Mukesh Ambani's Reliance Retail is converting some of its big hypermarkets into wholesale cash-and-carry stores, in an apparent sign of modern retail's inability to effectively take on neighbourhood stores in India.
The company has realised that in some locations, low-frills wholesale stores have better prospects of making money sooner than consumer-centric hypermarkets, which have wide margins but also are more expensive to operate, two people with knowledge of the development said on condition of anonymity. So, in order to convert the adversaries — the mom-and-pop stores in this case — into allies, Reliance is adopting a simple strategy: It is courting them.
In the cash-and-carry format, companies sell to bulk buyers, such as neighbourhood or kirana stores, who are their members. Reliance is setting up its wholesale stores in places where the concentration of kiranas is high as it is easier to make them customers than competing with them. The business also offers huge potential.
Industry experts estimate cash and carry in India to become a $22-billion (about Rs 1.4-lakh crore) annual opportunity by 2017, and the market leader in the segment is expected to corner $4 billion to $5 billion of this. The main rival for modern cash-andcarry stores in India is "wholesale retailers" — thousands of small retailers crowded into large markets, such as the Sadar Bazar in Delhi.
An industry analyst said converting a hypermarket into the cash-and-carry format may not work in some cases. Hypermarkets and cash-and-carry stores are two entirely different formats with different demands and economies, Amitabh Mall, partner at Boston Consulting Group, said. "Converting any hypermarkets into cash-and-carry has to negate the disadvantages of lower margin at the cash-and-carry with the high rentals (of the existing hypermarkets)," Mall said. "That is the equation someone needs to solve. It could work in some cases and may not in others. So it's a mixed answer."
