100 Reliance Fresh outlets to close down

At present, Reliance Retail operates around 550 Reliance Fresh stores, a typical store is spread over around 3,500 square feet and caters to a catchment area of 2-3 km.

The Mumbai-based firm has intimated its vendors about its impending move. "Reliance has given us heads-up and we have started realigning our businesses from these stores," a senior executive at one of the world's largest beverage firms told TOI.

Some of the shortlisted stores have not been giving optimal returns, while others will be converted to more feasible formats, said a person familiar with the development. An e-mailed questionnaire to a Reliance Retail spokesperson did not elicit a response.

Reliance Retail is not the only one to shut down its convenience stores in search for profits. In the past, unable to compete with local kirana stores and high rentals, retailers such as Aditya Birla Retail and Spencer's Retail have also taken similar steps. In 2012, Aditya Birla Retail, which runs stores under the More brand, shuttered all its outlets in Mumbai due to steep real estate costs.

However, real estate costs are not the only hurdles. Modern retailers have also not been able to crack the logistics puzzle behind stocking and selling perishable items like food, says Arvind Singhal, chairman of retail consultancy firm Technopak. "It is a good move by Reliance to focus on the more cost-effective cash-and-carry category," he says.

Food and grocery ? the largest category in the consumption basket and estimated at around 60% of consumer spending (according to Deloitte-Indian Retail Market Opening More Doors, January 2013) ? remain the proverbial thorn in every modern retailer's side. With food accounting for most revenues, India's top 10 retailers reported accumulated losses of Rs 13,000 crore during the 2013-14 fiscal, reveals a report by ratings agency Crisil.

"As a category, food offers very low margins," said Krish Iyer, CEO with Walmart India. Half of the Bentonville-based retailer's business comes from food.

As back-end infrastructure improves, cash-and-carry stores like Reliance Market and Walmart Best Price Modern Wholesale that only sell in bulk to registered members such as kirana stores, hospitals and hotels are expected to iron out the chinks in the country's modern-trade business.

After Walmart announced the launch of 50 new Best Price stores by 2020, Reliance has been quick to jump on the bandwagon with plans of opening 100 cash-and-carry stores in the next two years. With $450 billion (estimated value of India's cash-and-carry business) at stake, the answer to profits in modern retail now lies in getting the right business model.