Former MD and CEO of the Aditya Birla Retail owned `more` chain of supermarkets and hypermarkets, Thomas Varghese, shared the company`s business model, challenges, and future plans with Roshna Chandran, during the opening of the company`s new hypermarket in Bangalore, also its biggest in India
Tell us about the new `more` hypermarket at Bangalore
The store measures 60,000 sqft, and has 25,000 SKUs. You can divide this store into 6 or 7 sections. `Fresh`, the macro-category is only one area. Fruits and vegetables comes under the larger category of `fresh`. So you have the bakery, butchery, sea-foods, and then prepared foods. We refer to these as deli or prepared foods. Then we have staples, spices, condiments and cereals. Freshness being the major footfall driver, the more hypermarket tackles back-end logistics to provide a new section of fresh food
There is food and non-food under FMCG. FMCG can be categorized into these 4 spaces. Food, beverages, that includes your hot beverages like tea and coffee, with non-food like skin care, etc. Then you have consumer durables and electronics, IT, digital, which is a major category. Then there`s apparel, footwear, general merchandise that runs right across from treadmills to sports equipments, toys, plastic containers, steel containers, brooms, mops and so on and so forth. Home linen, curtains, bed linen and bath also comes under general merchandise. Roughly our ratio sales mix in hypermarkets is roughly 60% food and 40% non food.
What potential does ABRL see in Bangalore?
I think Bangalore is one of the fastest growing areas for modern retail. I think the complete structure of the market, whether it is in terms of demographics or if it is in terms of the demographic patterns, the development of service industry (which is leading to huge growth of gen y consumers), the kind of per capita incomes that we are seeing particularly in new income areas, population growth, (which is a mixture of in-organic as well organic growth), there is a lot of migrations and urbanizations still happening, so in my view, there is a great potential for improving the consumption of this city.
How much has ABRL Invested?
We have invested roughly about Rs 17-18 crore in every store that we have opened. Out of which Rs 7 crore investment is on stocks. So the capital investment is about Rs 10-11 crores. All the stores come in the range of roughly 50,000 to 70,000 sq ft. We do not open obscenely large stores and we do not open very small stores. So this is in line with the international norm for hypermarkets. There are people in this country who open a 1000 sq ft store and call it a hyper market, but that is not a hyper market. We expect roughly about a minimum of Rs 6 crores a month during 2012-2013. Our expectation is that this will become one of our best flagship stores.
What is the total number of SKUs in the food and grocery section?
We have an overall of 25,000 SKUs in the store. In the PL category, staples is the biggest selling, then home-care, followed by processed food. 40% of our staples are PLs and roughly 24 % of our apparels are PLs in which we have brands called Blue Earth and Tru. Roughly about 9000 SKUs in food and grocery contributing to roughly about 15,000 sq ft of space. The non-food is about 13-14,000 SKUs and this contributes to roughly 20,000 sq ft of space. It takes up more space and is less productive. There is a warehouse space and the whole back-office infra-structure, which is the canteen, the office, the locker rooms for the staff, etc.
Fresh food is the footfall driver and it makes people want to shop. Our bakery is almost like a 5 star hotel bakery and that is the extent to which we invest in a store. Making a store like this is like building a factory. There is a huge back-room. There are cold rooms too dedicated for vegetables, fruits, veg and non-veg frozen stuff, fresh meat and poultry. So there is a huge patternization of packing that a customer does not see.
Please tell us about your private labels
We provide customers a wide choice of products under our private labels. The objective is to provide quality products at attractive price points to customers. Since quality of the products is of prime importance, stringent quality norms have been set and are followed by our manufacturing partners.
We have introduced private labels across multiple product categories including staples, processed food, personal care, apparel, footwear and general merchandise. Our own label food brands at more hypermarkets include Feasters, Kitchen`s Promise, and Best of India. In the FMCG categories we have home and personal care brands such as Enriche, 110%, Pestex, Paradise, and Germex.
Our total sale of PLs is roughly about 19-20%. We have roughly 225-250 FMCG SKUs and 100s of staple and dairy SKUs. We make our own butter, oil and have gone into many categories. We had launched shampoo, conditioners, face creams, moisturizers that were withdrawn because we think high involvement categories will not succeed in the short run. I think people are very brand conscious when it comes to high involvement categories. We have not done anything to make the sales for the PLs go higher and we hope it doesn`t go lower. We had launched cooking and eating butter, curds as well as disposable diapers and glycerine soaps.
Our strategy is dedicated on the `good, better and best`, which is a Tesco strategy. `Good` for us has more value, `Better` for us has more choice, and `Best` has more select. Juice, breakfast cereals, coffee, atta, rice and a lot of home care products are as good and if not as better in some cases. These are priced 10-15% lower. We have been able to establish significant traction with our customers, with our products doing better than the benchmark brand in several categories. Private label is as yet a small proportion of the overall FMCG space, so this will be a continuing focus area of ours to build market share with customers.
As regards local sourcing of products, what is sourced locally are snacks. If you look at the main categories of processed food, beverage, home care, personal care, there are many brands. Certain brands are categorized as regional brands as it does not sell all over the country. It is sold in pockets. Similarly certain detergents are sold geographically in Gujarat, though these products are spreading outside Gujarat, it is a Gujarat scheme.
How efficient is More`s distribution/supply system?
We have centralized warehouses which are state specific because GST has yet to come to India. We have a virtual distribution for every state that we have updated. Today we are operating about 14-15 distribution centers and have about 0.6 million sq feet distribution centers at the moment.
Hypermarkets are not following a DTC model. We have a Direct To Store model (DTS), so the vendors supply directly to the store. There are certain back-end resources that we have, like a regional processing center for staples that also supplies to hypermarkets. Products like atta, rice, pulses, condiments, spices and of course in the supermarket business everything, except frozen stuff, is routed through the DTC. Frozen we have cut off because we do not have an integrated seamless, cold chain. Like I can get the vendor to supply and I can have the cold room in the DTC, but I need a refill truck to move those frozen products. If I do not have a refill truck, I will end up destroying the integrity of the package.
What are the mechanics of reverse supply chain at more?
We do a lot of reverse logistics. For instance we do a 50% buying of farm fresh products from farmers. So when we move products into a store, which is a growing area, we ensure that the truck comes back with the produce. The used crates and the damage, expiry, return to vendors, etc. actually flows back in the reverse journey. So we try to see that our journey trips, which is costing the company money is utilized to the maximum. We measure route rupees km per km. There are many KPIs (Key Performance Indicators) for supply chains which is for measuring its efficiency.
What are the challenges ?
The key challenge for us is merchandising strategy and meeting consumer expectations. On the structural side there is a dearth of commercially viable real estate, poor infrastructure, and complex tax structure. On the operational side, we have to deal with inflating costs, wafer thin margins, and shrinkage, and getting the right people.
While we aim to give quality to our customers, there is a huge latent demand, which is not only for products but also for value. So we have to provide the right infrastructure and the right business models to capture this demand. We hope that with infusion of capital in our back-end operations, and by creating world class stores, we will be able to meet this demand for value. For instance, we have disproportionately invested in IT to give us a competitive advantage. Our IT is not for the hypermarket as such but for the supermarkets we have Oracle and Retech as our EFP engine and we have INFOR WMS as our supply chain engine. We have MS Retail for the front end. Hypermarkets currently run on navigon, which is also quite good but Oracle and INFOR WMS is probably the best in the whole world.
Real estate is a very big challenge, developers and their progress of projects is another big challenge as our supermarkets are between 2500-3000 sq ft and hypermarkets are between 50,000 -70,000 sq ft. Our investment per square feet varies anywhere between Rs1400 per sq ft to Rs1700 rupees. So Rs 1300 - Rs 1700 is the investment. It also depends on the kind of fixtures and assets you put in. A lot depends on the catchment, location and size. Retail space has been in short supply - some real-estate developers have failed to complete projects on time due to a liquidity crunch, in fact, a delay of six months to open small stores and at least a year for large ones has become common.
Which is ABRL`s best performing store?
The one in Bangalore, then Mahaballipuram, followed by Delhi and then Hyderabad.
What `more` can we expect in the near future?
We have 589 supermarket stores today. This one in Bangalore is the 13th hypermarket. I am hoping to put another 2 hypermarkets. One is in Bangalore and the other in Hyderabad. We had planned for 10 but have ended up opening only 6 for this financial year from April to March. It is a big job. We wanted to put up 140 supermarkets, but have ended up putting up only 100. We aim to have 30-40 large stores by 2014 to achieve the necessary scale for our hypermarket store format to become profitable.