Retailers rush in to grab the market
16 Nov 2006
The entry of Reliance into retail has galvanised others into action. Mohini Bhatnagar reports.
The Indian retail sector has suddenly become active. While attention had been focused on the mall boom — close to 220 malls will be operational by the end of 2008 — Reliance Industries led by Mukesh Ambani has launched its retail operations, branded Reliance Retail in the country by opening outlets in Hyderabad, that sell fruits vegetables and grocery, while other retailers (Indian and global) are poised to spring into action.
Industry watchers are taken aback by the speed and ease with which Reliance has inaugurated its retail operations. Says Arvind Singhal, head of retail consultancy, KSA Technopak: "Nowhere in the world has a project started on such a scale — it has taken just 15 months from planning to execution."
Technopak anticipates that Reliance's entry into retail will spur others into action and the top 10 players in the modern retail trade are likely to pump in $18-20 billion in five years to generate as much as $50-60 billion in revenue by 2011. This investment will be made in the top 150 cities, though impact would be visible in at least the top 500 if not more.
Reliance will however, soon encounter competition from large domestic players like ITC, the Adity Birla Group, telecom maverick Sunil Mittal's Bharti group, RP Goenka's RPG Enterprises and the Ruia's Essar Group, all of whom are finalising their retail plans while global players like Carrefour, Wal-Mart and Tesco will inevitably move in either with franchised, cash and carry or plain retail models. German retailer Metro already operates a cash and carry store in Bangalore and is scheduled to open outlets in Hyderabad soon.
Unconfirmed reports say the Aditya Birla Group may spend Rs15,000 crore ($3.3 billion) to set up 6,000 outlets in three years.
Sunil Mittal, chairman of Bharti Enterprises is planning a tie up for his FieldFresh Foods Pvt Ltd with the UK-based Tesco to set up chain stores in India. The Aditya Birla Group is expected to open its first store by the middle of next year.
Wal-Mart's recent moves indicate that it is no longer willing to wait for the Indian government to drag its feet on the issue of FDI in retail, and has initiated talks with Indian companies for franchised or cash and carry operations. As a first step towards setting up a presence in India, Wal-Mart has appointed Raj Jain (former CEO of Whirlpool of India) as the CEO of its proposed Indian operations.
The US-based retail chain currently has a set-up in Bangalore to source products for its international retail operations. Jain, currently undergoing training in Shanghai, has been hired specifically to spearhead the retail company's entry into India.
Earlier Wal-Mart had set up a project office in Delhi from where it was said to be working on various entry strategies. Wal-Mart is also believed to be building a team in India, which includes the head of finance, marketing and legal affairs.
Wal-Mart is said to be extremely concerned about the impact that Reliance Retail will make on the groceries and fresh foods market, recognised globally as the life blood of organised retail the world over. Until now, Indian retailers have tended to minimise their presence in this segment mainly due to high investments required.
Though Spencer's, FoodBazaar, Nilgiri Dairy Farms, Dairy Farms are present in the fresh food segment, theirs is a token presence and not a competitive threat.
Against this Mukesh Ambani has announced a Rs25, 000-crore investment for its Reliance Fresh initiative and Reliance Select. investment in its backroom and supply chain and cold chain is also said to be huge. For fresh produce it plans to source fruits and vegetables directly from farmers eliminating middlemen and for groceries it has tied up with FMCG manufacturers to source stocks directly from company factories.
Sources say the large FMCG players like HLL, ITC, Dabur and Marico are putting in place systems to service Reliance as the off take of consumer goods from HLL is expected to be large.
The world's second largest retail chain, the €74.5-billion Carrefour is also set to enter India along with Dubai-based Landmark group which operates the Lifestyle chain of stores in India.
According to reports, Carrefour's plans include opening 200 hypermarkets throughout India in the next 10 years. Incidentally, Carrefour was the first international retailer to set up shop in Asia in 1989 in Taiwan, Indonesia, Malaysia, Thailand and China.
Carrefour had maintained a procurement office in Gurgaon near Delhi from 2000 to 2004 from where it sourced food products from India through international distribution agents. In 2004 it recalled its executives after postponing plans to set up shop in India due to the lack of clarity on foreign direct investment (FDI) in the retail sector. Carrefour operates 7,000 stores in 29 countries worldwide and has 47.8 per cent of the group's sales originating from France. The remaining sales come from its hypermarket store format which the group pioneered.
Carrefour India is understood to be exploring formats like the cash-and-carry and franchisee model to facilitate its entry. German retailer Metro is also following the cash-and-carry model in India and has set up two distribution centres in Bangalore and is in the process of setting up more in Hyderabad and Kolkata.
A recent study by real estate services provider Frank Knight India revealed that the Indian retail sector is worth $210 billion and is expected to grow at between five and seven per cent per year. Organised retail represents just three per cent of the overall industry, but is growing at 30 per cent per year.
