Reliance Industries: A Closer Examination

chillibreeze writer — Kanchana Rajesh

Reliance is gearing to be a major player in the Indian Retail Revolution.

They are aggressively
Third Party Logistics
working on a pan-India Featured Product Market in India: With
network of retail globalization the demand of
third party logistics (3PL)
outlets in various business, a western concept,
formats. State-of-the- is increasing in India, as firms
are now focusing towards the
art technology, a better management of their
seamless supply chain supply chain processes and to infrastructure and
increase their penetration level
unmatched customer in the market. The 3PL experience, is what
the initiative is all services are now being about.
perceived as better way for
managing internal as well as
Reliance Retail, the 100% subsidiary of
external logistic process driven
by improving logistic
Reliance Industries, entered the retail
infrastructure and rising
foray involving a minimum investment
awareness of efficient logistics
practices."
of Rs 25,000 crore. They plan to achieve
a target of Rs 10-billion >> read more revenue by 2010
employing 5,00,000 people. Hinting at an
impending IPO, Reliance retail, has
renamed “Ranger Farm” to Reliance Fresh Ltd, having hived the name of their most popular
format. The company’s name will sound familiar to the investors once the company plans to tap
the capital markets by facilitating brand recall.

The first of their format is Reliance Fresh, a convenience store. These stores, range from 2,000 to
5,000 sq feet, provide customers with a variety of fresh fruits, vegetables, staple foods and other
products in a world-class ambience. They aggressively partnered farmers by following a farm-to-
folk strategy to ensure fresh fruits and vegetables at affordable prices. They chose Hyderabad to
test waters, as the city offers real estate at a price that does not quite pinch. They selected the
cream crowd from pioneers in organized retailers to head the organization. With such a strong
foothold, they ventured and their cash counters clicked Rs 3.5 to Rs 6.5 lakh per day and some
outlets at prime locations are averaging Rs 5 lakh per day.

Vegetable vendors and small retail shop-owners are accusing Reliance of directly hitting their
business. Reliance Fresh will not compete with local vendors due to political reasons, and their
inability to create a robust supply chain. This is different from their original plans. In states like
Kerala, West Bengal and Orissa, where they face opposition, they have changed their retail
strategy by introducing large supermarkets, where they will not trade in fruits and vegetables.
This is a critical factor in assessing the impact of retail giants on the unorganized segment. These
Reliance Super stores are large supermarkets with an area of 4,000-10,000 sq ft and will stock
grocery, stationary, pharmaceutical products and apparel only.

In the foods business, they have consciously segregated its vegetarian and non-vegetarian items
by having a separate brand - Delight for the latter, with a separate distribution centre. This may
be a smart move as vegetarians are sensitive to these issues. Seeing huge opportunities, they have
introduced own brands like ‘Dairy Pure’ for milk, ghee, (the only other major player being
Amul) and ‘Reliance Select’ for other categories like staples. This will optimize margins and
streamline supply chain because of bulk procurement.

Reliance Fresh will also retail FMCG, home, consumer durables, IT, pharmaceuticals, and auto
accessories, in different formats like hypermarkets, supermarkets and discount stores; however,
food will be a major account. Reliance Fresh, Reliance Mart, Reliance Digital, Reliance Trendz
(apparel), Reliance Footprint (footwear, handbags, accessories), Reliance Wellness (health),
Reliance Jewels, Reliance Timeout (books and gifts) and Reliance Super (mini mart) are various
formats that Reliance has introduced.

There are 491 Reliance Fresh stores and this figure is likely to touch 1,400 by the end of next
fiscal, currently spanning 2.2-million sq. ft. In addition, Reliance Retail has entered into an
alliance with Apple for a chain of Apple Specialty Stores branded as iStore, Bangalore. With
Marks and Spencer they are exploring apparel, gourmet food and cafes. Diversifying into various
categories gives them an opportunity to tap the growing segments with immediate effect and
further minimize potential losses.

After the successful launch of consumer-good super market Reliance Fresh and Consumer
Electronic and Digital, Reliance Mart (1,50,000-3,00,00 sq. ft.) is the company's hypermarket
format. Around 23 percent of the hypermarket floor space will be allocated to garment brands,
while the rest will stock footwear, home goods and other products. Luxury products will cover a
floor space of 11 percent. Reliance Retail Limited (RRL) announced a Joint Venture with Pearle
Europe for the launch of a chain of optical stores. This will bring a world-class range of private
label frames, lenses and sunglasses. The optical industry is on the brink of major growth and has
few organized players. Even the Tatas have ventured in this segment.

Reliance has bought properties ranging from Rs 1,000 per sq ft to as high as Rs 22,000 per sq ft
or more for their expansion. Reliance now plans the franchisee route for further expansion. Faced
with expensive real estate costs and delays in retail space acquisition, the company is co-opting
existing small retailers in all formats other than Reliance Fresh and Reliance Hypermarket. This
is yet another success formula for giant retailers.

Given their economies of scale and huge resources, excellent business acumen, and
governmental support, the ever-strategic Reliance Fresh has become an ambitious and strong
force to reckon with. They are able to provide their merchandise at cheaper rates than any other
retailer, and have signed real estate deals at breakneck speed for mega projects across India.
Reliance and Future Group are the early birds at making a dent in the large profit from the retail
sector in India, at excellent real estate rates for properties in prime locations.

The retail sector employs around 40 million people in India. Trade/retailing contributes to 14
percent of the service sector. The fact that about 4 percent of the population is employed in the
unorganized retail trade makes it vital to the socio- economic equilibrium in India.
Organized retailing and supply chain integration displace labor in a labor-surplus society. These
chains negate a large and growing proportion of added value away from producers to companies.
Bulk procurement decreases producer’s margins. By controlling both ends of the chain, the
company can buy cheap and sell dear, thus severely undercutting the small retailers and creating
a monopolistic situation.

In addition, retail trade also has a sky rocketing effect on the real estate prices. Markets,
wholesale sales and retail form one axis of the economy, while productive sectors like
agriculture, textile, and industries form the other. Ambitious MNCs are trying to control both the
axes of the economy on the pretext of privatization, liberalization, and globalization.

Therefore, Reliance Fresh along with other domestic corporations have a moral standing. Along
with the support of the government, they must pave a path for an efficient retail market (no
monopoly) in India and help maintain a socio-economic equilibrium. This will remain the
biggest challenge for Reliance who leads the way as a corporate citizen. The growth must be
through value creation. This will help the Indian retail sector to remain fresh in a hygienic and
ethical market.