Retailers bet big on small store format

Retailers bet big on small store format
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First Published: Fri, Aug 10 2007. 12 09 AM IST
Updated: Fri, Aug 10 2007. 12 09 AM IST
Two of India’s largest listed retail chains, Pantaloon Retail India Ltd and Hypercity Retail Pvt. Ltd, have started smaller convenience stores in a bid to gain scale, overcome paucity of real estate and grow fast even as large Indian and foreign companies with deep pockets are expanding their nascent retail business or aggressively entering the fray.
While Wal-Mart Stores Inc., the world’s largest listed retailer, has announced its entry in the wholesale cash-and-carry segment, Reliance Industries Ltd and the Aditya Birla Gro-up have entered the retail bus-iness with convenience stores in the last one year. The convenience store segment has seen the most investment and activity: Reliance has opened more than 200 stores and the Aditya Birla group, a dozen.
“In the race to scale up quickly, the small format store will be the key,” says Raman Mangalorkar, who heads the retail practice at AT Kearney, a management consultancy. For instance, while Hypercity plans to have four hypermarkets in Mumbai, it also has plans for up to 80 small stores, called Express City.
Having smaller stores would also help retailers set up large, centralized sourcing and distribution systems and get better deals with consumer products companies, analysts say.
“In order to get the attention of consumer companies such as Procter & Gamble and (Hindustan) Unilever, retailers need to have scale and size, which can only come from having many stores,” says Mangalorkar.
Smaller stores could also help retailers get around one of their biggest hurdles—getting reasonably priced real estate in decent locations. Asked about the expansion plans for Express City, Andrew Levermore, chief executive of Hypercity, says: “I will only go to cities where real estate owners have their feet on the ground,” a reference to the stratospheric levels to which real estate prices and the expectations of owners have risen.
Both Hypercity and Pantaloon are betting big on the small store format. Pantaloon plans to open 1,500 KB’s Fair Price stores in 18 months across eight metros and Hypercity plans to open 250 Express City stores in five years and could spend up to Rs220 crore on this. But they will compete in what is probably the most crowded segment of Indian organized retail. Apart from the new players, Subhiksha Trading Services has 785 neighbourhood discount stores nationwide.
All offer varied consumer experiences. Pantaloon’s KB’s Fair Price Value Store offers deep discounts and no frills and Express City offers pre-cooked food and meals-to-go in a format built around providing convenience for urban lifestyles. But both will “have to do a lot of relearning from their big box stores to run small stores successfully,” says R. Subramanian, managing director of rival Subhiksha. “While the space may be the same, running 10 small stores is harder than running one big store because each store requires a separate teams and infrastructure,” he says.
Organized retail forms just 3% of India’s more than $300 billion retail industry, but it is growing at 40% a year, according to some estimates.
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First Published: Fri, Aug 10 2007. 12 09 AM IST
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