According to Rajeev Karwal, founder and CEO of Milagrow Business and Knowledge Solutions, “every [business] idea is a billion dollar idea in India,” but what separates the success from the failures is execution. Milagrow partners with small and medium businesses at all stages of development, particularly startups, to help fill that gap. Following his participation in a panel discussion on Indian retail at the 2008 Wharton India Economic Forum, India Knowledge at Wharton spoke with Karwal about Milagrow’s mission, his outlook on the industry and what it takes to succeed in Indian retail.
A transcript of the conversation follows:
Knowledge at Wharton: I am going to ask you a couple of questions on the general retail industry in India and where you see it going over the next few years, but let’s start with your business model. Could you explain a little bit about your business model at Milagrow and how you position yourselves against consultants and VCs?
Karwal: Milagrow’s business idea has been with me for a very long time …. “Milagro” in Spanish actually means the “magic of faith.” And my elder son, who actually is studying at the University of Pennsylvania, said, “Dad, nobody understands Spanish in India, but ‘grow’ is a word which everybody understands.” And he added the letter “w.”
In the Indian language, “mila” means “meet” and “gro” means “growth,” so “mila grow” was something which the audience understood later on. But, you know, the model is something which is very unique from the Indian perspective. Today, every idea is a billion dollar idea in India. And that idea need not be new, because there are so many gaps in terms of production and services for the Indian consumer, and the consumer is much more than ready.
There is also such huge interest and hype about India that funding is not as difficult to arrange now — good terms, bad terms, debt, equity; you are able to get funding. But what is the most glaring gap in terms of converting ideas or strategies into sustainable successes is the lack of execution, and the lack of execution is because of the management bandwidth. And the management bandwidth — even if sometimes you acquire it, the expertise is not there.
And small and medium businesses [are something] nobody wants to touch in India, and everybody wants to really think of big ideas, work with bigger core corporations, and make quick money because there are opportunities. And I thought that, having served with the biggest corporations in India and abroad, there is a time to give back. So, social good is at the heart of the Milagrow business.
And we [decided] we will operate in the space where we actually will act as management partners, corporate angels, venture capitalists, incubators, whatever you call it, but we will work with the micro, small and medium enterprises and help these companies startup, scale up, achieve operational excellence, have turnarounds, or we become mentors or CEO mentors for them and help them realize their dream.
Another thing which I would like to say here is that we are … so flexible in the fee mechanism which we have that sometimes we don’t charge the client anything, and our entire revenue may actually come either as part of a revenue share or as sweat equity stakes. And we co-create value with our partners who sometimes are not able to afford large consulting or partnering fees. And we don’t do consulting. All our clients are minimum one-year clients or maybe even longer term, so that we put our money and mouth together and we do from strategy to execution to help the idea really become a reality.
Knowledge at Wharton: So, what do you see as the major trends in the retail industry today? Can you just elaborate a little bit on some of the trends and if you see any key differences at the moment between India and China in the retail space?
Karwal: The biggest difference, I think — apart from the government policy, which I am sure will change over a period of time — is the lack of supply chain in India and especially in the food and grocery [area]. And food and grocery is still almost 70% to 75% of the share of wallet.
And also the rentals in the organized retail spaces are so high that I don’t think any business can really earn a profit on a store-to-store basis in these organized spaces. And if these organizations have to really thrive and prosper over a period of time, they have to definitely become very, very innovative in providing the front-end solutions. And probably organized retailers need not exist in organized spaces; they can actually exist in the streets and the learning … can actually be transferred there.
And I think another trend is that mall space development is happening in the top 12 or 13 cities in India. And most of the people were actually following [the] model from tier-1 to tier-2 to tier-3 and tier-4. I can see already some of these bigger retailers are realizing that the prices in the bigger cities have to cool down.
So, they are now coming outside and where they are going into tier-3 or tier-4 towns and you can already see a Big Bazaar in Cuttack or Puri and these places. I think there, the retail space is much cheaper. The consumer gets exposed to the same advertising and the reach is there. So, the consumer is much more ready and the margins are much better and the sustainability of the model is there.
Knowledge at Wharton: Let’s move a little to the consumers now. We know in India, at the moment, consumers are generally profiled as not only rich and poor, but as “aspirers” and “seekers,” so there are several variations of consumers. Do you think this is an accurate representation of what an Indian consumer is, or do you find that certain characteristics permeate all these classes of consumers?
Karwal: I personally feel that the consumer by nature aspires [to purchase] the best that his or her money can afford. Right? And I have always believed in that — that even a person who buys a radio feels that he must buy the best radio for that money. And a person who can afford a television or a mobile phone will say, “I must get the best value for that money.”
And over the 24, 25 years of my career, right from [my] Onida [Electronics] days when we coined this “neighbor’s envy, owner’s pride” and the devil as a negative emotion, we played on that and it became the biggest success of the ’80s. When I went to LG, we created health as the focus where we said, “healthier air conditioners,” “healthier microwave ovens,” the Golden Eye television for wrinkle free eyes, et cetera, et cetera. So, everything was health focused. And all classes understood this simple message.
I think, even if there exist certain subtle differences, it is on the marketer to actually come up with a definition which actually focuses his or her brand in such a well-defined fashion across classes that it becomes a success. And in a market like India, which is a very wide, vast, scattered market of people who can afford, say, a product like consumer durables, et cetera, I think it is very, very important that marketers actually have the knack of doing it.
And I think India, as I mentioned [during the panel discussion today], is going to be a much, much bigger market where you have class for the masses. …We are not as price conscious as we are value conscious. Sometimes, prices consciousness is compared or treated as equal to value consciousness.
No, Indian consumers still respond to technical advantages or perceived technical advantages or if the marketers are actually cheating them. They definitely respond and they are willing to pay that much more as long as they see that extra value in the product. And that I think permeates across, whether socioeconomic class or whether you call them seekers, et cetera.
Knowledge at Wharton: Where do you see the opportunity in rural retail over the next couple of years?
Karwal: I think there is an opportunity everywhere, whether it is the urban product to services reaching out to them. [During today’s panel discussion] I mentioned the ITC model, where the malls became kind of picnic spaces — or actually you bring the rural products into the urban market. And that includes, even today, the herbal products or handicrafts and sometimes Indians, when they travel abroad, take back handicrafts which have been [created in] India, and they don’t even know that this has been done out of India. So, I think somebody has to get this thing right; the rural and the urban markets have to talk, and they have to talk in a synergistic fashion, and I think the opportunity lies on every side of it.
Knowledge at Wharton: What do you think has been the most significant policy change in the retail space?
Karwal: In the last couple of years, I hardly have seen a very major change in terms of the policy. …I think this shortsighted policy of the Left in preventing the opening up of FDI (foreign direct investment) is the most significant bottleneck, I would say, which actually will do much more harm to the Indian traditional as well as modern retail than it will serve them. Because in this policy, [with regard to] the back-end portion of a retail [operation], the foreign retailers are getting a huge opportunity of correcting it before they enter into the expensive front-end arena.
And also what is happening is that, at this point in time, real estate is so expensive in terms of rentals, et cetera, that lot of Indian players will bleed at the front-end, then the policy will change and they will become actually easy prey or targets for acquisition, but that does rule out the possibility of some large foreign retailers also being acquired by some of the large Indian firms because they are still flush with cash. And some of these corporations do not have the consumer-serving DNA, because their entire DNA was to serve the industrial or the B2B consumer. And retail is the most people-oriented of all people-oriented businesses, and if they want to learn that way of serving, they probably will have to buy that expertise from somewhere else, some other organization outside India.
Knowledge at Wharton: What do you see as the future of Indian retail? Are there any specific challenges that should be addressed currently, and where do you see retail going over the next five years?
Karwal: I think that Indian retail will continue to grow. And when I say “Indian retail,” I don’t distinguish between organized and traditional retail. I think organized retail will grow for the next 10 years at 25% or 30%; I think even the traditional retail will continue to grow at 15% to 20% just because of the fact that the Indian market is actually opening up.
And with such a huge shortage on infrastructure and electricity, et cetera, if our GDP can grow … just imagine as the situation actually improves, how things will explode. And also because of the young population, the amount of new houses or homes which are being set up — and there is still a shortage of almost about 10 million households every year. …A home, when it is setup, will require almost everything. And marriages also take place. The babyboom is about to happen and will continue for the next couple of decades. I see only one way in the Indian marketplace and that is up, up and up.