Spencer's Retail to invest Rs 600 crore in new stores

Chennai: Spencer’s Retail, an RP-Sanjiv Goenka Group company, is chalking an aggressive growth strategy, with a focus on hyper-format stores. It plans to invest about Rs 600 crore in setting up new stores. The company also plans to come out with branded and co-branded products in the food and beverage segment.

Speaking to Business Standard, Shashwat Goenka, sector head, Spencer’s Retail, said the company would set up 80 hyper stores in the next 48 months. As of now, the company has 132 stores, including 26 hyper stores, 14 super market and 92 daily (convenient) stores.

Goenka, here to inaugurate the city’s first hyper store at Velacherry, said the new stores would predominantly be located in tier-I and tier-II cities. The company would focus on the North (Uttar Pradesh & the Delhi-National Capital Region), the East (West Bengal and Chhattisgarh) and the South (Andhra Pradesh, Tamil Nadu and Karnataka).

“We will open 12 stores this year and 15 next year; the rest would come up in the following two years,” Goenka said. The company has already signed property agreements for 68 stores. The investment would primarily be funded through internal accruals.

The Rs 1,400-crore company would turn earnings before interest, tax, depreciation and amortisation-positive by the third quarter this financial year and full-year cash profit would be seen in 2014-15, Goenka said. The company expects by the end of this financial year its turnover would stand at Rs 1,800 crore. Owing to the planned new stores, the revenue is expected to touch Rs 2,800 crore in 2014-15, said Mohit Kampani, chief executive, Spencer’s Retail.

In 2011-12, the company reported 15 per cent growth; in 2012-13, growth stood at 16 per cent. Kampani said in 2011-12, the industry grew 12-14 per cent, while last financial year saw single-digit growth. Hyper stores, which contributed 58 per cent to the turnover in 2012-13, are expected to contribute 70 per cent this financial year and 85 per cent in 2014-15.

Spencer’s Retail is also reworking its store format. “We made a mistake of having too many formats in many areas. Basically, retail is a local business, not national,” Kampani said. Since the company faced hurdles, in terms of cost structure in its convenient store model, it has decided to go slow on expanding the format. In the last three years, the company shut 64 such stores. However it had been decided the two major issues — cost structure and assortments — would be addressed, Kampani said, adding, “We may go for a franchisee model. Currently, we are studying various options.”

The company is also streamlining its distribution system and putting in place a new network strategy.

Goenka said the company would increase the share of unique commodities in the food and beverage segment from about five per cent to 30 per cent. These products might be company-made, produced along with another manufacturer, or sourced from other companies. Spencer’s is also set to introduce its own wine, bottled in Argentina. It is working with Ambika Appalam to introduce the latter’s products, as well as various types of ready-to-eat food in north India.

On foreign direct investment, Goenka said the company was exploring various possibilities. “Our first intention is to make the business profitable. We also have plans to come out with an initial public offering, before which we may look for private placement by roping in a strategic partner,” he said.