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Star Localmart: Building a new paradigm of convenience retailing for new-age consumers in Middle India

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Since making its debut in October 2020, Star Localmart has opened 77 stores spanning 800-1200 sq.ft. in the smaller towns of southern and western India. The retailer’s rural focus stems from the fact that India’s smaller towns still remain a predominantly virgin market. Apart from the benefits accruing from being a first mover, star localmart stores count amongst the first mini-marts or supermarkets that these places have had in years. 

Star Localmart, a subsidiary of Ghodawat Retail Ltd. – the retailing arm of Sanjay Ghodawat Group (SGG) – has lit a crackling fire under India’s grocery retail industry. Since opening its first store in October 2020, Star Localmart has taken the grocery retail industry by storm with its serial binge store openings in the States of Maharashtra and Karnataka.

In spite of business hiccups and other dislocations caused by the Covid pandemic and the ensuing lockdowns across extended periods in 2020 and 2021, Star Localmart has streaked ahead and opened 77 stores located predominantly in the smaller towns cutting through the semi-rural hinterlands of southern and western India. The retailer aims to provide customers with an array of daily consumable products under a single roof, and offer consumers an uplifting shopping experience driven by quality products, good savings, and excellent customer care. 

From 11 stores in March 2021, Star Localmart has added a stonking 66 new stores in about a year’s time. As on 30th April 2022, it operated 77 stores spanning nearly 100,000 sq.ft. in about eight to ten districts across Maharashtra and Karnataka. The company is on track to cross the 100-stores milestone by the first half of FY22.

Star Localmart stores are spread across places like Kolhapur, Satara, Sangli, Pune, Ratnagiri in Maharashtra and in Belgaum, Hubli, Bijapur and Bagalkot in Karnataka. With today’s new-age consumers, even in smaller towns and cities, looking for a shopping experience that promises hygiene as well as ease and convenience, the company has set up stores that are strategically located in rural towns and villages.

This rural start up has nailed its flag to the mast emblazoned with its brand philosophy and credo that states: ‘‘Star Localmart – locally sourced, locally processed and locally sold.” The brand’s purpose and mission is to be the epitome of a 21st century convenience retail franchise model by promoting local resources and building a robust and reliable local retail eco-system. 

This concept stands out for its immense potential to generate local employment opportunities, create space for local companies to exhibit their products, and promote local entrepreneurship by offering lucrative franchising opportunity to aspiring entrepreneurs. 

Making the move into grocery retailing 

Delving into the reasons that prompted a pure play FMCG company to dip its feet into grocery retailing, Shrenik Ghodawat, MD – Ghodawat Consumer Ltd. (GCL) – the parent company of Star Localmart, says: “Honestly speaking, I had not thought of entering the business from Day One. Our focus was very clear and it was to build a strong FMCG company geared towards B2B, B2C, and D2C. So when we were evaluating the possibilities of how to reach the consumer in the fastest way and how we could showcase our entire product basket — over 300 SKUs across our different FMCG brands — the realization dawned on us that none of the retailers would be willing to host or stock all our 300 SKUs.”

That realization made SGG sit up and weigh in on two options — either take the D2C route or get into grocery retailing. “After thinking over both options, we realized that for certain categories like staples and some other products, the D2C option does not work well. It works well for Home & Personal Care products, electronics, and specialty products but people still like to touch, feel and taste products across staples and food categories. This dilemma forced us to think and come up with an innovative solution that took care of our concern for providing local employment to people who sold our locally sourced and locally manufactured products to the local consumers and buyers,” explains Shrenik, underlining GCL’s gambit into grocery retailing.

The entry into retailing has also conferred other benefits to GCL, helping it to evolve and expand across the entire food chain and operate the complete food ecosystem. “As an FMCG manufacturer for nearly two decades now, we have a good understanding of rural markets and we understand fairly well the pulse of the market and how consumer buying cycles unfold over time …how procurement cycle and buying preferences for specific SKUs get determined… . Now by becoming a retailer as well, apart from providing local employment, we have also been able to give a lot of opportunities to local and regional brands to showcase their products,” says Shrenik.

The company took its time to study and analyze all the details before bringing in a team of seasoned retail professionals and experts to guide and get the business plan rolling and take it into the next orbit. Tracing back Star Localmart’s retailing journey, Shrenik reminiscences how it started with two small outlets opening just outside the factory premises of GCL at two different locations. “We saw a lot of people visit these two outlets from as far away as 15-20 km to buy the products. It forced us to think about the potential for retailing and we spent about a year trying to figure out the right model to take forward, the right approach to follow and decide on the right size of stores.”

Serving the aspirational consumers of Bharat

A majority of Star Localmart stores are located in Tier III smaller towns and cities and this is a conscious and deliberate location strategy by the retailer. “These are the locations that we understand the most. About 80% of our FMCG distribution business is in south Maharashtra and Karnataka and so it makes sense for our retailing business to ride on this advantage. We are a familiar brand in these parts where people know us well and the brand is very well accepted and regarded. As a retailer, we want to be closer to our consumers and we want our brand and products to be trusted by our consumers. Our retailing footprint in these locations and markets allows us to showcase to our consumers our products and brands across categories like rice, edible oils, snacks, beverages, HPCs, etc., and we want to bring all of categories we are present in closer to our consumers,” says Shrenik.  

What also explains Star Localmart’s rural focus is that those still remain a predominantly virgin market for the retailer. Aside from the first mover advantage, the retailer’s stores count amongst the first mini-marts or supermarkets that these localities have had in all these years. It has also helped bring the retailer good visibility and a very strong customer connect with the Star Localmart brand.

Typically, the size of Star Localmart stores varies between 800-1500 sq.ft. While none of the stores is smaller than 800 sq.ft, a majority of them are close to 1200 sq.ft. in size. “The starting point is 800 sq.ft. as it allows us to stock over 2K SKUs and while the format is of a complete convenience store with a mini-mart feel and ambience, we ensure that the products and the facilities on offer are on a par with that of a supermarket. However, we are not rigid about the store size and, in some cases, the store size go up to 2000 sq.ft.

All stores have SKU levels upwards of 2K products with the focus being on promoting and supporting the growth of local & regional brands. However, the overall product mix and assortment comprises a carefully curated range of National, Regional and Local brands, with an unwavering focus on providing only quality assurance products.  “A good mix of National / Regional and Local brands with quality assurance allow all our stores to cater to the needs of all types of customers who look for branded products or for a price advantage,” says Shrenik.

As the retailer is still into its first phase of growth and expansion, plans are underway to add more SKUs to support local and regional requirements. “We always give a chance to new brands who can manage to supply by conforming to our quality norms and fulfil all other government norms. As we grow, they can grow with us. There is a lot of innovation happening in every segment, which is prompting new offerings into the marketplace. Through our stores, we want to ensure that we support every brand in its growth quest,” avers Shrenik. 

Sourcing is the backbone of any retail organisation and the most important quality marker. If you procure well then you can offer your customers the best quality products at the best price. Star Localmart stores enjoy the added advantage and an edge in being able to procure the best quality products thanks to the established network of suppliers, procurement centers and production facilities for its FMCG business.

Other than its wide assortment of products and a clear focus on quality, hygiene and ease of shopping are the other essential hallmarks of Star Localmart stores. “With a densely and diversely populated country, our stores create a shopping experience of a supermarket in a small format store that attempts to satisfy every segment and needs of the customer in their daily lives,” says Shrenik.   

The middle and upper middle income group customers serve as the primary TG even though the stores service the entire convenience store consumer base. In order to serve Millennials and Gen Z Shoppers better, the stores also focus on placing the right pack size, party assortments and keep introducing new products required by the consumers. 

“A small innovative set of products that are affordable and quick to serve the needs of families is always a plus and acts as a great value-add and differentiator for the store. But as a growing organisation, there is continuous improvement happening in adding new SKUs to the already existing list of over 2K items. Each store sells all the products needed in the daily lives of the consumers,” shares Shrenik. 

 Overall, in terms of sales, Food & Grocery is the biggest category contributing the largest share of the revenue pie. Under the food category, ready to eat and cook items for Millennials and youngsters are the best sellers. The non-food section and general merchandise are also big draws for consumers and pull in significant sales.

“Nowadays, thanks to market innovation, a large choice of high-quality convenience items is available. There are several premixes available to prepare delectable cuisines. With that in mind, we provide an organic range for health-conscious customers, raw products for traditional cooking, and ready to cook and eat products that are fashionable and on par with instant foods. There is a fast shift happening towards healthy eating and all the stores are equipped to handle the same,” reveals Shrenik. 

Stores find strong takers from consumers and franchise owners

By all accounts, and looking at the scorching pace and speed at which new stores are being opened, Star Localmart’s retailing gambit seems to be playing out true to its playbook. Once a customer visits a Star Localmart store to buy a product, he also gets to know and see that the retailer has many other own-store brands to offer that come with quality assurance and price competitiveness too. 

“For any customer who buys rice from our store, he also comes to know that we are into flour-and-rice milling as well and have our own products and brands across categories like rice, atta, sooji, maida, rava, besan, maida besides also stocking the other national and regional brands in those categories as well. This way, they realize that for every rupee that they have to shell out for buying a national or regional flour brand, they can actually save something in the bargain by buying a Star product in a similar category…and once they buy our product they become a repeat customer and an assured buyer… that’s the point where a customer flips the switch — when this buying pattern of our customers gets ingrained and, which repeated at a scale, has helped Star Localmart grow and build up its brand heft as a retailer,” explains Shrenik.

The operating model for Star Localmart stores is either Company-owned and Company-operated (CoCo) or Franchise-owned and Company-operated (FoCo); some stores are also Franchise-owned and Franchise-operated (FoFo). Typically, the investment needed for opening a Star Localmart store varies between Rs. 18 lakh and Rs. 25 lakh depending on the size of the store and its SKU stocking capacity. 

Investments in technology critical to growth

Star Localmart is working to stitch up a hyper-local model, which allows the store to be present in the neighbourhood and, at the same time, give the customers the ease to order online as well. The framework is also backed with continuous ways of reaching out to the consumer via ATL & BTL and be able to communicate with them about activities like festive offers, new store launches, category additions, special deep discount offers and sampling. The retailer is also about to launch its own e-commerce platform focused on geo tagged hyper-local delivery model to ensure quick service to customers for unplanned purchases. 

Through its retail presence in every vicinity with a 20K-30K population, and with the kind of 360 degree retail eco-system that it is trying to create — with its own stores and a strong line-up of store brands, with its own procurement, manufacturing and distribution channels and with the help of tech-driven tools like Mobile ordering App, WhatsApp ordering and other consumer-centric features like door-to-door marketing and B2B supplies — Star Localmart want the consumers to feel that its stores are there to serve them 24/7 through the year. At the same time, it is also continually striving for a better supply chain to help minimize sourcing costs and provide better service to the customers.

Commenting on the role of technology in Star Localmart’s store operations, Shrenik says that it would be naive of any retailer to claim that one can manage the business without the support of technology tools and aids. “Today, technology has become the fourth beam supporting our life’s other basic essentials like roti, kapda aur makaaan. Initially, when we started the business, we took up a base case technology service provider as we were new to the eco-system. However, we have now migrated to SAP and now our entire retail module works on SAP retail POS.”

The retailer is also building a robust system in-house by having some good technical advisors on board for developing and building a good platform for the business and focus on the UI and UX experience and other usability features. The idea is to ensure that store and platform inventory is integrated live and in real time besides allowing for continuous upgrade of the system in place. 

 “We are now testing the alpha version of this technology and very soon our retail technology will be equivalent and comparable to the best digitally-enabled e-commerce or quick commerce platforms in India. That’s the level of technology investment we are willing to commit to and eventually we know that the more we invest in technology, the more consumer data we will get and the more we can process this data will we be able to come up with more efficient, customized and personalized solutions for our customers and that is how we will be able to win a larger share of the market,” says Shrenik.

Cracking the code of store profitability

In order to ensure that the unit economics of its grocery retail business stays on course, Star Localmart is focused on ensuring that its stores keep 2000-2500 SKUs in stock, the fill rates are never lower than 97-95% and the stores are able to develop and cultivate a robust community program to draw in the desirable traffic and footfall. With the kind of product mix that our 1200-1500 sq.ft. stores have alongside the strength of our private label brands that allow us to fetch higher margins, we expect that the stores will attract at least Rs. 10 lakh in monthly sales, which will allow them to break even and turn profitable within less than two years, and that is the simple economics we are working on,” says Shrenik. 

Plans and road map ahead

About 43% of retail sales at Star Localmart stores are from its own-store brands or private labels. “Our Star refined oil brand is doing extremely well in every market it has a presence in. Similarly, many of our other Star product range are performing well and you will see a significant increase in their market share. ,” says Shrenik 

Going forward, the retailer plans to push its in-house brands more aggressively at its stores but without diluting its product mix so that consumers have the choice of buying the brands they prefer. “We will focus a lot on private labels to enhance category margins and at the same time provide customer value for money and higher margins for the stores,” adds Shrenik. 

Currently, Star Localmart is focused on selecting and picking good locations for opening more of its stores in Maharashtra and Karnataka, which will remain its thrust markets for the foreseeable future. The retailer feels that these markets have the potential to float and support over 2,000 Star Localmart stores over the next 2-3 years. 

“After focusing on these markets we wish to turn our gaze to Andhra Pradesh, Telanagana and Goa as our next markets,” says Shrenik, pointing out that the southern and western parts of India will be focus areas for expanding its retail footprint. “These are the regions where our parent company already has a significant GT footprint besides also being trusted suppliers for Modern Trade as well as having an e-commerce presence of our brands in these areas.”