Reliance Fresh Essay
Giant corporations like Wal-Mart and Reliance have started to try and take over the Indian retail sector. The entry of the giant corporate retail in India’s food market will have direct impact on India’s 650 million farmers and 40 million people employed in tiny retail. More than 6600 mega stores are planned with Rs. 40,000 crore by 2011..
Even after recent shutdown of Reliance fresh stores from UP and unwelcoming vibes from states like Kerala, West Bengal, Orissa and Jharkhand for its retail format (which was allegedly capturing the unorganized sector and leaving thousands of self employed people jobless) Reliance was not in any mood to hamper its 25000 crore plan. Reliance responded with superb strategy in which it shifted its focus from retailer to being a supplier i.e. targeting hawkers, vendors, Push cart wheelers instead of customers.
Big retailers like Reliance have huge resources and network which directly impacted many of the retailers some of whom are planning to quit. In our sample size of 75 retailers more than 30 agreed to have lost as much as 50% of their sales.
BACKGROUND OF RETAIL
India is a land of retail democracy- hundreds of thousands of weekly haats and bazaars are located across the length and breadth of our country by people’s own self-organizational capacities. Our streets are bazaars – lively, vibrant, safe and the source of livelihood for millions. India has the highest shop density in the world, with 11 outlets per 1000 people. This does not include the village haats. Our retail democracy is characterized by
1. High levels of livelihoods in retail with nearly 40 million employed which
accounts for 8% of the employment and 4% of the entire population.
2. High levels of self – organization.
3. Low capital input
4. High levels of decentralization
Retail in India has started with the concept of weekly markets, where all the traders gather at one big place to sell their products every week. The people come to these weekly markets to buy the household items for the next one week. Village fairs and melas were also common as it had more of an entertainment value. Once the people started getting busy with their lives and when they turned entrepreneurial, there emerged the mom and pop shops and the kiranas in the neighborhood.
After independence, came into existence the system of Public distribution of foods through the ration shops, where food grains, sugar and oil for the daily consumption were distributed at subsidized rates through the government ration shops. The modern corporate retail formats are of the exclusive brand outlets, hypermarkets and supermarkets, departmental stores and shopping malls. But still the Indian consumer depends on the self-organized retail shops for their daily needs.
This is largely due to the excellent food retailing system that was established by the kirana (mom and-pop) stores that continue meet with all the requirements of retail requirements albeit without the convenience of the shopping as provided by the retail chains. The Hawkers/lari galla vendors and the local kiranas are the two main forms of unorganized retail in the country, which almost account for 97% of the total retail trade.
Giant corporations like Wal-Mart and Reliance have started to try and take over the Indian retail sector. Currently the value of the retail market is estimated at around $ 270 billion with a growth rate of 5.7 per cent per annum according to the Indian retail report. The size of small retail is big, the size of big retail is small, a mere Rs. 250 billion in 2004 or 3% and Rs. 485 billion or 4.7% per cent of the retail market in 2006. However, the large scale corporate retail is projected to grow at the rate of 28% to 30% per annum, reaching Rs. 1000 billion or $ 70 billion by 2010 from the current size of US $ 8.7 billion. The tenfold increase in corporate retail
will be at the cost of small scale retail, which employs nearly 10% of India’s population.
The strategy here is to define the small scale self-organized retail as “unorganized” and the large scale corporate retail as “organized”. The real difference is however not unorganized vs organized. But it is “self-organized vs. corporate”.
Reliance Fresh is the convenience store format which a part of Reliance Retail limited, a fully subsidiary of Reliance Industries Limited. Reliance plans to invest Rs 25000 crores in the next 4 years in their retail division. RRL launched its first store in Hyderabad in November 2006; major focus was on selling fresh fruits and vegetables at lower prices by eliminating the middle men and intermediaries. Now it has more than 560 reliance fresh outlets across the country of which 117 are in Delhi and plans to increase this number to 784 to have pan-india presence by 2011.
These stores sell fresh fruits and vegetables, staples, groceries, fresh juice bars dairy products and non vegetarian products. Stores, size varying from 2000-4000 sq ft, are located in the radius of 1-2 km of each other providing a good coverage of the area. Reliance retail has decided to reduce its exposure to fruit and vegetable business and position itself as a pure play super market and will focus on categories like food, auto accessories, FMCG, with food accounting for most of its business. High quality products are offered to the customers having better shelf life and more consistent quality. Company has expanded its supply chain management and it is capable of handling it rapidly growing stores network effectively and efficiently. When stores were launched, there was some initial problems post launch due to circumstances prevailing in West Bengal, Orissa and U.P.
“FARM TO FORK”
The Reliance retail company sources say it is setting aside Rs 50,000 crore to build its farm-to-fork linkage. Reliance has drawn up plans for a presence in 784 towns and 6,000 mandi (wholesale market) towns with 1,600 rural business hubs to service these. It has already rolled out 177 Reliance Fresh stores across major towns in 11 states. According to a company report, RIL is targeting a turnover of Rs 40,000 crore in the next few years.
TRADITIONAL MODEL OF RETAIL RELIANCE “FARM TO FORK”
Structure of Channel
Reliance started its retail operations of Reliance Fresh stores with following supply chain model. Procuring directly from the farmers and operating with moderate margin but mass Selling was key to Reliance fresh operation for first few months. The following figure depicts the first Reliance fresh model :
But things always don’t turn out to be the same as planned. Opposition against Reliance fresh outlets in U.P soon interrupted the momentum .Reliance wished to go with. Bowing to mass opposition from local shopkeepers, the company closed down 20 Reliance Fresh stores in Noida and Ghaziabad. A company insider said that Reliance Retail was being forced to exit UP owing to what he described as the “vindictive approach” of the state government . Within the month company started operations in Lucknow and Varanasi with 14 stores, stores had to be soon closed down following violent protests by local traders.
After the protests, the state government instructed all standalone food & grocery stores run by corporates to close down. Similar things followed in NCR and Ghaziabad. The strategic importance of UP for a large-scale retailer like Reliance was not limited to it being a large consumer market. The state is extremely important from the sourcing point of view as well. The Gangetic plain in the state is considered to be one of the most fertile agricultural belts in the country.
Reliance’s food & grocery business was in the line of fire, because of the popular perception of Reliance being the most ‘powerful’ business conglomerate in the country. This is evident from the fact that widespread political protests to corporate participation in retail started only after Reliance announced its roll-out plans. Companies like Kishore Biyani’s Future group, Subhiksha and Spencer’s have had operations in this format long before without encountering major problems. Moreover, the positioning of the Reliance Fresh format (small convenience stores) puts it in direct competition not only with neighbourhood kirana stores, but also with small fruit and vegetable vendors. At this point of time future and ambitions of 25000 Crore Reliance retail started falling under clouds.
From grocery, Reliance Retail plans shift to supply :
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 is entering the food-trading business as part of a major restructuring of its food and grocery initiative. The split has occurred because Reliance has realised that there is money to be made, may be more, in simple commodity trading, especially with food prices likely to go through the roof next year.
As a result of this restructuring, Reliance Retail is setting up shop in mandis to sell fruits, vegetables and staples. It would thus be able to profit from commodity trading without worrying about the steep overheads and discounts that tied its hands in its avatar as Reliance Fresh. It would also allow the company to sell to a wide range of customers, including wholesalers, other traders, and retailers. A source said the company has already signed up with Spencer retail chains to supply cut fruits and vegetables. Till now, the Reliance supply chain was dedicated to meeting the needs of Reliance Fresh shops.
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 Mandi’s.
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
RETURN OVER COSTS INCURRED.
So as to yield best possible results.
2) Different vegetables and fruits from such farms are collected through reliance ownlogistics and brought to collection Processing centers where quality check and other required processing is done.
In processing centers workers wearing balaclavas, woolen trousers and bulky jackets work inside a room kept at a constant 3oC, peeling and chopping vegetables, spinning them dry and then heaping them in small plastic packets before placing them in plastic transport crates. At the other end of the 5,000-sq-m warehouse, men unload crates of fruits from a truck pulled up to a spotless loading dock. A quality-control expert samples every tenth crate; if the fruits are good a team will ready them for delivery within hours to Reliance fresh stores around different places like U.P and as far away as Hyderabad and even Mumbai (formerly Bombay). If they are not, workers will inspect the entire shipment and discard anything below standard.
3) Merchandise from these collection processing centers are collected and loaded for Wholesale mandi’s. As this merchandise is to be made available by 4 A.M in morning
thus deliveries in trucks are sent at time depending upon:
TRANSIT TIME. – time required to reach destination i.e mandi’s.
MARGIN TIME. – time period between a truck reaching mandi and then Unloads. Can be 2 to 3 hours.
LOADING AND UNLOADING TIME .
4) From mandi’s where the trucks have been unloaded, roadside vendors and pull carters Buy fruits and vegetables to supply in households.
5) In case still some vegetables and fruits are not sold reliance logistics own Transportation send them to reliance fresh stores.
Diagrammatical representation of above said WST model is give on next page.
WHOLESALE TRADING MODEL-2.
Structure of Channel
The vegetables are collected in villages from farmers directly. They are submitted to Collection Centres (CC) like Baktawar Pur, Khewrada, Hapur, Patodi, Panipat,etc. Payment and quality checks are done in collection centres. From CC they are transferred to Distribution Centres (DC) via Reliance own logistical units. Kundli is the DC for Delhi/NCR. If the capacity is not fulfilled by the collection centre then National sourcing is used This leads us to the next and final step in the process, i.e. the local Reliance Fresh stores. The order for new vegetables has to be placed one day before. Till evening the stock is in distribution centres. At night it is transhipped to the local store. So there is a delay of one day from