Regional Retailers Come Of Age

SUPRIYA HEGDE HAS BEEN a regular at the iconic Bangalore Club for over a decade. The interior designer meets clients there, works out in the gym and, on her way out, even does a bit of grocery shopping at Ratnadeep Retail store on club premises. The Hyderabad-headquartered grocery chain, which set up a 6,000 sq.ft. store there a couple of years ago, is a favourite among club members.

Hegde is particularly fond of vegetables and fruits at the store. “They are fresh. I even like local masalas and pickles under their own brand.” Why does Hegde prefer Ratnadeep and not Reliance Smart or BigBasket, which offer attractive discounts? “I buy monthly groceries from BigBasket but for vegetables, dairy products or lasagne sheets, Ratnadeep or Namdhari are my go-to stores. They are well-stocked, sell fresh stuff and are close to my neighbourhood,” she says.

The $110-billion organised retail industry — 12-15% of the overall retail pie— has been on a roll. It grew 25-30% in FY23 and is expected to touch $230 billion by 2030 with major growth coming from hinterland. That’s why retail biggies such as Reliance Retail, Aditya Birla Retail and Tata Group have made aggressive entry into the country’s interiors over past few years. But does this mean they are taking centre stage in regional markets, too?

Far from it. Almost every region has a local retailer which is countering the biggies across categories. Be it grocery retailers Ratnadeep and Vijetha or apparel retailer Sai Kalamandir in Andhra Pradesh and Telangana, Sangeetha Mobiles and Girias (electronics and appliances) in Karnataka, fashion player Kapsons in Punjab, Uttarakhand Jammu & Kashmir, Jalan’s Retail (hypermarket) in Northern UP or Sohum (multi-brand luxury) in Assam, regional retailers are often leaders in their segments. Most clock revenues of ₹250 crore-plus. They’ve built their reputation with one-two stores, sometimes over decades, and are now going deeper into their home state or adjacent states. Their greatest advantage is that they understand local consumers well.

Ratnadeep, in business since 1987, had 50 stores in Telangana and Andhra until 2017. By 2019, it had 100 stores. Today, it has 140, in Telangana, Andhra Pradesh and Karnataka. The ₹1,356 crore revenue Sai Silk Kalamandir, from Hyderabad, sells saris and apparel across four formats — Kalamandir, Mandir, Vara Mahalakshmi and KLM — at 54 stores in Telangana, Andhra, Tamil Nadu and Karnataka. It had 38 stores in 2019.

Kapsons has 25 stores in Punjab, Haryana, Uttarakhand and Jammu, up from 20 in 2019. Eastern UP’s favourite is ₹350-crore Jalan’s Retail, a hypermarket chain (fashion, home and grocery), while west India has JadeBlue Retail, a ₹350-crore menswear player that has 67 stores (two formats, JadeBlue and Greenfibre) in Gujarat, Rajasthan, Madhya Pradesh and Maharashtra. Just before the pandemic, JadeBlue had 59 stores. However, between 2020 and 2021, the retail company put a stop on store expansions. It restarted expansion in 2022.

So, what has triggered the sudden rise of regional retail chains? A section of the industry believes closing down of Kishore Biyani-led Future Group (which had over 300 stores) created a vacuum that was filled by the regional players. But others point out that many of these brands already had 15-20 stores in 2017-2018 (when Future Group troubles emerged) when they started expanding in earnest. The plans got stalled during Covid-19 but have gathered steam in past one year.

Interestingly, unlike the national chains, which often struggle to turn in a profit, regional retailers are profitable. Since all of them are self-funded, per store profitability is important. Their revenue per sq.ft. is 15-20% higher than what national peers earn (₹3,500 per sq.ft). “Our expansion is funded by profits from existing stores. We don’t take funding from private equity funds. Therefore, profit at store level is extremely important for us,” says Bhagirath Jalan, MD, Jalan’s Retail.

Regional retailers are tough competitors to national players, says Rishav Jain, MD, Alvarez & Marsal. He cites consumer durable retailers such as Girias and Pai in Bangalore and Bajaj Electronics in Andhra and Telangana. “They are competing with national retailers. In fact, their (regional) market shares are higher than that of national brands. Their promoters take daily decisions on schemes and discounts. They have a local following, know their consumer and actively ensure good after-sales service.”

“Regional retailers are closer to the market and so more customer-centric. Flexibility in decision-making is also better in a smaller set-up. Regional retailers also have a much better control over costs,” says Anand Ramanathan, partner, Deloitte India. It’s clear that regional chains have done well. And credit, at least a big part of it, goes to the younger generation.

The Take-Off

Until not so long ago, many of these retailers were happy with limited presence in their cities. This changed when next generation, armed with professional degrees, joined the business. Bhagirath Jalan of Varanasi-headquartered Jalan’s Retail, for instance, is a third-generation entrepreneur. His grandfather was a fabrics wholesaler. His father opened Jalan’s Retail store in Varanasi in 1980s. Bhagirath, after completing his Masters in U.S., joined Future Group to learn organised retailing before joining Jalan’s Retail in 2011. Jitendra Chauhan, MD of JadeBlue in Ahmedabad, comes from a family of tailors. A fan of Future Group’s first retail format, Pantaloons (now part of Aditya Birla Fashion Retail), Chauhan converted his 600 sq.ft. tailoring unit into a sprawling branded menswear store, JadeBlue, in 1995. His children have joined the business after studying in universities abroad.

The timing was perfect. Just before Covid-19, as the younger generation settled, consumption was starting to boom. The average Indian was becoming more aspirational. He/she was abreast of latest trends, thanks to social media. Biggies, too, started expanding beyond top 50 cities. The next generation of regional retailers didn’t want to miss out. They modernised but not at the cost of profits. “Regional retailers have always been simple in the way they grow,” says Bijou Kurien, chairman, Retailers Association of India (RAI). To begin with, most don’t have national aspirations, at least in the short to medium term. They are expanding only into adjacent geographies. “In short to medium term, penetrating southern India is important for us. For instance, in Telangana, most of our stores are in Hyderabad. Tier-II in Telangana is largely unexplored. Similarly, in Bangalore, I have nine stores, but rest of Karnataka is free for us to explore. We have four stores in Tamil Nadu where per capita consumption of saris is equal to Andhra and Telangana put together. Even if we open 100-120 stores in next six years, they will be enough just for South India,” says Bharadwaj Rachamadugu, vice president and second-generation entrepreneur at Hyderabad-headquartered ₹1,350 crore Sai Silks Kalamandir. The retailer, which started in Hyderabad with a 3,000 sq. ft. sari store in 2005, has over six lakh sq. ft. retail space today, but only in southern India. Similarly, Chauhan of Ahmedabad-headquartered JadeBlue Retail has 66 stores in western India. It’s following a cluster approach, penetrating markets it understands and then expanding into adjoining geographies. None of the stores are more than 6,000-7000 sq.ft. “The average is 3,500-4,000 sq. ft. In smaller towns such as Jamnagar, it is less than 1,200 sq. ft. I don’t have that kind of capital to burn,” he says. Chauhan, who hails from a family of tailors who made custom-made apparel for men, is focusing on menswear. “Women’s wear is a complex category and I don’t understand that well. I have focused on ethnic, western formals and casuals for men,” he says.

Most regional retailers also prefer to own their space as it is more cost efficient than following the rental model. This impedes growth, but for them, profitability is non-negotiable. They also prefer high streets and not malls due to 15-20% lower rentals. “Malls give walk-ins but rentals are too high. Big brands get revenue sharing deals in malls but we don’t as our margins are much lower,” says Chauhan of JadeBlue.

“We follow rental model in a few places but negotiate (with property owners) better as we are local. A national retailer in Delhi or Mumbai would find ₹100 per sq. ft. rental in Prayagraj low but we know we can get ₹65 per sq. ft. We can never compete with national retailers in economies of scale but the pie is increasing and there is something for everyone,” says Jalan of Jalan’s Retail.

The cluster approach, says Rachamadugu of Kalamandir, has helped the company manage warehousing and administrative costs and ensure that the stores are well-stocked. “Since we follow a cluster model, the cost of shifting goods from point A to B is low.”

Though regional players have managed to keep costs low, standing out in a crowded market and competing with big adversaries has not been easy.

Making Space In Grocery

Discounting by modern grocery stores and e-commerce players is a given. D’Mart started the trend. The likes of Reliance, Star Bazaar and BigBasket followed. The aim was differentiation as grocery category largely depends on leading FMCG brands which are available almost everywhere. For example, neighbourhood kirana store sells the same Maggi noodles as a modern retail store. The latter, therefore, uses discounting to attract consumers. Almost all regional grocery retailers, however, don’t offer discounts. They sell at MRP. Ratnadeep, Vijetha and Namdhari have multiple formats — regular supermarket, gourmet and express stores in neighbourhood. Their compact format (6,000-12,000 sq. ft.) gives them better revenues per sq. ft.

Regional players also sell fresh (food items) and focus on creating regional offerings under their own labels for differentiation. They source directly from nearby farmers, expanding margins further. “If there is a local festival, they will keep the relevant assortment,” says Ramanthan of Deloitte. “We are focused on serving customers primarily in Telugu-speaking states of Telangana and Andhra Pradesh. This has allowed us to understand preferences of our target market, which helps us create tailored offerings and enhanced customer experiences,” says Sandeep Krishan, director, Vijetha Supermarkets. The `600-odd crore grocery retail chain, which started from Chandanagar near Hyderabad in 1999, has over 100 stores selling over 25,000 products. “We have direct relationships with local farmers, producers and suppliers as a result of which we are able to provide fresh merchandise at reduced costs. We have the ability to offer unique or niche products that cater to local preferences,” he adds.

Almost 30% sales of Bangalore-headquartered grocery retail chain Namdhari come from fruits and vegetables (its 8-10% in case of Reliance Retail). “That’s why we can work on better margins. Our assortment of fruits and vegetables is differentiated. For example, we have four different types of tomatoes, four or five varieties of chillies, and so on,” says Gurmukh Roopra, CEO, Namdhari Group. Namdhari has 27 stores in Bangalore and recently forayed into Hyderabad. Unlike national retailers, it has focused on premium positioning to earn higher margins. Almost 35% of its assortments are international.

The 24-store Modern Bazaar (present in NCR, Chandigarh and Jaipur), which gave Delhi the first modern retail experience back in '70s, offers gourmet food for differentiation. International products account for 10% assortments. The mainstay is the in-house bakery. “The bakery has been a game changer and a big draw,” says Kunaal Kumar, CEO and MD, Modern Bazaar.

RAI’s Kurien believes local grocery chains have done a better job than national peers. “Enabling them are shop-tech companies which have smartened their point of sales and helped them digitise,” he says.

Apparel: Profitability Mantra

Regional apparel retailers are going premium to stand out from the crowd. Kapsons only sells premium brands such as Tommy Hilfiger, GAS, Calvin Klein, Superdry and Gant in Chandigarh, Amritsar, Ludhiana, Dehradun, Jammu and Srinagar. Its fiercest competitor is Reliance’s premium retail brand, White Crow. Kapoor, however, is undeterred. “Just our banners create excitement. We do not require even high streets to pull in customers. Our stores are profitable even in towns like Patiala, Bathinda and Rohtak.”

Kapoor has not built a private label to improve margins because of limited understanding of the business of private brands. However, Chauhan of JadeBlue has, besides focusing on premium brands, also given premium positioning to his own label, JadeBlue. The label, priced upwards of ₹1,800, accounts for over 44% revenues. “Had I focused only on outside brands, I wouldn’t have been able to expand as much. My brand gives me 50% higher margins. Outside brands give 25-30%,” says Chauhan, who recently opened a couple of JadeBlue exclusive outlets. It has 66 stores in western India, of which 33 are Greenfibre, a value offering priced ₹1,000-1,200. “The idea is to straddle price points in the menswear segment,” he says.

However, Jalan of Jalan’s Retail says premiumisation does not help in profitability. He says the company’s motto since his grandfather’s days has been to sell below MRP. “We put posters at our stores asking people to let us know if they find merchandise cheaper outside. Higher stock productivity, the margin to stock rotation ratio, gives higher profits. When we had stores only in Varanasi, we were carrying stocks for only 30-40 days. Today, with seven stores in five districts, we keep around 45 days’ stock. It doesn’t matter if we have low margins.” Jalan says they maintain inventory efficiency by ordering stock once every month and not quarterly. “We tell brands we will give them this much sales in a year but order monthly. Through this we end up having higher selling SKUs (stock keeping units). And more importantly, our stock is fresh. Our per sq. ft revenue at ₹5,000 is much higher than what national peers earn (roughly 3,500 per sq. ft.).”

Tech-Enabled

Another game changer for regional chains has been technology. “Inventory transparency used to be a challenge because cost transparency didn’t exist. Now, due to GST, they have started making front-end transparent. The moment you make your front-end transparent, the back-end becomes transparent too. That has helped them create simpler businesses,” says Kurien of RAI.

“Technology is helping them compete with national players. They are able to look at data and understand what is unique. So, they stock accordingly and get more footfalls,” says Deloitte’s Ramanathan.

The retailers are using technology not as much to sell as to source better. Kalamandir, for instance, has its own ERP and point of sales systems as well as data analytics and machine learning tools. “Each product has a unique bar code with more than 25-30 attributes. Our systems give us data of highest selling products as well as colours and designs that do better than others. This helps our sourcing team,” says Rachamadugu.

After all, fashion tastes of consumers in Warangal would differ from those living in upmarket Banjara Hills, Hyderabad. The differences can be city and state specific too. “The Chennai consumer, irrespective of social standing, prefers Kanjeevarams. She is not too keen on Paithani or Bandhani. So, when a store is launched, we try to stock products according to market intelligence,” says Rachamadugu.

Even though online shopping for groceries has dipped after the pandemic, Roopra says Namdhari is using omni-channel sales as a differentiator. “Around 15% of our sales come from online. Though people have started coming to stores, they also expect the convenience of home delivery.”

There is another side to the battle. Though a number of regional retailers have proved their mettle, an equally large number have preferred selling to biggies such as Reliance Retail. Reliance recently acquired Hyderabad-based sari retailer Kalanikethan. It has also acquired Tamil Nadu-based grocery retail chain Jaisurya and Kerala’s Bismi. These chains sold out as they were unable to sustain. Reliance says it intends to retain their identity, brand name and assortments. “These are iconic businesses with loyal consumers. We don’t want to disturb that equilibrium,” says a Reliance Retail spokesperson.

Do regional retailers have a future? They certainly have the local advantage and if they continue to chase slow and steady growth within their own geography, they will surely give their national peers competition that the latter can’t afford to ignore.

With inputs by Gina Krishnan