Mumbai: Small store owners are fast upgrading their shops to emulate practices of large retail chains, thus helping them become more profitable than their bigger counterparts, who continue to cut costs, consolidate and review operations on the back of poor consumer sentiment in a sluggish economy.
“Local retailers are growing profitably much faster than large retailers,” said the India Retail Report 2013, which was released on Wednesday. It estimates that around 57,000 local retailers have embraced modern retailing practices in the past two years.
Local retailers agree they are doing good business.
“Our stores make on an average between Rs.2,000 and Rs.3,000 per sq. ft. per month, which is 2-3 times more than that of a large modern retail store,” said Chetan Sangoi, owner of Sarvodaya Super Market—a 40-year-old 2,500 sq. ft food and groceries store in Dadar West, Mumbai.
Sarvodaya, added Sangoi, adopted a modern retail look and feel in 2003, after Kishore Biyani-owned Big Bazaar launched its store at nearby Phoenix Mills—in south Mumbai—in 2002.
Following the success of his store, Sangoi has helped close to 60 other traditional retailers in Gujarat, Uttar Pradesh and Maharashtra to upgrade their stores to follow modern retail look and practices. “We are seeing more and more small store owners interested in converting their traditional stores to modern retail,” he said.
Stores like Sarvodaya are doing well because they manage their grocery, dryfruit and spices business better than large stores, according to Sangoi. Moreover, large stores have more number of items—an average of 8,500 items compared with an average of 4,000 items that traditional stores stock. In any market around the world except Brazil, the top three retailers are the local companies, according to Abheek Singhi, partner and director, Boston Consulting Group. “Retail is fundamentally a local business,” said Singhi, adding that in India, a local retailer, also known as a kirana store, will always be relevant as they offer better customer service, credit terms, have higher customization and allow customers to try and buy.
Modern retail will account for close to 8.6%, or Rs.2.9 trillion of the total retail market at Rs.33.87 trillion in 2013, and is forecast to grow nearly 30% to become a Rs.4.88 trillion market by 2015, according to the India Retail Report.
However, not all is well with the modern retail business, which is seeing consolidation as companies look at cost cutting and growing profitably with customers cutting back on discretionary spends.
For instance, the total operating space of Kishore Biyani-operated Future Value Retail Ltd—which runs the Big Bazaar and Food Bazaar retail chains—decreased by 5% to 8.56 million sq. ft in June 2013 from a year ago, said a company investor update statement for the June quarter.
To be sure, India’s largest-listed retail company also opened stores, adding 0.14 million sq. ft. However, it closed 0.37 million sq. ft of space that included closure of six Big Bazaar, four eZones, two FBBs (fashion apparel lifestyle retail chains, earlier called fashion at Big Bazaar) and two Food Bazaars.
“The company is focusing on reducing costs through optimizing store network, without sacrificing sales turnover,” said the investor update. In the June quarter, the total income from core retail operations of Future Retail was Rs.2,256 crore while operating profit was Rs.196 crore.
Likewise, Bharti Walmart Pvt. Ltd joint venture, which operates close to 20 cash-and-carry stores in cities such as Hyderabad, Amritsar, Meerut, Agra, Lucknow and Jammu, announced that its India chief executive Raj Jain quit in June even as it goes slow and reviews its operations in the country. The company, among other things, faced allegations of violations of foreign direct investment (FDI) norms in multi-brand retail.
HyperCity, a supermarket chain that started with stores as big as 100,000 sq. ft, has more than halved the size of some of its large stores over the past year. “At least 40% of our stores will be around 30,000 sq. ft,” Mark Ashman, chief executive officer, HyperCity Retail India Ltd, a subsidiary of Shoppers Stop Ltd, said in an interview in June.