It's late on a scorching Sunday afternoon but a couple of hundred people are going crazy on the first and second floors of Sahara Mall, a yet-to-be-fully-completed shopping complex in Delhi's satellite township, Gurgaon. The mall's cinema halls and food courts aren't ready yet, but upstairs, at Big Bazaar, the mall's sole tenant, shoppers are in a frenzy. Dodging someone here, tackling someone else there, like a mad pack of rugby players the otherwise perfectly well-heeled customers are going crazy trying to grab stuff. What stuff? Polypacks of atta, pack-of-three hand towels, shirts... anything. The guppies (this magazine's epithet for Gurgaon's upwardly mobile) have taken to the bare-bones, no-frills hypermarket like, well, fish to water.

Cheaper than the rest: the Big Bazaar outlet in Gurgaon

"The organised retail business is on the verge of take-off here," gushes Kishore Biyani, the Rs 175-crore Big Bazaar's maverick promoter, who refuses to travel to the USA as a matter of business principle, lest he is influenced by big brand retailers whose models, he claims, are not up to scratch for the Indian market! Almost a decade after Shoppers' Stop put the flag out for organised retail with the launch of its first department store in Mumbai, hypermarkets promise to mass-roll organised retail in India. "Department stores like Shoppers' Stop and speciality retailers like FoodWorld, have touched just 40-50 million people. Organised retail's potential to reach 300-million people has barely been scratched," says Vivek Mathur, Partner at Bangalore-based Integrated Retail Management Consulting. For the record, just under 2 per cent of the Rs 90,000-crore retail industry in India is organised.

A hypermarket is essentially a large retail space (upwards of 20,000 square feet) where shoppers can buy groceries, food, garments, home appliances, durables, toys, cosmetics, toiletries, even books and music in some cases, at a price always lower-from 5 to 50 per cent- than the market price. At hypermarkets, it's not the brands, labels or the ephemeral shopping experience that drives business but products and prices. And consumers are voting with their feet across the country, in Gurgaon, Delhi, Hyderabad, Kolkata, Chennai and Mumbai.

"My business plan is to sell to customer at the price that a retailer would buy" R. Subramanian, MD, Subhiksha

Each of Big Bazaar's six outlets gets 6,000 footfalls on a weekday and 20,000 on weekends. RPG Group's Giant in Hyderabad gets nearly 15,000 every day. And The Home Store's (THS) two Super Sabka Bazaars in Delhi manage 30,000 between them, every day. "This is the retail format where every second urban Indian consumer can shop," adds Arif Sheikh, President of the Rs 639-crore THS. So while supermarkets mostly sell food, and department stores, branded apparel, hypermarkets' all inclusive product platter appeals to consumers.

Biz Bazaar 6 stores 20,000 footfalls per day per store Rs 175 crore sales (2002-2003) Giant 1 store 15,000 footfalls per day per store Rs 85 crore sales (2002-2003)* Super Sabka Bazaar 2 stores 15,000 footfalls per day per store Rs 120 crore sales (2002-2003)* *Industry Estimate

Hypermarket Boom

Little wonder then, hypermarkets are springing up like mushrooms. THS is opening its third Super Sabka Bazaar, a mammoth 1,20,000-square feet store in Faridabad, later in the year. RPG group company, The Great Wholesale Club (it runs Giant) plans to open a Giant each in Mumbai, Bangalore and Chennai in the next 12 months. And Biyani talks about another three Biz Bazaars in the next three months-in Nagpur, Bhubhaneshwar and Ahmedabad-and, in all, 14 by end 2004. Joining the fray is b2c India, which runs the Adani supermarket chain, with plans for four hypermarkets in Ahmedabad early next year. And Ahaar International plans 30 hypermarkets in and around the national capital region by next year. Even Trent, the Rs 40,000-crore Tata group's retail venture, has plans for a chain of hypermarkets.

That Indian consumers are taking to hypermarkets is clear from the way all three existing chains (with nine stores amongst them) are thriving, making cash profits within a year of their launch. And yet, this business is not for the faint-hearted. It literally means ploughing money into real estate and working capital (for managing upwards of 25,000 stock-keeping units). And guarding every penny of cost, for margins are low, at 11 per cent, against 14-15 per cent for department stores and supermarkets.

THS, for instance, pays no rentals for Super Sabka Bazaar and works only on revenue sharing with its landlord (shelling out 2-3.5 per cent of net sales) and sources over 95 per cent of its 26,000-odd SKUs from 1,600 suppliers to keep supply chain costs below 1.5 per cent. "We stock big brand FMCGs for topline, but it is the groceries that give us the bottomline," adds THS' Sheikh. For FMCGs, these hypermarkets give discounts from their margins, so it is like running a very tight ship.

Giant deals directly with its suppliers, while Big Bazaar operates through buying agents or consolidators. In fact, such is the dependence on high-margin commodity-level categories in groceries (Super Sabka Bazaar) or own-label apparel (Big Bazaar), that at least a third or more of store sales need to come in from here for the business to be profitable. Big Bazaar thrives on massive promotions, with almost 70 per cent of all merchandise on discount between 2 and 60 per cent. The store already has private labels for tea, salt and spices.

"The main identification factor (of a hypermarket) is the extent of consolidation that the format achieves and the unique value proposition it offers," says Kruben Moodliar, Chief Executive of The Great Wholesale Club. High volumes and larger bargaining power with suppliers keeps the bottomline ticking. Giant, in just under two years of operation and with just one store, is amongst the top five retailers for many consumer durable products in the country. And THS' Sheikh claims that within a year of Super Sabka Bazaar's existence in Delhi, big brand marketers such as Hindustan Lever or Coca-Cola have started delivery at individual stores and even appointed key account managers to manage the relationships.

"No one likes to call themselves a discount store, but they are just that," says Harminder Sahni, Associate Director at KSA Technopak. The six-year-old Rs 365-crore Subhiksha Supermarkets, which runs small 1,500-2,000 square feet outlets, 153 of them now in Tamil Nadu, is a pioneer of the discount format. As is the Rs 450-crore Margin Free, which runs 150 stores in Kerala and leverages its six lakh customer base for discount deals with manufacturers. "My business plan is simple. Sell to customer at the price that a normal retailer would buy for his store," adds R. Subramanian, Managing Director, Subhiksha.

"The identification factor of a hypermarket is the value proposition it offers" Kruben Moodliar, CEO, The Great Wholesale Club

A Balancing Act

Hypermarkets are a compelling proposition. For new players, it takes a large number of stores to make a superstore chain a success. RPG's Foodworld started out in 1996 and broke even only in 2000-01, when it had 80 stores. Shoppers' Stop, when starting out in 1992-93, became profitable with just one store, but soon slipped into the red and turned a profit only in 2001, after it had two dozen stores. On the other hand, hypermarkets are stand-alone businesses that can break even in one or two years. For existing players, much like Pantaloons (Big Bazaar's parent), RPG or THS, it is a natural extension of their business, with better amortisation of their back-end costs. THS leverages its bulk-buying for Super Sabka Bazaar with its 19 Sabka Bazaar food supermarkets. Ditto for RPG's Giant, with its superstores for food (FoodWorld), music (MusicWorld) and cosmetics (Health & Glow). Likewise, Big Bazaar benefits from Biyani's core competence in textile production and apparel, with Pantaloons.

Yet the business is fraught with risks. "With wafer-thin margins, even a half-a-percentage slip in costs can be life threatening," cautions THS' Sheikh. For the rash of new players that means playing the volumes game is not always easy. Enticing consumers with ease of shopping, product range and sharper pricing is one thing. Keeping a check on costs and driving up volumes is another. The key is in keeping a balance. Through the hype about hypermarkets, retailers will need to ensure that this new business model doesn't keel over under its own weight.

inputs from Nitya Varadarajan and Dipayan Baishya