Reliance Retail set to go big with big-box hypermarkets

17 Nov,2011

By Sagar Malviya & Chaitali Chakravarty


RIL-owned Reliance Retail is buying real estate in 20 towns and cities to build big-box hypermarkets, moving beyond its earlier model of leased properties and small formats, as the conglomerate turns the spotlight back on retail under the new operations team hired from Walmart China.


“We want to be a strong Indian retail player. The largest retail company in China is not Walmart or Tesco. It is Sun Art, a strong local company which owns around 200 hypermarkets,” said a senior company executive who added that the company has no plans of inducting an overseas partner even after foreign direct investment is allowed in the multi-brand retail sector.


The focus on large-format stores of 60,000-80,000 sq ft, nearly the size of two football fields, and building stores on its own land, marks a shift from the company’s earlier strategy. When Reliance Retail had launched in 2006, it had signed up hundreds of properties for small-format stores – supermarkets and convenience stores – on lease. But, due to a combination of factors ranging from high real estate costs to supply chain issues, it had to shut more than 100 stores over the next few years.


The company under the leadership of two retail veterans from China – Mr Rob Cissell, former chief operating officer of Walmart China, and Shawn Gray, former vice-president in-charge of store operations of the same company – has now for the first time decided to buy real estate and go for big-box formats. Typically, hypermarkets give consumers a choice of buying everything from soap to furniture.


“We are buying land wherever there is scarcity of ready space, especially for our large-format stores. It will help in the long run as we don’t have to depend on rent inflation and its fluctuations,” Reliance Retail President Mr Bijou Kurein said without commenting on specific land deals.


Six more hypermarkets by March:

Reliance Retail has bought land parcels in Mumbai, Aurangabad, Kolhapur, Pune, Mysore and Madurai in the last few months, each measuring 1-1.5 acres, a person involved in the land deals said. The first big-box hypermarket opened at Santa Cruz in Mumbai last month and 10 days later a second one was opened in Pune. The company plans to open six more hypermarkets by March next year.


The retail company at present runs around half-a-dozen hypermarkets under the Reliance Mart brand. But the company executive said the scale, the range of products, and the consumer experience in the new big-box stores will be totally different from the existing ones.


“Big-box stores generate volumes and considerably higher realised margins. Reliance’s small-format model was unattractive as it was heavily dependent on fresh fruit and vegetables. It is not possible to manage the entire supply chain from the farm to the stores,” said Mr Harminder Sahni, MD, Wazir Advisors, a retail consultancy


The Indian retail sector is growing 15-20% annually after a temporary lull of 2008-09 when the global meltdown slowed down growth and demand. Rising incomes, a growing young population and the scope to penetrate deeper into tier 2 and 3 cities are prompting many Indian and foreign players to enter the retail sector. Hypermarkets seem to be the best bet because they offer Western-style shopping experience, a wide variety of products and great deals to the consumer.


After a slow beginning, Reliance Retail has now emerged as the country’s second-largest retailer after the Future Group with annual revenues of Rs 4,833 crore. Over the past few months, Reliance has accelerated store openings, brought in a management team from Walmart China and launched its first cash and carry store in Ahmedabad in August.


Source:The Economic Times

Copyright © 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved

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