Retailers renew interest in neighbourhood stores

Written by Vaishnavi Bala | Geeta Nair | Mumbai/Pune | Updated: Nov 17 2013, 09:15am hrs
With the ubiquitous kirana shops flourishing, big retailers in India have not really been able to crack the convenience store format. That, however, hasnt stopped them from trying, with Trent being the latest to venture into the space.

The Tata-owned retailers first small store Star Daily has come up in Punes emerging residential hub at Pimpri-Chinchwad, spread across 2,000 square feet. Its a very small store, so we only have food and groceries. Its an experiment, a senior Trent executive said, adding the response has been fairly good, and that this might encourage the firm to open another store or two.

The first set of stores may be in Pune, before we enter other cities, as the groundwork in terms of supply chain has been set in the city, the executive said. Ironically, Tatas bigger supermarket format, Star Bazaar, has not opened any store in FY13 due to higher costs.

Aditya Birlas More chain has opened eight slightly smaller stores of 1,000 square feet each in Bangalores residential apartment complexes in the past one year. Customers might not find everything they need but their daily requirement of vegetables, fruits and groceries will be met. We are looking at this model seriously since it is more profitable, given the smaller-store size and higher catchment, Vishak Kumar, CEO, supermarkets, Aditya Birla Retail, told FE.

The renewed interest in the convenience store segment comes despite incumbents having a hard time. Reliance Fresh, which runs 453 small outlets, reported a net loss of R54.7 crore in FY13. While the value formats grew at compounded 19% during FY13, the fashion and lifestyle businesses grew at 45%, and the brands business grew at 82 %.

In 2007, the Future Group opened a convenience chain format KBs FairPrice which it ran on a nine-year franchise model to grocery shopkeepers. While the group wanted to scale up the business from 160 stores to 225 by 2010, it has managed to open 200 FairPrice stores across Delhi, Mumbai and Bangalore. However, there are plans to grow the chain to 1,000 stores over the next two years.

Subhiksha Trading Services, of course, wound down its 1,600 stores in 2009 after it went bust, defaulting around R750 crore to 13 banks. It was positioned as a low-margin neighborhood store.

It is difficult to run a small-store convenience model in India since the costs are different from kirana stores. It makes more sense for retailers to look at hypermarkets and cash-and-carry formats as that gives them scale and lowers the cost of operations, said Abneesh Roy, associate director (institutional equities research), Edelweiss Securities.

In a convenience store format, rentals, electricity and employee costs tend to be higher than those for kiranas.

Reliance Industries might not expand the Reliance Fresh chain and instead focus on the bigger Reliance Super stores, which are anywhere between 50,000 square feet and 1,20,000 square feet in size. It also plans to add 20 cash-and-carry stores by March 2014.