Reliance Fresh

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RELIANCE FRESH

Study of Reliance Retail

2/25/2011

Submitted By: Group-1 Sec-Z

Nischay Mittal Gautam Gupta Suvidhi Jain Navleen Khalsa Sudhanshu Arya

Guys our report was a blunder … These are the corrections suggested by him… pls read below to know what you have to add…

1st of all: Its Reliance retail and not Reliance fresh. I have mentioned next to your parts what all u hav to cover.

Nischay: History (of reliance retail, expansion strategy for ex why and how did they choose the verticals they have 2dy) & Location of stores – (Size of stores, How many in malls, how many on high streets, how many stand alone? Reasons for the chosen location, What was their approach to number of stores per town? Have they limited themselves to metros or have they gone much deeper?  Possible reasons?)

Gautam: Turnover for last 3 years (reliance retail and Reliance fresh both), Price Strategy vis a vis kirana merchants and against modern retail (Reliance retail in general & reliance fresh in specific) & Private Labels Strategy (Reliance retail in general & reliance fresh in specific), brands and percentage of turnover

Sudhanshu: Number of Formats (verticals announced in 2006), opportunities and roadblocks and mid course corrections for each vertical & Number of stores format wise (for each format of reliance retail) town wise. (Do they own the stores or rent them? Have they gone the franchise route? Successes and failures?)

Suvidhi: GMROI, GMROF, GMROL, Inventory Turns and other merchandise performance measures. (Some financials and comment on decline or growth. Same Stores growth rate? – Reliance retail & reliance fresh both) //agar nahi ho para ha to pls anubha se help le le.. she might be able to help…

Navleen: Number of stores format wise town wise (again as per ppt 1of class for reliance fresh including all parameters) & Mission Promotions – What do they concentrate on? Comment on suitability?

Suggested sources apart from reliance retail & reliance fresh websites:

The source will primarily be the balance sheets for listed companies and business dailies or magazines (especially ET, BS, MINT, Businessline for dailies and Businessworld, Business Today and Forbes for non-listed companies. There are three retail magazines, the best beingRetail Images followed by Retail Biz and Retailer. There are also four or five excellent sites – Retailangle, Technopak, RVG Newsvision, Retailyatra, Retail Guru, Retailmantra and so on.

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Table of Contents

1. Reliance Retail....................................................................................................................................4

Brief History.............................................................................................................................................4

Expansion Strategy..................................................................................................................................4

Mission....................................................................................................................................................4

2. Number of Formats............................................................................................................................5

3. Number of stores format wise...........................................................................................................8

List of Formats.........................................................................................................................................8

Opportunities and Roadblocks for each format.....................................................................................10

4. Turnover for last 3 years.................................................................................................................12

Reliance Retail.......................................................................................................................................12

Reliance Fresh.......................................................................................................................................12

5. Location of Reliance Fresh Stores...................................................................................................13

Size of stores..........................................................................................................................................13

Location.................................................................................................................................................13

Reasons.................................................................................................................................................13

6. Strategy Wheel.................................................................................................................................14

7. Private Labels Strategy....................................................................................................................18

8. Financial Performance.....................................................................................................................19

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1. Reliance Retail

Brief History

Reliance Retail is the Retail subsidiary of Reliance Industries Limited. RIL’s expansion

strategy includes its foray into the nascent yet lucrative retail sector of India.

Reliance Retail was setup to revolutionize the retailing industry in India. Towards this end,

Reliance is aggressively worked on introducing a pan-India network of retail outlets in

multiple formats.

Reliance Retail provides a world class shopping environment, state of art technology, a

seamless supply chain infrastructure, a host of unique value-added services and an

unmatched customer experience. Reliance Retail is committed to ensure better returns to

Indian farmers and manufacturers and greater value for the Indian consumer, both in

quality and quantity. It boasts of a seamless supply chain infrastructure, unprecedented

even by world standards. Through multiple formats and a wide range of categories,

Reliance is aiming to touch almost every Indian customer and supplier.

There are many subsidiaries under this business such as Reliance Fresh, Reliance iStore,

Reliance Home Kitchens, Reliance Time Out, Reliance Digital, Reliance Wellness, Reliance

Trendz etc.

Reliance Fresh is the most prominent of these subsidiaries and was opened as a concept of

the ‘Neighbourhood’ store. Since its inception in Hyderabad in 2006, Reliance Fresh stores

have increased in numbers and stand at about 560 stores in all currently. Reliance Fresh

followed the strategy of opening stores and testing its strategy in South India first; using a

Controlled entry into South India. After opening its first store in Hyderabad, the stores then

opened in Chennai and spread to the rest of south India before opening up in the rest of the

country. During its opening, Reliance Fresh faced problems and protests in some Indian

states like Orissa, West Bengal and UP; following which it decided not to sell fruits and

vegetables in these select states. Reliance Fresh sells fresh fruits and vegetables, staples,

FMCG and dairy products. The majority of staples are sold under the brand – ‘Reliance

4 | Z 1

Select’ which fetches it higher margins. Apart from distribution supply to consumers,

Reliance Fresh also distributes to other small outlets.

Expansion Strategy

Reliance Retail plans to invest Rs 2,000 crore to add 3 million sq. ft. retail spaces in 2010-11.

Reliance Retail recorded sales of Rs 4,500 crore in the financial year ended March 2010. It

operates nearly 1,150 stores in 86 cities across 14 states which span just over 4.5 million

sq. ft. space across India. In 2009-10, the company had added around 1 million sq ft retail

space.

The company has also focused greatly on its plan of luxury brands to India with Reliance

Brands. The last two months have seen the launch of Hamleys and Diesel stores. Reliance

Retail is now in talks with US fashion brand Kenneth Cole and Italian bag maker Mandarina

Duck to open their exclusive outlets in India.

Reliance Retail plans to add around 30 hypermarkets and 250 speciality stores this financial

year. Around 1.5 million sq. ft. will be added in hypermarkets while 1.5 million sq. ft. will be

in speciality stores and Reliance Fresh.

This expansion strategy is in resonance with Mukesh Ambani’s plans of a 10-fold growth in

revenue of Reliance Retail over the next five years to become a Rs 45,000-crore entity (as

announced by Mukesh Ambani at the 36th AGM).

Mission

To generate inclusive growth and prosperity for farmers, vendor partners, and consumers,

Reliance Retail Limited (RRL), a subsidiary of RIL, was set up to lead Reliance Group’s foray

into organized retail.

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2. Number of Formats

Reliance Retail 2006

Reliance initially launched stores in two formats i.e. 2,000-5,000 Reliance Fresh convenience

stores and the wholesale cash-and-carry Ranger Farms to supply small grocers and retailers.

The Reliance Fresh stores are focused on food (its private label brand being Reliance Select for

staples and groceries) but also launched larger stores that stock both food and non-food items

(Reliance Fresh Plus).

Reliance Retail unveiled its organized retail foray in Nov 2006 with the launch of convenience

stores in the southern Indian city of Hyderabad.

Reliance ramped up its presence primarily through Reliance Fresh and ended FY 2007 with

about 1000 stores.

Investment plans are of US $5 bn, revenue of US $ 25 bn, targeting 100 mn Sq. feet of store

space across 1500 cities.

Reliance’s proven project-execution skills will be crucial to the success of this venture.

The company has already established a presence in the National Capital Region (NCR), Jaipur,

Ranchi, Chennai, Ahmedabad and Bangalore, since its first launch in Hyderabad.

The company has also launched its RelianceOne loyalty program, which comes with free

accident insurance and free home delivery.

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Reliance Retail 2011

RRL operates several ‘value’ & ‘specialty’ formats.

The ‘value’ formats offer a wide range and assortment of products required for daily household

needs. The ‘value’ formats that RRL operates are.

1. Convenience store - ‘Reliance Fresh’, a neighbourhood concept

2. Hypermarket - ‘Reliance Mart’, an all under one roof supermarket concept

3. Supermarket - ‘Reliance Super’, a mini-mart concept

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11 28 45 57 80 109

700

0100200300400500600700800

No. of Reliance Stores

The ‘specialty’ formats are:

1. ‘Reliance Digital’, a consumer durables & information technology concept

2. ‘Reliance Trends’, an apparel & accessories concept

3. ‘Reliance Wellness’, a health, wellness & beauty concept

4. ‘iStore by Reliance Digital’, an exclusive Apple products concept

5. ‘Reliance Footprint’, a footwear concept

6. ‘Reliance Jewels’, a jewellery concept

7. ‘Reliance TimeOut’, a books, music & entertainment concept

8. ‘Reliance AutoZone’, an automotive products & services concept

9. ‘Reliance living’, a home ware, furniture, modular kitchens, furnishings concept

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3. Number of stores format wise

List of Formats

Format Number of Stores throughout India

Types of cities (Metro, Tier I,II,III etc)

Reasons/Strategy

Reliance FreshReliance MartReliance SuperReliance DigitalReliance TrendsReliance WellnessI storeReliance FootprintReliance JewelsReliance Time-outReliance Auto ZoneReliance Living

Reliance Retail Rent

Reliance Retail pays up to Rs 80,000-Rs 1,00,000 that actually depends on the location of the shop.

Reliance Retail

Footprint 1500 cities and towns across India.

Format Supermarket Specialty Stores Supermarkets Hypermarkets

Verticals 14 verticals with an emphasis on food

Brands A mix of in-store and others

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Investment Us $ 5.5 – 6 bn

Targeted Revenue About $25 bn by 2011-12

Employment 500,000

Reliance Retail: Verticals

Food “Farm to Fork” strategy. Building a partnership with farmers and strengthening agri-

linkages

Electronics Lock Manufacturing capacity in China, Middle East and India for in store brands

Collaborations Several international brands like Marks & Spencer

FMCG and Durables

Looking to extract aggressive discounts from existing FMCG players

Could set up a procurement hub in South East Asia

Health Care Tied up with Himalaya drugs

Opportunities and Roadblocks for each format

Mr. Ambani did an investment of Rs 25,000 crore (Rs 250 billion) in the retail space in the

ensuing years and a presence in 1,500 cities and towns with a network of neighbourhood

stores, supermarkets, speciality stores and hypermarkets.

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While the actual investment figures so far aren't known, Reliance Retail, the company

spreaded the retail plans, has added 2 million square feet of retail space in the last one

year. This is way behind the 5 million square feet added by Kishore Biyani's Future Group

in the same period. Reliance Retail has added 485 stores in the last one year, taking the

total count to 950 and the footprint is now spread across 77 cities (58 in the last one year)

across India .

While his critics Ambani may have lost the plot as the progress of his retail plans are

nowhere near what he had sought to achieve, others feel the Reliance chief is just being

pragmatic given the not-so-conducive environment for expansion in retail. The

environment is tough indeed for retailers.

"Every square foot of retail space calls for Rs 2,000-2,500 of capital, while the most

profitable retailer generates Rs 1,000-1,200 of cash profits at the store level, and Rs 300 at

the net level. So, at best, internal accruals can support just 15 per cent of space addition.

Also, the fact is that Reliance Retail's grandiose hit a roadblock when it faced political

backlash in states such as Uttar Pradesh and Orissa towards the end of 2007. The company

faced the heat in West Bengal and Kerala too. So the plans to set up 2,000 stores by 2008

and 5,000 by 2010 has taken a knock.

The company is also tried hard to beat the recession. That explains its decision to close 30

of its unprofitable stores and reducing the manpower by at least 1,000. Also on cards are

renegotiating rentals for its 900 properties to cut down such costs by a third.

The company has also unified its sourcing function for value formats after achieving a

critical mass, a company spokesperson says. The value formats include neighbourhood

format Reliance Fresh, supermarket chain Reliance Super, hypermarket format Reliance

Mart and Reliance Wellness, a beauty and wellness format.

The company currently draws 35 per cent of its revenues from private labels. In speciality

formats like Reliance Trends and Reliance Footprints, the ratio of private labels to others is

almost 50:50.

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Then after recession Reliance Retail had gone on the growth track and continues to expand

its value as well as specialty formats. "The company became a long term player with a

robust business model. Having achieved a critical mass in our value formats, they

continued to strengthen it further by increasing our footprint in Tier II and III cities. They

continued to expand our specialty formats during the year 2011

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4. Turnover for last 3 years

Reliance Retail

Reliance Fresh

By way of line graph

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5. Location of Reliance Fresh Stores

(Size of stores, How many in malls, how many on high streets, how many stand alone? Reasons for the chosen location, What was their approach to number of stores per town? Have they limited themselves to metros or have they gone much deeper?  Possible reasons?)

Size of stores

Location//How many in malls, how many on high streets, how many stand alone?

Reasons

//for the chosen location, What was their approach to number of stores per town? Have they

limited themselves to metros or have they gone much deeper?  Possible reasons?)

14 | Z 1

6. Strategy Wheel

We shall discuss the strategy wheel for Reliance Fresh.

Retail Strategy consists of 6 major components as shown in the following figure:

Location:

Reliance retail stores are largely like a Super market set up or like a convenience

store format with their stores ranging from 1100 to 7500 sq. ft. Also, Food and

perishables form a large share of their product offerings.

These stores are usually spotted in a Neighborhood location as stand-alone stores.

The reason for such a strategy could be to provide customers with proximity and

also have high visibility to cut out competition from stores like Spencers, Big Bazaar,

Subhiksha etc.

Merchandise Assortment:

Width: Medium to High

They offer considerable number of product lines ranging for example, Processed

Food, Non-vegetarian, Hard-line, Homecare, Personal care, Baby Care, Beverages,

Dairy, Non Food, Fresh Fruits & Vegetables, Bakery and Stationary

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Depth: Low

For each of these product lines mentioned above they offer not more than 2-3

brands or variants. So, we consider their depth of stores to be low.

Pricing:

Reliance Fresh claims to offer Affordable Pricing but we find their pricing strategy to

be:

a) Discount pricing: As they offer spot discounts on membership cards. Also, they

offer discounts on volume purchases for example Rs 10 off on a 5kg pack etc.

b) Competitive Pricing: Their product price range is wide and they offer

competitive price i.e. a little lower (marginally lower) than the identified

competition.

c) Also, they mark price in “Paisa” to make it appear as low priced.

Communication Mix:

Reliance Fresh communicates largely about its promotions. The communication is

observed in the following ways:

a) Through advertising in Newspapers: About location of their stores or opening up

of new stores, product range, festive offers.

b) Through Fliers: About product range, current promotions.

c) Through Events: To spread awareness.

d) In store promotions: Largely Sales promotion for example, spot discounts, live

announcements, free gifts on a minimum purchase/bill amount. There are also

Point of Sale displays as we can see in the picture below:

16 | Z 1

Store Design and Display:

Reliance Fresh like other organized retailers in

food & grocery has a Grid Layout format. This

could be because of the following reasons:

a) They get more shelves to stock products

b) Lesser space is wasted in Aisles

c) Customer Familiarity

d) Higher Space productivity

Also, we found that following displays are

usually spotted in a Reliance Fresh store:

a) Jackets in corners: These are stands which

have Hot Offer written on the white boards

b) Alligators, Racks, Bins

c) It also has a section of Open Chiller with a

White Board display which rate of perishables written on it.

d) Weighing Machine next to racks

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e) Customer Service Desk

f) POS with frequent Promotion displays on it as well

Customer Service:

There are 3 levels of employees in any Reliance Fresh Store as shown in the figure

below:

There is a Customer Desk in each Reliance Fresh store which is operated by

Customer Service Associates. But our secondary research and understanding

through personal experiences suggest that Customer Service Staff needs training as

they lack focus on solving customer problems and are also a little apprehensive

about receiving customer complaints.

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Store Manager

Assistant store Manager Supervisors Customer Service

Associates

Finance and Accounts Manager

7. Private Labels Strategy

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8. Financial Performance

We shall attempt to understand the financial performance of Reliance Fresh Stores. Please look

at the excel sheet to understand how have we arrived at the following figures.

As per their Annual report for the fiscal 2009-2010 we arrive at the following conclusion:

1. Their Labour Productivity comes out to be Rs 52.70 lakhs i.e. each employee on an

average makes Rs 52.70 lakhs of sales per year.

2. Also, Sales per sq. ft. comes out to be 0.2342 lakh/sq. ft.

3. Reliance Fresh derives most profit from Sales of Fresh fruits and Vegetables and least

from the sales of Staples and Non veg items. This might indicate that Staples might be

the traffic builder for Reliance fresh as the margins on the same are lower where as

Fresh vegetables, Home Care, Personal Care and Processed food can be the destination

goods as these stores are usually located in a neighbourhood set up. Also, the margins

on Fresh fruits and vegetables could be a result of their association with farm folks and

the fact that they have long term contracts with the farmers for direct supply thereby

increasing the efficiency of their supply chain.

Please see the following graph to understand the performance of each category of

reliance fresh.

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Fresh

Fruits

& Veg

etables

Staples

Proces

sed Fo

od

Bevera

ges

Dairy

Personal C

are

Home Care

Others (N

on veg e

tc)

Promotions

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Performance of Reliance Fresh

Space UtilizationProfit PercentageGross Margin

Perc

enta

ge

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