The Break-Up of the RPG-DFI Joint Venture

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Case Details:

Case Code : BSTR229
Case Length : 15 Pages
Period : 1999-2006
Organization : RPG Enterprises and Dairy Farm International
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Retail ing

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Background-RPG

RPG forayed into the retail business in 1989 when it acquired Spencer's & Co.⁵ (Spencer's), a loss-making retail chain store, and set it up as a separate division within the Group. RPG was reportedly interested in the distribution infrastructure and undervalued real estate of Spencer's.

Post acquisition, RPG closed several loss-making divisions⁶ and renovated and refurbished the Spencer's store located in Bangalore, Karnataka, before reopening it in 1991. This store sold a variety of items including eatables, kitchen appliances, hardware, and clothing. The store was an immediate success and sales were so good that the store broke-even in the first month.

Encouraged by this success, RPG decided to expand its presence in organized retailing, which appeared to have huge potential as there was a near absence of such a retailing format in India at that time.⁷ Initially, the company considered two retail businesses - clothing and supermarkets.

However, the idea of a clothing business was eventually dropped as it was felt that this segment required considerable expertise and investment in designing and branding, and managing independent manufacturers.

At the time, the retail industry in India was largely dominated by unorganized retailers who stocked only a limited range and quality of products. Not surprisingly, Indian consumers looked on shopping more as a chore. RPG decided to change all that. It aimed to make shopping an enjoyable experience for the consumer. A major challenge for the company was the Indian consumers' perception that products sold at large supermarkets were priced higher than at smaller shops. RPG intended to change this perception and create a 'convenient and comfortable shopping environment'. Achieving operating and logistics efficiencies was critical to the success of a retail venture and these efficiencies could be attained only through the use of superior technology...

Excerpts >>

5] Spencer's was established as a small store in Madras (now Chennai), Tamil Nadu, in 1865. The store sold specialty imported items to the British and the military population. In 1897, Spencer's, with a 65,000 square foot store, became the largest retail store in India. Over the years, Spencer's opened many stores and by 1940 it had 50 stores spread across various cities in the country. However, its stature declined after India gained independence in 1947. It continued to fare badly throughout the mid-to-late 1900s. By 1989, Spencer's had only 9 stores selling a variety of specialty items. Spencer's also had a profitable travel agency.

6] At the time RPG took over, Spencer's also had interests in restaurants, manufacturing of air conditioners, furniture and other electrical goods, repair shops and pharmaceuticals.

7] The Indian retail industry was largely dominated by unorganized retailers like kirana stores (similar to mom-n-pop stores), roadside hawkers, and mobile retailers.