market research on reliance fresh and impact on other retailers[1]

7/29/2019 Market Research on RELIANCE FRESH and Impact on Other Retailers[1]

1/80

RELIANCE

FRESH A CASE

STUDY OF SUPPLY CHAIN ANDITS IMPACT ON OTHERRETAILERS


2/80

Submitted to Punjab Technical University in partial

fulfillment of the requirement for the award of

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO: SUBMITTED BY:

SHARIK AH. LAWAY

M.B.A 4TH

ROLL NO:7045224134

S. No. Title of the Chapter Page No.

I Executive Summery 6

II Theoretical Background 9

III Company Profile 12IV Objectives of the Study 21

V Research Design 23

VI Analysis & Interpretation 26

VII Limitations 50

VIII Conclusion 52

IX Recommendations and Suggestions 54

X New Plans and Schemes 57

XI Bibliography 74


3/80

ACKNOWLEDGEMENT

I avail this opportunity to express my deep sense of

gratitude to Mr. P.Z. Lateef Ahmad the respected chiefMarketing Manager of the Reliance Fresh for providing me

an opportunity to work with reliance fresh.


4/80

I also take this opportunity to thank to my guide Mr.

diwakar and for providing me proper direction to my

project, for sparing their valuable time and rendering allpossible guidance whenever approached. Thus, from which

I have gained many insights


5/80

EXECUTIVE

SUMMARY

Giant corporations like Wal-Mart and Reliancehave started to try and take over the Indianretail sector. The entry of the giantcorporate retail in Indias food market willhave direct impact on Indias 650 millionfarmers and 40 million people employed intiny retail. More than 6600 mega stores areplanned with Rs. 40,000 crore by 2011.

Our case is intended to cover two primaryobjectives which are:


6/80

First, when experts and giants like futuregroup WalMart and Reliance they are readyto start operations in retail what kind ofstrategies and structure they would be

having to get the competitive edge overeach other and established small andunorganized retailers.

Second, what kind of impact has been on otherretailers including unorganized ones withthe opening of Reliance Fresh stores.

In the following case findings about RelianceFresh were quite awakening and exemplary.

Even after recent shutdown of Reliance freshstores from UP and unwelcoming vibes fromstates like Kerala, West Bengal, Orissa andJharkhand for its retail format (which wasallegedly capturing the unorganized sectorand leaving thousands of self employedpeople jobless) Reliance was not in anymood to hamper its 25000 crore plan.Reliance responded with superb strategy inwhich it shifted its focus from retailer tobeing a supplier i.e. targeting hawkers,vendors, Push cart wheelers instead ofcustomers.


7/80

Big retailers like Reliance have huge resourcesand network which directly impacted manyof the retailers some of whom are planningto quit. In our sample size of 75 retailers

more than 30 agreed to have lost as much as50% of their sales.

This case also discusses pros and cons ofcontract farming which on one part assuresfarmers of price for their crop andknowledge about

fertilizers and seed but on other side has some

obvious drawbacks like monopoly of bigretailers.

As a big market in which organized sector ispoised to grow with 25% - 30% annually ourgovernment must come with appropriateregulations to save small retailers and ouragricultural sector.

BACKGROUND OFRETAIL

India is a land of retail democracy- hundreds ofthousands of weekly haats and bazaars arelocated


8/80

across the length and breadth of our countryby peoples own self-organizationalcapacities. Our

streets are bazaars lively, vibrant, safe andthe source of livelihood for millions. Indiahas the

highest shop density in the world, with 11outlets per 1000 people. This does notinclude the village haats.

Our retail democracy is characterized by

1. High levels of livelihoods in retail withnearly 40 million employed which accountsfor 8%

of the employment and 4% of the entirepopulation.

2. High levels of self - organization.

3. Low capital input

4. High levels of decentralization

Retail in India has started with the concept ofweekly markets, where all the traders gatherat one

big place to sell their products every week. Thepeople come to these weekly markets to buythe


9/80

household items for the next one week. Villagefairs and melas were also common as it hadmore of an entertainment value. Once thepeople started getting busy with their lives

and when they turned entrepreneurial, thereemerged the mom and pop shops and thekiranas in the neighborhood. Afterindependence, came into existence thesystem of Public distribution of foodsthrough the ration shops, where food grains,sugar and oil for the daily consumption weredistributed at subsidized rates through the

government ration shops. The moderncorporate retail formats are of the exclusivebrand outlets, hypermarkets andsupermarkets, departmental stores andshopping malls. But still the Indian consumerdepends on the self-organized retail shopsfor their daily needs.

This is largely due to the excellent foodretailing system that was established by thekirana (mom and-pop) stores that continuemeet with all the requirements of retailrequirements albeit without

the convenience of the shopping as provided

by the retail chains. The Hawkers/lari gallavendors

and the local kiranas are the two main forms ofunorganized retail in the country, whichalmost


10/80

account for 97% of the total retail trade.

Giant corporations like Wal-Mart and Reliancehave started to try and take over the Indian

retail

sector. Currently the value of the retail marketis estimated at around $ 270 billion with agrowth

rate of 5.7 per cent per annum according to theIndian retail report. The size of small retail isbig, the size of big retail is small, a mere Rs.

250 billion in 2004 or 3% and Rs. 485 billionor 4.7% per cent of the retail market in2006. However, the large scale corporateretail is projected to grow at the rate of 28%to 30% per annum, reaching Rs. 1000 billionor $ 70 billion by 2010 from the current sizeof US $ 8.7 billion. The tenfold increase incorporate retail will be at the cost of small

scale retail, which employs nearly 10% ofIndias population.

The strategy here is to define the small scaleself-organized retail as unorganized andthe large

scale corporate retail as organized. The realdifference is however not unorganized vsorganized. But it is self-organized vs.corporate.


11/80

COMPANYPROFILE

RELIANCE RETAIL LIMITED

Reliance Retail is the retail chain division ofReliance Industries of India which is headedby

Mukesh Ambani. Reliance Industries Chairman

Mukesh Ambani has unveiled a Rs. 25,000-crore

($5.60 billion) retail plan for the company onJune 26, 2006. Mukesh Ambani has calledthis


12/80

Starting of reliance retail as an idea which hasthe potential to revolutionize the Indiansocioeconomic framework. He said"Conceptually, Reliance is creating a virtuous

circle of prosperity by bringing farmers,small shopkeepers and consumers in a win-win partnership. "A new company, RelianceRetail Ltd. (RRL) will spearhead thisrevolution. Reliance Industries will have a100 percent stake in RRL, save for employeestock options".

THE RELIANCE EMPIRE

Reliance being the all encompassing companyhas entered into all the sectors, retail beingtheir latest.

Reliance Industries Limited

Chairman and Managing Director :

Mukesh AmbaniMarket Capitalization :

INR 39,609,150,020 (Sept, 2006)

Total Shares Outstanding :22,405,900 (Sept, 2006)


13/80

Closely Held Shares :11,365,943

Sales :

INR 10,512,963,000

According to the company website "1 out ofevery 4 investors in India is a Relianceshareholder. RIL is ranked at 342 in the 2006Fortune Global 500 list among the worldslargest corporations.


14/80

TheRelianceIndustri

es

BusinessBrand

Product End uses

Petroleum

(Exploration&production)

Crude oiland

Naturalgas

Refining,power,petrochemicals and other

industries.


15/80

Refining LPG,Propylene,Gasoline,Jet/Aviationturbinefuel,High

SpeedDiesel,Superiorkerosene oil

Domestic andindustrial fuel Feedstock forpetrochemicals,Trasnsport fuel, Aviationfuel, Domestic Fuel,Transport Fuel,Feedstock forfertilizers, feedstock for power

plants

and cement plants

Polymers

Repol

Relene

Polypropylene

HighDensity

Polyethylene


16/80

Reclair

Reon

Linear lowdensitypolyeth

ylene

Poly VinylChloride

Relpipe Poly-Olefinpipes

Chemicals

Relab

LinearAlkylBenzene

Detergents

Acrylic

Recrylon

Recrylic

Wet spun

Acrylicfibre

Dry spunAcrylicfibre


17/80

FibreIntermediates

Paraxylene

MonoEthylene


18/80

Texltiles

Vimal

Harmony

RueRel

V2

Reance

Polyester

Recron

Suitings,shirtings, Dress

material,Sarees

FurnishingFabrics,Day

curtains,Automotive

upholstery

Suitings

Ready tostitchtakeawayfabric

Readymade

Fabrics

Furnishing, hometextiles

Fabrics

Fabrics

Suits, shirts andtrousers.


19/80

Recroncotluk

RecronDyefast

Recronsuperblack

Recronsuperdye

Cottonluk,cotton feel

yarn

Easydyeableyarn

Dope dyedstaplefibre

CationicDyeablestaplefibre


20/80

Reliance recorded a profit of 8.9% on assets -first among the 38 chemical companies inAsia.

In terms of market cap, Reliance Industriesranks third among chemical companies inAsia, with a market cap of $6087.2 million ason October 19, 2001.

Reliance's total sales, at $6232 million,ranked eighth among the 38 Asian chemical


21/80

companies. Reliance's total sales have gone upsubstantially from 1996 when the company

recorded $2485 million.

Company with the highest refining capacityin India-60mpta

Reliance SEZ

At Jhajjar, Haryana (Area covered 25, 000acres) (Nature of SEZ-Multi product)

Reliance SEZ in Raigad (Area covered- 10,000hectares)

BACKGROUND

We can see many examples of businesseswhere ,first we grow and then think of

expanding but


22/80

Reliance is quite different. Reliance hasdeveloped such huge amount of resourcesand capital over the years that whenever itsteps into any segment it is not required to

wait for growing signal, thats why it alwaysthinks of expanding without any bounderies.Reliance retail is next

Step by RIL which will be a pan India project.

Reliance Fresh is the retail chain division ofReliance Industries of India which is headedby Mukesh Ambani. Reliance has entered

into this segment by opening new retailstores into almost every metropolitan andregional area of India. Reliance plans toinvest Rs 25000 crores in the next 4 years intheir retail division and plans to begin retailstores in 784 cities across the country. TheReliance Fresh supermarket chain is RILs Rs25,000 crore venture and it plans to add

more stores across different g, andeventually have a pan-India footprint by year2011.


23/80

The super marts will sell fresh fruits andvegetables, staples, groceries, fresh juicebars and dairy products and also will sport aseparate enclosure and supply-chain for non-

vegetarian products. Besides, the storeswould provide direct employment to 5 lakhyoung Indians and indirect job opportunitiesto a million people, according to thecompany. The company also has plans totrain students and housewives in customercare and quality services for part-time jobs.

The company is planning on opening newstores with store-size varying from 1,500 sqft to 3,000 sq ft, which will stock fresh fruitsand vegetables, staples, FMCG products anddairy products. Each store is said to bewithin a radius of 1-2 km of each other, inrelation to the concept of a neighbour store.However, this is only the entry roll-out thatthe company has planned. Bangalore is saidto have 40 stores in all by the end of theyear.

In a dramatic change due circumstancesprevaling in UP, West Bengal and Orissa, Itwas mentioned recently in News Dailies that,Reliance Retail is moving out stocking.Reliance Retail has decided to minimise its

exposure in the fruit and vegetable businessand position Reliance Fresh as a pure playsuper market focusing on categories likefood, FMCG, home, consumer durables, IT,wellness and auto accessories, with foodaccounting for the bulk of the business.


24/80

The company may not stock fruit andvegetables in some states, Orissa being one

of them. Though Reliance Fresh is notexiting the fruit and vegetable businessaltogether, it has decided not to competewith local vendors partly due to politicalreasons, and partly due to its inability tocreate a robust supply chain. This is quitedifferent from what the firm had originallyplanned. When the first Reliance Fresh store

opened in Hyderabad last October, not onlydid the company said the stores main focuswould be fresh produce like fruits andvegetables at a much lower price, but alsospoke at length about its farm-to-forktheory. The idea the company spoke aboutwas to source from farmers and sell directlyto the consumer removing middlemen out ofthe way. Reliance may exit some businessesif the business does not increases by March2008.

CORPORATE SOCIALRESPONSIBILITY

Today when most of the companies are busy inmaking profits by any means, there are few


25/80

Ones who are focused to return this society, apart of what they have earned through

this society. Reliance retail is one of them.

Following efforts of reliance retail are aimedat benefiting the society making reliancesocially responsible:

Reliance Retail aims at recruiting people from

the underprivileged community in society."Hence, we are planning to train studentsfrom corporation schools and schools run byNGOs. And, we consider this as a part of ourcorporate social responsibility," he said.

Asked whether the company will takestudents on an employment basis and paythem a stipend during the course period, he

said that actually, it is planning to charge a"small fee" from those who want to join thecourse "as we want to bring in somediscipline and regularity among thestudents", and will reimburse that once theyare inducted into service.


26/80

2) Farming in India is highly fragmentedand subject to harsh climatic conditions:once harvested, it is very difficult to keepfruits and vegetables fresh. To secure high

quality, Reliance Retail is directly sourcingfresh agricultural produce from thousands offarmers from villages through CollectionCenters.

With this concept, Reliance has built abusiness model generating shared valuethat links the company supply chain more

closely to poor farmers in Indian villages.Reliance is providing a guaranteed marketfor the farmers produce, reducingtransaction costs and training the farmers inbetter and sustainable farming practices.This initiative results in higher income andupgrading of skills for the farmers, andreduced spoilage of produce (up to 35percent) and better quality products f orReliance retail stores.

3) Reliance retail has adopted farm tofork theory which means it is procuringdirectly


27/80

from the farmers thus offering them quitereasonable prices for their produce as nowno intermediaries are involved. In returnReliance is giving farmers information about

how can farmers improve their productivity.They have centers in villages who apart fromproviding information make farmers awareof market rates of different crops so thatfarmers can choose crops they want to sowto become profitable. farmers are providedtechnical help as well like information aboutquality of seeds and fertilizers.

A GLANCE AT EXISTING RELIANCE

FACILITIES : MORE THAN 200 STORESIN 12 CITIES.

PROCESSING CENTERSIN PUNJAB, DELHI, RAJASTHAN,

M.P, GUJARAT,JHARKHAND, ORISSA, KERALA,

TAMILNADU, BENGAL,ANDHRA PRADESH, KARNATAKA.


28/80

INVENTORY : FRESH FRUITS ANDVEGETABLES, STAPLES, GROCERIES,

FMCGs, MILK ETC.

TRANSPORTATION : RELOGISTICS , 2000CRORE RELIANCE COMPANY..

. TATA 407, TATA 409,TATA 909 AND COLD TRUCKS.

USE THIRD PARTYLOGISTICS ALSO

INFORMATION : ADVANCED STORES WITHUPGRADED SOFTWARES.

SOURCING : NEARBY VILLAGES OFABOVE MENTIONED

PROCESSING CENTERS + FEW INHOUSE LABELS+ KNOWN SUPPLIERS.

PRICING : PROCUREMENT FROMFARMERS HAS GIVEN

RELIANCE COMPETITIVE EDGE OVER THE OTHERRETAILERS.


29/80

FARM TO FORKThe Reliance retail company sources say it is

setting aside Rs 50,000 crore to build itsfarm-to-fork linkage. Reliance has drawn upplans for a presence in 784 towns and 6,000mandi (wholesale market) towns with 1,600rural business hubs to service these. It hasalready rolled out 177 Reliance Fresh stores

across major towns in 11 states. Accordingto a company report, RIL is targeting aturnover of Rs 40,000 crore in the next fewyears.


30/80

TRADITIONAL MODEL OF RETAIL

RELIANCE FARM TO FORK

SUPPLY CHAIN MODELS

Reliance started its retail operations of

Reliance Fresh stores with following supplychain model. Procuring directly from thefarmers and operating with moderate marginbut mass


31/80

Selling was key to Reliance fresh operationfor first few months. The following figuredepicts the first Reliance fresh model :

RELIANCE FRESH


32/80

MODEL 1

RELIANCE OWN

LOGISTICS

RELIANCE

FRESH

OUTLETS

RELIANCE

FRESH

OUTLETS

RELIANCE

FRESH

OUTLETS

PROCESSING

UNIT/POINT

COLLECTIO

N

POINT/UNI

T

FarmersOwnTransportation

Relia

nceo

wnLo

gistic

s RelianceownLogistics

Farme

rsOwn

Trans

portati

on

RFRF

FARMERS

CATEGOR

Y 1

FARMERS

CATEGOR

Y 2

FARMERS

CATEGOR

Y 3


33/80

But things always dont turn out to be thesame as planned. Opposition againstReliance fresh outlets in U.P sooninterrupted the momentum .Reliance wished

to go with. Bowing to mass opposition fromlocal shopkeepers, the company closed down20 Reliance Fresh stores in Noida andGhaziabad. A company insider said thatReliance Retail was being forced to exit UPowing to what he described as thevindictive approach of the stategovernment . Within the month company

started operations in Lucknow and Varanasiwith 14 stores, stores had to be soon closeddown following violent protests by localtraders. After the protests, the stategovernment instructed all standalone food &grocery stores run by corporates to closedown. Similar things followed in NCR andGhaziabad. The strategic importance of UP

for a large-scale retailer like Reliance wasnot limited to it being a large consumermarket. The state is extremely importantfrom the sourcing point of view as well. TheGangetic plain in the state is considered tobe one of the most fertile agricultural beltsin the country. Reliances food & grocerybusiness was in the line of fire, because of

the popular perception of Reliance being themost powerful business conglomerate inthe country. This is evident from the factthat widespread political protests tocorporate participation in retail started onlyafter Reliance announced its roll-out plans.


34/80

Companies like Kishore Biyanis Futuregroup, Subhiksha and Spencers have hadoperations in this format long before withoutencountering major problems. Moreover, the

positioning of the Reliance Fresh format(small convenience stores) puts it in directcompetition not only with neighbourhoodkirana stores, but also with small fruit andvegetable vendors. At this point of timefuture and ambitions of 25000 CroreReliance retail started falling under clouds.

UPDATED POLICY

From grocery, Reliance Retail plans shift tosupply :

Reliance Retail was faced with massiveopposition from the trading community.

But like every great visionary Reliance had aprepared back-up, and this time it was muchmore powerful than the earlier one, throwing

solutions to every previous dilemma .In a dramatic shift, it decided to turn into a

trader itself. It is entering the food-tradingbusiness as part of a major restructuring ofits food and grocery initiative.


35/80

The split has occurred because Reliance hasrealised that there is money to be made,may be more, in simple commodity trading,especially with food prices likely to go

through the roof next year. As a result ofthis restructuring, Reliance Retail is settingup shop in mandis to sell fruits, vegetablesand staples. It would thus be able to profitfrom commodity trading without worryingabout the steep overheads and discountsthat tied its hands in its avatar as RelianceFresh. It would also allow the company to

sell to a wide range of customers, includingwholesalers, other traders, and retailers. Asource said the company has already signedup with Spencer retail chains to supply cutfruits and vegetables. Till now, the Reliancesupply chain was dedicated to meeting theneeds of Reliance Fresh shops.

MODEL 2.) WHOLESALE TRADING (WST) :Reliance formalized its second supply chainmodel to shift itself from grocery retailer togrocery supplier by focusing and

establishing itself in Mandis.

STEPS IN WTS MODEL :


36/80

1) Reliance has owned farms on contract basisfor production of specific crop which is

decided after extensive research

depending on

SOIL CONDITIONS,

CLIMATE CONDITIONS,

RETURN OVER COSTS INCURRED.

So as to yield best possible results.

2) Different vegetables and fruits from suchfarms are collected through reliance own

logistics and brought to collectionProcessing centers where quality check andother

required processing is done.


37/80

In processing centers workers wearingbalaclavas, woolen trousers and bulkyjackets work inside a room kept at aconstant 3oC, peeling and chopping

vegetables, spinning them dry and thenheaping them in small plastic packets beforeplacing them in plastic transport crates. Atthe other end of the 5,000-sq-m warehouse,men unload crates of fruits from a truckpulled up to a spotless loading dock. Aquality-control expert samples every tenthcrate; if the fruits are good a team will ready

them for delivery within hours to Reliancefresh stores around different places like U.Pand as far away as Hyderabad and evenMumbai (formerly Bombay). If they are not,workers will inspect the entire shipment anddiscard anything below standard.

3) Merchandise from these collectionprocessing centers are collected and loadedfor

Wholesale mandis. As this merchandise is

to be made available by 4 A.M in morning

thus deliveries in trucks are sent at timedepending upon:


38/80

TRANSIT TIME. time requiredto reach destination i.e mandis.

MARGIN TIME. time periodbetween a truck reaching mandi and then

Unloads. Canbe 2 to 3 hours.

LOADING AND UNLOADING TIME .

4) From mandis where the trucks have beenunloaded, roadside vendors and pull carters

Buy fruits and vegetables to supply in

households.

5) In case still some vegetables and fruits arenot sold reliance logistics own

Transportation send them to reliance fresh

stores.


39/80

Diagrammatical representation of above saidWST model is give on next page.


40/80

WHOLESALETRADING MODEL-2.

PART 2

Aim: To study the effect of corporate retailoutlets i.e. Reliance Fresh Stores on theexisting shopkeepers and vendors.

RelianceOwnLogistics

RELIANCE OWN

LOGISTICS

RELIANCE

FRESH

OUTLET

RELIANCE

FRESH

OUTLETS

RELIANCE

FRESH

OUTLETS

PROCESSIN

G

UNIT/POINT

FARMERS

Relia

nceown

Logis

tics

RelianceownLogistics

Relian

ceOwnLog

istics

FARMHOU

SE ON

CONTRACT

FARMHOU

SE ON

CONTRACT

WHOLESA

LE

MANDIS WHOLESA

LE

MANDIS

WHOLESA

LE

MANDIS

Cold Trucks,

TATA 407,408,LP


41/80

We interviewed the existing shopkeepers andvendors, whose shops were in within 2 kmradius of a Reliance store. Two areas wereselected for this purpose and samples werecollected randomly from these areas, firstwas Laxmi Nagar, where reliance had openedstore and it sells majorly fruits andvegetables. Second was Paharganj, where areliance store sells fruits, vegetables and

grocery. In the case of Laxminagar, weinterviewed 50 vegetable and fruit seller,while in Paharganj we interviewed 25 peopleboth vegetable/fruits seller as well asgrocery stores.

Among the 75 random samples

18 hawkers,

23 push-cart vendors,

24 small retailers

10 big retailers.

Hawkers include all those retailers who areselling in unauthorized market/areas andhave an immobile shop.


42/80

Push-cart vendor includes retailers who selltheir goods on a push-cart and are mobile;these people reach the innermost corners ofevery street in the city.

Small retailers include retailers, who have shopin a authorized market and have a sale ofless than Rs. 10,000 per day.

Big retailers include those retailers who have ashop in an authorized market and have asale of at least Rs.10,000 per day.

Ownership type

Ownershiptype

Hawker

Pushcartvendor

Smallretailer

Big

retailer

Total


43/80

Number 18 23 24 10 75


44/80

percentageHawkers

24%

Push Cart

Vendors

Small Retailer

31%

Big Retailer

14%


45/80

Number of years in Business


46/80

Yearsinbusi

ness

0-2years

2-5years

5-10years

10+years

Total


47/80

Number

01 08 15 51 75


48/80

Years in Business

1%11%

20%

68%

0-2 years

2-5 years

5-10 years

10+ years


49/80

The following table and shows the effect ofopening of Reliance fresh shop, on theexisting market.

Effect of opening of Reliance shop


50/80

Change inbusiness

Decreasein sale

Increase insale

No change


51/80

Number 66 03 06


52/80

Number

66

36

0

10

20

30

40

50

60

70

Decrease in sale Increase in sale No change

Numb

The impact of the corporate entry into retailwas huge and the brunt of it was facedmaximum by the low income group retailers.There was a huge decline in the business ofmost of the retailers in and around Reliancefresh stores. This was the scene in less thantwo months of opening of the stores. If theseshops continue for long and spread mostparts of the city, the condition of theexisting retailers will be really appalling.


53/80

Decline in sales


54/80

Percentage

1-10

10-20

20-30

30-40

40-50

50+ Total


55/80

Number 3 1 3 12 15 32 66


56/80

The magnitude of decline in sale varied from0% to 80% in different cases. It has beencategorized in 6 brackets of 10% eachstarting from 1-10%. The last bracket

includes decline of 50% and above. A lot ofrespondents fall in this category, and thereare a lot of shopkeepers and hawkers whohave already left their business in these twomonths.

Threat Perception


57/80

Is Reliance takingaway yourbusiness

YES NO TOTAL


58/80

Number ofrespondents

65 10 75

The effect of the mega retailer has been felt byall; there was no respondent who did notknow about Reliances shop coming up in thearea. The presence of Reliance Retail was ahuge threat to the existence of existing

retailers in that area. The following tableand graph shows us the number andpercentage of people who think that openingof the Reliance retail was a threat to theirbusiness. Out of the 75 respondents, 65thought that reliance is a big threat to theirbusiness.


59/80

The threats perceived ranged from minordecline in the business till closure of theshop. Out of the 65 respondents who saidthat they feel threatened by Reliance as it is

taking away their business, 43 expected thattheir shops will get closed in future if thesales go down like this, while 20 thoughtthey will have a major decline in the sale inthe future but will be able to save theirshops. There were only two respondentswho said that they will have minor decline insale due to the reliance shop.

EXPECTATION IN FUTURE


60/80

Expectation infuture

Minordecline

inbusiness

Majordecline

in

business

Closure ofsho

p

Cantsay

Total


61/80

Number 2 20 43 1 66


62/80

The people who are feeling threatened are notnovices to this business, a lot of them havebeen doing this since more than 30 years,and still two years of reliance stores ,makesthem feel so skeptic about their existence.This tells about the fact that a majority oftheir customers have moved into Reliance

because of predatory pricing. History tells ofthe fact that it is never profitable to dopredatory pricing, and any organisation thathas done it, has done it for destroy itscompetitors and

at a later stage that organisation has earnedsuper profits of monopoly.


63/80

IMPACTS OF BIG RETAILERS LIKERELIANCE FRESH

a) Small scale industries and existing brandswill not be able to compete with thesebehemoth international players withenormous amount of capital:


64/80

Most of the economies have developed theirindustry, agriculture and services in order toincrease their pace of development. In caseof India, manufacturing has seen hardly any

growth since our economy has opened up.This has lead to unemployment at one end,and at the other end it has lead to hugesetback to the existing industries. Many ofthe national brands have been lost,decreasing the number of employment inmanufacturing sector. When the retail chaintakes over, it will have access to all the

products of the world, and will sell the bestat the cheapest, leading to further closure ofexisting industries which in turn will lead toloss of economy and massive unemployment.Small scale industries will suffer the most inthis present context, where at one end,MNCs are allowed to have 100% FDI in smallscale industries in SEZ and on the other

hand cheap goods could be imported by theretail giants. Our SSI is not properlyorganized, and suffers the economies ofscale, thus will never be able to competewith the retail giants on the price aspect,which seems to be a matter of seriousconcern for the existence of SSI in India. In asituation where the existing SSI is already

going through a very tough time, this wouldserve as a fatal blow.


65/80

b) Impact on farmers and consumers

Monopsonistic influence on farmers

After independence there was a general feelingthat agricultural markets do not function in a

proficient manner. Apart from inefficiencies indistribution, including wastage ofagricultural


66/80

produce, the farmers suffer due to exploitationby traders on different accounts. Toovercome such problems different stategovernments enacted their respective APMC

Acts. These Acts made stringent provisionsto save the farmers from exploitation,promoted efficiency, etc. Structure ofAgricultural Produce Marketing Committee(APMC), the apex decision making body inrespective mandis was made such thatfarmers were in overwhelming majority andchairman of the Committee would also be a

farmer. It also ensures the transparency oftrade and accountability of the trader andmandis towards the society. Every day therates of the products are fixed in the mandidepending upon demand and supply and notrader can buy more than a certain limit( toavoid hoarding). There is no question ofmonopoly here as there are a number of

buyers and sellers; this in turn keeps theprices of the commodities fair. Moreoverthere is a government check on all thetrading that happens through mandi, so thatno unfair practices can take place.


67/80

The Model APMC Act leads to de-democratisation of agricultural markets andtherefore limits the rights of the farmers tocontrol agricultural markets. The experience

world over and even in the states whereprivate yards have been allowed to beestablished by the companies, heavy profitshave been made by these companies withoutgiving any benefit to the farmers. Forinstance the average price of Soya paid byITC to the farmers in Madhya Pradesh wasaround Rs. 1150/- per quintal, it was sold by

the company at an average price of Rs.1555/- per quintal. Even the rules of contractfarming, given by Model APMC Act andadopted by various state governments alsofavour multinational agribusiness firms.Small and marginal farmers, whichconstitute 90% of the farming community,have been left at the mercy of these firms.

Not only this, even the definition of anagriculturist have been changed to suit thebest interests of these corporations. Inearlier Acts agriculturist was defined as onewhose livelihood depends directly onfarming. Now a change in the definition ofagriculturist is contemplated as - A personwho is a resident of the notified area of the

market and who is engaged in production ofagricultural produce himself or by hiredlabour or otherwise.


68/80

In the case of these huge retail chains,there is lesser possibility of transparency ofprices paid and the amount stocked. Theyare permitted to stock huge amounts of food

supplies, as per their business model,without having mechanisms fortransparence. In such conditions it is notvery difficult for them to hoard and actunfair. For example let us see twocommodities wheat and apple. Privatecorporations had bought huge quantities ofwheat from the farmers directly last year

and we had to import wheat from othercountries and all of us know about the hikein the price of wheat this year. Similar is thecase of apple, in last season, thesecompanies had bought around 30% of theapple production straight from the localmandis of Himachal and Kashmir, and we cansee the prices of apple this year are very

much higher compared to earlier years, eventhough there was good production of appleslast season.

ii) Consumer

In due course of time if these retail outlet

completely overtakes the traditional system,we would


69/80

see a series of change. First if the traditionalsystem is gone, we will have only one megaretail outlet in the vicinity, and the choicesgiven by the outlet, has to become choices

of the consumer. In such a case there is anexpectation of formation of cartel amongstthe chain and the prices of the commoditieswill shoot up. But at that time we will haveno other option but to procure our goodsfrom one of these outlets, at whatever pricesthey demand from us. We have seen this inthe case of UK, where the average spending

on food and beverages as a percentage ofthe total income of an average householdhas shot up since these giant corporationshave come into retailing. Moreover thechoices the consumers are left also decreasewith the coming up of these stores; everything is standardized the personal choices ofthe consumers are not taken care of. This is

a system where the consumer adjustshimself to the product and not the viceversa.

ENORMOUS ENERGY CONSUMPTION

c) EXPECTED POWER CONSUMPTION DUE TOCORPORATE RETAIL OUTLETS


70/80

Air-conditioning

Latent heat of ice (i.e., heat of fusion) 144Btu / lb (or 334.5 kJ/kg)

One short ton = 2000 lb

Heat to be extracted = 2000 * 144

= 288000 Btu / 24 hours

= 12000 Btu/hour

= 200 Btu / Minute

1 ton refrigeration = 200 Btu / minute

= 3.517 kJ/s

= 3.517 kilowatts .

A room of area 10 feet* 10 feet, i.e. 100 sq.ftneeds atleast one ton of air-conditioning.

The number of such big retail outlets that hasto be set up is around 6600, and if at anaverage an

outlet has 2500 square feet of area, the totalarea that has to be air-conditioned would be16.5 million sq ft.

For 16.5 million sq ft built up area of these

giants will need atleast 16500000/100 =165,000 ton of air-conditioning.

This in turn will need 165,000x 3.517 kilowatts= 580,305 units of electricity every hour.


71/80

Cold storage

Total production of vegetables in India in 2004-05 = 101.433 million tonnes

Total production of fruits in India in 2004-05 =49.294 million tonnes

Total production of fruits and vegetables in theyear 2004-05 in India = 150.727 milllionstonnes

The corporations claim that 70% of the fruitsand vegetables produced in India goes wastedue to

lack of proper storage i.e. 70% of 150 milliontonnes, which amounts to 105 milliontonnnes.

A cold store of dimensions 3metre x 3metre x2metre, consumes 2-3 units per hr and has astorage capacity of around 15 tonnesdepending upon the density of the product.

Thus if 45 million tonnes of goods were storedit would need 105,000,000/15 =9000000such cold storage units.

These units would consume at least 2x9000000= 18000000,


72/80

i.e. 18 million units of electricity perhour.

For refrigeration of the vegetables and fruitsfor the whole year atleast 18000 megawattof electricity is needed.

For air-conditioning 4 million sq ft of built uparea one will need atleast150 megawatt of

electricity. (only for Reliance stores)


73/80

CONCLUSIONNeed for government regulation

Corporate retailing in India is witnessingconsiderable growth. The share of corporateretail in


74/80

overall retail sales is projected to jump fromaround 3% currently to around 9-10% in thenext three years. A number of largedomestic business groups have entered the

retail trade sector and are expanding theiroperations aggressively. Several formats ofcorporate retailing like hypermarkets,supermarkets and discount stores are beingset up by big business groups besides theongoing proliferation of shopping malls inthe metros and other large cities. This willhave serious implications for the livelihood

of millions of small and unorganized retailersacross the country. Large organized retail iscontrolled across the world by manygovernments. An appropriate regulatoryframework for the organized retail sector inIndia has to be framed keeping in mind theIndian specificities. India has the highestshop density in the world with 11 shops per

1000 person. If the corporate retail startsspreading in India without any control and ifthe Government brings in Foreign DirectInvestment in the sector, the potential socialcosts of the growth and consolidation oforganized retail, in terms of displacement ofunorganized retailers and loss of livelihoodswill be enormous. Regulation needs to be

more stringent and restrictive. In this wakeit is important to take note of the recentmeeting which was held by the IndianGovernment with the EC officials in Brusselson june28- 29 2007. According to tradeexperts India could technically open a


75/80

preferential FDI window for European retailcompanies that are clamouring for anincreased market access and a higherinvestment map. Through this preferential

treatment being given, European retailmajors like TESCO and Carrefour may findtheir way in to the Indian markets. Thepolicy on FDI on retail will stand no good tosuch an entry through preferentialtreatment. Once the market share of thecorporate retail players increases theunorganized retail in the country

is set to experience a slide in their sales.According to an NSSO survey there isalready a significant decline of more than12.5 lakhs in the number of self-employedretailers in urban India between

1999-2000 and 2004-05. With the coming in ofmore and more bigger players it will be

almost

impossible for the small unorganized retailersin the country to do business. That will onlylead to

more social tension, violence, as witnessed inthe attack on Reliance fresh in Ranchi, andalso

economic deprivation and joblessness. About20 million urban workers and 12 million rural

workers depended on small retailing in India.


76/80

Threat to the agricultural sector

With the coming in of big retail there will bemore instants of contract farming, which inturn will

lead to monopoly buying powers andmonopolistic control over the farmers andtheir products.

Contract farming is a system for the production

and supply of agricultural produce underforward

contacts between farmers, suppliers andbuyers. The suppliers of the inputs and thebuyers of the

produce will be the big retail companies. Incontract farming, the contract basically

entails that acultivator would sell his crops to the company

that will leave the suppliers with no choiceat all.

They will have to be satisfied with the price thecompany gives them for the produce. Thecontract can give the company the power to

make the choice of refusing to pick thecontracted produce and can even bepenalized for defaulting the commitment. Ifsuch uncontrolled retail is allowed, it willlead to more such situations of more andmore land coming under contract farming.


77/80

There will be further escalation of the realestate prices owing to the increased demandin lucrative areas by the big retailers whohave deep pockets to fund such acquisitions.

Given the unplanned and chaotic path ofurban development witnessed in India overthe past decade and a half, and the patheticstate of urban infrastructure, theproliferation of large format retailers willonly accelerate the undesirable trends ofpredatory real estate development andunsustainable pressures on urban

infrastructure and the environment.

For the consumers rather than enhancingchoice, especially the lower income groups,proliferation of large format retail storeswould kill competition, lead to closure ofneighbourhood markets and make

consumers solely dependent upon theorganized retailers at a later stage. India willnot be able to withhold the fall out of somany people being thrown out ofemployment. The government should comeout with a proper policy to rein in suchunrestricted growth of corporate retail in thecountry taking cue from the experiences of

other countries where big retail havecreated havoc with the society and economyof the country.


78/80


79/80


80/80

market research on reliance fresh and impact on other retailers[1]

Documents