Losses at the Aditya Birla Retail’s (ABRL) supermarket and hypermarket chains — branded ‘more’ — may have narrowed last year to R510 crore from R535 crore in FY12 but the business isn’t really gaining traction. Industry watchers point to the fact that revenues barely budged last year, growing at just 8% to R1,036 crore. With spends on consumption being cut back and the competition creeping up on it — Tesco is here and Carrefour may follow — the chain could be in more trouble.
“It is unlikely more will be able to narrow its losses this year especially if it’s expanding,” Harminder Sahni, managing director at retail consultancy Wazir Advisors said, adding that losses narrowed last year because some unprofitable stores were closed down.
ABRL plans to set up 60 supermarkets and 10 hypermarkets a year but experts point out that the smaller format isn’t doing as well. “They have been able to manage the supply chain and inventories better in the big-box format, which is in any case a more profitable business since apparel and lifestyle products fetch better margins,” a consultant explained.
Observed Pinaki Rajan Mishra, partner, EY, “Running convenience stores is a tough business and the challenges are many. To begin with, unless there is scale, it’s not a cost-effective operation. More important, predicting demand can be difficult and since the number of SKUs (stock keeping units) that these stores have is smaller, sometimes they lose out.” Mishra pointed out that managing the supply chain is also that much harder because there are many more stores to which goods need to be delivered.
The strategy at ABRL seems to be to continue to expand but stay within a few geographies. Vishak Kumar, CEO, Aditya Birla hypermarkets and supermarkets, had remarked in an interview to FE a few months ago that the important thing was to ensure that the operations were not scattered. “To get maximum benefits, stores must be located in one geography, rather than in many. So we are penetrating deeper in markets where we
already operate,” Kumar had explained.
ABRL did not respond to an email seeking comments on its strategy or expansion plans for this story.
The chain exited the Mumbai market in 2012 citing high rentals. Kumar had said in the earlier interview that given the small margins, it did not make sense to open stores where the costs were disproportionately high. “Real estate is expensive in