Retail chain to close down 40 out of its 43 stores in and around Mumbai.
Foodland Fresh, a chain of retail outlets promoted by Raju Shete, is closing down all its unprofitable stores across Mumbai and its suburbs as a pilot venture found the stores falling short of expectations on many key parameters, said an official.
Foodland had 43 stores in and around Mumbai and has decided to retain only three of its profitable stores. It has either closed or is in the process of closing them down, and has put notices in many of its stores saying it is closing down.
Food and grocery retailers are struggling with their business models with many like Subhiksha are under severe strain, while others are shutting down their stores to contain losses. They have been bogged down by high rents, waste and theft, and competition from mom and pop stores who understand customers better.
"Our learning through the pilot venture is that in food and grocery, organised retail is still finding its feet while the unorganised sector seems to be doing well till now," said Ivan Rodrigues, vice-president, marketing & formats, Radhakrishna Foodland.
Shete, who also has a wholesale trading, distribution and logistics business that serves clients such as McDonalds and Subway through a chain of warehouses across the country, expanded in retail in 2005 to ride on this back-end infrastructure.
After a brief association with South African retailer SPAR, he decided to pilot a retail venture through a master franchisee, which operated the neighbourhood food and grocery stores, under the ‘Foodland Fresh’ brand name.
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The franchisee, Radhakrishna Consumer Services, is a privately-held venture of Shete. In its pilot phase, Foodland had restricted its stores to Mumbai and its suburbs rather than going for an all-India roll out.
Though Foodland built a good customer franchise with its offering of fresh non-vegetarian fare and bakery and fresh meals, the stores fell short of expectations on key performance parameters such as sales, break-even or return on investments.
This led Shete to pull the plug on its retail venture and focus his limited resources on his wholesale trading, distribution and logistics business. The three Foodland stores he’s retaining are in Juhu, Bombay Gymkhana and Napean Sea Road.
"We will continue to support these stores and other independent retailers. That’s where we see the opportunity," said Rodrigues. Interestingly, Shete is a pioneer in organised retail with his first store in Juhu starting way back in 1988. At one point, Foodland had the largest number of food and grocery outlets in the city.
Food and grocery retailers have been bogged down by high rents, which on an average is 5-6 per cent of sales, while experts feel it should be no more than 3 per cent. In the US, the rents are 1.5-2 per cent though manpower costs are high.
Similarly, the WET (waste, error and theft) in India as a percentage of sales is 2.5-3 per cent as against 0.25 per cent in developed markets. "You don’t have a business as your net margins are only 2 per cent," said an industry expert.
And finally, retailers have a long way to go in understanding customers, which can change vastly from one area (geography) to another. In Foodland Juhu, for instance, the sale of olive oil is more than all other edible oils put together.
Within Thane, Foodland sold non-vegetarian fare in one store while it didn’t sell the same in another store three kilometres away as customers in the catchment were predominantly vegetarian.
In some areas, customers are very conservative.
"It’s not just SEC A & B. You have to super-impose consumer habit. You need to tweak the merchandise day in and day out. The kiranas know the double-income-no-kids couple, the ageing population or the kid who walks in for a chocolate," added a senior executive with a food and grocery retailer.
"The organised retail industry in India is still at the learning stage, and they have to understand the unit economics of the retail business model and the timeframe to make it profitable, replicable, scalable and sustainable," said Rodrigues.