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Reliance Retail’s JV with UK logistics co Wincanton falls through

Posted by superstar23 on November 4, 2008

NEW DELHI: Reliance Retail (RRL) and the UK-based supply chain powerhouse Wincanton have called off their proposed joint venture. The venture was to manage RRL’s transportation, warehouses and inventory so that stocks reached the stores in time. All these are critical for any retail business, and many of RRL’s problems arose due to glitches in its supply chain.

According to sources close to the development, the likely deal was shelved after Wincanton realised that RRL was unlikely to meet its initial growth projections and generate expected volumes. Asked about the new development, the Reliance spokesperson said: “As a large retailer in the country, we continue to explore various options to manage our various supply chain requirements. These include discussions with several global companies. We will make the relevant announcement on finalisation of a relationship.”

RRL and Wincanton had signed an MoU and negotiations had reached advanced stages. The talks, however, were derailed after Wincanton saw a gap emerging between its expectation and what was being rolled out on the ground in terms of RRL’s expansion. In November 2006, India’s largest conglomerate Reliance Industries announced its foray into consumer retail with Rs 26,000-crore investment.

“With regard to our plans in the retail business, we continue to be in expansion mode having added more than 80 stores in the past quarter, including two new formats, namely Reliance Living Homeware and Reliance Home Kitchens, taking the total number of stores to more than 816 stores in the country,” said the Reliance Retail spokesperson. But a source said Reliance Retail is no more in expansion mode and is ooking at consolidating its business. It has put a freeze on the acquisition of new properties.

“They are now opening stores in places where properties were locked up several months ago.”

The company has also initiated a slew of measures to tide over the current crisis, perpetuated by a slowdown in Indian retail consumption and global financial turmoil. The company has recently reduced the size of its Ahmedabad hypermarket by two-thirds and initiated several cost-cutting measures. A senior source pointed out that some tough measures are on the anvil yet again.

Almost all Indian retailers, including Reliance, are facing a tough environment today, as consumer spends shrink. The global financial turmoil and heightened fear of recession in much of the developed world have already hit Indian financial system and forced a crash on the stock market. With news of job cuts regularly making it to the headlines, people are increasingly worrying about the future of their employment and as a result, deferring their purchases and further tightening their purse string.

Reliance Retail currently has a supply chain network to service its retail stores, but hasn’t so far been able to attain a very high level of efficiency, as could have been provided by the $4-billion supply chain specialist Wincanton. The UK firm, which has a pretty large list of clients, including retail giants Tesco and Woolworths, auto companies Ford and DaimlerChrysler, and consumer goods firms P&G, Nestle, SABMiller and GSK, could have taken the burden off Reliance’s shoulders and made the supply chain more efficient for the Indian retailer.

This could have, in turn, brought down Reliance Retail’s expenditure, improved its delivery and ultimately, given it an edge over its rivals.


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