31155346 Reliance Fresh

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CS-08-029 Reliance Fresh Stores in Food Retailing Version 21/10/2008 This case was prepared by Dr. Debasis Pradhan & Dr. B.K. Mangaraj of XLRI Jamshe dpur, INDIA, as a basis for classroom discussion rather than to illustrate eithe r effective or ineffective handling of a management situation. Copyright © 2008 London Business School. All rights reserved. No part of this ca se study may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical,
  CS-08-029Reliance Fresh Stores in Food RetailingVersion 21/10/2008This case was prepared by Dr. Debasis Pradhan & Dr. B.K. Mangaraj of XLRI Jamshedpur, INDIA, as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of a management situation.Copyright © 2008 London Business School. All rights reserved. No part of this case study may be reproduced, stored in a retrieval system, or transmitted in anyform or by any means, electronic, mechanical, photocopying, recording or otherwise without written permission of London Business School.London Business School reference CS 08-029  -2-CS-08-029In April 2007, it was time for celebration at the headquarters of Reliance Industries Limited (RIL). Sales from the recently opened “Reliance Fresh” outlets hadexceeded all estimates with an average sale per store greater than $12,000 (Rs.0.5 million), against expectations of $5,000 (Rs 0.2 million). The footfalls were as high as 4,000 per day. Launched as 'your friendly neighbourhood store', the typical Reliance Fresh store was spread over an area of 2000 sq ft. Just before its launch, in June 2006, its chairman, Mukesh Ambani had announced a $5.6 billion multiyear investment in the agriculture and retail sectors. He aimed at making a new company, “Reliance Retail” the sector's dominant player. “Reliance Fresh” intended to bring high quality fresh food to the customers at an affordableprice. This was to be achieved through an integrated supply chain process and with efficient delivery of value to the consumers. Ambani, who visited all 11 shops on the eve of opening, said his firm offered unmatched affordability, qualityand choice of products and services to the customers . Yet his confidence and optimism did not mean that all questions about his business model were fully answered, or that the answers had been validated yet. There certainly appeared to have been an overwhelming response to Reliance Retail in the first year of operations. Looking at the very encouraging response from the public and the buyers, there were plans to commission more city distribution centres and city processingcenters that would further strengthen the supply chain. The stores offered freshproduce, vegetables, pulses, breads and dairy products. The focus was on freshfruits and veggies, groceries and staple products that consumers buy, President and CEO, RIL Foods Business, Gunender Kapur said. The stores directly procuredvegetables, pulses and spices from the farmers of Andhra Pradesh, Karnataka andTamil Nadu, which contributed to quality and pricing advantage. Most of the products were being retailed under ‘Reliance Select ’, a premium food brand launchedby Reliance. In April 2007, the “Reliance Select” brand covered pulses, rice, spices and vegetables. Raghu Pillai, President of operations and strategy at Reliance Retail said, “About 95% of India   s retail sector is made up of small, family-run stores and the sector has not been tapped by big businesses. Reliance Fresh aims to target and exploit this very segment in which it foresees huge potential for further robust growth.” Yet Pillai was realistic about the need for strategies to survive existing and growing competition in this new sector.  -3-CS-08-029Opportunities for Retailing in Agri-BusinessIndia   s retail sector was undergoing a transformation and with a three year CAGRof 46.64%, retail was the fastest growing sector in the Indian economy. Traditional markets were making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls had begun appearing in metros and second-rung cities alike, introducing the Indian consumer to anunprecedented variety in shopping experiences. India   s vast middle class and its almost untapped retail industry were key attractions for global retail giantswanting to enter newer markets. While organized retail in India was only 2% of the total US$ 215 billion retail industry, it was expected to grow 25% annually,driven by changing lifestyles, strong income growth and favourable demographic patterns. A retail consulting and research agency had predicted that by 2010, organized retailing in India would cross US$ 21.5 billion mark.1 Unlike in the developed world, food dominated the shopping basket in India. While food accounted for only 9.7% of the total private consumption expenditure for an average American, 15% for the Japanese & British, for the Indian, it was the principal component of their consumption expenditure accounting for as much 53%. Since much of this was non-branded (including perishable items like fruits and vegetables), the branded food industry was homing in on converting Indian consumers to branded food. At the same time, a huge population base of 1.08 billion, growing at about 1.6% per annum, provided a large and growing domestic market for food products. Also, the country’s middle class had been expanding due to rapid urbanization, increasing per capita income and credit card ownerships, increased participation ofwomen in the urban work force. The segment aged between 20-45 years was emerging as the fastest growing consumer group and the mean age of Indians was now 27 years, a mean age that reinforced spending across all retailing channels of grocery, non-grocery and non-stores. Unsurprisingly, food & grocery retailers continued to be the staple of retailing in 2005, accounting for ¾ of overall retailingvalue sales as shown in Fig-1,1KSA-Technopak  -4-CS-08-029Fig-1: Fastest growing retails segments in IndiaFood & Grocery Clothing Furnitures & Fixture Durables Footwear & Leather Watch &Jewellery 0 20 40 60 80 100Source: KMPG in India Retail Survey 2005. Agriculture was the backbone of the Indian economy as Nature had been very favourable to the country. Of the land within its boundaries, 52% was cultivable, as against the global average of 11%. Allthe major 15 climate types existed in India and sunshine hours and day length were ideally suited for good cultivation round the year. Also, India had great bio-diversity and accounted for 17% of animals, 12% of plants and 10% of fish genetic resources of the world. Undoubtedly, this comparative advantage was one of the reasons for the advent of a number of retail majors into food retailing in the past few years. Many were leading players in FMCGs, tobacco business, and agribusiness.
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