You are on page 1of 31

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, photocopying, recording or otherwi
se without written permission of London Business School.
London Business School reference CS 08-029
-2-
CS-08-029
In April 2007, it was time for celebration at the headquarters of Reliance Indus
tries Limited (RIL). Sales from the recently opened “Reliance Fresh” outlets had
exceeded 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 we
re as high as 4,000 per day. Launched as 'your friendly neighbourhood store', th
e typical Reliance Fresh store was spread over an area of 2000 sq ft. Just befor
e its launch, in June 2006, its chairman, Mukesh Ambani had announced a $5.6 bil
lion multiyear investment in the agriculture and retail sectors. He aimed at mak
ing a new company, “Reliance Retail” the sector's dominant player. “Reliance Fre
sh” intended to bring high quality fresh food to the customers at an affordable
price. This was to be achieved through an integrated supply chain process and wi
th efficient delivery of value to the consumers. Ambani, who visited all 11 shop
s on the eve of opening, said his firm offered "unmatched affordability, quality
and choice of products and services to the customers". Yet his confidence and o
ptimism did not mean that all questions about his business model were fully answ
ered, or that the answers had been validated yet. There certainly appeared to ha
ve been an overwhelming response to Reliance Retail in the first year of operati
ons. Looking at the very encouraging response from the public and the buyers, th
ere were plans to commission more city distribution centres and city processing
centers that would further strengthen the supply chain. The stores offered fresh
produce, vegetables, pulses, breads and dairy products. "The focus was on fresh
fruits and veggies, groceries and staple products that consumers buy," Presiden
t and CEO, RIL Foods Business, Gunender Kapur said. The stores directly procured
vegetables, pulses and spices from the farmers of Andhra Pradesh, Karnataka and
Tamil Nadu, which contributed to quality and pricing advantage. Most of the pro
ducts were being retailed under ‘Reliance Select’, a premium food brand launched
by Reliance. In April 2007, the “Reliance Select” brand covered pulses, rice, s
pices and vegetables. Raghu Pillai, President of operations and strategy at Reli
ance Retail said, “About 95% of India s retail sector is made up of small, famil
y-run stores and the sector has not been tapped by big businesses. Reliance Fres
h aims to target and exploit this very segment in which it foresees huge potenti
al for further robust growth.” Yet Pillai was realistic about the need for strat
egies to survive existing and growing competition in this new sector.
-3-
CS-08-029
Opportunities for Retailing in Agri-Business
India s retail sector was undergoing a transformation and with a three year CAGR
of 46.64%, retail was the fastest growing sector in the Indian economy. Traditi
onal markets were making way for new formats such as departmental stores, hyperm
arkets, supermarkets and specialty stores. Western-style malls had begun appeari
ng in metros and second-rung cities alike, introducing the Indian consumer to an
unprecedented variety in shopping experiences. India s vast middle class and it
s almost untapped retail industry were key attractions for global retail giants
wanting to enter newer markets. While organized retail in India was only 2% of t
he total US$ 215 billion retail industry, it was expected to grow 25% annually,
driven by changing lifestyles, strong income growth and favourable demographic p
atterns. A retail consulting and research agency had predicted that by 2010, org
anized retailing in India would cross US$ 21.5 billion mark.1 Unlike in the deve
loped world, food dominated the shopping basket in India. While food accounted f
or only 9.7% of the total private consumption expenditure for an average America
n, 15% for the Japanese & British, for the Indian, it was the principal componen
t of their consumption expenditure accounting for as much 53%. Since much of thi
s was non-branded (including perishable items like fruits and vegetables), the b
randed food industry was homing in on converting Indian consumers to branded foo
d. 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. Al
so, the country’s middle class had been expanding due to rapid urbanization, inc
reasing per capita income and credit card ownerships, increased participation of
women in the urban work force. The segment aged between 20-45 years was emergin
g as the fastest growing consumer group and the mean age of Indians was now 27 y
ears, a mean age that reinforced spending across all retailing channels of groce
ry, non-grocery and non-stores. Unsurprisingly, food & grocery retailers continu
ed to be the staple of retailing in 2005, accounting for ¾ of overall retailing
value sales as shown in Fig-1,
1
KSA-Technopak
-4-
CS-08-029
Fig-1: Fastest growing retails segments in India
Food & Grocery Clothing Furnitures & Fixture Durables Footwear & Leather Watch &
Jewellery 0 20 40 60 80 100
Source: KMPG in India Retail Survey 2005. Agriculture was the backbone of the In
dian economy as Nature had been very favourable to the country. Of the land with
in its boundaries, 52% was cultivable, as against the global average of 11%. All
the major 15 climate types existed in India and sunshine hours and day length w
ere ideally suited for good cultivation round the year. Also, India had great bi
o-diversity and accounted for 17% of animals, 12% of plants and 10% of fish gene
tic resources of the world. Undoubtedly, this comparative advantage was one of t
he reasons for the advent of a number of retail majors into food retailing in th
e past few years. Many were leading players in FMCGs, tobacco business, and agri
business.
-5Table–1 Area & Production of Agricultural Products
CS-08-029
(Production in million tones) India Arable Land (Million ha.) Irrigated Land (Mi
llion ha.) Wheat Rice, Paddy Course grain (including maize) Milk Fruits Vegetabl
es Edible oil seeds Pulses Sugarcane Tea Cattle (Million) 151 55 72 124 29 91 47
82 25 15 245 0.85 186 India’s rank in world production 2 1 2 2 3 1 2 2 3 1 2 1
2
Source: Marketing Reforms & Enhancing Competitiveness, 2006 However, the supply
chain that connected the vast natural resources and the farmers to both organize
d as well as unorganized retail was highly inefficient with several intermediari
es and manual handling. The result was lots of wastage (as much as 30%) and smal
l remunerations for the farmers (Exhibit-1). There was hardly any supply chain i
ntegrator or channel master for retail channels in this sector. RIL was aware of
this and hence was keen on setting up its own supply chain which could be more
efficient than the existing ones.
-6Exhibit 1: Inefficient supply chain in India
CS-08-029
In effect, the plentiful natural resources were underutilized or not efficiently
utilized for agriculture in India as Indian rural life had not qualitatively ch
anged over the decades. There was little attention to value added agriculture in
the whole country. Research on improving farm productivity, pre-harvest and pos
t-harvest methodologies, processed food product development, packing, distributi
on, transport, cold chain, store management warehouse and the entire supply chai
n were much neglected both by the Central and State Governments. At the same tim
e, it was generally recognized that there was tremendous potential for growth of
the food market in the Indian context (Exhibit-2). Reliance Fresh believed that
it could unleash that potential for profitable foods and vegetables retailing.
-7Exhibit 2: Growth in Indian food market
CS-08-029
Reliance Fresh
Reliance Fresh was the first foray into retailing by the $25 billion behemoth kn
own as Reliance Industries Limited. There were three basic reasons for Reliance
Industries Limited (RIL) choosing foods and vegetables for entering into retaili
ng. First, it wanted to go after the very core of the great Indian retail opport
unity. Food accounted for over two-thirds of the $200 billion Indian retail mark
et and yet, it had seen hardly any penetration by modern retail so far. Second,
its aim was to build a high-profitability business and food was perhaps the best
place to start. Third, the grossly inefficient food supply chain provided a wel
l resourced and well managed organization like RIL with an opportunity to think
of amending the flaws which would also make business sense. In the traditional s
upply chain in India, there were several intermediaries, who added their respect
ive profit margin to the cost. Besides, there was huge wastage in transit. This
offered potential for savings and profits and Reliance Fresh was a step in that
direction. Reliance Fresh launched by opening new retail stores in Hyderabad on
3 November 2006 (Exhibits 3-4). Stores remained open from 9am to 9pm. On 24th Ja
nuary 2007, 12 "Fresh" outlets opened in Chennai increasing the total store coun
t to 40. Reliance was testing its retail concepts by controlled entry,
-8-
CS-08-029
beginning in the southern states. RIL planned to invest $63.50 billion (Rs. 2,50
0 billion) over the next five years in the retail business with 4,000 retail out
lets in different cities. Retail Format: Small is Sensible The store’s size vari
ed from 1,500 sq ft to 3,000 sq ft, and stocked fresh fruits and vegetables, sta
ples, FMCG products and dairy products (Exhibits 5-7). The stores stocked their
own private label in staples and food under the "Reliance Select" label (Exhibit
-8). Eventually the label would include other food categories such as dairy prod
ucts, jams and colas. The Fresh model was engineered to clock a faster turnover
of inventory — Reliance expected consumers to visit the store at least twice a w
eek for their top-up groceries. Each store would have an investment of approx $1
27,000 (Rs. 5 million) to $153,000 (Rs. 6 million). Industry sources expected Re
liance Fresh to turn this capital over six times. “Each of our stores aim at cat
chments of only about 2,000 households in a 2-3 sq km radius,” shared Jai Bendre
, Head of Marketing (foods), Reliance Fresh. This was the concept of a neighbour
hood store. Reliance Fresh opened its 100th outlet in the country in the nationa
l capital, New Delhi. In addition to this, Bangalore was said to have 40 stores
in all by the end of the year. The push in the retailing of perishables was part
of an overall planned $5 billion project which was aimed to cater to more than
780 cities and 6,000 rural towns in India over the next five years. Reliance Fre
sh aimed at opening stores in the top 70 cities within the next two years and at
taining sales of $25 billion by 2011. Reliance Fresh had consciously adopted a b
usiness model of operating through small and medium size stores. These stores wo
uld be of 2,000-5,000 sq ft in comparison to a supermarket which needed 8,000-10
,000 sq ft. In the current business model it had positioned itself as a food and
grocery convenience store. It aimed to be a channel for not only consumer sales
but also positioned itself as a distribution channel for other small outlets in
various parts of the city by building an integrated supply chain to deliver and
operate its ‘Farm to Fork model’. The company had been racing to set up deals w
ith state governments to establish rural hubs to buy fruit, vegetables, pulses a
nd dairy goods from farmers as it moved to build a state-of-the-art supply chai
n spanning the entire country . Reliance Fresh’s shelves provided an indication
that the group was looking for higher margins. Most of the staples were under it
s own private label brand — ‘Reliance Select’. Except a few packets of Nestlé’s
Maggi, or MTR’s Masala’s
-9-
CS-08-029
or Pepsi’s Lays chips, there was very little shelf space given to the big brand
owners in the country. The traditional model of vegetable retailing in India inv
olved vegetables being sold in small “stores” on the roadside, and there were no
formal rules regarding weighing, bargaining and quality issues, let alone cold
storage and sophisticated supply chains. Produce travelled slowly and inefficien
tly through a series of intermediaries before reaching the hands of customers, s
uffering mark-ups, wastages and quality losses along the way. “Reliance Fresh” m
arketing model operates on affordability and a hygienic ambience along with a go
od shopping experience”, said Mukesh Ambani, the Chairman of RIL. Reliance Fresh
intended to bring high quality fresh food to the customers at an affordable pri
ce. Reliance Fresh also wanted to establish a benchmark of hygiene and quality i
n their sales. It thus sought to provide the consumer affordable and quality pro
duce in a congenial and pleasing environment and enforced stringent quality and
hygiene guidelines which would help it bring high value to the consumer Supply C
hain “We will always buy from the farmer, almost never from the mandi (wholesale
rs),” said a group official. For example, the leafy vegetables, aubergines, toma
toes and green chillies in the one of the outlets in Mumbai were sourced directl
y from farmers in nearby districts. This in effect got translated into lower pri
ces by at least 15% to 20%. “We ll be very affordable and competitive in the mar
ket, but we aren’t playing a price game here. The full effort is to deliver valu
e to the customer,” said Chief Executive, Customer Operations, KS Venugopal. Pro
duce from the farmers came to Reliance s city distribution centre, which connect
ed two very different sides of India, the poverty-ridden countryside, steeped in
tradition, and the wealthy city centers. “Already, a few hundred farmers have b
een hooked on to the Reliance Retail supply chain. In the next five years, that
number will grow to millions. Even contract farming — by assisting farmers in pr
ocuring high-quality seeds, fertilisers and other essential raw materials is on
the cards. By going to the farmer directly, Reliance Retail hoped to disintermed
iate the supply chain and eliminate waste. This meant fresher products at lower
cost”, reasoned the same group official. Still, there was a general concern in t
he industry about the possibility of steady and high quality supply of vegetable
s and other perishable food items to the huge number of proposed retail outlets.
How far backwards would Reliance have to integrate to assure such supply?
- 10 Current Supply Chain Diagram of Reliance Fresh
CS-08-029
LOCAL FARMERS
(Here grading and standardization takes place)
COLLECTION CENTRES LINKED WITH CONSORTIUMS
RELIANCE FRESH OUTLETS
Scale behind the scenes: Rural Business Hubs Globally, supply chains were fairly
mature and efficient. This gave the retailer little opportunity to improve prof
it margins. But in India, any retailer who built an efficient supply chain stood
to gain. “With efficient sourcing, we can release margins into the system. This
can be shared by customers and shareholders,” said Gunender Kapur, president an
d CEO (Foods), Reliance Retail. The company planned to own and operate a complet
e value chain by identifying potential geographical clusters to implement farm i
nitiatives and create an infrastructure to collect, pack, store, process and dis
tribute fresh and value-added products at the district level. The company was pl
anning to set up Rural Business Hubs (RBHs) which would be the strategic busines
s platform for providing comprehensive range of products and services to the rur
al communities. The first such hub would start by October 2007. RBHs would provi
de agricultural inputs, financial services,
- 11 -
CS-08-029
veterinary health care, educational and entertainment facilities. Reliance Retai
l was planning to set up 1,600 business hubs to cater to rural areas across the
country, reported Daily News Analysis (DNA), a prominent daily. “These business
hubs will act as shop-stops for villagers and will act as procurement centres, b
esides facilitating retail, technical and health assistance to farmers”. Relianc
e Fresh across India The State of Punjab would lease out 150 acres of land to RI
L’s RBH at $406.39 (Rs 16,000) per acre per annum for 30 years. RIL planned to b
uild direct linkages with farmers in procuring a major share of marketable surpl
us from farmers at their farm gate and to use it for flour and pulse milling and
processing units catering to domestic and export markets as well. In the next f
our years, the number of RBHs would increase to 50 and would cover around 12,400
villages out of 12,700 villages in the state of Punjab. The firm also planned t
o establish farms with world class technology to suit local conditions. Reliance
Retail also hoped to bring "prosperity of scale" to the State of Tamil Nadu s f
armers through the sourcing and supply chain for its Reliance Fresh outlets. 95%
of fresh fruits and vegetables sold at the stores were sourced from farmers. Un
der its “Ranger Farms” concept, the company had set up 10 collection centers acr
oss the State, with 10 more to come up soon. “The produce will be cleaned, grade
d and distributed at a centre at Puzhal. This will eliminate middlemen and pay f
armers cash, fair price for quality produce”, said Gunender Kapoor, President, A
gribusiness. Farmers would not only get market access but also advice on market
demand — what vegetables to grow, how much and when. Ultimately, these collectio
n centers would graduate into 40 rural business hubs across the State, which wou
ld help to improve farm productivity through technology and mechanization and of
fer services such as credit, insurance, health and veterinary care. “The speedy,
refrigerated transport and logistics infrastructure being developed by the comp
any will soon be available to the retail industry at large through a cash and ca
rry wholesale format. This means even your local pushcart vendor could be sellin
g vegetables sourced by Reliance," emphatically added Mr. Kapoor quelling the ap
prehension that the presence of organized retailing could doom the fate of small
neighborhood retail stores. Reliance Industries’ (RIL) was planning to acquire
over 2,000 acres for its contract farming venture in the State of Karnataka, whi
ch could emerge as one of its hubs for farm produce exports. The company was als
o ready to enter into contract farming operations in the states of Haryana and M
aharashtra. Its plan entailed acquiring 10-acres each of the nearly 200 administ
rative sub-divisions in the state. It was learnt that RIL had recruited a vast n
umber of agriculture graduates for this project. Also in the pipeline were the c
ompany’s plans to set up warehouses across the states. It had already unveiled a
mbitious contract
- 12 -
CS-08-029
farming plans nationwide, which would see it operating a massive fleet of cargo
flights within India and overseas. Win-Win Situation? According to early news re
ports published in the Hindu Business Line (December 16, 2006 –Exhibit-9), farm
producers selling to Reliance Fresh were getting better returns on vegetables pr
oduced by them. For example, ‘Rangers Farm’, the farm produce procuring arm of ‘
Reliance Retail’ was buying Bhindi (okra) at more than $0.25 (Rs.10) per kg agai
nst $0.18 per kg (Rs.7.50) (less 10% commission) being offered by traditional ve
getable wholesalers. Most farmers were also able to save on time, effort and mon
ey as they were not required to transport their produce to the wholesale markets
, which in some cases were located 40-50km away from their villages. Reliance, o
n the other hand, had set up its procurement centres nearby. There was one catch
, however. Vegetables before being accepted by the Reliance arm were required to
be graded based on their quality and freshness. Although wholesalers refused to
admit any impact of Reliance and other chains on arrivals of farm products in t
he wholesale markets, there was no denying the fact that a quiet revolution was
taking place in the countryside as more and more farmers had started to see the
benefits of selling their produce directly to the retail chains. Efficient suppl
y chains, backed by superior logistics management, had the potential of saving 3
0-35% in costs, particularly for perishable items like flowers and vegetables. A
nd at the same time, government was getting improved tax revenue as vegetables a
nd groceries were now taxed through these outlets. Major Players in Food and Veg
etable Retailing in India Godrej Aadhar, a venture of Godrej Agrovet was a compl
ete solution provider for the Indian farmer. It provided professional guidance w
ith an objective to improve productivity, higher returns and improved cost-benef
it ratio. The services offered were crop advisory services, soil & water testing
services, crop finance, supply of agricultural inputs and animal feeds, transfe
r of information (weather, price & demand–supply), door delivery of products etc
. It already had 33 stores across the country, which it planned to increase to 4
5 very soon. The company started its fruits, vegetables, dairy and poultry retai
l business through their Nature’s Basket stores in the urban areas. While seven
Nature’s Basket stores were already functioning in Mumbai, the group planned to
add another eight in Mumbai itself, before it set base in Delhi, Gurgaon, Hydera
bad, Chennai, Chandigarh, Amritsar and Ludhiana. The target was for setting up 1
000 outlets by 2010. It had adopted a “Hub and Spokes Model” for its distributio
n network.
- 13 -
CS-08-029
Subhiksha: The Chennai-based discount retail chain Subhiksha announced a $0.7 bi
llion (Rs.30 billion) expansion plan to venture beyond its home base of Tamil Na
du by setting up nearly 450 stores in the National Capital Region and four other
states. As part of expansion, the company planned to increase the number of sto
res to 600 from 150 now by end of 2007 to create a national footprint. Besides D
elhi, the company proposed to open stores in the states of Maharashtra, Gujarat,
Andhra Pradesh and Karnataka. For the Delhi market, the company had earmarked a
n investment of $0.2 billion (Rs.10 billion) over two years. The company had bee
n making profit for the last eight years, and its revenues had grown 25% in the
last two years. The company earned revenue of $0.81 billion (Rs.33 billion) with
a profit of $2.5 million (Rs.100 million) last year. Every store on an average
had a billing of $0.86 million (Rs.35 million). The expansion was expected to ad
d around $391 million (Rs. 15,750 million). ITC Choupal Fresh stores were starte
d in the cities of Chandigarh, Hyderabad and Pune, with their own cold chain sup
ply to wholesale and retail clients. It was the first of 140 stores that ITC pla
nned to open in 54 Indian cities over three years at an investment of $1.9 billi
on (Rs. 80 billion). ITC had designed the supply chain in collaboration with Ing
ersoll Rand and Mitsubish s Snowman. Ingersoll Rand had designed the climate-con
trol shelves, the freezer trucks in which farmers send produce, the pre-coolers,
and Snowman managed the logistics of the produce. The store stocked only fresh
fruit and vegetables, sourced directly from farmers from all over the country. A
nd it expected the organised retail market for fresh produce would touch $12.4 b
illion (Rs. 500 billion) in the three years. The e-choupal project was empowerin
g farmers and in turn, helping create new businesses for the company. These proj
ects essentially worked on digital infrastructure (IT, Internet access), physica
l infrastructure (rural Internet enabled offices) human infrastructure (managers
and IT professionals) and network orchestration by ITC. As an intermediary, ITC
had brought a network of insurance companies, banks, micro-finance entities, se
ed and fertiliser companies, FMCG, e-learning and training organisations to rura
l India. Launched in June 2000, in 7 years the 6,500 strong e-choupal kiosk s se
rvices reached millions of farmers growing a wide range of crops and seafood, so
yabean, coffee, wheat, rice, pulses, shrimp, in over 38,000 villages across nine
states of the country. Hariyali Kisaan Bazaar: The Hariyali Kisaan Bazaar was a
pioneering micro level effort, which created a far-reaching positive impact in
bringing a qualitative change and revolutionising the farming sector in India. T
he chain successfully ran its business through 33 stores in five rural locations
in North India. Each Hariyali Kisaan Bazaar centre operated in a catchment of a
bout 20 km. A typical centre catered to agricultural land of about 50,000-70,000
acres
- 14 -
CS-08-029
and made an impact in the life of nearly 15,000 farmers across India. Each centr
e provided support through a team of qualified agronomists; provided a complete
range of good quality, multi-brand agri-inputs like fertilizers, seeds, pesticid
es, farm implements and tools, veterinary products, animal feed, irrigation item
s and other key inputs like diesel and petrol at fair prices. The centres also p
rovided access to modern retail banking and farm credit, farm produce buyback op
portunities, access to new markets and output related services. Bharti Retail pl
anned to invest $2-2.5 billion by 2015 in its pan-India operations. It was looki
ng at approximately 10 million square feet of retail space across all cities in
India that had a population of over 1 million. It planned to employ 60,000 peopl
e. The company planned to launch its retail outlets in multiple consumer friendl
y formats, including hypermarkets and supermarkets. They had plans to serve all
regular shopping requirements of an Indian household—fruits, vegetables, meat an
d poultry, dairy products, staples, processed foods besides other FMCG and consu
mer durables. Trinethra was a 98 outlet strong chain, operating in 9 cities of A
ndhra Pradesh, covering retail space of more than 15,000,000 sq ft. The company
had grown exponentially with the number of stores, more than tripled in 5 years.
In 2003-04, the company acquired another chain Fab Mall which operated 12 outle
ts and achieved sales worth $12.4 million (Rs.500 million). Trinethra and Fab Ma
ll had drawn up an ambitious plan to breakthrough the $2.5 billion (Rs. 100 bill
ion) barrier sales by 2008 and for this plans were afoot to cover six new states
by 2008. This expansion would see the number of outlets increase from present 9
2 to 175. Adani Agri Fresh launched operations in Himachal Pradesh last year, wh
en it procured a major chunk of apples from the hill state. The orchardist in th
e largest apple growing state in the country got a much better price from the ag
rimajor and they were also spared the hassle of packaging their produce and tran
sporting it to big markets in Delhi, Mumbai, Ahmedabad and Kolkata. Adani had al
ready made an investment of over $280 million (Rs. 11 billion) in the hill state
for setting up controlled atmosphere packaging and storage units. This year, th
e company planned to invest over $408 million (Rs.16 billion) to set up its own
cold chain of refrigerated vehicles for transporting apples, kiwi, almonds and p
eaches. Future Plans and Challenges Senior officers in the company were known to
have set a “conservative” sales target of $25 billion for the next five years.
The firm expected to employ 500,000 staff as well as create at least one million
jobs indirectly. Reliance planned to invest $7-8 billion in setting up its stor
es arm that would cover
- 15 -
CS-08-029
1,500 Indian cities and towns in the country, said a senior Reliance official. T
he company had hired 6,000 managers for the new business. Reliance was selecting
locations for the stores, setting up agreements with farmers to buy their produ
ce and tying up with manufacturers for merchandise ranging from consumer electro
nics to apparel. The company had aimed at setting up as many as 60 distribution
centres across the nation to feed its retail chain and planed to initially contr
act trucks and warehouses with cold storage facilities and then build its own. I
t was recognized that different retail formats other than the city based stores
might be necessary in different markets. In towns and villages, it would have so
-called hypermarkets – warehouse style stores spread over 150,000 square feet, o
r about 14,000 square meters, selling groceries, fresh food, consumer electronic
s and clothes. The company would also open smaller, 75,000 square feet, supermar
kets. Larger metropolises like New Delhi and Mumbai would have smaller stores de
pending on the availability of real estate. Yet, despite these dramatic expansio
n plans, several questions remained: How would competitors, including the formid
ably resourced ITC and Godrej groups respond to these expansion plans? Were they
perhaps ignoring the most obvious source of competition- the traditional small
neighbourhood grocery store, where the shopkeeper knew every customer (and his n
eeds) by face, and was willing to extend credit till the next pay check? How nec
essary and realistic were Reliance Fresh’s plans to backward integrate all the w
ay to farming? And what would be the social consequences of this expanding corpo
rate presence into the largely unorganized, but politically mobilized farming se
ctor? How would intermediaries and small grocers react, and where would the peop
le’s (and Government’s) sympathies lie?
- 16 -
CS-08-029
References
India Retail Report, 2007 India Retail Report, An Images KSA Technopak Study, 20
05 Retailing in India : The Emerging Revolution. Mckinsey & Company, Inc. 2000.
- 17 -
CS-08-029
Exhibit 1
Reliance Industries Ltd. (RIL) Chairman Ambani in discussion with his lieutenant
s.
- 18 Exhibit-2
CS-08-029
Vertical glow sign outside the store -- as typically seen in petrol pumps. Not s
een till now in grocery stores. Increases visibility of stores in by-lanes -wher
e visibility is limited to just 2-3 stores from the main road. Products availabl
e listed on the glow sign
- 19 Exhibit-3
CS-08-029
Store Façade – Bright, Striking, Primary Colours
- 20 Exhibit-4
CS-08-029
Visible Store Promotions and Co-branded Promotions
Highly visible store promotions, re-iterating value for money proposition
- 21 Exhibit-5
CS-08-029
Vegetables in Baskets
- 22 Exhibit-6
CS-08-029
Layout and Ambience – Well-lit, Neat, Bright, Easy To Read Signage
- 23 Exhibit-7
CS-08-029
Private Label Competing With Branded In Some Categories The consumer has three o
ptions in cereals & pulses – branded, store brand “Reliance Select” or packaged
unbranded
- 24 Exhibit-8
CS-08-029
BusinessDailyfromTHEHINDUgroupofpublications Saturday,Dec16,2006

Farmers take a Fresh look at retailing
ATTRACTIVE RATES for produce, and no commission
Twenty-five-year-old Mr Rami Reddy, whose joint family owns 20 acres in Lakshmar
eddy Gudem, a small village in Rangareddy district near Hyderabad, has been grow
ing brinjals in one or two acres for the last eight years. But he never saw a pr
ice for his produce that he got this season from Reliance. Not only that. He cou
ld save money, time and effort in taking the produce to the Bowenpally market, 4
0 km away. "All we need is to take the produce there. We need not pay any commis
sion not to speak of the hamali charges," he said. "Two months ago, Reliance rep
resentatives came to me and told me about their plans to procure quality brinjal
s for their upcoming outlets in Hyderabad," he told Business Line. Mr Reddy is n
ot alone. "It has become a hot topic for discussion among the villagers. Everybo
dy talks about the attractive rates," he said. Collection centre He is not exagg
erating. About 200 farmers from villages in the area have started selling their
produce at the Collection Centre set up by Reliance at Shankarpally. The centre
collects 7-8 tonnes of vegetables a day and send the lot to the central processi
ng centre at Medchal. Vegetables from 2-3 such
- 25 -
CS-08-029

centres get graded again and processed there before getting into the 17 Fresh
outlets the company opened in the twin cities. "We used to sell a 20-kg bhindi
(okra) bag for just Rs 150. But now we are getting Rs 10-11 a kg," Mr Jangaiah o
f Alamkhangudem said. "It is not just the higher price. We also save on the 10 p
er cent commission we pay at the market yards," he said. But they understood qui
te well that the ‘maal’ (produce) should be fresh. "It should be plucked too in
a certain way. All my life I grew bhindi (okra) the way my father did and sold a
s he did in the market. They (Reliance) do not take the second grade vegetables.
But it seems I have to change," said. Mr Venkatrami Reddy of Chinnareddy Gudem
saw another advantage. "They would tell me what quantity of vegetables they need
from me. I ll go there and get my consignment graded at their collection centre
," he said. The centre would get the price-band and quantity of vegetables it ne
eded to collect that particular day. Mr Vithal, Secretary of the Agriculture Mar
ket Committee at Shankarpally, felt that the procurement by ‘Ranger Farms’ (thro
ugh which Reliance procures vegetables) has no impact on the arrivals at the com
mittee. The committee accepts vegetable consignments two days in a week. "Some d
ays we receive more and some days we see less arrivals. We haven t yet seen any
decrease on account of their (Reliance s) entry," he said. Asked about farmers
claim that they paid 10 per cent as commission, Mr Vithal said the committee cha
rged four per cent. The farmers also needed to pay for weighing and hamalis, he
explained.
- 26 Exhibit-9 The Economic Times 24 July 2007 1023 hrs IST, AGENCIES We don wa
nt Reliance to colonise us, say farmers t
CS-08-029
MUNDHA KHERA, INDIA: It s a hot, humid Sunday morning in northern India, but the
oppressive heat does not deter a group of about 15 farmers from trudging door-t
o-door, offering advice and sometimes warnings. "Do not sell your precious land.
Even if you are offered millions of dollars, do not sell. It is your only sourc
e of livelihood," Mahavir Gulia, the leader of the group, tells a villager in Mu
ndha Khera, 100 kilometres (60 miles) from New Delhi. "Sell your land and you wi
ll lose your identity," he warns another as the group winds its way through the
cluster of austere mud, brick and cement homes. Gulia is trying to spell out the
dangers to locals whose land has been earmarked for a Chinese-style business en
clave - a joint venture between the Haryana state government and Reliance Indust
ries, India s largest private conglomerate. "We want to be sure our fertile land
that gives us three crops a year does not end up as part of the Reliance empire
," he said. "We don t want Reliance to colonise us. Land is what sustains us far
mers with food, respect and dignity." In Neemana village, 10 kilometres away, Pr
atap Singh, 75, understands the message -- but a little too late. Eight months a
go, he was the owner of a 20-acre (eight-hectare) fertile field that yielded thr
ee harvests a year. "My sons were lured by the promise of good and quick money.
They persuaded me to sell most of my land to the big company," says Singh, squat
ting on the sandy floor of the one-room house that he and his wife share with a
buffalo. He did get some cash, but it did not last him long in the world outside
his usual farming routine. "We have a saying here that our land is our mother,"
Singh added sadly. "How can you get any respect when you have sold your mother?
" India "Great Land Grab" s Singh s land is now part of the 25,000-acre Relianc
e-Haryana government Special Economic Zone (SEZ) -- a project encouraged by the
Indian government to spur industrialisation, infrastructure development and push
economic growth into double digits. For foreign and domestic corporate giants,
the SEZs are a tempting option -promising a way around the country s notoriously
slow, corrupt and spiritcrushing bureaucracy.
- 27 -
CS-08-029
But opponents say the government is merely sidelining the still-crucial farm sec
tor -- stealing labour and prime land from a sector which employs more than 60 p
ercent of the workforce and generates more than a fifth of India s gross domesti
c product. Journalist-turned-activist Praful Bidwai says the years 2006 and 2007
"will be noted in history for the launch of the Great Land Grab". "It s happeni
ng across India," added social activist Vandana Shiva, pointing to farmers prot
ests in the Communist-ruled eastern West Bengal state in March. Fourteen farmers
were killed when police entered their village to evict them from land designate
d for a SEZ - causing a furore and polarising public opinion. Not that land grab
bing is a new concept in India - tribal peoples have long seen their forest land
shrink with the march of urbanisation. But SEZs are different, says Shiva. "The
se are enclaves of privilege, insulated from the laws of the land - whether it i
s labour laws or environment laws." Democratic-corporate "schizophrenia" So far,
India has approved 303 SEZs and set aside 1,400 square kilometres (540 square m
iles) of land on which they are to be built. According to India s trade ministry
, the 126 enclaves already operating have generated 32,578 jobs, and this will s
well to 1.5 million by December 2009. It also hopes SEZs will generate 25 billio
n dollars worth of exports in 2008-2009. While the figures look impressive, crit
ics argue that Indian democracy is suffering. "When there is large scale displac
ement of people involved, you need their consent. In a democracy, people have th
e right to decide their own future," said prominent community activist Aruna Roy
. "All the villagers should decide -- not just the village headman." She also po
ints to what she sees as the irony of Prime Minister Manmohan Singh s government
-- elected on a pro-poor platform in May 2004, but aggressively pushing through
the SEZs. "It s a case of schizophrenia," Roy said. Those who may end up profit
ing from the affair are India s Maoists, who have seized on the land grabbing is
sue and already hold sway in much of the impoverished east. "Agitations like the
Maoists insurgency are triggered by the repeated failure of governance to deli
ver basic rights," says Roy. Economist Paranajoy Guha Thakurta says India s ambi
tion to emulate the Chinese SEZ model is basically flawed - "because India is a
democracy".
- 28 -
CS-08-029
"The Chinese SEZs are like giant urban agglomerations, independent nation states
with their own rules for labour and environment," he said. India following the
same model will only create "huge islands of industrial affluence in a sea of de
privation and poverty. "This will be unacceptable in a democracy."
- 29 Exhibit 10
CS-08-029
WAL-MART IN JOINT VENTURE FOR INDIA
By Amy Yee in New Delhi, FT.com site Published: Aug 06, 2007
Wal-Mart has succeeded in getting its toe in the door of the Indian market, via
a long-planned joint venture with local partner Bharti Enterprises. The world s
largest retailer stressed it would “work with and develop local supplies and cre
ate local beneficiaries along the supply chain”, in an apparent effort to play d
own controversy over the potential disruptive effects of corporate retail in Ind
ia. The 50-50 joint venture, called Bharti Wal-Mart, is a “wholesale cash-andcar
ry” business that will use Wal-Mart s back-end logistics technology, inventory s
ystems, cold chain infrastructure, truck tracking and fuel management. Bharti, o
ne of India s largest companies and owner of Airtel, the country s leading mobil
e phone operator, recently announced investments of up to $2.5bn in Bharti Retai
l, its own 100 per cent-owned supermarket chain that will be supported by Wal-Ma
rt s logistics and supply chain technology through a franchise agreement. The pl
ans come amid controversy over Wal-Mart s entry into India. Activists and small
trade associations insist corporate retailers will disrupt millions of Indians w
hose livelihoods depend on farming and retail dominated by small mom-and-pop s
hops. Manmohan Singh, Indian prime minister, this spring called for an independe
nt study on corporate retail advances into the country. The report is yet to be
finalised. Dharmendra Kumar, head of India FDI Watch, which opposes big retail,
said: “The government is still to know the likely impact of corporate retail. In
the meantime, they are allowing corporations to expand their retail plans at an
alarming” India FDI Watch and other activist groups plan demonstrations across
India this week. Hakim Singh Rawat, president of the Hawkers Association, said s
treet traders would be hit hard by Bharti Wal-Mart and warned the Indian governm
ent about favouring “only a few huge corporations”. Opponents insist the joint v
enture is a “back door” into India s $300bn retail industry. Under current law “
multi-brand retailers” that sell more than one
- 30 -
CS-08-029
brand of products are barred from India. Single-brand retailers such as Benetton
and Nike are allowed 51 per cent foreign direct investment. In the next seven y
ears, Bharti Wal-Mart plans to open 10 to 15 wholesale centres in smaller cities
, starting late next year. A typical facility will sell groceries, stationery, c
lothing and consumer durables. The companies did not disclose details of their i
nvestment in the joint venture. Formal shops, or “organised retail”, comprise ju
st 2-3 per cent of India s $300bn retail industry. The majority of shopping take
s place in small momand-pop shops, roadside vendors and open air market. About
35-45 per cent of farm products never make it to market because of lack of cold
storage and poor transport and roads.