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'We plan to open 20 more Giant hypermarkets by the end
of 2006 at a total investment of Rs 10 crore for every
store. In all, we are willing to plonk an investment
of Rs 200 ($50 million) crore to build the hypermarket
chain.'- Raghu Pillai, President RPG Retail in February,
2004 at a crowded press conference in the In Orbit Mall,
Mumbai.
'We plan to launch 500 hyper marts by the end of next
year.' – Raghu Pillai, COO of Reliance Retail,
while speaking at the opening of the biggest hypermarket
in Ahmedabad, on August 15, 2007.
During the period of 2004-07 Mr. Raghu Pillai also
did a stint at Kishore Biyani's Pentaloon Retail.
Think Big
Will Reliance achieve the target? Not if one goes
by the recent history. Giant, now renamed Spencer's,
has opened barely six stores in all in the three years
since. Shopper's Stop owner, K Raheja's Hypercity wasn't
able to open another store, after opening its first
one in Malad after three years of planning. Concrete
plans have only now been finalised for the second one
to come up in Jaipur.
It's the same story with Star India Bazaar, the hypermarket
from Trent. It struggled with its first store in Ahmedabad
for nearly three years since its launch in 2004. It
has only now firmed up its plan to open the second one
in Dahisar, a Mumbai suburb.
It seems to be a strange climax foe what appeared to
be a killer retail concept. Around the world, eight
of the 10 biggest retail chains revolve around different
variants of hypermarkets. Wal-Mart has Sam's Club, Carrefour
its own signature Hypermark. So do Tesco, Metro, Kroger's,
Sainsbury's and Aldi's have their equivalents.
A typical Wal-Mart Supercenter covers 150,000 sq ft.,
Carrefour has 210,000 square feet (Reliance Mart is
somewhere in the middle with 165,000 sq ft.)
Back in 2004, when RPG was looking at rolling out
Giant, the only other visible hyper format was Pantaloon's
Big Bazaar. It was widely expected that the hypermarket
would emerge as the dominant model in the fledgling
retail space, virtually snuffing out competition from
neighbourhood grocery stores. The motto was quite simply:
Think Big.
Picture is opposite today
Yet today, the picture is quite the opposite. What
is growing rapidly, are the smaller retail formats:
convenience stores, food and grocery and discount stores.
In a period of just under a year, Subhiksha, with its
1200 sq. ft. discounting format has become the largest
domestic retail chain, on the verge of become the first
1000 store chain.
More interesting, the biggest entrants in the space
are all thinking small - whether it's Reliance Fresh,
now close to 300 stores, Aditya Birla Retail's More
and ITC's Choupal Fresh. The Bharti Wal-Mart joint venture
will also look at opening smaller stores in tandem with
their larger hypermarket and cash and carry operations.
Pantaloon Retail is also joining the bandwagon. Less
than a month ago, India's biggest retailer announced
that it was setting up a chain called KB's Fairprice
Value, a neighbourhood convenience store that reach
1200 stores in another year.
Hypercity also announced last week that they were setting
up a neighbourhood convenience called Expresscity, each
no larger than 4000 sq ft and driven largely by food
and grocery and will grow to 250 stores in five years.
Why the shift
So why the shift? Apparently the peculiarities of
the middle class customer were not considered as the
complexities of the real estate market. Reliance Retail,
for example, had snagged the property on which the newest
hypermarket Reliance Mart came up, a week ago, from
Raheja group last year after a court dispute with the
original lessees, the Raheja group. Hypercity executives
had bargained on a monthly rental of between Rs 18-25
per sq. ft. But the moment Reliance Retail entered the
fray, they were asked to fork out nearly three times
the agreed rental amount.
Realty costs and overheads
If overheads and employee costs are added to real
estate costs, the total costs would rise to about 16%,
which leaves virtually nothing in terms of margins.
Hypermarkets, at the best of times, don't operate with
more than 1-2% net margin, but make up in terms of volumes.
Reliance's aggressive entry, coupled with the fact
that Bharti Wal-Mart will soon jump into the fray, means
that finding large parcels of land will get tougher.
"Big boxes require over 60,000 sq ft space and
are not easily available in urban cities. Space at the
right price is the biggest issue and till then we have
to reach consumers through convenience formats,"
says Rakesh Biyani, CEO of Pantaloon Retail.
Every hypermarket without exception has been forced
to re -look at the space it has allocated for backend
and warehousing, which ideally should be close to 20%
of overall retail space. Reliance Mart's 165,000 sq
ft store has a storage and warehousing area of less
than 20,000 sq ft, or just about 12%. The result: it
puts tremendous pressure on logistics.
The middle class consumer
"A hypermarket needs a large bill and a large
bag and the means to reach the large bag home. Typically,
the large formats cater to the four-wheeler crowd. You
cannot generalise shopping in a diverse nation of middle
class consumers who use public transport most of the
time," says Subhiksha managing director R Subramanian.
Foot falls vs. sales
In terms of footfalls, a hypermarket typically get
about 8-10,000 footfalls a day, while a supermarket
gets about a third and a neighbourhood convenience store
gets about one-tenth that amount.
But the real problem is in converting that footfall
into sales. For the moment, retailers say consumers
tend to visit large formats as entertainment zones,
to wander around the aisles and look at products as
much as to make purchases.
"The larger formats intimidate the consumer and
land up confusing them. Structurally, we are not therefore
aping the European big-box formats. Earlier, we found
people walking around, making the smallest purchase
and walking out. It makes business sense to focus on
generating volumes through smaller formats to sustain
the big-box formats," said a top official in a
leading retail company.
Future
The present day retail scene is well illustrated by
Damodar Mall, chief executive, innovation and incubation,
Future Group, who played a part in the KB's Fairprice
Value store concept. He simply says, "Give the
Indian consumer a few more years and she'll be ready
for the classical hypermarket format. But not right
now."
Source: http://economictimes.indiatimes.com
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