Reliance in India - Retailization by Default?
I have finally settled in here in Canada (Montréal) where I am ready to spend five months studying at L'HEC Montréal. Having settled in also means that blogging will come back to speed here at Alpha.Sources although I suspect my internet connection will be out for a week starting next thursday ... but enough of that.
I will begin here in Canada by picking up a topic I have come to report on a couple of times. The scene is set in the realms of business and the retail industry and more importantly India. I am not prone to recommend my own posts but I have written about this three times before and my posts will give you a good background although all the relevant information can be extracted from my immediate source on this is an article by James Hill in the Sunday Telegraph about India's Wal Mart (Hat tip New Economist.)
Let us begin with the market for retail in India and the general discourse of retail as a global business which will show you the main point about the possibility for a major retail company in India.
(From one of my previous posts)
'To make a long story short we are seing a development in global business where major retail outlets such as Carrefour, Wal-Mart and Tesco are seing their barganing power increased significantly, a development which is summarized in a recent book (Retailization) by Keith Lincoln, Anthony Aconis, Lars Thomassen.
This is interesting in an Indian context exactly because this trend is yet to break through in India (...) Currently India has the highest density of retail outlets in the world and the retail sector is the largest provider of jobs. For Wal-Mart and co. this means that there is a lot to retailialize but so far the sector is protected by legislation which bans inward FDI in the sector.'
So this is the case in a nutshell as you will also see by reading my other posts on the subject and as James Hill reports and New Economist picks up on, a big domestic player is beginning to capitalize on this de-facto first mover advantage.
(Fom the Sunday Telegraph linked above)
'In April a Mumbai branch of Sahakari Bhandar, a dowdy Indian state-owned department store, closed mysteriously for renovation. It reopened a month later equipped with air conditioning and staff in bright uniforms. Goods on sale included everything from CDs to frozen peas. The new-look store had no name but details soon started to emerge about what had happened.
The store is just one in a chain, which includes at least 20 sites in Mumbai, being used as a dry run for a vast new retail concept by Reliance Industries Limited (RIL), the sprawling conglomerate and India's largest private company. Reliance Retail, a newly launched RIL sub-sidiary, used the stores as a secret testbed for product lines and a new system of supply chain management. The experiment worked: sales at Sahakari Bhandar trebled.
The stores have given Indian shoppers the first glimpse of an operation of such scale and ambition that it is making global rivals such as Wal-Mart, Carrefour and Tesco shudder.
Mukesh Ambani, RIL's chairman, plans to open 100m sq ft of retail space in India by 2010. Local press reports talk of between 5,000 and 10,000 stores spread across 1,500 towns and cities. Ambani has described the concept as "a pan-India footprint of multi-format retail outlets".
Reliance will operate hypermarkets, convenience and speciality stores, as well as business-to-business operations, selling food, clothing, electrical goods, consumer durables, luxury goods and financial and travel services. The project will employ 1m people within five years.'
For now it is off-limits for foreign players but perhaps not for long so act later than sooner on your peril ...
'Reliance Retail's launch is based on an audacious business bet. Wal-Mart and Tesco are beating at India's door but have not been granted entry because of restrictions on foreign ownership in the retail sector. The industry is likely to be liberalised soon and the potential is vast.'
If Ambani's concept works, it will be a masterstroke in pre-empting the international competition's entry and beating them at their own game. On top of this, Reliance has been signing deals with farmers across India, hoovering up the country's supply of fresh food.
It is a clever move: rival retailers will be forced to go to Reliance to procure their stock. The company is essentially cornering India's retail and wholesale markets.
With Reliance's new plan for India it seems as if retailiazation of India is only a matter of time ...