India’s top 10 food retailers accumulate Rs13,000 crore losses: Crisil2 min read . Updated: 29 May 2014, 10:08 AM IST
Crisil director says by 2016-17, food retailers' losses would have peaked to Rs17,000 crore as revenue increases to Rs32,000-35,000 crore
Mumbai: Accumulated losses at India’s top 10 food retailers, who account for about 40% of the organised retail sector’s revenue, stood at ₹ 13,000 crore in 2013-14 on revenue of around ₹ 23,500 crore, Crisil Ratings said in a report published on Wednesday.
“By 2016-17, their losses would have peaked to ₹ 17,000 crore as revenue increases to ₹ 32,000-35,000 crore over the next three years to fiscal 2017," said Anuj Sethi, director, Crisil Ratings.
After that, as the twin benefits of size and an optimized operating model kick in, at least half of the retailers analysed will break-even. “But the paradox is, to recover the monies, they will have to continue expanding. That’s because of wafer-thin net margins of 2% to 2.5% in the business," said the report. “No other retail vertical (such as apparel, consumer durables and footwear) has witnessed haemorrhaging of this magnitude."
The losses were because retail businesses were still in their gestation period and in the process of carrying out large-scale expansions, the report said.
The top 10 food and grocery retailers in the gestation period are Aditya Birla Retail Ltd, Bharti Retail Ltd, Heritage Foods (India) Ltd, HyperCITY Retail (India) Ltd, Max Hypermarket India Pvt. Ltd, METRO Cash & Carry India Pvt. Ltd, Reliance Fresh Ltd, Spencer’s Retail Ltd, Trent Hypermarket Ltd and Wal-Mart India Pvt. Ltd.
The report does not include profitable retailers like Future Value Retail Ltd (Future Value) and Avenue Supermarts Ltd, which operates DMart retail chain.
With the new government not appearing keen to open up multi-brand retail to foreign direct investment, “what will also keep these retailers going is the backing of intrepid promoters ready to add skin to the game because they see immense potential in India," Crisil said.
As of March 2014, CRISIL estimates these retailers have invested about ₹ 19,000 crore in opening new stores and funding losses through direct equity infusions, and loans from banks and promoters. These investments are likely to continue and will help multiply revenue.
Food and groceries retail is the largest segment of the ₹ 25.3 trillion retail market accounting for 69% of the overall market. However, the market penetration of organized food retail is just 2%, providing a huge opportunity. In comparison, the penetration of consumer durables is 27%, apparel and footwear 18% each, and jewellery 14%.
To stem losses, retailers have taken several initiatives, but these will yield results only gradually.
“Over the past three-and-a-half years we have been looking at cutting our losses by reducing our store sizes, opening smaller stores and increasing our revenues from high margin segments like apparel," said Mark Ashman, chief executive officer, HyperCITY.
He added that by the second half of this year the business should break even at a company level.
However, HyperCity plans to open three new stores in 2014-15, said Ashman.
Most firms are trying to get their store-size right as the margins are thin. They are also revisiting their portfolios to offer a large variety of products at right price points, said Sethi of Crisil.