Food World''s virtual and real expansion plans

After retailing, it is now e- tailing at RPG group. Food World, the group’s grocery chain, which consists of 45 stores across the cities of Chennai, Coimbatore, Bangalore, Hyderabad and Pune, is soon to dot cyberspace. Following the group’s success with its music arms, saregama.com and musicworld.com, it is but natural that the groceries chain should now be dot commed.

Says Mr. Raghu Pillai, managing director, Food World Supermarkets Ltd, "We are working out the finer details. But initially, the service will be offered only in the five cities where we are present now."

Food World Supermarkets is a 51:49 joint venture between the RPG group and Dairy Farm International, Hong Kong, which owns the Food World chain.

Is Food World's adding a dot com suffix, a response to competitor Subiksha – another Chennai-based grocery retail chain -- starting its virtual store some months back? "Competition is not the issue. This is a new space and it is slowly evolving. The more the number of players, the faster will be the market growth," replies Mr. Pillai. He adds that there is place for further growth even in the brick and mortar model.

In order to attract clientele, the virtual store will sell its wares at a discount to the prices it charges in its real stores. Mr. Pillai, who is of the opinion that a virtual store does not result in much savings for the company, adds, "Pricing is a strategy, a promotional tool to attract traffic. As per our estimates, the cost of shipping/transporting an item weighing 500 gm is around Rs 18."

While Music World’s virtual store sells its goods at discounts ranging between 10-40 per cent, Mr. Pillai says the percentages are yet to be fixed for Food World's virtual store pricing. The company will have to factor in the five per cent commission charged by credit card companies on Net purchases. The commission rate will come down once the habit of purchasing over the Net spreads amongst people.

The payment mechanism for orders placed on the Net store will be cash, payment on delivery, credit card, debit card and other possible modes.

Virtual store aside, Food World Supermarkets also has plans to open 55 more brick and mortar stores in three years, at an outlay of Rs 85 crore. The immediate target is to increase the existing number of stores to 60 by March next year. The company’s policy is to open stores in areas where there are more than 3,000 urban households.

The experienced gained by opening 45 stores enables the company to curtail the initial overheads. Further, the 'opening-to-store maturity period’ for the chains’ new stores has come down now. "Major fixed cost components are the rent and salaries, accounting for eight per cent of a shop's turnover," Pillai remarks.

According to him, the company is able to strike better lease rental deals nowadays as Food World stores have become a landmark or attractive feature for selling real estate. "Our rental cost is between 2.5 to five per cent of a store's turnover. Three per cent is an ideal figure," he notes.

Last fiscal, Food World Supermarkets clocked a turnover of Rs 145 crore, posting a marginal loss. The company has invested around Rs 60 crore in its stores till date. "This year, we will break even," Pillai hopes. The company is shifting its IT platform to Oracle at an investment of Rs 1 crore.