Steel trader Kunal Gandhi has stopped going to metal yards -- he now buys 80 per cent of his monthly steel requirement of 2,500 tonne from JSW Shoppe at Mumbai's Vile Parle, which opened three months back.
The air-conditioned showroom and the prompt delivery to his godown at Kalamboli in Navi Mumbai are something Gandhi relishes the most. "It's like going to a swanky department store," he says.
It's customers like Gandhi who have prompted JSW Steel Chairman Sajjan Jindal to look at ramping up his retail chain to 600 outlets from the current 96 in a couple of years. Sharad Mahendra, associate vice president, sales and marketing, JSW Steel, says the focus would be semi-urban and rural India, where quality steel availability at the right price is a big constraint.
Essar Steel is also tapping the growing demand from non-urban markets and smaller retail customers. It plans to open about 70 company-owned hypermarkets in six months, in addition to its existing 83 outlets. Meanwhile, the company's franchise retail chain, Essar Expressmart, will triple its presence to 750 outlets. In a move to grow beyond boundaries, the company has opened two retail outlets at Jakarta in Indonesia, where Essar Steel has production facility.
Girish Rao, chief executive officer of Essar Hypermart, says that 25 per cent of the steelmaker's domestic production is being sold through the retail chain. "We are working towards doubling sales through our retail chain this financial year. We sold 0.6 million tonne steel through our retail chain last fiscal, that would go up to 1.2 million."
"JSW's sale through its retail chain was 30-35 per cent of its 7.8 million tonne (mt) production last year. That will be increased to 40-45 per cent with the expansion in two years," says Mahendra.
JSW Steel entered the fray with its first retail outlet at Hubli in Karnataka in July 2008, while Essar initiated its retail venture one year before JSW.
The retail model of Essar is completely different from JSW, though both are aiming to cater directly to the end-user and pocket the margins that earlier went to middlemen. Essar's Rao says that the company additionally gains 3-4 per cent with direct retailing. The consumer also saves about 4 per cent additional cost incurred because of multi-level trading.
JSW Shoppe, according to Mahendra, would take its share in the future after establishing the business. Industry experts say JSW could push up its topline 10-14 per cent through increased sales in Shoppes.
"The steel companies are testing the waters for opening up a new sales channel that would tap the latent demand and boost their topline. The front-end presence also helps improve the brand equity of the companies. Though it's early to gauge the success of the model, the move will place the companies closer to the customers, especially small ticket size buyers of semi-urban and rural India," says Prasad Baji, senior vice president, Edelweiss.
India's per capita steel consumption is quite low at 45 kg, compared to 187 kg globally, while rural India's per capita consumption is just 2 kg. Essentially, the idea is to sell steel as a consumer product rather than a commodity, which would improve the consumption.
The retailing initiative would change the dynamics for an industry where products were sold in bulk and transported in heavy trucks, experts say.
JSW, which is trying out a franchisee model, says the average cost for setting up a shop is around Rs 10 lakh (Rs 1 million), of which, the company would bear 30 per cent and the rest the franchisee.
For the 600-1,500 square feet showroom, the company provides designing and hardware and software support. Eventually, it looks like an automobile showroom.
Interestingly, Essar Hypermart is a stocking yard of an acre, unlike a showroom. It has a warehouse along with the yard, which keeps 21 days' inventory. The company has four service centres and hubs at Pune, Chennai, Delhi and Hazira, in addition to a distribution hub at Ludhiana. From these hubs, the company distributes to its hypermarts and expressmarts across India.
Hypermart, in a unique marketing model, has tied up with telecom service providers to supply steel. Customers can now simply type 'STEEL' and send it to 53636 and within seconds is acknowledged with a response message saying, "Thank you for contacting Essar Steel Hypermart. Our Customer Care Representative will get in touch with you shortly." In a few minutes a follow-up call is made from a call centre in Bengaluru and the customer's requirement is noted down. Sensing the need, Essar Steel has also tied up with two commercial banks to provide credit for its retail customers.
JSW's marketing is same as branded shirt's showroom. First, the showroom itself sells the brand. Secondly, it markets through outdoor and indoor publicity.
Tata Steel, which pioneered steel retail chains in India with Steeljunction, has, however, gone slow. In the last four years, it has set up just five outlets in West Bengal.