Amit Bagaria's Blog

This is the first in a new series of stories initiated by Images Retail about successful local retailers spread across urban India, who continue to expand and grow, despite tough competition from national (and in some cases, even international) retailers.  If you know about such a retailer in any Indian town (including Tier-II and Tier-III towns), please send the name of the retailer and the city (with contact details, if available) to ab@asipac.com.

“Our top management does not change every 1-2 years.”  This emphatic statement by Niyas K.N., Chief Information Officer and one of the owner family members of M.K.Retail, a `80 crore Bangalore grocery store chain, sums up (according to Niyas) the key difference between local family-run retailers and national corporate chains.

The original M.K. Ahmed & Sons was founded in 1927 at Bangalore’s Mysore Road by Niyas’ grandfather, Late M.K. Ahmed, who originally belonged to Kerala.  Although Ahmed died in 1947, his sons managed and grew the business.  Son Abdul Rahman, current Chairman of M.K.Retail, set up a kiraana store in Malleswaram in 1963.  The business was split up in 1983 between his five sons, and Abdul Rahman, inherited the kiraana shop on Bangalore’s CMH Road.

In 1985, when Foodworld (then a JV between RPG Enterprises and Dairy Farm, part of the Hong Kong headquartered Jardine Matheson Group, which also owns iconic grocer 7-Eleven) opened right next door with a modern, international ambience and feel, Rahman soon realized that customers were changing their loyalty, and converted his CMH Road store to replicate the supermarket experience.  In the next 15 years, Rahman only opened one more store and the two-store chain did a business of `4 crores in 2000.

In the early 2000s, Rahman’s five sons joined the business in quick succession. They changed the name to M.K.Retail and began expanding. The 17,000 square foot flagship store opened further up on the same road, in 2002.  This store even stocks stationery, appliances, crockery and furniture. Today, M.K.Retail has six stores (the seventh is opening soon) occupying total retail space of about 60,000 square feet.

Each of Rahman’s five sons looks after a vertical.  While the oldest, Shakir, looks after finance, Anas runs operations, Niyas handles IT, Shamim heads purchases and Hishan, the youngest, is responsible for marketing.  The brothers meet once a month to discuss strategy and take important decisions by consensus. There are no external board members or advisors.  Niyas says that MBAs can’t so the job as well, as they are not flexible and can’t take quick decisions, as everything has to be analysed.  He argues that their six family members (including dad Rahman) in the business, is what differentiates them from the national corporate chains.  “We have a common vision, mission and goals,” he says.

This point could be easily argued.  Future Group today has as many as seven Biyanis involved with different functions within the group. In less than one fourth the time as M.K.Retail, Future Group has grown to over 1000 retail stores spread over more than 16 million square feet in 138 cities and rural locations.

So what really is the difference?  Niyas argues that, while retail is the core business for his family, for many of the corporate retailers, retail is just one of their businesses.  According to him, the sale of eggs from his six stores equals the combined sales of eggs from all 40 stores of a corporate-owned competitor.  He is proud that M.K.Retail has never shut a store. Each one of their stores is individually profitable and sustainable on a standalone basis. Their focus is more on profitability than the number of stores.

Niyas reminds us that retailers such as Aditya Birla Group’s More, RPG’s Spencers and Reliance Fresh have been forced shut several underperforming stores.  He says that focus on growth rather than profitability is most likely to lead to another Subhiksha story.

Subhiksha, founded in 1997 became a 150 store company by the year 2006. Then, with infusion of private equity, and the irrational exuberance witnessed at the time across businesses and sectors, it grew unmindfully into 1600 stores by 2008. Within a year, the company went bankrupt and had to close down.

Another notable difference is that employees of national retailers stay with one employer for an average of less than three years, while M.K.Retail’s employees have an average career span of 15 years in the organization.  They provide accommodation to most of their long-serving employees, which results in loyalty.

The most important difference is obviously in consumer perception or acceptance. From the consumers’ perspective, while an average Food Bazaar stocks 40,000 SKUs, M.K.Retail’s flagship store has 60,000 SKUs.  According to Rasika Lumba, the wife of Kabir Lumba, Managing Director of department store chain Lifestyle, who shops in M.K.Retail on a regular basis, “their fresh produce is always very fresh, they stock good quality fruits, vegetables and flowers, including exotic items, offer the widest varieties of mangoes in the season, they have a wide range of Indian mithaais and gourmet foods, they sell unique and usually high-quality bakery products and desserts, they are usually first to launch new branded food products in the market, carry a good range of crockery and other household gifts and also carry an excellent variety of gifts for all budgets.”

There could not be a better testimonial, coming from none other than the wife of a seasoned retailer, whose parent Landmark Group also runs Spar Hypermarkets and Supermarkets in India under license from the Dutch retail giant Spar.  Founded in 1932, Spar had worldwide retail sales of `168,000 crores (€28 billion) in 2009, from their 12,169 outlets occupying 65 million square feet in 33 countries.

One thing does strike me here – despite operating in a low cost economy such as India, M.K.Retail’s average per store sales of `13.33 crores equals that of Spar’s global average and is 80% higher than Spar’s UK average of `7.41 crores per store, or 36% higher than the `9.81 crores average in Spar’s home country Netherlands.

Viney Singh, Managing Director of Spar’s Indian operations, says “M.K. Retail is a classic example of a home grown convenience store which has built up a reputation of catering well to the needs of the local catchment. Apart from the convenience, I hear a lot of positives on their service levels. My Malayaali friends living in the Indiranagar area tell me that they get a lot of their Kerala delicacies at M.K. Retail.”

So, can M.K.Retail ever become a Spar?  Maybe not, if one goes by the current ambitions (or plans) of the owners.  Niyas only sees M.K.Retail as a 30-store chain with a `500 crore turnover by 2027, the year when it celebrates its 100^th anniversary.

“The variety of products they offer is amazing. Their billing is super fast and there is always a pair at the counter, one to bill and the other to fill up the bags,” says Priya, another frequent shopper, “The staff is always talking a lot, but a supervisor keeps an eye on everything.”

“They are a good bunch of people. They try hard and they have a good offering,” said a senior official of an international supermarket chain who did not wish to be named.

Younger brother Shamim attributes superior merchandising to the fact that people in his sourcing team have been with the retailer for 15-20 years, and so understand the consumer pulse, compared to national retailers, whose sourcing managers keep changing. “We do merchandising based on what customers demand, rather than based on margins or profitability,” he says, “Many of our SKUs don’t make money, but they still make business sense because our customers want them.”

“What is unique about them is their personal touch with customers, something which is missing in modern organised retail. They are faster in adapting to customer trends and habits,” commented a senior official of one of India’s biggest supermarket chains who also did not wish to be named.

“Any retail experience can be measured on four counts,” says Anas, “how long one waits in the check-out queue, the attitude of the shopfloor staff, the product mix, and pricing. As long as you succeed on these four fronts, the rest takes care of itself.”

One of their biggest weaknesses seems to be on the shrinkage front – Niyas claims that they have 6% pilferage.  That translates to almost `5 crores per annum, a very high figure for any local retailer.  Globally 2% is the norm, and Spar averages less than 3%.

M.K.Retail’s seventh store at 4000 square feet will be the smallest in the chain.  They are experimenting with this size because they believe that this is the size that could be its growth engine for the future.  A smaller sized store can be replicated across several more locations, either on their own, or even through franchising.  It is difficult to set up 15,000 to 20,000 square feet stores, or even to run them, says elder brother Anas.

As things stand today, M.K.Retail does not see itself expanding beyond Bangalore and Chennai, a city it is eyeing very closely. The metros offer far greater potential than smaller towns such as Mysore or Mangalore, they feel.  They also prefer to continue with the high street route, rather than malls, as they feel malls charge very high rentals.

This 6-store chain is open to growing by acquiring other chains, even standalone shops.  Although they have tried many acquisitions, no deal has gone through, because of unrealistic valuation expectations of the owners, according to Shakir.

M.K.Retail is open to external funding and could even consider an IPO for growth capital.  However, despite several offers from various PE funds, they have not really moved forward on the funding front. They are worried that Nilgiris ran into trouble after the family sold its stake to private equity investors.

Nilgiris is a Bangalore headquartered supermarket chain, with 90 stores across South India.  It was founded in 2005, near Ooty, in the Nilgiri hills of Tamil Nadu. The flagship store on Bangalore’s Brigade Road opened in 1936. Nine years later, in 1945, this store was converted into what was (perhaps) India’s first real supermarket.  By 1982, it had a presence in five cities, including Chennai.  In late 2006, UK based PE Fund Actis had acquired a 65% controlling stake for `300 crores and started running the chain with professional management. In 2008-09, the second year of operations run by Actis, Nilgiris made a loss of `22 crores. This led to a spat between the original owner family (which still has a 35% stake) and Actis, which is ongoing for 18 months now, and has thus restricted any further growth of the chain.

“For family run businesses, survival is more important than valuation,” says Niyas cheekily, “We cannot afford to operate on a business model that allows breaking even after two or three years.  Each store has to make money from day one.”

M.K.Retail does not subscribe to Kishore Biyani’s theory of “is se sasta aur sasta kahi nahin”.  The cheapest price is not important, according to them. Their experience across different neighbourhoods of Bangalore, with different mix of SECs, shows that economy brands do not last long and premium brands are far more sustainable. Even with their private labels, they have had better success with premium priced (and high quality) products than low budget offers.

Future Group’s value formats Big Bazaar and Food Bazaar together have more than 510,000 square feet of retail space in Bangalore.  Many other national retailers have between 100,000 to 250,000 square feet each. M.K.Retail has just 60,000 square feet, but has same store growth of 30% per annum.  Only time will show who is right, and who will sell more eggs.

While M.K.Retail is definitely one of the most well known, trusted and successful local retailers in Bangalore, I must say a few words about some other successful “local” Bangalore retailers. While I have already written about Nilgiris (which may not even fit into the classification of “local”), here are a few others definitely worth a mention:

C.Krishniah Chetty & Sons is a 141 year old fine jewellery retailer with three outlets in Bangalore and one in Hyderabad, with a turnover of more than `160 crores.  Three family members run the business.

Favourite Shop Group comprises three retail formats Favourite Shop (multi-brand unisex apparel), FS Man (men’s apparel) and Soch (ethnic fashion), which together have 20+ outlets across South India and a turnover exceeding `125 crores. The chain, run by a father and his two sons, is expanding rapidly (with new stores mostly in malls) and will perhaps be the subject of an article in this series in the future.

Showoff is a unisex western fashion apparel MBO with five outlets in Bangalore and a turnover of more than `40 crores. Run by four brothers, this chain is now fast expanding, mostly in new malls.

Girias is a CDIT retailer with 20 stores across Karnataka and Tamil Nadu, occupying more than 180,000 square feet of retail space and a turnover of almost `500 crores.  Four family members run the business.

Pai International, established in 2000, is a CDIT retailer with 25 outlets spread across Karnataka, with annual turnover in excess of `200 crores. As many as seven family members run the business.

Mirrors & Within is a growing chain of beauty salons, run by two sisters and a brother.  They have seven outlets across Bangalore, including several major five star hotels and a flagship opening shortly in The Collection at UB City.

Amit Bagaria is founder Chairman of award winning Asipac Projects, India’s leading mall planning and leasing consultant, which has conceptualized and marketed six of India’s 15 largest malls, Asipac Mall Services, a mall management company and Arus Retail, which owns Men and boyS, India’s first retail chain exclusively selling men’s cosmetics, skincare & hair care products, fragrances, which also provides specialized treatments for men.

This entry was posted on Tuesday, December 13th, 2011 at 7:01 am and is filed under Article in Images Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.