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Feature Analysis MarketWatch: Global Round-up
Datamonitor, Au gu st 20 07 w w w . d a t a m o n i t o r . c o
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Reliance: changing tackIndia's Reliance Industries is
encountering stiff resistance from some quarters to its retail
division's
aggressive expansion plans. To help appease protests, Reliance
is introducing a new format which
will not sell fresh produce in some states. These developments
do not bode well for the international
grocers who are eager to develop their presence in
India.Reliance, India's largest conglomerate, has unashamedly
touted its ambition to become India's leading retailer.
The group intends to invest over $5 billion in a multi-format
expansion plan to create a nationwide chain of
stores - ranging from c-stores to hypermarkets - occupying 100
million square feet by 2010. This is a highly
ambitious goal - but with retail sales in India forecast to grow
by 72% to reach $517.6 billion by 2010 - the lure of
the opportunities mean Reliance's considerable investment is
sure to pay off handsomely. Since opening its first
cluster of stores in Hyderabad, Reliance now has more than 170
stores across 18 states.
But all is not going to plan. Reliance has recently come across
an increasing number of hurdles hampering its
progress. Examples include delays in being granted a license in
West Bengal, opposition in Kerala to setting up
contract farming co-operatives and protest marches organized by
traders loyal to anti-big business in
Tamilnadu. Protests reached new levels recently when vegetable
traders vandalized three stores in Jharkhandstate. Reliance is
hoping to open in Mumbai in a matter of weeks and the traders are
bracing themselves for a
battle with the chain.
The increasing opposition is due to a combination of factors.
Margins in the wholesale produce trade are
reported to be extremely healthy - and Reliance's ambitions to
create a farm-to-fork initiative will enable it to
capture a greater share of these margins and eliminate the
middle man. The expansion of Reliance and other
large retailers also raises the prospect of mass unemployment.
Mumbai's vegetable union has over 150,000
members, for instance. The small kiranas are these people's sole
livelihood and there is every danger that the
expansion of these big players will result in many people being
left behind in India's widely touted economic
revolution.
Sensing the scale of opposition, Reliance has announced a new
format - Reliance Super. These stores, which
range from 4,000-10,000 square feet, will offer grocery, health
& beauty, clothing and stationery, but no fruit or
vegetables, in a bid to appease the protestors. But Reliance is
not the only problem facing the small Indian
vegetable farmers. Wal-Mart is due to open its initial store in
the first quarter of 2008, and will also be a target for
both trade protestors and some quarters of the government - who
are openly questioning the impact of big
retailers on the economy. These developments are not a positive
sign for multinationals such as Carrefour and
Tesco - who are also eager to capitalize on the immense growth
opportunities India offers.
The Indian government has to tread a fine line. On the one hand,
it needs to be seen as opening up the sector
to aid and maintain the impressive economic growth it has
enjoyed. But on the other, the livelihoods of millions
of small traders - a vital component of the economy - are at
risk. The scale of a potential backlash is obviously
apparent, and the government has appointed an independent
think-tank to assess the impact of the growth of
retail giants, such as Reliance and Pantaloon, on the economy.
Though we do expect FDI barriers to eventually
be removed to allow international grocers unhindered access into
India, domestic traders will not give up without
a fight, and the timescales involved have the potential to drag
on for longer than some envisage.
