India's 'retail revolution' sours for Reliance

Posted 09 27 2007 1:33PM

NEW DELHI (AFP) - Indian giant Reliance Industries has frozen plans to bring a Western-style "retail revolution" to the nation's biggest state amid bitter opposition from small traders, an official said Wednesday.

Reliance has suspended retail operations and is handing out "termination notices" to around 1,000 of its 2,800 store employees in Uttar Pradesh state, said the senior company official, who did not wish to be named.

"We won't force ourselves into a state where we're not wanted. We won't push ourselves into a state. We won't operate (there) until we get clearance," the official said.

Reliance's setback underlines obstacles facing big retailers in modernising India's small shopkeeper landscape of 15-million "mom-and-pop" outlets which fear being forced out of business by lower prices and plastic-wrapped produce.

Reliance, an energy behemoth that has straddled India's economy for decades, had opened 50 Reliance Fresh small supermarkets in Uttar Pradesh, seen as key to the success of the company's retail rollout with its population of 166 million.

There have been a slew of protests by traders across India since company chairman Mukesh Ambani announced his six-billion-dollar store foray last November, declaring he wanted to spark a "retail revolution."

The latest developments "are not stopping our retail plans," the Reliance official told AFP. The company would speed up opening stores in other parts of the country to "see where there is opposition" and develop strategies to tackle it, the official said.

Reliance's retail ride so far has been anything but smooth.

Last month, Reliance opened 14 stores in the Uttar Pradesh cities of Lucknow and Varanasi that were attacked by traders and forced to shut. Later the state government ordered the closure of stores of Reliance and those of another chain, Spencers', citing law and order worries.

Earlier this week in Bhubaneshwar, capital of eastern Orissa state, traders ransacked two Reliance stores, forcing their closure and leading police to forbid the opening of a third.

Elsewhere, the communist government of southern Kerala state says it will ban the entry of retail giants. Reliance, facing opposition in communist-ruled West Bengal, has said it will "go slow" in opening outlets there.

Reliance's troubles come as domestic and foreign companies seek to tap India's increasingly affluent middle class of around 300 million in what commentators have dubbed the "great Indian retail gold rush".

The issue has become a political hot potato with New Delhi unwilling to ease a ban on giant foreign chains selling directly to consumers, despite calls for India to push forward economic liberalisation.

Reliance officials insist India's 350-billion-dollar retail market is big enough for smaller players to survive in the light of nine percent economic growth, which they say is fast expanding the consumer pie.

But opponents such as Praveen Khandelwal, head of the Confederation of All India Traders organisation, say the big chains use "predatory pricing" and retail modernisation will mean job losses.

Despite the controversy, retail industry figures remain bullish on India.

"I'm 100 percent certain India remains an extremely attractive retail market. The fundamentals are so strong in support of this but nothing unfolds in a straight line here," said Arvind Singhal, head of India retail consulting firm KSA Technopak.