By Ranju Sarkar

Business Standard, New Delhi January 03, 2010

Large retailers are trying to make their small food and grocery stores viable by trying out new ideas. While some like Reliance Retail are converting most of these stores into a deep- discount value format, RPG Group’s Spencer’s is looking at the franchising route.

Anand Raghuraman, partner, The Boston Consulting Group, said it is extremely tough to make money on small food and grocery stores. “It’s a crisis situation, and retailers are trying to find answers to some fundamental questions.’’ The problem is that retailers are straddled with a large base of small food & grocery stores — nearly 700 of them.

Reliance’s retail business reported an aggregate loss of Rs 557 crore on revenue of about Rs 4,000 crore for the year ended March 2009. Half of these losses came from the food and grocery chain, Reliance Fresh, which reported a net loss of Rs 249.30 crore on revenue of Rs 1,778.06 crore; the rest came from other formats.

Retailers have been trying to figure out how they can make the small stores viable. Industry sources said that Reliance Retail is now looking at a heavy-discount format; the stores will offer very little service, no air-conditioning but prices will be much lower than kirana stores. A Reliance spokesman did not respond to an emailed query.

Similarly, Spencer’s is looking at franchising these smaller stores. Devangshu Dutta, the chief executive of Third Eyesight, a retail consultancy, said this can work if the franchisee is involved in the operations. ‘‘In food, the margins are very low. If it’s a good site, you can offset lower margins with higher throughput,’’ he said.

Franchising has worked well in footwear and apparel retail where margins are higher at around 25 per cent. In food and grocery, the average gross margins are around 15 per cent. If food stores can achieve double the sales of apparel stores, they could be viable for franchisees. A brand like Spencer’s would be able to drive-in footfalls.

A franchisee could be someone who has a space to rent out, an existing retailer, or a commodity trader entering the retail business. It can also be an existing kirana store owner who will gain from the marketing and the sourcing support of a retail chain. ‘‘There are franchisees who have 15 to 30 outlets and handle four to five brands. But for it to work in food, the franchisees need to be active and involved in operations,’’ said Dutta.

If they are not, wastage, error and theft (which is very high in India) can eat into the net margins, and make the stores unviable.

By Sunitha Natti

ExpressBuzz (Indian Express), January 1, 2010

As the New Year celebrations wear out sooner or later bringing to the fore the harsh realities confronting the society today, the first thing that is likely to hit the denizens hard is the food inflation that is rising sharply.

Even as political unrest continues in the State, no one seems bothered about the spiralling food prices, except the common man on either side of the divide.

As a result of frequent bandhs, prices of essential edibles such as vegetables and fruits are hitting the roof.

Sample this: Tomatoes in both neighbourhood kirana stores and organised retail outlets — including Reliance Retail’s Fresh, Aditya Birla’s More, Big Bazaar, Heritage Retail’s @Fresh, Spar and Spencer’s Retail — costed Rs 15 per kg on Tuesday but increased to Rs 17 per kg on Thursday. Similarly, prices of onions and green chilli spiked from Rs 25.50 per kg to Rs 27 and Rs 20 per kg to Rs 21 respectively in just two days.

“Because of bandhs, frequency of trucks and lorries transporting vegetables from farms to mandis and outlets had come down. As a result of inadequate supply of some vegetables, increase in prices is only natural,” a senior official from More told Expresso.

While most retail chains do have robust inventory management and cold-storage facilities that can preserve vegetables for seven to ten days, due to continuing agitations, which began at the end of November, retailers feel that there is an impact on the overall supply-chain and distribution network.

“Typically, vegetable and fruit prices are fixed based on a combination of factors such as production, supply, demand, transportation and storage costs. Even if any of the factors gets disturbed, prices shoot up,” said Devangshu Dutta, CEO, Third Eyesight, a Delhi-based consulting firm focused on retail and consumer products.

Interestingly, some of the organised outlets, in a desperate bid not to lose customers, are selling raw tomatoes and overripe cucumbers at reduced prices. “Retail outlets dealing with perishables are severely hit due to the ongoing political crisis in the State. It causes customer inconvenience besides posting losses,” said K S Venugopal, Chief Executive (customer operations), Reliance Retail.

By BSReporters / Mumbai / Kolkata

Business Standard , January 1, 2010

Tie-ups with international retailers and brands, emphasis on profitable growth and increased focus on private labels are set to be key trends in the Indian retail sector in 2010, say retailers and consultants Business Standard spoke to.

Though foreign direct investment in single-brand retailing and cash-and-carry ventures are allowed along with franchising and licensing pacts as of now, 2009 saw most of the foreign retailers focusing on manage the business in their home countries, where they were seeing declining sales.

“In 2010, a lot of international retailers and brands are most likely to look at India as global markets have stabilised and the Indian economy has proved to be better than most other countries. These factors give a lot of confidence for them to invest in India,” said Arvind Singhal, chairman of Technopak Advisors, a business consultancy.

Wal-Mart has set up its first unit in the country and Tesco, the UK’s largest retailer, is providing back-end support to Tata’s hypermarket Star Bazaar, Carrefour is said to be talking Kishore Biyani’s Future Group for a possible tie-up.

Industry sources said a number of international brands are also holding talks with Future Group, Reliance Retail and Spencer’s Retail for tie-ups.

Devangshu Dutta, chief executive of business consultancy Third Eyesight, believes franchising and licensing agreements could be a major avenue used by overseas brands to enter the country.

“Our research shows that 45 per cent of fashion and lifestyle brands, which have entered India in the recent past, have used this route because it gives a quick entry and allows tie-ups with partners who have good real estate capabilities,” Dutta says.

A profitable growth
Though retailers such as Reliance Retail, Aditya Birla Retail and Spencer’s Retail closed hundreds of stores or shifted stores to economical locations in 2008 and 2009 and took various steps to cut costs, they are likely to continue to focus on profits and boosting margins in 2010.

Shoppers Stop’s top management took 15 per cent salary cuts, while 300 floor-level staff were not replaced. The company shrank its office space 20 per cent and corporate office expenses by 40 per cent to cut losses.

Delhi-based Vishal Retail, which has been battling cash woes and mounting debt, relocated 25 stores in the financial year 2009 and 10 stores since April 2009. It is now planning to close 20 more and go only through the franchisee route.

“In 2010, our strategy is to increase margins, reduce costs and boost revenues. In 2009, we mostly focused on controlling costs,” says Thomas Varghese, chief executive officer of Aditya Birla Retail, part of the Aditya Birla group. “We will watch the situation and open stores,” Thomas adds.

“Retailers will not book properties at ridiculous rentals and look at private labels to boost margins. Growth with profitability is the main mantra in 2010,” says Singhal.

Private labels to rise
Most retailers like Future Group, Spencer’s Retail and Aditya Birla Retail, among others, are stepping up their private label plans to boost margins. The reason: Private labels in food and groceries carry margins of 25-35, while private labels in apparel and accessories offer more than 40 per cent margins.

Future Brands, which manages the private labels of Future Group, is expecting a turnover of Rs 750 crore in 2010 (the group’s flagship Pantaloon’s financial year ends on June 30), 14 per cent growth.

Private labels contribute 30 per cent of its sales in FMCG and 25 per cent in personal care products. The group is expanding its private label portfolio further. It is planning to launch its own brands in lingerie and a toothpaste brand ‘Sach’, according to Future Group CEO Kishore Biyani.

Aditya Birla Retail, which has more than 400 products in its private labels, plans to take its share of private labels in overall revenues from 19 per cent to 25 per cent next year.

RPG’s Spencer’s Retail is also planning to double the contribution of private labels and fashion to its overall revenues in the next couple of years.

Spencer’s plans to launch several new private labels across categories. Under its brand ‘Smart Choice’, the company will launch floor cleaners, savories and chips, wines, air-freshners and cakes in the next two months. Under its ‘Livin Smart’ brand, the company has launched categories like quilts, handloom towels, dining accessories and, under its ‘Gerat’ brand, Spencer’s recently launched a mixer grinder and plans to launch a DVD player soon.