When many of R Subramanian's batchmates opted for the corporate world, the IIM postgraduate had something different up his sleeve. When everyone swarmed around the IT sector, he trained his eyes on the retail sector. R Subramanian is that trailblazer who created India’s largest retail chain, Subhiksha.

Now the Managing Director there, R Subramanian was smitten by an entrepreneurial bug early in his life. After short stints at Pond’s, Citibank and Enfield, he set up his own investment firm, Vishwapriya, but soon realised that his heart and passion were elsewhere. With a modest capital of Rs 5 lakh, he stepped into the retail world by opening the first Subhiksha in a conservative place like Thiruvanmiyur in Chennai in 1997. Ten years later, it has evolved into a retail movement with over 1,000 Subhiksha stores spread across the country.

R Subramanian, Managing Director, Subhiksha Trading Services

Excerpts from CNBC-TV18's exclusive interview with R Subramanian:

Q: What is triggering this retail boom?

A: There are two parts. If you really look at it, the economy is growing. The Indian economy is growing not because of exports. This phase of growth over the last 5-6 years is significantly driven by domestic consumption. We have a large domestic market. Consumption parameters compared with China are very low. The per capita GDP is small. Therefore in this phase we are catching-up with a lot of missed out consumption opportunities of the past. That is what is driving the retail boom, because consumption cannot happen without retail.

A: If you look at the complete retail sector, organised, unorganised, all together, typically the idea is that if the economy is growing about 9-10%, the consumption part of the economy could be growing at about 18-19%. It could be double, it could be a multiplier of double at this point in time, because unlike China, which is very much an infra-led growth, India has been lagging in infrastructure spend and it has been a consumption-led growth over the last 4-5 years. There has been a lot of retail earning boom, there has been a lot of product availability boom, product innovation at various levels are all driving consumers to consume more. There has been a housing stock boom, because of low housing interest rates until a year back.

The retail sector is growing by about 18-20%; organised retail is booming. It is growing at something like 40-50% and over the next two years it will grow even faster.

A: India is one of the most overheated real estate markets in the world. Unfortunately, we don’t see any signs of cooling, because there is a lot of demand, there is also a lot of alternate demand. There is a lot of office property demand that is happening. Because of the way the cities are, it is not that new cities are getting developed. Existing cities are getting built more densely. So, there is a Parel, and some of the midlands getting taken out. You are building multi-tier sort of buildings there, you have put offices and residences there. Basically already India has got high density cities. And then you are increasing density by multi-storeyed buildings.

If you want retail space to cope with that, ultimately there has to be a merit of saying that there are so many people and you need so much retail space, and that retail space development is not happening, because ultimately the pain is that there is not so much space. I am not saying there are built localities. You go to a Dadar, where do you create new retail space in Dadar? You go to Bandra, where do you create new retail space? It is all built already.

A: The pain is catching-up, because in markets like Chennai, which have escaped the worst of the real estate pains of development in the past, there is still some scope to say, even a T Nagar is still getting redeveloped, or Mylapore is still getting redeveloped in a way. But even in that phase, it is possibly on its last leg. Some of these localities are not showing enough ability to generate more space. Basically, it becomes a clamour for existing space, then five guys want to enter the same market. Then it becomes something like the IPL auction of yesterday.

A: Obviously, organised retail is going to put some kind of pressure on the kirana store model in terms of making them pull up their socks and sort of improve services and all that. But in our view, the kirana in India is pretty efficient. In fact, I think organised retail faces a greater challenge from kirana, than kirana faces from organised retail, because organised retail is struggling to find cost structures and profitability models that will work, whereas the kiranas have been doing it for the last 40-50 years.

A: Their overheads are low, they are sitting on possibly smart real estate decisions they made 40 years back or their parents made 40 years back. So, they are enjoying a lot of advantages, which as an incumbent, a new retailer coming into the market is not necessarily able to enjoy.

A: As a consumer, obviously you want to match value. Matching value is the name of the game for any Indian consumer or for a global consumer, for an Indian consumer even more so. So, the Indian consumer is probably living in better times than he was living 15 years back. But they also remember how times were 15-20 years back. Incomes were lower, savings potential were lesser, the product ranges were lower, people had to wait. So, it was not a consumerist society.

While we talk about the power of the youth, the people under 25 and all that, over 50% of India is 40-plus and they were all people who got into their jobs in the 80s and 90s. So, I guess they remember how times were.

So, I don’t think the concept of value and savings has gone out at all. I think there is a huge focus on value and savings. What do those values and savings mean? Obviously there is a trade-off. Yes, they will look for 1+1, or they will look for concessional prices, for quality.

Let’s take a case of Subhiksha - if someone wants to come buy grocery, you will say, do I want to go 10 km to go and buy grocery? No, I don’t want to. I want to buy near home. Even if I get a great deal, will I go 10 km to buy grocery? I will not. But if it is something else, if I want to see a wide range, I want to see good quality, I want to something that lasts for six months - I just don’t want to buy cheap, I want to buy good quality, which will last me for time, it sort of enhances my social status, it sort of gives me prestige. So, the parameters are different. I think the Indian consumer is evolving and Indian consumer is not one. I think it is multiple consumer sets, people doing different things. So, there is an opportunity therefore for different kinds of retailers to do different kinds of things.

A: The business has to be constructed on a low margin construct. If you get into retail, you have to build the business model at around about 6% EBITDA. You need to figure out how to make 6% EBITDA and how to make money. So, you keep investments low. You keep your costs low. You keep your efficiencies high. So, your entire business is about squeezing every paisa out of the efficiencies.

A: They have no choice. Ideally, if there is a huge talent of trained people, we would like to recruit from them, because we will save the training cost. But the reality in India today is that there is no huge talent of trained people. So, we do have to recruit people, train them and as the largest player in the industry, companies like us shoulder a bigger burden of that, because we train and from us others take. But that is part of life.

A: In fact, more inclusive growth than most other industries in a real sense of the term because the sort of consumer market that we are servicing is very much the middle market. The employment market that we are servicing is very much from the lower to the middle market, than the top end market. So across the spectrum we are doing employment provision. The consumer market is servicing this middle market. So, it is truly inclusive growth on both ends of the spectrum - both on the consumer side and on the employment side.

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