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01 October 2023

Battle of the aisles

By James Hall



In April a Mumbai branch of Sahakari Bhandar, a dowdy Indian state-owned department store, closed mysteriously for renovation. It reopened a month later equipped with air conditioning and staff in bright uniforms. Goods on sale included everything from CDs to frozen peas. The new-look store had no name but details soon started to emerge about what had happened.


The store is just one in a chain, which includes at least 20 sites in Mumbai, being used as a dry run for a vast new retail concept by Reliance Industries Limited (RIL), the sprawling conglomerate and India’s largest private company. Reliance Retail, a newly launched RIL subsidiary, used the stores as a secret testbed for product lines and a new system of supply chain management. The experiment worked: sales at Sahakari Bhandar trebled.


The stores have given Indian shoppers the first glimpse of an operation of such scale and ambition that it is making global rivals such as Wal-Mart, Carrefour and Tesco shudder.


Mukesh D Ambani, RIL’s chairman (pictured above, right,) plans to open 100 million square feet of retail space in India by 2010. Local press reports talk of between 5,000 and 10,000 stores spread across 1,500 towns and cities. Ambani has described the concept as “a pan-India footprint of multi-format retail outlets”.


Reliance will operate hypermarkets, convenience and speciality stores, as well as business-to-business operations, selling food, clothing, electrical goods, consumer durables, luxury goods and financial and travel services. The project will employ one million people within five years.


The revolutionary


In developing the chain, Ambani is doing far more than simply opening a network of shops. He is revolutionising the Indian food chain, setting up a nationwide distribution infrastructure from scratch, and transforming the way that India’s one billion-plus inhabitants consume.


Centuries of tradition and established patterns of living are woven into this process. In essence, Reliance is aiming to turn a localised, largely rural economy into an organised, process-driven, modern retail environment.


“Without doubt, this is the biggest retail launch in India’s history,” says P Phani Sekhar, an analyst at Angel Broking, based in Mumbai.


Reliance refused to talk to The Sunday Telegraph about its plans and two of our photographers were removed by security staff. The first proper new store was due to open in Hyderabad this month, however, Indian retail sources say the opening has been delayed because of the scale of the project. The chains’ names are a closely guarded secret, although Fresh Plus is mooted for food outlets.


Reliance Retail’s launch is based on an audacious business bet. Wal-Mart and Tesco are beating at India’s door but have not been granted entry because of restrictions on foreign ownership in the retail sector. The industry is likely to be liberalised soon and the potential is vast.


A business delegation from the Bush Administration is visiting in the autumn. An announcement could be made then. So-called “organised retail” (sales from chain stores rather than kirana, or market stalls) accounts for just 3.3 per cent of the £130 billion (Dh963bn) retail market, but it is growing at 30 per cent a year. With incomes soaring and a ferocious appetite for consumerism, this growth shows no sign of abating.


If Ambani’s concept works, it will be a masterstroke in pre-empting the international competition’s entry and beating them at their own game. On top of this, Reliance has been signing deals with farmers across India, hoovering up the country’s supply of fresh food.


It is a clever move: rival retailers will be forced to go to Reliance to procure their stock. The company is essentially cornering India’s retail and wholesale markets. “All the outlets will be connected seamlessly through a state-of-the-art supply chain infrastructure. This initiative has been assiduously planned to connect the Indian farmer and producer with the consumer directly,” Ambani told shareholders in a letter.


Even rivals are impressed. “I don’t think there are many people who have gone into business with the commitment, style and grandeur in which it is planned,” says Phiroz Vandrevala, the executive vice-president of Tata Consultancy Services, a subsidiary of Tata Group.


Ambani’s target of 100m sq ft of space would catapult Reliance Retail into the global league of retailers from a standing start. It would be smaller than Wal-Mart, which has more than 450m sq ft in the United States alone, and Carrefour, which has 285m sq ft globally, but it would dwarf Tesco’s 58m sq ft worldwide.


The project will cost up to £4bn (Dh29bn), a figure Ambani appears happy to lay down. RIL has already invested £400m (Dh2.9bn) in the “pilot” stages of the project. Press reports in India suggest that this stage alone could comprise a breathtaking 1,575 stores.


Great expectations


A recent report by CLSA Asia-Pacific Markets, the brokerage, predicted that Reliance Retail could achieve sales of £10.5bn (Dh77.8bn) – or five per cent of India’s overall retail market – and profits of $1bn (Dh3.6bn) within six or seven years. This revenue target would give the company an implied market capitalisation of $17.5bn (Dh64.2bn), which would make it one of India’s 30 largest companies. A market flotation is likely soon.


The company has been busy signing deals with state governments to set up large rural hubs to buy vegetables, fruits, pulses and dairy products from farmers. In turn, these hubs will be supplied by hundreds of smaller satellite bases in India’s villages.


Traditionally, India’s farmers work in small co-operatives and sell at a local level. Not any more. Reliance is calling the process “food-to-fork” – showing its intention to create a total supply chain.


Last week Reliance signed a memorandum of understanding with the Punjab State Government to acquire 1,100 acres of land and set up outlets. It will move to West Bengal, Haryana, Himachal Pradesh, Uttar Pradesh and Uttaranchal.


The Punjab deal attracted criticism from opposition parties that the land was being sold too willingly and at rock bottom prices. They also complained that government-backed farming co-operatives were being transferred to a private company.


Others, however, are saying that Reliance is single-handedly causing “a second Green Revolution” (after the boom in Third World food production in the 1960s). For instance, it aims to procure 10 million litres of milk a day.


Last month the Times of India reported that Reliance is buying a 40-strong fleet of 35-tonne cargo planes to transport the goods. It is thought to have recruited a director from Air India to oversee the massive logistics operation. The company is also expecting to open sourcing warehouses in China and Thailand and to forge deals with mall developers in India.


The project is not without its challenges. The first is changing India’s mindset about how it shops. The second is finding manpower.


“We have concerns over the availability of people. Retail being new in India, we don’t have the manpower. Reliance is looking to employ a serious number of people and for that it needs very good management,” says Sekhar of Angel Broking.


He believes that Reliance is scouring Europe, the US and Asia for retail talent. Others believe that Reliance is close to having a top-tier management team in place from the likes of Tesco, Marks & Spencer and Target.


Western retailers cannot afford to ignore Reliance’s foray. “A lot of companies like Tesco have already started negotiating about India,” says S Jagadeesan, the economics minister at the Indian High Commission in London. “In getting in early, Ambani has a huge advantage.”


All eyes on India


While Reliance – India’s “largest business house” – is gearing up for its retail offensive, foreign rivals are sizing up ways to enter the market. Foreign direct investment is banned in most of the retail sector, so joint ventures are seen as the way forward.


Wal-Mart, the world’s largest retailer, has made no secret of its desire to enter India. It will open an office in Bangalore soon and has appointed McKinsey & Company, the management consultants, to assess opportunities there, according to local reports. Wal-Mart is keeping its plans under wraps but it is thought to be considering a tie-up with DLF, a mall builder, to develop more than 100 malls in which it could open stores. It could also use RIL’s infrastructure for sourcing and delivery.


Tesco already has back-end operations in Bangalore but has the capacity to beef them up substantially. Tesco, Wal-Mart and Carrefour are all talking to Bharti Enterprises about becoming a partner in its imminent retail venture.


Franchising through a local partner is another route to circumvent the foreign direct investment ban. Marks & Spencer, Mothercare and Debenhams have Indian stores, Next is in talks and DSG International is looking.


But the Westerners had better hurry; Reliance is not the only Indian company looking to get into retail. Indian Oil Corporation and Tata are working on store concepts. (The Sunday Telegraph)