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| Indian retailers put cash & carry on backburner |
| Raghavendra Kamath / Mumbai Mar 26, 2009, 00:02 IST |
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Indian retailers such as Kishore Biyani’s Future Group, Mukesh Ambani’s Reliance Retail, Videocon and the Wadhawan group are putting their cash and carry plans (bulk buying and sale to wholesale trade) on the backburner.
The aim is to conserve cash in view of the current slowdown, though analysts feel there is also a realisation of the problems in making the format successful.
Meanwhile, international players like Wal-Mart and Carrefour, cautious till now, may show more pace in starting their cash and carry operations here.
Expecting a growth rate of 35-40 per cent a year, a host of Indian and international retailers had announced plans to enter the space. Pantaloon, the country’s largest retailer, had plans to set up KB’s Wholesale Market at Mathura in Uttar Pradesh and Bardhaman in West Bengal at a cost of Rs 400 crore by March 2008. And, based on their expected success, it had plans to open more of these in West Bengal, Gujarat, Karnataka, Maharashtra, Uttar Pradesh and Chhattisgarh.
Reliance Retail had plans to launch its B2B format, Reliance Cash and Carry, by March 2008. It roped in Harsh Bahadur from Metro to lead the business. However, the company is now focusing on Ranger Farm, the smaller version. The team led by Bahadur has quit, say sources. “We are not doing any cash and carry now. We felt it was unviable,” said Pantaloon Retail Managing Director Kishore Biyani.
Said a Reliance Retail spokesperson: “We continue to operate and grow our ‘Ranger Farm’ format, which also addresses the needs of large-scale buyers.”
A Videocon group official said the company had deferred its cash and carry venture, Bolld, by six-nine months, due to the current slowdown.
Analysts tracking the retail sector feel the longer gestation period of cash and carry operations, coupled with lower margins, has made Indian retailers rethink. While the retail business takes three-four years to break even, cash and carry turns profitable in seven to eight years. While retailers have gross margins of 18-20 per cent, cash and carry operators have a much lower margin of 10-12 per cent, say analysts.
“In cash and carry, you need to sell at wholesale rates to shops and restaurants but buy goods at higher rates. You cannot increase the margins you get from suppliers. A very high presence of private labels and a strong sourcing base and supply chain efficiencies are required, which Indian retailers are yet to reach,” said Purnendu Kumar, associate vice-president, Technopak Advisors, a business consultancy. As the downturn deepens, retailers were concentrating on store-level profitability rather than diversifying, analysts said.
Retailers agree. “We have put our cash and carry venture on hold as we are consolidating our existing business,” said Kapil Wadhawan, director of Wadhawan Food Retail, which runs chains such as Spinach and Sabka Bazaar.
Global retailers have been treading cautiously till now. Germany’s Metro Cash & Carry, the European leader in self-service wholesaling, runs five stores, a cautious start after it set up operations in 2003. Wal-Mart, the world’s largest retailer, has postponed the launch of its cash and carry stores from 2008 to the first quarter of 2009. Carrefour, the world’s second-largest retailer, is planning its Indian foray in 2009 from New Delhi, Mumbai, Bangalore and Chennai.
“For foreign retailers, it is a matter of time. I believe WalMart and Carrefour will start their ventures in the fourth quarter of this year. They are checking everything to ensure that business remains viable,” said Anand Raghuraman, partner and director, The Boston Consulting Group.
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