Reliance Fresh set to add groceries to product mix

MUMBAI: Reliance Retail is set to make first mid-course correction. Reliance Fresh, which kicked off in Hyderabad with 27 stores, will soon see a change in its format. After starting off as a fruit and vegetable store, Reliance Fresh has decided to sell groceries as well. It will not store vegetable and fruit that are prone to great wastage. Speaking to ET on the sidelines of an event organised by the Bombay Chamber of Commerce and Industry, Gunender Kapur, president and chief executive, foods business, Reliance Retail, said, “We are looking at changing the product mix in our stores.

We are learning with time and constantly evolving. We find that some categories aren’t selling up to expectations. We would replace those with other items.”
However, Mr Kapur didn’t elaborate further on the changes in the stores and a subsequent e-mail to Mr Kapur went unanswered. Sources close to the development said that for a few stores in Hyderabad, Reliance Fresh was looking at adding grocery items like soaps and toothpastes.

Also, overall sales of fruit and vegetable have declined at Reliance Fresh. Thus, adding groceries to the store is a conscious effort to increase the average bill value at Reliance Fresh, which has stagnated in recent months at around Rs 120-130. Subhiksha, which is competing with Reliance in the food and grocery retailing, has evolved towards a 60:40 ratio in favour of grocery.

According to R Subramanian, managing director, Subhiksha Trading Services, the average bill size of a typical Subhiksha customer is around Rs 300-320.
At Reliance Fresh stores, exotic vegetable and fruit bring in margins of close to 40%, but nearly 12-15% of the entire stock goes waste, and Reliance Fresh has to bear the cost. While the total wastage in fresh food at Reliance Fresh is on a par with the industry average, retailers like Subhiksha and Food Bazaar have been able to cut down fresh-food wastage in their retail operations. This is the component that can change in favour of more grocery at Reliance Fresh, according to sources.

Also, Reliance Retail’s farm-led sourcing strategy hasn’t kicked off yet, which implies that they would continue to incur a higher cost on sourcing from the mandi. Tackling fresh food is the most the difficult part of organised retailing in India. Consumer spends on food alone constitute just under 50% of all spends, but the gross margins in food retailing are seldom higher than 12-14%, and retailers often work with post-tax margins of 2%. Says S Raghunandan, former CEO, Hypercity, and an independent retail consultant, “We found over the course of a few studies that it is difficult to be in a pure-play fruits and vegetables retailing operation.”