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But "with opportunity comes hurdles," says Shushmul Maheshwari, head of New Delhi-based market-research company RNCOS. Nowhere is that more true than in India, where poor infrastructure and bureaucracy can combine to thwart even the best-laid plans. When Reliance, which has interests in oil and petrochemicals and opened its first retail store only last November, began exploring the possibility of a nationwide chain of grocery storesit wants to open 2,000 by next Aprilit quickly realized that it would need to build its own distribution network almost from scratch. "If we are putting up a pan-Indian business in terms of the front end, then we needed to put up a pan-Indian business in terms of the procurement," says Sanjeev Asthana, president of Reliance's agri-and-food supply chain. Because profit margins are thin in the grocery business, shipping delays and spoiled merchandise can be harmful to the bottom line. "You cannot afford to have an unreliable supply," says Asthana.
In India, that means investing in systems that retailers take for granted in other countries. To ensure refrigeration units keep humming during the country's frequent power outages, Reliance is installing diesel generators not only in all its shops but also at its rural collection hubs, where farmers bring their produce, and at its processing centers, which usually sit on the outskirts of a city. A reliable supply of safe water in which to wash fruits and vegetables is also a basic necessity. Because city water often runs dry and can carry dangerous bacteria, Reliance has installed reverse-osmosis machines at its processing centers to clean the local water supply. Reliance says it will invest $6 billion in retail over the next few years, with some 60-70% of that going to its distribution network. "It's the cost of providing clean, safe food to consumers," says Gunender Kapur, head of Reliance's foods business.
Transport is also a challenge. India's government is pouring billions of dollars into its highway system, but thanks to a swelling middle class and booming car sales, the roads are filling up faster than they can be built. For now, Reliance plans to buy mostly from farmers located within a couple of hours of major cities to shorten transport times. The company will build up its own fleet of trucks, but will also outsource some of its transport needs. Eventually, trucks will be fitted with radio or satellite transmitters that will allow a central control room to track locations and cargoa far cry from the bullock carts and rusty trucks that currently link producers and customers. Still, even the fanciest trucks must slow for bureaucracy. The country's 35 states and territories run separate tax and duty systems. To get from Bangalore to Hyderabad, about 550 km away, for example, the driving time is about 16 hours, but stops at border and tax-inspection checkpoints add two to three hours to the trip.
There are other headaches. Reliance wants to start selling meat but will have to set up a completely independent supply chain so as not to offend vegetarians, who make up almost half of all Indians. Everything, from delivery vehicles to doors leading to meat and produce sections at individual stores, will be segregated. Because mass merchandizing is so new in India, there is also a dearth of experienced managers. Companies have had to lure Indians home from the U.S., the Gulf and Europe. Reliance says it has more than 100 returnees now working for it.
The goal, says Reliance's Asthana, is to "ultimately have the ability to link up all the country's markets in a ... seamless supply chain. That will reduce wastage, give the farmers more money and consumers better quality produce." But building the infrastructure may be the easy part. Convincing government and those invested in the old system that it's time for a change is still a major struggle. While the national coalition government in New Delhi says it is committed to reform as a way of helping farmers boost their incomes, its left-wing members are horrified by the prospect of a flood of organized retail outlets putting mom-and-pop stores out of business. Wal-Mart, which has tied up with Bharti to set up a chain of retail stores to take on Reliance, has drawn protests, including a demonstration last February in which a generic Wal-Mart executive was burned in effigy, even before the opening of the first store. (Wal-Mart said it would not comment for this story.) Earlier this month, thousands of vegetable-selling middlemen in Ranchi, a city in eastern India, attacked three recently opened Reliance stores, which they say are putting them out of business. "We are being strangled by the capitalists," one of the protesters told a local newspaper. "After Reliance began to pay the farmers more, we also now have to pay more. But our sales have dipped as customers are being lured by air-conditioned shops." In the nearby state of West Bengal, the government is likely to block licenses that would allow Reliance and Metro Cash & Carry to deal with farmers directly. "We will not allow anyone to disturb the [existing] chain," says Naren Chatterjee, chairman of West Bengal's State Marketing Board.
But the new retailers argue that farmers, consumers and governments will benefit from the competition. "By structuring and organizing the trade, by getting more Reliances and Wal-Marts or Bhartis or otherwise, the government revenue is only going to go up because the corporates will pay taxes, they will not hide taxes," says Reliance's Asthana, who points to studies estimating that mandis regularly underreport their trade by up to 50% to avoid government levies.
Expect more protests, and further political wafflingespecially on the issue of foreign chains investing in Indiaeven as the benefits of the revolution become apparent to ordinary consumers. Reliance says it has cut spoilage and wastage in places like Bangalore to less than 5%. The federal government is contemplating the introduction of a single nationwide sales tax that would replace state taxes complicating distribution. It is also now talking about building its own massive cold-storage facilities outside major cities such as New Delhi to spur the transition to a more efficient supply chain. While middlemen may be feeling the pinch, farmers selling to Reliance say they're happy to be paid in cash as soon as they hand over their goods. "We were dealing with thieves who always used to cheat us," says Karnataka grape farmer Veeranna Gowda. "But we Indians believe in rebirth and because of good things I've done in the past, I am now benefiting." Reliance hopes all Indians will soon share that sentiment.