Retailers back at hypermarkets for growth

Mumbai: Mukesh Ambani's Reliance Retail probably signalled the arrival of hypermarkets when it opened the first big-box store spread across 165,000 sq ft in Ahmedabad four years ago. But things did not quite work according to plan and the retailer downsized its largest store within the first year of operations. The focus then had shifted to neighbourhood stores under Reliance Fresh brand. 

    On a comeback, the retailer is now rejigging the hypermarket story with Reliance Mart. Others like Dutch retail chain Spar, K Raheja's Hyper-City and the country's largest retailer Future Group too are banking on the hypermarket format to ring in profitability and differentiation. 
    "The neighbourhood convenience store concept has not done well and it's a learning for all of us in the industry. The big-box model 
can offer the choice to 
customers which a convenience store cannot. It's 
also clear that financial viability will rest in the big stores as the small format stores do not have a feasible business model," says Damodar Mall, director for food strategy at Future group, which operates stores like Big Bazaar. 
    The economic crash of 2008 halted the hypermarket push as real estate and cash crunch became big hurdles for 
big and small players. Hardly any hypermarkets opened in 2008-09 with even smaller format retailers struggling to stay afloat. The now-shut discount retail chain Subhiksha had added some 1,400 neighbourhood stores in just two years during the boom period only to be wiped off by 2009. Reliance Retail says hypermarkets will be a strategic growth driver within its retail play. There are 16 Reliance marts operational currently. Future Group is ramping up the Big Bazaar 'Family Centre' model which is typically 75,000 sq ft stores offering service facilities such as beauty parlour and gymnasium. "We have ten stores now and will have two each in the big cities going forward," Mall adds. 
"Large format stores will be the model for profitability considering they operate on economies of scale. If retailers get the supply chain in place hypermarts have the potential to get huge footfalls as they are more than just a place to shop at," says Anand Mour, VP-FMCG & retail at brokerage firm Indiabulls Securities. 
Tweaking the format 
But the hypermarket story is being tweaked to Indian conditions. 
Spar India, which has a licence agreement with Dubai based Landmark Group's Max Hypermarkets, plans to almost double the number of hypermarkets from eight currently to 14 by March next year. "What is significant this time, though, is that retailers are talking about hypermarkets which are typically 50-70,000 sq ft in size, and not more," says Viney Singh, MD, Max Hypermarket India. Spar has two types of hypermarket formats—mini-hypers which are spread across30-40,000 sq ft while the regular hypers are 50-70,000 sq ft. 
    HyperCity, which started in Mumbai's suburb Malad five years ago, says it understood that 100,000 sq ft plus hypermarket model won't work in India. A few uneventful years later, it is now aiming to grow rapidly but with a size of 70,000 sq ft stores in the metros. "We have become very clear about the size of the stores that we should adopt in past six months. There is still not enough product range available to be effective and profitable in the huge boxes. The tier 2 stores take longer—about two years— to turn profitable compared to metros. Hence we are keeping the size of the tier-II stores at about 50,000 sq ft," says Mark Ashman, CEO, Hypercity. 
    He says the retailer plans to add seven new stores by 2012 to the present tally of 10, and make it 50 stores in four years. 
    "The last three years have been a phase of discovery for Indian retailers and has resulted in changes to the original hypermarket format. The changes will continue because there are no models you can apply from any part of the world here," says retail consultancy firm Technopack chairman Arvind Singhal. 
Big Box On The Shelf 
t Hypermarts offer economies of scale 
t Retailers can differentiate themselves through large format stores 
t Hypermarts have a viable financial model compared to neighbourhood stores 
t Dutch retail chain Spar will double its hypermarts by March 2012 
t Hypercity is looking to have 50 hypermarts by 2015 
t Future group to expand its big-box Big Bazaar Family Centres