Indian Retail Models: Reliance Retail vs. ITC Retail vs. Future Group Retail

This case study helps to create an in-depth understanding of the distinct models of the retail giants in India - ITC, Future Group and Reliance. Analyzing the unique model of Reliance's retail venture and its growth prospects, the case facilitates a comparison and evaluation of the three retailing business models based on the sustainability and effectiveness of the models in the context of Indian retailing sector's untested growth trajectories. Organized retail is still in its nascent stages in India as Indian corporate houses were late in realizing the potential of organised retail. The sector, which was on a boom, was hit hard by the global financial crisis during 2008. Many of the retailers have resorted to reducing costs by consolidating formats and models. However, at a time when the existing retailers are tackling their blues, Reliance Industries Limited (RIL) has made a grand entry to the retail sector through Reliance Retail Limited (RRL), its retail arm. RRL has opened stores in each of the verticals and by mid-2009 has been operating around 12 formats, above 920 stores - spread across the country - in about 4.2 million sq. ft. Though it is the biggest conglomerate in the country, RRL is facing tough competition from two powerful and ambitious retailers - Future Group and ITC. Future Group's retailing arm Pantaloon Retail India Ltd. has managed to find growth even during the recession and its pan-Indian retail model has gained loads of acclamations. ITC has its presence in rural and urban areas alike with its well-positioned national brands in FMCG and Lifestyle Retailing Business Division (LRBD). The three famous corporate houses, emerging from three different backgrounds have different operational models. While wading through the crisis, the three retailers are trying to script a right combination to succeed in the Indian organized retailing sector.

- Kishore Biyani,
Managing Director,
Pantaloon Retail.

- Business World

Reliance Retail

Later on, Fresh also added a range of items to its list of offerings. "Fresh now carries, in addition to fruit and vegetables, grocery, bakery, dairy, personal care, cleaning, kitchen essentials and some impulse items as well", said Raghu Pillai, Chairman and CEO (Strategy and Operations), RRL. The convenient store format also served staples under the private label `Reliance Select', for better margins. In addition, to increase the visibility and develop the brand, RRL is planning to supply `Reliance Select' to mom-and-pop stores (famous as kirana stores in India) as well.

Thus, the convenience store format proved to be a success initially. A faster turnover was expected from the lesser area and convenience store format. However, it did not work out in the long run. Apart from the profitability concerns, Reliance Fresh stores were also subjected to protests from local traders as it caused a dent in their business. Traders ransacked the Reliance Fresh stores in many of the states including Kerala, Orissa, West Bengal and Uttar Pradesh. As a result of the protests and also due to the prevailing downturn, the number of Reliance Fresh stores had reduced considerably. Reliance's wholesale venture in the same sector, Ranger Farm, aimed to serve streetside vegetable vendors also could not make much impact on the market.

Reliance had also started the retailing of fuel through franchised petrol pumps, alongside the launch of Reliance Fresh. But the venture, which started in 2006, did not prosper. Though the outlets provided good product quality and services, they were forced to sell fuels for higher prices as they did not have the subsidy, which the government-owned fuel outlets had. Due to the higher price, the number of customers dropped and soon, the business turned unviable to run. The company closed 1,432 petrol pumps after it incurred a loss of Rs. 800 cr in its petroleum retail business in 2008. Reliance bought back the property from its dealers paying huge amounts. But its plan to build malls and multiplexes on the sites has not yet realized.

However, the undeterred Reliance once again bounced back into the retail segment by opening its first consumer durables retail chain, Reliance Digital, in April 2007. Through a tie-up with the computer major Apple, Reliance Digital opened stand-alone stores—called `istores'—to sell Apple's products exclusively. Further, it has entered into a tie-up with Reva Electric Car Company, India's first electric car manufacturer, to sell its electric car through Reliance Digital outlets. It has also planned to have private labels introduced in Reliance Digital in the near future. "We will see how the volumes build. Then will get private labels as well," said Reliance Retail Consumer Durables Information Technology (CDIT) head-Operations, Nitish Tipnis. Though the chances for the success of private labels are minimal, Reliance Digital can still be hopeful, as the trend is gradually shifting from traditional stand-alone retailers to organized retailers, who offer an assortment of products and brands, enabling easy and better choice for customers. The organized retail chains have a small share of over 8%, translating to Rs. 25,000 cr, of consumer durables market. As not many organized retailers are present in this field, Reliance Digital has a competitive edge by virtue of being the exclusive retailer for Apple products like ipods, iPhones and Macintosh computers through its istores. However, it has to face tough competition from Future Group's e-zones, one of the main competitors for Reliance Digital, and Big Bazaar, which has its own private labels in certain electronics. Also, neck-to-neck competition from other major players like Tata's Croma, Next, exclusive outlets like Sony Center and from much trusted local players like TMC makes the situation tough for Reliance Digital.

Despite the setbacks and the challenges, RRL has been quite aggressive in the retail business. When other retailers were consolidating and cutting down retail spaces fearing the global recession, RRL launched speciality outlet chains in more than one vertical. At present, RRL has more than a dozen speciality formats. (Refer Exhibit II)

In March 2009, Reliance Retail's 920 stores were spread across 20 formats in 80 cities and 14 States covering almost 4.5 million sq. ft. of consumer-facing retail space. (Refer Exhibit III)

In the apparel segment, RRL has come up with Reliance Trends (Trends), a speciality chain, which also handles luggage and accessories. Projected as a mix of values and lifestyles, the store offers world famous international brands in lifestyle segment and its own private labels and national brands in the value segment. Dependence on private labels is to make higher profitability. Reliance Trends is expected to be a hit as a wide array of products are made available at affordable prices. But Trends faces stiff competition from incumbents like ITC-Wills Lifestyle, Future Group-Fashion@ Big Bazaar, Brand Factory, Pantaloon, Tata-Westside stores and innumerable local players. Even after being a price under-cutter, the chain is in an intense battle of finding and maintaining customers. "We are now present in five cities with seven stores and plan to have 100 by 2010-11. Our aim is to be among the top two players in the organized retail market for apparels by that period", disclosed Reliance Trends' Chief Executive, Arun Srideshmukh.

Reliance Footprint (Footprint), RRL's footwear vertical chain store, is also in a similar state. Major players in the footwear retail, including Bata, Woodlands and international brands like Reebok, Adidas, etc., are posing a threat to Footprint, which is finding it tough to cope with the competition. Reliance's entry into the Rs. 15,000 cr domestic footwear industry, which is dominated by the largest retailer Bata, has taken many by surprise. It sells well-known brands from all over the world including private label footwear. It has entered into a partnership with Bata to sell all Reliance private label footwear through Bata, which has the largest number of exclusive footwear chains across India. It also has ambitious plans to sell its private labels through other retail players. "Footprint has a 20:80 ratio of private label footwear to other domestic and international brands," explained G Shanker, Chief Executive, Footwear, RRL. Footprint has also planned to tie up with some of the foreign footwear brands to make their presence felt in India.

Reliance Jewels, the jewelry chain store of RRL, claims to provide a unique shopping experience to the lovers of the yellow metal. Its exquisite collection comprises of Kolkata Filigree, Rajkot Minakari jewelry, Kundan from Jaipur, temple jewelery from Kerala, Jadau from Amritsar and much more. Jewelry retail in India is ever expanding at a rate of 40% with new players setting up retail outlets across the country. Though there are specialized retailers in this segment, the Indian consumer is always ready to experiment with new formats and players and organized retailers are ever expanding in this arena. For instance, Big Bazaar's jewelry retail is carried through the store-in-store format named Navras. However, with the vast collection and stand-alone store format, Reliance Jewels may beat the competition from Navras, as well as other players. It has also big plans to expand the chain soon. "We plan to open 50 such stores during the next one year and another 300 speciality stores across the country during the next three years," said Bijou Kurien, President and Chief Executive, Lifestyle, RRL. But it is still doubtful if Reliance would be able to deal with the nuances of jewelry retailing like well-experienced incumbents and uncountable local players.

As far as speciality stores for books, music, toys and gifts are concerned, Reliance retail has launched a new member in the race, named Reliance TimeOut (TimeOut). Many of the retail majors like FutureGroup' s Depot, RPG's Books&Beyond and K Raheja's Crossword are already operating in this segment in addition to foreign players like Walden. TimeOut stores, spread over an area of 21,000 sq. ft., offer books, music, toys and gifts and have an in-store coffee shop. TimeOut also conducts weekend workshops for kids to improve their creativity (and to impress the parents who are the potential customers). It has plans to expand the number of stores to 47 by 2010. "Our target customers are primarily the youth, modern professionals and young parents. We want to create a place that will cater to all sections of the society. We will allow customers to browse at leisure and shop at pleasure," elaborated Bijou Kurien. However, with the ongoing financial meltdown coupled with stiff competition from established players, TimeOut has a long way to go. Future Group's Depot, which offers the same merchandise, is a store-in-store and poses tough competition to Reliance. But the real danger comes from other local players, bookstores, stationery stores and toyshops, which have established strong sourcing networks and occupied strategically important locations. Nonetheless, with the additional services and benefits that TimeOut is providing, it might be able to gain more customers than its competitors.

Reliance Delight (Delight), a non-vegetarian retail outlet offering fresh fish and frozenmeat, was another venture of RRL. The stores were opened to tap the potential of the non-vegetarian retail in India that delivers margins up to 20%, compared with the 10%-15% margins in food and grocery retailing. Also, with the number of non-vegetarians in the country gradually increasing, Delight has good opportunities, as the number of organized players in the market is very low. To gain advantage of location, Delight stores are located next to Reliance fresh stores. The neat and clean maintenance of the Delight stores has already impressed many non-vegetarian consumers. However, immediately after the opening of these stores, RRL had to face protests from the fishermen in Andhra Pradesh and Tamil Nadu, who were afraid that the clean ambience of the stores would take away their business. Despite these protests, Delight is planning to open 1,000 stores by the end of 2010. Reliance bags a huge advantage in this field, as other organized retailers are not even considering non-vegetarian retailing. Though the Godrej-operated integrated poultry business, `Real Good' has the first mover advantage, Delight is likely to become popular among the non-vegetarian Indians. Some other retailers in the non-vegetarian retailing are Spencer's, Spinach and Hypercity. With fewer players in the sector, Reliance Delight is expected to contribute 10% to the overall revenue of RRL, over years.

Reliance Autozone (Autozone) is RRL's another initiative in the retail sector. The auto retail chain engages in sales and service of accessories for two-wheelers and four-wheelers under one roof. The chain also undertakes sales of electric scooters, a new phenomenon in the Indian automotive sector. A typical store with 6,500 sq.ft. presents the ambience that can be found only in global automotive retailer chains. RRL is keen to capitalize on the business opportunities it has in this sector. Despite the competition, Autozone is expected to grow steadily. Though there are many companies with their own service and accessory shops, the one-stop-shop format might provide a massive advantage for Reliance. "This new format provides a one-stop solution to automobile owners who face inconvenience by having to criss-cross between various touch points for accessories, batteries, tyres and lubes, etc., at different locations at different times," says Arun Dey, Chief Executive, Autozone.

The same advantage can be associated with RRL's pharma venture `Reliance Wellness', a one-stop shop for all health and wellness products. The stores contain medicines in Allopathic, Homeopathic and Ayurvedic medicinal systems and have a well-equipped optical shop with a qualified ophthalmologist and preferred brands of lenses. To help people who are under long-term medication, Reliance Wellness has launched a program called `Medical Compliance Program', in which the customers will get alerts and reminders about replenishments and uses of their medicines. Another customer loyalty program of free health insurance to customers is done through a tie-up with ICICI Lombard General Insurance. With its additional facilities, such as attractive insurance and customer loyalty program, Reliance Wellness may also be able to carve a niche for itself. It has already won awards for its `Innovative Drug Store' concept. The advantage is that a one-stop solution like Reliance Wellness is rare even in metros. But with the presence of `Fit and Healthy' of Future Group, Health and Glow of RPG Group, Apollo Pharmacy and other chains like Med Plus and Medicine Shoppe besides the regional and local pharmacy shops, it would not be an easy task for Reliance Wellness to achieve its Rs. 6,000 cr target by 2011.

Same is the case with RRL's home furniture and furnishing retail chains, Reliance Living Furniture and Reliance Living Furnishing. Indian furniture retailing is clouded with local, as well as the branded players, such as Future Group's Home Town and Furniture Bazaar, Godrej Lifespace, Timbor Home, Housefull and popular foreign Groups, such as Durian and Kian. "There is an opportunity in the furnishing retail space in the country when it comes to the range being design led without the normal penalty of being too expensive. High quality fashion and design in home furnishings need no longer be expensive," said Raghu Pillai. Reliance Living Furnishing offers both international brands and private labels to its customers. The 4,500 sq.ft. stores promise a unique shopping experience but RRL will have to wait to know whether it would be able to tap the Rs. 30,000 cr worth Indian furniture and furnishings market.

Reliance Super and Reliance Mart, the supermarket and hypermarket stores of RRL, face the same dilemma as that of its furniture and furnishing retail chains. They have forayed into the most clouded arena of supermarket in Indian retail. Even in 2009, round-the-street mom-and-pop stores accounted for 95% of the total Indian grocery retail. On top of it, in this business with wafer thin margins, organized players, such as Vishal Mega Mart, Big Bazaar, Spencer's, etc., have already fortified their brands and many other cash-rich players are getting ready to open their supermarkets. However, with 10,000 to 15,000 sq.ft. space to stack up goods and provide easy access to customers, Reliance Super is expected to have a cutting edge over other retailers. Even Reliance Mart is spread over an area of 165,000 sq.ft. and aims to become the one-stop solution to all customer demands. "The concept is to develop it as a `solution center' where anyone can come to our Mart and get anything under one roof and at cheaper or equivalent prices but with much better quality products," Raghu Pillai said. Both Reliance Mart and Reliance Super have bet high on the value platform and private labels, like other players, but they still have not managed to clock the expected business.

Thus, RRL has tough competition in almost all the verticals. (Refer Exhibit IV)

RRL had earlier planned to expand its chains with an investment of Rs. 25,000 by 2011, but all developments have come to a standstill because of the global recession. With independent stores in each of the verticals, insufficient and inefficient supply chains and stiff competition in every vertical, RRL is still bungling through its way to success. The recession-hit retailer had to downsize the staff and reduce the retail space in order to save money. The Director of Center for Research in Technology & Innovation at the Kellogg School of Management, Prof. Mohanbir Sawhney opines, "The capital intensive business model of companies, like Reliance Retail, makes their ventures very risky. Three years down the line we may see these ventures going in for a spin-off (stake sell-out)." His estimation may come true if things proceed the way they are now.

Whatsoever, with the expected policy alteration from the Indian government in favor of 100% FDI in the retail sector, RRL can benefit by tying up with foreign players. But the current policy allows only 51% FDI, that to only for single brand retailing. For multi-brand retailers, FDI remains a forbidden fruit. RRL had already tied up with UK-based toy-maker Hamleys to design the stores, train the personnel and the like. It has also tied up with many foreign retailers in other verticals, but only in the back-end processes. Once 100% FDI is allowed, tie-ups can be made with respect to the front-end processes too. Then there would be a better chance to compete with the best in the industry and probably that is what Mukesh Ambani, CEO of RIL, had been expecting to happen. In the meanwhile, ITC, one of the biggest, oldest and the most respected conglomerates in the country and Future Group, the largest retailer in India, are preparing for a neck-to-neck competition with RRL.

ITC's Retail Venture

ITC, formerly Imperial Tobacco Company of India Limited, is striving to change its image from a cigarette maker to a socially responsible, value-driven conglomerate (Refer Exhibit V). Since 2000, apart from consolidating its traditional businesses, ITC has forayed into lifestyle retailing, branded packaged foods, personal care products, greeting, gifting and stationery products, as well as incense sticks and safety matches manufacturing. In the lifestyle retail sector, ITC is one of the preferred names with its Wills Lifestyle Stores and John Players brand. ITC's agribusiness and paperkraft are one of the topmost names in their respective sectors.

Before the launch of Wills Lifestyle, ITC had the experience of making tobacco and paperboard. Nothing related to retailing; however, Chairman, Yogesh Chandra Deveshwar (Deveshwar) was sure that they would not go wrong. Wills Lifestyle, which started with a range of men and women's relax wear, `Wills Sport', soon filled up its exclusive retail outlets with new brands of clothing and accessories. ITC's Lifestyle Retailing Business Division (LRBD) grew swiftly winning various awards in retailing, which provided the necessary impetus for a new chain attempting to move closer to its target audience.

Apart from Wills Lifestyle clothing range, ITC launched John Players, men's casual and formal clothing range, and Miss Players, a range of formal and casual wear for women. It also launched Essenzia DiWills, the fragrance range, Fiama DiWills and Vivel DiWills, bath and personal care products. ITC has carved a niche with its excessive and effective advertisement campaigns targeting the youth and super rich. All the brand endorsers of ITC lifestyle products are youth icons and that had paid off well. (Refer Exhibit VI)

ITC's positioning as a brand has helped it enormously in becoming a major lifestyle retailer. Apart from lifestyle retailing, ITC forayed into agri-retail too, both in rural and urban areas. It recognized the needs of rural population, an untapped potential, which no company was able to exploit prior to them. The initiative was also aimed at empowering small and marginal farmers. It had helped the farmers to overcome the inhibitions of poor farming and risk taking. With a blend of click-and-mortar capabilities, village Internet kiosks managed by farmers—called sanchalaks—enable the agricultural community to access ready information in their local language on weather and market prices, disseminate knowledge on scientific farm practices and risk management, and sell farm inputs and purchase farm produce right at the farmers' doorsteps. ITC's Agribusiness division, the biggest exporter of agricultural commodities from India, has conceived e-Choupal as a back-end integrated supply chain. ITC soon forayed into rural retailing with its rural malls named Choupal Sagar. The 7,000 sq. ft. stores not only sell commodities, apparel and branded home appliances, but also motor pump sets, pesticides and other agriculture products to its customers. Apart from the goods, these malls provide services like soil testing, banking, insurance and medical facilities to farmers. ITC is planning to open one Choupal Sagar for every 30 to 40 e-Choupals. ITC has spent Rs. 4 cr for a Choupal Sagar and in return it is getting a turnover of Rs. 3 cr per annum. There are also plans to expand Choupal Sagar and open smaller malls in smaller towns. However, these plans have come to a sudden halt due to the financial crisis and economic slowdown.

ITC, apart from opening rural malls, entered the urban market too with fresh fruits and vegetable outlets named Choupal Fresh, which sources its merchandise directly from farmers through e-Choupal initiative. Choupal Fresh is being operated in only selected metros and the company has plans to increase the number of outlets to 140 by 2010. "The emphasis is on improving the quality and productivity of domestic horticulture products through ITC's good agricultural practices as opposed to relying on imported products", said Siva Kumar, Chief Executive of ITC's Agribusiness. The speciality of these chains is that they combine retail with wholesale. The 2,500 sq.ft. store is backed by a 7,500 sq.ft. cold storage and warehouse facility. Choupal Fresh stores open at 5 a.m. to serve the wholesale business. Future Group's Pantaloon retail had entered into a strategic tie-up with Choupal Fresh chains to gather fresh fruits and vegetables for its `Fresh & Pure' section in Food Bazaar. Though Godrej Agrovet's `Nature's Basket' was the first of its kind store selling farm fresh food in urban areas, Choupal Fresh has made significant advantages as it deals with both wholesaling and retailing. However, India's farm fresh organized retail has a lot to improve in terms of supply chain practices in order to grow to realize its actual potential.

ITC has a number of brands in Fast Moving Consumer Goods (FMCG) and staples, which they supply through kirana stores and competitors' retail outlets (Refer Exhibit VII). ITC's ready-to-eat foods, snacks, staples and confectionery have become household names for Indians in a short span of time and fetched the recognition of an FMCG company. It was also conferred the Business Today Award for the Best Managed Company - Retail and Consumer Products for the year 2008.

The conglomerate model of ITC was thus gaining momentum but the recession and the higher rent of the retail space had forced it to reduce its pace. Around eight of Wills Lifestyle exclusive showrooms were closed and now ITC is planning to set up boutiques in its own chains of hotels. Wills Lifestyle has also closed down four of its exclusive retail chains due to decrease in sales and high rent. However, ITC is trying to get into more customer-centric activities to increase the dropping sales. Deveshwar is confident that the company will come out of the blues soon.

Future Group's Retail

Future group's retailing arm Pantaloon Retail (India) Limited has its presence in various sectors of retail in multiple formats (Refer Exhibit VIII) with a number of formats in each of the lines of business (Refer Exhibit IX). As the business is based on the `value for money' psyche of Indian middle class, Pantaloon's retailing has become a huge success. The company's turnover has surged from Rs. 285.3 cr in FY 2002 to Rs. 5,048.9 cr in the year ended June 2008. During the same period, the Group's Profit After Tax (PAT) has jumped from Rs. 7 cr to Rs. 126 cr. Its market capitalization also increased from Rs. 60 cr in FY 2000 to Rs. 3,737.8 cr as on October 13, 2008.

Apart from retail business, it has a few specialized businesses in which it operates independently. (Refer Exhibit X)

The value-based retail business of Pantaloon retail has received a phenomenal acceptance from the customers. The company, which was incorporated as an apparel retailer `Manz Wear' with India's first men's formal trouser brand Pantaloon, had forayed into the retailing mainstream in 1997 with its 8,000 sq.ft. Pantaloon retail showroom. Later, Pantaloon launched big format retail centers like Big Bazaar and Central. Big Bazaar ranges from 15,000 to 20,000 sq.ft. and Central spreads over 200,000 sq.ft. In 2006, `Pantaloon Group' was renamed as `Future Group' and its retail arm was named Pantaloon Retail (India) Limited. In his book, It Happened in India, Kishore Biyani (Biyani), CEO of Future Group, explained how the group had come a long way. With its vision to `Deliver Everything, Everywhere, Every time for Every Indian Consumer in the most profitable manner', Future Group brought out such innovative retail formats that Indian consumers had been only dreaming of. The company's supply chain management is done through Future Logistics, its logistics arm. Future Logistics has plans to become independent and obtain the benefits of third party logistics market.

But the largest retailer also has not been spared by the recession. With the credit freeze, Pantaloon retail has decided to restructure its operations by consolidation. Future Group, at present is a conglomerate with many divisions. To make the business model more sustainable, it was planned to restructure the company and rename it as Future Markets & Consumer division. The new division would be a holding company with two subsidiaries - Future Value Retail, that will own all fashion brands and Future Speciality Retail, that will own all the supermarket chains. However, the restructuring was postponed due to expectations of new FDI policy by the government. Future Group has ambitious plans once 100% FDI is allowed on multi-brand retailing.

Businesses Converge, But Business Models Diverge

Competition in the Indian retail industry is intensifying by the day with many on the field and many waiting for an opportunity to enter. What matters most is, the business model that these retailers are going to adopt and not really the `retail' tag. "Most Indian retailers tend to blindly copy from Western models. I am looking for a pan-Indian model of retailing," echoed Biyani when the organized retail was just emerging in India. By mid-2009, with a model that extends services to value-based consumers and lower socioeconomic segment, Biyani was leading the pack. His competitors, however, are right on his heels. The models and value chain clearly vary for all the players. While Big Bazaar is aiming to target the middle and lower income strata alike, ITC is developing its image in the Lifestyle segment with Wills Lifestyle and John Players. While Future Group has diversified into Future Capital Holdings, Future Logistics and Pantaloon Retail, ITC has expanded into agribusiness and Lifestyle retailing. RRL, on the other hand, has evolved as an all-inclusive retail by opening 920 independent stores across the country in almost 15 verticals.

Retailing is not all about reselling things in a shop. The background work that each company has to do is enormous. The decisions on the issues—`make or buy', `in-house or outsource' are the most critical ones. The right mix of manufacturing products and outsourcing of the processes is critical for every retailer. The concerns that follow are integration of back-end processes and supply chain management. The pattern varies across the three corporate houses of India.

It would be surprising to know that ITC does not have manufacturing facilities. The respected Indian conglomerate does not manufacture almost anything, but bets heavily on outsourcing the production of all its merchandise. Even apparel designs were initially made in association with American Design Intelligence Group (ADIG), a San Francisco, US-based garment and retail consultancy. However, later on, ITC has hired its own set of designers and established a close relationship with Science and Designs, an Italian fashion design house, for additional assistance in apparel design. Though the retailer established in-house designing, it does not manufacture any of its collections. Kamal Bose, General Manager, Sourcing and Merchandising, ITC Lifestyle, explains, "Companies are primarily following three models for outsourcing - completely controlled, partnership and buyer-supplier. Our company had realized the potential of outsourcing manufacturing and gone for 100% outsourcing from the day we began operations." LRBD has around 20 vendors from whom they source their items. Apart from India, its vendors are from nearby foreign countries, such as Nepal, Bangladesh and Hong Kong. An outsourced Just In Time (JIT) manufacturing facility for `quick response' located in Bangalore is LRBD's prime strength.

On the supplies network, ITC does best what it has practised for years together. It has managed to make its cigarettes reach every nook and corner of the country. Over the years, ITC has developed a flexible supply chain for its LRBD. By putting into practice concepts like JIT Production, Full Truck Load (FTL) and Regional Distribution Centres (RDC), ITC has managed to significantly cut cost in its supply chain. The award, `Best Supply Chain Practice-Organized Retail' for 2006 further supports this fact. Since LRBD's suppliers are spread across India, it has no compulsion of keeping the major production facilities and the central warehouses nearby to its locations. LRBD has set up regional distribution centers for each of the four zones - Delhi, Kolkata, Bangalore and Pune; established strategically in important cities of all the four regions of India - North, East, South and West respectively. Since these locations are near major markets, LRBD is able to supply the products as and when they are required. It replenishes all the stores in the major markets within 24 hours and all over India within 48 hours of order placement. "Our decentralized model has grown in significance with the advent of the Large Format Retailers (LFR). If the retailer's store shelves are empty, we can fill them up before the others can arrive (which might take days)," examines Sanjeev S Khanna, Manager, Logistics, LRBD. With its Electronic Shelf Labels (ESL) and Radio Frequency Identification (RFID), ITC can keep track of the changes in the stock easily and take necessary action in minimum time. With the help of technology in logistics, ITC is further planning to cut the cost in its supply chain side and deliver more value to the consumers.

ITC's strong presence in the FMCG sector in the country comes from cottage business and Small and Medium Enterprises' (SME) entrepreneurs, and not from its own manufacturing facilities. The support that ITC provides through its facilities of Research and Development (R&D) and marketing should be noted as ITC's effort to enhance the competence of SMEs. Its notebooks are outsourced from vendors in Tamil Nadu and incense sticks (Agarbattis) are made in association with Sri Aurobindo Ashram Udyog, Pondicherry and ITC's matchboxes are made in cottage industries of South India. Similarly, all its packaged food and powders are also outsourced to SME manufacturing facilities spread across the country. ITC assists its manufacturers in maintaining highest level of hygiene with Hazard Analysis and Critical Control Points (HACCP) certification.

Not just manufacturing, ITC has also been hailed for the way it developed FMCG supply chain, a task that is considered to be the toughest by the FMCG companies. It has integrated all the manufacturing facilities, godowns and warehouses exceptionally well all across the vast spread of the country, utilizing all the knowledge that it has acquired from decades of experience in agribusiness. All these have grown in the recent past, forcing it to find better methods of supply chain management. To find alternatives, ITC is trying to build an IT infrastructure to bar code the FMCG produce even before it reaches the retailers so that it would be easy to track all the products and manage its facilities and inventories in a better way.

While ITC's competency lies in supply chain management, Future Group's lies in its value-based volume business it holds across its formats. It has 98 Big Bazaar outlets spread across the country in 59 cities and receives a massive 110 million footfalls per annum. Being a reseller that sources products in bulk, it has managed to maintain a margin from its sourcing activities. Further, to strengthen its agri-products sourcing, Future Group has purchased 70% of Adhaar, a hub of agri-products, from Godrej. This was brought through Future Ventures, Future Group's venture capital arm. It is supposed to exploit the rural retailing chances and at the same time help Future's retail ventures to maintain a constant supply of agri-products. For in-house electronics brands, such as Sensei and Koryo, it has a sourcing alliance with Indian electronics major Videocon. As a part of its global sourcing, Future Group has set up purchasing centers in Hong Kong and China, the first attempt of its kind by an Indian retailer. It sources both perishables and non-perishables from these places. A huge part of Future Group's private labels are sourced from China. In garments, private labels of Pantaloon are manufactured in its own manufacturing facilities located at Mumbai and Gurgaon. This backward integration has helped the group largely in maintaining its bottomline.

To translate sourcing efficiencies into logistics management, Future Group's supply chain arm, Future Logistics Solutions Limited (FLSL) was incorporated as a separate entity. FLSL even serves external business parties in finding logistics solutions by acting as a distribution intermediary and as a wholesaler. The fact that not many organized players are there in the wholesale distribution chain management market is an added advantage for FLSL. Its initiatives of providing all logistics services from warehousing, transportation, international logistics, reverse logistics and distribution are sure to enrich the profits of the Group. The company plans to lease 7.5 million sq. ft. for its business to increase the warehouse area and build an efficient IT infrastructure.

The sourcing model of RRL is vastly different compared to those of ITC and Future Group. RRL has a tie-up with ITC Choupal Fresh for an uninterrupted supply of fruits and vegetables. Apart from this, RRL has tied up with US-based fresh fruit and vegetable suppliers—Dole and Chiquita—and meat retailers - Sadia of Brazil and Doux of France. The association with these foreign players is supposed to give the requisite technological and process expertise to the growing fresh food formats of Reliance Fresh and Reliance Delight. Reliance has also set up rural sourcing hubs in states like West Bengal, Punjab, Haryana, Uttaranchal and Himachal Pradesh for sourcing grains and milk products.

Reliance Digital has plans to source televisions from Videocon to introduce private labels. Reliance has plans to set up its sourcing office in China to source electronic and footwear products in large quantities. For Trends, the apparel speciality chain, RRL has its own manufacturing facilities for the private labels. It has also tied up with Sixty Group, an Italian design shop, to sell its brands through Trends. Footprint, the footwear chain, is also sourcing from international players. In order to actively promote its private labels, Reliance is sourcing heavily from domestic footwear exporters. Some of its stock is sourced from China too. Reliance also intends to tie up with some more famous international brands to assure their presence in India. For the jewelery retail initiative, RRL sources from across the country varying from regional kaarigars (regional term for goldsmiths), as well as established design houses, in order to make its collection suit every occasion. Moreover, it has tied up with 37 manufacturing partners for various kinds of jewelery.esigns for its Reliance Jewels showrooms. Reliance Wellness is all planning to sign up a deal with Cipla, a major pharmaceutical manufacturer. If this materializes, Cipla will supply generic pharmaceutical products to Reliance Retail, which will sell them under its private label at its outlets. Reliance's bigger retail formats, Reliance Super and Reliance Mart are also supposed to source heavily from China for their private labels.

To resolve worries in supply chain management, which is one of the worst problems for Indian organized retailers, Reliance has signed a Memorandum of Understanding with UK-based supply chain management major, Wincanton. But recession has corroded RRL's expansion plans and Wincanton is unsure about the deal. The operation was supposed to start in the beginning of 2009, but nothing significant has happened even by mid-2009.

With innumerable retailers to sell its FMCG brands and exclusive stores for LRBD, ITC has every chance to win the retail game. But its competitors, RRL and Future are not far behind. RRL is betting heavily on its stand-alone speciality stores through its retail conglomeration model. But it is unsure whether Indians will accept the model. Future group has already proved its success but the changing consumer preferences and global recession has dimmed its glory of store-in-store formats and seamless malls.

With decreasing footfalls and reducing profits, organized retailers in India are unsure whether they are following the right format and models of their business. The question seems to be too difficult to be answered because the models, which are initially appreciated, also seem to be losing their charm in no time. The three retailers are in the experimentation mode to strike the right balance. In the wake of declining footfalls, all the three retailers are considering plans to supply their private labels and other merchandise to kirana stores. They expect twin benefits out of this move - to leverage their supply chain network for earning incremental revenue and to push their private labels through kirana shops for wider exposure. While ITC is a leader in FMCG products and also sells through kirana stores, RRL and Future Group are also planning to sell their private labels through small unorganized retailers. Experimentation of models with Indian consumers is quite expensive as it is difficult to deal with large number of customers. Many of the major organized retailers are also waiting for the government to allow 100% FDI in multi-brand retailing. Once it is allowed, Indian organized retailing will be altogether a new story. Only time will tell which retail business model would be able to sustain and survive the swift changes in consumer behavior.