Kamath, Business Standard
September 26, 2013
Aditya Birla Retail Ltd (ABRL), retail arm of the Aditya Birla
Group, had been eyeing break-even in 2012-13, the sixth year of
its operations. But that milestone remains elusive, with the retailer,
which runs hypermarkets and supermarkets under the More brand,
posting losses of Rs 510 crore last financial year, according
to disclosures made with the registrar of companies.
Though losses fell marginally from Rs 535 crore in 2011-12 and
net sales rose eight per cent to Rs 1,037 crore against Rs 962
crore in 2011-12, analysts say Mores focus on supermarkets
is delaying break-even. ABRL runs 513 supermarkets and 15 hypermarkets,
with an area of about two million sq ft across 60 cities.
Despite elusive profits, it has no plans to slow expansion. It
is considering launching six-eight hypermarkets and 40-50 supermarkets
every year. Pranab Barua, the groups business director (apparel
& retail business), says the retail chain has focused on profitable
growth and this has reduced operating losses about 30 per cent.
Some of the key factors that have impacted our profitability
include improvising our margins. Moreover, we have done considerable
work towards enhancing in-store consumer experiences in the business
and laying a solid foundation for strengthening our supply chain,
he says, adding More was already making profits at a network level
for both the formats.
More isnt alone in struggling for profits. Other retail
giants that entered the fray around the same time are also bleeding.
Spencers Retail, an RP-Sanjiv Goenka Group company, which
opened stores under the Spencers brand in 2006, recorded
a net loss of Rs 2,091 crore in 2012-13 against Rs 2,554 crore
in 2011-12. In the same period, Spencers sales rose to Rs
13,470 crore from Rs 12,063 crore. The company aims to record
Ebitda (earnings before interest, tax, depreciation and amortisation)
break-even in the third quarter of 2013-14. Sunil Mittals
Bharti Retail, which opened stores in February 2007, recorded
accumulated losses of Rs 1,522 crore in 2012. During 2012, revenue
rose to Rs 1,581 crore, against Rs 1,021 crore in 2011.
The only exception was Reliance Retail, which opened its first
store in October 2006, when the Birla group entered the retail
business. Reliance Retail posted profit before depreciation, interest
and tax (Pbdit) of Rs 78 crore in 2011-13. In the June quarter
of 2013-14, the chain became the largest retailer in the country,
with a revenue of Rs 3,474 crore and operating profit of Rs 70
crore, beating Kishore Biyanis Future Retail (revenue of
Rs 2,217 crore).
The Aditya Birla Group had made a big-bang retail foray, acquiring
172 store-strong South-based retail chain Trinethra Super Retail
in 2007. Though Birla had plans to set up 1,000 stores at an investment
of Rs 9,000 crore by 2010, the slowdown upset its calculations.
Left with unviable stores and dwindling sales, the chain shut
about 100 loss-making stores in 2009 and 2010, and an additional
40 last year. Barua defends this, saying the team was focused
on qualitative growth, not just quantitative growth.
Abneesh Roy, associate director (institutional equities and research),
Edelweiss Securities, says, Small neighbourhood stores in
organised retail have not done well. They are not able to compete
with kiranas. If you look at Reliance, they follow a different
model, where they are focusing on hypermarkets and cash-and-carry
retail players should look at hypermarkets and
cash-and-carry stores seriously.
A top executive of a large corporate group which competes with
Birla Retail, says I think they are finding it difficult
to see a turnaround with pure grocery play. The Pantaloons chain
they acquired is in a different basket. If you look at Reliance,
they have a combination of jewellery, durables, value, cash and
carry and others which is adding value.
Even if electronics and jewellery grow during festivals,
they will help in a big way, he said.
Devangshu Dutta, chief executive of Third Eyesight, a retail
consultant, says for the last 15 to 18 months, business
conditions were bad due to inflation, slow economy and other factors
which have led to poor consumer demand. This financial year will
also be tough. Secondly, retailers are also facing supply side
issues. Input costs of fuel, employees and other items have shot
up. When store level productivity is down, corporate level productivity
will also be down, Dutta adds.
Barua, however, is confident that ',more will see double-digit
growth this year too.