India puts squeeze on hypermarkets

Despite the challenges, it is forecast that sales at the massive outlets will continue to grow.

K Radhakrishnan, left, the chief executive of Reliance Retail, addresses the India Retail Forum in Mumbai yesterday.

MUMBAI // With nearly a billion potential customers, India is a retailer's dream and hypermarkets ambitiously expanded to court them. The number of hypermarkets in the country more than doubled as 144 opened last year, according to the research firm Euromonitor. As well, 3,000 supermarkets opened, bringing the total to 6,800, it said.

But K Radhakrishnan, the chief executive of Reliance Retail, said he and others had found that big-box stores may not work in the highly-populated country as well it did elsewhere. "Indian cities are so crowded and clustered that it's not possible to travel across a city to do your shopping," said Mr Radhakrishnan on the sidelines of the India Retail Forum in Mumbai. "Therefore, the paradigm of hypermarkets in India is questionable. People coming to India will have the same problem."

Reliance Retail had originally planned 1,000 stores by 2012, but had revised that target to double its current 40 stores every year, Mr Radhakrishnan said. Despite those challenges, hypermarket sales in the world's second-most populous country are expected to grow by more than five times between last year and 2013, while supermarkets expect to see a sales increase of nearly 150 per cent in the same period, according to Euromonitor. Last year, hypermarket sales grew by 135 per cent to 94.3 billion rupees (Dh7.13bn). Supermarkets reported that sales grew by 108 per cent last year to 156.6bn rupees.

Those numbers have lured retail giants such as Walmart and Tesco to enter joint ventures with local companies to snap up consumers and market share. UAE retailers, such as Landmark Group and Emke, which runs Lulu Supermarkets, are also expanding into the country. But they have learnt from their Indian counterparts' experience and are taking a more measured approach. V Nandakumar, the corporate communications manager for Emke, said the company was opening a 204,386 square metre mall in Kochi to establish its first hypermarket. Emke will evaluate the performance of that operation before extending the concept into Kerala and other parts of India, he said.

"Unlike others who announced huge numbers of stores and failed to open them, we will be cautious," he said in Abu Dhabi. Another reason the quickly expanding stores were finding success more difficult was that their rapid pace left little time to train staff or establish a clear supply chain to ship all the goods, said Paul Martin, the business development director of the UK-based consultancy Planet Retail.

Also, large hypermarkets were expensive to set up because real estate developers were charging incredibly high rents for the space, he added. Renuka Jagtiani, the chief executive of Landmark Group, said that fully exploiting the potential of India's retail environment would take a little bit of time. "But it's coming, and it's coming in a big way," she said during an interview in Dubai. "I mean, you've got from Carrefour to Walmart to Tesco, SPAR with us, everyone understanding that this market is one they should take very seriously and grow."

Landmark opened its first SPAR hypermarket, a joint venture with SPAR International, in India at the end of 2007 and now has three stores there. It will open another four hypermarkets in the country by next March, she said, but they have reduced the size of their stores to suit the market. Despite the difficulties of SPAR's competitors, Ms Jagtiani said she was optimistic about the sector's future.

"They're not profitable yet," she said. "Are they doing well? Yes, we can see very positive growth, we see a positive trend. And we're very optimistic about the way they're going. We feel that there is definitely a future in it." @Email:[e-mail]