Essar Converges Retail Strategy

In a strategic move, the ruias-controlled Essar Group has brought in all its retail operations — mobile, electronics, fuel and steel — under a single umbrella, Essar Retail, leveraging synergy. Former director of Café Coffee Day Alok Gupta has joined the retail venture as chief executive officer. Himanshu Chakrawarti (The MobileStore), Girish Rao (Essar Steel Hypermart) and Punit Mehra (retail sales, Essar Oil) will serve under him as respective heads of each vertical. This is a strategy similar to what Essar had done earlier, when it formed Essar Energy, under which it parked all its oil and power assets and later listed it on the London Stock Exchange (LSE) after raising $1.9 billion by diluting 23 per cent stake.

"We want to make retail businesses consumer-centric, bringing in modern retail processes and building sustainable and profitable growth strategy. The immediate focus is to build the retail enterprise," says Gupta. The group has not hived off retail operations, which are under different entities, but has brought in a structure that eventually connects these similar businesses.

Essar's telecom retail company — The MobileStore — is the country's largest telecom retail chain and enjoys 50 per cent market share. It has over 1,000 outlets spread across 150 towns, and plans to add another 250 stores by the end of the financial year. The MobileStore entered the consumer durable and information technology (CDIT) retailing space by acquiring X-Cite, Impact Retail's CDIT operation. X-Cite was subsequently rebranded as The ElectronicStore, under which seven outlets operate now. The company has plans to open 20 neighbourhood stores this year.

Essar Oil has 1,381 fuel retail outlets operating in the country, while another 254 are under construction. The fuel outlets that are mostly on the highways and in rural areas are owned and operated by franchisees. At present, nearly a third have non-fuel retailing capabilities. The company has tie-ups with over 20 brands, and is in talks with more retailers in the food and beverages, agro products, telecom, and banking and finance segments to set up points of sale at its outlets. It has also forged alliances with alternative fuel and non-fuel retailers in segments such as autogas, auto components, lubricants and services. It is now focusing on introducing auto LPG and CNG pumps at its outlets through tie-ups with Aegis Gas and Gail Gas, respectively.

Then there is Essar Hypermart — the steel retail outlet of Essar Steel — which has 616 retail outlets across the country and is likely to reach 750 by the end of this year. Sales from Hypermart, which sells one third of Essar Steel's products or 1 million tonne, account for 30 per cent of the company's annual revenues.

Gupta and his team are in charge of revamping all the retail operations with identical design, innovative supplementary products and follow-up service. As part of the move, Hypermart will no longer be just a steel retailer, but will also sell construction-related products. "Through Hypermart and our other similar formats like Expressmart and Expresspoint, we plan to sell cement, paints and other hardware. This will help consumers shop for all the necessary products for construction from our outlets," Gupta adds.

The group has created critical real estate, manpower and financial muscle for running all these retail operations. Here, the real estate created for petrol pumps and steel shops can be used for mobile and electronic stores, says a Mumbai-based analyst. "At the back-end, the unified entity (Essar Retail) could maximise the use of manpower by integrating the administration, research and development (R&D), IT and legal departments," says Gupta. He claims that the integration will reduce costs and allow best practices across the board.

(This story was published in Businessworld Issue Dated 16-05-2011)