BackITC scales back its retail roll-out plans
ITC scales back its retail roll-out plans
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Growing resistance from small, unorganized retailers and political opposition to the entry of large corporations into retail and procurement of agricultural produce from farmers has forced ITC Ltd to restrict its roll-out of urban fresh produce stores, Choupal Fresh.
ITC will open stores in and around the three cities where it has pilot projects, sharply scaling back initial plans to expand to more locations.
The company is planning about 50 new Choupal Fresh stores in and around Hyderabad, Pune and Chandigarh. It will give 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," said S. Sivakumar, chief executive officer of ITC’s agri-business division. “The whole issue of corporates engaging in agriculture has become controversial today."
ITC becomes the first major company to publicly acknowledge that recent opposition to organized retail is having an impact on roll-out plans.
While ITC’s overall target over three years remains the same, the company’s strategy has now been tweaked. It will minimize the money it uses for expansion by growing in clusters around the pilot stores, said Sivakumar.
“Our own sequencing of the business, going with putting the back-end in place first before we set up the front-end stores" is one of the things we want to get right, Sivakumar said. “With the competitive pressure building up, we cannot spread ourselves thin."
In the last six months, players such as Reliance Industries Ltd (RIL) and Aditya Birla Retail Ltd have announced plans to roll-out stores ranging from hypermarkets to smaller outlets in most of the towns and cities. Around the corner is the entry of Bharti Enterprises, the owner of Bharti Airtel Ltd, which has plans to set up its own retail chain as well as partner with Wal-Mart Stores Corp. for back-end operations.
Wal-Mart, in turn, is also looking at its own cash-and-carry, or wholesale, stores. Details of the Bharti-Wal-Mart partnership are likely to emerge later this month.
Meanwhile, opposition to such stores, while localized, appears to be picking up steam. On Wednesday, a new Reliance Fresh convenience store in Indore, one of the six that opened on 15 May, was attacked and damaged by those protesting against the conglomerate’s retail plans, which include setting up stores in 70 cities countrywide.
As of 15 May, RIL had 151 Reliance Fresh stores across India, covering 419,000sq. ft and mostly selling fruit and vegetables. The Indore attacks were reminiscent of a similar attack on the company’s outlet in Ranchi, Jharkhand.
RIL has been acquiring land, including farmland across West Bengal, for setting up its collection and distribution centres. But its proposal has been stalled by the state’s agri-marketing board, which has refused to give it requisite licences under the Agricultural Produce Marketing Control Act, to sell the produce the company has acquired directly from farmers.
In West Bengal, the Forward Bloc, an important constituent of the ruling Left Front government, is opposing the entry of Reliance Fresh and has also been talking against the entry of other corporate players in agri-retail.
Similarly, the cash-and-carry arm of German retail giant Metro AG has also faced resistance in Bangalore and Kolkata. In Tamil Nadu, wholesale vegetables and fruit vendors have carried out strikes to protest direct procurement from farmers by organized retailers, such as Reliance Fresh.
All the industrial houses that propose major retail chains have committed vast sums of money to the projects, with RIL leading the pack with a planned investment of Rs25,000 crore .
Still, a raging controversy on whether the entry of large players will put the smaller ones out of business has forced the Union government to commission a study on the impact of organized retail.
ITC has been active in the rural marketing with its e-Choupal initiative, a network of 6,500 computerized kiosks covering 38,000 villages in nine states. The e-Choupals have helped farmers buy and sell farm inputs, produce and realize better returns on their crop because they have access to nationwide prices. Because of the rural network, ITC can tap into the goods produced by these framers who are on its programme anyway.
By sticking to the three cities where it ran pilot projects and where the logistics are firmly in place, ITC will find it easier to initially consolidate its presence in clusters that feed off the same back-end operations, rather than investing afresh in setting up new supply-chain operations in new cities.
Its plan now is to open stores in Chandigarh and 10 other neighbouring towns. The second cluster will come up in Pune, Nashik and one more town (yet to be identified) nearby. The third bunch of stores will come up in Hyderabad. In effect, the company will cover 15 towns this year.
ITC’s Sivakumar declined to disclose the investment involved. He did say that the Choupal Fresh stores, each of which will be spread over 2,500-3,000sq. ft, will largely operate out of rented spaces.
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