Essar Steel to invest Rs100 cr in SME hypermarket venture

Essar Steel to invest Rs100 cr in SME hypermarket venture

Steel maker Essar Steel Ltd is betting big on its latest retail venture, the Essar Steel Hypermarket, which caters to small and medium enterprises (SMEs), and will invest more than Rs100 crore next year to scale up its network of outlets to 140 from 80 today.

It is also in discussions with a number of steel product manufacturers in the small and medium sector to expand its in-store product portfolio and become a one-stop shop for all their steel requirements.

“We expect to have the arrangements in place with smaller companies making steel products, to stock in the hypermarkets, by the third quarter of the current fiscal," a person close to the plans said, asking not to be identified.

The domestic steel industry has traditionally been skewed towards big-ticket bulk buyers, who place orders directly with the steel mills while smaller buyers, typically those that run fabrication units specializing in light engineering segments, with smaller demand, depend on traders to procure supplies.

“Typically, smaller steel buyers who transact business with the traders are not aware of the prevailing prices since there is no transparency in purchase and no guarantee of quality," Essar Steel’s director of marketing and sales, Vikram Amin, said.

With the industrial production chugging along at about 10% annually, the number of SMEs and their requirement has grown significantly in the last two years.

While there is little data available on the exact size of the steel consumed by the smaller players, Essar Steel sells about 50,000 tonnes a month to this segment through its hypermarket.

According to Amin, demand from this segment of buyers can be grown significantly by offering all steel products under one roof, with assured price and quality.

Steel hypermarkets are typically set up on 30,000-40,000 sq. ft of retail space near established industrial hubs on the outskirts of towns. They offer a comprehensive range of flat steel for a variety of applications such as hot-rolled, cold-rolled and galvanized products. Essar Steel’s hypermarket project kicked off early last year, but its operations were ramped up only towards the end of the year.

The company now plans to get into third-party supplies of steel products, too. “We will work with regional players for our sourcing since that makes sense logistically. Besides, it gives the local manufacturer a ready platform to roll out his products," Amin said.

By the end of the current financial year, products such as longs, structural and tubular steel will be sold through these retail outlets.

The concept seems to be already reaping dividends, with revenues at Essar Steel Hypermarket reaching Rs565 crore, about 20% of the steel maker’s total revenue of Rs2,827 crore in the quarter ended 30 June this year.

While the hypermarket outlets are currently focused around the national capital region, parts of South India and major industrial towns in Western India, which consume 35% of the total steel used in the country, plans are being drawn to expand its footprint with outlets in places such as Kochi, Kozhikode and Palakkad in Kerala, and parts of Gujarat and Madhya Pradesh.

The person close to the Essar Steel Hypermarket plans said the company would buy real estate to set up some of the hypermarket’s outlets instead of leasing it.

It is also developing technical support to boost sales. For instance, customers can now type “STEEL" and send it as a text message to a dedicated number for product enquiry and its call centre will follow it up with the latest product, price and delivery information.

Essar Steel, part of Essar Steel Holdings Ltd, is the largest integrated producer of steel in Western India with a capacity of 4.6 million tonnes a year. It is part of an eponymous conglomerate with interests in oil, telecoms and trading, besides steel, which is controlled by Mumbai-headquartered Ruia business family.