James Hall writes in the Sunday Telegraph about India’s Wal-Mart:

Mukesh Ambani, RIL’s chairman, plans to open 100m sq ft of retail space in India by 2010. Local press reports talk of between 5,000 and 10,000 stores spread across 1,500 towns and cities. Ambani has described the concept as “a pan-India footprint of multi-format retail outlets”.

Reliance will operate hypermarkets, convenience and speciality stores, as well as business-to-business operations, selling food, clothing, electrical consumer durables, luxury goods and financial and travel services. The project will employ 1m people within five years.

In developing the chain, Ambani is doing far more than simply opening a network of shops. He is revolutionising the Indian food chain, setting up a nationwide distribution infrastructure from scratch, and transforming the way that India’s 1bn-plus inhabitants consume.

Centuries of tradition and established patterns of living are woven into this process. In essence, Reliance is aiming to turn a fragmented, localised, largely rural economy into an organised, process-driven, modern retail environment.

“Without a doubt, this is the biggest retail launch in India’s history,” says P Phani Sekhar, an analyst at Angel Broking, based in Mumbai.

Reliance refused to talk to The Sunday Telegraph about its plans and two of our photographers were removed by security staff. The first proper new store was due to open in Hyderabad this month However, Indian retail sources say the opening has been delayed because of the scale of the project. The chains’ names are a closely guarded secret, although Fresh Plus is mooted for the food outlets.

Reliance Retail’s launch is based on an audacious business bet. Wal-Mart and Tesco are beating at India’s door but have not been granted entry because of restrictions on foreign ownership in the retail sector. The industry is likely to be liberalised soon and the potential is vast. A business delegation from the Bush Administration is visiting in the autumn. An announcement could be made then. So-called “organised retail” (sales from chain stores rather than kirana, or market stalls) accounts for just 3.3 per cent of the £130bn retail market, but it is growing at 30 per cent a year. With incomes soaring and a ferocious appetite for consumerism, this growth shows no sign of abating.

If Ambani’s concept works, it will be a masterstroke in pre-empting the international competition’s entry and beating them at their own game. On top of this, Reliance has been signing deals with farmers across India, hoovering up the country’s supply of fresh food.

It is a clever move: rival retailers will be forced to go to Reliance to procure their stock. The company is essentially cornering India’s retail and wholesale markets. “All the outlets will be connected seamlessly through a state-of-the-art supply chain infrastructure. This initiative has been assiduously planned to connect the Indian farmer and producer with the consumer directly,” Ambani told shareholders in a letter.

Even rivals are impressed. “I don’t think there are many people who have gone into business with the commitment, style and grandeur in which it is planned,” says Phiroz Vandrevala, the executive vice-president of Tata Consultancy Services, a subsidiary of Tata Group.

Ambani’s target of 100m sq ft of space would catapult Reliance Retail into the global league of retailers from a standing start. It would be smaller than Wal-Mart, which has more than 450m sq ft in the US alone, and Carrefour, which has 285m sq ft globally, but it would dwarf Tesco’s 58m sq ft worldwide.

The project will cost up to £4bn, a figure Ambani appears happy to lay down. RIL has already invested £400m in the “pilot” stages of the project. Press reports in India suggest that this stage alone could comprise a breathtaking 1,575 stores within six months of launch.

A recent report by CLSA Asia-Pacific Markets, the brokerage, predicted that Reliance Retail could achieve sales of $20bn (£10.5bn) – or 5 per cent of India’s overall retail market – and profits of $1bn within six or seven years. This revenue target would give the company an implied market capitalisation of $17.5bn, which would make it one of India’s 30 largest companies. A stock market flotation is likely soon.

See also:
* Reliance all set to enter retail market, 28 July   
* Reliance is spoiling for a retail war, 20 July

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