Even after having been around for a decade, most brick and mortar grocery chains are struggling to be profitable. While the kiranas retain their supremacy, e-retailers such as Bigbasket and Grofers have become increasingly popular with consumers.
Even after having been around for a decade, most brick and mortar grocery chains are struggling to be profitable. While the local kiranas retain their supremacy, e-retailers such as Bigbasket and Grofers have become increasingly popular with consumers. However, with soon-to-be grocers Amazon and Flipkart looking for partners on the ground, the fortunes of brick and mortar chains could get a boost.
Having rolled out stores at a blistering pace — the number of grocery outlets rose four-fold between 2003 and 2008 — retailers realised they needed to shut down most of the outlets as they losing money.
Spencer’s, for instance, has shut more than 200 stores in the last five years. A couple of months ago, Trent Hypermarket, a joint venture between the Tata Group and Tesco, announced it was shutting down all its Star Daily stores. Reliance Retail too has shut down around 100 Reliance Fresh stores in the last two years while Future Group decided to move its KBFP format stores out of Bengaluru couple of years ago.
Anil Talreja, partner, Deloitte India, believes that while most grocery retailers have figured out the right format, Star Daily was not able to get its locations and pricing right. “High rentals of around 15% to 20% of costs could be impacting the retailer,” Talreja said.
D’Mart, the country’s most successful retailer, owns most of its stores but is able to cover costs because it clocks a better turnover. In 2017-18, for instance, D’Mart’s revenues grew 26% while those at Future Retail grew 8.2%; Spencer’s Retail reported a revenue growth of 2.5%.
Indeed, Spencer’s, which has been around for ten years now, managed to break even at the ebitda level for the first time in FY18 after the parent company took over its debt of Rs 280 crore. The smaller debt helped the company to narrow its net loss to Rs 30 crore compared with a net loss of Rs 108 crore in FY17.
Trent Hypermarket, which has been around for around 15 years, saw losses widen to Rs 90.50 crore in FY18 from Rs 52.49 crore in FY17 partly on store rationalisation costs.
Again, not able to sustain prolonged losses which accumulated to `712 crore at the end of FY17, Shoppers Stop sold Hypercity to Future Retail for `655 crore in October 2017.
Godrej’s Nature’s Basket, a premium supermarket chain with outlets across 2,000-6,000 sq ft, has been around since 2005 but is still floundering. The chain reported losses in FY17 of `95.3 crore higher than the loss of `62.23 crore in FY16, according to the ministry of corporate affairs data. Nature’s Basket now has a smaller number of stock keeping units (SKUs) to around 7,000 from earlier 30,000 SKUs.
Moreover, the stores are now smaller and cover approximately 2,500 sq ft to 3,000 sq ft whereas earlier they were 6,000 sq ft.