Business - Reliance retail's austerity drive

NEW DELHI: Reliance Retail, part of India’s largest private sector company Reliance Industries, has initiated an ‘austerity’ drive. The company has issued strict guidelines on unnecessary travel, mode of travel, courier despatches, use of stationery in office, use of cabs and type of accommodation while on tour, and even on the number of times employees can have tea and coffee. Senior managers have been asked to use AC Indica cars instead of luxury sedans on outstaion tours.

While Reliance Retail (RRL) is the focus of this cost-cutting exercise, a senior official said the austerity measures are being extended to the mainline oil and gas business as well. Although, there is no directive, there are advisories to cut down avoidable costs.

A Reliance spokesperson said: “We strongly deny any such development. Your information is baseless and false.” However, according to sources, RRL is taking its austerity drive very seriously and has described it as a “mission”.

In a communication posted on the internal RRL intranet, a senior HR manager of the company has said, “Let us stop all unnecessary and avoidable expenses, challenge every cost element and every person who is incurring it, and completely protect the interest of our organisation.” Had the company not been so serious, some of the cost-cutting measures would have sounded comical. It has decided to issue only blue and black ball pens. It will not give calculators, tissue boxes, gel pens and uniball pens. Employees are being encouraged to go for pen refills and not to print in hurry to avoid unnecessary wastage of paper.

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Reliance has also issued some strict pantry rules. Tea and coffee is on self-service basis. It will be served only in meeting rooms and visitor’s rooms, and water bottles will be filled only once in a day in morning.

Despite being highly profitable — net sales for FY08 was Rs 1,37,147 crore and net profit Rs 19,523 crore — RIL has always been very prudent about costs. Its refinery project in Jamnagar and deepwater exploration project in the Krishna Godavari region have set world records in low execution costs .

It is not a surprise that RIL has taken up high costs as a major issue, especially in its subsidiary RRL. The company, which promised to invest Rs 26,000 crore in its new retail venture and hired thousands of people, some with astronomical salaries, has now asked its format heads to justify their respective employee strength. It has also asked them to justify role of each employee in the retail venture.

Sources said the company has already sunk in a huge sum in the project without any returns in sight. The supply chain is yet to stabilise and the company is seeking joint ventures with foreign retail companies, wherever possible, to sort out this critical issue. At the same time, industry experts give RRL the credit for the fastest expansion plan. Experts said 600-plus stores across formats in less than two years is no mean target.

The situation is somewhat better in the oil and gas business. Although RIL has taken a hit on its retail petroleum business, incurring losses and laying off people, the refinery and petrochemical business have been the cash cow for the company. But, high costs are beginning to catch up, forcing the company to cut avoidable expenses. The company had to revise its cost estimates for the oil and gas business, particularly exploration. Drilling rigs, for instance, have seen price escalation of over 300%. Same is the case with other vital equipment like oil platforms. With production from its block nearing, the company can do little but absorb these cost escalations. Cutting costs on other fronts is one way out.

Said a senior official associated with the oil and gas business: “We are running against time and work is on full steam. Rising costs are a concern for every company today and we have to look at where we can cut corners.”

Some of the areas where employees are looking at cutting costs include hotel and travel expenses. “For instance, travel to another office could be avoided if the meeting can be done through video-conferencing,” an official said. “It’s more like an austerity measure that every company would have to adopt in these hard times,” he said.

A similar sentiment is echoed in an internal RRL email. “We all need to participate in this mission to curb every possible avoidable expenses. We all have to work together to minimise expenses in all aspects of business on pan-India basis.”