It's been in the works for some time now but with the buyout of a 90 per cent stake in the Rs 240-crore (Rs 2.40 billion) Trinethra Super Retail last week, Aditya Birla Retail has made its retail ambitions clear. As Kumar Mangalam Birla, chairman, Aditya Birla Group, said soon after the announcement, "The acquisition demonstrates our intent to be one of the leading players in the industry."

Not that retailing is completely new to the group: it already has a presence in AB Nuvo's Madura Garments, which runs the Planet Fashion apparel stores. But it is a first in the foods and groceries space, and the Hyderabad-based Trinethra, with 172 retail outlets in Andhra Pradesh, Kerala, Tamil Nadu and Karnataka, should give the venture immediate momentum.

Industry watchers agree. "It is a good move because the Birlas have been late to enter the retail arena and they can leverage Trinethra's relationships and learnings quickly," says an analyst, adding, "Even if they have paid a little extra, they have effectively pre-empted others from buying the chain." While neither Birla nor his team are commenting on the money the group will invest in the business, the tab can hardly be less than Rs 10,000-15,000 crore (Rs 100-150 billion), if the group intends to be a serious contender.

The food and grocery segment accounts for over 70 per cent of the estimated $320-billion retail market in India (Source: AT Kearney), but the organised sector accounts for less than 2 per cent of this, leaving ample room for more players.

Competition from big-name players such as Reliance and Bharti-Wal-Mart, or even Future group, which has rolled out 41 Big Bazaars, could be fierce, players such as Hypercity and Trent haven't expanded yet (both have just one hypermarket each), and Piramyd's convenience store chain TruMart has just 18 stores.

But, says Upamanyu Bhattacharya, CEO, Piramyd Retail, "More than the number of players, it is the number of stores in an area that matter. If you look at it, there are any number of 'kiranas' in a locality and they're all thriving."

Also, given the high levels of wastage of nearly 30 per cent and the numerous intermediaries, there is an opportunity to drive down the cost of the final product.

Much like peer Reliance, AB Retail too has said that it will have large supermarkets of around 20,000 sq ft as well as smaller convenience stores of around 2,000 square ft. That's possibly the best way to go, given that it is hard to get space in the metros to put up stores of 20,000-25,000 sq ft. Trinethra's stores are around 2,000-2,500 sq ft each, giving AB Retail a total space of around 400,000 sq ft to begin with. Bhattacharya believes that a model in which large and small stores co-exist is workable because the bigger stores are more in the nature of destination stores whereas the smaller stores would cater to daily needs of customers.

What is really critical in the food and grocery space, as Raman Mangalorkar, Principal, Consumer and Retail Practice, AT Kearney, points out, is an efficient supply chain. Says he, "Like the others, AB Retail too needs to get as close to the farmer as possible."

That means building a network with farmers to ensure that supplies are regular and that quality is consistent. It also means having collection centres at the farm gate so that middlemen are eliminated. Whether AB Retail opts for a single brand or goes in for multi-branding remains to be seen, but either way it wouldn't make too much of a difference. Says Mangalorkar, "It's not unusual or uncommon for large players to have three or four brands. In the US for instance, regional chains have been acquired and the local banners retained because retailing is ultimately a regional business."

Birla has said he doesn't intend to have a foreign partner, nor will any of the group's listed companies be investing in the retail venture. Still, AB Retail isn't likely to find itself short of funds -- given the growth potential of the sector, private equity investors might be tempted to bankroll him, even if valuations today are stratospheric. And for the same reason, he has a good chance of pulling it off.