Reliance Retail which is a subsidiary of Mukesh Ambani-led Reliance Industries is planning to close the shutters over 100 Reliance Fresh stores that mostly sell fresh produce and groceries, since it increases its focus on India’s $450 billion wholesale cash-and-carry business.
Presently, Reliance Retail operates around 550 Reliance Fresh stores -a typical store is spread over in the region of 3,500 square feet and caters to a catchment area of two-three km.
The Mumbai-based firm has sent out insinuation about its imminent move to its vendors. “Reliance has given us heads up and we have started realigning our businesses from these stores,” said a senior executive at one of the world’s largest beverage firms.
A few of the selected stores have not been giving optimal returns, whereas others will be converted to more feasible formats, said a person familiar with the development.
Reliance Retail is not the only one to close down its convenience stores in search for profits.
Formerly, Aditya Birla Retail and Spencer’s Retail unable to compete with local kirana stores and high rentals, retailers have also taken similar steps. In 2012, Aditya Birla Retail, which runs stores under the More brand, closed all its outlets in Mumbai due to steep real estate costs.
However, real estate costs are not the only hurdles. According to Arvind Singhal, chairman of retail consultancy firm Technopak, modern retailers have also not been able to crack the logistics puzzle behind stocking and selling perishable items like food.
“It is a good move by Reliance to focus on the more cost-effective cash-and-carry category,” he says.
Grocery and Food -the largest category in the consumption basket and estimated at around 60% of consumer spending (according to Deloitte-Indian Retail Market Opening More Doors, January 2013) –remain the well-known thorn in every modern retailer’s side. With food accounting for most revenues, India’s top ten retailers reported mount up losses of Rs 13,000 crore during the 2013-14 fiscal, discloses a report by ratings agency Crisil.
“As a category, food offers very low margins,” said Krish Iyer, CEO with Walmart India.
As back-end infrastructure improves, cash-and carry stores like Reliance Market and Walmart Best Price Modern Wholesale that only sell in bulk to registered members such as, kirana stores, hotels and hospitals, are expected to iron out the clinks in the country’s modern-trade business.
When Walmart announced the launch of 50 new Best Price stores by 2020, Reliance has been swift to jump on the bandwagon with plans of opening 100 cash-and-carry stores in the next two years.
With $450 billion (estimated value of India’s cash-and-carry business) at risk, the answer to profits in modern retail now lies in getting the correct business model.