Number of modern food & grocery stores dip on rising rentals, power costs & online rivals

NEW DELHI: Western-style food and grocery stores have shrunk in India, with outlets shutting down and expansion virtually put on hold. Net closures last year were estimated at about 180 stores amid steep rentals, power and manpower costs, and competition from online retailers, according to internal data of a leading consumer goods multinational.

“What has been happening is ecommerce firms like Flipkart and Amazon are giving stiff competition to organised retail trade on ‘big days’ such as August 15, January 26, or long-holiday weekends. The incentive to go out and shop for grocery on such ‘big discount days’ is being capitalised by e-commerce sites selling on discounts across categories, which is impacting organised trade,” said Sidharth Singh, executive V-P of sales at GlaxoSmithKline Consumer Healthcare, the maker of Horlicks milk drink and Sensodyne toothpaste.

Even though online retailers sell a negligible percentage of food and grocery items, they aggressively discount apparel, home products and other general merchandise, which bring down the margins for brick-and-mortar stores, hurting their overall profitability.

The chief executive of another large consumer multinational firm said its data showed that organised retailers in India closed hundreds of outlets last year alone, although he did not have figures for how many were added or relocated during that period.

“Our data says we have stopped supplying to about 450 modern stores — big and small in both metros and smaller cities — in 2014 on account of their closure,” the person said, asking not to be identified because of the sensitivity of the matter.

Moving to Fashion and Home Products

Consumer companies and retail analysts say it is becoming increasingly difficult to sustain business and grow amid rising costs, heavy discounting and online competition. While Reliance Retail added 930 stores in 2014-15 for a total of 2,691, the number of value format stores (food and grocery) dropped to 616 in March from 718 a year earlier, according to a company presentation. Spencer’s Retail said it shut five outlets in the past year and currently operates 123 small and large stores.

The Future Group said it added about 20 Big Bazaar stores in the financial year ended March. While the Aditya Birla Group has not shut any stores in the past three years, it is “expanding cautiously,” said Pranab Barua, business director for retail. The overall FMCG industry grew 7% in value terms in 2014, with its business from modern trade – stores such as supermarkets – growing 5%.

“Modern trade needs to contribute a lot more to industry sales to fuel growth. Besides regular industry issues like costs, policy regulation is also a roadblock,” said Varun Berry, managing director of biscuit-maker Britannia.