar and handle business development; Bina Mirchandani came in to look after the merchandising; V. Muralidharan came in from Lifestyle to head Central...

Persuading the professionals wasn't easy. Take Kush Medhora. Initially, he didn't want to join. "I thought the company was unprofessional from the way the first few stores looked. I had also heard that the company was a one-man show." But during the job interview, Biyani told him he wanted to abdicate everything except strategic planning and the selection of new locations. That helped Medhora make up his mind.

There is probably another reason why Medhora joined. He enjoys the adrenaline rush. His job, opening new stores, keeps him on the road for 220 days in a year.

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Ved Prakash Arya At Food Bazaar, Mumbai: Like the former head of Globus and current Pantaloons COO, many professionals are not averse to working with Biyani now

It is this frenetic pace that drew him to Pantaloon. "We will be (worth) Rs 5,000 crore by 2007," he says. "Such expansion is fun. In a way, we are creating history." Right now, he is running around - he is short of site engineers. His team has just one when it needs at least another three. He is also interviewing aspiring Big Bazaar store managers. In a break from regular retail recruitment, the company is hiring chartered accountants for store managers. Managing Big Bazaar is like financial tap dancing. The margins are slimmer. The business runs on faster stock turnarounds, and calls for a very different way of thinking from the other stores. And so, Pantaloon is looking for people with an eye for numbers. "Alternate Saturdays are holidays," Medhora grins, "and so that is when we do our interviews."

As the company grows by leaps and bounds, it is discovering all the advantages of scale. In everything, from raising finances to negotiating rates, the economies of scale kick in. To go from its current 1.1 million sq. ft of retail space to 3 million sq. ft by the end of 2005, Biyani estimates he will need an investment of about Rs 250 crore. Of that, Rs 32 crore has been raised through a convertible debenture offer made in November 2003. Another Rs 60 crore is being raised though debt. The current cash flows should take care of debt servicing without much problem. Meanwhile, the rapidly growing profits can be ploughed back to fund the expansion. The company has an EBITDA (earnings before interest, tax, depreciation and amortisation) of a little over Rs 65 crore. Right now, says C.P. Toshniwal, chief of corporate planning, "Our turnover is around Rs 650 crore. But by next year, the turnover will be Rs 1,300 crore. So, we will have an EBITDA of Rs 130 crore, all of which help fund the expansion." In contrast, Shoppers' Stop will throw up Rs 24 crore as EBITDA this year.

Interestingly, even as Biyani gets more cash from his business, at the same time, he is making that cash work harder. In the old days, he says, "I would have paid Rs 7 crore-7.5 crore for a 50,000-sq. ft store and I would have done an annual turnover of Rs 35 crore. Now, I spend about Rs 4 crore for a store of that size, and do a business of Rs 50 crore-60 crore."

You can attribute that partly to the mall-making frenzy in this country. There is a shortage of anchor tenants in this country - at least ones that can pull customers in, and Biyani is exploiting that. Not only is he able to negotiate lower rentals, he has begun insisting that mall owners also develop the place for him. In the old days, he says, "We would buy the property, do the fittings and so on. Now, I just take a fully-appointed building from them."
Day two. Kishore Biyani is standing on a scooter. The Businessworld photographer is trying to get some elevation into the photograph. From that unsteady perch, he is talking about why he thinks the best is yet to come for his chain. All his formats, he says, are seeing an interesting evolution.

Take Pantaloons. This is the brand that started Biyani's transformation into a retailer. Back in 1997, Biyani was manufacturing two brands, John Miller and Bare. Both were struggling. Even though his products were good, and the pricing was competitive, high distribution costs and margins were making the whole business unviable. And so he decided to set up his own stores. That year, the first of these came up in Kolkata. At this stage, the plan was that the company would open another 2-3 such stores, no more. Recalls Kabir Loomba, who worked with Biyani as a chief operating officer (COO) in that period: "When the first store came up, we did not know when the second store would come up." But the Kolkata store was an eye-opener. Biyani had been hoping it would do about Rs 7 crore in its first year. It did Rs 10 crore. Loomba feels this taught Biyani an important lesson: the Indian market was under-retailed. This was when the aggressive retail expansion started.

Over the years, Pantaloons has been through a few makeovers. And right now, it is getting another one. Biyani is junking the old positioning of 'India's family store' and is planning to target the youth instead. His consumer insight is, like always, a shade radical: "Within a family, people were thinking and dressing and acting very differently. Which is why I believe studying Indian consumers by demographics and psychographics is a waste of time. We should look at communities: techies, metrosexuals, etc."

Internationally, in this business of fashion retailing, while the margins on individual garments are high, eventually, the margins are low. That is because the unsold stocks have to be liquidated through heavy discounting. For instance, it takes 90-120 days to design and ship, say, a new line of fashion merchandise. This means two things. One, the company will always be forced to order in lots of 90-120 days, lest it runs out of stock halfway. Two, if the fashion changes, the company is saddled with inventory which then has to be liquidated. Says Biyani: "If the margins on every garment are 50%, but I am going to sell half of them after a 12% markdown, my margins are already down to 44%." And so, the company is trying to crash the time to market from 90 days to about 21 days.

Zara has a neat model that lets it launch new lines in less than 21 days. What made it possible is that it had its own factories. Biyani is doing something similar. Faster manufacturing, says Anshuman Singh, who looks after the supply chain, will let the company keep less inventory, which will make it more responsive to market changes while reducing the amount of stocks to be sold at a discount. At the same time, as fresh stocks hit the market faster, sales will rise. By becoming much more responsive, says Biyani, "We can up our margins by 5-6%." Right now, he has brought the time lag down from 90 to 40 days.

But fashion tastes in India don't change that fast. So the real question is: what will it take to drive disposability of clothes higher? According to retail consultant Devangshu Dutta, that is price. "Pantaloons will have to really bring prices down, by half or so. But that might create a problem between Pantaloons and Big Bazaar, for the latter is also based on apparel."

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This will have to be a lean operation. Pantaloon will carry no stocks. They will lie with the manufacturer and replenished just in time. In businesses where there aren't any large manufacturers, like plastics, leather, food technologies, Pantaloon is trying to engineer its own low prices. For ketchup, it has an in-house label for Rs 38 as opposed to an industry average of Rs 58 for the same size.

And then, there is the format that fascinates and worries Biyani: Food Bazaar. Right now, of the company's topline of about Rs 650 crore, Rs 250 crore has come from Pantaloons, the apparel store, another Rs 230 crore from Big Bazaar and the rest (Rs 160 crore-170 crore) is contributed by Food Bazaar. Biyani worries that Food Bazaar is growing too fast. He says: "I could double the stores I have and still face no problem. But it is important to recognise that it should not be more than 30% of my topline." (That is why, he says, "I have underplayed food in Big Bazaar.")

Part of his success is the ability to paint on a blank canvas. Incredibly, when Big Bazaar was conceptualised, he put in place a team of four people, including himself, none of whom understood the hypermarket business. And one of the first insights the team had was that all neighbourhood markets are the same - each of them has a bania, a dry cleaner and a chemist. "We knew we would have to create that same mix of the mandi in whatever new format we evolve."

Or take Food Bazaar. "I am going to change the face of food retailing in India," promises Biyani. Right now, he is working on a new focus for Food Bazaar. He calls it 'farm to plate' - essentially, a plank to improve freshness in the products. Boasts Chheda, the chief of business development: "The Ahmedabad Food Bazaar has a full-scale dairy set-up in place with a capacity to produce 1,000 litres a day. We make our own paneer and pasteurise milk. The company is also adding spice grinders and atta chakkis (flour mills)."

It's an example of how earthy entrepreneurs think differently. Says Biyani: "It is obvious to everyone that what Indians prize most in their food is freshness. That is what I need to give my consumers. But most managers take that as a mandate to set up a cold chain in this country. But I wonder, why cannot I have a farm next to my store? Managers always complicate things. It is the MBA culture. B-schools teach you how to manage complexity, but I don't think that is necessary. Life is quite simple."

Central is a smart concept too. It is a seamless mall. In other words, while there are lots of retailers under one roof, the look and feel is like that of a department store, down to the unified billing centre. And yet, all the stocks are held not by Biyani, but by the partners. By the end of September, Biyani will add two more - a 210,000-sq. ft monster in Hyderabad, and a smaller one in Pune. A fourth one will come up by May next year. The four Centrals will do about Rs 360 crore in turnover in the first year.

To continue innovation, Biyani has a new businesses team. Newly constituted under the charge of former Globus manager, Anand Jadhav, it is trying to identify new businesses for the company. Says Jadhav: "In 4-5 years, same store growth might start to plateau. To keep that rate of growth intact, we are identifying new businesses we can expand into, or use to replace less profitable ones." Right now, Jadhav and Biyani come up with the ideas and Jadhav's team sees how each of the areas can generate a topline of Rs 100 crore in two years. So far, he has zeroed in on footwear, music and car accessories. His mandate: to launch 3-4 business ideas every year.

Talking about managing innovation brings us to contrast Biyani and Nagesh. Nagesh believes Biyani will have to give up on gut-feel soon. "Gut-feel is not consistent. He will just confuse his managers terribly. There is no doubt in my mind that Kishore will have to go in for tech-driven answers."

It is a little after 6 p.m. The diya is lit. The ribbon is cut. And the mall opens for business. A lot of employees are hanging around, all eager to see how the mall does. Medhora is standing, grinning, near the entrance. "Five days before the store opened," he tells me, "A tenant called to say he could not get any cabinets for his counter. We had to run to find carpenters. We got the cabinets just in the nick of time."

The mall begins to fill up. The first glitches reveal themselves. The public address system is not working too well - the speakers are too high. And then, a few minutes after the mall opens, the power fails. The lights dim. The escalators stop moving. Opening glitches, shrugs Biyani.

The Tarapur plant: As Biyani plans to reposition Pantaloons as a fashion store, he plans to crash the time to market to three weeks. It helps that he also makes clothes

Postscript: Less than a week later, half the Pantaloon managers were back in Bangalore ironing out some of the bugs.

Postscript two: Another week later, I call Murali, the head of the mall. Business is good, he reports. Getting close to 15,000 people on weekdays and 25,000 on the weekends.

(With reports from Irshad Daftari)

Article from BusinessWorld, 14 June 2004