The Rs 6,000-crore Godrej group has shelved plans to join the growing list of corporate houses trying to get a foothold in the booming retail business. Company officials said channel conflicts arising from being a marketer as well as a retailer are the primary reason for the change in plans. Viability of retail projects is also a cause for concern, with a mismatch between the current real estate prices and pay-back numbers.
The company has decided to hold back a big bang retail foray despite the fact that Godrej Properties (GPL) has established a strong presence in the real estate market with property (both residential and commercial) development as a major thrust area. Godrej group chairman Adi Godrej said the company is content with a niche presence through Nature’s Basket. “We do not plan to get into the organised modern retail market” he said.
The group had earlier planned to leverage its brand in the retail space and had examined plans for possible tie-ups with foreign retailers, sources said. The business has been growing at over 35% in the past few years. Experts had advised the group to cash in on the Godrej brand equity with consumers and harness the synergies of being a consumer goods player in the retail space. The group had earlier held talks with UK”s Makro, owned by the Metro group, and was also speculated to have been approached by Tesco for a possible partnership, sources said.
Jadgeep Kapoor of Samsika Consultants says, “It doesn’t make sense to be a retailer when there are other existing channels to do that. As a manufacturer and retailer, a company competes with other retailers who will not favour the company’s brands. Manufacturing and retailing in the same space does not make sense and the marketer’s focus on core business gets lost.”
About a third of the Godrej group’s turnover comes from the FMCG business with agri-businesses, appliances and furniture and properties accounting for the rest. The businesses involve a high degree of direct interaction with the consumer. The retail initiative was planned to be undertaken through Godrej Industries which holds more than 80% stake in Godrej Properties, handled by Pirojsha Godrej, son of group chairman Adi Godrej. The company is developing 20 million sq ft across India.
Godrej Agrovet handles Aadhaar, a chain of supermarkets focussed on rural India, which sells goods ranging from fertilisers, pesticides, animal feed and FMCG products. The company started its urban retail outlets, ‘Nature’s Basket, a few months ago to retail fresh fruit and vegetables and has three outlets in Mumbai.
“Replenishments and the back-end logistics are a big issue in the business. Retailers are struggling to ensure that various items are in place, which they aren’t most of the time. The business also calls for staying power since nobody is likely to make any profits in the first three years,” says strategy consultant Nabankur Gupta, who is also the founder of Nobby Brand Architects.