After having signed up at least half-a-dozen partnerships for specialty formats, Reliance Retail is now entering into a joint venture with leading European supply chain specialist Wincanton for its food and grocery and hypermarket businesses.
The synergy would enable Reliance to efficiently run its critical back-end operations, which essentially include warehousing of goods and transporting them to stores on time.
The latest move by India’s largest corporate house, which jumped on the retail bandwagon two years ago by promising to do everything on its own, seems to suggest that it now needs a partner for almost every retail initiative.
Industry observers believe that the company has expanded very fast and has managed to set up over 600 stores across various retail formats in less than two years, but its supply chain is in a mess. “How to get the right merchandise to the stores on time has been its biggest problem. You’d often not find the goods you want in Reliance’s food and grocery outlets,” said a source.
Wincanton, the UK-based $4-billion supply chain solution provider, has been roped in precisely to tackle this problem. It is expected to completely take over the supply chain, find the right warehouses for goods and transport them in time and in the right quantity to Reliance Retail stores.
Supply chain solution providers, Wincanton, for example, have IT systems in place to update them with regular data on level in stores.
So, even without a store manager calling up, the warehouse manager would know the stores’ requirements. Wincanton serves several companies across industries, from FMCG to retail, automotive and oil. Its client list includes retail giants Tesco and Woolworths, auto companies Ford and DaimlerChrysler, and consumer goods firms P&G, Nestle, SAB Miller and GSK.
For Reliance, an alliance such as this means a major shift in its strategy. The season of alliances has begun at Reliance with specialty stores and is now fast extending to almost everything. Two years ago, when India’s largest private telecom operator, the Bharti Group, announced a tie-up with the world’s largest retailer, Wal-Mart, many thought it had got a headstart over other Indian corporate biggies foraying into retail.
But unlike Bharti, Reliance had decided to go solo. It made the ambitious announcement, not unusual from the house of the Ambanis, that Reliance Industries had earmarked Rs 25,000 crore for its retail business Reliance had evaluated the options of partnering with a foreign retailer as well as buying out an existing Indian retailer, but had not found it very exciting.
True to its form, Reliance built scale fairly rapidly, spreading from one city to another. The growth was achieved through a team of professionals poached from existing Indian retailers, but the pace of execution dwarfed rivals’ achievements.
Reliance, however, realised it needed to do a lot more on the back-end to continue the pace of expansion and return early profits, which its shareholders usually expect.
“It didn’t take Reliance long to realise that retail was a different ballgame altogether. It’s not just about some long-term government policy or certain business competency, which it’s known to manage well. The variables in retail business are far too many. There could be a number of factors such as general economic downturn, terror scare, shorter wedding season, cricket season like an IPL or a political protest, which can affect store sales. You need to be able to manage that,” said a source close to Reliance.
The company has entered into alliances with foreign companies for several specialty stores, including opticals (Pearle Europe), toys (Hamleys) and apparel (M&S).
In most cases, the foreign retailer has the majority stake. This model, however, can’t be extended to front-end retail in food and grocery or hypermarkets as Indian laws don’t allow FDI in multi-brand retail. But it could be done in the cash and carry segment or retail back-end, an area where Reliance is in urgent need of help.
