FoodWorld Supermarkets

Madras, India
August 1996

In May, we opened our first FoodWorld Supermarket in Madras. We were convinced that such a modern concept would work in India, but the early results have exceeded our expectations. We will be opening two more this month and have plans for over 100 within the next 10 years. It is a terrific opportunity!

RPG Enterprises (RPG) was the fourth largest conglomerate (called business house in India) in India, with sales of over 45 billion rupees (U.S. $1.3 billion) in 1995. RPG business interests spanned a variety of industries including tires, power/transmission, agribusiness, telecommunications, financial services, and, with the acquisition of Spencers & Co. in 1989, retailing. It boasted partnerships with a number of international companies, including 16 of the Fortune 500 companies.

Spencers & Co. had been founded in 1865 as a small store in Madras offering imported specialty items to the large British expatriate and military population. By 1897, it had grown to be the largest store in India, a 65,000-square-foot enclosed collection of specialty stores. In 1981, this facility was destroyed by fire. Spencers had been at its peak in 1940, when it had 50 stores in virtually all major cities throughout India. Still it offered only imports, and had virtually no Indian customers. When India gained independence from the British in 1947, Spencers' executives didn't believe that the demand for imports would erode. It plummeted, however, and in the early 1970s, the deteriorating chain was sold to an entrepreneur who continued to offer food, clothing, cosmetics and other high-priced specialty items to the expatriate community.

Spencers' fortunes continued to slide. By 1989, it was only a shell of its former self. Only nine stores remained in operation in several of the larger cities in India, including a 20,000-square-foot store in Madras and a 10,000-square-foot store in Bangalore, which were the largest stores of any kind in each city. (Refer to Exhibit 1, Map of India.) The other stores only had 2,000 to 3,000 square feet, but had excellent central locations. Spencers' profits were fleeting and it was offered for sale.

RPG purchased Spencers that year, and established it as a separate division with Pradipta K. Mohapatra, a seasoned RPG executive, at its helm. The decision to acquire this retail company was largely justified by its undervalued real estate portfolio, a distribution infrastructure (which in fact was non-existent), and a profitable travel agency specializing in the distribution of airline tickets.

A number of Spencers stand-alone divisions were obvious losers and were quickly slated for closing: furniture manufacturing, restaurants, manufacturing of air conditioners and other small electrical appliances, pharmaceutical production, and repair shops. The travel agency was clearly a winner and was kept. RPG executives were, however, initially undecided about whether to close down the retail operations altogether.

The "Spencers" brand name was well known throughout India as synonymous with quality, but unfortunately also with high prices. Indeed, there was a popular expression in India: "You don't have to pay the Spencers' price." In addition, RPG had no experience in retailing. They couldn't rely on existing expertise within Spencers, since its employees were poorly qualified at every level and grossly underpaid, even by Indian standards. The general manager of the large Madras store, for example, was only paid the equivalent of about $70 per month. It appeared that it would be most prudent and profitable to close down the stores and simply rent the space.

Yet Spencers' nine stores still remained the largest chain in India of any kind of retail operation, and it seemed wasteful simply to throw away whatever potential there might be for improvement. The decision was ultimately made to refit one store to test its potential. If the experiment failed, they would close the retail operations.

The store in Bangalore, therefore, was modernized in 1991, retaining its profile as a department store offering hardware, food, kitchen appliances and clothing. When it reopened, sales exploded to four times the previous levels and the store broke even in the first month.