Changing gears, Trent Hypermarket plans swift expansion

Likely to open 20-30 stores in Maharashtra & Karnataka in FY17; expansion plan might require capex of Rs 100 crore

 

Trent Hypermarket, a joint venture (JV) between Tata's Trent and UK's retail giant Tesco, is shifting gears after a decade of cautious and calibrated expansion.

During the next financial year, the chain is looking to open 20-30 stores across Maharashtra and Karnataka, the two states which permitted foreign direct investment (FDI) in multi-brand retail at the time the JV was formed, a source told Business Standard.

This is the most store openings ever planned in a year during its history. The expansion could require a capex of Rs 100 crore .

The planned store openings are equal or more than the number of stores it currently operates. At present, the chain has 22 stores across Star Bazaar, Star Daily and Star Market brands.

The first Star Bazaar was opened in 2004 in Ahmedabad but the real expansion started after 2009. In March 2014, Tata-owned Trent and Tesco signed an agreement for an equal JV.

The new stores are being planned in Mumbai, Pune and Bengaluru, among other cities in Maharashtra and Karnataka.

An email sent to Trent Hypermarket did not elicit any response.

Though the Noel Tata-led Trent focused on profitability since inception, now they are planning to leverage their strengths in the back-end and experience in the front-end, the source said.

"They have distribution centres and supply chains in place in these states and it is easy for them to scale up," said the source.

Trent Hypermarket, posted a marginal decline in sales at Rs 790 crore during FY15, compared to Rs 795 crore a year earlier. Its loss before interest and tax narrowed to Rs 55 crore in FY15, from Rs 61.8 crore in the previous year. The numbers were not comparable as Trent Hypermarket transferred four operating stores to another company to meet foreign investment regulations.

"They are doing many things to achieve faster profitability," the source said.

Reducing costs
In a marked departure, the stores would not have storage facilities in them, saving the chain additional lease rents and replenish stock on the shelves on a daily basis as and when required, the sources said.

"This would improve freshness of products. They have spruced up the entire supply chain to meet the new requirement," the source said.

The source added the stores are designed to break even faster. "Earlier, the stores used to take five to six years to break even. Now they are breaking even in 18 to 20 months," the source said. The source said the chain has adopted a new strategy to keep only products whose margins are higher than the lease rents per sq ft.

"If a plastic bucket costs Rs 50 and the lease rent is Rs 60 sq ft, they would not keep it. If a customer asks for it, it would be supplied from a bigger store," he said. Most of the stores are planned as standalone structures not inside malls which have higher lease rents, he said.

Star Bazaar are 50,000 sqft hypermarket stores, Star Daily is 2,000-5,000 sq ft express stores and Star Market is 5,000 to 15,000 sq ft.