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February 04, 2007

Reliance Retail to partner kirana stores and microfinance instutions?

Business Today's cover story on the unfolding battle for organized retail between Reliance and the WalMart-Bharti combine, says Reliance is likely to strike partnerships with neighbourhood grocery stores and microfinance institutions.
Moving into neighbourhoods, of course, poses a problem. Zoning laws apart, good properties are hard to come by and there's always the neighbourhood store to compete with. But guess what? Reliance may not end up competing with the neighbourhood stores-at least, not those that are, say, 3,000 sq. ft big. Instead, such stores would want to become Reliance franchisees. Reason: better returns on investment. As the neighbourhood store stands today, it is severely disadvantaged: it doesn't have economies of scale, quality or great shopping environment, or a compelling product mix. Most of them don't handle fresh produce because the wastage is too high. Now, consider a scenario, where someone like Reliance comes in and says, "Mr Grocer, I'll double your return on investment, take the headache of supply chain and store management away from you, but let you sit at the till just like before because your social standing within your community is important to you." Which grocer, do you think, will say no to a proposition such as this one?

Stretching this analogy a bit, it may even be possible for someone like Reliance to turn kirana stores (250-300 sq. ft in size) into, say, regional cooperatives, where Reliance becomes their faceless supply chain manager for a fee. Happy Commies, happy Reliance. Jokes apart, at least for the next several years, India will continue to have consumers-especially in smaller towns-who are more comfortable shopping at kiranas rather than supermarkets. No wonder, then, Reliance is being approached by at least a couple of microfinance institutions (MFIs) to sell to the poorest of poor. Under this arrangement, Reliance won't be paid by its poor customers but by the MFIs, which in turn will recover the money from their clients-in installments. At one stroke, Reliance's retail plans will move to an entirely different level. Bharti-Wal-Mart, then, may have no choice but to follow suit or, indeed, do better.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.