Faced with challenges such as rising cost and higher wastage, many hypermarket retailers are creating more space for non-food items with higher margins.
Food and groceries retail, which is the largest segment within organized retail, is facing a slowdown in sales forcing retailers such as Subhiksha Trading Services and Spinach, run by Wadhawan Food Retail, to shut shop. Last year, Aditya Birla’s More shut stores in many metros, including Mumbai, after sustaining losses for more than four years.
To offset the slowdown in food business, the K Raheja Group-run Shoppers Stop’s loss-making subsidiary HyperCity is planning to raise the share of high-margin fashion products. ?We are increasing the proportion of fashion to 15% from 7.5% in the next three years and that will help the company towards profitability,? said Shoppers Stop’s MD Govind Shrikhande.
Food products make up for about 65% of total volumes at HyperCity, which is expected to turn profitable only in 2015. Foods have a gross margin of 30% while non-food categories like fashion and electronics have a margin that ranges between 50-60%.
Although fashion business, too, has gone through a tumultuous time, it fares better than hypermarkets. Most organised players’ margins have been affected due to food inflation and high cost of operations. The companies have been looking at new ways to increase sales like opting for smaller stores and increasing the ratio of non-food items. RPG Group-owned Spencer’s chief ? merchandising and operations, Mohit Kampani said, ?We want to make the shift to non-food as it has been doing well. So, we want to give more space in our stores to general merchandise, apparel etc.?
?The hypermarket business is a challenging business. One needs to keep re-inventing to maximise the margins. We are looking to get more private labels of Tesco in our 15 stores as the category has been doing well, ? said an executive at Tata Trent’s Star Bazaar.