Back-end retail catches big firms' fancy

Back-end retail catches big firms' fancy

Author | Source: Business Standard | Wednesday, Aug 22,2007 9:25 AM

Back-end retail catches big firms' fancy

As front-end retail chains court the limelight, a bunch of companies is quietly building the back end. This includes marquee names such as Mahindra and Mahindra, Tata Chemicals, ITC, Adani Group, and Euro Fruits, all of which are investing large sums in building supply chains.

Some of the biggest retailers in the world have been eyeing India to tap this sector’s rapid growth here. Industry watchers say organised retailing needs organised supply from large players that have a pan-India presence.

Retailers are mostly located in urban and semi-urban areas and they focus on selling rather than sourcing, except for FMCG products.

“Organised retailing and back-end operations are different activities that need different competencies. Even if we went in for front-end retailing, there would have been two separate entities,’’ says Adani Agri Fresh President Ravindra Jain.

The Rs 20,000 crore Adani group sold its 54 outlets in Gujarat to Reliance Retail for nearly Rs 100 crore in March. Since then, the company has invested Rs 200 crore in the venture and plans to invest another Rs 1,000 crore in a couple of years to expand its supply chain to 25 towns.

Mahindra and Mahindra plans to build supply chain systems and a distribution network. Leveraging on its connection with 30,000 farmers and contract farming on over 100,000 acres of land in eight states, Mahindra’s agri business division plans to forge a joint venture with European fresh produce distribution companies to cater to domestic and foreign retailers.

The division has been supplying to international retailers such as Carrefour, J

Sainsbury, Albert Heijn, Bama and Morrison. It has also tied up with domestic retailers such as Reliance Retail, Subhiksha, ITC and Namdhary Fresh for supplies.

Vikram Puri, head of the division and CEO of Mahindra Shubhlabh Services (MSSL), believes the group’s rural-focused ventures will help it build supply chains to cater to retailers focused on urban areas.

Another Mahindra subsidiary, Mahindra Logistics has expansion plans entailing an investment of Rs 400 crore over three years. Of this, it has already invested Rs 100 crore in rolling out 10 warehouses across the country.

The company is planning customised cold and dry warehouses and fruit and vegetable processing centres for corporates in major cities, including Mumbai, Pune, Bangalore, Hyderabad, Chennai, Kochi and Kolkata.

Mahindra will have company in ITC, which plans to invest Rs 1,000 crore in an agricultural supply chain. It has already invested Rs 500 crore in building Internet-based e-choupals and aggregation centres across the country. (E-choupal is a web-based initiative where farmers can access the local and global weather, market prices and scientific farming practices in regional languages).

‘’We will primarily focus on back-end operations and wholesale cash and carry. Our focus on retail is in rural India with hypermarkets at Choupal Saagars. These will further expand. In the case of fruit and vegetables, there will be several flagship retail stores in urban India under the brand name Choupal Fresh,’’ says S Sivakumar, chief executive, agri business, ITC.

Earlier this year, Tata Chemicals announced its joint venture with Total Produce, one of Europe’s leading fresh produce companies, to create distribution facilities for fresh fruit and vegetables across India. The JV will begin by establishing facilities in two centres in the north and east at an estimated cost of Rs 1,100 crore.

Mumbai-based fresh produce company Euro Fruits, whose international customers include Tesco, Bama, Edika, Coop, J Sainsbury and Ahold has started supplying to Reliance, Aditya Birla Group, Shoprite, Food Bazar and Heritage on a deal-to-deal basis. It has a distribution centre in Holland to supply to the European supermarkets.

‘’In the long run, we will take the position of category managers for select retail chains for supplying a multitude of imported fresh fruits from across the globe for year round supply of key products,’’ said Bharat Thosar, director, Euro Fruits.

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