MUMBAI — Billionaire Mukesh Ambani's Reliance Retail is poised to perform a rare feat in India's notoriously complex retail market by finally turning a profit. The time and cost involved, however, could put off global and local rivals from even trying to copy it. It took Reliance Retail, part of Ambani's conglomerate Reliance Industries Ltd, seven years of losses, bruising trial-and-error and over $1 billion in investments to find a formula that works for India, the world's fifth largest retail market and one of its fastest growing. This seemingly inexhaustible combination of financing and patience has given Reliance an edge over smaller local rivals that lack its deep pockets, and global chains like Carrefour SA and Wal-Mart Stores Inc which would have to invest vast amounts of capital, time and energy to set up retail shops in India but reap miniscule initial returns. “No global chain will pour money immediately to build up a business here even if they can,” said Saloni Nangia, president of retail consultancy Technopak India. “They will be cautious about their investments, keeping in mind the political landscape in India and shareholder sentiment back home.” With 1.2 billion people and a rapidly growing middle class, India's potential has long beguiled retailers but regulatory uncertainty, poor infrastructure and opposition from politically powerful small traders has kept most global chains at bay. The federal government gave foreign supermarket chains the green light in September 2012, but then left it up to individual states to enact the legislation. Many didn't, fearing a backlash from local traders. So far, only Britain's Tesco has announced it would make a relatively modest $110 million foray into two states. Executives at Wal-Mart and Carrefour, which operate wholesale outlets in India, have said they are awaiting regulatory clarity and the outcome of national elections next month before setting up retail shops. Ambani, India's richest man and majority shareholder of a company with a $15 billion cash pile and the world's largest oil refinery, took advantage of this absence of major league competitors to set up his own version of a global retail chain. Reliance Retail recently gave Reuters exclusive access to its state-of-the-art warehouse. Several senior executives also gave Reuters rare details about the company's operations but all declined to be identified due because of a company policy that prohibits them from speaking to the media. Since it was established in 2006, Reliance Retail has revamped its supply chain and decentralised decision-making to ensure flexibility. From September, it has opened stores at the rate of almost one a day even as India's economy grows at its weakest pace in a decade. Reliance Retail, which at end-December had 1,577 stores, expects to post a profit by the end of fiscal 2014 partly due to stronger sales at its grocery business, the largest contributor to revenue, said one senior company official. The retailer posted an operating profit of 1.06 billion rupees ($17.3 million) for the three months ended Dec. 2013, its first ever quarterly profit. Revenue grew 38 percent year-on-year in the same period and same-store sales also rose by just over a fifth. Reliance Retail did not give comparative figures or disclose income numbers, but its quarterly sales and revenue were far ahead of local rivals Future Retail and Trent Ltd , which operate loss-making hypermarkets. “If Reliance are able to sustain their success it will prove that modern retail as a business can be profitable in India,” said Harminder Sahani, managing director of Gurgaon-based retail consultancy Wazir Advisors. Reliance Retail's quarterly revenue was $641 million, almost twice as much as Future Retail's revenue for the same period and far more than Trent's $45.7 million. Same-store sales at Future Retail, majority owned by Future Group, rose 3.3 percent during the December quarter, while analysts said Tata Group's Trent saw an increase of less than 10 percent for the quarter. — Reuters
