Reliance Retail-A Case in Point-II
Allow me to break up the ealier post into two different post about reliance retail and SEZ’sOn reliance retail and the model,
A sale of about 12,500 per square feet.
Per store investment of 50-60 lakhs and a return of 30-36 lakhs on each store.( which is 36% on each store)
Each store has an area of 2000-2500 square feet, since larger areas cost more and are difficult to get.
They will store only vegetables, fruits and very few provisions.
They are not in competition with the supermarkets, but with vegetable vendors directly.
They eventually plan to enter into contract farming with farmers, but for now it is providing higher price to the farmers with definite bulk business.
The Supply chain in the particular segment is not matured; Reliance is therefore trying to capture a major part of the supply chain.
They are using the SEZ route and are using them as distribution and storing hubs.
The total project cost is 25,000 crores and land cost is a substantial percentage of the same.
Reliance has not invested the money in the property ,which is the main cost, instead they floated a fund called “reliance reality fund” and they collected the money from the individual investor through the PMS route.
Am dedicating a new post on SEZ-both positives and negatives!!
posted by shikha @ 3:03 PM
3 Comments:
Never knew all this!
Let me play the DEVIL again ;)
(It's said that real test for any subject is when you can argue on both sides of the debate... lol)
from your post, the "goodies" in a nut-shell:
a. land purchase/lease with money from the public (and also part of constructing the retail outlets)
b. tie-ups with farmers so he can buy in bulk, while ensuring commited buys (and slightly better than market rates) to the farmers
c. storage and distribution from vantage locations, or as you state SEZs.
So far so good. Sounds more like the Dhirubhai Dream, except there are gaping holes in this ambitious venture, and no, not from the conceptualization point, which is neat enough, but from the implementation standpoint.
1. Reliance has neither the expertise nor the manpower (as of now) to execute a project of this nature. So Mukeshbhai is trying to play it safe from all fronts, while still being ahead of competition.
1. He surely plans on running the whole thing on a lease/franchise model, just like Reliance Telecom started (though quite many of those shops are now shuttered I hear, since the charge cards are available with panwalas
When a company like Walmart gets questioned every now and then about its track-record as a good employer, no guessing where Reliance will land itself. Walmart at least meets its consumers' needs, by staffing everything from a pin to petrol. Reliance might not even be targeting that spread (which is sad if true, since then its just a grocery store... sth that Mother's Dairy has been doing quite successfully in Delhi and nearby areas for a long time... )
2. BIG DRUMS OF RELIANCE will beat it to ..... (a pulp, let's say). Retail expansion is not like a big marketing campaign of a new cellphone model/tarriff plan. Here competitors first get the consumer base and then croon over their "vision". With Reliance, its more of hype and hoopla, with half the people scared this would be similar to other grand Reliance ventures.
3. Perishables accounts for one of the fastest moving supply chains, where not just speed, but accuracy of demand prediction is the key. This is why, its so hard to replace the local mandis where the supply chain is far more well connected than it seems.
The various layers of middlemen actually tend to keep stock slightly under supply - thereby ensuring near complete sell-off - and also a slight inflation (5-6%) helps keep people from stocking.
So the tiered middlemen structure acts as load leveler to match which Reliance would need to invest millions in a state-of-art demand planner/ERP, which again would be more off-mark than the present day traders, any day of the week.
4. To keep Reliance out of the market, the traders/so-called-middlemen would be willing to go low on their profits for say a year, enough to take the wind out of Reliance sails - for sustenance of such a big program requires a good ROI from the start, and the 36% ROI that you mention... do you have a timeframe for this? 1 yr? 2 yrs? or 10 yrs? As per your figures, at the best, Reliance can hope to get even with its investment in 3 yrs (which is stupendously excellent but not likely to happen!).
So let's see what will it all be finally?
1. It will act as a prototype for things not to do, when you want to set up good Retail in India.
2. It will lead to synergies in the entire supply chain, a kind of shakeup of the fat in the so-called middlemen/layers. This would be needed to shake off Reliance Retail challenge, and any others that might come up.
3. Overall services would improve.
4. India would still be looking for a good Retail solution to meet its diaspora's vast and divergent needs.
5. I'll continue to do what I do now... COMPLAIN!!!!!
another dip into asian culture. fascinating stuff.
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