Reliance Retail is closing Reliance Fresh stores in some tier II and III cities. People in the retail industry say the company has already shut down 25 food and grocery stores, and another 25 will go out of business by December.

Officially, the company denies this, though the development has been confirmed to Financial Chronicle by one of its senior executives. He said some stores had been closed largely because they were no longer commercially viable. “Closing down some stores here and there won’t affect the larger expansion targets,” he added.

A media intermediary of Reliance said, “The total number of stores that Reliance Retail opened in the last quarter was 80 and it has launched two new formats, namely Reliance Living Homeware and Reliance Kitchens.” The intermediary said this in itself was “a somewhat great achievement”, and, going ahead, “many more are expected”.

Reliance Retail has 816 stores of various formats — such as food and grocery, consumer durables, apparel, jewellery and hypermarkets — in the country. The company’s focus has evidently been on food and grocery, judging by the number of stores — over 700 — in this format.

Reliance is not the only neighbourhood retailer that has had to shut shop. In recent times, many other organised retailers have either closed outlets or heavily diluted their expansion plans. The list includes Vishal Mega Mart and Subhiksha. “The investment that goes into the first requirement — real estate — makes it unviable to run discount shops,” said Dharmendra Kumar, director of India FDI Watch.

At the launch of the first Reliance Fresh store in Hyderabad in 2006, the company had said it would resort to “aggressive pricing” as the key differentiator. It had then also claimed that it would sell food and grocery items of daily use at prices 10 to15 per cent cheaper than others in the market. Globally, big retailers attract customers by selling hugely discounted grocery.

Indian firms had begun to roll out their retail business with the declared intention of investing heavily in developing a strong supply-chain network and cold storages. In the case of Reliance, the retail stores were rolled out much before the company could develop the backend. “In the first ye-ar of its operation, to create a customer base, the company took a huge hit in margins by selling products at heavily discounted rates,” a Delhi-based retail analyst said.