Reliance Industries is bearing the brunt in its last mile retail operations yet again. Fresh from its less than expected results in retail operations and ‘Reliance Fresh’ controversy, it is shutting its much popular petroleum retail outlets across India.
Of the 1400 retail pumps, all those outlets which are owned by Reliance would close down while those operated by dealer would continue to function. But in absence of any viable business plans, it won’t be a while before the dealer owned outlets also decide to shut shop.
When Reliance outlets were started, it virtually created a stir among other state owned oil marketing companies as it was attracting heavy sales with a 14% market share in no time.
However with rising crude prices and absence of government subsidies, the failure was anticipated as it was not financially viable to run these outlets. Currently, Reliance was selling its petrol at Rs.6 and diesel at Rs.14 more than PSU companies.
The shutdown of Reliance pumps would signal an end to the plans of other private retailers such as Essar Oil and Shell. But the biggest loser would be the consumer as he would be deprived of healthy competition and be relied upon state owned companies for his petroleum needs.
The Government should had also given an equal hand and opportunity to PSU and Private companies, as the former are beneficiaries of oil bonds and discounts from upstream oil companies. As in this scenario, it won’t be a while before the effect of such policy spills over to other industries like retail, telecom and financial services. via
Find this article at: http://www.labnol.org/india/corporate/reliance-industries-faces-further-front-end-failure-to-close-its-petroleum-retail-chain/2683/
Tags: competition, government, policy, reliance retail, Corporate, India
Reader Comments
With Crude touching the $ 110 mark, it obivious that Reliance cannot sell the petroleum products at a discounted price. As the prices in India are regulated by the Government, be it reliance or any other top class company cannot sell at a discounted price. It makes sense for the company to close down the retail outlets. As PSU companies will not increase the petrol prices as this is the Election year.
Written by Ganesh Shenoy on 03.24.08
some resolution need to be found out by Government and Rel…closing of so many petrol pumps will create huge unemployment
Written by pn on 04.01.08
I don’t think that the rising prices of oil are the cause of Reliance’s problems.
On the contrary, most oil companies around the world have achieved astonishingly high profits, measured in $billions (double digits!), which were the highest in the history. (and we also need to consider the fact, that all these companies are global corporations, which could create their balance shits almost as they would have wished to look like…and that the real profit was even much higher…)
Higher is the price of oil, higher is the ABSOLUTE value of the commission – profit margin (not the percentage – this remains the same, or even lower, but absolute-overall value).
We should not forget to mention, that there is also a substantial ‘income from financing’. Reliance is a multi million business – economy of large numbers – large scale economy, which is very different as any low scale retail business.
I think Reliance failed because of:
- bad strategic/corporate management and execution
- bad financial management (currency prediction/trading, daily deposit trading, financial leveraging to lover overall costs)
- bad cost control
- maybe, even bad HR
p.s.
I believe the government was not to blame in this particular case, because the time/moment was far the best possible for oil companies all over the world.
p.p.s.
Every penny counts, even in a large company, because in a large business every penny could be financially leveraged thousands of times, and the final effect of this could be wonderful, if done properly or devastating, if done wrongly.
Written by curt s. on 04.02.08
Dear curt s,
Oil companies around the world may have achieved astonishingly high profits in retailing and distribution, that is beacause the gas prices in those countries are in line with the world market.
But in India government give subsidy cushion to the peoplw of India, as the Oil which are public are owned by the Government itself. Its a populist measure by the government here.
As far Reliance is concerned it has gained from the recent oil rally as their GRM’s would have increased.
Written by Ganesh Shenoy on 04.02.08
Dear Ganesh,
You are correct about populist measures and government interests mixing with real market conditions.
I’d had a chance to observe Eastern European state monopoly oil companies for years. I believe, that their functions/roles were much more politicized as is the situation with companies in India, today.
They were simply not ready and optimized for real business – a real market competition.
In every single department one could find quite interesting level of ‘hidden reserves’, which could have been expressed in financial value – money. They didn’t control expenses/costs by the regular business standards and especially, they didn’t use their huge financial resources to create more revenue for the company.
However, it is not possible to talk properly without thorough ‘due diligence’ of the mentioned company, which could have shown the real financial situation and evaluation.
Written by curt s. on 04.03.08
It’s shame for Reliance Industry..
They not only loosing shareholders money but also loosing faith on the company as many petrol pump dealers who invested in the basis of reputation of reliance would suffer heavy losses. They are literally on the road.
It’s sheerly shame on the India’s biggest company called reliance, in future who will invest on the plans of RELIANCE.
Written by Naresh G on 04.04.08
Reliance should open Petrol Stations in rich areas. Such as South Delhi and South Mumbai. The owners of Mercedes and BMW cars would want pure and clean petrol for their cars. Not dirty and contaminated fuel!
Written by Maneesh on 06.13.08