Spinach withers in economic slowdown


February 18, 2010

Sapna Agarwal

MINT, Mumbai, February 18, 2010

Grocery supermarket chain Spinach appears to be caught up in a slide that has seen a number of Indian retailers, particularly from low-margin food and grocery industry, down shutters in the wake of the economic slowdown.

Empty shelves and aisles greet you at the chain’s flagship store in Mumbai’s Bandra Kurla Complex. Its branch in Juhu, known for its prime location and suburban Mumbai clientele, presents a similarly dismal picture.

Fresh stock hasn’t arrived for past three months at any of the Spinach stores, owned by Wadhawan Food Retail Pvt. Ltd, a Wadhawan Group company. “We don’t have any official communication on when the fresh stocks will come,” said Ganesh Thyagarajan, a manager at the Juhu store.

Outlets in Versova and Kalyan have already downed shutters. Another employee said on condition of anonymity that the firm was thinking of closing down more branches in coming weeks.

A spokesman for Wadhawan Food said, “The company is in the process of cost-cutting and consolidation, and looking at store-level profitability across the chain, which could entail some store closures.”

Wadhawan Food runs food and grocery supermarket stores under the brand names of Spinach in western and eastern India, Sabka Bazaar in the north and Smart Retail in the south. Mumbai also has stores under the brand Maratha Cooperative. The group has close to 180 supermarkets under various formats and has closed nearly 50 stores across the formats in the past year, according to people close to the company.

Mint reported on 6 September that Sabka Bazaar outlets had stopped receiving supplies. They are yet to resume.

Wadhawan Group is not the only one to have taken a hit. Over the past year, the sector has seen 1,600 supermarket of Subhiksha Trading Services Ltd down shutters nationwide after defaulting on loans, vendor payments and staff salaries.

Vishal Retail Ltd, with 170 outlets countrywide, is seeking to reschedule debt of around Rs730 crore. The correction, which started last year with retailers such as Aditya Birla Retail Ltd, which has food and grocery stores under the brand name More, RPG Group’s Spencers, Reliance Retail Ltd, Future Group’s Big Bazaar and Food Bazaar, is still claiming new victims.

The Wadhawan Group has businesses spread across real estate, retail, food and beverage, education, financial services and hospitality sectors.

“Following collapse of Lehman Brothers and the ensuing liquidity squeeze, the group has prioritized its funds for investments in core?businesses and retail lacked the investments,” said Narayanan Ramaswamy, executive director, retail advisory service, KPMG Advisory Services Pvt. Ltd.

Industry watchers agreed organized food and grocery retail was yet to find its feet in India.

“Other retail formats saw one store closing for every 20 that have opened. In food and grocery retail, the number of closures versus the opening of new outlets is higher,” said Anuj Puri, chairman and country head of property advisory Jones Lang LaSalle Meghraj.

Devangshu Dutta, chief executive of consultancy Third Eyesight, said retailers were still finding out the right size, positioning, demand and supply equation for stores.

“There is no stigma attached to store closures,” Dutta said. “If a location is unprofitable, companies take a call on rationalization and profitability, and decide on store locations.”

But Ramesh Viswanathan, executive director, CavinKare Group, put the onus on retailers and said they needed to grow out of the “neighbourhood store” mindset. “The principal challenge for modern retailers is to innovate to drive footfall and increase consumption,” he said.