After a lull, Star Bazaar plans store expansion4 min read . Updated: 21 Dec 2015, 09:57 AM IST
Trent Hypermarkets, the joint venture of the Tata Group and Tesco, is planning to expand its store count 10-fold over four years with focus on smaller outlets
After years of slow expansion, Trent Hypermarkets Ltd, Tata Group’s retail venture with UK’s Tesco Plc that operates Star Bazaar hypermarkets, is planning to expand its store count 10-fold over four years with a focus on smaller stores.
The company has dropped its initial strategy of trying to please everyone by opening large stores and has become confident of the space it wants to be in, said a top company executive.
There are only 20 Star Bazaars, since the first one opened in 2004. Ten of them are hypermarkets of approximately 50,000 sq. ft—the large-size format it initially preferred. The remaining 10 are Star Market and Star Daily outlets, which came after Trent partnered Tesco in 2013. The Daily is up to 5000 sq.ft and the Market is 5,000-15,000 sq.ft.
“The last couple of years we have gone slow on store openings. The reason is, we wanted to be absolutely clear of what space we wanted to carve out," said Jamshed Daboo, chief executive officer, Trent Hypermarkets,adding that the original strategy of wanting to please everyone with everything, which all modern retailers started out with, has not worked. “We also went with that approach, but very soon found that that’s not the way it works, and each one has to find their own space. That’s what we have been looking for till some time now," he added.
The new strategy will see the Trent Hypermarkets adopt multi-brand approach to expansion. Moreover, the focus will be to add stores in just three cities of Karnataka and Maharashtra—Mumbai, Pune and Bengaluru— which allow foreign firms, such as Tesco, to own as much as 49% stake in retail chains. Also, new stores will come mostly in standalone locations as compared to in malls, said Daboo.
By the end of March, the company plans to open ten new stores and by the end of the following fiscal year, it plans to add 50-60 more.
“In the next 3-4 years, we will have 200 stores across formats," said Daboo, adding that most of them will be smaller stores under Star Daily and Star Market formats. The company will also double number of Star Bazaar hypermarkets from 10 to 20 in the same time, but they will be of 20,000-30,000 sq.ft instead of the current 40,000-80,000 sq.ft.
Trent Hypermarkets is the latest large-format retailer to consolidate its footprint and focus on small formats for expansion as it looks at profitability.
About two years ago, Reliance Industries Ltd’s (RIL) retail arm, which runs Reliance Mart and Reliance Fresh, also decided to focus on the 3,500-9,000 sq.ft small store format of Reliance Fresh, moving away from the big-box format it tried in its initial years. Likewise, Aditya Birla Group’s Aditya Birla Retail Ltd, which runs the More hyper and supermarkets exited from cities such as Mumbai more than three years ago.
Revenue at Trent Hypermarkets stood at ₹ 790.14 crore in the year ended 31 March, with a operating loss of ₹ 55.07 crore.
“In four years, we should be 2.5-3 times in scale of where we are today," said Daboo.
However, analysts are critical of the strategy. “It took them so long to define their strategy and yet, they have kept the focus so narrow. They can do a lot more," said Arvind Singhal, chairman of retail consulting firm Technopak Advisors Pvt. Ltd, adding that he is still not confident of any of the modern retailers’ strategies. “It will be another two years at least before we know if this strategy works. Modern retailers are still experimenting."
Daboo defends the strategy, saying there is no need to be in a tearing hurry, since traditional retail still accounts for 95% of the overall retail market, and this hasn’t changed in the last many years. “So, we took our time," he said.
The 10 Star Daily and Star Market stores, which came up in the last two years, have already improved Trent Hypermarkets’ overall sales per square foot by 20%, said Daboo, who did not share the actual number as it’s competitive information. He, however, said the Daily and Market formats have sales per square foot of ₹ 20,000 per annum.
Daboo claimed that opening stores in high streets will further reduce operating costs, since the funds spent in paying for common area maintenance at malls could provide better returns on investment if spent on marketing. He also justified the company’s focus on the three cities saying concentration and saturation within cities is the focus, and the company could add a fourth city but is undecided on the same. As such, there is one Star Bazaar each in Maharashtra’s Kolhapur and Aurangabad, which will remain as the sole stores in these cities.
After forming a partnership with Tesco, Trent Hypermarkets separated operations in Tamil Nadu and Gujarat with a total of four stores into Fiora Hypermarkets. Two of these stores were closed in 2014-15.
With the rise in online shopping, Trent Hypermarkets has also introduced delivery services for customers visiting the stores. Currently, the joint venture is not allowed to have online operations because of restrictions on multi-brand retail that have foreign ownership. However, under Fiora Hypermarkets, the firm has launched an online grocery portal—www.my247market.com—to explore the online grocery retailing opportunity in the proximity of select Star banner stores, the company said in its annual report for the previous fiscal.