Reliance Retail is one of the pioneers of retail chains in India. The Mukesh Ambani owned retail chain has established a strong footing in all parts of the country. The store continues in its expansion and is looking towards new avenues to facilitate growth and increase in revenues. With this, the chain has kept a close eye on the competition from both, other retail chains as well as neighbourhood stores. The company has identified certain places at which it hasn’t been doing well as these local stores. As a result, some of the big hypermarket stores are being converted into wholesale cash-and-carry stores. Three places where such developments are taking place are Bhopal, Ludhiana and Aurangabad.
The reason for this development is simple; the company has realised that in some locations, low-frills wholesale stores have better prospects of making money sooner than consumer-centric hypermarkets, which have wide margins but also are more expensive to operate. The cash-and-carry model is simple to understand. A big company sells goods and supplies to local level stores such as kirana stores who have an affiliation with them. Rather than compete with these stores, Reliance seeks to convert them into a customer with this mode. Setting up stores in the cash-and-carry format in places will result in the local level stores becoming a customer and revenue generator than a competitor. There is a lot of potential in this type of store in India.
According to analysts familiar with the retail sector, the cash and carry format is projected to become a Rupees 1.4 lakh crore ($22 billion) segment by 2017. They also expect the market leader in this segment to take a 15-20% chunk of the total revenue. The biggest competition for the cash-and-carry style stores is ‘wholesale retailers’ such as the stores in markets of Mumbai and Delhi. These are the areas where many small retailers are present in a large market.
Talking about Reliance Retail’s plan, a company spokesperson was quoted as saying, “Reliance Retail continues to evaluate its offerings and realign them in specific locations in order to establish sustainable relevance of the business with the consumer ecosystem.” The last few years have been a real eye opener for the retail sector. Big players have moved away from rapidly setting up shop in new cities and focused on building the brand and concentrating their presence in the cash-and-carry format. Supermarket type chains are spread over a large area and come with challenges of their own. On the other hand, cash-and-carry business generates much higher volumes — as customers buy in bulk, albeit at low margins — with smaller operational cost. Cash-and-carry stores can be low-frills in terms of look and feel and ambience, and they save on logistical costs as companies and distributors would supply merchandizes directly to these stores.
Reliance Retail is pursuing its interest in the cash-and-carry domain with renewed gusto. After stepping into this business with a store in Ahmedabad in 2011, they monitored the performance and opened the next store more than two years later in Bangalore. In under a year, the chain has opened 12 new cash-and-carry stores with plans to open more in the coming time.