Hypermarkets good for large-volume purchases

Hypermarkets good for large-volume purchases
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First Published: Mon, Apr 16 2007. 12 14 AM IST
Updated: Mon, Apr 16 2007. 12 14 AM IST
Andrew Levermore and his family live a few minutes away from the 1.12 million sq. ft Hypercity, a hypermarket, in Malad, an eastern suburb of Mumbai. Hypercity isn’t just any hypermarket: its aisles are wide, its shelves have several varieties of fat-free chocolate-chip cookies, its crispers have vegetables wrapped in cling-film—some cleaned, sliced, and ready for use—and its salespeople wear gloves and caps in the interest of hygiene. It was named among the 100 Shops You Must Visit, a listing carried by the UK’s Retail Week magazine.
Yet, when Levermore’s wife wants to make a quick purchase, usually daily needs such as vegetables, bread, milk, detergent, or a light bulb, she doesn’t visit Hypercity; instead, she calls up the two regular kiranawallas (corner-store keepers) she shops from. Both know her voice, know what she means when she says she wants something, and deliver home, on credit.
In some ways, her behaviour is similar to those of most Indian shoppers: they visit hypermarkets or supermarkets for large-volume monthly or weekly purchases, but seem to prefer the convenience of the neighbourhood kiranawalla for daily needs. For Andrew Levermore, the South African who is chief executive of Hypercity, understanding begins at home.
Hypercity would have earned Rs130 crore revenue and attracted a million shoppers by the time it completes its first year of operations, on 1 May. The hypermarket, said Raman Mangalorkar, the head of the retail practice of consulting firm A.T. Kearney, “is something of an anomaly because of its high-end positioning and look and feel.” “People visit the store because of its novelty but the jury is still out on how scalable this is,” he added. He, and Levermore will find out soon enough.
The K Raheja Group, which owns Hypercity, has acquired space for 28 more hypermarkets across the country. Several other companies and corporate groups including the Aditya Birla Group, Reliance Retail, the Future Group, and Bharti Enterprises have plans to enter the hypermarket business, although they may not follow Hypercity’s unusually premium business model.
According to a 2006 study by A.T. Kearney, the organized retail business accounts for 3-4% of the $300 billion retail market in India. The consulting firm’s study said that the market was growing at 8-9%, but added that most companies entering the business were looking at discount retailing formats. The Hypercity format isn’t that.
Levermore is convinced that the “Indian customer is ready for this.” “They (Indians) have the same aspirations, desires and want occasional decadence as consumers elsewhere. Supply creates demand, in that new offerings are taken (up) by customers who never knew they needed this,” he added.
From Hypercity’s own experience, shoppers never knew they needed chopped vegetables and organic food. In a pre-launch study by Hypercity, housewives stated they wouldn’t buy pre-chopped vegetables. Today, the store sells four times as much of chopped vegetables as when it started. And when consumers were asked if they would prefer organic food, most responded by asking what that was. Today, some of the organic food Hypercity imports from UK-based supermarket chain Waitrose accounts for 5% of all food and grocery sales.
The problems Levermore and Hypercity have had to address, and which other retailers entering the business will have to, revolve around infrastructure, or the lack of it.
Levermore, who has spent over two decades running retail chains in South Africa and the United Kingdom (he came to India in July 2004 to set up Hypercity), said this has been the hardest to deal with.
Hypercity, for instance, employees 10 people to manually affix barcodes on several of the 35,000 products the hypermarket sells because its suppliers don’t do this. The hypermarket has also had to hire cold storage trucks, fill them with ice, and send them out to collect supplies of seafood to get around the limited availability of air-conditioned or refrigerated trucks.
And given the unorganized nature of the supply side of the retail business— suppliers vary from individuals to large firms—some of the supplies that reach Hypercity come in unpacked form. In the case of vegetables, this means employees have to sort through the delivery, reject or throw away the poor quality ones, and manually sort and pack the others.
Though other companies have said they will address this problem by entering the business of contract farming and logistics by leasing air-conditioned trucks and cargo planes. Hypercity, Levermore said, is “a retailer and wants to stay that way.”
The next Hypercity will still be a hypermarket and Levermore will try and use some of the understanding he has gained of the way people shop.
He admitted the risks were huge, but said “the opportunity here is so much bigger that you could get it half wrong and still succeed”.
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First Published: Mon, Apr 16 2007. 12 14 AM IST
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