Now in India, a greengrocer revolution

Reliance Fresh plans to build 784 new stores and a national 'farm to fork' delivery system.

Shopper K.V. Mallya has just had an epiphany in the refrigerated-foods aisle. From now on, he muses, he won't need to haggle over the price of a parsnip or elbow his way though sweaty masses to buy wilted spinach.

To him, these are the joys of a new corner store – one with air-conditioning, posted prices, and even a juice bar. To most Indians, this store represents the vanguard of a retail revolution.

The mall is still a novel concept here that begets giddiness. Socialist-era laws banning foreign investment have so far kept out the world's biggest department store names, including Wal-Mart. As a result, 97 percent of India's retail sales are still made in the dust and din of mom-and-pop corner stores.

But India's largest private company – with annual revenues of $20 billion – is spending $5.5 billion to open Western-style supermarkets and modern convenience stores in 784 cities across this South Asian nation.

Within four years, Reliance Industries Ltd. intends to build 100 million square feet of markets and supercenters. That's more than half the size of Target's retail network in the United States, which was built up over 45 years. Experts call it perhaps the boldest experiment in the history of global retail, and the opening of this cozy corner market on a rainy morning in Hyderabad earlier this month is but the first modest step.

"It signals that India is ready for modern retail," says Deepankar Sanwalka, a retail expert at KPMG consulting in India.

The ribbon-cutting for Indian retail has been a long time in coming. First, India's state-run economy left its citizens and its companies too poor to support the prospect of organized national retail. Yet even after India began to open itself to the world in the 1990s, the market developed slowly. In addition, the continuing ban on foreign investment by retailers that sell more than one brand has prevented large multinationals from entering India.

Now, however, changes are afoot. By 2015, the retail market here is forecast to more than double to $637 billion, and organized retail is expected to increase its share from 3 percent today to as much as 15 percent. "The Indian consumer is much more confident," say Asitava Sen, a retail analyst at PricewaterhouseCoopers. "This is the element that will drive organized retail."

Single-brand retailers like Nike and Tommy Hilfiger are already taking advantage, filling storefronts nationwide. Multibrand foreign companies such as Wal-Mart and British grocer Tesco are reportedly looking at ways to get around the investment ban – either by opening wholesale stores that sell only to other businesses, which is legal, or by establishing partnerships with Indian companies.

For example, Australia's Woolworths has already joined with Indian giant Tata to create a new chain of electronics stores. But it is the launch earlier this month of 11 small corner markets, called Reliance Fresh, in Hyderabad, that best represents the newfound ambition of Indian companies in general and Reliance in particular.

It will soon roll out more corner stores nationwide. Larger supermarkets are expected to follow soon, with the huge Wal-Mart-style "hypermarkets" coming later.

Indeed, it is no surprise that Reliance has gone in first and gone in big. This is the company that intends to build two new cities on the outskirts of Delhi and Mumbai (Bombay), offering first-world power, roads, and amenities for as many as 5 million people. It is the company that built the world's third-largest refinery in 18 months when independent estimates suggested it would take five years. When it finishes a second refinery nearby in 2008, the operation will be the world's largest.

"That is the DNA of the company – thinking big," says Raman Mangalorkar, a retail analyst at A.T. Kearney.

Reliance certainly has its critics. Some wonder if its enormous investment will create the "Wal-Mart effect" in India, driving local traders out of business. Some see it as the a gunslinger of India's Wild West boom times, galloping over laws and common sense. They question whether such an enormous outlay is wise in retailing, where profit margins are small.

But it is precisely the enormous size of the enterprise that is crucial to its success, say company officials. The core of Reliance's business strategy is not merely building squeaky-clean stores, it is about building the retail infrastructure from scratch.

No one has ever attempted to do this in India, say experts and company officials. The reason is that changing the status quo would be prohibitively difficult, so retailers just trundle along. True, interstate taxes drive up prices, middle men delay delivery times, and roads as pitted as moonscapes slow things to a crawl. But for items like toasters and televisions, retailers merely pass on the costs to buyers.

Yet for food, speed of delivery can make the difference between a sale and a shipment of rotted green peppers in the trash bin. Today, as much as 30 percent of India's produce goes bad before it even hits store shelves. "The true source of differentiation is in solving the back-end [infrastructure problems]," says Mr. Mangalorkar. "The problem is that the back end is difficult to solve."

To do so, Reliance is having to build a 21st-century retail supply chain from growers to grocery-store shelves, in a chain that Reliance Chairman Mukesh Ambani calls "farm to fork."

Company agriculture experts are signing contracts with a roster of growers nationwide, so that "what we want, we will grow," says S.D. Saravanan, who helped set up Reliance's food network.

Reliance is offering farmers new technology as well as new techniques to increase yields and quality. Mr. Saravanan cites the simple example of persuading farmers to plant their tomatoes farther apart, which results in bigger tomatoes.

To go from farm to fork, Reliance is establishing local receiving centers, where produce is collected, cleaned, and polished. From there, it will be shipped – often in fleets of new, cooled trucks – to one of 68 distribution centers nationwide.

According to media reports, Reliance is planning to set up these distribution points at Special Economic Zones created by the government that include huge tax breaks. At the distribution centers, each fruit or vegetable will get its ideal climate: lettuce at 36 degrees F, carrots at 46 degrees, bananas at 68 degrees.

The cold storage will also allow Reliance to sell produce out of season. For example, Indians eat 80 percent of the apple crop during four months of the year, says Mr. Saravanan. Reliance will be in the unique position of being able to sell apples all year long. Saravanan expects that leafy vegetables grown in foothills of the Himalayas will be on store shelves 24 hours after harvesting. The current delivery time for most markets is three to four days, he estimates.

By selling in massive volumes and cutting delivery times, Reliance says it can ensure better quality and still compete on price. "Scale gives us confidence," says Saravanan, grinning beside a mound of tomatoes at a Hyderabad Reliance Fresh corner store during its grand opening.

By all appearances the concept is a hit. Customers choked cash registers, queuing in lines that snaked past the onions into the bread section. Stock boys buzzed back and forth amid the hum of activity, refilling vegetable crates that had been full two hours ago.

As Mr. Mallya searches for his favorite cheese, he admires the "ambiance" – the service and freshly swabbed tile floor. But he adds: "The rates are reasonable, too."

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