Who would have thought steel could be sold from retail shops as small as your roadside kirana? Well, not only has the model succeeded, but steel makers want to sell 30-40 per cent of their production through the retail route. Essar, JSW and Ispat Industries are among the major manufacturers who’re more than doubling their steel retail stores.
In India, demand and growth for steel makers is coming from tier-2 and tier-3 cities, so most steel retail chains are being opened in smaller cities.
Essar Steel, on its way to become a 10 million tonne per year (mtpa) maker by next year, has already made its presence felt through Essar Hypermart, its retail chain. The company, a pioneer in the concept in India, has 105 Hypermarts, company-owned. And, 449 Expressmarts, the franchise model.
Better reach
Girish Rao, chief executive officer, Essar Hypermart, told Business Standard, "Sales from these Hypermarts were a key factor in sustaining us during the trying times of the economic slowdown.” He says the idea to reach to the small customers who cannot reach you. “The SME (small and medium enterprises) and M (micro and) SME players were finding it very difficult to get steel in small sizes. That is why we devised this retail concept and reached to the customers in their towns with the quantity that they desired.”
He goes on to say that from the total capacity of 4.6 million tonnes of Essar sales last year, a third was sold from the retail route. The company will be a 10-mtpa steel company next year and Hypermarts are ready to soak up more sales. He said, “The strategy is to sell one-third of Essar steel through retail and Hypermarts will sell over 3 mt steel per year.” Adding: “As a concept, it is hugely successful and helps us to mitigate the risk; through the retail chain, we are now catering to over 10,000 clients.”
And, not only in India. Essar is gearing to tap the Saarc countries and the Gulf Cooperation Council region for its retail business. The company has opened Essar Hypermart in Dubai, Sri Lanka and Indonesia. Rao said, “It is interesting to note, but exporting steel to Dubai is cheaper than transporting it to Chennai.” The company plans to reach 775 retail stores by 2012 from 554 currently and a lot of these will come in the eastern part of India.
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Sharad Mahendra, vice president (sales and marketing), JSW Steel, said: “Tier-2 and tier-3 cities continue to be our focus and our sales number through Shoppes (their retail arm) are a clear indication of the demand that these cities are generating." By March 2011, the company expects to reach 300-350 Shoppes.
The company, soon to be a 11-mtpa maker, has 218 Shoppes and has ambitious plans to reach 600 Shoppes by 2012. It said, “The number of JSW Shoppe outlets went up from 50 in 2008-09 to 174 as on March 2010, with Shoppe sales up by 114 per cent to 0.64 million tonnes. Retail sales for 2009-10, through JSW Shoppe, accounted for 16 per cent of domestic sales, as compared to 14 per cent as on March 31, 2009, excluding semis.”
For 2010-11, JSW believes the Shoppes would contribute around 17 per cent of total sales. “Ultimately, the objective is to reach sales and volumes of 25-30 per cent,” Mahendra said.
He said, “The per capita (yearly) consumption of steel in rural India is 2-2.5 kg, whereas the national average is 48 kg. Even if we target a 10 kg per capita increase in rural steel consumption, the consumption will go up by eight million tonnes for the 70 per cent of our population that lives in rural India. That is where the focus is.”
Ispat Industries, with its 110 retail outlets, is now focusing on expanding its retail presence. Vinod Garg, executive director (commercial), Ispat Industries, said, “We are expanding the retail chain and plan to reach 200 (outlets) by the end of the current financial year and 300 by 2012.”
Garg, too, believes that steel has to be made available near the consumption point and that happens to be the rural and semi-urban cities. "We have a target of putting a retail store in every district and town of India," he said.
Ispat has a 3-mtpa capacity and plans to sell 40 per cent of its total production through the retail stores. Currently, its retail sales are 20 per cent of the total. Garg said the retail chains helped to reach a wider range of customers.
Other methods
However, Tata Steel, India's second largest steelmaker, disagrees with the retail model. Prabhat Kumar, its chief sales manager (flat products), north, on the sidelines of a steel conference in Mumbai told Business Standard, “Our strategy is not to have branded retail outlets. We are more focused on building a dedicated distributor base. Each geography or territory is assigned to a particular distributor, who has his own network of retail chains in smaller towns.”
This, he said, gave Tata Steel flexibility, as “the company doesn't have to set up its own stores and, therefore, doesn't add to the cost.”
Kumar says the distributor model helps the company better its reach and service the customer better. “Each model has its own set of advantages and we have a unique approach,” he says.