Kishore Biyani?s Future Group has closed 35 stores under its KB?s Fairprice format in the last six months, as it restructures its neighbourhood grocery store model. Most of these stores are from the Big Apple chain of food and grocery stores in New Delhi that the group acquired last year.
The company closed these stores as they were not profitable and were located in more expensive locations, thereby, increasing rental costs. At present, the company has a total of 175 stores.
?There was a lull in expansion, and we have begun to expand only from this August. We were just waiting and seeing whether we are sure of our model. We have closed around 35 stores over the last six months while we opened 10,? KB?s Fairprice CEO K Radhakrishnan told FE, adding that the new stores will have a self-service option, with better visual appeal and systematic stacking of products.
The company is now repositioning itself for the lower-middle class segment. ?We are not keen on serving the same customer who also goes to a supermarket or a hypermarket. We want to go one level lower to lower-lower middle class,? the CEO said.
The company is looking to set up stores in New Delhi, Mumbai and Bangalore, which have higher proportion of lower-income category. These stores will be smaller, at 500 square feet, than the 800-900 square feet stores at present, to cut down costs.
Future Group has an ambitious target to add 100 stores a year over the next five years. Although, contrary to the expansion plans the group had for KB?s Fairprice, the format?s footprint has not gained much momentum. Currently, there are 175 Fairprice stores in Delhi, Mumbai and Bangalore, a number that Biyani plans to scale up to 1,000 over the next two years. In 2009, the company had 160 stores and it planned to increase the count to 225 by 2010.
However, the expansion plans did not take off in a big way because the company has not yet found the right model that works for them, analysts said.
Currently, the company is planning to own new Fairprice stores and not leave the onus of initial investment on the franchisee partner. In the earlier model, it sold products to the entrepreneur as a wholesaler and the entrepreneurs claimed they got higher margins than those in a regular kirana store. Most part of the investment was borne by the entrepreneur.
?The franchise model is still on hold. We want to get the model right and then move in that direction. So we will take a call after March. But we are sure that franchise model is the way we want to go,? Radhakrishnan said.
Meanwhile, the retail baron expects the Fairprice format to drive the growth of his new FMCG company, Future Consumer Enterprises.