Reliance Retail circles Maratha Co-op

MUMBAI: The Reliance group’s retail engine is working frenetically to kick off operations over the next couple of months.

Even as Reliance Industries is gradually packing up to shift to swank offices on the Dhirubhai Ambani Knowledge Centre premises at Navi Mumbai shortly, Reliance Retail is finalising plans for more long-term leases with a fresh crop of co-operative stores.

After taking over Mumbai’s Sahakar Bhandar and bidding for Delhi’s Super Bazar a fortnight ago, Reliance Retail Company (as the umbrella entity is likely to be christened) is now said to be negotiating with yet another ailing chain — Maratha Co-operative in Mumbai — reveal industry sources.

It has about 17 stores in the city ranging from the 500 sq ft neighbourhood outlets to the larger 7,000 sq ft outlets. Today, the co-operative’s annual revenues are said to be around Rs 16 crore, with losses of Rs 30 lakh, according to a store employee.

The stores largely sell fresh produce, a segment that many Indian corporates are chasing. Reliance, says a competitor, may shut down the smaller Maratha stores and revamp the larger ones.

This is just what it has been doing with the 18 Sahakar Bhandar stores in Mumbai that it took over on a long-term lease a few months ago.

Industry sources said Reliance has already pumped in Rs 10 crore to revamp the stores and introduce a fresh produce section.

Fresh Plus, its turnkey project - a 2,500 sq ft store branded Fresh Plus in Hyderabad, is currently underway. It is likely to open shutters before Diwali.

In fact, focusing on regional co-operatives is a strategic move for Reliance. Not only does it give the latecomer Reliance instant retail toehold into the sector, with escalating real-estate costs, the co-operatives come at throwaway prices, according to a retail consultant.

How? Having been around for decades, these chains are positioned on prime locations with a captive market. Moreover, their land rentals are a pittance.

In Mumbai today, a store rental is never below Rs 150-200 per sq ft. And guess what? The co-operative chains pay paltry rents of Rs 40-50 per sq ft. Traditional margins in food retailing are said to be around 15%.

“If you are looking for a place in food retailing, you can’t afford to pay rents of more than Rs 30-40 per sq ft, and make a 15% margin,” says a neighbourhood retailer.

He claims, when a retailer pays Rs 150 or more for a sq ft, then he has to have a 23% to 25% margin, which is tough.

Says a senior Reliance manager: “In the current winner-take-all scenario, it is pricing, pricing and pricing for us.” Surely, with co-operatives, it can’t get more cheaper.