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Hypermarket review
Hypermarkets have emerged as a key area of focus for most retailers in
India. Our survey shows that product differentiation is relatively narrow
(except Big Bazaar) and service levels are generally high. On P&L metrics,
Future Value Retail leads while Hypercity lags on gross margin/sq ft and
Spencer’s on costs. However, the more grocery focused formats lead on
inventory efficiency. Overall, the segment is likely to see rising
competition and break even for the smaller players is some time away
while the incumbent (Big Bazaar) may face threats.
Hypermarkets – the next battlefield; modest differentiation
q Following the lacklustre experience in supermarket and other small staples-lead
formats, Hypermarkets have become an area of focus in Indian retail with most
major players expanding in the segment
q Allocation of shelf space across product segments remains similar across formats
and differentiation in range remains modest. Pantaloon’s Big Bazaar is the only
outlier due to its higher focus on apparel and general merchandise
q Aditya Birla Retail’s More format has higher focus on food vis-à-vis peers with more
shelf space, discounts. Star Bazaar and Spencer seem to have a wider assortment
q Pricing differences across hypermarkets remain minor and vary across categories
q While the general level of service is high, there are differences among retailers
though Star Bazaar and Hypercity seem to have the best all-round service levels
q While staff quality was high across retailers, there were differences in
layout/display (Big Bazaar lagged) and billing (Big Bazaar and More lagged)
Efficiency levels differ
q Despite the similarity in models, there are differences visible in efficiency. While
sales and gross profit per square foot are generally high, Hypercity lags peers
q On rent costs, Star Bazaar and Hypercity see low figures, possibly due to the large
store size, while Spencer’s has significantly higher costs
q On staff cost, Future Value Retail has an advantage, likely driven by scale, while
Spencer’s once again lags. A similar trend can be seen in other costs as well.
q Overall, FVRL is the only profitable retailer, likely driven by scale, while Spencer’s
has the highest losses. Despite the lower revenue and gross profit efficiency,
Hypercity’s tight cost control allows the company to deliver the lowest loss
q Inventory levels are low for most retailers with the exception of FVRL
Long road ahead, competition may become a concern
q Given the early stage of growth in the cycle, picking a clear winner is difficult
q Spencer’s, Hypercity and Star Bazaar remain some time away from break even and
would need substantially more scale to achieve that. In the meantime, competition
may rise in micromarkets where the number of hypermarkets is high (eg Thane)
q This presents a threat to the incumbent (Big Bazaar) and may delay the break even
targets for the new entrants as well
q We retain our cautious view on retail given cyclical headwinds and rich valuations
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hypermarket review
Hypermarkets have emerged as a key area of focus for most retailers in
India. Our survey shows that product differentiation is relatively narrow
(except Big Bazaar) and service levels are generally high. On P&L metrics,
Future Value Retail leads while Hypercity lags on gross margin/sq ft and
Spencer’s on costs. However, the more grocery focused formats lead on
inventory efficiency. Overall, the segment is likely to see rising
competition and break even for the smaller players is some time away
while the incumbent (Big Bazaar) may face threats.
Hypermarkets – the next battlefield; modest differentiation
q Following the lacklustre experience in supermarket and other small staples-lead
formats, Hypermarkets have become an area of focus in Indian retail with most
major players expanding in the segment
q Allocation of shelf space across product segments remains similar across formats
and differentiation in range remains modest. Pantaloon’s Big Bazaar is the only
outlier due to its higher focus on apparel and general merchandise
q Aditya Birla Retail’s More format has higher focus on food vis-à-vis peers with more
shelf space, discounts. Star Bazaar and Spencer seem to have a wider assortment
q Pricing differences across hypermarkets remain minor and vary across categories
q While the general level of service is high, there are differences among retailers
though Star Bazaar and Hypercity seem to have the best all-round service levels
q While staff quality was high across retailers, there were differences in
layout/display (Big Bazaar lagged) and billing (Big Bazaar and More lagged)
Efficiency levels differ
q Despite the similarity in models, there are differences visible in efficiency. While
sales and gross profit per square foot are generally high, Hypercity lags peers
q On rent costs, Star Bazaar and Hypercity see low figures, possibly due to the large
store size, while Spencer’s has significantly higher costs
q On staff cost, Future Value Retail has an advantage, likely driven by scale, while
Spencer’s once again lags. A similar trend can be seen in other costs as well.
q Overall, FVRL is the only profitable retailer, likely driven by scale, while Spencer’s
has the highest losses. Despite the lower revenue and gross profit efficiency,
Hypercity’s tight cost control allows the company to deliver the lowest loss
q Inventory levels are low for most retailers with the exception of FVRL
Long road ahead, competition may become a concern
q Given the early stage of growth in the cycle, picking a clear winner is difficult
q Spencer’s, Hypercity and Star Bazaar remain some time away from break even and
would need substantially more scale to achieve that. In the meantime, competition
may rise in micromarkets where the number of hypermarkets is high (eg Thane)
q This presents a threat to the incumbent (Big Bazaar) and may delay the break even
targets for the new entrants as well
q We retain our cautious view on retail given cyclical headwinds and rich valuations
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