Supermarket Sweep: How Foodworld Created A Revolution

Mark Nicholson finds out how one company went about inventing a market

Pristine tiled floors, trolleys, piped music, checkouts with infra-red scanners, cheerful sales staff, shelves neatly stacked with everything from food to toiletries: there is nothing extraordinary about FoodWorld supermarket, except that it is in Bangalore, south India - where it represents a retailing revolution.

Supermarkets do not otherwise exist in India. Food shopping is done at roadside markets - usually collections of cramped stores or simple stalls heaped with fruit, vegetables, tins and packets.

FoodWorld in Bangalore is one of nine supermarkets run by RPG, one of Indias biggest family conglomerates. The chain, just over a year old, has already outstripped RPGs revenue projections.

 

The Bangalore store turns over about $650 per sq ft per year, which is lower than the largest European supermarkets but extraordinary for India, where food prices and wages are much lower.

Small wonder that Dutch and British food retailers have recently been sniffing around for opportunities.

RPG, based in Calcutta, is already talking about opening 100 stores in the next five or so years. It has begun a smaller chain of chemists, and is contemplating setting up cash-and-carry stores outside big city centres. It is even thinking of establishing Indias first music megastore.

RPG expects its supermarket chain to achieve a turnover of $500m a year in five years. The conglomerate currently turns over $1.5bn, with interests ranging from power generation and tyres to financial services and telecommunications.

The move into food retailing started with the purchase in 1989 of Madras-based Spencers - a quality but lossmaking retailer that made its name supplying imported luxuries to the sahibs and memsahibs of the Raj.

RPG bought Spencers primarily for its properties - it had 50 branches across India - and at first considered closing it down.

However, the board was persuaded to modernise one Spencers store in Bangalore. In the first month turnover went up four times, says Pradipta Mohapatra, president of RPGs retail group. That really got us thinking.

Over the next two years, RPG experimented with various store formats. Meanwhile, a review of corporate strategy by McKinsey & Company, the consultants, suggested that retailing in India, with its emergent middle class, offered a tempting sector. RPG took Dairy Farm on as technical advisers. The Hong Kong-based retail giant with interests from the UK to New Zealand has the option of taking a 50 per cent stake in the company.

Dairy Farm advised RPG on which merchandise to select, which lines to establish as the stores central items, and which international retailing benchmarks to apply to India. But even with Dairy Farms Asian experience, says Mohapatra, almost every aspect of establishing the business had to be considered from scratch.

There was also the question of how to persuade Indian shoppers to desert their trusted family stores and take to western-style supermarket shopping. All previous attempts to set up supermarket chains in India had failed dismally.

RPG decided that while thrifty Indian shoppers might be deterred by the ritziness of a western-standard supermarket, the company would nevertheless insist on creating a highly differentiated store, but place effort on persuading shoppers that FoodWorld prices were as cheap as anywhere.

To get shoppers into the store, RPG cooked up a series of marketing gimmicks.

New stores open with a treasure hunt, where specially marked and free items are hidden across the shop.

Stores also offer two-minute shopping frenzies, where after paying Rs 300, customers are free to stuff anything they want into their trolleys.

Meanwhile, the store has also introduced its own brands for bulk goods like flour, sugar and spices - another innovation in India.

The aim is to give RPG greater control over prices and more clout with its suppliers.

In some areas we are beginning to build volumes, and when we do, we have a chance to crack the supply chain. Where Spencers used to sell 2 million tonnes of rice a month, for instance, FoodWorld is already selling 100 million tonnes, says Mohapatra.

By purchasing direct from the miller, RPG estimates it has raised its margin on rice from 10-30 per cent, half of which is passed on to the shopper.

The company had to recruit and train staff - there is no pool of shopworkers in India. It created the National Institute of Retailing, with a curriculum in store maintenance, use of cash registers, presentation and customer services.

With nine stores open, and a tenth on the way within weeks (each is around 5,000 sq ft and requires an average investment of some Rs 10 million), FoodWorld is already turning over Rs 600 million a year.

The group says it is hitting average margins of 18 per cent, which it had not expected to reach until the fourth year.

Overall, were getting into a viable position only 15 months after opening our first store. We expected this would take at least three years, says Mohapatra.