Reliance Fresh Stores in Food Retailing
This case was prepared by Dr. Debasis Pradhan & Dr. B.K. Mangaraj of XLRI Jamshedpur, INDIA, as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of a management situation.
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London Business School reference CS 08-029
In April 2007, it was time for celebration at the headquarters of Reliance Industries 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 were as high as 4,000 per day. Launched as 'your friendly neighbourhood store', the typical Reliance Fresh store was spread over an area of 2000 sq ft. Just before its launch, in June 2006, its chairman, Mukesh Ambani had announced a $5.6 billion multiyear investment in the agriculture and retail sectors. He aimed at making a new company, “Reliance Retail” the sector's dominant player. “Reliance Fresh” 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 with efficient delivery of value to the consumers. Ambani, who visited all 11 shops 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 optimism did not mean that all questions about his business model were fully answered, or that the answers had been validated yet. There certainly appeared to have been an overwhelming response to Reliance Retail in the first year of operations. Looking at the very encouraging response from the public and the buyers, there 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," President 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 products were being retailed under ‘Reliance Select’, a premium food brand launched by Reliance. In April 2007, the “Reliance Select” brand covered pulses, rice, spices and vegetables. Raghu Pillai, President of operations and strategy at Reliance Retail said, “About 95% of India's retail sector is made up of small, family-run stores and the sector has not been tapped by big businesses. Reliance Fresh aims to target and exploit this very segment in which it foresees huge potential for further robust growth.” Yet Pillai was realistic about the need for strategies to survive existing and growing competition in this new sector.
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. Traditional markets were making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls had begun appearing in metros and second-rung cities alike, introducing the Indian consumer to an unprecedented variety in shopping experiences. India's vast middle class and its almost untapped retail industry were key attractions for global retail giants wanting to enter newer markets. While organized retail in India was...