Jan 13, 2009

Business - India;Reliance Retail plans private label sale to kirana stores

Raghavendra Kamath & Leslie D'Monte

Mukesh Ambani’s Reliance Retail is understood to be exploring ways to supply its private labels in food and groceries to kirana stores and small retailers in the country. A separate entity, most likely to be named Reliance Foods, will carry out the private label business.

The move is expected to give high retail exposure to its products in innumerable kirana stores in the country, without having to spend much on advertising and marketing expenses apart from generating business volumes. When contacted, Reliance Retail spokesperson said: “As a policy, we do not comment on speculation.”

In a recent reshuffle at the company, Reliance Fresh head Gunender Kapur was made head of private labels business in the company, sources close to the development said. “We have plans in this direction. Once, we entirely cater to the demands of our stores, we can certainly look at supplying them to other retailers since we have required infrastructure, process and systems in place. But before that, we should completely cater to our own stores,” said a source in the company.

Sources said that after launching private labels in food and groceries, Reliance Retail is also expected to launch soaps, detergents, cosmetics and non-FMCG products under its private labels segment with a new brand name. The company’s flagship chain Reliance Fresh sells staples and food items under Reliance Select and Reliance Value brands, dairy products under ‘Dairy Pure’ brand.

Kishore Biyani’s Future Group, too, also have plans to sell its private labels to stores outside the group and it has already carried out pilot studies for this venture and is expected to start the business soon. Future Logistics, the logistics arm of the group, also has plans to foray into wholesale distribution of products such as food, apparel, grocery to organised retail chains in the country, which is expected to start from this month.

Nearly 30 months ago, Reliance Industries announced an ambitious plans to invest Rs 25,000 crore to expand its stores in the country to take the advantage of organised retail in the country. Initially, the company was planning to open 2,000 stores by 2008, and 5,000 stores by 2010, but due to a delay in delivery of properties, economic downturn and demand slump the company had to scale back its expansion plans.

Reliance Retail runs over 850 stores, which include stores for food and grocery, consumer durables, beauty and wellness, jewellery, footwear, among others. Its formats such as apparel chain Reliance Trends, beauty and wellness format Reliance Wellness, consumer durable chain Reliance Digital have private labels or are in the process of launching private labels.

“The whole idea of private labels is based on pricing and retailers get enough volumes on their shelf at marginal costing. Retailers have an opportunity to sell their private labels to kirana stores. But it depends on their strategy on pricing and marketing right products,” said Naimish Dave, a director with OC & C Strategy Consultants.

Added Sadashiv Nayak of Food Bazaar, a unit of Future group: “We do sell products of regional vendors in many stores and they compete exceedingly well with national brands. If product-price proportion is good, I do not see any problem in a retailer selling others’ private labels,” Nayak said.

Business consultancy Technopak’s Purnendu Kumar says retailers can sell their products to mom-and-pop stores only through their cash and carry ventures as reaching out to individual stores would be tough preposition.

“Supplying to kiranawalas is a tedious job as you need to have different points of sale, enough manpower and transport and delivery systems. But selling products through cash and carry stores is a viable preposition,” said Purnendu Kumar.

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