Hypercity Retail India, the hypermarket arm of Shoppers Stop, which had earlier hoped to break even in FY 2012-13, may start making profits only from FY2014-15.

The large-format retailer, which started operations in May 2006, has taken longer than average hypermarkets to turn cash-positive. While its huge store sizes and high share of food, grocery and perishable products in its merchandise mix have affected store-level functionality and squeezed operating margins, its slower roll out of stores has prevented it from building scale in the business. ?Most hypermarkets in the West break even within 3-5 years of commencing operations; they have good resources, strong supply chains and a different retail format.? says Arvind Singhal, chairman, Technopak Advisors, a retail consultancy.

?However, in India, where modern retail is just about finding its foothold, 4-7 years is the ideal time to turn the hypermarket format profitable.” While Hypercity has achieved store-level profitability and is recording healthy like-to-like growth across its 12 stores, company-level profitability is yet to come by.

“Hypercity’s premium positioning in the hypermarket segment and lack of competitive pricing has pulled back its profitability by some years,” says a retail analyst on condition of anonymity. The company, however, has taken definitive measures to address this issue. From resizing its stores and tweaking its merchandise mix to bringing down store expansions to 2-3 per year and identifying under-served catchment areas, Hypercity hopes to fully optimise its operations soon. The company plans to increase the share of high-margin categories like apparel in its merchandise mix, and bring down the share of food and grocery items, which yield wafer-thin margins.

“Apparel is 8% of our merchandise and we will take it to 12-14% this year, while the share of food and FMCG has come down to about 58% from 70%,” Mark Ashman, CEO of Hypercity, told FE. In food, however, fish, meat and international produce continue to do well and serve as a differentiator for the retailer.