Aditya Birla Retail Ltd’s retail chain ‘More’ has been on an expansion spree. Thomas Varghese, CEO, explains to Pallabika Ganguly on how his company structures its retailing model
Pallabika Ganguly (ML): What kind of store format do you think works in India?
Thomas Varghese (TV): Most of the retailers are present either in the supermarket or hypermarket format and we think these formats work in India. We are present in both the formats — supermarket and hypermarket. We have seen phenomenal response in the hypermarket space as we recently opened two new stores – in Rohini, Delhi and Saroor Nagar at Hyderabad.
For the first one month, the minimum footfalls in our Delhi store were 12,000 and the maximum was 26,000. Forum Mall in Bengaluru gets footfalls of 15,000 on weekends. Here was a small store opening in a mall where nothing was functional and we got this kind of great response. We reported revenue of Rs10 crore in the first month (May 2010) after inauguration. For the Hyderabad hypermarket, in the first five days, we reported Rs2.5 crore worth of sales.
ML: How has this good response come about?
TV: We do an intense survey before opening a hypermarket in a particular location in any city. Six months prior to the opening of a store, we send our entire merchandising team (consisting of people who look after various categories of goods) to the catchment area (5 km around the store). These people approach 30-40 homes and they conduct in-depth interviews. These interviews last for 3-4 hours. Our team does 3-4 interviews in a day.
After 30 interviews, we gather what the consumers in that particular catchment area require. Consumers are selected randomly for the interview. We select a few people from the primary location (1 km from the catchment area) and secondary location (5 km from the catchment area). The team observes everything from clothes to furniture to utensils used in a household when the surveyor visits a home.
After the survey, we conduct two focus-group discussions. We choose 10-12 pre-meditated people and we hold a discussion for them to know their needs. We even do competition survey for modern retail, ‘wet market’ and even unorganised retail. We combine the outputs of these two discussions—based on it, we create the assortments for a store. The combination of assortment, pricing and store atmosphere has helped us to create great stores.
ML: Can you throw some light on your top-line, operating cost and capital expenditure figures?
TV: Being a three-year-old company, we lead in top-line, we lead in margins, and we are the lowest-cost operator in the country (in terms of operating cost). We operate in the lowest capital expenditure (capex) cost and we manage our working capital the best. For example, in the hypermarket segment, we manage our operating expenses in the range of Rs110 per sq ft to Rs120 per sq ft while the competition manages it at around Rs130 per sq ft to Rs180 per sq ft.
Our capex cost is Rs1,150 per sq ft while the competition costs are at Rs1,400 per sq ft to Rs1,800 per sq ft. We report 19%-20% margins (including dumping and shrinkage). There are 16-year-old retailers who report 18% margins.
ML: What are your expansion plans for the current fiscal? What is the cost of setting up hypermarket and supermarket stores?
TV: We have currently opened three hypermarkets (Rohini, Saroor Nagar and Thane) in the last four months starting from March 2010. We are looking at opening 10-12 stores in the current fiscal. We are planning to open two More stores before the end of this fiscal in Hyderabad. Two More stores will also come up in Delhi.
We will open one store in Nashik and one store in Mumbai by the end of this calendar year. We are planning to open one store in Bengaluru in the current fiscal and two more in the next fiscal in the same city. In the next financial year, we are targeting the opening of 14 hypermarkets.
ML: There are very few good locations currently available in the market. What kind of deals are you getting for your hypermarkets?
TV: It is true that they are very few good locations currently available on any retailer’s platter. We are mainly finalising deals with the combination of minimum guarantee and revenue-share deals. By and large, most developers have agreed, because there is an upside for them also in this deal. It is a win-win deal for both developers and retailers.
ML: What is the current rent-to-revenue ratio that More is operating at?
TV: It should not be more that 4 % — for example, if we are doing business turnover of Rs6 crore, we do not pay more than Rs24 lakh as rent.
ML: What is the reason for the ongoing consolidation in the supermarket business? What are your expansion plans?
TV: We are done with consolidation. By 2012, we should make operating profits. We target to turn EBITA (earnings before interest, tax and amortisation) positive by 2012 both at the company and at the supermarket level. By 2015, we will start making profit after tax.
We currently operate 530 stores across 12 States. We have closed about 100 stores and we plan to open an additional 100 stores in the current fiscal. We want to add more stores in south India as we have a very strong base there with 396 stores. We are looking at cities in States like Kerala, Tamil Nadu and Andhra Pradesh.
ML: Last year the company had 350 private label brands. What are the expansion plans in this category for the current fiscal? Which are the new categories that the company plans to enter, in the private label segment?
TV: We have reduced private labels in the fast-moving consumer goods (FMCG) category to 290 from 350. We want to focus more on volumes rather than just adding more products.
In staples our private labels are more than 200. Private label sales are 19%-20% of the total Aditya Birla retail sales. We are planning some special schemes to push volumes in private labels. We are also focusing on increasing the customer base in our loyalty programme, ‘Clubmore’. We currently have a subscribed customer base of 1.3 million across India. Private labels in our stores are priced at 10%-15% lesser than branded retail outlets.
ML: The company reported Rs1,130 crore turnover at the end of March 2009. How much was it last year and what is the target for the current fiscal? How do you plan to achieve it?
TV: In FY09, we reported turnover of Rs1,130 crore; last year it jumped to Rs1,440 crore and in the current year, we are targeting revenue of Rs1,800 crore.We will achieve the target by improving performance and opening new stores. We are expanding from six stores in hypermarkets to 14 stores in 1.5 years. Each hypermarket will contribute Rs5 crore-Rs6 crore worth of sales every month.
ML: What kind of growth do you expect in the current fiscal?
TV: We expect to grow by 25%-30% in the current fiscal. We are looking at various ways to improve our top-line performance, margins and to reduce cost.
ML: There are talks on allowing foreign direct investment (FDI) into multi-brand retail. What is your view on it?
TV: There is going to be a lot of discussion for a couple of months on it. FDI can be through a strategic investor or financial investor. The government policies do not talk about the portfolio investment route. The government is silent on this type of investment. The government has to make one stand very clear—will they allow financial investors (private equity players) to invest in the portfolio of a company? India needs FDI for the retail industry to grow.
Inflation will rise further in July as the fuel price hike gets fed in the July numbers but it will come down at the end of the year, Planning Commission deputy chairman Montek Singh Ahluwalia said
The plan panel today said fuel price hike will further increase inflation in July, but it will fall below double digits by the end of December, reports PTI.
"I think although there will be an adjustment upward (in inflation) when fuel price hike gets fed in July numbers... I don't alter my conclusion that at the end of the year it will be low," Planning Commission deputy chairman Montek Singh Ahluwalia told reporters on the sidelines of an Indo-Oman event.
He said that inflation will be well below double-digit by the end of this year.
For June, wholesale price-based inflation inched higher to 10.55% against 10.16% in May.
He said the number seems to be consistent with the sort of cautious optimism we have been expressing.
"You will see more decline as time goes by," he said.
Mr Ahluwalia said high inflation cannot be avoided by not adjusting fuel prices.
"This will result in huge losses to oil marketing companies. You will cover these losses by hidden subsidies that would generate inflationary pressure," he said.
In 2009-10 the government had borne a loss of over Rs1 lakh crore due to subsidies on diesel, liquefied petroleum gas (LPG), kerosene and petrol.
On 25th June, the government had hiked petrol prices by Rs3.5 a litre while deregulating its pricing, and diesel by Rs2 a litre. Besides, it raised prices of LPG (cooking gas) by Rs35 a cylinder and kerosene by Rs3 a litre.
The fund, which will explore opportunities in all sectors, will be expanded to $1.5 billion in due course
The country's largest lender State Bank of India (SBI) and State General Reserve Fund (SGRF) of Oman today said they will jointly set up a fund with an initial corpus of $100 million (about Rs450 crore) for making equity investments in India, reports PTI.
SBI and SGRF inked a joint venture agreement to establish a fund, which will be expanded to $1.5 billion in due course.
The fund will explore opportunities in all sectors, according to the agreement.
The initial corpus will be contributed equally by SBI and SGRF and both sides will manage the fund jointly.
On the occasion, finance minister Pranab Mukherjee said that the agreement would be a landmark and will open new vistas in economic relations between India and Oman.
Oman's minister of national economy Ahmed Macki said the fund will start immediately.
The two sides had reached an understanding for setting up the fund during the visit of prime minister Manmohan Singh to Oman in November 2008.
The Sultanate of Oman is keen for diversifying its oil and gas industry-based economy to a modern industrialised economy and for the purpose the country needs investment in manufacturing, tourism as well as warehousing and other allied industries.