The second green revolution

The ribbon-cutting for Indian retail has been a long time in coming.

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.

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 per cent of India's retail sales are still made in the dust and din of family corner stores.

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

Within four years, Reliance Industries intends to build 100 million square feet of markets and super centres. 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.

Wal-Mart effect

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

Multi-brand 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 hands with Indian giant Tata to create a 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, offering first-world power, roads, and amenities for as many as five 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 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 AT 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 "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, company officials say. 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, experts and company officials say. 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.

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 per cent of the produce goes bad before it even hits store shelves. "The true source of differentiation is in solving the back-end [infrastructure problems]," Mangalorkar says.

Farm to fork

To do so, Reliance will build a 21st-century retail supply chain from growers to grocery-store shelves, in a chain that Reliance chief 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.

To go from farm to fork, Reliance is establishing local receiving centres, 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 centres nationwide.

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

The cold storage will also allow Reliance to sell produce out of season. For example, Indians eat 80 per cent of the apple crop during four months of the year, Saravanan says. Reliance will be in the unique position of being able to sell apples all year long. Saravanan expects that leafy vegetables grown in the 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, queueing 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 Mallya searches for his favourite cheese, he admires the "ambience" - the service and freshly swabbed tile floor. But he adds: "The rates are reasonable too."