Chasing profits, Future Group shut 40% of Food Bazaar stores in 2013

Apr 05 2014, 05:32 IST
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SummaryLast year, Kishore Biyani’s Future Group closed about 40% of its food and grocery chain of Food Bazaar stores that were not performing well

Last year, Kishore Biyani’s Future Group closed about 40% of its food and grocery chain of Food Bazaar stores that were not performing well, even as it continues to undergo restructuring in neighbourhood stores, KB's FairPrice and the home-furnishing chain, HomeTown, apart from Food Bazaar.

While Future Retail (FRL) shut down 18 supermarkets, it opened only one store last year. At the end of December, the company had 26 stores. With a cut in consumption spends resulting in slowing same store sales growth — at 3.3% in the three months to December — and rising cost of operations, FRL is revamping the food and grocery space now.

The company is currently renovating existing stores in terms of design and product mix by exiting slow-moving categories, going in for visual appeal. The format is also allocating space for categories that have higher margins, for example in-house bakery.

“With the company laying more emphasis on Big Bazaar Direct, there is a sort of reorganisation that is taking place. Big Bazaar direct will have lower operational costs than running Food Bazaar. So they are clear to keep only those Food Bazaar stores that are operationally profitable,” says Prashant Agarwal, joint managing director, Wazir Advisors. Big Bazaar Direct is a franchisee-based model where franchisees personally visit consumers and take orders for products.

At the end of December, Future Retail had a total debt of R5,065 crore. The company raked in revenue of R2,200 crore, with a net profit of R20 crore in the December quarter. These numbers are not comparable. Future Retail did not respond to an email seeking details on its format.

Food and grocery retailing, which forms the largest chunk of organised retail, is a tough business to be in. Food and grocery typically has a gross margin of 10-15%, compared to 40-50% for apparels. “Supermarket chains are struggling to create a profitable model. On the store level, it generally takes 12-18 months to break-even but the period is taking much longer now,” says Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

With many challenges at hand, retail baron Biyani has been equally ruthless with his other food and grocery chain — KB’s Fairprice — closing about 35 stores of the neighbourhood grocery store format last year. Most of these stores are from the Big Apple chain of food and grocery stores in New Delhi that the group acquired in 2012. The company closed these stores

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