In business recast, Aditya Birla Retail cuts stores, jobs4 min read . Updated: 01 Apr 2012, 11:56 PM IST
In business recast, Aditya Birla Retail cuts stores, jobs
Mumbai: Aditya Birla Retail Ltd, a unit of the $28 billion (around Rs1.43 trillion) Aditya Birla Group, has shut its small-store food and groceries business in some large cities and exited from Mumbai, as it embarks on a major restructuring after five years of losses.
The retailer, which runs the More shops, has shut about 50 outlets across India and plans to focus only on bigger stores, two company executives said.
“The process of shutting down the stores started in March and about 225 people have been asked to leave. About half of them are trainee customer service executives, the lowest rung of the retail business, and others are from the head office," one of the two executives said.
Chief executive officer Pranab Barua said the company has decided to focus on the large-store format and has shut all its small shops in Mumbai, and some in Pune and Delhi.
Barua replaced Thomas Varghese in early March. He was earlier heading Madura Fashion and Lifestyle. Varghese has taken over as head of Jaya Shree Textiles. Both Madura and Jaya Shree are divisions of Aditya Birla Nuvo Ltd.
The company website still lists Varghese as chief executive of More and Barua as chief executive of Madura.
Aditya Birla Retail has close to 500 so-called supermarkets and 11 bigger stores.
“We are closing the non-profitable stores—40 to 50—because huge funds are required to run these stores. Besides, the rents in Mumbai are high. We will now focus on large stores, but continue to run supermarkets in the south and markets which are doing well, such as Punjab, Haryana, Uttar Pradesh and Kolkata," Barua said, adding 15-20% of its supermarkets are not profitable.
The company had secured and unsecured debt of Rs3,113.36 crore in March 2011, according to its cash flow statement submitted to the registrar of companies. Its stand-alone revenue was Rs687.93 crore and the firm posted a loss of Rs423.10 crore in fiscal 2011, according to its annual report.
“We have 11 large-format stores, including the three we opened in fiscal 2012. Barring these three, all are profitable. We plan to open more such stores in 2012-13," he said.
Barua confirmed that some employees have been told to go, but said the number was only “100 to 150".
While the executive quoted earlier in the story said all 28 supermarket stores in Mumbai, seven stores in Delhi, 12 in Pune and four in Punjab have been shut, and eight Pune stores are still operating because inventory has not yet been exhausted, Barua said “only four to five stores" have been closed in Delhi and Pune. “We have closed all 25 supermarket stores in Mumbai," he said.
The More brand operates two categories of stores—supermarket, a small-store format such as the neighbourhood groceries store (spanning 2,000 sq. ft), and hypermarket (between 40,000 sq. ft and 100,000 sq. ft). Aditya Birla Retail has about 7,000-8,000 employees, Barua said.
More has been giving massive discounts on its stores in the last one month, said a consumer who frequents the store in Andheri East, a Mumbai suburb, adding that the store has been shut effective Saturday.
That the developments have been sudden can be gauged from the fact that the company was hiring till about six months ago.
An executive who was hired from abroad a few months ago said the company has shifted focus following a change at the top management. He did not want to be identified.
Barua denied that the change in management has anything to do with the new strategy. “This is all a part of the process. Change in people need not lead to a change in strategy," he said.
High rents and rising debt have affected all large organized retailers in India. Rising food prices have also weaned away consumers from this format.
On 21 February, Aditya Birla Retail’s 100 crore loan was not renewed by UCO Bank, according to documents on the registrar of companies website.
Organized retail accounts for less than 8% of the overall 45,000 crore retail industry of India. In food and groceries retail, the largest segment within organized retail, small-store retail format—similar to the pop-and-mom stores of traditional retail—has seen its total share decline as retailers such as Subhiksha Trading Services Ltd and Spinach, run by Wadhawan Food Retail Pvt. Ltd, shut stores following the financial crisis in 2009.
“Retailers have yet not got the supermarkets format right," said Arvind Singhal, chairman of Delhi-based retail advisory firm Technopak Advisors Pvt. Ltd, while explaining that retailers have expanded their geographic footprint rapidly, carry too much merchandise, and have frequent management changes. These have added to complexities of the business.
Like Aditya Birla Retail, Reliance Retail Ltd, too, is increasingly focusing on hypermarket retail for growth.
“Supermarket retail accounts for 50% of the overall organized food and groceries retail. I would not rule this format out completely, but whether it will account for 20% or 40% of the overall food and groceries retail in the future, that we will have to see," said Abheek Singhi, leader, consumer practice India, partner and director at the Boston Consulting Group, a consultancy firm.
Dinesh Unnikrishnan contributed to this report.