Mumbai: Joining the Reliance Group and Wal-Mart/Bharti for a pie in country’s nascent and high potential retail business, the Aditya Vikram Birla Group has announced its entry into the domestic organised retail market with an investment of up to Rs 9,000 crore over three years.

It is targetting 1,000 supermarkets in three years and plans to employ 10,000 people in a year’s time. “The group has already invested Rs 200 crore in the retail venture. We intend to be among the leading players in India. We’ll give the Indian consumer a fundamentally better shopping experience,” Aditya Vikram Birla Group chief Kumar Mangalam Birla explained while outlining the details of the strategy.

The group, which has a widely diversified range of interests in telecom, cement, textile and aluminium, had in January acquired control Hyderabad-based supermarket chain Trinethra Super Retail and its fast-growing online shopping outfit Fabmall — in its run-up to the retail foray. Its retail stores would be christened

“More” and the first outlet would be opened in Pune this month. “The business will, however, not be funded by any of our listed companies,” Birla said, adding that a debt-equity mixture will be used to fund the venture. “We also have the option of tapping the vibrant capital market,” he said. While ruling out the franchisee model for the business, Birla said that the group would be setting up 1,000 supermarkets of about 10,000 sq ft each over the next three years.

The retail outlets will be in two formats, hypermarket and supermarket, Birla told reporters. “We will offer variety, cost-effectiveness and a comfortable and world-class shopping environment to our customers,” he said, adding that the Group would go it alone in the business. While telecom giant Bharti has tied up with Wal-Mart for its retail venture, Reliance Industries has stepped into the business on its own.

“We will be hiring thousands of youngsters to man our outlets,” Birla said, adding that “we will form direct linkages with farmers.” Investments in back-end functions will be done in a spirit of partnership with vendors and suppliers to eliminate costs in the supply-chain, he said.

The Birla’s entry into organised retailing has come at a time when plans to open retail stores of Bentonville, Wal-Mart and other foreign retailers including Carrefour SA and Tesco Plc have been delayed as the government has commissioned a study on the impact of large retailers on small stores.

Sunil Bharti Mittal’s Bharti Group plans to invest Rs 2,500 crore in a retail network that includes a wholesaling venture with Wal-Mart. Mukesh Ambani’s Reliance Group is investing more than Rs 5,500 crore to set up stores. Economists have estimated that the Indian organised retail market is worth $320 billion. Multinational companies from several countries have evinced keen interest in a share of the pie.

According to a study by The Nielsen Company, modern retail dropped prices by more, or increased them by less, for more product categories than traditional retailers, or kiranas, between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar).

“The power of modern retail lies in the scale and efficiencies which we have built over the years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores.

The Nielsen Shop Census study compared prices of 47 commonly used items including toothpastes, washing powder and confectionery. Modern retail dropped prices by more, or increased them by less, than traditional retailers for 29 product categories while traditional retailers did better in 18 categories.

It collected data from 16,000 stores (11,000 urban and 5,000 rural, in both modern and traditional retail) in 462 towns and 1,427 villages.

During this period, the rate of inflation, as measured by the Wholesale Price index, was hovering around 10% and food inflation was more than 12%.
In the past two years, modern retail has been able to significantly cut operational costs related to real estate rentals, energy costs and increase persquare-feet productivity of employees leading to savings in people costs.
They also launched private labels to get a better grip on selling prices and profit margins, and some savings were passed onto customers.

Higher collaboration with small and medium suppliers as well as distributors of large FMCG companies helped them cut costs in transportation and logistics.

Efficiencies of scale helps one source the goods closer to the manufacturer says Mr Biyani. In 2009, Big Bazaar sourced 26,000 tonnes of rice, 4 crore pieces of clothing, 20 lakh suitcases, 36 lakh mixer-grinders, 45,000 manufactured beds, 20 lakh bedsheets and 19,000 LCD TVs. Each of these figures will be higher by a minimum of 30% for the year 2010, he says. “Such large sourcing allows us to get better prices directly from manufacturers and producers.”

Big Bazaar is the largest player in the segment contributing over 33% of modern retail sales. Other top retail formats competing with traditional kirana for essential purchases include Reliance Retail, Aditya Birla Retail’s More and Spencer’s Retail.

Kumar Rajagopalan, CEO, Retail Association of India, says strong sourcing power helps modern formats offer better prices. “They have done away with the extra level of intermediaries,” he says.

Meanwhile, grocers too are working on protecting their turf by leveraging on their strengths such as customer relationships, home delivery, credit facilities and expanding their product portfolio.

Top FMCG companies such as Hindustan Unilever, Procter & Gamble Marico and Godrej have begun adopting kiranas, teaching them category management and effective merchandising to counter big retailers and their private labels.

Bharatiya Udyog Vyapar Mandal (BUVM), the biggest national-level association of mom-and-pop stores, has formed city-centric associations that negotiate directly with manufacturers such as Unilever and P&G and do away with any middlemen.

This helped kiranas offer 5-20% discounts on MRP of branded products like detergents, shampoos soaps, oil and atta.

“When prices rose due to inflation some kirana stores offered customers the option of paying in instalments apart from extending them credit for a month,” says Vijay Prakash Jain, secretary general of BUVM that comprises 17,000 state and district-level associations across 27 states.

Interestingly, kiranas managed the prices of items such as detergent bars toilet soaps, shampoo, packaged tea and iodised salt better than modern retail, according to the Nielsen study.

Currently, traditional retail, both grocers & chemists, constitute over 95% of total sales in the country.

Modern trade at just 3-5% of the total national industry sales, had grown aggressively at over 35-40% contributing to over 15-25% sales for most consumer goods companies last year.