Inside an EasyDay outlet of Future Retail Ltd. (Source: Future Retail Presentation)

Retailers Push Smaller Stores As Clogged Roads Make Indians Travel-Wary

India’s largest retail chain Future Retail Ltd. is betting on smaller stores as expanding urban limits and clogged city roads mean people want to travel less to shop for staples.

Kishore Biyani-led Future Group, which runs Big Bazaar hypermarkets, targets to double the count of its EasyDay outlets to 1,000 this financial year, and then raise it four-fold over the next three years, according to a presentation filed to exchanges. EasyDay outlets, modelled on neighbourhood kirana stores, are nearly a tenth in size of an average Big Bazaar store of 30,000-40,000 square feet.

Biyani is not alone. Trent Hypermarket Pvt., a Tata Group company that operates Star Bazaar hypermarkets, also plans to increase its store count five-fold to 200 over the next three years, and most of its new outlets will be smaller supermarkets. This comes even as global retail behemoths like Wal-Mart Stores Inc. await easier foreign investment norms for multi-brand retail to enter India’s $1.3-trillion household consumption market.

Given the pressure on infrastructure that urban centres are facing, people are finding it extremely tedious to travel, Jamshed Daboo, managing director at Trent Hypermarkets, recently told BloombergQuint.

When you want to go closer to customers, you want to have more stores with limited size (rather) than large stores which are far away. 
Jamshed Daboo, Managing Director, Trent Hypermarkets

Travel time by road in metros like Mumbai, Delhi and Bengaluru has more than doubled in the last decade, the Future Retail presentation said citing industry research. It has grown in line with the number of passenger vehicles sold every year, which has doubled to 3 million units over the last decade, according to data from Society of Indian Automobile Manufacturers.

Nearly a third of Indians live in urban areas and city limits have been growing. Infrastructure has not kept pace, and big cities like Mumbai, Bangalore, and Chennai are now building metro rails to take the load off roads.

Cab-aggregators Ola and Uber have only added to the traffic, said Dhanraj Bhagat, retail partner at consultancy Grant Thornton India LLP. “Increasing travel time is one of the reasons customers are choosing to shop closer home rather than go to a hypermarket,” he said.

Smaller stores are also more profitable as per square feet sales at supermarkets can be up to 15-20 percent higher compared to a hypermarket, said Prashant Agarwal, joint managing director at retail consultancy Wazir Advisors. Consumption patterns suggest Indians don’t usually buy in bulk. They prefer to purchase in batches instead of stocking up for an entire month, and like their groceries fresh, said Agarwal.

Future Retail wants to tap such customers as consumption grows on the back of rising income and a stronger economy. And EasyDay outlets will complement its Big Bazaar hypermarkets and gain from common logistics, the company said.

Online Challenge

Future Retail also plans to add more than 100 large-format Big Bazaar stores to take the total count to 350 stores over the next three to five years, it said. Rivals, however, have scaled down the expansion of hypermarkets. Both Trent and Shoppers Stop Ltd., which runs the Hypercity chain, earlier told BloombergQuint that they plan to cut the size of their bigger stores.

One of the main reasons is that large spaces are not easily available in cities to open hypermarkets, said Arvind Singhal, chairman of retail consultancy Technopak Advisors. Emergence of online retail has only forced retailers to shrink their bigger stores as customers now prefer to shop for kitchen appliances and electronics online, he said.