Organised retail veteran Kishore Biyani (pictured) of the Future group has been trying hard to expand KB FairPrice, the neighbourhood grocery chain, from 200 stores to 1,000. But efforts so far have not yielded much success.
So, the company, which has been operating on a ‘franchisee-owned, franchisee-managed’ model, is trying out the ‘company-owned, franchisee-managed’ option, said C P Toshniwal, CFO.
So far, the group has followed a cluster-based approach for expansion.
Under the new model, the company will invest around Rs 40 lakh in equity initially per store, but the franchisee concerned will manage operations. Expansion of KB FairPrice will be based on this model.
Since getting good real estate for expansion was proving to be a challenge, the company’s decision to make initial investments would help find store owners with shops at strategic locations but without the money to invest, retail experts said.
Gaurav Marya, chairman, Franchisee India, said there were other challenges like management issues as well under the old model. “When it is just the franchisee partner who owns the store, there are a lot of issues with governance, maintenance, quality and so on. That’s why, smaller franchisee-operated stores haven’t been doing well. However, when the company invests, there is better store efficiency and improved governance.”
That would show in terms of a new revenue model, which calls for greater accountability from the franchisee partner. If a store is company-owned and franchisee-operated, the company and franchisee share the revenue. And when the revenue is shared, it calls for more responsibility, said Marya.
Not surprisingly, this model is popular internationally; and several companies in India are now adopting this model, he said.
Located in residential markets, the Biyani-led KB FairPrice competes directly with the kiranas or neighbourhood grocers. Hence, expansion and presence across key areas are going to be critical for the company, going forward. More so because the KB FairPrice stores double up as agents of expansion of the network of company-owned FMCG brands, helping boosting overall margins.
Currently, around 40% of the KB Fairprice turnover comes from private labels.
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