ITC’s new plan: sell to other retail chains

ITC’s new plan: sell to other retail chains
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First Published: Sat, Jul 14 2007. 12 58 AM IST
Updated: Sat, Jul 14 2007. 12 58 AM IST
In a change of strategy, cigarette giant ITC Ltd, which had planned to set up its own Choupal Fresh retail stores to sell fresh fruit and vegetables, has decided it will also partner with other branded retailers.
ITC now plans to supply more retailers with fresh produce from its network of farmers and intermediaries to other branded retail stores.
“We are currently managing the fresh fruit and vegetable sections of five retail chains that contribute almost 15% of our wholesale volumes. We estimate that by next year the share of the supplies to organized retail chains will move up to almost 50% of our wholesale sales,” says S. Sivakumar, chief executive of ITC’s agri-business division.
Partnering with other retailers, he says, allows for a faster roll-out of their business model as they don’t need to rent out and outfit suitable premises. “This happens much faster than setting up own outlets.” However, ITC, which had previously scaled back Choupal Fresh’s roll-out, is not abandoning its own retail plans entirely. ITC will continue to sell to hoteliers, pushcart vendors and small shopkeepers produce from its own stores, three of which were initially set up.
On 24 May, Mint reported that ITC will open Choupal Fresh stores in and around Hyderabad, Pune and Chandigarh, giving cities such as Kolkata, Jaipur and Bangalore a miss this year.
In December, ITC chairman Y.C. Deveshwar had announced plans to roll out about 140 Choupal Fresh stores in 54 cities across India within three years, including Kolkata, Jaipur, Bhopal, Indore and Bangalore in 2007.
“Given the various issues that have cropped up, we have decided to wait it out for the next six months,” Sivakumar had told Mint in May, referring in part to the growing controversy over the impact of organized retail on small traders, especially fruit and vegetable sellers. The government has commissioned a detailed study of the issue in response to pressure from various political parties, including Congress president Sonia Gandhi as well as the Left parties. West Bengal, the state where ITC’s headquarters are based, is a bastion of the Left parties.
ITC’s move to partner rather than compete with existing organized retailers is significant as the Kolkata-based conglomerate braces for competition from the likes of the Tatas and Bharti Enterprises, both of which are entering into the business of wholesaling fresh fruit and vegetables, in partnership with foreign partners.
Tata Chemicals Ltd has entered into a 50:50 joint venture with Ireland-based Total Produce, Europe’s largest fresh produce company, while Bharti Enterprises has tied up with DE Rothschilds to promote a 50:50 joint venture, FieldFresh Foods.
ITC’s tie-ups with retailers include the Ashok Piramal group-controlled Piramyd Retail Ltd and Kishore Biyani-controlled-Pantaloon Retail (India) Ltd. The tie-up, which currently covers stores in Pune, Ambala and Hyderabad, has ensured the Choupal Fresh team and their produce replaces the local fresh fruit and vegetable concessionaires and in-house sourcing operations of these chains.
“Fresh fruit and vegetables have become a key reason why the customer chooses to go to the supermarket. We want to use this (tie-up with ITC) as a differentiator to get people into our store,” says Upamanyu Bhattacharya, CEO,Tru Mart, a division of Piramyd Retail.
Under the tie-up, TruMart has handed over its fresh fruit and vegetable section to Choupal Fresh—in cities where the latter is present—to manage.
“We are very happy with the arrangement. We get the quality we want, at the price we want,” says Bhattacharya.
But while management of the section was handed over to ITC, the stories do not carry Choupal Fresh branding.
“We have lots of partnerships with ITC across the Future Group. Leveraging our tie-up with Choupal Fresh we have been able to get farm fresh quality of fruit and vegetables at a good price, which helps to increase both walk-ins and business and build a daily connect with the home maker,” says Sadashiv Nayak, CEO, Food Bazaar, a unit of Pantaloon Retail.
ITC and retailers together set the prices, decide the range of fresh produce on offer and promotions, and share the profits. There is no minimum guarantee payable on ITC’s part, nor does the company pay a fixed lease rental to the retailer.
Instead, revenues and profits are shared, say retailers.
“Compared with local concessionaires, which we found were reluctant to stock adequate quantities and range of high quality produce, ITC is able to often ensure that the produce goes straight from the farm to our store shelves, bringing it to consumers as fresh as possible,” says Bhattacharya. ITC also has its staffers sell the produce in the stores’ “Farm Fresh” section, he adds.
“We want to grow our supermarkets into destination stores and we can jointly prepare with ITC a market plan for driving traffic, benchmarking prices to mandi prices and ensure we get the best produce which helps us grow this whole category,” says Nayak. “This category is a very important part of the customer’s wallet and we have had an excellent experience so far.”
ITC’s 50 Choupal Fresh stores that the company plans to open this year will be in the same cities where it has a supply chain that is also supplying to the organized retail chains. However, its own branded outlets may not necessarily be in the same area as the supermarket store sections that it manages.
Some industry experts note that any attempts by ITC to expand its own chain will now face more challenges as its retailer customers wouldn’t like a partner to also become competition. Indeed, these experts point out, consumer products giant Hindustan Unilever Ltd (HUL) sold its retail direct selling venture, Sangam Direct, to Wadhwan Foods Retail Pvt. Ltd’s Spinach chain because the perceived conflict of interest where HUL is both a supplier and a rival was not looked upon well in the Indian market.
Still, “with every large retailer building up its own back-end, the (ITC supply) business may not be sustainable in the long run without a front end,” says KPMG executive director Jai Mavani. “The biggest challenge in any retail format today is the logistics and supply chain and having built this up, it makes no sense to share it with another retailer.”
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First Published: Sat, Jul 14 2007. 12 58 AM IST