Uppal isn't a name anyone should know. yet, it is at this suburb of Hyderabad that most eyes in the organised retail business-oh, yes, they know-are trained. This very middle-class neighbourhood is believed to be the place from which Reliance will launch its pan-Indian retail play (Mukesh Ambani, Chairman, Reliance Industries, would not speak to Business Today on this, or respond to a questionnaire).

The first week of August is when the first store, the one in Uppal, is expected to open. Within three weeks, the city of Hyderabad will have 20. From there, Reliance Retail, a 100 per cent subsidiary of Reliance Industries will move to Vijayawada, Guntur, Warangal, Tirupati, and Vizag. And from there, or perhaps even before that, it will launch its stores, in a combination of formats from convenience stores (or kirana stores as they are popularly called in India) to supermarkets to specialty stores to hypermarkets, in other states. The objective: to be present in 1,500 towns and cities across the country.

There's no timeline that has been put down for this effort, but given that the company in question is Reliance, it will likely be sooner than expected. Ambani himself hinted at the company's late-June Annual General Meeting (AGM) of shareholders that 2009-10 will be the next big year for Reliance. Reading between the lines, that could mean that the retail offensive (for it is nothing short of that) would have reached significant scale by then. "Organised retailing will be an overarching theme of the expansion and growth of Reliance in the near-term future," said Ambani at the AGM. The cost to company: Rs 25,000 crore over the next few years, of which Rs 10,000 crore will be equity.

If everyone is taking Ambani's words that this "transformational initiative at organised retailing will have a profound impact on the socio-economic life of our people" at face value, it is because of the company's and the man's track record. While Reliance Industries and Reliance Petroleum have consistently given new interpretations to the terms size and scale, it was Reliance Infocomm-a venture nurtured and personally driven by Mukesh Ambani and whose control has since passed on to his younger brother Anil after a settlement dividing the Reliance empire arrived at last year-that helped India's on-going telecommunications boom take off. The company's aggressive price-play forced competitors to cut costs and India's mobile telephony base has grown from 11.35 million in December 2002, when the company launched its services, to about 120 million today.

Residents of Mumbai have already experienced a bit of Reliance Retail. Sometime in April, an outlet of the state-owned Sahakari Bhandar chain (it has 23 stores in Mumbai) in central Mumbai closed for renovation. No one really minded; the co-operative store had not been able to hold its own against the competition and the quality of service and the range of stockkeeping units had suffered in the process. When it opened in early-May, it sported a new look. The store itself has been redone and air-conditioned; the staff now wore smart uniforms; and everything from fresh produce to frozen foods to DVDs was now available. Sahakari Bhandar, it emerged, had outsourced its supply chain management to Reliance (which, in the process, gained a first-hand understanding of the retail business). And true to the company's style, there was nothing to suggest that the store was now being run by India's largest corporate group. No name, no logo, nothing.

A Question Of Synergy

The provenance of Reliance Retail isn't known (and Reliance and Ambani aren't saying anything), but it is likely that Mukesh Ambani first thought of it when he was putting the company's telecommunications business, Reliance Infocomm, together in 2002. There are obvious synergies between financial services, energy (at the retail end), telecommunications, (not to mention petroleum retailing) and retail. Four years since, he doesn't have three of the pieces that finish the jigsaw: Reliance Infocomm, Reliance Energy and Reliance Capital are now part of brother Anil Ambani's eponymous group. Not that Ambani is letting that stop him. At the AGM, the list of categories he listed out for Reliance Retail included: "Distribution of energy products and services...distribution of financial and travel services."

Ambani and his A-team, Manoj Modi and Anand Jain, have been working overtime to put the retail blueprint in place; Jain and Modi were also involved in the launch of Reliance Infocomm. Ambani has also hired a clutch of senior executives (see Ambani's Retail Strikeforce) to implement his vision for Reliance Retail. In true Reliance tradition, those involved with Reliance Retail have been and continue to be secretive about details (apart from Ambani's broad-stroke statements at the AGM); speculation about names (Fresh Plus is being spoken of as the brand of the fresh-produce chain) and possible acquisitions (Chennai-headquartered discount store chain Subhiksha is one name that is doing the rounds) abound; and controversy, at the least, the whiff of it is not far away-Mumbai-based Radhakrishna Hospitality alleges that it had a similar sort of arrangement on with Sahakari Bhandar up to 2009, and had made substantial investments in it, only to have the chain arbitrarily shut the door on it.

Despite all this, Ambani couldn't have picked on a more promising and challenging sector than retail. According to a recent report put out by Mumbai brokerage Motilal Oswal Securities, the total size of the Indian retail market is Rs 9,30,000 crore and organised retail accounts for just Rs 28,000 crore of this. The numbers are made up of a variety of product categories. Foods and grocery accounts for 11 per cent, apparel 39 per cent, consumer durables 9 per cent, and furniture and furnishings 8 per cent. Reliance, and Ambani, want a shot at it all, which could explain Reliance Retail's all-encompassing strategy spanning product categories and retail formats. And Ambani has promised "an array of Indian and international brands catering to both the mass markets and the luxury segment".

COMPANY ON STEROIDS RIL is clearly in a hurry.

It's a deal: Ambani (R) and Haryana CM B.S. Hooda Mukesh Ambani wants more. In 2002, when he inherited the mantle of Chairman of Reliance Industries after the death of his father, Dhirubhai Ambani, his empire was worth Rs 30,862.78 crore in revenues, Rs 3,318.34 crore in net profit, and Rs 37,530.63 crore in market capitalisation. Since then, he has been party to a settlement that has seen some of the group's companies, including Reliance Infocomm, widely considered 'his baby', going to his younger brother Anil Ambani. However, since this settlement was reached, on June 18, 2005, Ambani Sr, now 49, has been in overdrive, growing existing business at a frenetic pace and launching new ones. Flagship Reliance Industries ended 2005-06 with Rs 89,124 crore in revenues (a 21.81 per cent increase compared to 2004-05, despite the loss of Reliance Infocomm) with 37 per cent of this number being accounted for by exports. The company has completed the 2.8 lakh tonnes capacity expansion at its polypropylene plant in Jamnagar, taking overall capacity to 14.3 lakh tonnes a year. It has now embarked on another initiative to add a further nine lakh tonnes to this capacity by 2008. Reliance Petroleum was de-merged from RIL (which still owns a 75 per cent stake in the former) and made an initial public offering in April 2006 (it currently trades at Rs 61.65, giving it a market capitalisation of Rs 27,742.5 crore). With a refining capacity of 60 million tonnes by the time the project is completed in December 2008, Jamnagar, as Ambani mentioned at the company's annual general meeting, will "become the largest hub for petroleum refining in the world with a capacity to process 1.24 million barrels of crude oil a day". At the same meeting, Ambani also let on that the company had struck oil in three places in the Krishna Godavari basin. By the second half of 2007-08, he added, the company would also complete the 1,400-km-long pipeline it is constructing across the breadth of India to pipe gas from the discoveries it made in 2002. Meanwhile, the Directorate General of Hydrocarbons has declared that the six gas discoveries made by the company in Orissa's Mahanadi basin are 'commercial'. In June, Ambani signed a deal with the government of Haryana to set up a 25,000-acre special economic zone (SEZ) at a cost of Rs 25,000 crore. The SEZ is envisaged to have its own 2,000 MW power plant, an international cargo airport, and an inland container terminal. Five years after it goes operational, Reliance sees this SEZ generating revenues between Rs 40,000 crore and Rs 50,000 crore. While signing the deal with the Haryana government, Ambani said the company was hoping to establish similar SEZs in Mumbai and Jamnagar. Also in June, the Punjab government announced that it was giving the company 5,000 acres of land to establish a mega agri-retailing project that spans everything from processing centres to hypermarts. Around the same time, Ambani also announced an investment of Rs 4,000 crore in West Bengal in a gas terminal and an agri-retail chain. That's a bit for one company (even RIL) and one man (even Mukesh Ambani) in a year. Then, there's retail.

That statement, again made at the company's AGM, has fuelled speculation on possible alliances, including ones with premium luxury brands and with international specialty chains (Home Depot is one name doing the rounds).

The Road Map

Reliance's petrochemical business, the foundation on which all its other businesses have been built, became the success it is today by forging strong forward and backward linkages. Ambani wants to replicate this model in retail. In foods and grocery, where he has articulated a farm-to-table approach, the company is becoming a large player in the contract farming business in states like Punjab and West Bengal. Farmers and governments are not comfortable with contract farming-there is some stigma attached to allowing Big Business enter the agricultural sector-but Reliance has the resources to change that mindset. Nor is the company a stranger to farming; one of its subsidiaries, Jamnagar Farms Limited, cultivates mangoes for the export market (it recently bagged an order from Harrods).

Punjab could also be key to the company's ambitions in the dairy business; Ambani, it is learnt, would like Reliance Retail to procure 10 million litres of milk a day from farmers, and sell it either as milk or as processed dairy products, much like the Gujarat Co-operative Milk Marketing Federation does under the brand name Amul. Reliance Retail is also reportedly putting down a consumer durables sourcing arm in China and a warehousing facility in Thailand, both low-cost destinations.

Reliance Retail, apart from owning the back-end, and a variety of front-end formats, is also said to be keen on entering the business of malls and multiplexes. There are also reports that the company has forged an alliance of sorts with the Delhi-headquartered real-estate developer DLF, which would involve it putting down a supermarket, hypermarket, or specialty store in every new mall being developed by the latter. Malls, some analysts believe, could be the weak link in Ambani's plan.

"The business is one that entails large investments and is high-risk in nature," says P. Phani Sekhar, a retail analyst at Angel Broking, a Mumbai brokerage, "Revenues will come, but what of profitability?" Despite that, most people in the analyst community believe Reliance is onto a good thing. Mumbai brokerage Enam Securities, for instance, has put out a report with a target price of Rs 1,200 for the scrip (currently quoting at Rs 1,031.60) by 2006-07. We view Reliance's strategy as being driven by strong logistics and a high degree of integration, thereby, translating into higher margins, says the report.

The competition, meanwhile, is maintaining a brave face and insists there is no cause for alarm. Everyone's objective, explains Kishore Biyani, whose Future Group has aspirations quite similar to Reliance Retail's with several modules already on the ground, is to increase consumption. "The issue is one of players getting together to increase consumption levels," he reiterates. And R. Subramanian, Managing Director, Subhiksha, who denies he is considering selling out to Reliance, believes that his chain won't be affected. "For someone like us, the opportunity lies in the fact that the market is huge and segmented."

Indeed, the market is large enough: estimates from retail consulting firm Technopak put the size of the (organised retail) industry at $20 billion (Rs 92,000 crore) by 2011; those from Ernst & Young, at $30 billion (Rs 1,38,000 crore) by 2010.

It must be numbers such as these that encouraged Ambani to say, at the AGM that the retail initiative was "a defining moment in Reliance's history".

-additional reporting by E. Kumar Sharma