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Birth Pangs For Transit Retail

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A busy Friday evening at Inderlok, the interchange station for Delhi Metro’s red and green lines, sees hundreds of commuters thronging the precincts. Inderlok station is home to one of the 10-odd Parsvnath Metro Malls dotting the Delhi Metro. The 150,000-sq. ft property houses a Big Bazaar, a Comesum (a restaurant chain), ATMs of at least four banks, a McDonald’s, a Raymond’s store and a Delhi government-run wine & beer outlet.

Surprisingly, while the station is a hub of activity, there are not many people at the stores. In the brightly lit Comesum on the ground floor, there are fewer than 10 customers. At Big Bazaar, trolleys are seen lined up on the sloping passageway to the upper floor, awaiting the elusive shopper. There are a few people in the store, but nothing compared to the rush you see at other Big Bazaar outlets. Only the McDonald’s outlet is busy. Outside the liquor store, of course, there is the weekend queue.

Delhi Metro started setting up stores on the network for two key reasons. One, they help people do basic shopping while on their way home after a hard day’s work. Two, they provide the mass transit network an additional revenue stream. This is critical for a network that provides subsidised travel despite continued high capital expenditure. However, Delhi Metro’s plans to earn big money by providing retail avenues on the network seem to have come a cropper, at least for now.

Nearly seven years after Delhi Metro started retail operations, they accounted for just Rs 40 crore in 2011-12, and are expected to touch Rs 45 crore in 2012-13. Of the Rs 40 crore, Rs 6 crore is from kiosks. The total non-fare revenues, including those from ATMs, cellphone towers, advertising and shops, add up to Rs 200 crore, accounting for a mere 15 per cent of the Delhi Metro’s total revenues. The original target was 25-30 per cent. In sharp contrast, for the Hong Kong MTR, the non-fare revenues in 2011 accounted for 36.8 per cent of a total of HKD 21,144 million (about $2,725 million). Apart from stores, the MTR has at least 12 shopping malls at stations, plus a luxury mall.

While trying to replicate the global metro retail model is fine, bringing in the footfalls is a far more difficult proposition. That’s what Delhi Metro has discovered. Of the 145 stations on its network today, it has stores in 40. In 10 other stations, including Dhaula Kuan (on the Airport Express route), Badarpur, Vaishali and Chawri Bazaar, empty store slots abound.
 
ON THE GO: Dufry International and InterGlobe Enterprises have a 15-year deal with Delhi Metro for operating Hudson News & Café outlets on the network
The idea of setting up stores on the metro network was a good one to start with. A city on the move, with little time to spare, would want to shop quickly en route. The numbers supported this argument — over 2 million people use the Delhi Metro daily and, therefore, shops at metro stations would ideally cater to them.

Says S.D. Sharma, director of business development at DMRC: “The demand for retail is not that good. We still have many shops that are vacant.” For instance, despite three tenders, there have been no takers for five floors of 3,000 sq. metres each at the HUDA City Centre station (the terminal station in Gurgaon). Only the ground floor has stores. “The offers that we get are far too low,” says Sharma. Says a retail consultant: “The culture of shopping on the metro network has yet to gain traction in Delhi.”

Catchment Area
Among the earliest entrants to try and cash in on the retail business on the Delhi Metro was Parsvnath Developers. Apart from setting up the malls, it was also involved in building two stations — Akshardham and Azadpur. Sharma adds that Parsvnath also has the advertising rights for the former. Yet, many of the proposed outlets, including a Haldiram’s, are yet to open shop at Akshardham. A retail consultant says that the presence of a host of vendors around the Akshardham temple premises could be the reason for the lack of interest in setting up stores at the station.

Parsvnath also has a plot by the side of the Akshardham station. But this could not be developed as the property was sealed by the erstwhile Municipal Corporation of Delhi. It finally got the green signal from the Delhi lieutenant governor in 2010.

While Parsvnath built stations and set up malls at others, Kishore Biyani’s Future Group moved in as one of the anchor tenants at some stations. In all, it has 23 outlets of different formats at or near metro stations — close to a dozen are within 500 metres of a metro station; and three Big Bazaar outlets (Inderlok, Netaji Subhash Place and Mayur Vihar Extension), two Food Bazaars (Rajendra Place and Rithala) and a Fashion Big Bazaar (Karol Bagh) are within stations. Says Puneet Jain, NCR zonal head at Future Value Retail, a Future Group company: “The coming of the metro has changed buying patterns in the city. We are well on target in the capital region.”

While that could be true, according to an industry expert, the bulk of the revenues for the group is from stores that are located near, and not within, stations. That’s corroborated by people residing in the vicinity of a station. Deepa S., 35, a resident of Mayur Vihar, says: “While I commute on the metro, I do not shop at the station since we have a good market next door. Rarely do I pick up anything from the station outlet.” This is a big problem for retailers on the metro network.
 
break-page-break

Jain agrees that while purchases at Future Group stores on the metro are largely impulse driven, shoppers at malls are clear about what they want to buy. Arvind Singhal, chairman of Technopak Advisors, says, “Primarily, food, groceries and medicines really sell at stores on a metro network.” Stations in residential areas focus more on groceries and items of daily use; at stations in commercial areas, the demand is for reading material, quick bites and chewing gum. The one favourite service across stations is recharging of pre-paid mobile connections.

In a way, while they cater to different markets, the stores at metro stations and malls complement each other — as footfalls increase over the weekend at malls, stores on the metro network see fewer customers. However, unlike mall outlets, metro stores haven’t been able to determine the socio-economic profile of commuters. Since a diverse set of people uses the metro, it is difficult for store operators to do a catchment analysis and identify potential customers. This makes it difficult for metro stores to cater to shoppers’ needs.

But the advantage is that running a store at a metro station is much cheaper than at a mall. A 300-sq. ft space at a metro station would be available for a monthly rental of around Rs 50,000. At a mall, depending on location, it can cost anywhere from double upwards.
 
NEW ROUTES
Delhi Metro is giving out property for development

RESIDENTIAL PROPERTY
Khyber Pass Depot
• Dwarka Mor
• Rithala
• Subhash Nagar
• Vishwavidyalaya
• Janakpuri West

OFFICE COMPLEX
HUDA City Centre (Gurgaon)
Another company trying to tap the metro retail opportunity is Switzerland’s Dufry International (a global travel retailer with operations in 43 countries). It has joined hands with InterGlobe Enterprises (which operates IndiGo Airlines) to set up outlets of Hudson News & Café, which has 45 stores in LA International Airport and another 40 at JFK International Airport, New York. InterGlobe has a 15-year lease with Delhi Metro. The brightly lit outlets offer candy, chocolates, wafers, newspapers, magazines, romance and motivational literature and, of course, coffee. Of the 40 stores planned, 37 are up and running. Says Siddhanta Sharma, director at InterGlobe Retail: “Around 30 per cent of our stores on the Delhi Metro network are doing much better than expected, while another 50 per cent are matching expectations.” In some stations, the stores are located on the wrong side of the traffic, which is why about 20 per cent are performing below expectations.

If 2012 was the year for opening outlets, this year is one for consolidation. InterGlobe plans to expand its reach to Gurgaon’s upcoming Rapid Metro network as well. It is also in talks with the developers of Mumbai and Bangalore metros. All expansion on other metro networks is likely to happen in 2014. 

Another player to have understood the model is the Indian Railway Catering and Tourism Corporation. Considering that quick and clean food is a need on transit networks, it is all set to open food kiosks — Food Track — at 130 stations. These will offer a variety of snacks and quick bites, including samosas, rolls and burgers. These kiosks will also serve meals in sealed trays that users can take home and heat in a
microwave.

Over To Plan B
Despite all the activity in metro retail, it is advertising that accounts for the bulk of non-traffic revenues for the Delhi Metro —within and outside stations, and inside coaches. Retail income, at Rs 40 crore out of a total of Rs 200 crore from properties in and around metro stations, has not matched expectations.  So, Delhi Metro is now looking at other means to earn more since it has already spent close to Rs 30,000 crore in setting up the first two phases of the network. The third phase will involve an additional capital investment of Rs 35,000 crore.
 
‘Around 30 per cent of our stores are doing better that expected’
SIDDHANTA SHARMA, Director, InterGlobe Retail
To begin with, Delhi Metro plans to give station-naming rights to corporates. The first station that could be renamed is Sikanderpur in Gurgaon. The sponsor’s name will be included in the name.  The Rapid Metro in Gurgaon, however, plans to go a step ahead — name a station entirely after a sponsor. The corporate will also get space at the station for advertising.

The other move is to develop residential property and set up offices at metro stations. Currently, five plots have been set aside for housing. Parsvnath has started work at the Khyber Pass depot while AP Real Estate has begun work at Rithala. Other locations include Dwarka Mor, Subhash Nagar and Vishwavidyalaya stations. Delhi Metro has just kicked off the tendering process to lease out a 1.1-hectare (2.7 acre) plot at Janakpuri West station that is part of the third phase of the network to be completed in 2016. It is inviting bidders to set up a residential complex here.

Like anywhere else, retail on the metro network, too, hinges on location. While the Comesum at Inderlok station is empty, the outlet on the concourse level of the Kashmere Gate station (the interchange between the red and yellow lines) is always packed. One, it is smaller, and two, it is bang in the middle of transit traffic. This could well be the way to get people to patronise Delhi Metro retail outlets.

What could tilt things in favour of Delhi Metro is that India is short of basic retail and convenience stores, when compared to the West. As the Delhi Metro network almost doubles the present capacity by 2016, expect a lot more stores, and hopefully, more business.

anup(dot)jayaram(at)abp(dot)in
anupjayaram(at)gmail(dot)com
(at)anupjayaram 

(This story was published in BW | Businessworld Issue Dated 20-05-2013)