Reliance FResh:

RefReshing Business

Strategy

Submitted by-

Erum Khan

Sahil Gupta

Mayank Badkul

Executive Summary

The India Retail Industry is the largest among all the industries, accounting for over 10 per cent of the countrys GDP and around 8 per cent of the employment. The Retail Industry in India has come forth as one of the most dynamic and fast paced industries with several players entering the market. But all of them have not yet tasted success because of the heavy initial investments that are required to break even with other companies and compete with them. The India Retail Industry is gradually inching its way towards becoming the next boom industry. The total concept and idea of shopping has undergone an attention drawing change in terms of format and consumer buying behaviour, ushering in a revolution in shopping in India.

Foreign direct investment (FDI) inflows between April 2000 and December 2010, in single-brand retail trading, stood at US$ 66.69 million, according to the Department of Industrial Policy and Promotion (DIPP

With a vision to generate inclusive growth and prosperity for farmers, vendor partners, small shopkeepers and consumers, Reliance Retail Limited (RRL), a subsidiary of RIL, was set up to lead Reliance Groups foray into organized retail.Since its inception in 2006, Reliance Retail Limited (RRL) has grown into an organisation that caters to millions of customers, thousands of farmers and vendors. Based on its core growth strategy of backward integration, RRL has made rapid progress towards building an entire value chain starting from the farmers to the end consumers.

The following paper first give the general overview of the retail industry in India, different type of retail format present in India, major players present in the industry, growth opportunity, difficulties the sector is currently facing.

Then it talks about Reliance Fresh the chain we have chosen to analyse and to revamp its current strategies. So to revamp the existing model it is obvious that paper talks about how the chain started, what all strategies are being followed by them,and most importantly the difficulties it has faced in the past and currently it is facing

So by studying all these factors we suggest our own strategies related to different management functions which company could adopt and will result them into being a profitable company

INDUSTRY EVOLUTION: RETAIL INDUSTRY

Traditionally retailing in India can be traced to :-

The emergence of the neighbourhood Kirana stores catering to the convenience of the consumers.

Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission.

1980s experienced slow change as India began to open up economy. Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw

the emergence of retail chains. Later Titan successfully created an organized retailing concept and established a series of

showrooms for its premium watches. The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure

Retailers. For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in

music; Crossword and Fountainhead in books. Post 1995 onwards saw an emergence of shopping centers. Mainly in urban areas, with facilities like car parking. Targeted to provide a complete destination experience for all segments of society. Emergence of hyper and super markets trying to provide customer with 3 Vs - Value, Variety

and Volume Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom

of the pyramid. At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000

crore

RETAILING FORMAT IN INDIA

Malls:

It is the largest form of organized retailing today. They are located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof. Examples include Shoppers Stop, Piramyd, and Pantaloons.

Specialty Stores: Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors. Discount Stores: As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non-perishable goods.

Department Stores: Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. They are further classified into localized departments such as clothing, toys, home, groceries, etc. Departmental Stores are expected to take over the apparel business from exclusive brand showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and even has its own in store brand for clothes called Stop. Hyper marts/Supermarkets: Large self-service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales.

Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales. Convenience Stores: These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium

MBOs:

Multi Brand outlets, also known as Category Killers, offer several brands across a single product

category. These usually do well in busy market places and Metros.

INDIAS NUMBER OF DOMESTIC GROCERY CHAINS AND EARLY FOREIGN ENTRANTS

INDIAN RETAIL INDUSTRY: AN OVERVIEW

The India Retail Industry is the largest among all the industries, accounting for over 10 per cent of the countrys GDP and around 8 per cent of the employment. The Retail Industry in India has come forth as one of the most dynamic and fast paced industries with several players entering the market. But all of them have not yet tasted success because of the heavy initial investments that are required to break even with other companies and compete with them. The India Retail Industry is gradually inching its way towards becoming the next boom industry. The total concept and idea of shopping has undergone an attention drawing change in terms of format and consumer buying behaviour, ushering in a revolution in shopping in India. Modern retailing has entered into the Retail market in India as is observed in the form of bustling shopping centres, multi-storied malls and the huge complexes that offer shopping, entertainment and food all under one roof. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing workingwomen population and emerging opportunities in the services sector are going to be the key factors in the growth of the organized Retail sector in India. The growth pattern in organized retailing and in the consumption made by the Indian population will follow a rising graph helping the newer businessmen to enter the India Retail Industry. In India the vast middle class and its almost untapped retail industry are the key attractive forces for global retail giants wanting to enter into newer markets, which in turn will help the India Retail Industry to grow faster. Indian retail is expected to grow 25 per cent annually. Modern retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business, growing at over 20 per cent per year.

The future of the India Retail Industry looks promising with the growing of the market, with the government policies becoming more favorable and the emerging technologies facilitating operations.

THE INDIAN RETAIL SCENE

India is the country having the most unorganized retail market. Traditionally it is a familys livelihood, with their shop in the front and house at the back, while they run the retail business.

More than 99% retailers function in less than 500 square feet of shopping space. Global retail consultants KSA Technopak have estimated that organized retailing in India is expected to touch Rs 35,000 crore in the year 2005-06.

The Indian retail sector is estimated at around Rs 900,000 crore, of which the organized sector accounts for a mere 2 per cent indicating a huge potential market opportunity that is lying in the waiting for the consumer-savvy organized retailer. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer.

Indian retailers need to advantage of this growth and aiming to grow, diversify and introduce new formats have to pay more attention to the brand building process. The emphasis here is on retail as a brand rather than retailers selling brands.

The focus should be on branding the retail business itself. In their preparation to face fierce competitive pressure, Indian retailers must come to recognize the value of building their own stores as brands to reinforce their marketing positioning, to communicate quality as well as value for money.

Sustainable competitive advantage will be dependent on translating core values combining products, image and reputation into a coherent retail brand strategy. There is no doubt that the Indian retail scene is booming. A number of large corporate houses Tatas, Rahejas, Piramals, Goenkas have already made their foray into this arena, with beauty and health stores, supermarkets, self-service music stores, newage book stores, every-day-low-price stores, computers and peripherals stores, office equipment stores and home/building construction stores. Today the organized players have attacked every retail category.

The Indian retail scene has witnessed too many players in too short a time, crowding several categories without looking at their core competencies, or having a well thought out branding

strategy.

The Indian retail sector is highly fragmented with more than 90 per cent of its business being carried out by traditional family run small stores. This provides immense opportunity for large scale retailers to set-up their operations a slew of organized retail formats like departmental stores, hypermarkets, supermarkets and specialty stores are swiftly replacing the traditional formats dramatically altering the retailing landscape in India.

India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearneys report published in June 2010.

Retail Market Size

The total retail sales in India will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015, according to the BMI India Retail report for the third quarter of 2011. Robust economic growth, high disposable income with the end-consumer and the rapid construction of organised retail infrastructure are key factors behind the forecast growth. Along with the expansion in middle and upper class consumer base, the report identifies potential in Indias tier-II and tier-III cities as well. The greater availability of personal credit and a growing vehicle population providing improved mobility also contribute to a trend towards annual retail sales growth of 12.2 per cent.

Indian retail sector accounts for 22 per cent of the country's gross domestic product (GDP) and contributes to 8 per cent of the total employment.

Rural Retailing on a High

Rural retailing enjoys an intense focus from big brands.

Future Group and Godrej Agrovet's joint venture (JV) in rural retailing, 'Aadhar', is all set for a revamp. The group promoter Kishore Biyani has revealed that the JV is planning to come up with wholesale distribution centers across different districts and franchisees would be rolled out to local entrepreneurs who would have a better understanding of the concerned area. They would be able to source the products from these wholesale centers and then sell it in their villages. The alliance operates stores in Gujarat, Maharashtra, Haryana and Punjab and mainly sells wheat and paddy apart from daily need products. The company also provides farmers with solutions to problems regarding their agricultural output, which includes what kind of crop can they plant and when, along with techno-commercial suggestions to help them give a better output.

Meanwhile, Rajkot based Champion Agro Ltd is planning to come up with single window shopping facility for farmers. The company already has 35 agri-retailing outlets in the Saurashtra region, and is expected to open around 400 outlets at a taluka level across Gujarat by 2016. It will open 50 new outlets by the end of 2011with an investment of US$ 3.3 million. The overall investment planned is between US$ 66.7 US$ 88.94 million.

On similar lines, Vadodara based ACIL Cotton Industries is all set to come up with around 40 outlets of 'ACIL Krishi Store' in Gujarat. Of these, four outlets got operational in April - May 2011. As for 2011, ACIL has decided to focus on the Gujarat market. ACIL stores will sell all types of seeds, fungicides, fertilisers, micronutrients.

Also, FMCG and retail giants are making good use of technology to reach out to rural India. From low-cost handsets to tablet PCs, the Indian FMCG and retail sector is latching on to technology and applications to reach out to rural India.

For instance, Marico is using mobile technology innovatively to arm its field representatives in their procurement process. The IT team at Marico developed a mobile-based application for Nokia 5235 series handsets. The company gave these GPS-enabled phones to 120 of its field representatives, with mapped routes. This helped the agri-representative to get the exact route and also saved on time. The mobile application can also get real-time data from farmers. Pictures of crop and soil taken from the camera are used for monitoring progress of contract farming, seed information and weather condition. Since the data is available online, this also helps the company analyse and take decisions quickly.

Meanwhile Hindustan Unilever Ltd (HUL) is experimenting with tablet PCs in its attempt to increase its rural reach. It has been able to reach to 500,000 outlets in a years time. According to Nitin Paranjape, managing director, HUL, We put all the villages on an IT map. The name of the village, its total strength, nearest distributors available, whether it has a school, a hospital, a primary health centre, all of this was mapped. We used this information to determine the opportunity the village presented to us.

Organised vs Unorganised Retailing

The Indian retail market, over the last decade, has been increasingly leaning towards organised retailing formats. The pattern in domestic retailing is altering in the favour of organised modern retailing, a big change from the traditional plethora of unorganised family-owned businesses. Rapid urbanisation, changes in shopping pattern, demographic dividend and pro-active measures by the Government are abetting the growth of the retail sector in India.

Organised retail in India is expected to increase from 5 per cent of the total market in 2008 to 14 - 18 per cent of the total retail market and reach US$ 450 billion by 2015, according to a McKinsey & Company report titled 'The Great Indian Bazaar: Organised Retail Comes of Age in India'.

Furthermore, according to a report titled 'India Organised Retail Market 2010', published by Knight Frank India, during 2010-12 around 55 million square feet (sq ft) of retail space will be ready in Mumbai, national capital region (NCR), Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Besides, between 2010 and 2012, the organised retail real estate stock will grow from the existing 41 million sq ft to 95 million sq ft.

Driven by the growth of organised retail coupled with changing consumer habits, food retail sector in India is set to be more than double to US$ 150 billion by 2025, according to a report by KPMG.

Retail Investment Trends

Foreign direct investment (FDI) inflows between April 2000 and December 2010, in single-brand retail trading, stood at US$ 66.69 million, according to the Department of Industrial Policy and Promotion (DIPP).

Singapore-based CapitaMalls Asia, which develops, owns and manages malls across Asia, has pledged US$ 400 million to its growth in India up till 2014. Mr Kevin Chee, CEO and Country Head of CapitaMalls Asia, has said that apart from funding the two malls that are operational now, this money would be used to develop seven more malls in India.

Reliance Retail will enter the cash and carry market with "Reliance Market" in Ahmedabad; the first one to be opened by August 2011.

Ujala fabric whitener maker Jyothy Laboratories has bought Henkel AG's 50. 97 per cent stake in its Indian subsidiary for US$ 137.02 million, including debt and preference shares, the two companies revealed. The deal includes Henkel's entire portfolio that includes Henko and Chek detergents, Pril dish cleaners and Fa deodorant, and rights to the multinational's future launches.

With the launch of its first 'Arvind Experience Store' in Gujarat at Vadodara, denim major Arvind Ltd. is looking at 100 stores by the end of the financial year 2011-12. The store in Vadodara is the company's eighth in the country after seven stores in Andhra Pradesh.

Quick food service restaurant chain Subway will set up 45 outlets across the country by 2011-12 entailing an investment of around US$ 9 million. The company has now 205 outlets in India and plans to take its count to 250 by the end of 2011-12.

Max Hypermarkets, the food retailing chain of the Dubai-based Landmark Group is investing US$ 122.14 million for its store expansion business across 30 cities in India.

Retail - Government Initiatives

India will announce new rules for foreign investment in retail by April 2012, paving the way for companies such as Wal-Mart Stores and Carrefour to open stores, according to Junior Trade Minister Jyotiraditya Scindia. A government panel has issued a report that recommends easing a law that prohibits non-Indian companies from operating multi-brand outlets. Allowing foreign investment in multi-brand retail may help moderate food prices, said Kaushik Basu, chief economic adviser in the finance ministry, who sits on the panel.

India currently allows 51 per cent FDI in single-brand retail and 100 per cent in wholesale cash-and-carry operations.

In a landmark decision, the government has eased norms for investments by foreign companies that are present in India through a joint venture (JV) or a technical collaboration. Now, the foreign company will not have to seek a no-objection certificate (NOC) from the Indian partner for investing in the sector where the joint venture operates.

The government has also relaxed norms for downstream investments and convertible instruments, giving foreign companies more powers. The changes are part of the third revision of the Consolidated FDI Policy.

Retail Road Ahead

There is a huge untapped opportunity in the retail sector, thus having immense scope for new entrants, driving large investments into the country. A good talent pool, huge markets and availability of raw materials at comparatively cheaper costs are expected to make India lead one of the worlds best retail economies by 2042. The industry is also slated to be a major employment generator in future.

Quick Facts on Indian Retail Sector

Indian Retail sector is the fifth largest global retail destination. India retail market is dominated by the unorganized sector. The top five companies in retail hold a combined market share of less than 2%. The Indian retail market has been ranked by AT Kearney's eighth annual Global Retail Development Index (GRDI), in 2009 as the most attractive emerging market for investment in the retail sector. Currently the share of retail trade in India's GDP is around 12 per cent, and is estimated to reach 22 per cent by 2010.

According to Government of India estimate the retail sector is likely to grow to a value of ` 2,00,000 crore (US$45 billion) and could yield 10 to 15 million retail jobs in the coming five years; currently this industry employs 8% of the working population.

India continues to be among the most attractive countries for global retailers. According to the Department of Industrial Policy and Promotion, approximately US$ 47.43 million was the amount of Foreign Direct Investment (FDI) inflow as on September 2009, in single-brand retail trading.

More than 80% of the retail sector in the country is concentrated in the large cities. A study reveals that among the more than 20 locations, for organized retail in India, Mumbai was found to be the most preferred location followed closely by Bengaluru in the second position.

Key Players in Indian Retail Sector

AV Birla Group has a strong presence in apparel retail and owns renowned brands like Allen Solly, Louis Phillipe, Trouser Town, Van Heusen and Peter England. The company has investment plans to the tune of ` 8000 9000 crores till 2010.

Trent is a subsidiary of the Tata group; it operates lifestyle retail chain, book and music retail chain, consumer electronic chain etc. Westside, the lifestyle retail chain registered a turnover of ` 3.58 mn in 2006.

Landmark Group invested ` 300 crores to expand Max chain, and ` 100 crores on Citymax 3 star hotel chain. Lifestyle International is their international brand business.

K Raheja Corp Group has a turnover of ` 6.75 billion which is expected to cross US$100 million mark by 2010. Segments include books, music and gifts, apparel, entertainment etc.

Reliance has more than 300 Reliance Fresh stores; they have multiple formats and their sale is expected to be ` 90,000 crores ($20 billion) by 2009-10.

Pantaloon Retail has 450 stores across the country and revenue of over ` 20 billion and is expected to touch 30 million by 2010. Segments include Food & grocery, e-tailing, home solutions, consumer electronics, entertainment, shoes, books, music & gifts, health & beauty care services.

Retail and recession The global economic slump has had its impact on the India retail sector. One of the earliest players in the Indian retail scenario Subhiksha's operations came to a near standstill and required liquidity injection. Vishal Retail secured corporate debt restructuring (CDR) plan from its lenders while other players like the Reliance Retail run by Mukesh Ambani and Pantaloon led Kishore Biyani by went slow on expansion plans and even scaled down operations. However, during the last quarter a bit of confidence was restored as the economy showed signs of growth. Future Trends

Lifestyle International, a division of Landmark Group, plans to have more than 50 stores across India by 201213.

Shoppers Stop has plans to invest ` 250 crore to open 15 new supermarkets in the coming three years.

Pantaloon Retail India (PRIL) plans to invest US$ 77.88 million this fiscal to add up to existing 2.4 million sq ft retail space. PRIL intends to set up 155 Big Bazaar stores by 2014, raising its total network to 275 stores.

Timex India will open another 52 stores by March 2011 at an investment of US$ 1.3 million taking

its total store count to 120. In the first six months of the current fiscal ending September 30, 2009, the company has recorded a net profit of US$ 1.2 million.

Australia's Retail Food Group is planning to enter the Indian market in 2010. It has plans to clock US$ 87 million revenue in five years. In 20 years they expect the India operations to be larger than the Australia operations.

The Road Ahead Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets. By 2012 the rural retail market is projected to have a total of more than 50 per cent market share. The total number of shopping malls is expected to expand at a compound annual growth rate of over 18.9 per cent by 2015. According to market research report by RNCOS the Indian organized retail market is estimated to reach US$ 50 billion by 2011.

GROWTH OF RETAIL SECTOR IN INDIA

Retail and real estate are the two booming sectors of India in the present times. And if industry experts are to be believed, the prospects of both the sectors are mutually dependent on each other. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large-scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are

Low share of organized retailing Falling real estate prices Increase in disposable income and customer aspiration Increase in expenditure for luxury items (CHART)

Another credible factor in the prospects of the retail sector in India is the increase in the young working population. In India, hefty pay packets, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector.

These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores.

The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space specially the malls, the Tier II cities are no longer behind in the race.

If development plans till 2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The government of states like

Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increasing the availability of land for retail space; thus making NCR render to 50% of the malls in India.

Retail, one of Indias largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market.

Accounting for over 10 per cent of the countrys GDP and around eight per cent of the employment retailing in India is gradually inching its way toward becoming the next boom industry.

India is being seen as a potential goldmine for retail investors from over the world and latest research has rated India as the top destination for retailers for an attractive emerging retail market. Indias vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets.

Even though India has well over 5 million retail outlets, the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, burgeoning income and favorable demographic outline.

TRENDS OVER PAST FEW YEARS

Retailing in India is witnessing a huge revamping exercise as can be seen in the graph . India is rated the fifth most attractive emerging retail market: a potential goldmine. Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3

percent or US$ 6.4 billion . As per a report by KPMG the annual growth of department stores is estimated at 24% Ranked second in a Global Retail Development Index of 30 developing countries drawn up

by AT Kearney. Multiple drivers leading to a consumption boom:

o Favorable demographics o Growth in income o Increasing population of women o Raising aspirations: Value added goods sales

Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with affluent classes and

growing number of double-income households. More successful in cities in the south and west of India. Reasons range from differences in

consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural

market across most categories of consumption . o ITC is experimenting with retailing through its e-Choupal and Choupal Sagar rural

hypermarkets. o HLL is using its Project Shakti initiative leveraging women self-help groups to

explore the rural market. o Mahamaza is leveraging technology and network marketing concepts to act as an

aggregator and serve the rural markets. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically

change buying behavior across the globe.

slowly making its presence felt.

RETAIL SALES IN INDIA

MAJOR ISSUES CONCERNING THE INDIAN RETAIL INDUSTRY

Overambitious expansion, squeezed profit margins, and unsustainable operational costs have adversely affected Indias organized retail sector

Till recently, the government and the industry alike were betting big on the countrys organized retail sector, touting it as the growth engine for job creation and economy.

However, the faltering of Subhiksha, which had 1,600 stores till December 2008, seems to have shattered the hopes. Before Subhikshas debacle came into public glare, it was the shining example of a successful retail venture. Its founder R Subramanian was the blue-eyed boy of the industry. So what went wrong? Does it mean that the business model that supports discounted small-stores format is flawed or is Subhiksha only an exception?

The retail scene

The Indian retail sector is largely dominated by nearly 12 million unorganized players, who constitute nearly 90 to 95% of the sector, which is the highest in any country.

On the other hand, the organized retail sector accounted for only 5 to 7% in 2008. Of these, nearly 80% of such outlets are small family-owned businesses. In 2008, the size of the retail industry was pegged at US$ 353 billion in an ASSOCHAM-KPMG joint study.

The retail sector can broadly classified into four major categoriesfood and groceries, consumer durables, apparel, and pharmaceuticals.

These together account for almost 60 to 70% of the total retail market. Of these four categories, food and groceries account for the largest share of 74%, according to India Brand Equity Foundation (IBEF). The food and groceries segment is estimated at $152 billion.

However, organized retail in this sector is just about 1% of the total share, which also indicates the lowest penetration level amongst other major categories.

This had prompted many big and small players to grab a pie in the organized retail sector. The major players are Subhiksha, Spencers, Reliance Fresh, More etc.

Retail Facts Total Indian retail market is estimated to grow from $353 billion in 2008

to $416 billion by 2010

Share of organized retail sector is ~7% and is expected to be 12% by 2010

Size of organized retail sector is estimated to reach $51 billion by 2010

The Indian retail industry can be broadly classified into food and grocery, pharmaceuticals, consumer durables, apparel

Some major players in food and grocery sectorReliance Fresh, Spencers, Big Bazaar, More etc.

Source: ASSOCHAM-KPMG study

The big question

Let us consider two points at this stage.

One, a typical Indian household of two spends nearly 10% of its budget on purchasing grocery, vegetables and fruits.

Two, products such as rice, wheat and pulses are utility items that are non-elastic.

Several consumers whom DARE spoke to said the slowdown had not affected their spending on grocery, fruits and vegetables. A customer, Rekha Sharma said, The recession has not made a big difference to my household budget on grocery, fruits and vegetables.

According to Piyush Sinha, Professor of Marketing and Chairperson, Centre for Retail at Indian Institute of Management, Ahmedabad, Even during a recession, basic utility items like grocery and medicines will be bought and most retailers look at this segment. The Subhiksha story is not an exception but just a reflection of things to come.

If such is the case, then what is ailing Indias organized retail and is causing the closure of such outlets?

Unorganized Retail Vs Organized Retail Unorganized Stores Discounted Small-stores

Characteristics

Small store, household business generally employing family members

Comparatively large, shelving branded products, approximately 15 employees per 2,000 sq ft

Driving factors

Unplanned purchases, round the corner location, consumers purchase perishable goods like milk and curd, home-delivery, monthly accounts, discounts to regular customers, familiarity with the store for years

Planned purchase, availability of several brands of a particular product, discounts, deals, ambience, visual merchandising

Challenges

Not all brands are available, price comparison always not possible, small

Availability of in-house brands is not always good because consumers may not associate with them, parking, freshness, distantly located compared to mom-and-pop stores

A flawed model?

When the era of organized retail started in India, a lot of players entered this segment. In the food and groceries section itself, players like Subhiksha, Reliance Retail, Big Apple, Sabka Bazaar, Spencers, More etc started opening outlets and most of them adopted the discounted small-store format. An industry insider says the model that these companies adopted was flawed because their expenses far outstripped profit margins. Thus, more money was seeping out in the form of discounts and operational costs, while less was coming back into the kitty. Their expenses, which included rentals, employee salaries, inventory, cost of monitoring etc, were higher than their margins. These stores were making money but were not profitable, he says.

Brands Vs In-house Brands Brands In-house brands

Advantages

Brand name Consumers associate

them with quality Advertisements, hence

better visibility Prestige associated with

owing the brand

From the point of view consumers: ~30-40% cheaper than brands

From the point of view of retailers: Only production cost involved and no advertisement or distribution charges involved

Disadvantages Expensive Must live up to

expectations

Consumers may not associate with it, especially when placed with a branded item

Less visibility Available only at the retail

store

Some Examples

Tea Red Label, Lipton, Taj Mahal Reliance Value (Reliance Fresh)

Handwash Dettol, Lifebuoy Caremate (Big Bazaar)

Jam Kissan, Tops Smart Choice (Spencers)

Noodles Maggi, Top Ramen Reliance Select (Reliance Fresh)

The situation worsened with the expansion spree. Another reason is that they thought customers would be attracted by discounts, for which they eliminated the middlemen and started dealing directly with big fast-moving consumer good (FMCG) players.

The FMCG players have their own vested interest and in the long run they would like to be in a commanding position than in a negotiating position, which would have been the case with organized retail players.

Sinha substantiates the point and says, If you give more discounts, your margins will further shrink and therefore you need more customers. A bigger store may not necessarily mean more footfalls. And if you do not have more consumers, your inventories will suffer because you will have the burden of more stocks to clear.

Unmindful expansion strategy

This one seems to be the biggest demon of all. This is a factor that has impacted all retailers. It is just that some have been impacted more and some less. The fact is that almost everybody has grown far too soon too quickly. The growth is far much more than they could have managed, says Sinha.

Till recently discount store Subhiksha, which is currently neck-deep in debt of more than Rs 750 crore, was reportedly planning to add two million sq ft by the end of the fourth quarter of 2009. On the contrary, the company has closed its 1,600 stores across 110 cities, with R Subramanian reportedly saying that his company owes Rs 45 crore to suppliers, Rs 20 crore to employees and Rs 24 crore as rentals for various stores! Subhikshas troubles started when it began expanding at a rate of 800 stores a year on debt capital. The situation is not very different with Reliance Retail, with rumors afloat that a number of stores have been shut and several employees have been sacked.

Large Retail Format Retailers sell their in-house brands at a price that is significantly less than

branded products

They keep on adding and deleting in-house brands so that even if the customer finds a product wanting in quality after purchase, the negativity is limited to the brand, not the outlet

A visit to a prominent, large-format retail store, in Delhi was an eye-opener of sorts. The store was located in a mall, which hardly boasted any big brands being newly built, but in contrast, the retail store was very crowded! Here is what DARE found: Customers: Belonged to the middle class or upper middle class, unlike customers visiting small organized retail outlets, it was a family visit or they were accompanied by friends A Pen Picture:

One-stop shopping experience; the store stocked everything from apparels to consumer goods to grocery; had different floors for each category

A lot of variety in terms of products; a lot of deals and discounts were available

Had various brands both in-house and other labels; in-house brands were mixed with other known brands to an extent that it was not identifiable

Had many staff members who were helpful The store was clean and organized Had parking space as the store was located in a mall

Sinha says, Everybody is trying to give a good value to customers. However, the cost that is incurred in the process takes time to be re-couped. The market may not grow at that rate. What has happened is in the wake of growth is that players have focused on opening more stores than consolidating the older ones. The process of expansion has to be supported with adequate funds, inventory, and service, which was clearly lacking in the case of Subhiksha. Does this mean that other retailers are also following the footsteps of Subhiksha in unmindful expansion?

Customers unprepared?

Vijaylakshmi Menon, a housewife who prefers to purchase grocery from the kirana store says, I do go to organized retail outlets, but not that frequently. I am aware that these stores do provide some discounts, but I do not mind spending one or two rupees extra at the nearby kirana store where I have been a regular for almost the last three years.

One of the reasons behind the attractiveness of kirana stores over organized retail outlet is the nearness of these stores and this supports unplanned and sudden purchases. Also, the rapport that customers develop with mom-and-pop stores also plays an important role in affecting consumer behavior.

The customers take time to migrate from these stores. Retail does not merely mean distribution.

A lot of work has to happen before customers start patronizing the stores. And it takes time for customers to understand a lot of things like whether they are getting the right deal or not.

You cannot ask customers to shift by giving them the lure of better environment. It is the value that one delivers overtime that drives consumers. That ensures whether the customer will stick to you or not, says Sinha.

No localized approach

The business of retail (food and grocery) is very localized.

The consumer behavior in a particular area, for example Delhi, may not be the same as those of consumers in another city such as Chennai. Thus, the consumer needs differ widely across the country. Therefore, distinct strategies should have been adopted for different regions. What one must keep in mind is that if you are opening a store such as a grocery store then you have a catchment area. It is a very localized business that has to be built bottom up. It is not a business that can be pushed from top to down. So, macro strategies may not work all the time. You need customized strategies, says Sinha.

Freshness: A concern

For most of the customers DARE spoke to, freshness of the commodity was a major concern. Unlike the West, Indian consumers lay huge importance to the freshness of food especially milk, vegetables and fruits. Even loyal customers of organized retail stores purchased these items from traditional stores, street hawkers and mandis. Their recent purchase pattern indicated that even though they bought pre-processed food, pulses, spices etc from the organized retail stores, perishable items such as milk, curd, vegetables and fruits were bought from the local stores.

Says Vijaylakshmi, I buy fruits and vegetables from the local market. This is because they are fresh and I can negotiate prices. Moreover, these items are bought in small quantities and therefore for many consumers, traditional stores, street hawkers and mandis make more sense because of convenience.

Home deliveries

There are some services that are provided exclusively by kirana stores that drive consumers to these stores, such as home-delivery. In India, groceries are purchased in bulk mostly at the beginning of the month and home delivery facilitates this. Also, selling on credit has long been the forte of the kirana stores. This ensures that customers stick to with them for long.

In-house brands vs private brands

For customers like Monica Chawla, who prefers retail chains over the nearby mom-and-pop store, it is the availability of branded goods that matters the most. Unlike the kirana stores, the organized stores stock up a number of brands of a single product. However, these stores also have a generous supply of in-house brands.

On an average, in-house brands come at a discount of up to 30 to 40%, which is due to the absence of advertising and distribution costs. However, this also means that these private labels lag behind the branded products in terms of visibility and hence, sale.

Moreover, when such products are placed vis--vis branded items, consumers may opt for a branded product than a private label. The discounts caused a major hit at profit margins

STRATEGIES, TRENDS AND OPPORTUNITIES

Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India.

Modern retail has entered India as seen in sprawling shopping centres, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. The Indian retailing sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory.

The Indian population is witnessing a significant change in its demographics. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing workingwomen population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector in India.

CHALLENGES & OPPORTUNITIES Retailing has seen such a transformation over the past decade that its very definition has undergone a sea change. No longer can a manufacturer rely on sales to take place by ensuring mere availability of his product.

Today, retailing is about so much more than mere merchandising. Its about casting customers in a story, reflecting their desires and aspirations, and forging long-lasting relationships.

As the Indian consumer evolves they expects more and more at each and every time when they steps into a store. Retail today has changed from selling a product or a service to selling a hope, an aspiration and above all an experience that a consumer would like to repeat. For manufacturers and service providers the emerging opportunities in urban markets seem to lie in capturing and delivering better value to the customers through retail.

For instance, in Chennai CavinKares LimeLite, Maricos Kaya Skin Clinic and Apollo Hospitals Apollo Pharmacies are examples, to name a few, where manufacturers/service providers combine their own manufactured products and services with those of others to generate value hitherto unknown.

The last mile connect seems to be increasingly lively and experiential. Also, manufacturers and service providers face an exploding rural market yet only marginally tapped due to difficulties in rural retailing.

However, manufacturers and service providers will also increasingly face a host of specialist retailers, who are characterized by use of modern management techniques, backed with seemingly unlimited financial resources. Organized retail appears inevitable. Retailing in India is currently estimated to be a US$ 200 billion industry, of which organized retailing makes up a paltry 3 percent or US$ 6.4 billion. By 2010, organized retail is projected to reach US$ 23 billion. For retail industry in India, things have never looked better and brighter. Challenges to the manufacturers and service providers would abound when market power shifts to organized retail. CONCLUSION The retail sector has played a phenomenal role throughout the world in increasing productivity of consumer goods and services. It is also the second largest industry in US in terms of numbers of employees and establishments.

There is no denying the fact that most of the developed economies are very much relying on their retail sector as a locomotive of growth. The India Retail Industry is the largest among all the industries, accounting for over 10 per cent of the countrys GDP and around 8 per cent of the employment.

The Retail Industry in India has come forth as one of the most dynamic and fast paced industries with several players entering the market.

But all of them have not yet tasted success because of the heavy initial investments that are required to break even with other companies and compete with them.

The India Retail Industry is gradually inching its way towards becoming the next boom industry.

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RELIANCE FRESH

History of Reliance Fresh

Post launch, in a dramatic shift in its positioning and mainly due to the circumstances prevaling in UP, West Bengal and Orissa, it was mentioned recently in news dailies that, Reliance Retail is moving out of stocking fruits and vegetables[. Reliance Retail has decided to minimise its exposure in the fruit and vegetable business and position Reliance Fresh as a pure play super market focusing on categories like food, FMCG, home, consumer durables, IT and wellness , with food accounting for the bulk of the business.

The company may not stock fruit and vegetables in some states. Though Reliance Fresh is not exiting the fruit and vegetable business altogether, it has decided not to compete with local vendors partly due to political reasons, and partly due to its inability to create a robust supply chain. This is quite different from what the firm had originally planned.

When the first Reliance Fresh store opened in Hyderabad last October, not only did the company said the stores main focus would be fresh produce like fruits and vegetables at a much lower price, but also spoke at length about its farm-to-fork theory. The idea the company spoke about was to source from farmers and sell directly to the consumer removing middlemen out of the way.

Reliance Fresh, Reliance Mart, Reliance Digital, Reliance Trendz, Reliance Footprint, Reliance Wellness, Reliance Jewels, Reliance Timeout and Reliance Super are various formats that Reliance has rolled out.

In addition, Reliance Retail has entered into an alliance with Apple for setting up a chain of Apple Specialty Stores branded as iStore, starting with Bangalore

The Reliance Retail had to face various difficulties before the launch of Reliance fresh, because of the various circumstances prevailing in Orissa, West Bengal and UP, along with the news focusing on the dearth of vegetables and fruits stocks.

The retail business of Reliance then minimized its exposure in vegetable and fruit business, as a result established Reliance fresh positioning a pure super market play focusing on various categories like IT, consumer durables, home, FMCG and food.

The retail company of Reliance may not supply the vegetables and fruits in a few states, the Reliance Fresh decided to not to race with local wholesalers partly because of the political reasons as well as its incapability to maintain a healthy supply chain

VISION Of RELIANCE RETAIL

Growth through Value Creation

With a vision to generate inclusive growth and prosperity for farmers, vendor partners, small shopkeepers and consumers, Reliance Retail Limited (RRL), a subsidiary of RIL, was set up to lead Reliance Groups foray into organized retail.

Since its inception in 2006, Reliance Retail Limited (RRL) has grown into an organisation that caters to millions of customers, thousands of farmers and vendors. Based on its core growth strategy of backward integration, RRL has made rapid progress towards building an entire value chain starting from the farmers to the end consumers.

Reliance Retail continued to expand presence of its value and specialty formats. During the year, Reliance Retail opened 90 new stores spanning across 'value' and 'specialty' segments. In-store initiatives, wider product choice and value merchandising enabled the business to achieve robust growth during this period.

Its presence in the optics business is in partnership with Grand Vision. 51 new stores were added during FY-11 taking the total presence to 100 stores across key markets in the country. The retail chain offers single brand optical products including Vision Express frames, lenses, contact lenses, sunglasses, solutions and accessories.

For the very first time, consumers in India got the opportunity to experience Hamleys, which is considered to be the world's most wonderful toy shop. The brand was launched in India with opening up of 2 stores during the year.

iStore by Reliance Digital is a one-stop-shop for all Apple products and services.

Reliance Brands also announced exclusive licensing arrangement with two leading international brands:

Steve Madden, a leading designer, wholesaler and retailer of fashion-forward footwear and accessories for women, men and children.

Quiksilver, a leading outdoor sports lifestyle company to launch their core brands 'Quiksilver' and 'Roxy'.

Across India, Reliance Retail serves over 2.5 million customers every week. Its loyalty programme, "Reliance One", has the patronage of more than 6.75 million customers.

A subsidiary of Reliance Industries of India that is headed by Mukesh Ambani, Reliance Fresh is primarily a supermarket that strives to provide all the essential household commodities under one roof.

In addition to fresh fruits and vegetables, the store also sells staple food items, diary products, packaged food products, baby products, electrical goods, and the like.

The size of a typical Reliance Fresh store varies between 3,000 and 4,000 square feet, and it can easily cater to an area of 2 to 3 Kms in its vicinity.

In the present day, there are 560 outlets of Reliance Fresh across the country, and in the next 4 to 5 years the company plans to invest Rs. 25,000 crores in this venture.

BACKGROUND

Reliance Fresh a convenient store format, is governed by the Mukesh Ambani and is the most important part of Reliance Industries retail Business. Reliance Ltd. has planned to invest more than Rs. 25000 crores in the retail division.

It also comprises more than 560 reliance fresh stores all over the country. The outlet sells fresh fruits, staples, dairy products, fresh juice bars, groceries and vegetables.

A distinctive Reliance Fresh outlet is around 3000 to 4000 sq. feet and accommodates catchment area of one to three Kilometers.

The super marts will sell fresh fruits and vegetables, staples, groceries, fresh juice bars and dairy products and also will sport a separate enclosure and supply-chain for non- vegetarian products. Besides, the stores would provide direct employment to 5 lakh young Indians and indirect job opportunities to a million people, according to the company.

The company also has plans to train students and housewives in customer care and quality services for part-time jobs.

The company is planning on opening new stores with store-size varying from 1,500 sq ft to 3,000 sq ft, which will stock fresh fruits and vegetables, staples,FMCG products and dairy products.

Each store is said to be within a radius of 1-2 km of each other, in relation to the concept of a neighbour store.

However, this is only the entry roll-out that the company has planned. Bangalore is said to have 40 stores in all by the end of the year. In a dramatic change due circumstances prevaling in UP, West Bengal and Orissa, It was mentioned recently in News Dailies that, Reliance Retail is moving out stocking.

Reliance Retail has decided to minimise its exposure in the fruit and vegetable business and position Reliance Fresh as a pure play super market focusing on categories like food,FMCG, home, consumer durables, IT, wellness and auto accessories, with food accounting for the bulk of the business.

The company may not stock fruit and vegetables in some states, Orissa being one of them.

Though Reliance Fresh is not exiting the fruit and vegetable business altogether, it has decided not to compete with local vendors partly due to political reasons, and partly due to its inability to create a robust supply chain.

This is quite different from what the firm had originally planned. When the first Reliance Fresh store opened in Hyderabad last October, not only did the company said the stores main focus would be fresh produce like fruits and vegetables at a much lower price, but also spoke at length about its farm-to-fork theory. The idea the company spoke about was to source from farmers and sell directly to the consumer removing middlemen out of the way. Reliance may exit some businesses if the business does not increase by March 2008.

OBJECTIVES

The chief objective of Reliance Fresh stores is :-

1) To provide customers first-rate household products at affordable rates. 2) At the same time, the company spares no effort to safeguard the interest of the farmers

and manufacturers. 3) The producers get a chance to sell their products directly to the merchandiser, and

that too at the best price.

Thus, it is a win-win situation for all, the merchandiser, producer and consumer.

CORPORATE SOCIAL RESPONSIBILITY

Today when most of the companies are busy in making profits by any means, there are few ones who are focused to return this society, a part of what they have earned through this society. Reliance retail is one of them. Following efforts of reliance retail are aimed at benefiting the society making reliance socially responsible:

1)Reliance Retail aims at insociety. They are planning to train students from corporation schools and schools run by NGOs and they consider this as a part of their corporate social responsibility They will take students on an employment basis and pay them a stipend during the course period in return they are planning to charge a "small fee" from those who want to join the course "as we want to bring in some discipline and regularity among the students", and will reimburse that once they are inducted into service.

2) Farming in India is highly fragmented and subject to harsh climatic conditions: once harvested, it is very difficult to keep fruits and vegetables fresh.

To secure high quality, Reliance Retail is directly sourcing fresh agricultural produce from thousands of farmers from villages through Collection Centers. With this concept, Reliance has built a business model generating shared value that links the company supply chain more closely to poor farmers in Indian villages. Reliance is providing a guaranteed market for the farmers produce, reducing transaction costs and training the farmers in better and sustainable farming practices.

This initiative results in higher income and upgrading of skills for the farmers, and reduced spoilage of produce (up to 35 percent) and better quality products for Reliance retail stores.

Growth of Reliance Fresh

The first ever a Reliance Fresh store was established in Hyderabad, wherein the company, mainly focused on the fresh produced vegetables and fruits at comparatively low price along with an introduction of farm to fork theory. This was the idea, which was anticipated by the company was to take the supply direct from the farmers and then sell straightaway to the consumers removing the middle-men off the beaten track. Reliance introduced several formats in the marketplace to cater to needs of common people, which includes Reliance Fresh, Reliance Super, Reliance Footprint, Reliance Timeout, Reliance Jewels, Reliance wellness, Reliance Mart and Reliance Digital, to name a few. In addition to this, the Reliance Retail also entered into a treaty with Apple, which is a leading Information Technology company, to set up a series of Apple Specialty Outlets branded as IStore, with its first ever store in Bangalore. With an idea to produce inclusive prosperity and growth for farmers, consumers, small shopkeepers and vendor partners, Reliance Retail was set up in order to lead the foray of Reliance Group into an organized retail.

NEWS ARTICLES ON RELIANCE FRESH

WHEN RELIANCE FRESH OPENED

Monday, Nov 06, 2006 , Financial Express : Reliance Retail, the 100% subsidiary of Reliance Industries, on October 28 unveiled Reliance Fresh, the first of its multi-format retail foray involving an investment of Rs 25,000 crore. Reliance Fresh is the companys brand for neighbourhood fresh-food outlets. It will also sell kitchen equipment and other edibles. Besides, it has planned hypermarkets, supermarkets, discount stores, department stores, convenience stores and specialty stores, to be unveiled shortly. The next stop for Reliance Retail will be Ahmedabad, where the company will launch an outlet on December 28, the birthday of RIL founder Dhirubai Ambani. After that, it will move to West Bengal and Punjab, followed by simultaneous launches in Delhi and Mumbai. These stores, ranging from 2,000 to 5,000 sq feet, will provide customers with a variety of fresh fruits, vegetables, staple foods and other products in a world-class ambience, said Gunender Kapur, president, foods business, at the unveiling ceremony. The strategy is to open one Reliance Fresh store in a radius of three to four km to serve 1,000-2,000 families. This means about 30-40 stores in the major metros. The air-conditioned stores recorded combined sales of Rs 22 lakh on the inaugural day itself. Reliance Fresh is selling vegetables and fruits sourced from farmers through the companys agri hubs.

AN HOUR AT RELIANCE FRESH

Reliance Fresh has opened up retail supermarkets selling fruits and vegetables in major cities of India. A few days ago, we visited the local Reliance Fresh supermarket in New Friends Colony and this is what we observed -

1. Range of Products - Regular vegetables, fruits, Reliances' own brands of packed pulses, Maggi products and Pepsi.

2. Prices - The price was marked in paisas just like at American stores. For example - Potatoes were priced at 5.90 per kg while onions were 15.90 per kg. Yeah right, what difference does 10p make?

3. Comparable Cost - The rate of vegetables like onions and potatoes were 10p less than that of local vegetable sellers. The rate of other products were however much higher than they should have been. Seems like Reliance Fresh applied the same strategy that McDonalds uses to attract customers - ice cream for Rs. 7 and Cola for Rs. 20.

4. Customer Service - The staff in red shirts were mainly checking to see if people were shoplifting and did'nt seem to know much about the products or company. The guards kept yelling at everyone to have their bags checked before leaving.

5. Checking Out - There was a long queue that moved very slowly. VAT or value added tax was added to the bill which increased the cost of the vegetables just bought.

6. Parking - Absolutely zero parking. The guard was yelling at local rickshaw pullers to move away from the entrance.

7. Customers - were middle class folk from my apartment block. They kept touching and turning around each vegetable before selecting them just like they do at the regular vegetable sellers. This looked really out of place and added to a huge crowd

Reliance eyes retail JV with Marks & Spencer

Reliance Industries chairman Mukesh Ambanis deal-making spree to get the best domain expertise in the retail sector is poised for the big one now. Reliance Retail (RRL), is locked in substantial discussions to float an equal joint venture with iconic UK fashion retailer Marks & Spencer (M&S) for apparel, gourmet food and cafes, multiple sources said. The deal, slated to be clinched in the next three weeks, would see the UK retailer bringing in new formats like food and cafes into India. M&S core business apparel and lingerie is already operational in the country. According to a source close to the deal, the gourmet food format is likely to be integrated with Reliance Fresh wherever possible, (upmarket localities) as a shop-in-shop format. This would help M&S get immediate scale in food business. There are 491 Reliance Fresh stores that sell food, FMCG and fruits and vegetables and this figure is likely to touch 1,400 by the end of next fiscal. The implications of this particular JV are much deeper. Its much more holistic in nature and therefore taking long to seal, the source added. The $16-billion M&S, operating in the country through a franchisee arrangement with Planet Retail since 2001, is in the midst of charting a new India strategy aimed at accelerating expansion in the domestic market. It recently slashed prices by 20% to attract more footfalls in the stores and taking prime space in malls to open more stores

Reliance Retail ties up with UK's Wincanton for back-end biz

NEW DELHI: After having signed up at least half-a-dozen partnerships for specialty formats, Reliance Retail is now entering into a joint venture with leading European supply chain specialist Wincanton for its food and grocery and hypermarket businesses. The synergy would enable Reliance to efficiently run its critical back-end operations, which essentially include warehousing of goods and transporting them to stores on time. The latest move by Indias largest corporate house, which jumped on the retail bandwagon two years ago by promising to do everything on its own, seems to suggest that it now needs a partner for almost every retail initiative. Industry observers believe that the company has expanded very fast and has managed to set up over 600 stores across various retail formats in less than two years, but its supply chain is in a mess. How to get the right merchandise to the stores on time has been its biggest problem. Youd often not find the goods you want in Reliances food and grocery outlets, said a source.

Porter 5 force model for the existing Reliance fresh Business model

Threat of New entrants This threat is at maximum at this point as it is most likely that government would allow 100% FDI in single brand retail outlets which is going to further make things difficult for Reliance Fresh Bargaining power of buyers This is the pressure a customer can place on a business. If there are few buyers then they are able to dictate the terms with increasing access to technology, increase in number of choices and customers are always connected to each other through various social networking sites more than ever before which make bargaining power of buyers even stronger

Bargaining power of suppliers

A company to manufacture its products requires raw material, labour etc.This creates a buyer-supplier relationship in an industry. If there are few suppliers providing material essential to make a product then they can set the price high to capture more profit. Again due to increase in number of players in organized retail sector bargaining power of suppliers is also on the rise as they have many options where they can negotiate their prices

Competitive rivalry within the industry is also on the rise.This describes the competition between the existing firms in an industry. Greater the competitive rivalry (companies providing equally good products or services) lesser are the profit margin.With entry of foreign players it would make the competition even more intense

Problems faced by Reliance Fresh The following graphs are a clear indicator that Reliance Retail of which Reliance Fresh is a major arm that Reliance Fresh is even at current state facing problems

As the winds of economic reform have swept across the Indian economic landscape since the 1990s, the slow pace of retail liberalisation has become increasingly conspicuous. Most notably, foreign direct investmentfreely permitted in most sectorscontinues to be banned in the retail sector, with the exception of single-brand retailing. Now it was the turn of domestic corporate retailers to face the heat. The trouble began in late August 2008 , in Uttar Pradesh, Indias most populous state, when the state government cited law-and-order problems to order the shutdown of all stand-alone corporate retail outlets selling fruit, vegetables and groceries. This was in response to violent protests against new Reliance Fresh stores set up in the cities of Lucknow and Varanasi by Reliance Industries, an Indian corporate giant with ambitious retailing plans. As of mid-October, protestors against organised retail had targeted Reliance and other corporate retailers in Uttar Pradesh, Kerala, West Bengal, Mumbai and Orissa. Though counter-productive in terms of efficiency and modernisation, this opposition to organised retail is easy to explain. Before Indias recently acquired image as an economic powerhouse, it was sometimes disparagingly referred to as a nation of small shopkeepers. Indeed, there are currently over 12 million retailers in India, and the sector provides a livelihood for a huge number of people. Most of these shops are tiny family-run businesses operating with meagre

capital. There is also an enormous number of retailers selling fruit and vegetables from carts or on the roadside. Meanwhile, Indian corporate giants such as Pantaloon Retail, Reliance Industries and RPG Group, seeking to profit from the forces of consumerism unleashed by economic growth and liberalisation, have been scrambling to expand their retailing operations. Not unreasonably, small retailers feel threatened by the big companies plans.

EXPECTATION IN FUTURE

a) Small scale industries and existing brands will not be able to compete with these behemoth international players with enormous amount of capital:

Most of the economies have developed their industry, agriculture and services in order to increase their pace of development. In case of India, manufacturing has seen hardly any growth since our economy has opened up. This has lead to unemployment at one end, and at the other end it has lead to huge setback to the existing industries. Many of the national brands have been lost, decreasing the number of employment in manufacturing sector. When the retail chain takes over, it will have access to all the products of the world, and will sell the best at the cheapest, leading to further closure of existing industries which in turn will lead to loss of economy and massive unemployment. Small scale industries will suffer the most in this present context, where at one end, MNCs are allowed to have 100% FDI in small scale industries in SEZ and on the other hand cheap goods could be imported by the retail giants. Our SSI is not properly organized, and suffers the economies of scale, thus will never be able to compete with the retail giants on the price aspect, which seems to be a matter of serious concern for the existence of SSI in India. In a situation where the existing SSI is already going through a very tough time, this would serve as a fatal blow.

b) Impact on farmers and consumers

Influence on farmers

After independence there was a general feeling that agricultural markets do not function in a proficient manner. Apart from inefficiencies in distribution, including wastage of agricultural produce, the farmers suffer due to exploitation by traders on different accounts. To overcome such problems different state governments enacted their respective APMC Acts. These Acts made stringent provisions to save the farmers from exploitation, promoted efficiency, etc. Structure of Agricultural Produce Marketing Committee (APMC), the apex decision making body in respective mandis was made such that farmers were in overwhelming majority and chairman of the Committee would also be a farmer. It also ensures the transparency of trade and accountability of the trader and mandis towards the society. Every day the rates of the products are fixed in the mandi depending upon demand and supply and no trader can buy more than a certain limit( to avoid hoarding). There is no question of monopoly here as there are a number of buyers and sellers; this in turn keeps the

prices of the commodities fair. Moreover there is a government check on all the trading that happens through mandi, so that no unfair practices can take place.

The Model APMC Act leads to de-democratisation of agricultural markets and therefore limits the rights of the farmers to control agricultural markets. The experience world over and even in the states where private yards have been allowed to be established by the companies, heavy profits have been made by these companies without giving any benefit to the farmers. For instance the average price of Soya paid by ITC to the farmers in Madhya Pradesh was around Rs. 1150/- per quintal, it was sold by the company at an average price of Rs. 1555/- per quintal. Even the rules of contract farming, given by Model APMC Act and adopted by various state governments also favour multinational agribusiness firms. Small and marginal farmers, which constitute 90% of the farming community, have been left at the mercy of these firms. Not only this, even the definition of an agriculturist have been changed to suit the best interests of these corporations. In earlier Acts agriculturist was defined as one whose livelihood depends directly on farming. Now a change in the definition of agriculturist is contemplated as - A person who is a resident of the notified area of the market and who is engaged in production of agricultural produce himself or by hired labour or otherwise.

In the case of these huge retail chains, there is lesser possibility of transparency of prices paid and the amount stocked. They are permitted to stock huge amounts of food supplies, as per their business model, without having mechanisms for transparence. In such conditions it is not very difficult for them to hoard and act unfair. For example let us see two commodities wheat and apple. Private corporations had bought huge quantities of wheat from the farmers directly last year and we had to import wheat from other countries and all of us know about the hike in the price of wheat this year. Similar is the case of apple, in last season, these companies had bought around 30% of the apple production straight from the local mandis of Himachal and Kashmir, and we can see the prices of apple this year are very much higher compared to earlier years, even though there was good production of apples last season.

ii) Consumer

In due course of time if these retail outlet completely overtakes the traditional system, we would see a series of change. First if the traditional system is gone, we will have only one mega retail outlet in the vicinity, and the choices given by the outlet, has to become choices of the consumer. In such a case there is an expectation of formation of cartel amongst the chain and the prices of the commodities will shoot up. But at that time we will have no other option but to procure our goods from one of these outlets, at whatever prices they demand from us. We have seen this in the case of UK, where the average spending on food and beverages as a percentage of the total income of an average household has shot up since these giant corporations have come into retailing. Moreover the choices the consumers are left also decrease with the coming up of these stores; every thing is standardized the personal choices of the consumers are not taken care of. This is a system where the consumer adjusts himself to the product and not the vice versa.

Public Perception and Movements Protests and demonstrations by the local vegetable and fruit vendors since they would lose their livelihood The fear was basically due to the following advantages they think corporate players had at the same time, corporate retailers have several advantages that are making it possible for them to attract growing numbers of customers. For instance, there are many inefficiencies in the traditional supply chain in India. Fruits and vegetables typically reach the Indian consumer only after passing through various middlemen, few of whom possess adequate capital to invest in cold chains and other infrastructure. Corporate retailers are hoping that their business modelwhich combines direct sourcing from farmers (including contract farming), large volumes and substantial investments in infrastructurewill enable them to offer fruit and vegetables at considerably lower prices.Modern retail outlets also offer a pleasant and comfortable ambience for shopping, enable easy comparison of a wide range of products, ensure the quality of products, and offer self-service. These benefits are likely to woo many Indian customers, even though some products may be cheaper in traditional stores. Too much Hype and they seem to be aggressive The best example they could learn from in this case could be their competitots though not existing then is from Bharti-Walmart collobaration.Walmart we all know is the big daddy of retail business all over the world and collaboration with them is a pride for any company, but Bharti on the other side did not create a hype about it and are successfully running their cash and carry stores in Punjab and will soon expand too. Although many companies are now being targeted by protesters, the current uproar is based in perceptions of a single company, Reliance Retail. One reason for this is that Reliances retail-sector plans are perhaps the most ambitious among the corporate retailers. In June 2006, while informing shareholders about the groups retailing initiative, Reliances chairman, Mukesh Ambani, announced plans for anenormous investment of Rs250bn(US$6.4bn) to setup a retail network that is unprecedented in scope.The companys objective is to establish a pan-Indian, multi-format presence covering 1,500 cities and towns, and employing over 500,000 people.Reliance has been implementing its plans aggressively.Between November 2006when the company opened its first store in Hyderabadand September 2007, Reliance Retail set up over 300 stores in more than 30 cities and towns in 12 states.It has also established 108 collection centres in 16 states for sourcing, processing and selling agricultural produce, while signing up around 1.5m customers for its RelianceOne loyalty scheme. Until now, Reliance has also focused on the storeformat that is most likely to compete with traditional retailers. While most Indian corporate retailers have set up supermarkets that sell a wide range of groceries, household goods and personal items in addition to fruit and vegetables, the Reliance Fresh chain consists of considerably smaller neighbourhood convenience stores that focus mainly on food, including fruit and vegetables. Through its supply-chain initiatives, Reliance Fresh has been able to sell its produce at significantly lower prices than

traditional retailers. As a result, many traditional retailers of groceries, fruit and vegetables have found themselves competing directly with a nearby Reliance store. Political Pitfalls Protests by local fruit vendors and vegetable shop owners slowed the expansion of corporate retailers planning to set up new stores in the states where opposition has surfaced. However, most of the announcements made by these state governments were designed to appease the anger of small retailers and their political supporters, rather than to express strong ideological opposition to organised retailing. In Uttar Pradesh, for instance, the closure of retail outlets has been restricted to those selling fruit, vegetables and groceries in stand-alone stores. Reliance Fresh and Spencers borne the brunt of the closure. Moreover, the shutdown is temporary and the state government has set up a committee to examine this issue. Given the huge number of small retailers in democratic India, no political party can afford to ignore their views. Reports indicate a major softening of the governments stand on the nuclear deal to avoid a snap poll at that time and was hardly an appropriate time to upset such a significant constituency, and relevant government agencies were currently debating the introduction of various policies to protect small storessuch as licensing of big retail outlets by local bodies in cities and towns. Nevertheless, there were enough supporters of organised corporate retailing in India to ensure that no permanent roadblocks are created. Obvious beneficiaries of organised-retail growth include the corporate sector, consumers and farmers, but there is also widespread support among (non-leftist) politicians, policymakers and intellectuals, who realise that a modern and efficient retail sector is an important part of economic development. As a result, it is likely to be just a matter of time before the government actually relaxes its restrictive policy on foreign investment in retailing by permitting foreign companies to invest freely in the sector. Reliance Retail put on hold its expansion plans in the states where opposition to organised retailing has surfaced. Reliance is known for the speed and aggression with which it enters new businesses, as demonstrated by its blitzkrieg marketing campaign when it began mobile telecom services in 2002, catalysing a sharp reduction in Indian mobile call tariffs. But now the company has painfully realised that in politically sensitive sectors like retailing a much more cautious approach is advisable. Contrasting advantages that small players had However, the fears that organised retailing will put small retailers out of business were vastly exaggerated. Traditional small retailers in India have many strengths that will ensure their continued survival and growth despite the emerging competition from corporate retail chains. For one, they have the advantage of location, servicing the needs of families located in their vicinity. Indian housewives typically do not possess personal transport; they prefer to walk to nearby stores for their daily shopping, rather than to make longer trips to supermarkets located farther away. Adding to their convenience, neighbourhood grocery stores in India often offer a number of additional services such as credit and home delivery, and they typically keep very long hours. They are also able to run on

wafer-thin margins because they rely on family or cheap, untrained labour; incur low rental costs (or operate from their own property); and spend very little on display and interiors. These practices enable neighbourhood retailers to keep prices low and offer attractive discounts. Neighbourhood retailers are also willing to sell tiny quantities of loose (unpacked) grocery items, which is a major attraction for poor families. Given these factors, its not surprising that corporate retail continues to account for only a tiny proportion (estimated at less than 4%) of retail sales in Indiaeven though they began operations many years ago To sum up and what would support our business plan following is the reality Given their respective strengths, however, corporate and traditional retailing can co-exist and growin India for a long time to come. In fact, many customers already frequent both types of stores; much of corporate retails growth may represent enhanced consumption as a result of rising incomes and the growing variety of consumer goods, rather than the decline of traditional retailers. Until recently, moreover, Indian corporate retailers have faced little popular opposition, which indicates that most traditional retailers have not felt seriously threatened by them. In this light, the recent upsurge in protests against corporate retailing has come as a bit of a surprise

The retail revolution that has ushered in modern retailing is yet to make significant in-roads into almost 15 million kirana outlets (small mom-and-pop shops) throughout the length and breadth of the country. The diversity of population in terms of demographics (income ranges included), shopping patterns of different segments of consumers, the "every day" shopping mindset of a majority of consumers, the dominance of groceries and food purchases of consumers in the total retail purchases and the infeasibility of modern retail outlets in diffusing themselves to completely replace kirana outlets are some of the reasons why retailing in India needs to be probed with insightful consumer behaviour

Latest Policies followed by Reliance Fresh

FARM-TO-FORK MODEL ADOPTED BY RELIANCE FRESH

Traditional Model Of Retailing Reliance Farm to Fork

Reliance is leaving no stone unturned and is poised to hit back aggressively and is taking following steps and adopting policies to turn itself into a profitable venture and compete effectively with its competitors Reliance is trying cash and carry model again in retail From grocery, Reliance Retail plans shift to supply : Refereed as Farm to Folk model by Ambani Reliance Retail was faced with massive opposition from the trading community. But like every great visionary Reliance had a prepared back-up, and this time it was much more powerful than the earlier one, throwing solutions to every previous dilemma . In a dramatic shift, it decided to turn into a trader itself. It entered the food-trading business as part of a major restructuring of its food and grocery initiative.

On 3 June 2011, at the 37th annual general meeting of RIL, chairman Mukesh Ambani announced that Reliance Retail would launch its cash-and-carry stores this year. RILs past experience in the retail business has not quite had the same success that its other businesses oil exploration, refining and petrochemicals Reliances re-entry into the business assumes significance even as global retailers such as Walmart, Tesco, Metro and Carrefour are expanding their presence in India, and amid anticipation that the government is likely to ease foreign direct investment (FDI) norms in retail. Currently, FDI is allowed only in the cash-and-carry business. But I think Cash-and-carry is, as yet, at a nascent stage in India. Third Eyesight, a retail consulting firm said Its a modernisation and organisation of the wholesale business, and an intermediate step needed in modernising the fragmented retail business. Something that Ambani has said he always believed in, which he called farm-to-fork. Most cash and carry operations are targeted at hotels, restaurants and cafeterias the so-called Horeca market, which accounts for close to 60 per cent of sales. Package sizes of goods are larger (meaning more per sq. ft sales and greater volume growth). Reliance Retail officials say that the Horeca segment will not be the primary focus of their cash-and-carry business. Rather, their target audience apart from their own chain of Reliance Fresh stores will be other retailers, or the kirana stores. The cash-and-carry business is an integral part of a retail supply chain in a country like India, where distribution and logistics are major problems and Reliances entry into the segment will help improve its other retail formats. Typically, retailers attempt to own the supply chain to give them control and better prices that benefits the end consume

It would thus be able to profit from commodity trading as well without worrying about the steep overheads and discounts that tied its hands in its avatar as RelianceFresh..

Company has already signed up with Spencer retail chains to supply cut fruits and vegetables.

Establishing itself in Mandis WHOLESALE TRADING (WST) : Reliance formalized its second supply chain model to shift itself from grocery retailer to grocery supplier by focusing and establishing itself in Mandis STEPS IN WTS MODEL: 1) Reliance has owned farms on contract basis for production of specific crop which Is decided after extensive research depending on :- SOIL CONDITIONS, CLIMATE CONDITIONS, RETURN OVER COSTS INCURRED. So as to yield best possible results