By Kritika Arora
Reliance Retail, which plans to get into the FMCG business, is likely to first focus on groceries and commodity products, in which it can build scales faster than in high-value branded items, where players like Hindustan Unilever, Nestle and Marico are well entrenched and have a high brand recall.
Analysts and sector experts said that in FMCG, it’s important to build a brand and value proposition with which consumers relate. Reliance Retail has the capability on both these fronts in commodity products and staples and therefore can build scale in the business in a year or two.
“The key piece in commodity play is to be able to handle supply and a brand can be very profitable if you have that. Reliance has a good handle on supply in groceries, and now they only have to scale up,” said Akshay D’ Souza, chief growth and insights officer at Bizom.
The branded commodity space is a sweet spot for Reliance, but disrupting a brand like Maggi or Coca Cola would be challenging as changing customers’ taste and preference takes time, D’ Souza said.
As far as consumers are concerned, they always look for a value proposition.“As long as there is value to be had by the consumer, any new entrant whether small or large will find space,” said K Ramakrishnan, managing director – South Asia, Kantar Worldpanel.
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“While private label brands spanning food, groceries and other categories have been getting sold from Reliance’s own store networks for some time now, this foray would mean a wider distribution to general and modern trade. Initial focus of the company would be on the small packs and groceries segment, with wider diversification to follow gradually,” ICICI Securities said in its report.
Reliance Retail already has its own brands across commodities, staples like pulses, apparel, footwear and home care products. Its own brands contribute around 65% of overall revenue, Isha Ambani, director at Reliance Retail, said during the company’s AGM on Monday.
According to distributors, Reliance Retail has already been selling its private labels through general trade for a few months under brands like Good Life for pulses, edible oil, rice, My Home for home hygiene, among others, although scale is low.
While announcing the foray into the FMCG space, Isha Ambani had said the objective of the business is to “develop and deliver high quality, affordable products” which solve every Indian’s daily needs.
Distributors said the company is giving margins of 6% each to super stockists and distributors. Traditionally, companies give 3.5-5% to distributors and 3% to super stockists. However, new companies do give 6-8% to distributors.
Reliance already has large offline footprint pan-India, with over 15,000 stores spanning 42 million square feet. It is now rapidly growing the online part of the segment, with the digital platform seeing 4.5 billion visits in FY22 and nearly 6 lakh orders being delivered every day.
Given that Reliance is known for having disruptive growths organically or by acquisition, one can expect a lot of action in the FMCG space, K Ramakrishnan said.