Costs, margins dog Aditya Birla Retail
High costs, low margins in food and grocery, and accumulated losses are hurdles to a turnaround by Aditya Birla Retail, according to industry veterans.
"They have invested heavily in stores and have high overhead costs. They are yet to recover those costs," said Raman Mangalorkar, former chief executive at Jubilant Retail, which was bought over by Aditya Birla Retail last year.
"They have invested heavily in stores and have high overhead costs. They are yet to recover those costs," said Raman Mangalorkar, former chief executive at Jubilant Retail, which was bought over by Aditya Birla Retail last year.
Set up in 2007, Aditya Birla Retail runs 500 stores and is the country's fourth-largest retailer after Reliance Retail,Future Group and D Mart.
The Future Group on Tuesday denied reports of merger talks with Aditya Birla Retail. The Aditya Birla Group declined to comment on market speculation.
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Mangalorkar pointed out Aditya Birla Retail had changed its chief executive officers and growth strategies many times.
Sumant Sinha, its first chief executive officer, was replaced by Thomas Varghese.
In 2013, Visak Kumar, an Aditya Birla group veteran, replaced Russell Berman as CEO of both the supermarket and hypermarket formats.
A company spokesperson said Aditya Birla Retail expected to break even in 12-15 months and added it had managed its cost structure well over the last four years.
The spokesperson said there had been no change in the top management since 2012.
"They have opened and closed stores in Maharashtra and Karnataka and are yet to figure out whether to focus on supermarkets or hypermarkets," Mangalorkar said. Aditya Birla Retail has closed supermarkets in Pune and Mumbai to stem losses.
"Till the time they get the format right, it is difficult to achieve profitability," said another industry executive.
Aditya Birla Retail posted a 15-per cent increase in sales at Rs 2,893 crore in 2014-15 and losses declined 5 per cent to Rs 571 crore.
The company had debts of Rs 5,323 crore in March 2015 and its accumulated losses were Rs 5,320 crore after eight years of operations.
Sanjay Badhe, former head of marketing at Aditya Birla Retail, said margins in food and grocery were very thin. Other retail chains that started during 2006-2007 or expanded in these two years, like Tata's Star Bazaar and Spencer's Retail, are yet to achieve profitability.
In a report last year, ratings agency Crisil said, "The company has been able to achieve store-level break-even in over 95 per cent of its stores."
According to the agency, the Aditya Birla Group had invested Rs 3,096 crore in the company through equity and bonds.
Reference - http://www.business-standard.com/article/companies/costs-margins-dog-aditya-birla-retail-116082400062_1.html
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