Expansion strategies : Moguls of Indian retail industry

The Indian retail scenario is undergoing a dramatic transformation from the unorganised such as Gupta and Sons, Aggarwal stores, Goel Departmental stores and Mahajan Kiryanawala to the organised such as Reliance, Subhiksha, ITC, RPG, Rahejas, Future Group, Birlas, Bharti, Tatas and REI Agro. These organised players are familiar names and have, today, become the moguls of the Indian retail industry. Observing the pace at which they are expanding, there is no denying that, eventually, they will occupy the entire retail space and go on to become emperors of the retail industry in India.

Future Group is considered as the pioneer in the Indian organised retail industry with other big players following suit. While Reliance entered the retail sector two years back, Birla’s, recently stepped into the race to occupy retail space.        

Industry estimates project the overall size of the retail sector in India to be $ 427 billion (approximately Rs 17,080 billion) by 2010 and $637 billion (approximately Rs 80,600 billion) by 2015 with the organised segment expected to be 22 per cent by 2010, up from the present four per cent. The number suggests that organised players are all set to occupy a major chunk of the retail space.

How are these organised big retail giants planning to expand? What strategies are they adopting to occupy the maximum retail space? What are their tactics to deal with the competition posed by other retail players and the traditional shopkeepers? 

 

Growing organised retail giants   

If we recall the retail scenario a decade ago, local kiranawala or baniya had his monopoly in the neighbourhood. The consumer did not have any option but to buy whatever he was being offered by the shopkeeper in his vicinity. Today, there is a transformation and role reversal: consumer is the king and the retailer has to upgrade and find ways and means to come up to his expectations. The transformation has been brought about due to the inception of organised retail, which is still nascent but growing very fast in India. A number of organised retail chains have sprung up within a span of 10 years.

Future Group, founded in 1987 as a garment manufacturing unit, forayed into modern retail in 1997 by establishing Pantaloons Fresh Fashion chain. The group’s retail arm, Future Retail, operates through retail formats like Big Bazaar, Food Bazaar, E-Zone, Central Mall, Pantaloons, Fashion Station, Collection I, Shoe Factory, Gini Jony and Depot. The most recent is the KB Fair Price, a chain of neighbourhood stores spread over about 1,500 sq.ft of rented space at high streets in relatively lower income locations such as Saki Naka and Vashi (in Mumbai), Rohini and Pitam Pura (in Delhi). The company has plans to open about 200 more Fair Price Shops within the next few months. The store has three sections: ‘Anaaj Mandi’, the essentials section; ‘Provision store’, which stocks FMCG and ‘Bachat Bhandar’, which comprises general merchandise and variable product lines.

Reliance Retail, the 100 per cent subsidiary of Reliance Industries, launched Reliance Fresh, the first of its multi-format retail forays. As of now, there are approximately 500 Reliance Fresh stores operational across India. Besides Reliance Fresh, Reliance Retail has nine other retail formats that include Reliance Digital, Reliance Time Out, Reliance Jewels, Reliance Mart, Reliance Footprint, Reliance Trends, Reliance I store, Reliance Wellness store and Reliance Hypermart.

Subhiksha is India's largest supermarket, pharmacy and telecom chain. It delivers savings to consumers on each and every item that they need in their daily lives.

RPG’s ‘Spencer’s quality’ is a time-tested phrase, which has been ingrained in the minds of Indian consumers. The group is adding 30 stores a month and has retail area of 13 lakh sq.ft. In 2008, the company plans to add over one million sq.ft trading area under Spencer’s brand of hyper, super, daily and express stores. Currently, they are having revenue of over Rs 80 crore per month, which is likely to double by March next year.

Aditya Birla entered Indian retail industry in 2007 and launched ‘more’ with the simple mission, ‘To change the way Indian shop’. The group’s retail offering is currently planned with two formats viz. supermarket and hypermarket. The group has plans to have two hypermarkets in place shortly.

Trent Ltd, the retail arm of Tata Group, deals in various consumer product categories. For lifestyle and F&G segment, Tata operates through Trent, which currently operates through Westside, Landmark, Star India Bazaar and Croma.

REI Agro was established in the year 1994 with a vision to consolidate the fragmented basmati rice industry. REI Agro launched its 6Ten chain of retail outlets in the last quarter of the 2006-07 fiscal. Today, REI Agro has a turnover of Rs 1085 crore (in fiscal 2007).

ITC’s International Business Division, one of India’s largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. 'e-Choupal' services today reach out to over four million farmers growing a wide range of crops in over 38,500 villages through nearly 6,500 kiosks across nine states.

Vishal Retail is a conglomerate encompassing 93 showrooms in 63 cities across 20 states. Vishal is one of the fastest growing retailing groups in India. Its outlets offer products in almost all the price ranges. The showrooms have over 70,000 products, which fulfill all the household needs under one single roof.

Bharti forayed into the retail sector and inked a 50:50 joint venture agreement with the world’s largest retailer, Wal-Mart, for cash-and carry business in 2006. 

 

Retail giants spreading out

All the retail giants have announced massive expansion plans. Primary needs for expansion are space and investment. Local retailers are already occupying retail spaces in prominent locations. While the major problem for these retail players is non-availability of prime location, another concern is the strategy they would adopt to occupy the retail space.     

There are several possible ways in which big retailers can expand. The most feasible methods include expansion through company-owned outlets or company-operated outlets and the franchise route.

Company-owned/company operated:

Through company-owned outlets, the company owns the outlet either by taking up space on rent or on lease. Spencer’s is a perfect example of company-owned stores wherein all the appointments are done from the head office of the company. Mr Sumantra Banerjee, CEO and President, Retail and Power, CESC Ltd, says, “We are working on the rental model and all the stores are operated by the company. At this point of time, we are not looking at the franchise route for expansion.” Though Subhiksha also follows the same mode of expansion, they appoint higher officials in the stores and these officials further appoint other store employees.   

Mr Gunender Kapur, President and CE, Foods Business, Reliance Retail, says, “We have got rented lease property. Today, majority of our stores are managed by us and are company-owned. Both the franchised and company owned models have pros and cons and that is why we are operating both.”

Franchise route:

In this mode, the franchisee makes investment and gets the brand name of the company. Here, the store is managed and operated by the franchisee. Commenting on the modes of expansion followed in Vishal Retail Ltd, Mr Ram Chandra Aggarwal, CMD, Vishal Retail Ltd, says, “In future, we are planning to take the franchise model for expansion and, in this model, we would be offering franchise opportunity to franchisees. We would be keeping our product in their (franchisees’) store and would be selling on our behalf. Also, the franchisee has to invest for his or her store and we would be investing for the back-end operations and the total store management will be in the pay roll of franchisees.” As per recent announcement, Reliance will be opting franchising for all its specialised stores and will carry on with company-owned formats for its hyper marts or bigger stores.

 

Dealing with local markets

Observing the major expansion plans of big retailers, local retailers are beginning to feel threatened about their very existence. Before such an awry situation sets in, there is need to find a solution that would allow small and big retailers to work on the best possible deals and take retailing forward on a smooth plane. The solution can include tie-ups between major players and local retailers and opening retail outlets. Some of the other viabilities include:

Employment offer: Big retailers can offer to local retailers an option to become a part of their chain and thus help them to get transformed from unorganised to organised. The retailer or shopkeeper becomes the employee of the organised player. In such a situation, the local retailer becomes the store manager of the store and, hence, gets a monthly income and the branded name.

Franchise offer: The organised giant can offer to the local store owner the franchise option by giving him the brand name and occupying his retail space.

Rental incomes: Another way, which local retailers can opt for is giving the space on lease and earn annual rental income. This mode is the most-opted for by companies and landlords.

Tie–ups: In the race to stay ahead in retail, every retailer (small or big) is trying his own means to outdo others. Teaming up with local retailers and opening stores is another viable option. The combination of infrastructure, technology of big retailer and local knowledge of small retailers cannot be matched.

Mr Shubranshu Pani, President, Retail services, Jones Lang LaSalle Meghraj, says, “In many cases, the organised player has taken up the deal with the local retailer as partner to open outlets. And in some places, they are re-branding the outlet and letting the local retailer run it. In a nutshell, it is a win-win situation for the entire retail industry.”

Simultaneously, local retailers are confident of their survival as they do not feel that big retailers can pose any threat to their business since they are well-established in that particular area and have the advantage of local knowledge. Adding to this point, Mr Pani says, “I have seen that the organised retailer may not be customised. He might be stereotyped in offering brands and products in the outlets as per requirements of customers. On the other hand, local retailers are fully aware of the needs of the people around.” Supporting the local retailer, Mr Gurpreet S Randhawa, Principal Consultant, KSA Technopak Advisors Pvt. Ltd, says, “I would suggest that the local retailer must be one step ahead in customer service and provide more convenience, improve shop layout and do everything possible for customers’ convenience.”

Though retail giants have begun operations only recently, it will not take them much time to understand the situation in a locality. With local retailers also joining hands, they will definitely be successful in establishing a monopoly in their area.

 

Space for everyone

On the question of whether local retailers and organised retailers can exist together, mixed reactions are observed from the industry. Some biggies feel that they are not hampering the growth of small retailers as the market is big and there is space for everyone.

Indian companies such as Mahindra & Mahindra, Parsvnath, DLF, Hero Honda, chemicals and foods firm Jubilant group and brokerage and realty firm Indiabulls are entering in the organised segment of the retail sector. Mr Randhawa, says, “The current density of shop/person is 1:100. And, most of these shops are traditional outlets. In order to replace these shops with modern outlets, you can imagine how many shops each retailer would have to open. Yes, there is a definite effect on the sales for some but, in the long run, both will co-exist catering to completely different needs. An average customer would go to those air-conditioned outlets once a month but, for top-ups or daily needs, he would still go to a shop where it is most convenient to him. Can big retailers come at your doorstep like a vegetable vendor? Are they as convenient as local ones in terms of credit? Are you sure about the freshness of the products in these stores? Would I run to a big retailer to buy Maggi noodles and Coke? Even if a big retailer was close by, I would not go there as I would have to stand in a queue to pay the bill for just two items.”

Commenting on the taking over of retail by big retailer, Mr Randhawa adds, “No, it cannot happen so soon and so fast.” According to Mr Pani, “Local retailers are not being thrown away. They can manage to give away things on credit and also, they deliver products at the doorstep of consumers and provide personalised services.” Mr Aggarwal says, “Since India is growing at a very fast rate and the consumer population is increasing everyday, there is no threat to the unorganised retailer.” Mr Banerjee, adds, “We never under cut on prices. We are offering something very different to customers; we compete on a different platform. As compared to the local departmental store, we offer much better service levels and the disadvantage being high rentals and air conditioning. But, ultimately our focus remains on the customer and we are offering excellent quality and full assortment of items under one roof.”  Mr Kapur shares this point of view saying, “The market is so big and it is growing so fast that the organised retailers are not even capturing the growth in the market, so forget about space or place. While involving local retailers, we have plans to get into B2B formats.” 

 

Overview

Still in nascent stage, the organised retail is fast taking shape in India. Major retail players are swaying the local market with their uniformed and better outlets. The worst-affected are the FMCG and ‘fruits and vegetables’ segments. The news of major retail players opening hundreds of stores by 2010 figure in dailies. But, what matters is whether this large number of stores delivers low-cost fresh goods to customers in spite of rising rentals and maintenances costs. In any store, the brand image of the company would be affected if the performance is not up to the mark set by retail companies. Although companies are in the process of opening huge number of outlets, their performance, in the long run, would be the deciding factor on their survival and taking over local retailers. After all, it is the quality that matters and not the quantity.

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