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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 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.

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.