Retail News Update

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.

The new initiative is likely to be christened either Apni Dukaan or Apni Mandi. RRL is test-piloting shops in Vashi (Maharashtra) and Hilol (Gujarat). Other places that the company has identified for this business are Vadodara, Valsad, Surat, Ahmedabad and Pardi in Gujarat; Sangli, Sholapur and Kohlapur in Maharashtra; and Chindwara, Bhopal, Hoshanabad, Indore in Madhya Pradesh.

“The agri division, like other Reliance Retail verticals, has been turned into a profit centre. So, the agri division will procure fresh produce and staples and sell in the open market. The idea is to get the best possible price,” according to a source familiar with the developments.

An insider said when Mukesh Ambani talked about bringing about an agri revolution in the country in his AGM speech earlier this year, he meant the trading business, which is already averaging decent amounts per day.

Backing the plan is a core team working on a massive distribution and supply-chain project that will set up scores of distribution hubs and connect around hundreds of towns and mandis across the country. Sources said the investment in the distribution project, the backbone of the company’s retail business, could be over Rs 10,000 crore.

RRL has also formed four companies: Reliance Food Solutions that will handle central processing centres and procurement & collection centres, Reliance Agri Product Distribution that will look after collection centres, Reliance Agri Projects that will take care of contract farming and its own farming, and Reliance Integrated Agri Solutions that will set up rural business hubs.

Sanjeev Asthana, president & chief executive, agri & food supply chain in Reliance Retail, is understood to be in charge of these four companies. When contacted, an RRL spokesperson said, “As a policy, we do not comment on speculation.”

The brain-child of Mukesh Ambani, chairman of Reliance Industries, the supply-chain is expected to be of a scale that is likely to put the international players on a weak footing (as and when they enter the Indian market) and is being personally supervised by Manoj Modi.

Mr Ambani is understood to be taking a personal interest in the project and has given a clear directive that the project has to be implemented swiftly, costs no worry. Once executed, the move is expected to give RRL a clear grip on supply chain, the heart of any successful retail initiative. The company is drawing heavily on its past experience of setting up massive refinery projects.

A source said food, fruits and vegetables and consumer products are a high-volume business which requires integration and dedicated focus, especially when opposition to organised retail in this particular category has taken political colour.

Concerned over the initial losses incurred in Reliance Fresh, the clear plan is to bring down distribution costs significantly by eliminating intermediaries and transport delays between the sourcing point and the point of sale. On an average, supply-chain costs (moving product from the producer to the end customer) in India is placed at around 12-50% across product categories. Till recently, supply chain management (SCM) was perceived as a low value-add activity, considered primarily as managing warehousing and transportation. It is on the premise of cutting supply-chain costs that the company has been able to bargain heavily with manufacturers and suppliers.

Company watchers say implementing the complex project would call for heavy investments, especially at a time when real estate costs have hit the roof — RRL would have to shell out huge sums to acquire such prime locations across the country. Each of the 68 hubs will comprise 100 acres of land and scores of logistic experts and global consultants are fine-tuning details of the project, sources said. The hubs are expected to ensure point-to-point connect with mandis and other sales centres in a few hours, informed sources said.

In a diverse country like India where marketers are still learning the nuances of supply chain, the logic of scaling up operations is dependent on the grip that retailers would have on the supply chain. Corporate houses began looking at it seriously in the face of growing competition and increasing costs that put pressure on bottomlines. The entry of modern retailers into the market has now changed the perception from viewing SCM as a cost-reduction process to an enabler of profitability.