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Reliance Fresh 
 
Category: MBA catalogue 1 | Word(s): 4016 | Page(s): 17 | View(s): 1510 | Rank: 0
 
Reliance Fresh
By Rajesh Naidu

1.    Introduction

India with a population of 1.08 billion (growing at about 1.7 % per annum) provides a large and growing market for food products. Food products are the single largest component of private consumption expenditure, accounting for as much as 49% of the total spending. Furthermore, the upward mobility of income classes and increasing need for convenience and hygiene is driving demand for (a) perishables and non food staples and (b) processed foods.. Also, with the globalization of trade and availability of high speed logistics, food retailers in developed countries are sourcing a year-round supply of fruits and vegetables from developing countries. Thus, both for local consumption as well for export there is a year round opportunity for fruits and vegetables, meat and poultry products and ready to eat processed foods. Food market in India is valued at Rs 2500 billion and fruit and vegetable forms 25% of it.The Indian middle class spends about Rs 400 billion annually on food and groceries. Owing to this high demand and attractiveness many retail giants have forayed into the fruit and vegetable retailing.
Organized retailing in Fresh Fruits and Vegetables is gaining a lot of momentum in India with huge investment by leading Indian corporations in this area. Modern formats of supermarkets such as Reliance Fresh, Choupal Fresh, Farm Fresh, Filed fresh and Namdhari Fresh etc. promoted by different companies are emerging very rapidly in small and large towns around the country. Two of the major players in the supermarket sector in the country are Reliance Industries and Bharti- Walmart tie up. Other key players include ITC, Food World (JV of RPG Group of India and Dairy Farm International based in Hong Kong), Spencer, Godrej, Pantaloon (Big Baazar and Food Baazar), Subhiksha and Aditya Birla Group.
2.    Reliance Fresh

Reliance fresh is a convenience store format belongs to Reliance Industries. About 453 Reliance Fresh stores are in operation across India (www.reliancefresh.info). The typical store space varies from 2000 to 3000 square feet across various Tire-II and Tier-III cities along with metros. It was started with an objective of selling only fruits and vegetables but because of the pressure on margins in the commodity reliance had to diversify its Product portfolio like frozen foods, bakery items and dry fruits and canned vegetables etc. Reliance is in continuous operations and expansion mode since January 2007 with ever increasing number of stores. Few of the distribution and techno initiatives undertaken by the company are rebuilding the supply chain value proposition for perishable produce. It has built an effective distribution system across the country that are the most complex by virtue of Inter-State product movement being full of administrative and regulatory restrictions. On the flip side it couldn’t sustain severe expansion without proper planning that has resulted in cutting down of its retail space. One such initiative was emergence of ranger farm outlets where they started carrying out B2B trade of selling fruits and vegetables to institutional buyers, wholesalers and other standalone retail outlets. Also reliance has 36 different types of businesses under Retail wing. Relogistics private limited, Reliance Agri produce distribution Pvt. Ltd, Reliance Mart, Reliance Fresh, Ranger farms are a few divisions working under retail wing of Reliance Industries. The present study focuses on only Reliance fresh and for our project we have confined our study to understanding the operations of an organised retail player. And in the process we have done a comparative study of organised retail of fruits and vegetables with unorganised sale of fruits and vegetables by street vendors.
3.    Rationale of the project

The purpose of the assignment is to understand the concepts of agribusiness relate them with a real time study and share the study with the rest of the batch. Here we got to study Reliance Fresh, its backend (Procurement, Indenting, Payment to farmers, Logistics, Processing and Storage) and frontend operations (Pricing, Replenishing frequency, Merchandising, Billing, and Dump Management etc). Apart of the main study we have also done a comparative study of organised retailer and the unorganised street vendors. Sources of data- Primary data was collected from Reliance employees in Reliance Mart at Anand, Reliance Fresh employees, Street vendors and a wholesaler in Anand town. Secondary data was collected from various sources such as Reliance website and other related websites.

4.    Operations of Reliance Fresh

4.1    Procurement, Indenting and Payment  

Currently Reliance is procuring fruits and vegetables directly from the farmers through collection centres located near to cities and towns. Reliance also sources fruits and vegetables apart from collection centres like local mandies for banana, onion, mangoes etc. For exotic fruits reliance has a separate team called National Exotics team which sources fruits from importers and cold storages.  Procurement is on daily basis based on indent sent by Cluster head. Price is set by the cluster head as per yesterday’s evening Mandi price. Indent is sent to the category head and then to collection centre incharge which in turn sent to farmers by the field staff. Daily payment is made to the farmers after weighing and grading by Reliance fresh.
Collection Centre    City / Town
Asodar, Padra     Ahmadabad
Devenahalli    Bangalore
Medchal    Hyderabad

Grading of fruits and vegetables is done at the collection centre itself as per Reliance standards. This is one sharp difference between procurement by organised retail players and   Mandi selling. In Mandi selling farmers sell their produce as ungraded and a provision is made for small and distorted fruits and vegetables per basket and the price is paid accordingly. For example 2/3 kg is assumed as bad quality produce in a 50 kg bag and the bag is prices only for 47/48 kg. Once the procurement and grading are over the produce is sent to processing centre within the city limits.
Source of collection    Produce procured    Frequency of collection
Collection centres    Vegetables mostly and rarely seasonal fruits     Daily
Mandi purchase    Onions , potatoes, leafy vegetables, banana etc    Daily / weekly  (depends on requirement)
Exotics sourcing     Peaches, apples, kiwi fruits, star fruits etc.    Weekly

4.2    Logistics, processing and Storage

Fresh vegetables and fruits are carried from the collection centres to the central processing centres everyday in the in the evening. Collection from the farmer starts at 10:00 am and goes on till 9:00 pm. Several loads of graded vegetables and fruits are filled into plastics graded to which the grade slip is attached. Crates are carried to the nearest central processing centres CPC here the produce is cleaned, washed and trimmed. Separate vegetables under separate lots are kept in cold chamber.  As soon as the stock is finished in the retail outlet store’s manager orders for the required quantity this is carried to various outlets in the city. Reliance has its own CPCs in almost all the major operational cities. In Ahmedabad it is in Naroda. For exotics and seasonal they are special contracts with large cold storages in selected cities. Nasik storage facilities for onion, Vadodara for Potatoes, CPC for regular fruits and exotics are a few examples.   
4.3    Merchandising, Replenishing frequency and Dump Management

Merchandising manager come to each and every outlet once in a week and gives the guidelines for the shop floor staff for display specification. Replenishment frequency for vegetables is daily,      daily and weekly for fresh fruits depending on the type and mostly weekly for exotics. Reliance could bring down the waste of dump to a level of 5-10% from a level of 15% initially in 2006. Even this can be a huge proportion at a much aggregate level. Still various methods have been followed to reduce the loss such as offering cut fruits and vegetables as fresh salads from ripe ones.

4.4    Promotional schemes at reliance fresh

Details    Reliance    Local vendors
Promotional schemes    It can afford a variety of promotional schemes to lure customers. Such as Tuesday Bazaar, buy 5 kg onion and get 2 kgs tomato free    It cannot afford to have such promotional schemes
Flexibility in fixing of prices    Though the store manager has discretion in deciding the prices of fruits and vegetables, it is under pressure to sell at competitive price as prevailing in local mandis. This is to avoid any unrest among local vendors. Also in a particular day, the prices are fixed and not tinkered, so as to avoid people coming to their shop at any particular time    The local vendor is very much flexible in fixing up the prices. Generally when the vendor opens a new carton, his aim is to sell at good price. He explains consumers about the freshness and taste. In this phase he does not compromise on price. However if a customer is taking large quantity say 2-3 kgs, then he becomes flexible and sells at a bit reduced price. The rates that the local vendor quotes are the usual going rate in market. He quotes the same price to every consumer who comes to him. Consumers get a chance to bargain and depending on the liquidity need of the vendor and decreasing shelf life, vendor agrees to sell it to the consumer at a bargain.
Customization of service     cut pineapple, coconut     They also offer it, but hygiene drives them out
Exotic fruits and vegetables    available    Not available
All fruits and vegetables at one place    Most of the fruits and vegetables are available    Very limited no. is available

4.5 Competition

Almost all the major players in the retail business are coming with the concept of “Fresh”. Their aim is to target the health conscious, nutrition savvy Indian. Some of the major players in this field are ITC, Spencer, Adity Birla Group, Bharti & Wal-Mart conglomerate, etc.
With Wal-Marts entry into India, the retail landscape is definitely going to change. Now with Wal-Marts entry, the next thing to take a beating would be the miniscule margins retailers make. Wal-Mart has always been low priced and if the same philosophy is adopted in India it can gives its competitors like Pantaloons Big Bazaar, Reliance Fresh, FoodWorld and others a run for their money. Local players like Margin Free Market in Kerela and Shubiksha in Tamilnadu have used the low price strategy and have maintained good market share. In a price conscious market like India, a Low Price Strategy in a modern retail format will be the ideal recipe for success.
The competitors of Reliance are not only competing for the market share but also trying to poach its employees. The competitors also try to lure the farmers to supply their produce only to them. Thus Reliance is facing stiff competition on all fronts.

4.5    Managerial Issues in the business

•    Demand forecasting is difficult – The business involve high unpredictability of demand. Usually demand estimation for fruits and vegetables are done on daily basis based on market daily market prices. Factor which influence the  demand here are  season (in summer vegetable production becomes very less and the price shoots up causing variations in the demand), special occasions, glut in the market etc. a manager has to work out the requirements on a continuous basis in case of perishable goods like vegetables and fruits.
•    Round the clock – Orders are given during every day morning to the field staff. Any unavailable vegetable of fruit has to be purchased from the market during early hours between 4:00 am to 5:00 am to get the desired quantity.  Logistics carriers have to be monitored round the clock. So the manager has a very strenuous task and has the responsibility that the goods are delivered in time.
•    Seasonal variations in supply – sourcing problems – Since agricultural commodities have a direct correlation with season, the manager has to plan well in advance to combat such seasonal vagaries. He has to figure out which commodities are available in which season and in which places. Manager has to prudently make his procurement plan.
•    Dump management – Perishability – Wastages of fruits and vegetables is very high in this business. Reliance does not compromise on quality and every day it dumps 60 -70kg fruits and vegetables. Reliance’s policy is to serve its customer with fresh fruits and vegetables. But a street vendor can give the produce at throw away prices at the end of the day if he is left with some quantity before he winds up for the day.
•    Cutting down on margins – As mentioned earlier because of stiff competition in this field most of the retailer are giving their customers some or the other kind of discounts to gain a competitive edge. Reliance also gives attractive offers to its customers to sustain in the market. These discounts have a cascading effect in its margins which puts extra pressure on the managerial tasks.
•    Logistics monitoring and control – Logistics and Supply Chain enables manager to move or store products more effectively. Efficient logistics management not only prevents needless movement of goods, vehicles transferring products back and forth; but also frees up storage space for more productive use.  Managers have to operate efficiently
•    Daily Pricing – Apart from various scheme that a manager has to design for a particular day like Tuesday Bazar, he also has to judiciously design pricing policy for the entire day. During the peak shopping hours, the manager astutely reduces prices on certain essential commodities to give a low price impression on all products and he shrewdly marks up prices on other commodities. During the evening hours, the manager deliberately reduces prices on those products which cannot be kept in the shop for more than a day. This kind of facility is done at the shop floor level with the consent of store manager. But it is generally discourages as a regular practice. This strategy is adopted to push off the highly perishable fruits and vegetables.
•    High Attrition Rate – job hopping - Human resource is the most valuable asset for any company in the modern economy. Rising competition in the sector led to poaching of employees. Managers are under continuing pressure to retain their employees as employee turnover not only increases cost to company but also puts a heavy burden on the manager.  
5.    Conventional supply of fruits to Anand town (Unorganized Supply chain)

The traditional supply chain of fruits starts with the farmers of the villages. The bulk purchasers buy the fruits from them in bulk. These are generally the village traders. From them the bulk dealer buys fruits in bulk. These bulk dealers are located in cities like Vadodara, Ahmedabad, Surat. They supply the fruits to the wholesalers in Anand as per the orders made by them. Generally orders are placed weekly or bi-weekly depending on the market conditions. The wholesalers are known as Dalals in common parlance. Whatever cost incurs in the transportation is borne by the wholesaler himself. Further the vendors place their orders with these wholesalers. Generally they do it on the daily basis as per their requirement. From these vendors and retailers the fruits finally reach the consumers.

5.1    Street Vendors

We also looked at the functioning of the business of street vendors. The aspects covered were procurement, pricing and waste management. For this, two vendors were selected, one who was dealing with vegetables and the other who was in the business of fruits. From the vegetable vendor, we collected data regarding tomato, cabbage and potato and from the fruit vendor data regarding apple and banana were collected.   
5.1.1    Vegetables

Procurement and logistics
Some of the fruits and vegetables come from Delhi to Anand via Ahmadabad (Eg - apples from Himachal Pradesh).  Vendors purchase vegetables from Anand market by around 6:00 am in the morning. Purchased items are brought to Ganesh Chowkdi in auto rickshaws and transferred to their trolleys on reaching the Chowdi. Items are purchased in boxes of 20 kg weight.  
Purchase and sale details of selected vegetables
Sl.No    Items    Purchase price (Rs/kg)    Mode of payment    Average daily requirement    Sales price (Rs/kg)    Margin %
1    Tomato (vegetable)    20    cash    10 kg    30    50%
2    Cabbage (leafy vegetable)    14    cash    5 kg    20    42.85%
3    Potato (tuber)    6    cash    10 kg    10    66.67%

Entire quantity purchased gets sold off in 1-2 days usually.
Business
The vendor works from 6:30 am to 8: 30 pm, 7 days a week and takes leaves occasionally only. He had been in this business for the past 14 years. In the morning, he sells fresh vegetables by travelling to houses with his trolley. After the morning business is over, he settles at one place and starts catering to the customers.
Sale
The vendor uses a fixed location for his business every day. He gets business from both regular as well as new customers. He deals with 14 items, and the portfolio varies with season. His approximate sales revenue comes to around Rs. 700-800/day.
Problems faced by the vendor
•    Seasonal fluctuations in demand (Recently tomato demand is high and Bitter gourd demand low)
•    Damage of items happening due to non-sale, which comes to about 20-25% of purchased items

Competition from others
The vendor does not feel that there is loss of his business due to the recent entry of organised players like More.
5.1.2    Fruits

Procurement
In the case of fruits, quantity per box purchased varies (given in the following table). Vendors purchase fruits from Anand market at around 6:30 am every morning. Purchased items are brought to Ganesh Chowkdi in auto rickshaws and transferred to their trolley. The vendor does not purchase from same person every day. Average amount spent on purchase/day is Rs. 4000/-
Purchase and sale details of selected fruits
Sl.No    Apples    Purchase qty (kg/box)    Purchase price (Rs/kg)    Mode of payment    Sales price (Rs/kg)    Margin %
1    Big    12    31.67    Cash & credit    60    89.45%
2    Medium     26    26.92    Cash& credit    50    85.73%
3    Small    12    23.33    cash& credit    40    66.67%
Bananas
4     Grade I    20    7    Cash & credit    12.5    78.57%
5    Grade II    20    6.5    Cash& credit    12    84.61%
6    Grade III    20    6    cash& credit    10    66.67%

Purchased quantity will be sold off in 3-4 days.
Business
The fruit vendor we met had been in this business for the past 25 years. Like the fruit vendor, this woman also works 7 days a week, with occasional leaves. Her business time is from 8:30 am to 9:00 pm. In the morning, she travells to houses in the societies in Anand with fruits in the trolley. After lunch, her business is at Ganesh chowdi.
Sale
There are similarities with the vegetable vendor in terms of fixed location for business and regular as well as new customers. She sells three items ie Apple, Orange and Banana. Her daily sales revenue comes to approximately Rs. 800 - 1500/day/trolley (her family has two trolleys)
Spoilage of items
1.    Apple
About 8-16% (ie 1-2 kg out of a box of 12 kg purchased from the market) will be damaged items and this will be thrown away at the time of opening the box. In addition to this, damaged items due to non sale come to about 1-2 kg/day. Usually all the quantity purchased (20 kg) will be sold in 3-4 days after purchase.
2.    Banana
Average purchase quantity is 120 kg per day and almost the full quantity is sold off each day.  Only 1-2 kg will be left unsold for the next day and so wastage is very less in bananas.
6.    Comparison of the operations of Reliance Fresh and the vendor

6.1    Average daily sales volume of fruits and vegetables in Reliance Fresh outlet
Fruits     vegetables
Type     Volume per day     Average Price/kg     Revenue     Type     Volume/day     Price per kg     Revenue
Apple     100 kg     Rs. 90/-     Rs.9000/-     Tomato     400 kg     Rs. 8/-     Rs.3200/-
Banana     200 kg     Rs. 15/-     Rs. 3000/-     Potato     350 kg     Rs. 10/-     Rs.3500/-
Chiku     150 kg     Rs. 20/-     Rs.3000/-     Onion     400 kg     Rs. 8/-     Rs.3200/-
Mousambi     150 kg     Rs. 25/-     Rs.3750/-     Cabbage     100 kg     Rs. 5/-     Rs.500/-
Others     300 kg     Rs. 25/-     Rs.7500/-     Others     500 kg     Rs. 6/-     Rs.3000/-
Total             Rs.26250/-                 Rs. 13400/-

Average number of customers / day in Reliance Fresh outlet for vegetables and fruits during peak floating hours (9:00 AM to 11:00 AM and 4:00 PM to 8:00 PM) is around 300-400 and their average total revenue / day from this section comes to around Rs. 39650.
6.2 Flexibility of Street vendors

From our study, we could find out that vendors are getting goods at a price slightly lesser than that of Reliance Fresh. This is because of the difference in quality of items procured. This may further be attributed to the high percentage of damaged items in the boxes purchased by the vendor from the market. Vendors cannot open the box and see the quality of the items inside the box before the deal is made. Instead, they have to buy the packaged boxes and pay full prices even if 8 -16% of the items inside the box are damaged (which is usually the case).
Reliance gets better quality items, but at a slightly higher price. But, for them the initial wastage is less, even though dumping due to non-sale comes to about 100 kg per day.
Vendors are having more flexibility in that they can offer their items at varied prices unlike the fixed price policy of Reliance. Vendors usually start at a higher price in the morning, gradually lower it, and sell the items at throwaway prices in the evening. The logic behind this is that “something is better than nothing”. They find this to be a better option since they don’t have sophisticated cooling and storage facilities for unsold items.
But, in Reliance, they usually don’t lower the initially quoted prices and their strategy is to throw away unsold items rather than selling at lower prices.  
The data that we got from the vendors regarding tomatoes and apples is shown in the table below. We have taken tomato since this is the most perishable item among vegetables and apples since this is one of the fruits which usually doesn’t realise expected sales and remain unsold.
Sl.No    Item    Selling price/kg (as on 30/09/08)
        Maximum (Morning)    Minimum     Evening
1    Tomato    30    10 (Just before closing the day’s business)    22
2    Apple (medium)    50    30 (after 3 days of purchase)    40
 
7.    Issues involved in unorganized supply chain of fruits and vegetables

Price fluctuation- During the time of festivals and other occasions, fruit demand increases heavily in the market. Hence to avoid any crunch in the supply they place their orders beforehand. While placing their orders they do an estimation of the demand of fruits and this is done completely based on their past experiences.
Flexible pricing- Retailers are able to do flexible pricing through the day. Since they don’t have proper storage facilities so they tend to dispose off the product at the end of the day , even at the lower prices. Generally they start doing it after afternoon, they do this only after they have recovered their initial investment in the purchase of the fruits and acquired profits on it.
A number of intermediaries- Though the chain presented here represents 2-3 intermediaries but in general number of intermediaries involved is much higher. This reduces the margin drastically.
Dump management- Daily there is wastage of some amount (approximately 1 kg out of every 10 kg) of the fruits. This wastage comes out more for the retailers than the wholesalers. This is due to unavailability of the proper storage facilities with these retailers.

References
1.    Meeta Punjabi1 and Vijay Sardan, Organized retailing in fresh fruit and vegetable marketing in India: emerging models, key issues and way forward, UNFAO, New Delhi, 2Achievers Resources Pvt. Ltd. an Agribusiness Consulting Firm
2.    Viswanadham. N, Can India be the food basket for the world?, Seminar report ,Indian School of Business, Hyderabad-500032
3.    www.reliance.info
4.    Dharmendra kumar Singh, Asst. Manager, Reliance fresh, Ahmadabad
5.    Mallikarjun, Extension officer, Safal Exchange, bangalore
6.    Srikanth, Extension officer-Mango procurement, Safal Exchange, bangalore
7.    Gopalbhai, Ganesh Chowkdi, Vegetable vendor
8.    Mangu behan, Ganesh chowkdi, Fruits and vegetable vendor
9.    Om prakash , Ganesh chowkdi, Fruits vendor and fruit juice stall
10.    Ayub bhai, Jagnath temple, Fruits vendor
11.    Anonymus , wholesale fruit  traders, near Railway station, Anand
 
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