Reliance Retail: The Mega Retail Story RIL all set to redefine Indian retail and lead from the front By G D Singh and Pravahan Mohanty a A targeted sales turnover of Rs 90,000 crore (US$ 20 billion) by 2010 with a planned investment of Rs 30,000 crore over the next five years - that's the retail vision of Mukesh Ambani and his RIL retail team. RIL's retail venture seems all set to achieve a the status of being the flag-bearer of India Retail Inc, and that too in record time! Culling information from all possible sources, Images F&R Research attempts to put the Reliance Retail jigsaw in order and see how the concept and strategy differentiates from the existing competition, how it impacts the intermediaries and consumers, and more interestingly, how will it stand up to the real competition from global retail powerhouses like Wal-Mart, Carrefour, Target, Metro, Sears and Tesco that are eager to enter the Indian retail arena once the FDI barrier is lifted. Read on for the full story… It's been in the news for quite some time now. Earlier, about a year ago, it was only whispered in close industry circles. Slowly the whispers become louder, and the word gained ground that India's largest private sector company, Reliance Industries Limited (RIL), is entering the Indian retail sector in a real big way. But with virtually nothing coming from anyone in the know inside RIL about their retail plans, this has to be one of the most closely guarded secrets of India's corporate story. Blueprint for 800-odd Towns/Cities: Initial Investment Rs 3,350 Crore Amidst all sorts of speculations in the media circles about RIL's intended retail foray, the word finally came out on January 23, 2006, when the Mukesh Ambani-controlled Reliance Industries Limited presented the mega retail initiative plans to its board of directors who subsequently gave their consent to pursue the retail business through a wholly-owned subsidiary of the company – likely to be christened Reliance Retail Limited. The Reliance Retail blueprint envisages nation-wide chains of hypermarkets, supermarkets, discount stores, department stores, convenience stores and specialty stores, in about 800-odd cities and towns across the length and breadth of India. The RIL board of directors approved the initial phase of the retail foray at an estimated cost of Rs 3,350 crore (US$ 750 million). That was big news for both the national and international media, which went all agog again with intense speculation. Giving full respect to the importance of this announcement, more than one leading international daily – chiefly, The Financial Times – gave this news a front-page treatment, speculating (like many others) that this investment could just be an initial tranche of a much larger commitment from Reliance Industries towards the retail project. Just how big and grand this investment is for the Indian retail sector can be gauged by the simple fact that the entire Indian retail sector is estimated to be at Rs 1050,000 crore (US$ 233 billion) – growing at five per cent annually – and the estimated share of organised retail is only Rs 36,000 crore (US$ 8 billion), at present, albeit growing at over 30 per cent every year. That makes Reliance Retail's proposed investments equivalent to about 10 per cent of India's organised retail market – such a level of investment in the Indian retail arena has been unprecedented in the country's most promising sunrise industry – retail. So much so, projections by the Images-KSA India Retail Report 2005 of an organised retail market of Rs 100,000 crore (US$ 22 billion) by 2010 now appears conservative, likely to be achieved much earlier than 2010. If Indian retail was lacking a whole-hearted and full-blooded thrust from a big and large corporate house (apart from the lukewarm investments made by the Tatas and ITC), it is now all set to change. Mukesh Ambani, who has been nourishing retail ambitions for quite some time now, has clearly positioned himself in to the role of redefining the entire landscape of Indian retail. RIL Set To Become World's Largest Real Estate Property Owner What is even more interesting is that Reliance Industries Limited will far out-surpass the Catholic Church in becoming the world's largest owner of real-estate property by virtue of its mega Retail and Satellite Township plans, in the next two to three years! Now what exactly does this mega retail plan portend for the Indian retail sector? In fact, what exactly are RIL's plans, in terms of retail strategy? How will RIL differentiate its stores and concept from existing players who have already moved into the retail space earlier, and have already established a good foothold? How will this impact the existing retail majors – the likes of Pantaloon Retail, Trent India, Shoppers' Stop, RPG, etc? How will the consumer benefit from RIL's venture and how will intermediaries like traders, suppliers and farmers all along the supply chain network benefit? What will be the USP of Reliance Retail? And, more significantly, how will this impact the major international retailers who plan to enter the Indian retail market? Reliance Retail is in fact giving India for the first time a real feel of the scale at which these global retail powerhouses actually operate, it is preparing India to stand up to the ensuing competition and in the process, allow consumers the full benefits of modern retail. Retail Will Become Core Business of RIL Reliance Industries Limited is the largest and one of the fastest growing private sector companies in India, with business activities encompassing almost all major growth sectors of the Indian economy. The company manufactures and markets a wide range of products with market leadership in almost all its businesses. All of Reliance Group production and services ventures have one common feature – global scale operations employing state-of-the-art technology in all fields. The company is truly emerging as a well diversified conglomerate with global competence in technology, management and financial capabilities to meet the needs of a rapidly growing Indian market. With domestic market shares ranging from 40-80 per cent, RIL is also ranked among the top 10 producers globally, for all its major product segments. It is one of India's largest business conglomerates with total revenues of Rs 1,00,650 crore (US$ 22.6 billion). It is being speculated within the industry that the ROIs made by RIL in the retail space will far outshadow its existing core flagship businesses – and very soon retail will become the core business for the Mukesh Ambani-controlled Reliance empire. For a long time, organised retail in India remained the attraction of only a few enterprising Indian entrepreneurs, who took the plunge into the deep sea of a hitherto uncharted territory. It is only in the last 10-15 years that the retail sector's inherent attractiveness started catching the attention of large corporate houses in India, like the Raheja Group, RPG Enterprises, the a Piramal Group etc. But with due respect to all of them, their vision has remained conservative and they have been modest in scaling up their retail business models to take it to the next level of operations with a pan-India presence. What clearly lacked was the level of investments; the slow pace of consolidation and indecisiveness in experimenting and migrating between multiple formats, categories and channels. This has prevented them from reaping the true benefits of modern retailing. What is it that we can label as the compelling drivers of this new retail thrust in India with a large corporate house like Reliance Industries announcing big, not to mention international retail giants who are getting impatient to enter India? • The first driver is a self-sustaining buoyant Indian economy that is growing at eight per cent a year. • The second is that as the economy grows and expands, the consumption habits and patterns of people also change – and it is changing real fast in India. • The third important driver of organised retail is the country's demography – India is home to the largest and the youngest population in the world. India's 300 million-odd middle-class, the real consumers, is catching the attention of the world. Going by its past track record of business acumen and foresight, Reliance Industries could not afford to miss out on this great potential that organised retail offers. The opportunity has all along been there for all Indian businesses to grab, and indeed some have made a serious attempt. But, it is RIL's announcement of entering the retail sector in this big and grand manner that has really provided the needed thrust for take-off, it has shaken up not only the entire Indian retail fraternity and key stakeholders therein, but has also evinced the interest of other business groups to look up to retail and consider sizeable greenfield investments in retail ventures as also in building up the supply chain from farm/manufacturer to retail stores. Hital Meswani Gives First Hint of RIL's Retail Plans at IRF'05 It was at the India Retail Forum 2005, organised by the IMAGES Group, when Hital Meswani, Executive Director, Reliance Industries Limited, highlighted the changing dynamics of retailing in key areas such as demand, supply, technology, supply chain management and on how the industry expects government to foster and facilitate a more proactive retail trade policy. Hital Meswani remarked, at the IRF '05, that change in demand patterns have provided a huge opportunity to organised retail, as it realigns itself with global trends in value-oriented shopping experiences. He opined that change in supply trends provides the greatest challenge to retailers as price points grow competitive and new formats emerge on a large scale, and to provide all of that to the ever-demanding customer without compromising on assured supply and highest quality. These remarks were an indication of the seriousness with which RIL was working towards its retail venture – and the leaflets of the blueprint started unfurling thereafter, albeit cautiously. a RETAIL PLANS & STRATEGIES Manoj Modi and Hital Meswani, flanked by a core team of trusted lieutenants and business aides, constitute the top hierarchy in Reliance Retail. They have access to close supervision from Mukesh Ambani himself. The retail plans are humungous and Reliance insiders claim that the objective is to 'do a Wal-Mart' in India. Targets 90,000 Crore Turnover by 2010 RIL has set a revenue target of Rs 90,000 crore (US$ 20 billion) from its retail operations by year 2010, almost 10 per cent the size of the current organised retail business in the country. It dwarfs India's current numero uno in organised retail chain, Pantaloon Retail, which currently has an annual turnover of US$ 240 million from its 84 outlets spread over 30 cities and has projected revenues of US$ 2 billion by 2009. RIL's plans include a pan-India footprint of its stores, across multiple formats and categories, in more than 800 cities and towns, and in record time. Multiple Formats with Investment of Rs 30,000 Crore The brains behind the mega retail venture have been able to ideate and develop a low cost pan-India supply-chain model that will involve massive economies of scale. The strategy is to set up a chain of hypermarkets, supermarkets, discount stores, speciality stores, and convenience store formats in 800-odd cities and towns across the length and breadth of the country at an investment of around Rs 30,000 crore (US$ 8 billion). The retail foray will have almost all the leading Indian and international brands, and possibly a sizeable presence of private labels as well, and would clearly try and build a loyal customer base with tens of millions of consumers from across the country. While the sheer scale of operations will ensure Reliance's retail business a 20 per cent return on investment over a span of five years, its rural low cost-high return investment will ensure sufficient competitive edge vis-à-vis purely urban retail operators. First Phase: 1,575 Outlets by March 2007 The first phase will see around 1,575 retail outlets coming up in just three months – between December 2006 and March 2007. The first of these outlets will be opening around September this year, either in Mumbai or Ahmedabad. Reliable sources say that the retail business would start with 20 destination points in A-class cities in India, and soon expand to over 100 destinations in a very short span of time. On an average, each of these retail centres could be spread over 100 acres of land that would house leisure and entertainment facilities, small hospital complex, eateries and a big mall. RIL insiders are, of course, tight-lipped about everything. Further, it has been reported in the media circles that initially the company has targeted the five states of Maharashtra, Gujarat, Punjab, West Bengal and Andhra Pradesh for the first phase of retail rollout. Gradually, in the next two to three years, Reliance Retail plans to establish a pan-India presence of all its formats, targeting not only the major metros and cities, but also the second-tier towns and semi-urban and even rural centres. Quite clearly then, the number – 800 towns and cities – has been very strategically and meticulously worked upon. F&B to Generate 40% Sales Revenue, Direct Employment to Over 5 Lakh It is internally estimated that the food and beverages category will account for as much as 40 per cent of the total revenue generated from the Reliance Retail venture and that the company plans to give direct employment to more than five lakh people. About 23 CEOs across multiple functions and categories will oversee the retail operations. The popular format in towns and rural settings will be hypermarkets, which will be warehouse-style stores spread over 150,000 sq.ft and will be selling products ranging from consumer electronics and groceries to fresh food and clothes. There will also be smaller 75,000 sq.ft supermarkets. RIL has roped in leading retail consulting firm, Technopak Advisors, and management consulting firm AT Kearney to provide specific and specialised strategic inputs, and advise the top management of Reliance Retail during the entire planning, design and implementation, and execution stages of the massive retail foray, reports say. Evaluation of Category Mix & Formats Reliance Retail has studied the potential of all possible categories of products and services retailing. In fact, it is keen on capturing market leadership in every possible retail category, once it has rolled out and consolidated its retail operations. The market insights and intelligence derived from this effort has helped Reliance to evaluate each category on its market-size, growth rate and potential as being one of the main determinants for its retail rollout operations. This can clearly be taken as a precursor to Reliance's understanding of the retail market in India, in terms of clear understanding of: • The primary sources of procurement of products • Average inventory (retail and warehouse) that is normally maintained at retail stores across various categories • Seasonal sales variation in categories across different regions in the country • Shrinkage and wastage of products and percentage of returns thereon • The number of SKUs across brands and categories • The credit details (in terms of the number of days and cash) that retailers normally get from their supplier across various product categories; and • The average gross margin (percentage of MRP) that the retailer generally gets on its products. Apart from food and grocery, which will contribute 40 percent to total sales, the company is strongly looking at apparel, lifestyle, consumer durables, and leisure and entertainment operations as its major drivers of business. It is considering the establishment of both multi-brand as well as exclusive brand outlets for certain categories of operations. While most of outlets will be company-owned, the convenience-store format could possibly be the only exception to be operated through a franchisee route in collaboration with mom-and-pop kirana shop-owners, which in itself is a novel concept that could work very well in the Indian context. a RIL has already studied and successfully developed several niche concepts and categories of retail, the A1 Plaza in the catering services category being one of them. It has started over 100 company-owned fast food joints along various stretches of India's highways, where it has over 1,000 a pumps up and running. The A1 Plazas serve parantha-aloo-matar or idli-dosasambar to the hungry highway traveller, depending on his choice; the stress being on hygienic food at a fair price. A thali at these outlets comes at Rs 24 and a chai at Rs 3 – economical rates for truck-drivers as well as highway travellers. The A1 Plazas are also offering a quick bath at Rs 5-15 – quite clearly a novel concept. Forecourt Retailing: Hospitality at Every 100 to 300 Km along Highways In the forecourt retailing category, RIL has taken up the hospitality side of petroleum retailing business in right earnest, which can be gauged from the fact that it has signed up a technical services agreement with US-based Flying J, a highway hospitality service provider to the transportation sector. Petroleum retailing is a low margin business and Reliance understands that it needs to steadily build up the volumes. The product throughput variation can only go up with the extra facilities that Reliance offers such as food-courts and change-rooms. Importantly, more Indians are hitting the road and such services will only add on to the attraction of road travel. The plan is to set up such outlets every 100-300 kilometre. Reliance is said to be pushing this model of value-added retailing in a bid to corner what it believes will be the next sector after air travel to hit the growth trajectory – road travel. Service Centres: R-Care for Automobiles & Refresh for Commuters Even as Reliance has gone about ensuring comfort of the highway traveller, it has not forgotten the more functional aspect of motoring along the roads. To ensure easy access to reliable repairs, the company is setting up over 120 automobile service centres (R-Care) to go with the A1 Plazas. Yet another variant of up-market eating joints, Refresh, will be set up inside its select fuel retail premises to cater to the moneyed highway traveller. A start has been made on the AhmedabadVadodra Highway. Household Merchandise: 150 Qwik Marts Select RIL fuel stations across India, initially 150 of them, will have retail outlets branded as Qwik Mart – a chain of quick service, quick transaction stores. The Qwik Mart value proposition offers convenience through multiple offerings under one roof, speed of service and value-based pricing. They will be sub-branded as 'Commute' for those located within cities, 'Journey' for those on highways, and 'Neighbourhood' for those in residential areas. Three Qwik Mart outlets have already been launched in Mumbai and one along the AhmedabadVadodra Expressway. Emphasis on Dairy Products Further, RIL is planning to make dairy products an important growth driver for its retailing venture. Sources in the know of the dairy project revealed that RIL chairman, Mukesh Ambani, has already made a detailed presentation in this regard to the Punjab Chief Minister, Captain Amarinder Singh. RIL, according to informed sources, has also expressed a willingness to provide micro-finance to farmers to buy cattle and establish their own milk auction markets (mandis). Rs 8,000 Crore Earmarked for Pan-India Supply Chain Network The success of any mega retail venture hinges on the scale and efficiency it can establish in Supply Chain Management (SCM). Reliance is strongly focussed on establishing a robust and cost-effective supply chain network that will ultimately pass the cost-benefits to its customers. It is estimated that more than a quarter – over Rs 8,000 crore – of Reliance Retail's planned investments of Rs 30,000 crore would be spent on setting up of the supply chain network. This unprecedented level of investment in building the supply chain network will become a key differentiator for Reliance's Retail project. Strongly believing in the 'farm-to-fork' model, RIL top brass made a few trips to various states last year to work out an exclusive contract-farming project with the farmers whereby Reliance Retail will purchase fresh vegetable and farm produce from these states and transport the same to its warehouses, which will subsequently transport the same to the inter-connected Reliance retail centres. To strike an example, pineapples that are sold at a mere 25 paise a piece in the North-East will be purchased in bulk by Reliance Retail, and shipped to the entire network of Retail stores all over the country. What this also ensures is that farmers and growers get a fair price for their produce and the huge cost benefits of wholesale procurement gets passed on to the end-consumer. As part of its backward integration, the company has plans to set up an integrated supply chain infrastructure, including a cold chain for foods. The blueprint envisages retailing everything. It is believed that RIL will feed the huge retail chain through seven large wholesale terminals. Its plans include over 150 warehouse clubs or distribution centres, catering to the supply and requirements of its speciality stores, hypermarkets, supermarkets, department and discount stores. Various media reports suggest that the company is actively scouting for real estate across India and may even hire large malls for its purpose. In the consumer durables sector, Reliance Retail is reported to have entered into agreements and contracts with the leading manufacturers to procure merchandise directly from their factories. RIL's huge warehousing facilities are to be dotted all over the country and expected to be the hub, the nerve-centre for the supply base that will feed the network of stores. Bangalore, for instance, is likely to be the base for Reliance Retail's apparel operations. Retail Talent: Where Do They All Come From? With the blueprint for retail operations prepared, the most important aspect is the acquisition of competent human resources and manage talent so as to realise this mega vision of Mukesh Ambani. Modern organised retail being a relatively new area of business activity in India, there is obviously a dearth of adequately skilled manpower. And, given the gigantic scale of RIL's retail operations, the availability of retail professionals at various levels and functions was always a cause of major concern. However, Reliance is what it is today due to its ability to attract the best of available talent in which ever field it chooses to operate. A cursory glance at the list of high-profile retail professionals, who have been recruited by 'Reliance Retail' over the last couple of months, makes it evident that many of the jewels of modern organised retailing in India have flocked to the company and more will follow suit. Mukesh Ambani himself is taking an active role in selecting and recruiting the top-level management of Reliance Retail, reliable sources say. More than half of the top-level management, the 'generals' of Mukesh Ambani, have already been absorbed. And it's a virtual 'who's who' of the retail fraternity in India who have come together. Raghu Pillai, among the tallest names in retail operations, strategy and supply chain management, is now the President and Chief Executive (Operations and Strategy) at Reliance Retail. D Saravanan was the big daddy of supply chain and quality control at burger king, McDonald's. He will head similar functions at Reliance Retail and will also be responsible for the linkages of backward integration. Harsem Singh has been roped in to head RIL's dairy retailing venture. With mega plans being made to take on the big dairies like Amul, Singh's expertise will be found useful. Sanjeev Asthana, who was the business head for grain at Cargill India, will now cater to grains and oilseeds in the Reliance venture. Biju Kurien, the chief operating officer of Titan Industries, will now head the lifestyle retailing category at Reliance Retail. A former Hindustan Lever (HLL) man, Gunender Kapur will handle the food and grocery category. Since Reliance wants to enter into every big and small retail format, including malls, Suresh Singaravelu, the former chief executive of Bangalore based Prestige Constructions (The Forum) mall venture, will push the same at Reliance Retail, as per reports. He is responsible for the setting up and development of malls. While the consumer electronics vertical will be headed by Rajeev Karwal, an ex-Onida, LG and Electrolux chief, the apparel and clothing vertical will likely be overseen by Sriram Srinivasan, the erstwhile managing director of Indus League, controlling stakes of which was acquired by Pantaloon Retail last year. Ninu Khanna, Bombay Dyeing's former MD, is also likely to head Reliance Retail's FMCG vertical. Khanna's FMCG background includes his stint as head of Dabur. Reliance Retail will also have state-level CEOs, who will be owners of the geography and the entire store formats therein. The heads of the business verticals will drive profits at their respective categories, whereas the geography owner will be accountable for individual store and regional performance. Even as the top management CEO/president-level positions are getting filled, Reliance Retail might yet face a problem of resources for its middle and lower management staff and service agents at the floor-level. The rumours have it that Reliance is not averse to poaching people resources across functions from existing players. It is also being said that the high profile CEOs who have already been absorbed by Reliance Retail will pull in their business associates, colleagues and friends from companies they served before. If media reports get it correct, Mukesh Ambani is ready to pay Rs 100 crore in salaries in the first year itself. This is being done with a view to attract the best available talent. Clearly the Reliance Retail juggernaut is rolling fast, and retail is emerging as a prized career option, thanks to RIL. CONCLUSION The magnitude and strategy of RIL's retail foray is sure to have far reaching social and economic implications by directly influencing the lifestyles of hundreds of millions of consumers, besides indirectly impacting the livelihood of tens of millions. This indirect impact will be on those engaged in a wide range of economic activities including farming, consumer goods manufacturing, and a host of myriad other services that bring hundreds of categories of goods and services from the producers to the final consumers. Business analysts feel that Mukesh Ambani's advantage is his huge financial strength coupled with a track record of implementing mega projects in record time, at globally competitive capital costs. Mukesh Ambani has learned to dream big from his great visionary father, the late Dhirubhai H Ambani, who is acknowledged as one of India's tallest, most ambitious and successful business leaders for his sharp business acumen and skilled people management ability. If the announced retail project is any indication, Mukesh Ambani has indeed inherited all these skills from his father. Re-writing the rules of business has been the forte of Dhirubhai and Mukesh is attempting the same in retail. Quite clearly, RIL is now all set and ready to conquer the organised retail domain. The Indian retail scene is now going to witness some real fast-paced action, with the consumer – as always – having the best deal. So, as they say, let the action begin!