It has planned to invest Rs. 1,400 crores to achieve annual turnover of 5,000 crores within four years. In addition to internal accruals, the company could look at raising resources through promoters and public offering of shares after 12 to 18 months. The group has so far invested Rs. 125 crore in the business, says a DNA report.

Currently, the group is operating 90 food and grocery (F&G) and six home products stores. The group expects to increase the number of outlets to over 200 by March, 2008, says the report.

Wadhwans are quite aggressive on both organic and inorganic fronts. Besides, organic growth, the group in the recent past has bought out 13 stores chain operating under brand name of “S-Mart” in Bangalore and acquired Mumbai-based direct retail business ‘Sangam Direct’ of FMCG giant Hindustan Unilever Limited. Apart from this, the group also acquired control of Mumbai-based Maratha Co-operative Store and acquired Delhi-based retail chains operating under ‘Home Market’ and ‘Sab Ka Bazaar’ brand names.

In the meanwhile, the group’s flagship DHFL has picked up 19.9% stake in the company for an investment of Rs 5 crore.

Tim Mason is packing bags for customers in the Fresh & Easy convenience store in Lakewood, Los Angeles. While the Fresh & Easy chief executive packs, customers scan their own shopping. There are no “checkout girls” at Fresh & Easy. It is entirely self-service.

“It is way better,” is the verdict of Victor, whose $30-worth of groceries have just been packed by Mason.

Victor may be impressed but some of the store’s customers are confused. And it is not just where to insert their $20 bills that has them flummoxed – the whole concept of self-service is baffling.

“Some of the older customers struggle with it,” admits Trisha, one of a number of assistants on hand to help customers.

Self-service may be a key component of Fresh & Easy’s “simple and efficient” business model, allowing it to offer Wal-Mart prices in convenience store locations. But, in a country where many stores still carry your groceries to your car, self-service checkouts are a brave move.

Brave is a word that can be used to describe Tesco’s Fresh & Easy venture. For a string of British high street institutions – including Dixons, Marks & Spencer and J Sainsbury – the US has proved to be an expensive disaster. All have been forced to pull back after ambitious expansion plans crumbled.

But Sir Terry Leahy, Tesco’s longstanding chief executive, is hoping to prove – once again – that he can prosper where others have failed. Rival retail executives describe his move into the US as “Leahy’s biggest ever gamble”.

Tesco is one of the few British retailers to have stepped on to the international stage and prospered. Over the past decade Sir Terry has transformed what was the UK’s number two supermarket chain into an international powerhouse.

When he was appointed chief executive in February 1997, Tesco’s international arm was a fledging operation with just 2.7m sq ft of space. Today the group has more than 40m sq ft of space overseas. When Sir Terry announces full-year results these days, he kicks off his presentation by briefing investors on what is happening in Shanghai rather than Southampton.

In recent years Tesco has increasingly looked overseas for growth – with the international business accounting for one third of the group’s growth in the first half of the year. With 1,376 stores outside the UK, international sales hit £11bn last year, generating £564m of trading profit.

Matthew Truman, retail analyst at Tesco’s broker Lehman Brothers, believes the international business is on the cusp with a decade of investment about to pay dividends. By 2012 Lehman expects Tesco’s international arm to account for 34pc of sales and 31pc of profits.

But Sir Terry is not resting on his laurels. Having taken on the likes of Carrefour and Wal-Mart in Asia and Europe, the UK retailer is now pursuing its American adventure.

Step into the 675,000 sq ft Fresh & Easy distribution centre on the former March Airbase in Riverside, east of Los Angeles, and the scale of Tesco’s US ambitions are obvious. The warehouse has the capacity to unload and load 150 lorries simultaneously.

Publicly, Tesco insists it plans to open just 200 stores by the end of February 2009. But the distribution centre could support almost 500 of the group’s small convenience stores – and the retailer is close to acquiring a site in northern California to build a second distribution hub.

However, it is not just a distribution centre that Tesco has built at Riverside. On the same 88-acre site Fresh & Easy staff are making $2.99 Carne Asada Burritos – which, despite weighing in at a decidedly unhealthy 15oz, are a best seller.

When contacted, a Reliance spokesperson told Indiaretailing: “It is not a reworked strategy or model. This is a new concept wherein we are trying to offer almost all the products that we have launched exclusively through various formats. It is quite natural that the Super store will also retail fresh produce and food and grocery.”

The company, which opened its first Reliance Super in Amritsar (approximating 13,500 square feet), is planning to open more Reliance Super stores across the country. When quizzed about the targeted number of Reliance Super stores for this fiscal, the spokesperson said: “At this point of time I cannot specify a number, but it would be huge and eventually spread across the country.”

It is learnt that the company will experiment with this new format in states where they face less protests, and would eventually move on to anti-retail playgrounds. Making it more shopper-friendly, Reliance Super provides easy and attractive finance options, including 0 per cent financing for purchases on select products.

Shoppers have the option to choose from a wide array of products in categories ranging from fresh produce, food and grocery, home care products, and apparel and accessories, to non-food FMCG products, consumer durables and IT, automotive accessories, lifestyle products, and footwear.

Reliance Super will also retail fine jewellery and fashion jewellery as part of its lifestyle section. Reliance Super also boasts of a host of Reliance’s own apparel brands in select categories.

Commenting on the launch of this new format, Raghu Pillai, president and CEO, Operations and Strategy, Reliance Retail, said, “The launch of Reliance Super is yet another step by Reliance Retail towards providing an international shopping experience to all our customers at unmatched affordability, guaranteed quality and choice of products and services throughout the week.”

Meanwhile according to reports, Reliance Brands, another subsidiary of Reliance Retail, is looking at becoming a private-equity partner to struggling companies and brands in the apparel, footwear and lifestyle segments. If our sources are to be believed, the company is also exploring routes for both national and international buyouts of brands.

However, for the time being, let us wait for the launch of its tenth format.

The synergy would enable Reliance to efficiently run its critical back-end operations, which essentially include warehousing of goods and transporting them to stores on time.

The latest move by India’s largest corporate house, which jumped on the retail bandwagon two years ago by promising to do everything on its own, seems to suggest that it now needs a partner for almost every retail initiative.

Industry observers believe that the company has expanded very fast and has managed to set up over 600 stores across various retail formats in less than two years, but its supply chain is in a mess. “How to get the right merchandise to the stores on time has been its biggest problem. You’d often not find the goods you want in Reliance’s food and grocery outlets,” said a source.

Wincanton, the UK-based $4-billion supply chain solution provider, has been roped in precisely to tackle this problem. It is expected to completely take over the supply chain, find the right warehouses for goods and transport them in time and in the right quantity to Reliance Retail stores.

Supply chain solution providers, Wincanton, for example, have IT systems in place to update them with regular data on inventory level in stores.

So, even without a store manager calling up, the warehouse manager would know the stores’ requirements. Wincanton serves several companies across industries, from FMCG to retail, automotive and oil. Its client list includes retail giants Tesco and Woolworths, auto companies Ford and DaimlerChrysler, and consumer goods firms P&G, Nestle, SAB Miller and GSK.

For Reliance, an alliance such as this means a major shift in its strategy. The season of alliances has begun at Reliance with specialty stores and is now fast extending to almost everything. Two years ago, when India’s largest private telecom operator, the Bharti Group, announced a tie-up with the world’s largest retailer, Wal-Mart, many thought it had got a headstart over other Indian corporate biggies foraying into retail.

But unlike Bharti, Reliance had decided to go solo. It made the ambitious announcement, not unusual from the house of the Ambanis, that Reliance Industries had earmarked Rs 25,000 crore for its retail business. Reliance had evaluated the options of partnering with a foreign retailer as well as buying out an existing Indian retailer, but had not found it very exciting.

True to its form, Reliance built scale fairly rapidly, spreading from one city to another. The growth was achieved through a team of professionals poached from existing Indian retailers, but the pace of execution dwarfed rivals’ achievements.

Reliance, however, realised it needed to do a lot more on the back-end to continue the pace of expansion and return early profits, which its shareholders usually expect.

“It didn’t take Reliance long to realise that retail was a different ballgame altogether. It’s not just about some long-term government policy or certain business competency, which it’s known to manage well. The variables in retail business are far too many. There could be a number of factors such as general economic downturn, terror scare, shorter wedding season, cricket season like an IPL or a political protest, which can affect store sales. You need to be able to manage that,” said a source close to Reliance.

The company has entered into alliances with foreign companies for several specialty stores, including opticals (Pearle Europe), toys (Hamleys) and apparel (M&S).

In most cases, the foreign retailer has the majority stake. This model, however, can’t be extended to front-end retail in food and grocery or hypermarkets as Indian laws don’t allow FDI in multi-brand retail. But it could be done in the cash and carry segment or retail back-end, an area where Reliance is in urgent need of help.

When contacted, Future Group CEO Kishore Biyani said: “We have been evaluating the option of creating a new entity for our value retailing businesses.” Last year, Pantaloon Retail had secured board approvals for hiving off the businesses into independent subsidiaries that could be listed at a later date.

Under the proposal, Pantaloon Retail will be a holding company. Pantaloon officials familiar with the development said the group is examining a structure that would eventually enable it to strike a JV with a global retailer. Pantaloon Retail has been in talks with Carrefour, the world’s second-largest French supermarket group, for a JV in India.

Under the scheme of things, Future Value Retail would serve as a major supply-chain entity for all Future Group store formats and help the company prune costs, a group official said. Technically, the sourcing and back-end of the store formats would be one while the front ends would continue to operate as separate entities. Currently, all Food Bazaar outlets, comprising its food and grocery supermarket business, are located within Big Bazaar formats.

While Big Bazaar is the group’s hypermarket business and has 109 stores, Food Bazaar is a supermarket chain that has 152 stores with most of them housed adjacent to Big Bazaar. Food Bazaar’s business model resembles the value model of global retailer Wal-Mart. According to Nielsen data, Food Bazaar’s share in the FMCG space in terms of modern trade is about 28%. Pantaloon Retail is estimated to report sales of Rs 10,000 crore for 2008-09 while the combined revenues of Big Bazaar and Food Bazaar are estimated to touch Rs 5,000 crore.

A proposed joint venture with a foreign retailer would enable the Future Group access sizeable dollar funds needed to expand its business. A foreign partner will also help the group bring in more efficiency in sourcing and logistics, helping it drive down prices and boost margins. Besides Big Bazaar, the Future Group runs Food Bazaar, KB’s Fair Price shops, Pantaloons, Central, Home Town, eZone and Aadhaar. The Pantaloon Retail stock closed at Rs 130.15, up 5.46%, on the BSE on Monday.

In a challenging consumer environment, bargain hunters are flocking to modern value-retail formats like Big Bazaar, Food Bazaar, D’Mart and More, which have been coming up with discount offers to attract customers. This reflects a global trend, wherein value-retail formats are growing despite the overall slowdown in the economy. Last month, US-based Wal-Mart reported a strong 5.1% increase in same-store sales (excluding gasoline sales) in the US, even though lifestyle chains, like Target, Macy’s and Abercrombie & Fitch, suffered a drop in sales.

RETAIL BLISS

Pantaloon may use the new format to strike JV with France’s Carrefour
A proposed JV would bring in the required funds for Future Group to scale up its business Presence of a foreign partner, in all likelihood, will have a positive impact on the efficiency level, which would bring down prices and help margins

IBM will introduce new systems to help Sainsbury’s and its 4,000 suppliers find smarter ways of managing the supply chain and support continued growth in the grocer’s business.

Sainsbury’s will use an electronic trading network provided by Wesupply, and IBM will manage the migration of the grocer’s suppliers onto the system.

The retailer has previously suffered from problems with product availability in stores, and last year merged its supply chain and retail director roles in a move that analysts said could ease these issues.

The solution will allow Sainsbury’s to monitor the status of orders across its entire network and manage the availability of products. The Wesupply service will allow information flows to be streamlined. The grocer will also benefit from improved visibility of supply chain performance which will allow it to heighten stock control.

As part of this migration, Sainsbury’s will be transitioning its electronic data interchange (EDI) service to EDI network provider Inovis. Hundreds of Sainsbury’s suppliers are already using Inovis’ network to exchange documents with their customers.

While online grocery shopping continues to grow at a rapid pace in the UK, it appears to be a different story across the Atlantic. In the past week the competitive UK market has digested the news that Waitrose is scrapping its delivery charges and Ocado is to sell 4,000 Waitrose own-label products at a cheaper price than is available in the grocer’s own stores.

The former is bound to have repercussions, as the other major grocers take a close look at their delivery-charging models, and although the latter will have less impact on the wider market it does signify how desperate Ocado is to grow its share of business.

In contrast, in the US, Albertsons announced that it is to stop its home delivery for online orders in all its markets. The only thing it is retaining in certain areas is online ordering for collection in-store, which it says customers regard as a convenient way to shop.

The divergence in the two markets must largely be down to the high density of delivery drops achievable in the UK whereas the vast distances between shoppers in the US does not justify the cost to retailers of offering home delivery services for low margin grocery products. This is undoubtedly why it is still viable in higher density conurbations like New York where FreshDirect is a popular service.

This is at the heart of why Tesco is the world’s biggest online grocer and the significantly larger US market has nothing that comes close to comparing with it.

“We want to ramp up the volumes,” said Mark Price, managing director of Waitrose. “Delivery charges are a real irritation for customers when they’re spending £90 on a shop.”

Britain’s worst recession in more than two decades has heaped pressure on supermarket chains to pitch their pricing strategies correctly as customers tighten their belts.

Waitrose, with 200 branches across the UK, has benefited as people eat out less, according to Mr Price. The chain, which recorded a 6pc jump in sales over Easter compared with last year, said it was winning customers from rivals such as J Sainsbury.

Owned by The John Lewis Partnership, Waitrose is betting that its move will help prise shoppers away from rivals in the online grocery market, which it claims will enjoy sales of £13bn within four years.

The charges will cease from Wednesday although the Waitrose Deliver service will still require a minimum order of £50. Waitrose Entertaining, its service for party food and drink, does not have a minimum order requirement.

The decision to scrap the charges comes in the same week that shoppers at online delivery service Ocado will be able to buy Waitrose food cheaper online than from the supermarket for the first time.

John Lewis Partnership has a stake in Ocado but does not fully own it, so the internet delivery company is able to charge what it likes for Waitrose products.

Mr Price has said there are many promotions that Waitrose runs in store that Ocado does not offer. The free delivery is not being offered by Ocado.

Mr Price said trading in the first three months had been better than expected and he was in the optimists camp regarding the rest of 2009.

The global economic downturn has had a significant impact on the retail sector – albeit to a lesser extent on the grocers, due to the fact that food remains a non-discretionary purchase.

Nonetheless, grocery retailers have primarily responded to the downturn in two ways:

1. Promoting value through the expansion of discount stores, economy ranges, price investments and increased promotions.
2. Reducing costs and preserving cash by slowing growth plans and making staff redundant.

Over the next five years, Planet Retail forecasts the Top 30 to grow sales through grocery formats at a compounded annual growth rate (CAGR) of 5.2 per cent, compared with the 10.8 per cent recorded for the previous five years.

Store numbers, meanwhile, are expected to rise at a CAGR of 3.5 per cent, reflecting the fact that a slowdown in expansion will see retailers focusing on their most profitable existing stores.

Discount and small formats to the fore

One of the winning formats for the Top 30 will be the discount channel, which is expected to add $71bn in sales over the next five years. Driven by retailers such as Aldi and Schwarz Group, the no-frills format continues to attract cash-strapped consumers both in developed and emerging markets. By 2013, the Top 30 retailers operating in the discount segment are poised to open an additional 12,600 stores.

Discount stores are just one of the smaller store formats doing well. Retailers are increasingly likely to focus their efforts on small-box stores, given that they require less capital both to build and operate. In fact, stores less than 26,910 sq ft are poised to grow their store network by 4.1 per cent over the next five years compared with just 2.2 per cent for the large hypermarkets.

Also, in the long run, the outlook is positive for proximity retailing as demographic changes mean that there will be more single households combined with lower incomes (because of a higher share of pensioners) and less widespread car ownership.

This is especially the case in the US, where Tesco’s entry has sparked a series of reactive pilots, the most notable being Wal-Mart’s Marketside format, the retailer’s first new concept in the US in a decade. It is too early to say whether small-box will change the face of grocery retailing in the US, as this type of format caters to a very different shopping mode (high frequency/low spend), assortment (greater emphasis on fresh, private labels) and consequently calls for more frequent distribution.

As well as requiring relatively high investment, hypermarkets and superstores, despite being the backbone of many retailers’ strategies, are faced with a lack of available sites, increasingly prohibitive regulations, and a high degree of retail maturity in developed markets such as Western Europe and North America.

However, in the future, the channel will find more fertile grounds for growth in the developing markets of Asia and Latin America. Retail giants such as Auchan, Tesco, Carrefour and Wal-Mart still want to expand their hypermarket presence in markets such as China.

That said, the fact that such retailers are experimenting with smaller formats in these regions (eg, Tesco Express and Wal-Mart’s Smart Choice) suggests they are already planning for the increasing saturation in the large store sector in the emerging markets.

Indeed, internationalisation will continue to be a key trend, with the world’s largest grocers continuing (and in some cases increasing) their investment and commitment overseas. For many, such as Tesco and Carrefour, reducing their reliance on saturated home markets is part of a long-term strategy that will involve them looking beyond the present economic climate to years, if not decades, ahead.

With this in mind, markets such as India – where market entry by the world’s largest retailers is imminent – and Vietnam assume an even greater importance.

Multichannel, single-brand

Another key trend is the move towards multichannel/single brand. Carrefour’s conversion of its French store base to trade under the eponymous Carrefour name should help to strengthen the brand and create buying synergies across its supply chain and via its marketing campaigns. The retailer’s recent announcement that it is to replace its existing No. 1 economy private-label range with the new Carrefour Discount brand is all part of this approach. It is likely that future conversions will occur – particularly in Europe, where operating multiple formats is commonplace.

Private labels set for renewed focus

Against a background of tightening consumer spending, private labels are set for strong growth in almost all markets and for virtually all retailers.

Like discounters, the growth of private labels is nothing new. However, as economies weaken and consumer confidence dips, we are seeing accelerated growth in this arena. The trend is not just confined to the more mature markets either. While private label penetration is presently lower in emerging markets such as India, Brazil and Mexico, these countries are poised for the fastest growth in the coming years.

Also worth highlighting is the sophisticated positioning of own-label products emerging from some retailers, much to the dismay of many brand manufacturers. Retailers are cherry-picking consumers at both ends of the market by developing their economy ranges as well as premium lines.

One such example of a shift in strategy is Tesco’s new Discounter brand. Representing a shift away from the traditional three-tier strategy, Tesco is launching its first labels without the Tesco brand in order to fight German discounters Aldi and Lidl.

The growth of private labels represents a huge threat to the brands that have to compete, not just in terms of price but also for less shelf and promotional space.

With this in mind, Wal-Mart’s recently revamped, expanded and relaunched Great Value private label offering is sure to send a shiver down the backs of both major food and drink manufacturers and competing retailers in the US. With price differentials of up to 20 per cent over national brands and with a stylish new look, this might be the most significant makeover in the US retail sector in recent years, with significant long term impacts.

Is price here to stay?

The big question is what will the retail landscape look like when economic conditions improve? Certainly, some trends such as internationalisation will remain as important as ever as retailers are looking at the long-term picture in such cases.

But, what of the current popularity of discounters and private labels? In both cases, evidence suggests they will continue to grow – albeit at much lower levels than what we are seeing at present.

The past two decades have seen ongoing growth of discounting and private labels globally, even when economic conditions have improved. With many consumers stepping foot inside a discount store or switching from a brand to a cheaper private label for the first time, such recently formed shopping habits may prove to be difficult to break.

Robert Gregory is retail analyst at Planet Retail.

Costco, which will charge as much $60 in annual membership fees to Australian customers, will open its Melbourne outlet Aug. 17 with a 14,000 square meter (151,000 square feet) store, almost three times the size of typical supermarkets.

”We operate with low margins and with our membership fees, we can sustain low margins,” Australian Managing Director Patrick Noone said in an interview. ”Lower prices are important because people shop with us to get value.”

The Melbourne outlet, located in Docklands on the fringe of the central business district, will be followed by a store in Sydney’s western suburbs before Costco looks at more openings in the nation of almost 22 million. The Washington-based retailer enters a market where Woolworths and Wesfarmers’ Coles unit control almost three-quarters of retail grocery sales.

”We’ll have to see a competitive response from Coles and
Woolworths,” said Saxon Nicholls, at Herschel Asset Management in Melbourne. ”The Australian retailers already have substantial scale in the market and it will depend on Costco getting its own scale in Australia.”

Fundamental difference

Costco’s impact on rivals may extend beyond any market share it wins, with the company’s practice of pricing goods as much as 15 per cent below rivals likely to influence perceptions of value, according to analysts at Macquarie Group.

”Membership fees allow Costco to operate at low margins and are a fundamental difference in the business model,” Macquarie said in a July 7 note to clients. ”All other retailers of like products could be forced to price within these bounds depending on consumer response to Costco.”

Noone, an Australian who has worked for Costco for two decades, said the size of the Australian network will depend on the success of the first two outlets, with the company typically targeting a ratio of one store per 500,000 people.

”It all depends on how well we do what we say we are going to in Australia,” Noone said. ”When I was in Canada we started building warehouses to that ratio but when I left our brand name was such that we could build to 200,000 or 300,000 people and have a successful store.”

Vegemite, not peanut butter

The Australian outlets will carry about 3,800 product lines, compared with 27,000 in some Coles outlets, with some variation for local tastes. Instead of bulk packages of peanut butter popular in the US, Costco may stock items such as large sizes of Vegemite.

While both Coles and Woolworths trial hardwood floors, redesigned fresh produce sections and new shelving in their supermarkets, Costco maintains its warehouse design with concrete floors, exposed light fittings and inventory stacked on wooden pallets.

The Australian unit has no plans to sell coffins, as some of its US outlets do, although Noone expects the product range to evolve as Costco gains acceptance from consumers.

”If we can get good volume we will stock it and sell it,” Noone said. ”We look at areas we can show great value and that is why we sell diamonds and liquor and candy and all the other things.”