Are hypermarkets only for the rich class?

The concept of hypermarket has always been low cost, wide range and depth in the western countries. But in countries like India, where property prices have been skyrocketing and with every retailer worth its value, entering the market, would it be the same?

I guess not. It would be difficult to position a hypermarket for the masses.A back of the mind calculation shows that to build a hypermarket you would need a space requirement of anywhere between 50,000 sft to 1,50,000 sft .Lets assume you want to build a 100,000 sft sized hypermarket, for that you would need 1,66,000 sft plot area equivalent to 65 grounds, assuming 60% ground coverage with an FSI = 1.
Assuming a ground costs on an average 3 crores in Tier – 1 cities, you would spend almost 195 crores in just acquiring the land. An additional 20 crores (assuming building costs at the rate of 2000/sft) would be spent on construction. Taking the total to 215 crores. (Scenario – 1)

In Scenario – 2, for the same 1,00,000 sft if we get an FSI equivalent to 2.5, we would end up paying 78 crores for acquiring land and another 20 Crore for building one. Taking the total to 98 Crore.















Assuming a hypermarket has most of the main categories viz a viz Food, Consumer durables, FMCG, apparel, Books, Music, Furniture, Home, Footwear. The weighted average revenues /sft generated would be around 14,000 sft/month. So the yearly turnover expected will be 140 crores(14000 * 1,00,000), out of which if we keep 25% as the margin with vendors, the margins expected will be 35 crores. Assuming 6% profit on sales (which is an optimistic figure after deducting COGS, staff, electricity, marketing, and miscellaneous expenses but excluding rent @ 4% of sales), the EBDITA will be 2. 1 Cr. Another major revenue for a hypermarket will come from selling space either through endcaps or through in store visual signage’s.

Assuming a hypermarket has 15 endcaps, they would generate approximately another 1 Crore (15 endcaps * Rs 50,000/endcap/month * 12 months). Another one crore would be generated through miscellaneous space selling. This leaves an EBDITA of 4. 1 crore / year for the retailer.A simple 9 - 12 % (depending on demand supply of money) bank interest in (Scenario – 1) alone will yield 20-25 crores a year.I cannot comprehend how hypermarkets will sustain at this rate but this is a secondary question for the moment, but given the stark scenario it would be wise for hypermarket developers to go in for a wide range of SKU’s but at the same time not too low on price.

The customer is already pampered with choice, variety, convenience, and therefore there is no reason why he should be getting rock bottom prices. By increasing the walk-ins and more importantly the average bill value one can cover the bottom-line.

Like I have mentioned in my earlier article disposable income is on the rise, consumers don’t mind paying a bit premium.