News and views about the Retail sector in India

This week, we focus on the trend towards the cash and carry format. After a spate of protests against low price grocery retailers, domestic companies are looking towards the cash and carry format as a winning solution and as a way to compete effectively with international giants. Will the Indian retailers be able to mark in an industry dominated by international players till now? Get all the answers you want in this edition of the retail news.

Chillibreeze Business Research Team

General Plans and Information

Vishal Retail might sell stake to fund expansion

Vishal Retail Ltd. stated that it might be selling part of its stake in the business to fund its aggressive expansion plans. The company had earlier announced its plans to expand to more than its earlier plan of a 1 million sq ft expansion. According to Ram Chandra Agarwal, Chairman and Managing Director, "We will be looking at the option of equity dilution or something like that ... within six months."

Vishal Retail currently has 70 stores and will be increasing its total space by one million sq ft once it opens another 43 stores across the country in its first phase of expansion. The company expects to post a net profit of Rs. 400 million on sales of Rs. 10 billion (Rs. 100 crore) in 2007-08.

Date: Thursday, November 22, 2007
Source: The Economic Times

Wal-Mart’s entry will change the rule of retail

At a meeting on “Get Ready for Wal-Mart: How to Thrive in the New Global Retail Scene” a seminar that was organized by Bangalore based retail consultancy Ramms and JC Williams, the focus was on how smaller players will have to adapt to stay in the game once Wal-Mart enters the retail scene in India.

According to JC Williams, senior partner at the J C Williams Group, "Retail giant Wal-Mart's entry into any country witnesses rules being re-written and changed. They also rock prices, making the market competitive.” Adding that, “Wherever Wal-Mart operates, prices are lower by 13 per cent to 15 per cent, and this is done by controlling cost through the supply chain, right from the manufacturer’s shop floor to the store.”

Since Wal-Mart depends heavily on manufacturers, it is up to the manufacturers to discipline themselves and create guidelines that are focused on them rather than Wal-Mart. He added that, “Wal-Mart does not entertain any manufacturer or supplier without goods being bar-coded and packed as per their specifications. The company also helps and imparts suppliers the knowledge of packaging and shipping to cut down costs to be profitable.”

John Torella, a senior partner at the J C Williams Group, spoke about how innovation could be the aspect that will lead to differentiation from other companies and build its brand. Target is one such example of this kind of thinking, where innovation takes place at every step of the command chain, right from the senior most to the junior most customer service associate.

Date: Saturday, November 24, 2007
Source: Business Standard

Big players - plans and investments

Future Retail to build another Central mall

The Future Retail group will be building the Kolkata Central mall, which will stock over 400 brands of items. The new mall is expected to open in the next two years and will cover 300,000 sq ft of space and will be located off Ballygunge Circular Road. The company will be opening in Gurgaon, Goregoan, Vashi, Amhedabad, Indore and Bangalore by mid-2008.

Central malls are unique as they do not have any internal walls and are built using a seamless concept of stores and different brands are all stocked under one roof. At present, Central malls are located in Bangalore, Pune, Hyderabad and Baroda. Each of these malls cost around Rs. 1,500 to 2,000 per sq ft.

Date: Thursday, November 22, 2007
Source: Business Standard

Reliance Fresh store attacked in Bhopal

Uma Bharti’s party Bhartiya Janashakti (BJS) activists attacked a Reliance Fresh store in Bhopal after she called on the people to protest the opening of such stores. While she was addressing the rally, party workers attacked the store and ransacked it, breaking windowpanes and throwing vegetables on the road. Protests against these stores have been intensifying in the state of Madhya Pradesh, with demonstrations being held in Jabalpur, Gwalior, Indore and Bhopal.

Date: Thursday, November 22, 2007
Source: The Economic Times

Reliance Retail to use its Fresh outlets in UP for specialty products

Reliance Retail has decided to open up some of its closed Fresh stores in UP as specialty stores for footwear, apparel, jewelry, books and other items. So far, 15 of these outlets have been planned, with most of them located in Ghaziabad and Noida.

Reliance Retail had to shut down its Reliance Fresh outlets in Uttar Pradesh after violent protests by political groups and trade organizations against their low prices, which they felt would drive small traders out of business. The company had given notices for close to 150 properties that it had originally rented for setting up grocery stores.

Date: Friday, November 23, 2007
Source: Business Standard

Cash and Carry format sees entry of local companies

Carrefour is the most recent high profile player to announce its intentions of entering the cash and carry format in India, and it has led to a host of planned cash and carry outlets by domestic retailers as well. While Metro of Germany is well established in the market, newer entrants include Bharti-Wal-Mart, Reliance, Pantaloon, Wadhawan Retail and other international players such as Tesco and Costco.

While the cash and carry format is only a small portion of the retail industry, it is highly unorganized as yet, which is why so many retailers are rushing in to enter the sector. Another huge attraction is the 35-40% growth rate that will propel them to the big league as well as give them a smooth launch pad for branching out into retail once FDI restrictions on international companies is lifted.

According to Mala Morris, a senior business analyst at UK based food and grocery research company IGD, “Smaller retailers in interior markets often struggle to obtain the same service levels and prices from the companies’ distribution structure as retailers in the mainstream markets. Global retailers will use the opportunity to set up wholesale stores in India to understand the market. This will inform their entry strategy when FDI norms are eventually relaxed.”

The Future Group will be expanding its wholesale format KB’s Wholesale Market to Mathura in Uttar Pradesh and Bardwan in West Bengal and based on how well the company does there, it will further expand to Gujarat, Karnataka, Maharashtra, Uttar Pradesh and Chhattisgarh.

Reliance has planned to launch its wholesale format in March 2008 under the name Reliance Cash and Carry, and had hired Metro’s chief executive Harsh Bahadur earlier this year. Reliance will be opening its wholesale stores in Hyderabad and Bangalore. Another player who is keen to enter the market is Wadhawan Food Retail, which runs the Spinach chain of stores.

Date: Sunday, November 25, 2007
Source: Business Standard

International

Carrefour identifies 3 names for JV in India

French retailer Carrefour has identified three companies that it can potentially partner with for its joint venture in India and will be announcing its decision in the first quarter of 2008. The company has registered two companies in India; Carrefour Wholesale Cash & Carry India Pvt Ltd, and Carrefour India Master Franchise Company Pvt. Ltd.

According to Herve Clec’h, Carrefour Group India Managing Director, the partners could be from the retail, real estate or the financial sector. At present, Carrefour India has 50 employees and will be shifting to their new premises in Gurgaon, which can accommodate over 150 people.

The company is looking for a partner that will be able to run its India business, will have an in-depth knowledge of the real estate market and will be able to take care of the long-term operations of the company.

Speaking on the subject of the recent backlash against organized retail, Gerard Freiszmuth, general manager for Carrefour in India, stated that, “We want to cater to middle-class housewives who’ll find everything under one roof, but with our cash-&-carry activity, we want to supply to the kirana store.”

Date: Wednesday, November 21, 2007
Source: The Economic Times

Carrefour to open cash-and-carry business in 2009

The second largest grocery store in the world, French Carrefour will be opening in India in 2009 in metros, setting up in the suburbs of New Delhi, Mumbai, Bangalore and Chennai. While it’s cash-and-carry business will be wholly owned by Carrefour, it is in talks with three potential partners that will tie up for running its retail stores as franchisees.

It is estimating that the size of its franchise and cash-and-carry stores will range from 32,000 to 86,000 sq ft and will cost $5-10 million per outlet, which would be absorbed by the company itself and not the partner company, according to Gerard Freiszmuth, general manager for the India project for Carrefour.

Carrefour is not thinking of creating a logistics supply chain as Wal-Mart usually does when it enters a new market. The company will sub-contract this part of the business and will itself stick with the retailing aspect of it. The company will also be focusing on price and will be offering its private label products as a way to control its margins better.

According to Freiszmuth, close to 90% of the products sold in Carrefour in India will be sourced in India itself, in addition to its $450 million worth of products that it sources already for its international stores. With real estate costs sky rocketing in the past few years, the company plans to stay conservative and not exceed a certain price, beyond with its business will not be viable.

Date: Thursday, November 22, 2007
Source: Business Standard

Singapore based CapitaLand to establish fund to invest in Indian malls

Singapore based property company CapitaLand, which is one of Asia’s largest listed property companies announced that it has established a $600 million fund to invest in retail mall developments in India. CapitaLand currently holds a 45% stake in CapitaRetail India Development Fund, with the remaining stake being held by insurance companies, pension funds and corporations.

According to Liew Mun Leong, Chief Executive of CapitaLand, “We are conscious of the vast opportunities presented by India's retail real estate market, driven by the country's strong macro-economic growth and rapid urbanization. Over time, we expect to deepen our retail and fund management presence in India to become a significant long-term retail real estate player there.”

Date: Friday, November 23, 2007
Source: The Economic Times

Regional Trends

Chandigarh based Strand chain of stores plan to expand in north India

The Strand beauty chain has announced that it will be opening 10 outlets by the end of the 2007 financial year. The company currently has five outlets, of which three are located in Chandigarh and one each in Patiala and Panipat. New stores are set to come up in Ludhiana, Jalandhar, Amritsar, Bhatinda, Ambala, Karnal, Sirsa, Hisar, Dehradun and Simla. Some of the new outlets will be franchisee owned, while others will be owned by the parent company.

The company has also tied up with the Arush beauty chain in Cochin to open a Strand store in the city. The goal is to have 50 salons across the country by the end of the 3008 financial year. According to owner Naunihal Singh, the company has tied up with Clara International, a Malaysian academy to train its staff and will be training 200 people this year in one year and short term courses.

Date: Thursday, November 22, 2007
Source: Business Standard

Unique formats

Big Apple uses its small size to its advantage in the NCR

Big Apple is working to use its small size as an advantage, in being able to respond faster than larger companies such as Reliance Retail and the Future Group. The Big Apple chain of stores is owned by Express Retail Services, a New Delhi based retail company. According to Munish Hemrajani, CEO of Express Retail Services, "Over the course of our journey, we have realised that this is not a pan-India business, it’s a localised business. And we will grow within this small ecosystem."

The company is owned jointly by Lalwani Holdings and Chaurasia Group, which have diversified interests in real estate as well as the FMCG business. The company was formed in 2004 and the first Big Apple store opened in late 2005. At present there are 65 stores, covering an area of over 100,000 sq ft of space, with a total turnover of Rs. 155 crore in the 2006 financial year.

Big Apple stores are based on the 7-Eleven format and are targeted at working couples who leave early for work in the morning and return home late in the evening when most other stores are closed. The company focuses on having smaller stores but being present in local residential areas, so that it is convenient for shoppers. Each store carries around 4,000 SKUs, with 1500 common SKUs between the stores, and the balance specialized products for each location.

Date: Monday, November 26, 2007
Source: The Economic Times

Consumer Durables

Croma opens in Bangalore

Infiniti Retail’s Croma brand of consumer durable store opened its first store in Bangalore, as a starting point for the company’s expansion to south India. The new store has been opened at the Eva Mall on Brigade Road and occupies a total space of 20,000 sq ft and stocks 6,000 products from 180 national and international brands.

Future stores in Bangalore will be located in Koramangala and the Marathalli Ring Road, with both stores opening in 2008. Stores in tier II cities such as Mysore and Mangalore will be open in 2009.

According to Ajit Joshi, the CEO and managing director of Infiniti Retail, “Presently, we are experiencing 2,000 to 3,000 footfalls in Mumbai and 6,000 to 8,000 in Gujarat during weekdays and 20 per cent higher footfalls during the weekends.” There are 11 Croma outlets at present, with stores in Ahmedabad, Pune, Surat and Mumbai.

Date: Thursday, November 22, 2007
Source: Business Standard