After Bentonville-based Wal-Mart Stores and India’s Bharti Group decided to call off their joint venture, the front-end retail chain of stores ‘easyday’ will be the mainstay of Bharti’s retail business till it forges a new alliance with a foreign partner.
Bharti’s easyday, which opened its first outlet in Ludhiana in 2008, runs its stores under tree formats — easyday, easyday market (compact hypermarket) and easyday hyper. At a time when most other retail chains are closing unprofitable stores to cut their losses, Bharti Retail has been on an expansion spree till early this year, with a total of 212 stores across the country in its five years of operations.
In 2012 alone, the Bharti Group opened 30 easyday supermarkets and hypermarkets bringing its total store count to 215. In comparison, Mukesh Ambani’s Reliance Retail — which is easyday’s competitor in some areas — has 760 value retail stores. Reliance Retail started operations in 2006. Aditya Birla’s More chain has 513 supermarkets and 15 hypermarkets.
In the first three years of its operations, the chain was primarily restricted to Punjab. “Bharti’s easyday has expanded quickly since 2008, only to stop six months back. The value stores are primarily present in smaller towns and suburbs of metropolitan cities where rentals are lower thereby giving them higher margins,” says Kumar Rajagopalan, the chief executive officer of Retailers Association of India.
To top it off, an average easyday store is spread over 25,000 square feet (though different formats have varied sizes). Retailers like Spencer’s are pushing growth through their larger hypermarket model, away from the smaller supermarket model.
Reliance cash-and-carry stores are spread over 50,000-1,20,000 square feet. Other supermarket retailers like Shoppers Stop’s Hypercity and Kishore Biyani’s Big Bazaar are looking to cut their store space to cut their costs.
From the revenue aspect, Bharti Retail clocked in sales of R1,500 crore last year, while Reliance Fresh sales surpassed R5,000 crore. Birla’s More had a sales of R1,300 crore during FY13. In the food and grocery business, retailers experience extremely high costs and low margins, due to which most of the organised supermarket retailers are still incurring losses.
Interestingly, Reliance Retail and RP-Sanjiv Goenka’s Spencer’s Retail have sent legal notices to Bharti Retail in the past over incorrect price comparison campaign that Bharti ran.
“Bharti Group definitely feels the need to have a partner who is well established in this field. Bharti was getting core competency and technical know-how from Wal-Mart. Retail is one of the toughest businesses to be in currently and although the Bharti Group is well funded, they may look for expertise,” says Abneesh Roy, associate director, Institutional Equities Research, Edelweiss Securities .
“Now what needs to be seen is what happens to the prior commitments that Bharti had made especially the ones related to land leasing,” Rajagopalan adds.
Both the companies began their partnership in 2007, after which Bharti set up easyday stores under Bharti Retail. It was anticipated that once the government allows foreign companies to invest in front-end, Wal-Mart would pick up equity stake in the venture.