New Delhi: Copper-to-telecom conglomerate Aditya Birla group announced an investment of Rs8,000-9,000 crore over the next five years to start a retail chain that will compete with similar chains that have already been launched or soon will be by Reliance Industries Ltd and Bharti Enterprises Ltd. The first of the supermarket and hypermarket chain, branded More, will open in June, said the group’s chairman Kumar Mangalam Birla. He added that the group would go it alone in the retail business and that the investment would not come out of any of the group’s listed companies.
“We intend to be among the leading players in India,” said Birla. “We’ll give the Indian consumer a fundamentally better shopping experience.”
An economy that has grown at an average of 8% over the past three years and 9.2% in 2006-07, and the fastest-growing salaries (for managers) in Asia, have encouraged companies such as Bharti, Reliance, and Aditya Birla Retail Ltd (ABRL, the name of the group’s company in the retail business) to enter the $300 billion (Rs12.3 lakh crore) Indian retail market. According to Wal-Mart Stores Inc., which will partner Bharti in a wholesale venture, store chains currently account for 4% of retail sales, but this number is set to increase to 35% by 2015.
“The retail market is huge but with so many chains, competition will become even more fierce,” said R.K. Gupta, a fund manager at Credit Asset Management, New Delhi. “With the increase in (organized) retail chains, a lot of small vendors will be displaced and that will create a problem of law and order,” he added. Last week, angry vendors attacked and trashed Reliance Fresh outlets in Ranchi.
Sumant Sinha, the chief executive officer of ABRL, said that the group will open 1,000 supermarkets and an undecided number of hypermarkets. The supermarkets will stock fresh food and groceries, while the hypermarkets will also sell apparel and consumer durables.
Apart from Sinha, ABRL has a CEO each for its supermarkets and hypermarkets business. Andrew Denby heads the supermarkets business and Russell Berman heads the hypermarkets one.
The Aditya Birla group has so far invested Rs200 crore in the retail business, including the amount it spent acquiring the 172-store, south-India focused Trinethra Super Retail Ltd. Sinha said the Trinethra stores will be rebranded More before the end of 2007-08.
“Retail will be part of our group’s services business which includes telecom and financial services. While our commodity businesses will not lose their significance in the group’s portfolio, retail is a new business that allows us to remain contemporary. We expect this business will be as transformational for us as the $6 billion acquisition of Canada’s Novelis was,” said Birla.
Birla had initially wanted the supermarkets to be around 4,500sq. ft, but the 13 that will open in Pune over the month of June will be between 2,300sq. ft and 4,500sq. ft, largely because of lack of adequate space. Reliance and Subhiksha Trading Services Pvt. Ltd run stores that are the same size or smaller although Subhiksha’s is a discount-store chain.
ABRL’s hypermarkets are expected to be around 75,000sq. ft compared with Pantaloon Retail (India) Ltd’s Big Bazaar hypermarkets that are around 70,000sq. ft.
The first concern for both formats was to get the sourcing right, said Berman. He added that the company would follow a private-label strategy, referring to a model where food products are sourced in bulk from farmers and buyers, sorted, packed and sold under the store’s own brand.
Birla said that raising funds for the planned Rs8,000-9,000 crore investment would not be a problem.
“The planned investment in ABRL will be a mix of debt and equity. The retail business has very easy access to capital and we don’t think we will need to go public or approach private equity funds for this,” he said.
Bharti Enterprises plans to invest around Rs10,000 crore in a retail network that includes a wholesale venture with Wal-Mart. And Reliance is investing more than Rs20,000 crore to set up stores selling everything from food produce to electronics.
Saikat Chatterjee and Archana Chaudhary of Bloomberg also contributed to this story.