Future Group has converted 14 of its loss-making neighbourhood supermarket stores — KB’s Fair Price — in Mumbai into high-end supermarkets calling them KB’s Conveniently Yours (KBCY). These are primarily located in areas where rentals are higher by at least 50% to 70% compared to those in the distant suburbs.
The merchandise at these outlets is priced accordingly so that the company earns better margins. Of the 35 stores in the city, 21 remain in the KBFP format.
Moreover, five loss-making stores have been shut down in the last six months of which one is in the newer format and four were KBFPs. Most of these outlets were located in the distant suburbs of Mumbai.
“If the losses cross 0.5% of the sales, they are shut down. The average revenue per sq ft at KBFP is around R800 per sq ft to around R1,200 per sq ft depending on the store size,” sources close to the development said.
The company also plans to convert KBFP stores to KBCY in Delhi. According to the sources, a year back there were 90 KBFP stores in the National Capital Region.
The company declined to comment on an email query sent by FE. A company spokesperson said some stores are being converted into the new format, depending on the location, but declined to comment further.
While the size of the smaller stores range between 400-1,400 sq ft, the newer stores are spread across 700 sq ft to 1,400 sq ft. With the new format — Conveniently Yours —Future Group hopes to attract more affluent shoppers and therefore the outlets are all air-conditioned. Moreover, the merchandise too caters to the moneyed segment of society and includes dairy products, poultry and chocolate. The KBFP stores are targeted at the middle class and stock discounted groceries, home care and personal care products.
K Radhakrishnan, who was earlier head of Reliance Fresh and KB’s Fair Price, points out that high rentals remain a problem for supermarkets. “The revenue per sq ft for a Reliance Fresh may vary from R2,000 to R2,200 while for others with slightly low-end products will range between R1,000 to R1,200 per sq ft. Retailers have struggled with the supermarket format for many years now,” Radhakrishnan said.
At KBCY the company sells exotic fruits and vegetables, health and diet food, juices, poultry which fetch better margins.
Currently, supermarket chains such as Nilgiris, Big Apple, KBFP and KB’s Conveniently Yours are part of Kishore Biyani’s listed company Future Consumer Enterprise Ltd.
Future Consumer Enterprise reported a wider net loss even as consolidated revenue rose 257% year-on-year to R347.57 crore for quarter ended September 30. Consolidated net loss more than doubled to R17.83 crore in the September quarter compared with R8.11 crore in the year-ago period.
Sources said that Future Group has not yet decided to phase-out the entire KB’s Fair Price format but may consider it in the future once the catchment area where KBFP is located improves and gets developed. KB’s Conveniently Yours was introduced in Mumbai in 2015 and the company is in process of upgrading most of the existing stores to this model, said the official.
In the past, several supermarket chains have exited the market. While Aditya Birla Retail exited Mumbai and Jaipur in 2012 by shutting its More supermarkets, Reliance Retail had shut around 100 Reliance Fresh stores in 2014 and even Future Group shut all its KBFP stores in Bangalore couple of years back. RP Goenka-owned Spencer Retail also closed around 200 stores in the last five years.
Anurag Mathur, partner, Price WaterhouseCoopers, India, said, “Margins of supermarkets in developed markets are around 20% to 22% while in the Indian market it is less than 5%. The main competition in India for the modern supermarket chains are from Kirana stores, who are very efficient in managing costs and delivery.”