Hypermarts in expansion mode as rentals ease

Enthused by the fall in rentals and eyeing large business volumes in the current downturn, India’s largest retailers like Kishore Biyani's Future Group, Aditya Birla Retail, Reliance Retail, Tata's Trent, RPG group's Spencer's and others are preparing aggressive plans to open hypermarkets in the country.

The fad is such that the big retail chains are planning to open around 75 of these in the next year, nearly half of what they have now. Hypermarkets are a large version of supermarkets and are in the size of 20,000 sq ft and above.

In the past year or so, several retailers had closed unprofitable stores and put growth plans on the backburner because of the economic slowdown which had severely dented consumer confidence in urban markets. Chennai-based Subhiksha has halted operations of its 1,500-odd neighbourhood stores.

Leading the pack in opening hypermarkets is Biyani's Future Group, which is opening six Big Bazaars between this month and the next, and 40 new ones in the next year. The group has 115 Big Bazaars now and plans to do a business of Rs 5,500 crore in the current fiscal (their flagship company Pantaloon's fiscal ends on June 30), as against Rs 3,700 crore in FY09.

Aditya Birla Retail's More, which had only two hypermarkets so far, in Baroda and Mysore, since it entered retailing in the past two-and-a-half years, is planning to open a hyper every month. It is opening a new one at Aurangabad in Maharashtra this week.

"We had plans for hypermarkets. The reason they got delayed is high property prices. As soon as rentals came down to reasonable levels, we signed new properties and are launching new stores,'' said Thomas Varghese, chief executive of Aditya Birla Retail.

Owing to less demand from retailers, who had put their expansion plans on hold, mall rentals have fallen up to 50 per cent compared to their peak in 2007-08 and this is helping retailers to expand now.

The better economics in hypermarkets explains the rational behind RPG group's Spencer Retail closing nearly 100 stores of 2,000 sq ft each and opening several hypermarkets in the last fiscal. Now, Spencer's, which has 15 hypers, plans to open a similar number of hypermarkets by the end of this year.

Analysts say beside saving on rents, hypermarkets are effective in terms of operating expenses, supply chain and logistics and other areas.

"Small formats cannot compete with neighbourhood kiranas, as rents and operating costs are high and sales are not that great. With hypermarkets, retailers are hoping for an early break-even,'' said Purnendu Kumar of Technopak Advisors, a business consultancy.

According to Kumar, hypermarkets come at half or one-third the rental costs of convenience stores, as they book space in bulk. While hypers pay a rent of Rs 50-60 a sq ft, convenience stores have to pay Rs 200 a sq ft.