The real challenge

This is with reference to the report about Reliance buying the Future Group. Whilst this brick and mortar format acquisition will be a new and coveted feather for the Reliance Group, the real challenge will be to make the retail business profitable and develop a robust and popular online portal expeditiously. The Future Group faltered, with no online business and mounting debts. In any successful business model, everyone must win, including the vendors, suppliers and financers (“Reliance to buy Future Group’s businesses in $3.4 billion deal,” Aug. 30, Gulf Today).

The organised retail sector is around nine to ten per cent of the aggregate retail business in India. The retail trade in India is dominated principally by about ten million shops, many based on the “mom and pop” format, across the country, especially in the rural areas, where 65 per cent of the population lives. Profitability of organised retail has been feeble in India due to the high prices of real estate in urban areas. Many supermarkets render poor service, since they try to compress overheads costs by reducing manpower costs, to make up for the high rentals. Margins in the grocery business range from three to eight per cent of the turnover, making the business very challenging.

The challenge for Reliance will be to develop the online business expeditiously. The pandemic has taught urban Indians to shop groceries like sugar and lentils online. The competitive of Amazon and Walmart, is that they have evolved best practices, based on their global experiences, including in developing economies like China and Brazil.

Best Buy in the US, could ward off the Amazon challenge only by developing an e-commence business. Even Best Buy’s dynamic and visionary CEO, now Chairman, Hubert Joly, took about seven years to transform the business. Traditional brick and mortar trade will have to be supplemented with online portals in the future, for a retail business to prosper, or even survive.

Rajendra Aneja — Mumbai, India