LITTLE BIG CHAMPS

It began as a gourmet deli in a swish neighbourhood in the capital about 20 years ago. It was then just a small store stocking exotic food such as French cheese and Italian meat for expatriates and wealthy Indians. Today, Le Marche has grown into a supermarket chain with seven stores in Delhi and its outskirts, selling everything from everyday dals and masalas to rare Swiss chocolate and Italian gelato. Owner Mini Yadav may have a lot on her plate running a`90-crore business, but she does not plan to stop there. Having opened a huge 17,000 sq-foot outlet in Gurgaon, near Delhi, about a year ago, she plans to open two similar stores in the national capital region over the next two years.

Step into one of the Le Marche stores and you may just bump into Yadav herself walking through the aisles. The fortysomething is a hands-on businesswoman who, despite her business having grown manifold, personally monitors everything from store display to supplies and payments. She also keeps a close watch on what sells and what does not. If a product does not sell for six months, she has a return policy with suppliers.“Large retailers can afford to dump supplies, I can’t,”says Yadav, who sits at her inventory management software for two hours every morning. “My money is my money… You may have the best technology, but someone has to use it.” Her handson approach has helped her thrive, even though several national retailers have either folded up or are struggling to survive.

Yadav is not alone. Across the country, several regional retailers have managed to thrive despite a tough economic environment because of their business strategy of staying small and focused. Bangalore and Chennai have the iconic over100-years-old Nilgiris and the newer M.K. Retail, while Mumbai shoppers have D-Mart and Delhi 6Ten and V-Mart. Most regional retailers are relatively small with annual turnovers of between`70 crore and `500 crore, compared with national players which do business worth up to `10,000 crore a year. Some small retailers such as Le Marche are focused on food but others sell everything from apparel to groceries.

They may be small, but they are all fighting for a slice of India’s enormous retail pie. Audit and consultancy firm PricewaterhouseCoopers pegged the Indian retail market at$500 billion in 2012 and estimated it would grow two-and-a-half times by 2020. The potential is enormous as only five per cent of the retail market is organised. “The base is small but organised retail is growing at 25 to 30 per cent every year,”says Rachna Nath, Leader of Retail at PricewaterhouseCoopers.

But it isn’t an easy ride. About seven years ago, several large companies such as the Aditya Birla Group, Reliance and Future Group stepped into the country’s vast retail market. They set up shop across many big cities, but Indians were reluctant to abandon their neighbourhood general stores. Today, many national retailers are saddled with massive debts while others are barely making a profit, forcing them to either close stores or chalk out alternative business strategies.

One of the first to fold up was Subhiksha Trading Services which pioneered the discounted retail format in India. Subhiksha, which means prosperity in Sanskrit, closed down all its 1,600 stores across 30 cities in February 2009 because of a massive `800-crore debt. Aditya Birla Retail shut down more than 100 stores during the downturn in 2009 and over three dozen last year. The company reported a loss of `423 crore in 2010/11. One of the country’s leading retailers, Future Group, is restructuring after selling its flagship Pantaloon Retail in a bid to reduce its debt which stands at `7,000 crore. The group runs Big Bazaar, a huge hypermarket chain that sells everything from apparel and food products to furniture and electronics.“It is interesting that the big players have built efficiency and processes, but have not managed to attract the right set of customers,” says Raghu B. Viswanath, Managing Director of Vertebrand Management Consulting.“On the other hand, local warehousing and local procurement help the regional players.”

WHERE SMALL PLAYERS SCORE

Regional retailers have not overstretched themselves geographically or financially. They have also avoided many of the traps that have pulled down national retailers, such as high rentals, massive stocks and heavy debt. “Smaller guys are profitable and are fit to grow into a bigger game,” says Mritunjay Kapur, Managing Director of Protiviti Consulting. “They are not waiting to run the business in losses and make investments later.” Viswanath adds that smaller players have built brand equity in their region. “Customers are looking at more options on the shelves, and are not looking at discount retailing,” he says. “Regional retailers are giving a lot more choices.”

The biggest advantage regional retailers have is that their supply chains are easier to manage because of their narrower geographic spread. When Lalit Agarwal started V-Mart in 2003, he opened stores in many large cities. But after his Mumbai operations failed, he adopted a unique business model: no two V-Mart stores are more than 150 km apart, which helps manage the supply chain and logistics better.“India has multiple cultures, multiple seasons and every 100 km this varies,” says Agarwal. “You need to understand the regional balance... I am successful because I have concentrated on the northern region.”

V-Mart, which sells mostly apparel, raked in `300 crore in revenues in 2012. Agarwal has little debt and plans an initial public offering in the middle of this year. The fresh funds will be used to add 55 stores in the next two-and-a-half years, mostly in smaller towns in northern India, focusing on the region’s tastes and cultural preferences. “If you are going from Mumbai to Bangalore, you are going from one country to the other (in terms of consumer wants),” says Arvind Singhal, Chairman of Technopak Advisors.

LIMITED OPERATIONS

Food, grocery and cosmetics firm Nilgiris, a chain of 130 stores in south India, controlled its supply chain by limiting operations to Karnataka and Tamil Nadu for years; it opened its first store in Kerala only last year. More importantly, it has its own dairy and procures milk from 5,000 dairy farmers in the region. The milk goes to a Nilgiris factory for processing and is delivered quickly to retail shops. Its grocery products also spend little time in warehouses. “The model is very strong and you learn as you grow,”says Murali Krishnan, CEO of Nilgiris.

When private equity firm Actis bought a 67 per cent stake in Nilgiris in 2006, the new man- agement adopted a master franchisee model, where a large number of stores were under one owner. But the management realised a single shop franchisee model worked better because it helped shop owners have direct access to customers, says Krishnan. However, Nilgiris negotiates the terms-of-trade with suppliers so that margins and pricing are controlled, but purchasing is decentralised.

Most regional retailers are handson about sourcing. V-Mart’s Agarwal short-lists suppliers personally and often travels to places where the goods originate from. So, for example, he meets cotton hosiery merchants in Tirupur and saree suppliers in Surat to eliminate expenses. “I am here to do business,” says Agarwal. “We make money. We have very logical margin policies.”

Apart from efficient management of supply chains, regional retailers make sure they understand their customers. When Nilgiris opened a shop that stocked meat between two temples in Chennai, it quickly realised the move would not go down well with shoppers. It removed the meat products and sales went up from `17 lakh to`27 lakh within six months. Krishnan says it is important to understand a catchment area of 3,500 houses in a locality. “In large-scale, this understanding is missing,”he says.

Unlike national retailers who source the same product for stores across the country, smaller players can vary the product mix for their customers. Bangalore’s M.K. Retail, for example, stocks all the paraphernalia needed for Durga Puja at its Indiranagar store during the festival season. Indiranagar has a huge Bengali population and Anas, Head of Operations, ensures this 20,000-sq-foot store becomes a onestop destination for Bengalis during the Puja. “National players’ sales and purchases are pan-India,” says Anas, who has grown from only three shops in 2003 to 10 with an annual turnover of `100 crore today. Anas uses only one name.

But the question many in the industry are asking is: will regional retailers survive the entry of global giants such as Walmart and Carrefour? Some analysts say the decision to allow foreign investment in retail leaves smaller players vulnerable to mergers and acquisitions. They say international retailers will tap regional players because they understand the local retail landscape. “The moment they grow into a 20- to 25-store business, they would be up for sale, and even at 10 stores many regional players are looking at international buyers,” says Price waterhouseCooper’s Nath.

Some small retailers such as Le Marche’s Yadav in Delhi and M.K. Retail’s Anas in Bangalore say they are open to foreign investment. The Indian consumer certainly isn’t complaining.