Kerala retailer Varkeys goes belly up

CHENNAI: Faced with the prospect of closing down operations, the Kerala-based grocery retail chain Varkeys is looking for an emergency fund infusion to stay afloat.
The grocer has mandated IndigoEdge Management Consultancy to find investors for Rs 40 crore. The promoters are open to selling 35% stake in the company. Varkeys started as a single store in 1926 and currently has 59 across Kerala.The roll-out of stores across the state through debt funds has stuck Varkeys finances.
"We're looking for a private equity partner to help us consolidate our business," Toby Alapatt, executive director of the Varkeys chain, said. "We're not open to a buyout from any other retail chain." He likened the prospective agreement of private equity player Actis and retail chain Nilgiris.
The chain, which includes hypermarket brand V-Mart, expanded rapidly anticipating entry of competition. In 2009-10, Varkeys had a turnover of Rs 163 crore. With current liabilities, including bank loans, supplier credit and overdue salaries, running into almost Rs 20 crore, the company has asked vendors to stop supplies until the revival.
"The brand equity of Varkeys in Kerala can be compared to Ratnadeep Supermarket in Hyderabad or Thoms in Bangalore," said a retail adviser. "Varkeys went wrong with their timing. They expanded when the economy was still in slowdown mode. What's worse is that they did it without getting their supply chain in place. Fortunately, the brand has been around long enough for them to recover provided they get immediate funding and experts on their board."
Retaliers like Subhiksha and Vishal Retail had expanded through the debt route and due to slowdown had to either scale down operations or shut shop. "Varkeys has been a pioneer in supermarkets in Kerala. Their bakery, especially, the Varkeys biscuit is extremely popular and the brand has immense equity and recall in the state," said Prathish Nair, director (brand strategy and client development) at Trancend Brand Consulting.