Moneycontrol

Budget 2021

Associate Partners:

  • SMC
  • Samsung
  • Volvo

Moneycontrol

Budget 2021

Associate Partners:

  • SMCSamsungVolvo
Webinar :Join an expert panel for a webinar on Smart investments for a secure retirement January 28, 2021. Register now!
you are here: HomeNewsBusiness

Reliance Retail-Future Group deal: How will it benefit RIL’s consumer facing businesses

Reliance Retail will get the benefit of economies of scale. The products can be bought in large quantities and sold at competitive prices, and would see further improvement in margins due to improving scale.

August 30, 2020 / 07:25 AM IST

The numbers were already mind-boggling.

Reliance Retail is India’s largest, most profitable retail business and is the fastest-growing retailer in the world thus far.

Its revenues are higher than the rest of the organised retailers combined.

Reliance Retail’s business footprint spans across 11,806 retail stores in over 7,000 towns with 28.7 million sq ft of retail space.

It sells more fruits and vegetables than any of its peers. It sells more flour and oil, it sells more television, more washing machines, and more clothes.

Close

Despite these fantastic sounding numbers that it has achieved in the 14 years since its launch, there are still some missing pieces to the retail ambitions of Chairman Mukesh Ambani.

Much of its revenue comes from consumer electronics segment. It makes up for almost 75 percent of the outlets, and about 25 percent of the revenue.

But its presence in other big segments, including groceries and fashion and lifestyle, is less intimidating.

With a total count of 800 stores, the grocery segment constitutes less than 10 percent of the stores, and 20 percent of sales.

Of all its retail stores, fashion and lifestyle retail contribute only 20 percent, but in terms of total sales it contributes 8 percent which is around Rs 13,500 crore.

Even in fruits and vegetables, the unorganized segment takes over 25 percent of the total pie.

That is where the deal with Future will help Ambani get closer to his vision for the retail business.

The mega transaction with a combined value of Rs 24,713 crore cements the position of Reliance Retail as the undisputed leader in the organised retail segment and adds muscle to the ongoing battle with Amazon for the Indian e-commerce market.

“Food and grocery retail is a fragmented market, so the acquisition is more of a consolidation of market share rather than establishing leadership. Reliance Retail is by far the largest retailer already, and the takeover of Future Group's retail assets is more of a consolidation of its leadership position,” said Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight.

In the last 4-5 months of lockdown, neighbourhood stores have done well, while large-format stores have lost ground. In the coming months, it will be important to see how Reliance bridges the gap with neighbourhood stores and expands its market reach using its digital footprint,” he added.

According to Euromonitor, India’s retail market size is about $635 billion (Rs 42 lakh crore) that is split 59:41 between grocery and other categories such as apparel, footwear and electronics.

What falls under Reliance Retail?

Reliance Retail, which was started in 2006, is the retail initiative of the group and is central to the consumer facing businesses.

Reliance Retail has adopted a multi-pronged strategy and operates chain of neighbourhood stores, supermarkets, wholesale cash and carry stores, specialty stores and online stores and has democratized access to a variety of products and services across diverse segments for Indian consumers.

Serving the food and grocery category, Reliance Retail operates Reliance Fresh, Reliance Smart and Reliance Market stores.

In the consumer electronics category, Reliance Retail operates Reliance Digital, Reliance Digital Express Mini stores and Jio stores, and in fashion & lifestyle category, it operates Reliance Trends, Trends Women, Trends Man, Trends junior, Project Eve, Reliance Footprint, Reliance Jewels and AJIO.com, in addition to a large number of partner brand stores across the country.

What falls under merged Future Enterprises?

FRL is engaged mainly in the home and electronics retailing, value retailing and operates Big Bazaar, Easyday, and Foodhall, among other format retail stores. The deal will also involve Future Consumer, which operates the food business, and has significant links with FRL, which is its largest customer, accounting for almost 80 percent of its annual sales.

Future Lifestyle Fashions (FLF) was the flagship fashion business of Future Group. It so far operated in more than 400 stores in 90+ cities, occupying 5.7 mn sq ft of retail space. It ran in-house retail chains Central and Brand Factory, exclusive brand outlets (EBOs) and other multi-brand outlets (MBOs).

Similarly, Future Supply Chain Solutions provides supply-chain solutions [for non-agro products] to Future Group companies as well as to outside companies. The supply-chain company gets 65 percent of its business from FRL.

Large becomes larger

Reliance Retail, which was already the largest retailer in India by a long shot, gets even larger and bigger.

Its network gets a big push in the cities, where 40 percent of Future stores are present. In comparison, more than two-thirds of Reliance Retail’s nearly 12,000 stores are operating in Tier II, III and IV towns.

The company can now pick and choose which of Future’s stores to retain and rationalize the network.

Much of the businesses will be integrated, and that will include the grocery business under Reliance Fresh, and the fashion vertical under the banner of Reliance Trends.

Reliance Retail will get the benefit of economies of scale. The products can be bought in large quantities and sold at competitive prices, and would see further improvement in margins due to improving scale.

The deal will help strengthen the vision created through the launch of JioMart, the online grocery delivery service that propels the company’s omni-channel plans. JioMart, which is currently available only at selective cities, will now be able expand its reach.

To meet customer's requirements for essentials, the beta version of the JioMart grocery consumer platform (jiomart.com) was launched across 200 cities, followed by an app later on.

Within a few weeks of launch, JioMart was delivering over 4 lakh orders daily, which according to Reliance Industries (RIL) is significantly higher than any other grocery home delivery company.

JioMart, which went live in May, that saw an order flow four times that of the pre-lockdown period for partner kiranas, pointing to the potential an online-offline network has for stakeholders

Reliance Retail will ensure last-mile connectivity through tie-ups with Kirana stores in the remote region of the country. This ensures formalization of the retail sector as a whole.

Growth in retail will complement Jio’s growth because both are consumer-centric.

The deal will help RIL’s retail business to expand its offline retail presence and get it ready to tap O2O and B2B opportunities. With Reliance Retail having only begun its digital commerce business (JioMart’s online grocery delivery business and the Kirana B2B distribution business), brokerage houses believe value creation from this business will happen only over the medium term.

What now?

After attracting a series of marquee investors to back Jio Platforms, Reliance Industries’ telecom arm, Chairman Mukesh Ambani, addressing the company’s 43rd Annual General Meeting on July 15, indicated that the group’s retail venture, too, has received strong interest from strategic and financial investors and plans are underway to induct some in the next few quarters.

The bar has been set high by Jio, which saw 14 deals to sell a 33 percent stake in Jio Platforms (JPL). This, together with the stake sale in the fuel joint venture and a rights issue, will help RIL raise Rs 2.1 trillion ($28 billion), and become net-debt free.

With the Future deal shoring up Reliance Retail numbers and domination in the Indian retail landscape, it may be now time for the next step.

Disclaimer: Reliance Industries (RIL), which also owns Reliance Retail, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments
Himadri Buch
Sections