How Attractive is retailing in India

1. The power of suppliers is low

2. The entry barriers are high

3. The threat of substitutes is moderate but can be taken care of.

4. The competitive rivalry is hotting up but may not an issue of huge concern for a big

player like Reliance Fresh. Reliance Fresh can make its mark by bringing in more

efficiency in its supply chain and attaining economies of scale because of its huge

scale of proposed operation.

5. Being an Indian player, it has many advantages over the MNCs who cannot make

100 percent investment in retail sector of India. The biggies like WalMart, Tesco

could have been a big threat to Reliance Fresh had they fully owned their operations

in India. So at present, Reliance Fresh has the first mover’s advantage and the scale

going in its favour.

6. Reliance Fresh has adequate knowledge about Indian customers, various supply

chains, their margin structure and may adapt faster than many of its competitors.

7. RIL has got plans to start with Reliance Fresh and open hypermarkets later on.

Therefore, the success of Reliance Fresh is of importance to RIL. Reliance Fresh

may choose to be very aggressive in its approach to make the most of the

opportunity
 .

How do you compare the supply chain of Reliance Fresh with that of its
competitors?

The value of agricultural commodity on the open market depends on availability

(quantity, quality, and timing) and the costs of production. Open market procurement as

done by many retail chains (Sophrite, Subhiksha, Reliance Fresh) may not sufficiently

guard the firm against risk or other exploitation and thus lead to contractual or integrated

procurement as an alternative. Perishability being one of the significant factors for

commodities increases the probability of contractual or integrated procurements.

In the retailing of commodities like fruits and vegetables when the degree of perishability
is very high, a complete vertical integration may be the best way ahead. A relationship
specific investment (for example- Reliance Fresh investing in contract farming where it
will be monitoring the quality of input, production and the final output) refers to asset
specificity that locks both the buyers and sellers into the relationship for a period of time
It also must be understood that the socio economic drivers like the changing tastes and

preferences of the consumers may also influence the choice of type of vertical co-

ordination. As more and more consumers are demanding branded and differentiated

products with emphasis on the quality of the product, it becomes increasingly important

for the retail chains like Reliance Fresh to enter into a contractual agreement and ensure

control of all essential variables related to the output.

For a player like Reliance with a long term interest in the retailing sector of India, it may
be essential to enter into a resource providing contract where the control of Reliance on
the suppliers is the greatest.

Reliance should act as Channel captain by assuming a greater proportion of risk and
taking ownership over the product. This is close to full integration.

Comparison of Dominant Agri-Retail Chains of India:

Companies Godrej Aadhaar Reliance Fresh Hariyali Kisan Bazar

Godrej Agrovet Reliance (DSCL)

Initiative New initiative of A completely new initiative Launched in july 2002 and so it has
(New/Old) Godrej Agrovet since taken by the Reliance already established well itself in
November 2003. Industries November 2006. the retail industry.
And so will require some more
time to establish.
Services Crop advisory Currently food items such as Sale of agricultural products and
provided to services, soil & water vegetables fruits atta daal and consumer goods along with
farmers and/or testing services; buy rice are available along with electronic goods.
Products back of output, crop inhouse product of Reliance.
Marketed finance, supply of But soon with the launch of
agri inputs and “Feel fresh plus” in the future,
animal feeds, transfer apparels, FMCGs and
of information, door medicines are also expected to
delivery of products, be present.
etc.
Target Market Target is the rural Established in metro city of First established in Hardoi district
areas of Punjab, Hydrabad. After which they of Uttar Pradesh and they had
Haryana, are targeting Mumbai and targeted small towns and cities
Maharashtra, etc. Delhi.
Expansion Setting up of 1000 Reliance is planning They planned for only 200 units by
Plans outlets by 2010. establishment of 4000 retail 2008.
outlets in different cities.
Inputs for Agronomists No such initiative taken till Presence of social services for
now
Societal available to give farmers like Shri Ram krishi vikas
Development necessary crop kendras for upgrading farming
related advice. methods and providing assistance
in education, hygiene and
sanitation for farmers.
Tie ups (Joint Collaborations with No such initiative taken till Has association and tie up with
now
ventures, companies like Motorola, Apollo, Bharat
alliances etc.) HPCL, Bajaj Allianz, Petroleum and ICICI banks for
Apollo Pharmacy, extension service
HDFC Bank, etc.
Question-3 and 4
Critically analyse the decision of “Reliance Fresh” regarding the appropriateness of
its retail format?
What can be the possible future strategies to compete with the traditional small
stores and the players from the organised retailing?

Followings four things.

– Assortment (Depth), variety (Breadth)
• Variety is the number of merchandise categories offered
• Assortment is the number of different items in a merchandise
category (SKUs)
– Services offered
– Price
-Sq. Ft. area
Background knowledge regarding the following division between the retail formats may
be useful:
Area Merchandise Price Service
Properties> Sq. Ft SKUs
Formats
Convenience 2000 –Low assortment High None
3000 Low variety
Super Stores 20,000 –Low assortment High ~ Low Low
50,000 90% food EDLP
Super Centers 150,000 –100,000 – 150,000Low Medium
200,000 SKU
30% - 40% Food
Rest Gen.
Merchandise
Hypermarkets 100,000 –40,000 – 60,000Low Medium
300,000 SKU
60% - 70% Food
Warehouse 100,000 –Low assortment Low Low
Stores 150,000 50% Food

• Reliance Fresh can offer wider range than the kiranas and local vegetable
vendors, but more importantly localize the merchandise mix to the level of the
individual store.
• Developing an ability to recognize and retain customers may help Reliance Fresh.
There are many other cost effective ways by which recognize and reward the
customer.

• Offer home delivery and do so at the convenience of the customer, not that of the
store manager!

• Develop a mechanism to allow customers to purchase on credit, perhaps through a

store credit card program.

Could the Reliance Fresh Model be a Success?

It was known that smaller stores had two advantages. One, they brought down the cost
of real estate (and increased profits). It was easier to find space for small convenience
stores in a quiet neighbourhood than for supermarkets in high streets. Two, one could
set up more of them and, therefore, saturate the city with hundreds of small stores. This
made the Reliance Fresh brand easily accessible to consumers

The Reliance Fresh model was engineered to clock a faster turnover of inventory —
Reliance expected consumers to visit the store at least twice a week for their top-up
groceries. Each store had an investment of Rs 5 million ($0.12 million) to Rs 6 million
($0.15 million). Industry sources expected Reliance Fresh to turn this capital over six
times — again that indicated a revenue potential of Rs 30 million ($0.76 million) per
store.

The interesting part was even at EBIDTA margins of 6%, each store could earn a
return of Rs 1.8 million ($0.04 million). That translated into a return of 30-36% on the
Rs 5 million ($0.12 million) - 6 million ($0.15 million) invested in each store. The
Reliance Fresh mantras were — proximity of stores and frequency of visits that could
enable greater customer intimacy. The revenues and profits were expected to follow.