Kishore Biyani, group CEO at India’s largest organised retailer Future Group, is completely redrawing the rural retail model followed by Aadhar Retailing — its joint venture with the $3.3 billion Godrej group, as it pursues a road to profitability.

“None of the firms who are in the business have been able to crank out profits from the current model of rural retail. It’s therefore clear that if this opportunity is to be addressed then a different approach is called for,” Vibha Paul Rishi, member of the Future Group executive board told Financial Chronicle.

This will be the third major repositioning for Aadhar since Future Group bought 70 per cent in the venture from Godrej group. Soon after acquiring management control, Biyani had said the venture would focus on becoming a sourcing hub from semi urban and rural markets for the group’s chain of Big Bazaar and Food Bazaar stores amongst others. Subsequently the model was changed to a rural mall concept.

“The problem in rural areas is not an absence of demand. It’s just that demand is too disaggregated and dispersed. Hence a corporate retailer trying to run front end operations in such areas will not be successful,” said Damodar Mall, president - integrated food strategy at Future Group.

In a pilot being run at Kalol in Gujarat, Biyani is testing a new model, which will see Aadhar become a cross between a cash and carry store and a front-end retailer. “Essentially we will feed the demand for expanding choice amongst rural consumers by going one step back into the supply chain. We will supply small entrepreneurs with the stock and inputs on how to run stores through planograms and other necessary expertise,” said Mall.

While the balance sheet responsibilities of the stores will rest with individual owners, supply chain will be a Future Group responsibility. As part of its provision of technical services to these small entrepreneurs, the company also plans to franchise the brand name of Aadhar Retailing to the outlets run by the entrepreneurs, another top Future group official told FC. Once this pilot is successful and the model fine-tuned, it will be rolled out across the 51 Aadhar outlets in the country.

For the nine-month period ending December 2010 Aadhar Retailing had sales of Rs 47.41 crore and a loss of Rs 18.84 crore. This paper could not access financial details of a later date for the closely held company. As of end of March 2011, the group had invested Rs 86.18 crore in this venture, which retails products such as apparel, seeds, fertilisers, and FMCG products.

Under the proposed pilot, the company will operate hub and spoke model where its existing outlets will serve as supply hubs while the franchisee outlets will be spokes. In a typical cash and carry format, the store serves as a front-end outlet to wholesale goods and services for commercial/industrial consumers and small store owners. But the model Biyani is proposing involves Aadhar also ensuring last mile delivery and working with small kirana outlet owners to run stores.