Karan Dhillon, Principal, Dhillon Group speaks about launching the country’s first drive-thru Starbucks, Uniqlo’s first highway store and more…
Zirakpur, the satellite town of Mohali, Chandigarh in Punjab, is home to the country’s first drive-thru store by international coffee chain Starbucks, which opened in 2020. It is also home to Japanese fashion retailer Uniqlo’s first highway store, which opened in April 2023. The tier 2 town also houses massive flagship stores of leading global brands in addition to North India’s first integrated multiplex and shopping mall ‘Fun Republic’, launched back in 2003.
The credit for bringing these iconic brands to Zirakpur goes to the Dhillon Group, a leading business house since the 1980s. The group was the first to bring Pepsi cola to India in 1989 and its Chairman Kewal Dhillon has been felicitated with the ‘Donald M Kendall Bottler of the Year’ award by former President of the United States of America George Bush and former UK Prime Minister Margaret Thatcher.
Since 2010, the Group has focused its energies on real estate, building first-of-their-kind retail-led developments in partnership with some of the biggest international brands like KFC, Decathlon, Adidas, and McDonald’s among others.
The striking feature of these stores is that they are big box stand-alone stores custom-built for the brand and despite being located in a tier 2 town of Zirakpur, they are among the best-performing stores of the brands in the country.
The Dhillon Group’s first integrated multiplex-theatre-shopping Mall in Northern India in 2003 was ranked in the ‘Top 5 Multiplexes Of The Country’ with an average daily footfall of 50,000 people and in its first year of operations registered 5,000,000 visitors.
In an exclusive interaction Karan Dhillon, Principal, Dhillon Group, speaks about the organisation’s philosophy, strategy, and building many firsts that go on to become success stories depicting the aspirational power of tier 1 and tier 2 towns. Edited excerpts…
What is the speciality of Dhillon Group?
Our forte has always been to get the first-mover advantage and partner with international brands to do something unique, something fresh, and something different. We always like to focus on building the best product, never compromising on quality and delivering a project ahead of time. For example, we partnered with Uniqlo to set up its first stand-alone store in India at Dhillon Plaza in Zirakpur. We had wonderful interactions with the entire Uniqlo team from Japan. The architects and the design head used to fly from Japan, and it was great learning about how meticulously they designed their retail concepts.
To date, it remains the brand’s only standalone store in the country.
Then again, during the COVID phase, when retail was shut, and we had to come up with something innovative to bring back the energy, we partnered with Starbucks to set up its first drive-thru in India, the entire design and planning of which was done from Hong Kong.
Currently, we have developed around 2.5 million square feet of retail area across the board, which includes several ‘first’ stores.
What is your model?
The model we follow is a built-to-suit (BTS) lease model, where we talk to the brand, understand its requirement, explain our catchment, what we’re looking for, what is suitable for the micro market, and develop tailored facilities—a synergy, which caters to the requirements of the brand as well as the site.
So, it is never only a real estate play. We do not sell our assets; we hold on to our properties because we have a long-term mindset. That is why we are careful about which brand are we signing up as our leases are for a 20-year, 30-year period and we make considerable investment in them.
Is it a revenue-share arrangement?
It is a hybrid model, where we have a minimum threshold or minimum guarantee (MG) and revenue share, whichever is higher.
And in most cases, we make the revenue share because there is a lot of due diligence, which goes into selecting the right brand for the right catchment. Since we get the right brand mix, the revenue always ends up being higher than the MG.
And the brands run the stores?
Yes. We are a hands-off developer, and we appreciate that one should always let experts and professionals who have the core expertise run a business. I’ll give you an example. We recently developed a 110-key hotel and instead of running it ourselves, we partnered with India’s largest hotel chain, Indian Hotels Company Ltd. (IHCL), which owns the Taj brand of hotels. We signed an agreement with IHCL to operate the hotel under their Taj GINGER flag. We appreciate the value add IHCL can bring to operating and marketing the hotel, which we can never match as they are hospitality specialists having a worldwide sales and marketing network. We like to keep an extremely lean organization and like to outsource all verticals of our work to industry domain experts, be it leasing, project management, facility management, design or architecture. It is an additional cost to engage with such external experts but it is definitely valuable. We restrict our role to more strategic decision-making and looking at the macros.
Our core expertise is in development and project execution. So, we tend to restrict ourselves to our core expertise area and let the brand partners who have the operational skills run the projects themselves.
How do you select the brands you work with?
We conduct surveys to understand what customers want. At the end of the day, you have to cater to the catchment. So rather than choosing the kind of brands we want, we go to customers and existing clients with surveys and questionnaires asking them the brand mix they want or what is missing in our developments. For example, at one of our sites, we had good food & beverage, entertainment, and retail options, the one thing that was missing was electronics as people pointed out.
So, based on the feedback, we signed up Tata Croma, which was the biggest standalone Tata Croma store.
So do you only build stand-alone BTS stores?
We mostly build organized high streets. Dhillon Plaza, for instance, is a high street comprising various BTS stand-alone stores.
We feel that the Indian customer likes organised chaos. So, you have to create more of a high-street chaos but organised in some way. This is the retail mantra we follow when planning a development.
All of your major retail developments are in Zirakpur. How do you convince global brands to come to a market, which they may probably have never heard of?
We don’t. The numbers speak for themselves. You can make as many presentations as you like, but at the end of the day, every brand wants to see the catchment and how other brands are performing. That is the biggest marketing tool a developer has. Once brands are performing well at your centre, other brands would like to join them as well.
Decathlon, for example at the Dhillon Plaza, Zirakpur is a success story. It started with a 25,000 sq. ft. store and now is almost 50,000 sq. ft. The store is the number one performing store for the brand in the whole country, beating all its stores across metros like Bengaluru, Mumbai, Chennai, Delhi, and Gurgaon. The reason is that a lot of thought has gone into creating the catchment around Decathlon and building synergies with brands like Starbucks, which is right next to it. Unlike a majority of real estate developers, we don’t worry about losing out on floor area ratio (FAR) or maximizing our built-up area, we focus on building a great product.
All the efforts that go into selecting the right brand, pay off in terms of giving us the highest per square foot realisations in terms of sales for all the brands at our sites. The healthiest sign of a good development is when a brand runs short of space and wants to expand at the same location. It is a good problem to have.
And we had it not just with Decathlon, but with D-Mart as well, which doubled its footprint at our site and is one of the best-performing D-Mart stores in North India.
All your stores are massive…
Yes. It is our strategy to go big. I have always liked anchor stores that have a certain scale and offer value to customers.
India is a price-conscious, quality-conscious, and value-conscious market. Any brand that can offer a quality product at a great price will always do well and offer the right scale as well. Even for the brands that we recently brought, like Hippo Stores by the Dalmia Group, we have given them a massive 50,000 sq. ft. Theirs is a new concept in India, like Home Depot, where you get everything from paints to tiles, sanitary fixtures, lighting fixtures and electrical fixtures under one roof. We were keen to have a partner like Hippo at our development because we believe in bringing fresh ideas and adding more value. Every new concept takes time for the customers to adapt, but if you have the patience to go through the process you will eventually get there.
Tell us about the catchment and customer profile, which is giving such great business to brands.
What happens when an international brand wants to enter India? The first story the international property consultants (IPC) tell them is to hit the metros—Delhi, Mumbai, Bengaluru, and Chennai which I disagree with. Because the real India lies in the tier 1 and the tier 2 cities.
These are places with an aspirational population. They want to wear the right brands, and they are willing to spend. They have high disposable incomes as the husband and wife are both working and the kids are young. That is where the true India resides.
Even the real estate costs and rentals here are low compared to the metros. So, it is a win-win for the retail brands. Zirakpur is the perfect example.
Do you plan to expand beyond Zirakpur?
It is better to be a big fish in a small pond than a small fish in the mighty ocean. India is a very large country and there are multiple micro markets within it. If you can pick a geography, focus on it, and get your act right within it, there will be multiple growth opportunities within that domain to grow organically.
But at some point, you will run out of new space for such massive stores…
Yes. So, expansion within the North is something we might consider in that case because we understand the catchment well. We have had a successful track record working within this geography for the last 40 years.
Our expertise lies in North India and that’s the area we would like to focus on currently. However, we are always open to looking at replicating our established successful model across different geographies.
What is in the pipeline for you?
We have a lot of interesting plans. We would like to be an all-round developer with projects across all real estate verticals be it retail, hospitality, residential or commercial. We have already covered the above verticals working with our existing brand partners and would like to cover the few remaining verticals. We are developing roughly another million and a half square feet in the next two years at the rate of about five to six projects a year as we like to focus on quality work and not quantity.
There is a huge surge of interest because all the brands we signed up are doing excellent numbers. This is the organic growth phase for us.
And, we will be nearly doubling our portfolio within the next two years but I can’t yet disclose the brand names as we have signed non-disclosure agreements with them.
But there are very exciting times ahead for us.
So what can you reveal?
We tell the brands we work with that whatever you want to develop with us, has to be unique and it has to be the first because we like to be the first in whatever we do. Whether it was bringing Pepsi to India, being the first franchise of Pepsi or becoming the first joint venture partner for Seagram’s or launching Fun Republic in 2003 as North India’s first integrated shopping centre with a four-screen multiplex.
So, the upcoming deals are large. For example, one transaction size is roughly about 900,000 sq. ft across just one project.
Some of them are going to be a part of a larger development.
What are your revenue targets for the next three years, five years?
Being a privately held company, we are under no pressure to reach unsustainable growth targets and hence can focus on executing quality products and delivering our projects on time. We have seen triple-digit rentals and are going at a steady rate of about 12% to 15% per annum. Vacancy rates at all our properties are down to almost 7% to 10%. There is a lot of demand from key international brands because of the great India growth story.
What are some of the biggest trends you are seeing in terms of the kind of brands coming here?
It is a big shift in terms of price sensitivity. Although Indians are price and quality-conscious, at the same time, ticket sizes have been increasing. We’re moving from affordable to bridge-to-luxury and even luxury e.g. one of the anchor stores ‘TANK’ by Reliance Brands Ltd (RBL) at our development has been witnessing an excellent repeat customer base and brand interest in the bridge-to-luxury brands like Michael Kors and Coach is going up.
I think the next step will be even for the GUCCI, Louis Vuitton and Chanels of the world coming to tier 1 because the infrastructure is already there. But they are hesitant to go outside the metros right now. But it’s a mindset, once they see somebody take the first step towards non-metros and see the enormous potential the markets hold, others will follow.
