Penetrating further into urban markets has become a challenge for modern trade retailers, that have no option but to continue to create, preserve and then destroy the store formats they have come up with.
Having closed down and revived several formats, most retailers have realised they need to constantly experiment with them to stay afloat.
For instance, Reliance Retail had to shut down its Reliance Wellness format and even scaled down its hypermarket format in Ahmedabad, while Hypercity closed down its catalogue selling venture and also got rid of its Gourmet City format.
According to Mr Kishore Biyani, Group CEO, Future Group, “Creating new stores does not necessarily lead to increased sales. Today, there is saturation in certain categories and formats and urban penetration rates are pegged between 30 and 35 per cent.
" There is, in fact, slow penetration in the urban markets, which cannot go beyond 35 per cent, and after that the cost of acquiring new consumers becomes high. This creates pressure on retailers tocreate new formats. We have to constantly create, preserve and then destroy the format if it does not work.’’
The country’s biggest retailer has been doing so, and has even decided to compete with the kiranas with its KB’s Fair Price stores. It may look at more convenience shopping formats as Mr Biyani believes ‘street shopping’ is an attractive proposition in India.
AHEAD OF THEIR TIME
In the case of Reliance Retail, creating certain formats such as its wellness chain, proved to be ahead of its time. At the recently concluded Retail Leadership Summit, Mr Bijou Kurien, President & Chief Executive Officer (Lifestyle), Reliance Retail, said, “We did experiment with the wellness format in 2007-08 and had 14-15 stores under it. We thought we were focusing on a niche segment which existed but then realised the market was not right for it and had to close it down.’’
However, the retail chain’s jewellery format proved to be a success. As Mr Kurien said, “In India, the appetite for jewellery is the same as it is for food. We managed to crack the jewellery format and achieved break-even status within the first 12 months.’’
HyperCity also closed down its catalogue retailing operations and highend gourmet retailing format (Gourmet City) within its stores.
But now it is looking at the food format again and is piloting a ready-to-eat meals brand under its private label.
In fact, the lack of margins coupled with high rentals is making it tough for the hypermarket format to make money easily. As Mr Jamshed Daboo, CEO, Trent Hypermarkets said, “Each hypermarket format is hoping to get the right mix. There is, of course, the issue of real estate but it is the supply chain and fill rates, which are still the lowest in the world. While the market is there, the ability to service it in an effective way is lacking.’’