November 2005

I was at the warehouse this morning when led by the Sub-Divisional Magistrate, police raided the market! They were confiscating polythene bags (below 20-micron), which is an ecological hazard and has been banned.

The main market here has a 2km stretch of Grand Trunk Road running through the center, with shops dotting both sides of the road. Most shops have small frontage (avg. 10ft) and are built touching side by side with no space in between. I estimate there would be around 800 shops in this 2km stretch! Now, with so many shops and almost every shop carrying polythene, how much polythene did the police uncover today? Truth is – hardly any, if at all!

It was the third raid in recent times. Unlike the previous two, this one was a surprise. They were secretive this time; there were no whispers, no strange activities, and no articles in the newspapers that could have suggested it. But like the previous two, this one also failed. What was wrong? The ‘mechanism’ of the raid – it’s flawed.

This place is small, people know each other by name, and communication networks are huge. The moment they raid the first shop, the whole place knows about it and polythene bags are hidden away. Normally they don’t, but this time the SDM ordered the police to search inside the shops – drawers, counters, shelves, and containers, everywhere where you were likely to hide them. But that “they are searching inside” also became public knowledge, so the shopkeepers took it out of the hiding and sent it to their homes! Hardly surprising, the police did not find any polythene in subsequent shops they went to.

Despite the sudden-surprise factor, it failed due to simple fact that by the time you raid the first shop there won’t be any polythene left in the market! Don’t they understand that? They do. Hardly six months back they had confiscated huge amounts of polythene and burnt it publicly at the center of the market. So whats wrong with the recent raids?

I think there can be three possible cases –
1. You want the raid to be successful but follow a flawed mechanism.
If I were the SDM, I would have not done it this way. I would have not touched the retailers at all. There are too many retailers, too many shops, and a raid will never work. But there are only a couple of wholesaler (of polythene bags) here. I would have raided them. If I had stronger powers, I would have spared the wholesalers also, and raided the manufacturers instead. I wonder why they don’t do it. Or is it just dirty politics behind this obviously flawed mechanism of raiding shops one at a time?
2. That brings me to the second point – you want the raid to be successful but your hands are tied by dirty politics – trade unions and the way opposition politics works at micro levels.
3. The raid has been forced by the administration, and deep down you don’t really want to conduct the raid. Maybe you understand the real problem, that there is no substitute for polythene yet, so you consciously choose this flawed mechanism of raiding shops one by one, and just do it enough to keep the administration happy.

Which of the above factor has been playing in recent times, I don’t know. I discard the first one because I find it hard to believe that an officer of SDM level would not know that the strategy is flawed. I am sure he knows it. I discard the third factor, because if the raid was forced by administration and if personally you didn’t really want to conduct it, then this surprise element would have been missing in today’s raid – there would have been some signals given before. I have a feeling that it was really dirty politics behind it.

Apart from raids, strategy and motives, I also have a few points about polythene itself –
1. There has been a lot of concern about the environmental hazards of polythene. Despite being banned, the illegal 20-micron polythene is available throughout the country. Personally I find people in CBR (and other rural towns around) more concerned about it than people in bigger cities like Lucknow or Kanpur. No, folks here have never heard scientific terms like “biodegradable” but they know a few things about polythene – it chokes the open drainage system in use here (causing sewage water to overflow on the roads and into their low built houses) and it kills their cows, goats and buffaloes (if they swallow it). So many people here want it to go.

2. There is this huge problem of substitute. I am a retailer, believe me, retailers don’t love polythene either. For purely business reasons – it eats well into our profits. But what’s the substitute? Homemade paper bags are great – they are cheap, they generate employment for unskilled, and they are environmental friendly. Many retailers use these small paper bags for small quantities of goods, say 250gms of sugar. But what if one were to buy 3kg of sugar and 5kg of flour?

Its strange – the Govt. doesn’t want it, retailers don’t want it either, and consumer’s opinion is divided. But like a necessary evil, it is here to stay. That said, I would more than love to see the polythene go. My takes for the substitute – handmade paper bags (for small quantities) and biodegradable polythene bags for larger quantities.

As I write this post, I cannot help but think about our own policy here. We were the first retailer (and still the only one) in CBR to say ‘no’ to polythene. Our ads always say, “Help us reduce polythene, Please bring your own bags.” When we inaugurated the first shop with that statement in the ads, everyone thought we were crazy. Competitors were happy because “without polythene no one will buy from them”. They were right; habits don’t change overnight. For decades, people have been carrying away their purchases in polythene. How could a new entrant change that in a day? It affected our sales in a big way and still continues to do so. We receive repeated requests from our customers for polythene bags, but we have resisted the temptation, educated them and finally learned to survive and sell without it. Today most of our customers bring their own bags. But it’s an ongoing issue. Howsoever tough it has been till now, with customer base increasing by the day, it is becoming tougher to handle their requests and sometimes very legitimate demand for polythene. We know one thing – it may be very difficult to continue without polythene bags, but we also know that once started, it will be even more difficult to discontinue it.

So till the issue is resolved, it’s business as usual – sales, raids and public burning of confiscated polythene at times, ever-increasing customer pressure on us for polythene carry-bags, and our ongoing education and requests to customers for ‘no-polythene-use’ and bringing their own bags.

(When I started writing this post, I thought it would be just about an event. Then it developed into my analysis of its failure, the motives behind it, people’s treatment of the issue, and ultimately about our own policies. Hardly surprising that an issue of national debate occupied more space than what I limit my posts to.)

Okay, how do you explain ESOP to someone who doesn’t know what a company is? Sonu, one of our employees here (remember, we are in rural India) almost every alternate day asks the same question – “When will my salary be 10,000?” And everytime I reply, “Whenever we can afford it.” I want him to know that we want to pay him as much as possible (which is contradictory to the prevailing norm in this place – that you should pay as less as possible coz there is abundant supply of unemployed youth). But today, instead of saying that, I delved into his reason of asking a higher salary. So today it went differently –

“When will my salary be 10,000?”
“What do you want 10,000 for?”
“I want to buy a buffalo.”
“Buffalo!” If it were six months earlier, I would have jumped from my seat. But now I am accustomed to such surprises.

“Yes, the milk you buy in the market is adulterated. Plus I can sell the milk and earn more.”
“Ok, Ok. How much does a buffalo costs?”
“Depends. Breed, age, health, many things. But 10,000 will be enough. I have seen one, and I want to buy it.”
“See, you are earning this much. If you save, you can buy a buffalo in just two months!”
“No, I am already saving for that. But when will my salary be 10,000? It’s not just about a buffalo. I have other things also.”
“Like I want to buy a motorcycle” They don’t call it a bike here.

Ok, so it was not a one-time problem, I thought.

I told him, that salary is not the only way to acquire the assets one wants in life. Then for about an hour I explained to him what a company is, what ownership means, and how a stock is a share of that ownership. That there is something called valuation, and when the company is valued each share gets a value and so on, about stock exchange where you can sell your share for that much value in rupees etc. He seemed to understand it all.

He thought for sometime and said, “Ok, so if I need to buy a motorcycle I will sell my stocks?”
“Exactly!” I was glad, had I just accomplished something – explained “value” to my not-so-educated guy.
“Ok, now when will I be able to buy a car?”
“If you want to buy a car, you will have to wait till stock prices go up. So that when you sell your holdings its worth the price of a car.”
“But if I sell my shares, then how will I buy a plot and build a house?”

God! I had targeted the wrong problem. I shouldn’t have explained him stocks. I should have explained him a truth of life – You always need money. That’s right. You always need money, coz no matter how much money you have; there is always something sellable that you still don’t own. It might be a buffalo, a bike, a car, a house, or a private jet. Unless we are satisfied, there will always be things we would want to go out and buy.

Let me call it The Big Bazaar with The Small Parking. The car parking was full. The two-wheeler parking was also full. Inside was a big crowd – lots of people shopping, a few just strolling around. I stayed there for two hours, talked to a few customers, checked out their technology, how they handle pilferage, and of course the prices. Before leaving I even managed to get into their stockroom (causing some confusion among the security guys there) and saw the way they stock their inventory.

1. Good brand perception – they have build a good brand – the name is there in everyone’s head now. Most of the people seemed to be “checking it out? first, before they actually switch to Big Bazaar.
2. No competition – This is true for most of India, as the organised retail is just taking off; hence players are doing their best to avoid stepping on each other’s foot.

1. Congested Inside – Right now they can get away by stuffing heavily, leaving barely enough space to walk, but later people will want more space.
2. Weak real-value positioning – Standing in checkout for half-an-hour for saving on a few bucks. I think they should do something to speed up the checkout – maybe have separate checkout lines for those with less than 10 items (on lines of Wal-Mart), or self-checkouts for members.
3. Convenience matters – especially in parking. Do something to increase the parking space. You are in cities, with best builders and real-estate developers – talk to them proactively – make multilevel if necessary.

But pluses outweigh the minuses, at least for now. Unless there is real competition, I feel the show will go on more or less the same way. Mr. Biyani has kick-started organised retail in India in a big way. Pantaloon’s stock price going through the roof substantiates that. It has appreciated from Rs 44 in Mar, 2003 to Rs 2000 in Sept, 2005.

I recently visited Bangalore after one-and-a-half years. Yes, it has changed. Two things that immediately caught my attention was – pollution and traffic. Pollution has increased, traffic has worsened. If Bangalore doesn’t wakes up now, very soon they could be challenging Kanpur in terms of pollution. I think they already hold the title for most chaotic traffic – “Traffic Discipline? is a Greek phrase for them.

Just the other day, when I and my friend Rishab were driving to the BDA office I was frustated at the state of roads there. I pride myself in being an excellent biker – my yamaha and I become one when we take on the roads. But that day, howsoever hard I tried, I couldn’t manage to keep my yam from getting into the numerous potholes dotting the road. I said to Rishab, “Shit man! Do you call this a road? You only have potholes all over them.? “Concentrate Ani?, my friend offered his advice, “There is road between the potholes!?

Ok, about the good things. It was great visiting my previous company Techspan India. They have grown – now with three offices in Bangalore. The one on Cunningham road is really beautiful. But nothing more nostalgic than the good old Raheja Chancory, where I had worked for two years. My timing could’nt have been worse though – most of my friends were onsite – Aditya Ravi Shankar, Mahajan, Sreedhar and Deepak, so I couldn’t meet them. Though I did get a chance to talk to Vinay and Karan, my former colleagues.

The best part was meeting up with my good old friends from IIT, Vishal and Ajit Jain, after such a long time. Biking to Vishal’s place in Ulsoor on that rainy night was an experience to remember. I was drenched by the time I reached there. The hot coffee tasted even better. It was a really after long time, that I got a chance to bike around in the rains. I just luv it!

Though I wanted to catch up with the other IIT gang as well – Anshuman, Manav-Swati and the newly married Prakash and Ritu, but couldn’t do so coz of tight schedules. Meeting up newly married Priyank and Vaishali was great. Seriously Priyank, if I had a just little more time I would have certainly enjoyed the fruit salad Vaishali had made.

“Why retail? Why not software?? In the last one year that’s the question people have asked me most often. Ok, there were other questions as well. The crux of all the questions howsoever framed, was generally this – Why did I change careers from software to a totally new field of retailing? Why did I leave Charlotte, US to end up in Chhibramau, UP? The reaction ranges from surprise, to disbelief, to outright rejection of the idea. People find it hard to belief that leaving a software job in US and returning back to India (that too for retailing) can make sense at all.

So really, why did I switch from software to retail? The honest answer is – I didn’t change careers from software to Retail, I changed careers from software to Entrepreneurship. Thats right, I switched from software to entrepreneurship. After learning about software and investing, I thought it was time to learn about something new – Entrepreneurship. And it is something that is best learnt by doing. So that’s the logic – I did it, coz I wanted to do it.

That the venture is a retail venture has got more to do with business thinking, rather than personal preferences. No doubt I still love software (I wrote the POS software for our retail venture myself:) but retail has the kind of opportunity and can offer the magnitude of scale that I was looking for. Plus I think that when you learn something new, its best to learn from scratch, that makes you understand the basics better. Retail gave me that opportunity – I knew nothing about retail when I decided to switch.

As an added bonus, over the last one year, I have had a first-hand experience of rural India and have learned quite a few things about it. I will be sharing them with you in due course.

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