Bangalore: Nilgiri’s Dairy Farm Pvt. Ltd, controlled by private-equity firm Actis, said it expects new stores and strong growth in sales of high-value products such as health foods to power a 35% jump in revenue to Rs.700 crore this year.
“The consumption of certain high-value products has gone up,” chief executive Murali Krishnan said in an interview. “We address the market which is B+ (upper-middle class) and above. And that market has not been all that affected by inflation,” he said.
Nilgiri’s, whose stores are run by franchisees, expects to have 150 outlets by the end of the year to 31 March from 130 currently. Sales at stores open for at least a year have risen 15% this year, Krishnan said.
Bangalore-based Nilgiri’s, which gets 65% of its business from food items, with the rest coming from personal care and grooming products such as soaps and deodorants, is making a push toward launching more health foods such as low-fat yogurt. It recently launched oats and porridge and also started stocking more fruit juices.
“In health foods and yogurt especially, people are trading up and willing to spend more,” Krishnan said.
Although sales have held up well this year despite a weak economy and rising inflation, higher costs of key inputs such as flour, milk and eggs have forced Nilgiri’s to cut expenses and slow hiring to shield margins.
“As turnover goes up, we don’t increase our manpower to the same extent. As we expand and add more stores, we’re looking at combining and consolidating transportation routes. We shaved off about 30% costs in terms of food wastages in the factory this year,” Krishnan said.
Some of the increased costs were passed on to shoppers. Krishnan said the firm raised prices by 7% on average this year, but doesn’t foresee another round of price increases as milk and flour costs have stabilized.
Nilgiri’s operates under a different model than many of its rivals such as Foodworld and Reliance Fresh, with the firm’s own label generating as much as one-third of its food sales.
Its long-term target is to have private label contributing as much as 35% of overall store sales. “This will be done by adding new categories such as oil and mineral water, launching more varieties in current products such as cakes and pastries, and by revamping the packaging of our products,” Krishnan said.
“It makes a lot of financial sense to grow the private label side,” said Shomik Mukherjee, partner at Actis, which owns a majority stake in Nilgiri’s. “It’s a higher-margin business for Nilgiri’s and for the franchisee. For example, if the franchisee is earning a 10% margin on a Britannia product, on Nilgiri’s he makes 20%,” Mukherjee said.
In late 2006, Actis bought a majority stake in Nilgiri’s for $65 million from the promoters of the supermarket. Members of the Mudaliar family, which founded Nilgiri’s in 1905, together still own about 35% of the company.
Since 2007, despite many disagreements between Actis and Nilgiri’s promoters over the running of the company, sales at the supermarket chain have grown almost four times to Rs.520 crore for the year ended March. Its store footprint increased from 30 stores then to 130 currently.
“Three things have helped drive growth: bringing in a professional management team, which has a lot of experience working for MNCs (multinationals) and national retailers. Second, we brought in financial discipline and processes with a huge investment in IT (information technology). Now, all Nilgiri’s stores end-to-end are run on SAP (business management software). Third, we invested in building the brand. The packaging and kind of products were a little dated then. We completely changed and contemporized the packaging and introduced new products such as doughnuts and fruit yogurts and our health range to appeal to younger customers,” Mukherjee said.
There have been reports over the past few months that Actis is in talks with foreign retailers to sell its stake in Nilgiri’s. Mukherjee and an Actis spokesman declined comment on the issue.
“Supermarkets are probably the worst-performing category in retail,” said Harminder Sahni, managing director at consultancy Wazir Advisors. “Where Nilgiri’s is at an advantage to rivals is that since it has a large private label portfolio, it has an established supply chain and more control over its products which is a big problem in this space.”