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Mukesh Ambani owned Reliance Retail posts profit after seven years of operation
In this hugely competitive market, still ruled by the local store owner, Mukesh Ambani’s Reliance Retail has achieved something quite special. The retail market in India is vast, highly competitive and notoriously complex. In this hugely competitive market, still ruled by the local store owner, Mukesh Ambani’s Reliance Retail has achieved something quite special. It’s finally achieved a substantial profit after seven long years of losses and investments totaling over $1 Billion.
Money is not a problem for Mukesh Ambani. As India’s richest man, he is the man behind Reliance Industries Limited (RIL), India’s most successful private enterprise. This seemingly inexhaustible combination of financing and patience has given Reliance an edge over smaller local rivals that lack its deep pockets, and global chains like Carrefour SA and Wal-Mart Stores which would have to invest vast amounts of capital, time and energy to set up retail shops in India but reap miniscule initial returns.


Huge Potential for Retail in India:


A population of 120 Crore and a rapidly growing middle class are signs that retail has enormous potential in India. However, with regulatory uncertainty, poor infrastructure and opposition from politically powerful small traders, international chains are wary of investing significantly in the country. This is changing though, Tesco will be investing Rupees 670 Crore into two States with Wal-Mart and Carrefour expected to follow.


Small ’kirana’ stores are a part of the average India’s life. Hence, huge department style retail stores didn’t exist until a few years back. This changed with many players entering the $500 Billion retail sector. Among them was Mukesh Ambani, who took advantage of this absence of major league competitors to set up his own version of a global retail chain.


Reliance Retail’s Entry into Retail:


Since it was established in 2006, Reliance Retail has revamped its supply chain and decentralized decision-making to ensure flexibility. From September, it has opened stores at the rate of almost one a day even as India's economy grows at its weakest pace in a decade.


2006 was the year Reliance Industries who possessed a commanding presence in the Oil & Gas and petroleum business dived into the world of retail. By December 2013, the company operated 1,577 stores across India. Profits were non-existent for the first seven years. However, the retailer posted an operating profit of Rs. 106 crore for the three months ended December 2013, its first ever quarterly profit. Revenue grew 38 per cent year-on-year in the same period and same-store sales also rose by just over a fifth.


What this means is that any global retailer who enters the Indian market now has a major player to tackle. Also, with regulations favoring local companies, it’s likely to hold on to its edge. The growth of a westernized, and more affluent, middle class that prefers hypermarket-style shopping is likely to favour Reliance.The company is also benefiting from a rise in nationalist sentiment among the influential individual traders who eased their stance towards home-grown retail chains after foreign retailers started circling. Reliance Retail was forced by local traders and politicians to shut its shops in the states of Uttar Pradesh, West Bengal and Jharkhand shortly after their launch several years ago. It now has 36 stores selling fresh produce in these states, its website shows.


The Need for Perfection:


As the company expanded, management was changes numerous times. Finally, with several key executives aboard and the right people steering the ship, the chain ventured towards greener pastures and has never looked back. "We have got a better understanding of some important aspects like real estate, store build and manpower," a senior company official said.


The company strives to optimize and integrate seamless operational practices.  Until two years ago, for example, Reliance would fly fresh strawberries from western India for delivery to stores in other parts of the country at a high cost. It now uses trucks to transport the fruit, and has invested in cold storage at farms. The support system of the chain too has undergone a sea change. Now, hourly updates on margins and revenue by store, region, city along with other data such as product sales, and other statistical pieces of information are available at the click of a button.


While the company is very ambitious and plans to open new stores, a thorough research schedule is in place to choose locations and tests product line-ups locally before opening stores. Earlier, it would often test items after a store opened, which meant frequent and costly tinkering.


The earlier method of operating with the Mumbai office acting as the centre of command has now changed. Inventory decisions once set at Reliance's massive Mumbai headquarters are now made by individual store managers, enabling them to customize their stores to local preferences. And while Indian retailers often lease warehouses to save costs, Reliance is building its own so it can customize them. Its 400,000 square foot warehouse near Pune, which opened a year ago, has a translucent roof that lets in sunlight, saving electricity costs, and automated doors that allow machines, not labourers, to unload goods, company officials said. This model will be replicated in all the company's warehouses.


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