Monday, May 4, 2009

Reliance Retail may offer up to 10% lower prices


Reliance Retail (RRL) is planning to counter the shrinking demand and rising costs stalking India’s organised retail industry.image

company is rebranding some of its existing stores as ‘discount destinations’ reducing the number of products on offer and taking away air-conditioning, according to two people familiar with the matter.

All Reliance Fresh stores in Jaipur, Dharwad, Aurangabad, Hubli, Mysore and Dhanbad will be converted into ‘discount destinations’, which will offer up to 10% reduction on existing price, said an RRL official, who didn’t want to be named. These stores may also be rebranded to reflect the change and are tentatively referred to as Reliance Super Value, he said.

An RRL spokesperson declined to comment for this story, but the RRL official, whom ET spoke, said the company had already started a pilot project in Jaipur and is in the process of evolving finer details of converting Fresh stores into no-frills ones.

As of now, the exercise involves 30 stores and may be completed in a month or two.

The initiative is on the lines of Future Group’s KB Fair Price Shop, a chain of small neighbourhood grocery stores that offer discounts, fewer product categories and no AC. These shops, however, are not limited to small towns, and do not offer carry bags. These austere strategies run counter to those followed by RPG Group’s Spencers and Aditya Birla Group’s More supermarket chains, where shopping experience is seen as important as pricing.

The Future Group, India’s biggest retailer, has championed the cause of value retailing in India, on the lines of international retail giant Wal-Mart, even though prices offered at its stores still may not be as lucrative as Wal-Mart’s.

Reliance Retail, which runs over 800 stores across formats (hypermarkets, supermarkets and convenience stores) has been focusing on lower prices, a strategy that will take wings with the launch of “Reliance Super Value” in select towns.

People familiar with the matter say the retailer will squeeze its margin, cut down on costs by reducing power bill, rental, manpower cost and improve supply chain further to be able to offer lower prices to customers.

In the beginning of the year, Reliance retail has integrated the operations of all its formats. Now there is a centralised sourcing for much of its product categories that gives it better bargaining power with respect to the suppliers thereby meaning lower costs, which could then be passed on to consumers.

India’s most valuable company, Reliance Industries, had announced plans to enter organised retail in 2006, with an estimated investment of Rs 26,000 crore. Since then, it has shaped and reshaped its strategy, closed some stores, tweaked its formats and rationalised manpower to stay course in the retailing game, which has forced some fairly successful domestic retailers to the brink of bankruptcy.

The oil-to-retail company is now better placed to focus on retail with the Bombay High Court allowing RIL to sell gas from the Krishna Godavari region, thus monetising its investments. This is estimated to add almost $1 billion to its bottom-line by the end of the fiscal.

The company also commissioned its second refinery at Jamnagar in December which will add to its revenue and profits.

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