Reliance Fresh- A Case of Channel Management

The Reliance Industries Limited, the parent company of Reliance Retail has always
dreamt big. This case is no different. With an investment of around Rs.25,000 crore, this
becomes the single largest investment ever planned in the retail industry in India. Some
of the features of this foray, as initially planned, are:

• Rolling out 500 hypermarkets in phases in more than 700 towns across the country
by 2010
• Rs. 7,000 crore expected to be invested in supply chain management.
• Feed the huge retail chain through seven wholesale terminals and numerous
Distribution Centres.
• A targeted 20% return on investment over a span of five years
• Around 150 warehouse clubs or distribution centers to supply to the small retailers
• A targeted sales turnover of Rs 90,000 crore (US$ 20 billion) by 2010, almost 10 per
cent the size of the current organized retail business in the country

To achieve these, Reliance Retail intended to use various strategies, some of which
include:

• Lower or parity prices and better product quality for consumers

• Better prices for farmers and producers through direct sourcing
• Better value for small retailers through wholesaling and
• Large scale direct and indirect employment opportunities for youth, both skilled and
unskilled

Reliance plans to operate through a variety of store formats, including,

• Convenience Stores - Reliance Fresh

• Specialty Stores - Reliance Digital
• Hypermarkets - Reliance Mart & Town Centre
• Cash & Carry format
• Rural Business Hub
• Lifestyle Retailing - Reliance Wellness
• Apparel and Clothing - Reliance Trends

However, achieving all the above is not an easy job, especially in the light of the
opposition to organized retail, which has now become a political issue. Currently,
Reliance is far behind its intended goal. Other reasons for the same include delay in
setting up of the supply chain, man power requirements, availability of real estate and
license issues.

Reliance Fresh
Reliance retail began its operations through opening of 11 pilot ‘Reliance Fresh’ stores in
Hyderabad in November 2006. Since then the convenience store chain has grown to more
than 350 stores in 18 states. The stores are normally of sizes ranging from 2000 sq, ft. to
5000 sq. ft. Reliance Fresh has adopted a ‘carpet bombing’ strategy, with each store
normally within a radius of 1-2 km of each other.

Reliance has been opening five to ten Reliance Fresh stores every week, down from the
initial plan of opening 30 stores per week. This development comes close on the heels of
the company shutting shop in Uttar Pradesh and laying off over 1,000 staff, amid
opposition from small traders and the local government. It also faced stiff opposition to
the opening of its stores in major states like Kerala, Orissa and West Bengal. In
Maharashtra too, protests were held against the entry of multinationals and domestic
biggies in organized retail. However, one reason for this ‘go slow’ decision can also be
the fact that the stores are taking more time to break even.

Currently, the division is being headed by Bhavdeep Singh and operates as a separate
division of Reliance Retail. It currently uses the central supply chain and IT infrastructure
for its operations. However, the supply chain and IT requirements of Reliance Fresh will
be very different from the other retail store formats. Thus, the supply chain of Reliance
Fresh will have to be managed separately.

It has been recently decided to hive off Reliance Fresh into a separate company, called
Ranger Farm, for single point accountability. Ranger Farm will be a wholly-owned
subsidiary of Reliance Retail and will function like any other company with its own
human resources, supply chain, procurement and marketing teams unlike the current
system of using the centralized teams.

The stores of Reliance Fresh are either owned by the company or leased areas. All the
stores are run by the company. Earlier, some of the stores were franchisee outlets.
Mostly, the existing kirana store owners were chosen as franchisees. This was
discontinued later in order to have more control over the store operations.

Under the new system, the store is managed by a store manager who is an employee of
Reliance. A number of salespersons are employed depending on the size of the store and
the business expected. The salespersons are mostly young men and women who work
part time. Training is provided to each and every employee on company policies,
customer care, systems handling and processes.
 The Retail Mix of Reliance Fresh
Location

Reliance Fresh Stores are located mostly in Tier I and Tier II cities. The chain is set to
expand to around 800 cities and towns all over India. National Capital Region (NCR)
constitutes around 65-70% in terms of number of functional stores as well as business so
far. It has followed a policy of one store per 4000 households, regardless of competition
from other organized retail outlets.

Being a convenience store, availability of parking space is not a criterion in deciding the
location of the store. A busy area near households is selected.

Services

Reliance Fresh sells Fruits and Vegetables, Groceries and recharges mobiles at the same
place, much like the kirana stores. Apart from that, there exists potential for selling
Financial and travel related products also. Thus, some innovation could be seen in terms
of the services being offered.

Reliance Fresh offers free home delivery to its customers above a certain value of
purchase and within a range of one to three kilometers. Apart from that, shop on phone
service is also being planned.

One important feature is the customer feedback system being implemented. There are
three ways to address customer concerns, namely,

1. On the Spot complaints – These are normally related to product quality and
billing issues and are handled by the salesperson or the manager directly.
2. Customer Feedback Form – This form is available to all customers who would
like to voice their concerns. The forms cover the issues that can be solved at the
individual store level.
3. Service Desk Feedback – Two to three customers are randomly interviewed and a
comprehensive feedback is solicited by the store manager. The feedback form is
sent to the Mumbai headquarters for perusal and action by the top management.

Assortment

Reliance Fresh stores ranging from 2,000 to 5,000 sq feet, provides, customers with a
variety of fresh fruits, vegetables, staple foods and other products in a world-class
ambience. The assortment varies from store to store depending upon the location of the
store and the kind of customers it targets.
Reliance fresh sells most products needed day to day by the households. This includes
vegetables, buckets, razors, chocolates, pulses, fruits, etc. Some Reliance fresh stores
even sell cosmetics. There are exotic fruits that require refrigeration and dairy products
also. Being a convenience store, A major share has been allocated to food products. This
is followed by personal care products and then the other items such as kitchenware,
miscellaneous items such as toys, pooja items, towels, napkins etc. These stores also sell
non vegetarian items, which are placed separately from the other food items.

The assortment is decided by a Category Team which constantly reviews the choice of
product based on customer feedback.

Store Environment

All the stores are air-conditioned, with cleanliness being given special importance. The
employees are uniformed; t-shirts / jackets are of the standard red color with green cap.
There is ample lighting inside the stores and no music. During rush hours, there are
announcements in the store about the offers and mark downs.

The floor space allocation varies from store to store; there is no hard and fast rule for the
same. The basic principles of traffic flow are taken into the account while designing these
stores.

Being a self service format, Reliance allows customer to browse through the entire gamut
of products available. A self service format also promotes higher level of involvement.
For example, customer can use the polythene rolls provided freely and weigh their
vegetables before taking the bags to the counters. With a no bargaining policy, customers
are free from haggling, but get the correct price and weight of item they bought.

All the stores have a large Marquee with the store name prominently written on it.
However, there is no signage at the entrance that informs the passersby of the product or
offers currently available at the store.

Target Segment and Value Proposition

Reliance Fresh is targeting all the people who go grocery shopping. As they have stores
in the poorest and richest localities of India they target all kinds of revenues.

Also, on a demographic point of view the consumer is a family or a household, which is

not characterized by a particular income. Indeed the targeted consumer depends on the
city and the location of the store.

The environment of the consumer is often an urban or residential area, which explains the
fact that most of consumers are families and households and especially housewives.
On a psychological level, the consumer has a high level of involvement in the purchase
and comes often to Reliance fresh for destination products. It means that the consumer
comes to find products he can only find in Reliance Fresh stores such as fresh vegetables.
But Reliance Fresh also provides routine products which are expected to be in all
convenience stores.

Reliance Fresh differentiates itself from other convenience stores through its value
proposition which includes:

• Reliance Fresh strategy is based on the fact that it provides huge varieties of fresh
vegetables and fruits (over 150 varieties of fruits) of good quality at attractive
prices. Their prices are usually set lower than the real market prices and outside
markets.

• A loyalty program, Reliance One, for frequent and loyal customers. Furthermore
the loyalty program benefits Reliance Fresh because it helps in tracking customer
preferences.

• Reliance Fresh constantly improves its value offering and tries to satisfy the
wishes of the consumer by taking into account customer feedback.

Thus, for the price conscious customer, it offers products at market rates, and sometimes
even cheaper. For the high end customer, it offers an AC environment where one can find
a considerably wide assortment. Although there have been complaints of fruits and
vegetables not being fresh as claimed by Reliance, they are few in number. Based on the
above, the value proposition can be worded as below:

Reliance Fresh offers its price and quality conscious consumers an enjoyable shopping
environment where a wide range of assured quality daily use products are available at
affordable prices and at a convenient location near home.

Pricing Policy
Reliance Fresh follows at-the-market pricing, with the prices of most products being
same as the market. This is very much different from the intended proposition of offering
below the market prices. Three main reasons can be attributed to this policy, namely,

• The fruits and vegetables are not directly sourced from the farmers, but through
mandis, which reduces the margins available for Reliance.
• Prices of Fruits and Vegetables are set every morning. It is believed that the local
markets quickly adjust their prices so as to make the two almost the same.
• If a product is fast moving, there is no need to reduce the price.

Thus, the product pricing strategy is dependent upon the competition. The strategy of
Reliance has been to sell fruits and vegetables at attractive prices. So those products are
priced slightly low if you take into account the quality of the product. But other products
such as branded products follow the market prices. Private labels however are often
priced lower than the other brands.

The pricing decision takes place at the distribution centers. For the fruits and vegetables,
the pricing is decided based on the cost of purchase at the mandis. The pricing of the
other products is decided by the company’s sourcing team.

One thing noticeable is that the prices are in double decimal digits. For example, a
bundle of coriander may cost Rs.4.80 while the market price is Rs.5. This is indicative of
an odd even pricing approach. Although not much of a difference, it does conjure an
image of selling at a lower price.

In store Brands
In the developed countries, the in-store brands contribute a lot to the revenues of the retail
stores. Internationally, private labels contribute around 16% of total retail sales (Source-
indiaretailbuzz.wordpress.com). The reason is pretty simple, private labels offer far better
profit margin to the retailer than branded products of FMCG companies. With the cost
advantage, there is always an opportunity to attract customers and it is comparatively
easier than promoting high-involvement products under private label.

Reliance has ventured into the high-volume, low-margin (3-5%) segment of retailing
liquid milk through its own brand ‘Dairy Pure’. In addition, Reliance has also
concurrently launched its private labels “Reliance Select” and “Reliance Value” with the
promise of “High Quality and Tasty Food at Affordable Price to all Indian Consumers.”
Although, staple food items like Atta, Rice, Pulses, etc. have initially been put on offer
under the private labels, more categories like FMCG and, perhaps, Colas will be added
soon. Among the two, select is placed at a slightly higher price point reflecting a higher
quality product.

Reliance Fresh’s shelves provide another indication that the group is looking for higher
margins. Most of the staples are private label brands. There is a 500g channa dal pack
priced at Rs 28, a 500g urad dal pack for Rs 39, all under Reliance’s own brand.
Excepting a few packets of Nestlé’s Maggi, or MTR’s masalas or Pepsi’s Lays chips,
there is very little shelf space given to the big brand owners in the country. While, in
FMCG space, they have yet not come up with in-store brands, they intend to do it soon.
Promotion Strategy
The promotion strategy can be broadly classified in two types:

1. In-store promotions – This class contribute most of the promotional strategies of

Reliance. Their in-house promotion strategy is further divided in two forms. First
is through signboards inside the store, and secondly through announcements.
The sign-boards are present throughout the store depicting various running as well
as forthcoming schemes of the store. For example, as Diwali approaches, there
would be lots of signboards about the discount scheme for Diwali such as Diwali
dhamaka. Reliance goes all the way in comparing its prices with the rest of the
market through comparison charts of prices of various items, specially staple food
items like rice, pulses, masalas, oil etc. These comparisons are mainly with the
market prices on daily basis and the prices at which those items are available at
the stores.
The announcements are pretty frequent in the store during the peak hours of
shopping (6 p.m. to 9 p.m.). Announcements are few during other hours. These
announcements range from the prices to discount schemes to the information
about loyalty programme etc.

2. Outside Promotions – Very few promotions are done outside the stores. However,
they come with few print ads at the time of their launch of some different product
category or some big discount/promotion scheme. Sometimes, promotions are
done on Radio-Mirchi i.e. on the local radio f.m. channel, as well.

Customer Loyalty Programme

The qualification criteria to get the loyalty card is a cumulative purchase of Rs.1500/- or
more. After getting the card, all of the subsequent purchases shall be recorded in the
database. For the discount concept, they have used straight line method where any
customer gets 1 point on clearing every milestone of Rs.100/- purchase. Here 1 point can
be redeemed for Re.1 on next purchase. Also, this card helps the Reliance people in
getting information about the priorities of customers across various categories. This
information helps them in targeting the customers for various promotional schemes. The
customers are also informed about any changes/updates about their preferred products or
related products and about special promotional schemes on their desired products.
Supply Chain Management
The supply network consists mainly of Central Processing Centers (CPCs) and
Distribution Centers (DCs). While, CPCs process fresh products like fruits & vegetables
(F&V) received from collection centers, DCs distribute them along with other directly
procured FMCG products to various stores. The distribution centers do the work of
assorting the products, bar-coding them, keeping the stock records and also transporting
them to the respective stores while keeping the track of demand and supply pattern at that
end.

Disposal system at the stores takes place in two modes:

1. For F&V items – They track it on daily basis. At the end of the day, they see to it
as how much is left out and it is in what condition. They keep the record of these
perished items as the percentage of total sales in that particular category. Later, all
the perished goods are dumped in the municipal truck on the next day.
2. For non F&V items – As soon as the expiry date is passed, they are been
transferred back to the distribution center and are kept under the records of GRDC
(Goods returned to Distribution Centers)
There are two distribution centers for Reliance Fresh in Indore; one is located at Rau and
other at Sagar Road.

The Future Challenge

With huge expansion plans spread all over India, Reliance Fresh is slated to be India’s
largest convenience store chain. To compete successfully, however, it will not only have
to counter the small kirana store owners but also competing chains such as Subhiksha and
Margin Free market. The success will depend greatly upon the supply chain efficiencies
that Reliance plans to achieve and the use of customer information to effectively satisfy
the needs of the customer.

With one year gone, the stage of extensive experimentation is over. Its time put the
knowledge gained into practice. At a time when Reliance ought to have been going faster
than before, it has actually slowed down. The biggest challenge it currently faces is the
political uncertainty facing the Organized Retail Sector.

Question
1. Evaluate the Retail Mix of Reliance Fresh?
2. What kinds of problems Reliance Fresh is facing in India? What roles
environment has on the channel management function?
3. What channel management decisions will you suggest for making Relaince Fresh
a successful model in Indian market?