Future-Bharti merger to lead to further consolidation in retail

Consolidation began when Aditya Birla bought South-based Thrinetra Super Retail for its retail foray in 2007

The Future Retail-Bharti Retail merger is expected to lead to further consolidation in the $500-billion retail sector, which is starved of funds.

Indian retailers have always found peculiar problems regarding funding — lack of depth in Indian markets for the segment and global retailers staying away due to policy issues and trouble in their own markets.

"Consolidation is long awaited. While new international firms are yet to come in, existing ones have gone away. It is a question of who blinks first," said Rachna Nath, leader, retail, PricewaterhouseCoopers (PwC) India.

Carrefour of France had exited and Britain's Tesco is treading slowly. US-based Walmart is only in cash-and-carry operations.

 

AISLE BE THERE FOR YOU

• The Future Retail-Bharti Retail merger is expected to lead to further consolidation in the $500 billion retail sector, which is starved of funds
• Indian retailers face funding problems, partly due to a lack of depth in Indian markets for the segment

Said Arvind Singhal, chairman of Technopak Advisors, a retail consultant: "We haven't had many billion-dollar retail companies. Indian retailers require some kind of scale to allow them to grow faster. The merger will encourage many more such deals in 12-18 months in fashion and supermarkets.”

Consolidation began when Aditya Birla Group bought out south-based Trinethra Super Retail for its foray into the segment, in 2007. Kishore Biyani's Future Retail recently bought Bengaluru-based Nilgiris supermarkets to strengthen its footfold in the south.

Sanjay Badhe, a consultant here, says its too early to comment. "Most of them are making losses. There could be some natural synergies but I cannot see these," he said.

Aditya Birla Retail (ABR), Spencer’s Retail, Raheja-owned Hypercity and Tata-led Star Bazaar, all of which either launched or started serious expansion during 2006-07, are still making losses.

ABR, set up seven years earlier, posted 20 per cent growth in sales over a year earlier for 2013-14. Its losses widened from Rs 583 crore in 2012-13 to Rs 596 crore in FY14. With 490 supermarkets and 14 hypermarkets under the More brand, it was looking to break even in FY13.

Spencer’s Retail, an RP-Sanjiv Goenka Group company, which opened stores under the Spencer’s brand in 2006, posted eight per cent growth in FY14 sales numbers. Thee chain’s losses came down from Rs 209 crore in FY13 to Rs 166 crore in FY14, according to its parent CESC's Qualified Institutional Placement documents.

Spencer’s missed its break-even targets on a couple of occasions in the past and is looking to slip out of the red in the next couple of quarters.