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Brand on the run
Nandini Lakshman in Mumbai
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June 18, 2005

On Tuesday, the Kolkata headquartered Rs 8,500 crore (Rs 85 billion) RPG group finally announced that Jeetu Mehta would be the new president for its retail business comprising Spencer's and Food World. Mehta's appointment comes at a time when RPG is in a hurry to revamp its Rs 400-crore (Rs 4 billion) retail enterprise.

After more than a decade of embarking on its retail venture with pioneering brands like Food World and Music World, the group is finally talking big. But despite the headstart, its presence has predominantly been in the South.

Today, having severed its 10-year-old ties with its 51:49 joint venture partner -- Dairy Farm International, part of the Hong Kong-based diversified group Jardine Matheson -- last month, RPG is seeking a national footprint with a vengeance. This at a time when it lost Raghu Pillai, the president and chief executive of RPG Retail.

In a way, for RPG Retail, it is like starting from scratch. But Harsh Goenka, chairman of the group, says that they have a strong brand in Spencer's that they will build on.

Even as market experts claim that RPG should have leveraged its first mover advantage and positioned itself as a national player earlier, something that both new comers like Pantaloon [Get Quote] Retail and Tata's Trent have done, it now wants to remedy that.

Sanjiv Goenka, vice-chairman of RPG Enterprises who is spearheading the retail initiative said that the retail business will touch Rs 3,000 crore (Rs 30 billion) by 2008.

According to Harsh Goenka, chairman of the group, it plans to have 60 hypermarkets and supermarkets and 270 Music World stores by the end of the decade.

Already, RPG Retail's plans include rolling out 15 hypermarkets and two supermarkets over the next two years. With 13 malls in Gurgaon, it is finalising locations with greater footfalls for eight stores.

Even Food World will swell from the current 49 stores to 100 stores in 18 months. Introducing Mehta, Sanjiv Goenka said, "RPG Retail is now poised to give shape to its integrated retail business."

Today, RPG's formats include hypermarkets, supermarkets and convenience stores. "We are capsizing all the entities under a common Spencer's brand," says Harsh Goenka. Until last year, RPG's retail platter served four formats.

These included Spencer's (the erstwhile Giant) hypermarket under the Great Wholesale Club, the wholly-owned arm of the group.

Supermarkets Food World for food and Health & Glow for cosmetics, health products and medicines, were part of the joint venture with DFI, with Music World nestling under yet another 100 per cent arm, Music Entertainment. Together these formats accounted for Rs 600 crore (Rs 6 billion) or 8 per cent of the total turnover.

This has now been whittled down post-DFI partition. As per the parting agreement, apart from retaining brand names, DFI will acquire all 30 Health & Glow stores and retain 44 of the total 93 Food Worlds.

As part of the restructuring exercise, while Music World will continue to be a stand-alone brand, the rest of the formats will shelter under the Spencer's umbrella. Like Food World is being rechristened Spencer's Food stores before embarking on the big expansion.

In fact, branding has been an issue with RPG. Even as it had Spencer's departmental store in Chennai, its hypermarkets were branded Giant.

"But being a generic name, it had its limitations in extending the name to smaller formats," explains a marketing consultant. "The rebranding exercise comes when we have had just three hypermarkets, making the task easier for us," says Goenka.

Like most retailers, RPG too is banking on hypermarkets to drive growth. In the $180 billion Indian retail industry, the format which is galloping ahead is the 50,000 sq ft and above hypermarket segment.

According to a retail sector report put out by a securities firm last year, organised retail, which is only 2 per cent, has the potential to grow to 10 per cent over a decade.

Retail experts reckon that by the end of the decade, there will be more than 250 hypermarkets in the country. "Unlike smaller format stores, if you can make it work and are able to sustain the backend costs, the benefits are tremendous for hypermarkets," says a senior RPG manager.

Adds a consultant, "It is a volume game and does not require much of a shopping experience. It is based on the concept of wide availability of goods offering a good value."

Even so, for RPG, rejigging its portfolio would mean investing upwards of Rs 400 crore (Rs 4 billion). The option to take RPG Retail to the bourses is very much there, says a manager. That's because retail stocks continue to be the flavour of the season.

Already, other listed retail companies like Shoppers' Stop which went public last month at an issue price of Rs 230 is currently trading at Rs 380 levels. Pantaloon Retail's share price has skyrocketed to Rs 1,290 levels with Trent at Rs 680 levels.

Such figures may be mouthwatering. But competition too is spreading its tentacles. Multinational players like Shop Rite and Spar have already embarked on the franchisee route to extend their chain. And with the retail sector on the verge of opening up, many more foreign majors are queuing up.

"These developments will put even more pressure on RPG's finances and business acumen," says a retail analyst.

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