Cash-and-carry retail is the wiser option for Reliance Retail: Analysts

Reliance Retail's plan to convert a few of its hypermarket formats into cash-and-carry stores is a wise idea, say retail analysts, especially in a country where mega retail stores haven't had a great run. The cash-and-carry format (where Reliance Retail supplies to smaller retailers), could help the company increase its cash profit by over 50 per cent, says a retail analyst.

"Cash and carry retail brings better economies of scale, and the gestation time is much shorter than consumer retail stores," says Ankur Bisen of Technopak Advisors.

Reliance already has over 20 cash-and-carry stores (Reliance Market) which are said to be doing extremely well. The Reliance Market store in Ahmedabad for instance, is known to cater to over 70 per cent of the traditional retailers of Ahmedabad. By converting into cash-and-carry, the company wouldn't be dependent on consumer footfalls to generate revenue.  

"Traditional retailers far outnumber modern retailers and the latter are realising that it is a tough task to compete with them. By operating as cash-and-carry retailers they are supplying to traditional retailers and letting the traditional retailer bother about the last mile consumer," explains Harminder Sahni, MD, Wazir & Co.

Leading cash-and-carry company, Metro, for instance, services 10,000 traditional retailers in Bangalore. "Setting up 10,000 consumer retail stores would be next to impossible. A cash-and-carry model enables them to consolidate the demands of the regional retailers efficiently and  they can also offer them better margins," says Sahni.

Even the world's biggest retailer, Wal-Mart , prefers to operate in the cash-and-carry space, through its brand, Best Price. The large network of traditional mom and pop stores along with complex regulations governing the retail sector has indeed made consumer-facing multi-brand retail a tough proposition in India.

Does that mean global retailers could take this route into India? Unlikely, says Bisen of Technopak. "A company like Wal-Mart will never be content operating only as a cash-and-carry retailer in India. Even the government is going after multi-brand investments in India."

In fact, it has already cleared UK-based retailer, Tesco's proposal to pick up a 50 per cent stake in the Tata-owned Trent Hypermarket for Rs 680 crore.