Mumbai: The retail arm of Kishore Biyani-led Future Group will set up 4,000 “neighbourhood" stores in the next 3-5 years as part of its continued focus on small stores for growth.
In a presentation on earnings for the quarter ending March 2017, the company said that it will see “robust supply chain infrastructure & deployments across the network" for its neighbourhood stores formats that include EasyDay (acquired from Bharti Retail) in the north and Heritage Fresh in the South (acquired in November last year). The company will ramp up the number of neighbourhood stores from 538 as of March 2017 to 1,000 by September 2018, and 4,000 in the next 3-5 years.
The company said there was a ‘compelling proposition" for neighbourhood stores as people prefer travelling less and shopping in their area even as consumption and “aspirations" rise among Indians with higher incomes and discretionary expenditure.
A major feature for these stores will be a membership program where 1,500 households per store in a single neighbourhood will be eligible to become “members" or frequent shoppers of the store. These members will be eligible for 10% discounts and “many services", the company said, adding it already has 1.3 lakh members in its existing network of neighbourhood stores.
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Major “clusters" to where these neighbourhood stores will expand include Ludhiana, Delhi NCR, Lucknow, and Mumbai among 11 in total. By acquiring Heritage retail stores, the company has got access to a network of 136 stores in Chennai, Hyderabad, and Bangalore.
“It is a very good strategy to expand aggressively in the convenience store format," said Abhijit Kundu, vice president of research at Antique Stock Broking. “Future Retail has been focusing on increasing their throughput in their hypermarket format, trying to get higher revenue from their existing stores, but they are not very aggressive in here," he said. Future Retail’s hypermarket formats include Big Bazaar.
“Going to the hypermarket happens at most, 1-2 times a month. But for weekly and daily needs, you need a convenience store format. Globally, formats like 7-Eleven (US based international convenience store chain) have been doing very well."
Kundu also said that the traditional “mom and pop" small general stores in India will slowly upgrade themselves to more organized supermarkets. “The next generation of the promoters of these small mom and pop stores are not willing to continue with this business," he said. “This is an issue that has come up in my interactions with distributors." Besides, he said, consumers are evolving in urban areas, particularly tier 1 cities, and prefer to see a product in an aisle before deciding to buy it, instead of asking for it at the counter of a general store.
Future Retail posted a 17.3% rise in net profit for March quarter of Rs123.05 crore, up from Rs104.90 crore, while its total revenue from operations was 25.3% higher at Rs4,483 crore.