FOOD RETAILERS RUN IN LOSSES

Top 10 food retailers, including Reliance Fresh, Aditya Birla Retail, Wal-Mart India and Bharti Retail, have registered accumulated losses of over Rs 13,000 crore in the last fiscal, ratings agency Crisil said today. "Accumulated losses of food retailers are estimated to have crossed Rs 13,000 crore in the last fiscal, an analysis by CRISIL Ratings of top 10 food retailers that are in gestation phase showed," a Crisil statement said. The companies analysed by Crisil are Max Hypermarket, Hypercity Retail, Aditya Birla Retail, Metro Cash & Carry India, Trent Hypermarket, Reliance Fresh, Heritage Fresh, Spencer's Retail, Bharti Retail and Wal-Mart India. Commenting on the findings, Crisil Ratings President Ramraj Pai said: "These losses reflect the challenges in the food and grocery retailing vertical. Compared with other formats, food retailing is a very local business where optimal supply chains are critical to lower costs." "The business also has the lowest gross margins in retailing, which leads to longer gestation periods. Players, therefore, need a lot of time and investment to perfect the model and positioning and to scale up to achieve critical mass," he added. Crisil said retailers are re-working on their operating model to cut down on losses. "Retailers are now moving away from large-scale expansions. Exits from unprofitable categories, rightsizing of stores, closure of unviable and non-performing stores, focused and calibrated expansion and a renewed focus on private labels are some of the initiatives which the analysed retailers are undertaking to achieve faster break-even," Crisil Ratings Director Anuj Sethi said. The ratings agency said these initiatives will take time and investment to yield results. Crisil believes these retailers will continue to expand, backed by promoters. "We estimate as of March 31, 2014, the 10 retailers have invested about Rs 19,000 crore for store additions and loss funding – through direct equity infusions, loans from banks and promoters," it added. Crisil said two large players that have managed to become profitable are Future Value Retail Ltd (Future Value) and Avenue Supermarts Ltd. "Future Value (formats include Big Bazaar and Food Bazaar) has had the first-mover advantage. It expanded in a low-cost environment and attained critical mass before the real estate boom led to costly lease rentals. Competition from other organised players was also less then," it said.