Case Study

SPENCERS HYPER : Tier II Town (Western India)

Overview :The Spencers Hyper Market in the a tier II town of western India was opened on 28 th
March 2014. The total chargeable operative area of the store is 25000sqft. The store was
setup inside a Mall premise and the LGF space in the Mall was allocated for Spencers
Hyper setup. The total Mall area is approximately 4.5lacs sqft with the presence of major
brands like Lifestyle, Inox, Mac Donalds, KFC, other vanilla brands and a Foodcourt.

Our initial research for the location suggested a moderately high market potentiality and
an enriched catchment area. The Spencer store is situated on the fringe locality of
outskirts which is a developing catchment of the town. In terms of competition town has
Big Bazaar, Hypercity, Reliance besides couple of local retailer in the large format.
However, Reliance which is 1.8km before us towards the city and Best Price around 1km
ahead of us out of the city are two immediate competitors. The basic category mix is as
follows:

FMCG
Staples
F&V
F&M

Bakery
HWP
E&E
Apparels

Estimated Vs. Actual:As per our research we had estimated healthy Walk In nos. and accordingly our sale was
pinned at 1.4 cr with a GM% of 18%. The store was initially expected to reflect in marginal
(-) ve P&L during the first year of operation. Second year onwards the nos. would reflect
green. It was also initially forecasted that it would take 48 months at most to recover
initial capex investment of Rs.3cr. approx.
After the store launched in February14, our forecasted nos. contradicted actual sales.
A brief summary of our revenue nos. is illustrated below:-

Challenges post opening:

Reliance turning from B2C to B2B Reliance Super had an existing store nearby
but it initially did not pose a major threat to our business as, they were present as a
B2C retailer and targeted different set of TA that, gave us a niche to create our own
space in the market with our strength in food retailing. However, Reliance
converted their model from B2C to B2B. While Best Price was always there, it being
a foreign player have certain restriction where they could only transact B2B
whereas, Reliance being an India company same restrictions dont apply to them.
They can sell to individual customers as well at discounted B2B rates. This changed
the game completely as, Reliance which was doing Rs.1.8 -2cr. Started clocking
Rs.7.5 8cr which included individual shoppers as well hence, eaten close to Rs.1820 cr. between both of them in the catchment.
Supply chain - This being only Spencers store in the city we relied on direct
supplies to the store instead of adding DC cost. This is affecting availability up to
certain extent.
Churn While mall is being maintained well, churn has started in the first year of
opening where KFC has closed, while some other vanilla retailers have opened.

A combination of all these points results in poor performance of the Store, which was
initially forecasted to be a profitable store within reasonable time span.
What Spencers needs to do to address issues listed above and find a solution battle the
changed competition scenario?