RELIANCE FRESH [pic] A CASE OF SUPPLY CHAIN AND its IMPACT ON OTHER rETAILERS Reliance Fresh: A Case Study Prepared for: Mr. Shashank Mehra (Faculty, Marketing Research, Center of retail, FDDI, Ministry of commerce. ) Prepared by : 03 Ankit Jain 06 Apoorv Mittal 07 Ashish Singh 16 Harsh Vardhan Singh 28 Mukesh Kumar 48 Sunbeam 54 Vaibhav Biyani Submission Date: May 5, 2008 EXECUTIVE SUMMARY Giant corporations like Wal-Mart and Reliance have started to try and take over the Indian retail sector.
The entry of the giant corporate retail in India’s food market will have direct impact on India’s 650 million farmers and 40 million people employed in tiny retail.
More than 6600 mega stores are planned with Rs. 40,000 crore by 2011. Our case is intended to cover two primary objectives which are: First, when experts and giants like future group WalMart and Reliance they are ready to start operations in retail what kind of strategies and structure they would be having to get the competitive edge over each other and established small and unorganized retailers.
Second, what kind of impact has been on other retailers including unorganized ones with the opening of Reliance Fresh stores. In the following case findings about Reliance Fresh were quite awakening and exemplary. Even after recent shutdown of Reliance fresh stores from UP and unwelcoming vibes from states like Kerala, West Bengal, Orissa and Jharkhand for its retail format (which was allegedly capturing the unorganized sector and leaving thousands of self employed people jobless) Reliance was not in any mood to hamper its 25000 crore plan.
Reliance responded with superb strategy in which it shifted its focus from retailer to being a supplier i. e. targeting hawkers, vendors, Push cart wheelers instead of customers. Big retailers like Reliance have huge resources and network which directly impacted many of the retailers some of whom are planning to quit. In our sample size of 75 retailers more than 30 agreed to have lost as much as 50% of their sales.
This case also discusses pros and cons of contract farming which on one part assures farmers of price for their crop and knowledge about fertilizers and seed but on other side has some obvious drawbacks like monopoly of big retailers. As a big market in which organized sector is poised to grow with 25% – 30% annually our government must come with appropriate regulations to save small retailers and our agricultural sector. BACKGROUND OF RETAIL India is a land of retail democracy- hundreds of thousands of weekly haats and bazaars are located across the length and breadth of our country by people’s own self-organizational capacities.
Our streets are bazaars – lively, vibrant, safe and the source of livelihood for millions. India has the highest shop density in the world, with 11 outlets per 1000 people. This does not include the village haats. Our retail democracy is characterized by 1. High levels of livelihoods in retail with nearly 40 million employed which accounts for 8% of the employment and 4% of the entire population. 2. High levels of self – organization. 3. Low capital input 4. High levels of decentralization Retail in India has started with the concept of weekly markets, where all the traders gather at one big place to sell their products every week.
The people come to these weekly markets to buy the household items for the next one week. Village fairs and melas were also common as it had more of an entertainment value. Once the people started getting busy with their lives and when they turned entrepreneurial, there emerged the mom and pop shops and the kiranas in the neighborhood. After independence, came into existence the system of Public distribution of foods through the ration shops, where food grains, sugar and oil for the daily consumption were distributed at subsidized rates through the government ration shops.
The modern corporate retail formats are of the exclusive brand outlets, hypermarkets and supermarkets, departmental stores and shopping malls. But still the Indian consumer depends on the self-organized retail shops for their daily needs. This is largely due to the excellent food retailing system that was established by the kirana (mom and-pop) stores that continue meet with all the requirements of retail requirements albeit without the convenience of the shopping as provided by the retail chains.
The Hawkers/lari galla vendors and the local kiranas are the two main forms of unorganized retail in the country, which almost account for 97% of the total retail trade. Giant corporations like Wal-Mart and Reliance have started to try and take over the Indian retail sector. Currently the value of the retail market is estimated at around $ 270 billion with a growth rate of 5. 7 per cent per annum according to the Indian retail report. The size of small retail is big, the size of big retail is small, a mere Rs. 250 billion in 2004 or 3% and Rs. 85 billion or 4. 7% per cent of the retail market in 2006. However, the large scale corporate retail is projected to grow at the rate of 28% to 30% per annum, reaching Rs. 1000 billion or $ 70 billion by 2010 from the current size of US $ 8. 7 billion. The tenfold increase in corporate retail will be at the cost of small scale retail, which employs nearly 10% of India’s population. The strategy here is to define the small scale self-organized retail as “unorganized” and the large scale corporate retail as “organized”.
The real difference is however not unorganized vs organized. But it is “self-organized vs. corporate”. COMPANY PROFILE RELIANCE RETAIL LIMITED Reliance Retail is the retail chain division of Reliance Industries of India which is headed by Mukesh Ambani. Reliance Industries Chairman Mukesh Ambani has unveiled a Rs. 25,000-crore ($5. 60 billion) retail plan for the company on June 26, 2006. Mukesh Ambani has called this Starting of reliance retail as an idea which has the potential to revolutionize the Indian socioeconomic framework.
He said “Conceptually, Reliance is creating a virtuous circle of prosperity by bringing farmers, small shopkeepers and consumers in a win- win partnership. ” “A new company, Reliance Retail Ltd. (RRL) will spearhead this revolution. Reliance Industries will have a 100 percent stake in RRL, save for employee stock options”. THE RELIANCE EMPIRE Reliance being the all encompassing company has entered into all the sectors, retail being their latest. Reliance Industries Limited
Chairman and Managing Director : Mukesh Ambani Market Capitalization : INR 39,609,150,020 (Sept, 2006) Total Shares Outstanding : 22,405,900 (Sept, 2006) Closely Held Shares : 11,365,943 Sales : INR 10,512,963,000 According to the company website “1 out of every 4 investors in India is a Reliance shareholder. RIL is ranked at 342 in the 2006 Fortune Global 500 list among the world’s largest corporations. The Reliance Industries |Product |End uses | |Business Brand | | | | | | | |Petroleum |Crude oil and Natural gas |Refining,power,petrochemicals and other | |(Exploration& production) | |industries. | | | | |Refining |LPG, Propylene, Gasoline, Jet/Aviation |Domestic and industrial fuel Feed stock for| | |turbine fuel, High Speed Diesel, Superior |petrochemicals,Trasnsport fuel, Aviation | | |kerosene oil |fuel, Domestic Fuel, Transport Fuel, | | | |Feedstock for fertilizers, feed stock for | | | |power plants | | | |and cement plants | | | | | |Polymers |Polypropylene | | |Repol |High Density Polyethylene | | |Relene | | | | |Linear low density polyethylene | | |Reclair |Poly Vinyl Chloride | |Reon | | | |Relpipe |Poly-Olefin pipes | | |Chemicals |Linear Alkyl Benzene |Detergents | |Relab | | | |Acrylic |Wet spun Acrylic fibre | | |Recrylon |Dry spun Acrylic fibre | | |Recrylic | | | |Fibre Intermediates |Paraxylene | | | |Mono Ethylene | | | | | | |Texltiles |Suitings, shirtings, Dress |Fabrics | |Vimal |material, Sarees | | | | | | | |Furnishing Fabrics, Day |Furnishing, home textiles | |Harmony |curtains, Automotive | | | |upholstery | | | | | | | | | | |RueRel |Suitings |Fabrics | | | | | | | | |V2 |Ready to stitch take away fabric |Fabrics | | | | | | |Readymade garments | | |Reance | |Suits, shirts and trousers. | | | | | | | | |Polyester |Staple fibre, filament yarn | | |Recron | | | |Recron cotluk |Cotton luk,cotton feel yarn | | | | | | |Recron Dyefast |Easy dyeable yarn | | | | | | |Recron superblack |Dope dyed staple fibre | | | | | | |Recron superdye |Cationic Dyeable staple fibre | | ??
Reliance recorded a profit of 8. 9% on assets – first among the 38 chemical companies in Asia. ?? In terms of market cap, Reliance Industries ranks third among chemical companies in Asia, with a market cap of $6087. 2 million as on October 19, 2001. ?? Reliance’s total sales, at $6232 million, ranked eighth among the 38 Asian chemical companies. Reliance’s total sales have gone up substantially from 1996 when the company recorded $2485 million. ?? Company with the highest refining capacity in India-60mpta Reliance SEZ At Jhajjar, Haryana (Area covered 25, 000 acres) (Nature of SEZ-Multi product) Reliance SEZ in Raigad (Area covered- 10,000 hectares) BACKGROUND
We can see many examples of businesses where ,first we grow and then think of expanding but Reliance is quite different. Reliance has developed such huge amount of resources and capital over the years that whenever it steps into any segment it is not required to wait for growing signal, that’s why it always thinks of expanding without any bounderies. Reliance retail is next Step by RIL which will be a pan India project. Reliance Fresh is the retail chain division of Reliance Industries of India which is headed by Mukesh Ambani. Reliance has entered into this segment by opening new retail stores into almost every metropolitan and regional area of India.
Reliance plans to invest Rs 25000 crores in the next 4 years in their retail division and plans to begin retail stores in 784 cities across the country. The Reliance Fresh supermarket chain is RIL’s Rs 25,000 crore venture and it plans to add more stores across different g, and eventually have a pan-India footprint by year 2011. The super marts will sell fresh fruits and vegetables, staples, groceries, fresh juice bars and dairy products and also will sport a separate enclosure and supply-chain for non-vegetarian products. Besides, the stores would provide direct employment to 5 lakh young Indians and indirect job opportunities to a million people, according to the company.
The company also has plans to train students and housewives in customer care and quality services for part-time jobs. The company is planning on opening new stores with store-size varying from 1,500 sq ft to 3,000 sq ft, which will stock fresh fruits and vegetables, staples, FMCG products and dairy products. Each store is said to be within a radius of 1-2 km of each other, in relation to the concept of a neighbour store. However, this is only the entry roll-out that the company has planned. Bangalore is said to have 40 stores in all by the end of the year. In a dramatic change due circumstances prevaling in UP, West Bengal and Orissa, It was mentioned recently in News Dailies that, Reliance Retail is moving out stocking.
Reliance Retail has decided to minimise its exposure in the fruit and vegetable business and position Reliance Fresh as a pure play super market focusing on categories like food, FMCG, home, consumer durables, IT, wellness and auto accessories, with food accounting for the bulk of the business. The company may not stock fruit and vegetables in some states, Orissa being one of them. Though Reliance Fresh is not exiting the fruit and vegetable business altogether, it has decided not to compete with local vendors partly due to political reasons, and partly due to its inability to create a robust supply chain. This is quite different from what the firm had originally planned.
When the first Reliance Fresh store opened in Hyderabad last October, not only did the company said the store’s main focus would be fresh produce like fruits and vegetables at a much lower price, but also spoke at length about its “farm-to-fork’’ theory. The idea the company spoke about was to source from farmers and sell directly to the consumer removing middlemen out of the way. Reliance may exit some businesses if the business does not increases by March 2008. CORPORATE SOCIAL RESPONSIBILITY Today when most of the companies are busy in making profits by any means, there are few Ones who are focused to return this society, a part of what they have earned through this society. Reliance retail is one of them.
Following efforts of reliance retail are aimed at benefiting the society making reliance socially responsible: 1) Reliance Retail aims at recruiting people from the underprivileged community in society. “Hence, we are planning to train students from corporation schools and schools run by NGOs. And, we consider this as a part of our corporate social responsibility,” he said. Asked whether the company will take students on an employment basis and pay them a stipend during the course period, he said that actually, it is planning to charge a “small fee” from those who want to join the course “as we want to bring in some discipline and regularity among the students”, and will reimburse that once they are inducted into service. ) Farming in India is highly fragmented and subject to harsh climatic conditions: once harvested, it is very difficult to keep fruits and vegetables fresh. To secure high quality, Reliance Retail is directly sourcing fresh agricultural produce from thousands of farmers from villages through Collection Centers. With this concept, Reliance has built a business model generating shared value that links the company supply chain more closely to poor farmers in Indian villages. Reliance is providing a guaranteed market for the farmers’ produce, reducing transaction costs and training the farmers in better and sustainable farming practices.
This initiative results in higher income and upgrading of skills for the farmers, and reduced spoilage of produce (up to 35 percent) and better quality products f or Reliance retail stores. 3) Reliance retail has adopted “farm to fork” theory which means it is procuring directly from the farmers thus offering them quite reasonable prices for their produce as now no intermediaries are involved. In return Reliance is giving farmers information about how can farmers improve their productivity. They have centers in villages who apart from providing information make farmers aware of market rates of different crops so that farmers can choose crops they want to sow to become profitable. armers are provided technical help as well like information about quality of seeds and fertilizers. A GLANCE AT EXISTING RELIANCE FACILITIES : MORE THAN 200 STORES IN 12 CITIES. PROCESSING CENTERS IN PUNJAB, DELHI, RAJASTHAN, M. P, GUJARAT, JHARKHAND, ORISSA, KERALA, TAMILNADU, BENGAL, ANDHRA PRADESH, KARNATAKA. INVENTORY : FRESH FRUITS AND VEGETABLES, STAPLES, GROCERIES, FMCG’s, MILK ETC. TRANSPORTATION : “RELOGISTICS “ , 2000 CRORE RELIANCE COMPANY.. . TATA 407, TATA 409, TATA 909 AND COLD TRUCKS. USE THIRD PARTY LOGISTICS ALSO
INFORMATION : ADVANCED STORES WITH UPGRADED SOFTWARES. SOURCING : NEARBY VILLAGES OF ABOVE MENTIONED PROCESSING CENTERS + FEW INHOUSE LABELS + KNOWN SUPPLIERS. PRICING : PROCUREMENT FROM FARMER’S HAS GIVEN RELIANCE COMPETITIVE EDGE OVER THE OTHER RETAILERS. “FARM TO FORK” The Reliance retail company sources say it is setting aside Rs 50,000 crore to build its farm-to-fork linkage. Reliance has drawn up plans for a presence in 784 towns and 6,000 mandi (wholesale market) towns with 1,600 rural business hubs to service these. It has already rolled out 177 Reliance Fresh stores across major towns in 11 states.
According to a company report, RIL is targeting a turnover of Rs 40,000 crore in the next few years. [pic] TRADITIONAL MODEL OF RETAIL RELIANCE “FARM TO FORK” SUPPLY CHAIN MODELS Reliance started its retail operations of Reliance Fresh stores with following supply chain model. Procuring directly from the farmers and operating with moderate margin but mass Selling was key to Reliance fresh operation for first few months. The following figure depicts the first Reliance fresh model : RELIANCE FRESH [pic] MODEL 1 But things always don’t turn out to be the same as planned. Opposition against Reliance fresh outlets in U. P soon interrupted the momentum . Reliance wished to go with.
Bowing to mass opposition from local shopkeepers, the company closed down 20 Reliance Fresh stores in Noida and Ghaziabad. A company insider said that Reliance Retail was being forced to exit UP owing to what he described as the “vindictive approach” of the state government . Within the month company started operations in Lucknow and Varanasi with 14 stores, stores had to be soon closed down following violent protests by local traders. After the protests, the state government instructed all standalone food & grocery stores run by corporates to close down. Similar things followed in NCR and Ghaziabad. The strategic importance of UP for a large-scale retailer like Reliance was not limited to it being a large consumer market.
The state is extremely important from the sourcing point of view as well. The Gangetic plain in the state is considered to be one of the most fertile agricultural belts in the country. Reliance’s food & grocery business was in the line of fire, because of the popular perception of Reliance being the most ‘powerful’ business conglomerate in the country. This is evident from the fact that widespread political protests to corporate participation in retail started only after Reliance announced its roll-out plans. Companies like Kishore Biyani’s Future group, Subhiksha and Spencer’s have had operations in this format long before without encountering major problems.
Moreover, the positioning of the Reliance Fresh format (small convenience stores) puts it in direct competition not only with neighbourhood kirana stores, but also with small fruit and vegetable vendors. At this point of time future and ambitions of 25000 Crore Reliance retail started falling under clouds. UPDATED POLICY From grocery, Reliance Retail plans shift to supply : Reliance Retail was faced with massive opposition from the trading community. But like every great visionary Reliance had a prepared back-up, and this time it was much more powerful than the earlier one, throwing solutions to every previous dilemma . In a dramatic shift, it decided to turn into a trader itself.
It is entering the food-trading business as part of a major restructuring of its food and grocery initiative. The split has occurred because Reliance has realised that there is money to be made, may be more, in simple commodity trading, especially with food prices likely to go through the roof next year. As a result of this restructuring, Reliance Retail is setting up shop in mandis to sell fruits, vegetables and staples. It would thus be able to profit from commodity trading without worrying about the steep overheads and discounts that tied its hands in its avatar as Reliance Fresh. It would also allow the company to sell to a wide range of customers, including wholesalers, other traders, and retailers.
A source said the company has already signed up with Spencer retail chains to supply cut fruits and vegetables. Till now, the Reliance supply chain was dedicated to meeting the needs of Reliance Fresh shops. MODEL 2. ) WHOLESALE TRADING (WST) : Reliance formalized its second supply chain model to shift itself from grocery retailer to grocery supplier by focusing and establishing itself in Mandi’s. STEPS IN WTS MODEL : 1) Reliance has owned farms on contract basis for production of specific crop which is decided after extensive research depending on • SOIL CONDITIONS, • CLIMATE CONDITIONS, • RETURN OVER COSTS INCURRED. So as to yield best possible results. ) Different vegetables and fruits from such farms are collected through reliance own logistics and brought to collection Processing centers where quality check and other required processing is done. In processing centers workers wearing balaclavas, woolen trousers and bulky jackets work inside a room kept at a constant 3oC, peeling and chopping vegetables, spinning them dry and then heaping them in small plastic packets before placing them in plastic transport crates. At the other end of the 5,000-sq-m warehouse, men unload crates of fruits from a truck pulled up to a spotless loading dock. A quality-control expert samples every tenth crate; if the fruits are good a team will ready them for delivery within hours to Reliance fresh stores around different places like U. P and as far away as Hyderabad and even Mumbai (formerly Bombay).
If they are not, workers will inspect the entire shipment and discard anything below standard. 3) Merchandise from these collection processing centers are collected and loaded for Wholesale mandi’s. As this merchandise is to be made available by 4 A. M in morning thus deliveries in trucks are sent at time depending upon: TRANSIT TIME. – time required to reach destination i. e mandi’s. MARGIN TIME. – time period between a truck reaching mandi and then Unloads. Can be 2 to 3 hours. LOADING AND UNLOADING TIME . 4) From mandi’s where the trucks have been unloaded, roadside vendors and pull carters Buy fruits and vegetables to supply in households. ) In case still some vegetables and fruits are not sold reliance logistics own Transportation send them to reliance fresh stores. Diagrammatical representation of above said WST model is give on next page. [pic] WHOLESALE TRADING MODEL-2. PART 2 Aim: To study the effect of corporate retail outlets i. e. Reliance Fresh Stores on the existing shopkeepers and vendors. We interviewed the existing shopkeepers and vendors, whose shops were in within 2 km radius of a Reliance store. Two areas were selected for this purpose and samples were collected randomly from these areas, first was Laxmi Nagar, where reliance had opened store and it sells majorly fruits and vegetables. Second was Paharganj, where a reliance store sells fruits, vegetables and grocery.
In the case of Laxminagar, we interviewed 50 vegetable and fruit seller, while in Paharganj we interviewed 25 people both vegetable/fruits seller as well as grocery stores. Among the 75 random samples • 18 hawkers, • 23 push-cart vendors, • 24 small retailers • 10 big retailers. Hawkers include all those retailers who are selling in unauthorized market/areas and have an immobile shop. Push-cart vendor includes retailers who sell their goods on a push-cart and are mobile; these people reach the innermost corners of every street in the city. Small retailers include retailers, who have shop in a authorized market and have a sale of less than Rs. 10,000 per day. Big retailers include those retailers who have a shop in an authorized market and have a sale of at least Rs. 10,000 per day. 1) Ownership type Ownership type |Hawker |Push cart vendor |Small retailer |Big |Total | | | | | |retailer | | |Number |18 |23 |24 |10 |75 | [pic] Number of years in Business |Years in business |0-2 years |2-5 years |5-10 years |10+ years |Total | |Number |01 |08 |15 |51 |75 | [pic] The following table and shows the effect of opening of Reliance fresh shop, on the existing market. Effect of opening of Reliance shop Change in business |Decrease in sale |Increase in sale |No change | |Number |66 |03 |06 | [pic] The impact of the corporate entry into retail was huge and the brunt of it was faced maximum by the low income group retailers. There was a huge decline in the business of most of the retailers in and around Reliance fresh stores. This was the scene in less than two months of opening of the stores. If these shops continue for long and spread most parts of the city, the condition of the existing retailers will be really appalling.
Decline in sales |Percentage |1-10 |10-20 |20-30 |30-40 |40-50 |50+ |Total | |Number |3 |1 |3 |12 |15 |32 |66 | The magnitude of decline in sale varied from 0% to 80% in different cases. It has been categorized in 6 brackets of 10% each starting from 1-10%. The last bracket includes decline of 50% and above. A lot of respondents fall in this category, and there are a lot of shopkeepers and hawkers who have already left their business in these two months. Threat Perception Is Reliance taking away your business |YES |NO |TOTAL | |Number of respondents |65 |10 |75 | The effect of the mega retailer has been felt by all; there was no respondent who did not know about Reliance’s shop coming up in the area. The presence of Reliance Retail was a huge threat to the existence of existing retailers in that area. The following table and graph shows us the number and percentage of people who think that opening of the Reliance retail was a threat to their business. Out of the 75 respondents, 65 thought that reliance is a big threat to their business. [pic] The threats perceived ranged from minor decline in the business till closure of the shop.
Out of the 65 respondents who said that they feel threatened by Reliance as it is taking away their business, 43 expected that their shops will get closed in future if the sales go down like this, while 20 thought they will have a major decline in the sale in the future but will be able to save their shops. There were only two respondents who said that they will have minor decline in sale due to the reliance shop. EXPECTATION IN FUTURE |Expectation in future |Minor decline |Major decline in |Closure of shop |Can’t say |Total | | |in business |business | | | | |Number |2 |20 |43 |1 |66 |
The people who are feeling threatened are not novices to this business, a lot of them have been doing this since more than 30 years, and still two years of reliance stores ,makes them feel so skeptic about their existence. This tells about the fact that a majority of their customers have moved into Reliance because of predatory pricing. History tells of the fact that it is never profitable to do predatory pricing, and any organisation that has done it, has done it for destroy its competitors and at a later stage that organisation has earned super profits of monopoly. IMPACTS OF BIG RETAILERS LIKE RELIANCE FRESH a) Small scale industries and existing brands will not be able to compete with these behemoth international players with enormous amount of capital:
Most of the economies have developed their industry, agriculture and services in order to increase their pace of development. In case of India, manufacturing has seen hardly any growth since our economy has opened up. This has lead to unemployment at one end, and at the other end it has lead to huge setback to the existing industries. Many of the national brands have been lost, decreasing the number of employment in manufacturing sector. When the retail chain takes over, it will have access to all the products of the world, and will sell the best at the cheapest, leading to further closure of existing industries which in turn will lead to loss of economy and massive unemployment.
Small scale industries will suffer the most in this present context, where at one end, MNCs are allowed to have 100% FDI in small scale industries in SEZ and on the other hand cheap goods could be imported by the retail giants. Our SSI is not properly organized, and suffers the economies of scale, thus will never be able to compete with the retail giants on the price aspect, which seems to be a matter of serious concern for the existence of SSI in India. In a situation where the existing SSI is already going through a very tough time, this would serve as a fatal blow. b) Impact on farmers and consumers Monopsonistic influence on farmers After independence there was a general feeling that agricultural markets do not function in a proficient manner.
Apart from inefficiencies in distribution, including wastage of agricultural produce, the farmers suffer due to exploitation by traders on different accounts. To overcome such problems different state governments enacted their respective APMC Acts. These Acts made stringent provisions to save the farmers from exploitation, promoted efficiency, etc. Structure of Agricultural Produce Marketing Committee (APMC), the apex decision making body in respective mandis was made such that farmers were in overwhelming majority and chairman of the Committee would also be a farmer. It also ensures the transparency of trade and accountability of the trader and mandis towards the society.
Every day the rates of the products are fixed in the mandi depending upon demand and supply and no trader can buy more than a certain limit( to avoid hoarding). There is no question of monopoly here as there are a number of buyers and sellers; this in turn keeps the prices of the commodities fair. Moreover there is a government check on all the trading that happens through mandi, so that no unfair practices can take place. The Model APMC Act leads to de-democratisation of agricultural markets and therefore limits the rights of the farmers to control agricultural markets. The experience world over and even in the states where private yards have been allowed to be established by the companies, heavy profits have been made by these companies without giving any benefit to the farmers.
For instance the average price of Soya paid by ITC to the farmers in Madhya Pradesh was around Rs. 1150/- per quintal, it was sold by the company at an average price of Rs. 1555/- per quintal. Even the rules of contract farming, given by Model APMC Act and adopted by various state governments also favour multinational agribusiness firms. Small and marginal farmers, which constitute 90% of the farming community, have been left at the mercy of these firms. Not only this, even the definition of an agriculturist have been changed to suit the best interests of these corporations. In earlier Acts agriculturist was defined as one whose livelihood depends directly on farming.
Now a change in the definition of agriculturist is contemplated as – A person who is a resident of the notified area of the market and who is engaged in production of agricultural produce himself or by hired labour or otherwise. In the case of these huge retail chains, there is lesser possibility of transparency of prices paid and the amount stocked. They are permitted to stock huge amounts of food supplies, as per their business model, without having mechanisms for transparence. In such conditions it is not very difficult for them to hoard and act unfair. For example let us see two commodities wheat and apple. Private corporations had bought huge quantities of wheat from the farmers directly last year and we had to import wheat from other countries and all of us know about the hike in the price of wheat this year.
Similar is the case of apple, in last season, these companies had bought around 30% of the apple production straight from the local mandis of Himachal and Kashmir, and we can see the prices of apple this year are very much higher compared to earlier years, even though there was good production of apples last season. ii) Consumer In due course of time if these retail outlet completely overtakes the traditional system, we would see a series of change. First if the traditional system is gone, we will have only one mega retail outlet in the vicinity, and the choices given by the outlet, has to become choices of the consumer. In such a case there is an expectation of formation of cartel amongst the chain and the prices of the commodities will shoot up. But at that time we will have no other option but to procure our goods from one of these outlets, at whatever prices they demand from us.
We have seen this in the case of UK, where the average spending on food and beverages as a percentage of the total income of an average household has shot up since these giant corporations have come into retailing. Moreover the choices the consumers are left also decrease with the coming up of these stores; every thing is standardized the personal choices of the consumers are not taken care of. This is a system where the consumer adjusts himself to the product and not the vice versa. ENORMOUS ENERGY CONSUMPTION c) EXPECTED POWER CONSUMPTION DUE TO CORPORATE RETAIL OUTLETS Air-conditioning Latent heat of ice (i. e. , heat of fusion) ? 144 Btu / lb (or 334. kJ/kg) One short ton = 2000 lb Heat to be extracted = 2000 * 144 = 288000 Btu / 24 hours = 12000 Btu/hour = 200 Btu / Minute 1 ton refrigeration = 200 Btu / minute = 3. 517 kJ/s = 3. 517 kilowatts . A room of area 10 feet* 10 feet, i. e. 100 sq. ft needs atleast one ton of air-conditioning. The number of such big retail outlets that has to be set up is around 6600, and if at an average an outlet has 2500 square feet of area, the total area that has to be air-conditioned would be 16. 5 million sq ft. For 16. 5 million sq ft built up area of these giants will need atleast 16500000/100 = 165,000 ton of air-conditioning. This in turn will need 165,000x 3. 17 kilowatts = 580,305 units of electricity every hour. Cold storage Total production of vegetables in India in 2004-05 = 101. 433 million tonnes Total production of fruits in India in 2004-05 = 49. 294 million tonnes Total production of fruits and vegetables in the year 2004-05 in India = 150. 727 milllions tonnes The corporations claim that 70% of the fruits and vegetables produced in India goes waste due to lack of proper storage i. e. 70% of 150 million tonnes, which amounts to 105 million tonnnes. A cold store of dimensions 3metre x 3metre x 2metre, consumes 2-3 units per hr and has a storage capacity of around 15 tonnes depending upon the density of the product.
Thus if 45 million tonnes of goods were stored it would need 105,000,000/15 =9000000 such cold storage units. These units would consume at least 2x 9000000= 18000000, i. e. 18 million units of electricity perhour. For refrigeration of the vegetables and fruits for the whole year atleast 18000 megawatt of electricity is needed. For air-conditioning 4 million sq ft of built – up area one will need atleast150 megawatt of electricity. (only for Reliance stores) CONCLUSION Need for government regulation Corporate retailing in India is witnessing considerable growth. The share of corporate retail in overall retail sales is projected to jump from around 3% currently to around 9-10% in the next three years.
A number of large domestic business groups have entered the retail trade sector and are expanding their operations aggressively. Several formats of corporate retailing like hypermarkets, supermarkets and discount stores are being set up by big business groups besides the ongoing proliferation of shopping malls in the metros and other large cities. This will have serious implications for the livelihood of millions of small and unorganized retailers across the country. Large organized retail is controlled across the world by many governments. An appropriate regulatory framework for the organized retail sector in India has to be framed keeping in mind the Indian specificities. India has the highest shop density in the world with 11 shops per 1000 person.
If the corporate retail starts spreading in India without any control and if the Government brings in Foreign Direct Investment in the sector, the potential social costs of the growth and consolidation of organized retail, in terms of displacement of unorganized retailers and loss of livelihoods will be enormous. Regulation needs to be more stringent and restrictive. In this wake it is important to take note of the recent meeting which was held by the Indian Government with the EC officials in Brussels on june28- 29 2007. According to trade experts India could technically open a preferential FDI window for European retail companies that are clamouring for an increased market access and a higher investment map.
Through this “preferential treatment” being given, European retail majors like TESCO and Carrefour may find their way in to the Indian markets. The policy on FDI on retail will stand no good to such an entry through preferential treatment. Once the market share of the corporate retail players increases the unorganized retail in the country is set to experience a slide in their sales. According to an NSSO survey there is already a significant decline of more than 12. 5 lakhs in the number of self-employed retailers in urban India between 1999-2000 and 2004-05. With the coming in of more and more bigger players it will be almost impossible for the small unorganized retailers in the country to do business.
That will only lead to more social tension, violence, as witnessed in the attack on Reliance fresh in Ranchi, and also economic deprivation and joblessness. About 20 million urban workers and 12 million rural workers depended on small retailing in India. Threat to the agricultural sector With the coming in of big retail there will be more instants of contract farming, which in turn will lead to monopoly buying powers and monopolistic control over the farmers and their products. Contract farming is a system for the production and supply of agricultural produce under forward contacts between farmers, suppliers and buyers. The suppliers of the inputs and the buyers of the produce will be the big retail companies.
In contract farming, the contract basically entails that a cultivator would sell his crops to the company that will leave the suppliers with no choice at all. They will have to be satisfied with the price the company gives them for the produce. The contract can give the company the power to make the choice of refusing to pick the contracted produce and can even be penalized for defaulting the commitment. If such uncontrolled retail is allowed, it will lead to more such situations of more and more land coming under contract farming. There will be further escalation of the real estate prices owing to the increased demand in lucrative areas by the big retailers who have deep pockets to fund such acquisitions.
Given the unplanned and chaotic path of urban development witnessed in India over the past decade and a half, and the pathetic state of urban infrastructure, the proliferation of large format retailers will only accelerate the undesirable trends of predatory real estate development and unsustainable pressures on urban infrastructure and the environment. For the consumers rather than enhancing choice, especially the lower income groups, proliferation of large format retail stores would kill competition, lead to closure of neighbourhood markets and make consumers solely dependent upon the organized retailers at a later stage. India will not be able to withhold the fall out of so many people being thrown out of employment. The government should come out with a proper policy to rein in such unrestricted growth of corporate retail in the country taking cue from the experiences of other countries where big retail have created havoc with the society and economy of the country. TABLE OF CONTENTS ———————- FARMERS CATEGORY 3 FARMERS CATEGORY 2 FARMERS CATEGORY 1 RELIANCE OWN LOGISTICS RELIANCE FRESH OUTLETS RELIANCE FRESH OUTLETS RELIANCE FRESH OUTLETS PROCESSING UNIT/POINT COLLECTION POINT/UNIT Farmers Own Transportation Reliance own Logistics Reliance own Logistics Farmers Own Transportation RF RF Reliance Own Logistics RELIANCE OWN LOGISTICS RELIANCE FRESH OUTLET RELIANCE FRESH OUTLETS RELIANCE FRESH OUTLETS PROCESSING UNIT/POINT FARMERS Reliance own Logistics Reliance own Logistics Reliance Own Logistics FARMHOUSE ON CONTRACT FARMHOUSE ON CONTRACT WHOLESALE MANDI’S WHOLESALE MANDI’S WHOLESALE MANDI’S Cold Trucks, TATA 407,408,LP
Cite this Market Research of Reliance Fresh
Market Research of Reliance Fresh. (2018, Feb 22). Retrieved from https://graduateway.com/market-research-of-reliance-fresh/