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Priyanka \n Pani, Businessworld\n <\/i><\/p>\n
Priyanka \n Pani, Businessworld
\n <\/i><\/p>\n
June \n 11, 2011
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Anyone remember Ranger Farms? In 2007, Reliance Industries’ subsidiary \n Reliance Retail launched its cash-and-carry retail format by that \n name. A year later, RIL ‘merged’ Ranger Farms into Reliance Fresh, \n its food and grocery business. Readers may also recall that in \n 2009, RIL put together a team of top officials it had hired from \n several wholesale players, including Gwyn Sundhagul, the chief \n marketing officer and director at Tesco Lotus, Thailand, to spearhead \n its cash-and-carry plans. But it appears that after a year and \n a half, that team has been disbanded.<\/p>\n
On 3 June, at the 37th annual general meeting of RIL, chairman \n Mukesh Ambani announced that Reliance Retail would launch its \n cash-and-carry stores this year. RIL’s past experience in the \n retail business has not quite had the same success that its other \n businesses – oil exploration, refining and petrochemicals – have \n had (see ‘Downturn’).<\/p>\n
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Reliance’s re-entry into the business assumes significance even \n as global retailers such as Walmart, Tesco, Metro and Carrefour \n are expanding their presence in India, and amid anticipation that \n the government is likely to ease foreign direct investment (FDI) \n norms in retail. Currently, FDI is allowed only in the cash-and-carry \n business.<\/p>\n
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But others think the rationale is different. "Cash-and-carry \n is, as yet, at a nascent stage in India," says Devangshu \n Dutta, chief executive at Third Eyesight, a retail consulting \n firm. "It’s a modernisation and organisation of the wholesale \n business, and an intermediate step needed in modernising the fragmented \n retail business."<\/b> Something that Ambani has said he always \n believed in, which he called ‘farm-to-fork’.<\/p>\n
Most cash and carry operations are targeted at hotels, restaurants \n and cafeterias – the so-called Horeca market, which accounts for \n close to 60 per cent of sales. "Package sizes of goods are \n larger (meaning more per sq. ft sales and greater volume growth); \n margins are also better," says Anand Ramnathan, manager at \n KPMG, the global consultancy. Compared to industry standards, \n Reliance Retail’s per sq. ft revenues have been lower, say industry \n analysts.<\/p>\n
Reliance Retail officials say that the Horeca segment will not \n be the primary focus of their cash-and-carry business. Rather, \n their target audience – apart from their own chain of Reliance \n Fresh stores – will be other retailers, or the kirana stores. \n <\/p>\n
"The cash-and-carry business is an integral part of a retail \n supply chain in a country like India, where distribution and logistics \n are major problems," says a Reliance Retail spokesman. "Reliance’s \n entry into the segment will help improve its other retail formats. \n Typically, retailers attempt to own the supply chain to give them \n control and better prices that benefits the end consumer."<\/p>\n
The majority of Reliance Retail’s more than 1,000 retail outlets \n are located in Tier 2 cities, and the company is working to spruce \n up logistics and transport to better serve those cities. But the \n officials gave no details on the scale of investment.<\/p>\n
At the AGM, Ambani set up an ambitious target of Rs 10,000 crore \n in revenues from the retail business in three years (of which \n cash-and-carry is part), or the end of FY14. On current revenues, \n that translates into a compound annual growth rate of just over \n 25 per cent. Making that kind of cash will carry Reliance Retail \n a long way.<\/p>\n