Shoprite calls off franchise deal with Nirmal Lifestyle

Shoprite Holdings, the South Africa-based retail heavyweight has called off its franchisee deal in India with real estate developer, Nirmal Lifestyle Group.

Kishore Biyani led Future Group is now buying out Shoprite’s single hypermarket in Mumbai with its existing employees to set up a food store which will be rebranded as Food Republic, the Economic Times has reported, citing top officials close to the development. 

According to the report, Shoprite, which also has a cash and carry operation in India, may consider the option of tying up with an existing Indian retailer to scale up operations in the country. Shoprite is also concerned over opening more stores in India given the lack of clarity by the Indian government on opening up foreign investment in retail, a company official has said. 

The retailer had signed a franchisee deal with the Nirmal group in 2004 and set up its first hyper market in Mumbai. The existing hypermarket in Mumbai is understood to be quite profitable but the retailer has not been able to expand beyond the first store in Mumbai. Suppliers to the store confirmed that Shoprite has announced its decision to call off its hypermarket operations and send a notice that the Shoprite store would cease to exist by January 2010, the report added. 

Senior officials from Shoprite global is understood to have held meetings with Nirmal group management late last year but later sent a notice terminating the agreement, an official privy to the JV was quoted as saying. 

A recent Shoprite annual report said, “The Group’s franchised Shoprite Hyper in Mumbai showed turnover growth of close to 20 per cent despite the slowdown in the Indian economy and the further pressure imposed on consumers by bond and interest rate increases. In expectation of the government legalising foreign ownership of retail businesses following its success in the recent national elections, several international retailers have moved into India during the reporting period. Three major new stores have opened in the Shoprite store’s catchment area.Until the government frees up retail in India and the Group is able to open outlets in Mumbai and elsewhere to achieve economies of scale, its business in India cannot achieve break-even results”. 

The Shoprite Group of Companies, Africa’s largest food retailer, operates 1079 corporate and 270 franchise outlets in 17 countries across Africa, the Indian Ocean Islands and southern Asia, and reported turnover of R59,319 billion for the year ended 30 June 2009. 

Source: www.franchise-plus.com