Supermarkets Make a Tryst with Record Sales on Independence Day

Top retail chains posted their highestever weekly sales in the six days to Independence Day, when heavy discount offers lured buyers to splurge on daily household products, apparels and consumer durables.

Retailers such as Future Group, Reliance Retail, Bharti Retail, RPG Group’s Spencer and K Raheja Corp’s HyperCITY — helped by active participation of several consumer product companies — offered deep discounts across product categories to push volumes at a time when consumer spending is slowing and there are fears of poor monsoon rains impacting demand.
“Consumers are looking at savings more than ever before,” said Rakesh Biyani, joint MD of the country’s largest retailer, Future Group, whose 164 Big Bazaar outlets across some 90 cities saw more than 8.1 million visitors during the week ended August 15. “We have been working to integrate our supply chain to bring down prices as far as possible.”
Several suppliers, including Coca-Cola, Britannia and Procter & Gamble, participated in special Independence week deals, helping retailers to offer higher discounts than before.
Darshana Shah, business head for marketing at HyperCITY, a hypermarket format run by Shoppers Stop, said increased vendor participation as well as entire malls going for sales helped pull in the crowds. “The sale was definitely better this year as we had stronger and bigger deals since market sentiment was soft,” she said. HyperCITY also increased its spend on marketing this year at around 2% of overall sales. During the week, Big Bazaar outlets sold more than 1.4 lakh packs of a combination of 5 kg of rice and sugar each with 5 litre of edible oil, and more than 1,500 tonnes of detergent. LED TVs, mixer-grinders and induction cookers were among the other top sellers at Big Bazaar, officials said.
Spencer’s Retail said its same-store sales increased 24% year-on-year during August 11-15, driven by beverages, health and beauty, bakery products and staples that saw over 30% sales growth. Sales of FMCG household products grew over 50% while liquor sales rose 30%, Sanjay Gupta, executive director (marketing & business development) at Spencer’s Retail, said.
Such discounting, however, reflects the escalating pressure on retailers, whose sales are slowing during non-discounted periods. “Because of the slowdown sentiment, consumers have been withholding purchases, so companies are trying to push volumes through discount seasons at retail chains,” said Mayank Shah, group product manager at Parle Products, the country’s largest biscuit maker.
But those volumes come at the cost of bottom lines, he added. Earlier this month, credit rating agency Fitch said same-store sales growth of retailers slipped across lifestyle and value-based formats in the quarter ended June, adding that it expects retailers to combat slowing sales by offering discounts.
“However, this may lead to an erosion of gross margins,” Fitch said, while revising the outlook for the Indian retail sector to negative from stable for the first half of this fiscal due to sustained decline in the discretionary spending ability. A slew of factors such as economic slowdown, deepening crisis in Europe, high food and fuel prices has impacted consumer sentiment in the country, slowing sales of everything from cars to carpets.
Some retailers use inflation as a marketing tool. A case in point is Bharti Retail’s “freedom from inflation” campaign at Easyday stores, which help people fight inflation by providing quality merchandise at low prices. Retailers such as Reliance Retail used the week to increase their customer base. Reliance introduced discount offers such as ‘double the difference’ price guarantees across various product categories.

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Twist in retail tale: Kiranas partner giants

MICROFINANCE PUSH

IT’S a nagging, almost decade-old doubt that has kept foreign direct investment (FDI) in retail at bay: will the entry of Big Retail hurt the six million kirana stores? As the nation grapples with the question, a series of interesting pilot projects are demonstrating how the giants and the dwarfs can co-exist, and even fuel each other’s growth, thanks to a little help from microfinance institutions (MFIs).

Biggies like Wal-Mart, Metro Cash & Carry and the Future Group have forged partnerships with microfinance and financial institutions to sell merchandise on credit to rural kiranas. The MFIs not only provide credit, but also double up as valuable intermediaries that collect orders from the kiranas, source the merchandise from big retailers and deliver it at the kirana’s doorstep. What’s more, the MFIs do not charge any interest on the credit extended to the kiranas. Instead, they receive a commission from the retailers, for whom this is a small price to pay in order to win new markets and grow faster.

While Metro has been running a pilot with SKS Microfinance in Hyderabad for a few months now, the Future Group has just inked a similar deal with SKS. Bharti Wal-Mart, an equal joint venture, has a partnership with Kotak Mahindra Bank for cards that offer ready credit to the kiranas. RPG-controlled Spencer’s Retail too is keen to explore such opportunities.
If these experiments click, it could enable large retailers to pry open vast rural markets, help kiranas become more efficient in their sourcing, give consumers the benefit of lower prices, and build a thriving retail ecosystem where the lambs can indeed sleep with the lions.

It might also soften the resistance to FDI in retail. If kiranas are empowered to source more effectively, they may be able to co-exist meaningfully with organised retail if and when FDI is opened up. Though foreign retailers are allowed to set up cash-and-carry formats, FDI is not allowed in supermarkets, etc.

“This will open up a completely new rural distribution model and help us in understanding rural consumers,” says Future Group CEO Kishore Biyani. “This is probably the first time the Indian retail sector is targeting the rural market in such a big and strategic way.”

Future Group has started to sell staples, dry groceries and FMCG products through SKS’s network to some kiranas in the North, including a few in the National Capital Region. It also plans to supply its bouquet of private label products through this network. ‘Partnership a win-win one’
IT’S a win-win partnership as we can use our sourcing strength and SKS’s huge network of kirana clients to supply products to them at competitive rates. Eventually, we can include other products as well,” says Biyani.

SKS provides interest-free working capital loan to its kirana clients. The kiranas use this to purchase their inventory from Metro and Future Group at wholesale prices. The loan amounts range from Rs 5,000 to Rs 25,000. SKS, in return, receives a fixed commission from Metro and Future Group for the total purchases a kirana makes.

“Kiranas access superior quality products at very reasonable prices, delivered right at their store, thereby increasing their productivity,” says SKS Microfinance COO MR Rao. SKS has 2.72 lakh kirana store owners as its customers (4% of its total of 68 lakh members). Industry estimates suggest that only 35% of the 6 million-odd kiranas in India are properly serviced by consumer goods companies and distributors. The remaining 65% is serviced by a multi-layered distribution network that is often inefficient, but still adds a substantial amount to the product cost.

German wholesaler Metro Cash and Carry India plans to scale up its Hyderabad pilot nationally soon. The company is also helping rural kiranas with tips on effective use of working capital and strategies to serve their catchments better. “We could have launched this as part of our CSR programme, but we chose to make it a part of our core business plan as the potential is huge,” says Metro Cash & Carry India director (customer management) Ajay Sheodaan.

Kotak Mahindra and Bharti Wal-Mart have rolled out a “business card” which offers credit to kiranas starting from Rs 8,000. The credit is free of interest for 14 days after the purchase and an interest rate of 1.5% per month is charged after that. Kiranas are now making transactions ranging from Rs 15,000 to Rs 1 lakh on this card.

Kotak Mahindra Bank executive VP and head (credit cards) Subrat Pani says the customer acceptance for this lowticket working capital funding is growing on a daily basis. “We have around 700 members from Amritsar and Chandigarh. Within six to seven months, we have been able to drive almost 9-10% of the total sales at Bharti Wal-Mart. This could potentially go up to 12% in the next three months,” he says.

Enthused by these initiatives, RPG Group vice-chairman Sanjiv Goenka says Spencer’s Retail will also study such possibilities. “Any new model which expands penetration is good for the industry,” he says.

However, Retailers Association of India CEO Kumar Rajagopalan responds cautiously. “The real potential for modern retail lies in the top 100 cities. Some companies may be experimenting on newer models, but we need to see how much business it can generate,” he says.

New retail players make the most of low-cost environment

LEADING brands and retailers may have slammed the brakes on their expansion drive, but new entrants are identifying the opportunities created by the slowdown to steer ahead in a lower-cost environment.

Overall, the store rental-revenue dynamics have improved. Real-estate costs, which were a critical factor for retail has turned favourable, as companies work out deals for existing and prospective properties. “Though sales may have dipped 5-10% for a lot of retailers, rentals have come down 35-40%. As a result, existing stores are now breaking even or becoming more profitable,” associate vice-presidentretail & consumer goods at Technopak, Baqar Naqvi, said. The revenue sharing model, which has positioned malls owners as partners, is also transforming into a key stimulus.

“Earlier, most franchisees would ask for minimum guarantees. These clauses are now out of the system, making expansion through franchising much easier. However, only companies with cash reserves will be able to seize the opportunities in a downturn.

Unfortunately, there are very few of this breed,” added Mr Naqvi. Home decor brand Rosebys, which has announced an expansion to 110 stores this fiscal, is a case in point. For new entrants, there are strong reasons to invest. Take for instance, the Jawad Business Group which franchises Papa John’s and recently launched American south-western casual-dining chain Chili’s. “When there are fewer brands hitting the market, vendors are more willing to indulge in hard negotiations over payment terms, as they are also on the lookout for business,” general manager, restaurant division, Tapan Vaidya, said.

The RPG Group, which operates Spencer’s chain, sees it as an opportune time to test the market for its lifestyle format Mera World. “The downturn not only gives us an opportunity to perfect the model but it is also easier to tie up with the right partners for our shop-inshop formats.

“Many of these brands may have opened standalone stores if the market was better,” Speciality Retail’s president, K Dasaratharaman, said. Mera World has partnered with Baccarose for perfumes, Just in Vogue for watches and Eternity for eyewear. Media costs, which play a key role in brand building have also become much more fluid today.

Economic Times, Sarah Jacob BANGALORE, sarah.jacob@timesgroup,com

Retailers bet on entertainment activities to lure customers.

 NEW DELHI: As spiralling inflation dents buyer sentiment, leisure and entertainment forays seem to  be big retailers’ weapons to fight flagging sales.

Leading the way is Kishore Biyani-led Future Group that is opening unisex salons, gaming centres  and family entertainment centres at its nine Big Bazaar Supercentres. Similarly, Vishal Retail is  planning to start salons within the premises of its 120-odd outlets.

Shoppers Stop has introduced its brand of cafes, bookstores and spas within its stores to make  consumers spend more time and entice them to buy more.

Shoppers Stop vice-president (marketing) Vinay Bhatia feels such options are important to retain  customers. “A customer now looks for more than just shopping. We realise that convergence of retail  and entertainment is the way to enhance a shopper’s experience. We are constantly trying to get  things that are ‘shopping plus’. So we have Crossword, our bookstore, Cafe Brio & DesiCafe and  other such specialty stores within Shoppers Stop stores to enrich consumer experience.”

The Raheja Group-promoted Shoppers Stop is putting its best foot forward to attract shoppers. The  company has added small spa centres, allowing consumers a quick foot massage. Then there are  bookstores and cafes along with several other initiatives to attract customers and make them spend  more time inside the store. It has also introduced a ‘Monsoon Makeover’ offering that promises free  makeover for people who walk in.

Following suit is Vishal Retail that will begin by opening salons within the premises of its stores. Says  Vishal Retail chairman RC Agarwal, “The initiative is in the planning stage. There is a definite market  for these services.”

Spencer’s Retail is also going the extra mile to ensure visitors stay longer and are entertained well.  Across the stores, there are live kitchens on weekends that have Japanese, Thai and Italian chefs.

Then there is Books & Beyond, Spencer’s brand of bookstores that has periodic book reading  sessions and launches. Stores are also lined with interactive LCD screens that have both original  and borrowed content entertaining people.

“We do a business of Rs 100 crore every month. This is 5% of our revenues. Today, consumers  expect to feel relaxed and entertained. This is important for a chain like ours that wants to be  differentiated. This concept, however, may not have much potential with discount chains,” says  Spencer’s Retail marketing V-P Samar Singh Sheikhawat.

There are still others like Subhiksha Retail MD R Subramaniam who think it wise to continue retailing  what they currently do. “We are staying focused on what we sell, groceries, mobile phones and  medicines. There will be a foray into consumer durables and IT products soon.”

Gaining Share

▪ Future Group is opening unisex salons, gaming centres and family entertainment centres at its nine  Big Bazaar Supercentres.

▪ Vishal Retail is planning to start salons within premises of its 120-odd outlets.

▪ Shoppers Stop has introduced its own brand of cafes, bookstores and spas within its stores to  make consumers spend more time at the store and entice them to buy more.

▪ Spencer’s Retail has set up live kitchens and book stores to ensure customers spend more time.

▪ Smaller players like Subhiksha Retail think it wise to continue retailing what they presently do.

 

Indian retail sector to touch $365 bn in 2008

NEW DELHI: The boom in India’s retail sector will continue and top $365 billion in 2008, against $300 billion a year before, says a study by a leading industry chamber released on Monday.

With a year-on-year growth of 30-35 per cent, the retail trade sector in India will top $440 billion by 2010, says the study by the Associated Chambers of Commerce and Industry of India (Assocham).

“The retail industry size in calendar 2007, particularly in its organised retail segment, is around less than 5 per cent, which works out to be slightly more than $16 billion,” said chamber president Venugopal N Dhoot.

He also said the organised retail players occupied a space of 1 million sq ft in 2002, which shot up to nearly 14 million sq ft by calendar 2007.
This, he said, was likely to grow to 16 million sq ft in 2008.

Large players like Reliance Industries, Plaza, DLF and Spencer, and new-entrant in the field, the Aditya Birla Group, would embark on a major expansion drive in their retail businesses in 2008, Dhoot added.

The study estimated the organised retail segment would witness an additional investment of $70 billion by 2010. In 2008, the investment size would be in the region of $25-28 billion.

The study also estimated that that the share of retail trade in the country’s gross domestic product, currently at between 8-10 per cent, will jump up to some 12 per cent soon and to 22 per cent by 2010.

The study also estimated that rural retail would continue to be driven by the unorganised segment for some time, and grow to $36 billion by 2008 and top $45 billion in 2015, from the present size of $30 billion.

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Lodha & Co likely to partner Marks & Spencer

BANGALORE / NEW DELHI: Audit firm Lodha & Co has emerged as a surprise contender to partner specialty retail giant Marks & Spencer (M&S) in India. Sources said the UK based M&S has shortlisted at least three potential suitors to be its minority partner, with Lodhas being one among them.

The $16-billion M&S has been holding talks with players like Tatas-led Trent Ltd and Mahindras amongst others. M&S, working on a new India business strategy, wants to enter India directly through an equity joint venture in which it holds the maximum permissible 51% stake. UK’s iconic retailer could unveil a decision on its India partner within a month, sources added.

M&S is, currently, present in the country through a franchisee arrangement with Planet Retail but is looking at accelerating growth in emerging markets like India and China. Planet Retail operates 20 M&S stores in India currently. India allows 51% FDI in single-brand retailing while foreign retailer selling general merchandise under multiple brands are banned to make direct investments.

Sources said M&S could rope in a financial investor who would keep 49% stake and also be a passive partner in the joint venture. Besides, some of the domestic retailers may not be comfortable with a minority position. It is believed that AV Birla Group declined an offer to be a minority partner after M&S initiated tentative talks regarding a possible alliance.

Marks & Spencer declined to comment on queries posed by ET, including a specific query on its talks with suitors like Lodha & Co. “I am afraid we have no comment to make on either how or with whom we will accelerate the pace of our growth in India. We will keep you posted on future developments,” Clair Foster, a M&S spokesperson, said from London. The global retailer has set up a business development team in Bangalore headed by Spencer Sheen.

While Lodhas are a surprise name in the fray, it may be mentioned that the Kolkata-based audit group is already a 49% investor in a JV with Italian luxury fashion brand Ermenegildo Zegna. The Italian house, which entered India tapping the 51% single-brand retailing route, preferred a silent financial partner who are merely investors.

Meanwhile, it is unclear whether Marks & Spencer was keen on 51% stake, which is permissible under Indian laws, or whether it would settle for an equal JV with an Indian retailing group. Sources said suitors like Trent are likely to push for a 50:50 joint venture for preparing ground for the UK retailer’s future expansion plans.

Marks & Spencer operates around 520 stores in UK and 240 stores in 35 countries globally. It is UK’s largest clothing retailer and a multi-billion pound food retailer as well. Last month, Marks & Spencer chief executive Stuart Rose said he hoped to accelerate the company’s expansion plans in India, where it is present since December 2001.

Modest growth on home turf has prompted Marks & Spencer to chart a more aggressive international growth strategy with India and China as the big bets.

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Spencer’s to reduce its retail formats

As part of its new branding strategy, RPG Group-owned Spencer’s is working on trimming down the number of its current retail formats, while focusing on retailing food items.

Spencer’s currently has 290 stores covering four retail formats, Hyper, Super, Daily and Express spread across six lakh square feet of area, which will get reduced to three formats eventually.

“We are merging two formats which are similar, to reduce the number to only three formats with one big box, small box and a range of stores in the middle range,” Spencer’s Retail Limited Vice-President (North) Satyaki Ghosh told media.

The company would invest up to Rs 2,500 crore on its retail expansion till March 2009 to cover an area of around 20-25 lakh square feet by September 2008. The total area across the formats will be close to 17 lakh by this year end. “We are already present in 32 cities across India and as expansion continues, we are aiming top 119 cities of the country,” Ghosh said.

Spencer’s Retail is one of India’s fastest growing retail stores with multiple formats, retailing food, apparel, fashion, electronics, lifestyle products and books.

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