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Top 10 food retailers including Aditya Birla Retail, Bharti Retail, Spencer's, Metro Cash and Carry and others have accumulated losses worth Rs 13,000 crore in the last financial year, said a new study.
According to a report released by Crisil Research, the losses accounted for 40% of organized food retail revenues at around Rs 23,500 crore last fiscal.
However, There is a good news for food retailers. Crisil expect half of the top 10 food retailers to become profitable by 2017. Crisil expects that gestation losses to peak out to at Rs. 17,000 crore by 2017.
Kolkata-based Spencer's Retail said it is looking to break even in the next couple of quarters while Shoppers Stop led Hypercity is looking at Ebitda level break even in the current financial year and net profit level in FY 2016.
"To stanch the bleeding, retailers have undertaken several initiatives, but these will yield results only gradually. What will also keep these retailers going is the backing of intrepid promoters ready to add skin to the game because they see immense potential in India," Crisil said.
Weaning away customers from kirana stores, price sensitive customers and low margins in the food and grocery business are said to be the major challenges for food retailers, Crisil said.
Arvind Singhal, chairman of Technopak Advisors believes the Indian retailers are yet to find a right formula for growth and profitability.
"Indian promoters have wherewithal to sustain losses but the real question is whether they have inclination to sustain these losses or put the money to something else?" Singhal said.
Singhal did not believe that most retailers will be able to break even by 2017 given that problems such as real estate costs, supply chain issues and challenges from e-comemrce players will continue to plague them in the next two-three years.
"Till their model is correct operationally, what will happen to their profits is anybody's guess," he said.
Crisil said the revenues of organized food retail have grown nearly eight times from Rs 3000 crore in 2008 to Rs 23,500 crore in 2014.
Kumar Rajagopalan, chief executive of Retailers Association of India, a body of retailers, said many laws such as non availability of Goods and services tax (GST) for packaged goods and compulsory buying through Agriculture Produce Marketing Committees (APMC) have to be changed for retailers to become profitable.
