5 years after closing down expansions in neighborhood supermarkets, India’s largest retailer, Reliance Retail Limited (RRL) is once again scheduled to open new value retail stores all over the country.
Reliance Retail’s Expansion Strategy
In this month alone, RRL will launch 5 supermarkets in Bengaluru and 15 in other parts of the country. This move is part of RRL’s cluster strategy, through which the company aims to increase the density of stores in specific markets.
Damodar Mall, CEO of Reliance Value Retail, said, “The next phase of RRL’s growth strategy is more mature. Mistakes have been made and lessons learnt. We are confident that the (new) investment made will be more sustainable.” Out of RRL’s total turnover of Rupees 14,500 crores, value retailing accounts for 55%. The company plans on intensifying its roll-out plans across other markets in the next few months, as the strategy starts showing results.As of now, there are 602 Reliance Retail value formats in operation all over the country.
In FY14, RRL recorded a net profit of Rupees 182 crores. This was the retail giant’s first profit since its 8 years of existence in the market.
Late last month, there was news of RRL changing its financing strategy to meet its working capital needs. Until recently, it primarily relied on parent company, Reliance Industries Limited, for funds. The news suggests that RRL is going to raise up to Rupees 5,000 crores from banks and the capital market.The retail company plans on acquiring long-term bank funding of about Rupees 2,000 crores and raising the other Rupees 3,000 crores by issuing commercial papers. It is believed that the money raised through commercial papers will be released in parts, depending on the financing requirements.
On the other hand, competitors such as Future Retail, Aditya Birla Retail and Spencer’s Retail are closing shops to cut their losses while cash-and-carry companies such as Metro and Walmart have halted all expansion plans.
Top officials believe that the neighborhood format is getting increasingly profitable in urban areas. Experts say that value formats will contribute significantly to dairy, fresh fruits, vegetables, personal care products, staples and home products segmentsand ensure higher stock returns, enhanced sales and ROI/sq ft. The food-and-grocery category accounts for 60% share in the $490 billion Indian retail sector. Following this is the apparel and mobile segments.
Founder and MD of Wazir Advisors, HarminderSahni,believes that RRL’s expansion plans take birth from its confidence in its sourcing, procurement and supply chain systems. He said, “Reliance knows that the real money is made at the back-end. Most of the other retailers have been merely trading operations in the neighborhood space. They have been struggling too much with the front-end to worry about the back-end.”
Within the neighborhood format space, RRL’s retail brands include Reliance Super, Reliance Mart and Reliance Fresh. Each one of these formats operates out of 3,000 to 20,000 sq ft of space.