After 7 Years & $1B Investment, Reliance Retail Finally Posts Profit
India’s largest retail chain, Reliance Retail, has finally posted profit, which has been described as a rare feat. After pumping in $1 billion investment with lots of trials and errors and spending close to 7 years in the market, this is great news for Mukesh Ambani who refused to follow the set standards of retail in India.
India is 5th largest retail market in the world with an annual market of $500 billion, out of which 90% business is done by small scale kirana owners, spread across colonies and societies. Retailing in India provides employment to around 40 million Indians in different sectors of the industry such as logistics and operations.
Around 4% of the industry is controlled by organized retail and this is for the first time that Mukesh Ambani led Reliance Retail has posted profit in this extremely competitive market.
For the quarter ending December, 2013, Reliance Retail posted a profit of Rs 106 crore which is its first ever quarterly profit. Compared to last year for the same period, it’s revenue grew 38% and same store sales grew by 20%.
At the end of the year, Reliance had 1577 stores in India, which is growing at a rate of almost one per day since September. As per insider sources, Reliance was able to post this profit primarily due to its excellent grocery business which contributes maximum to the overall revenues.
Harminder Sahani, managing director of Gurgaon-based retail consultancy Wazir Advisors said, “If Reliance are able to sustain their success it will prove that modern retail as a business can be profitable in India,”
Reliance’s quarterly revenue of $641 million was the highest amongst all Indian retailers, none of which have ever posted a profit till now. It’s quarterly revenue is more than double that of Future Retail for the same period and much more than Tata owned Trent Retail which posted revenues of $45 million for the same period.
Mukesh Ambani, who is sitting on a cash pile of $15 billion has literally seized the opportunity present right now as no major international retailer has been able to enter the market as aggressively as Reliance has done.
India has only allowed multi-brand FDI in India and that too with some strict rules and regulations. And on top of that, some of the states have banned FDI in retail that which makes Indian retail still a dicey decision for bigger retailers such as Walmart, Carrefour and Tesco.
As of now, only Tesco has announced that they will invest a modest $100 million to open multi brand retail stores in Maharashtra and Karnataka. Walmart is still trying to gauge the market as they are opening online retail portal whereas Carrefour has said that they will wait till the elections get over before making any decision.
Saloni Nangia, president of retail consultancy Technopak India said, “No global chain will pour money immediately to build up a business here even if they can. They will be cautious about their investments, keeping in mind the political landscape in India and shareholder sentiment back home.”
Mukesh Ambani had recently decided to stop selling non-veg items in Reliance Retail, a decision many believe was taken considering the religion sentiments of Indians which showcases the fact that he is not going to compromise on values and traditions when it comes to Indian retail industry.
Although he had estimated an annual revenue of $20 billion by 2012, which is well short of the actual revenues of $1.8 billion during 2013 (first 9 months), but the market is upbeat after this first profit posting by a purely Indian retail chain.
Post elections, it is being estimated that quite a few foreign retailers will enter the fastest growing retail market in the world to make some presence felt. But until that happens, Reliance is the right now the reigning king of Indian retail.