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Because of the
price differential, the customers of RIL switched to other outlets, and RIL's
share in the diesel market, which had been at around 14% in 2006, fell to 1% in
early 2008. With the business becoming unprofitable, RIL decided to close down
the outlets.
With the closure of the Reliance petrol pumps, government increased the supply
of petrol and diesel to the government-owned outlets to meet additional demand,
at an extra expenditure of Rs 40 billion.7
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The closure of the Reliance petrol pumps not only
increased the burden on the government but also adversely affected the
dealers, employees, and transporters who had been a part of RIL's
operations.
The dealers, who had invested up to Rs.30 million on a single outlet,
suffered heavy losses. Nearly 55,000 employees who were working at the
different outlets were rendered jobless. Transporters who had invested
over Rs.5.2 billion and purchased 3,745 trucks to transport petrol were
left with no viable option and urged the government to take action
against the company for depriving them of their livelihood.
RIL offered to compensate the dealers who had incurred losses by buying
out some of their properties. It planned to invest Rs.50 billion8
in around 300 dealer-owned and company-owned properties, situated at
strategic locations and converting them into malls and multiplexes.
Reliance Industrial Infrastructure9
planned to develop these properties. For the multiplexes, the company
planned to enter into joint ventures with Adlabs10 and Yash Raj Films11.
It also struck a deal with Marks & Spencer12 to open 50 stores in
India, for which it planned to use these properties.
These malls would also house RIL's retail brands such as Reliance
Jewels, Reliance Footprint, Reliance Fresh, etc. Some analysts were of
the view that the idea of investing in malls and multiplexes may work
out well for the affected dealers as well as the company as it would
help them recover their investment.
But some were also skeptical about the success of the project as most of
the Reliance petroleum outlets were located on the outskirts of the
cities and Indians did not usually prefer to travel long distances for
shopping and entertainment. Analysts were of the view that it would be a
while before the concept caught on. They said the viability of this new
venture could be decided only in the long run.
Though Reliance thought of an alternative business venture and planned
to compensate its dealers, it lost the faith of the investors who had
invested huge money in the company based on its reputation.
Analysts were of the view that instead of closing down the business
altogether, the company should have first explored other options, like
other private oil companies in the country Shell India and Essar Oil,
which had filed a petition with the government demanding subsidy for
private retailers.
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7] "Reliance to Shut All Petrol Pumps," www.mumbaimirrior.com, March 26, 2008
8] Nevin John, "Reliance to Use Closed Fuel Outlets
for Malls and Multiplexes," www.business-standard.com, May12, 2008
9] Reliance Industrial Infrastructure is involved in
construction and setting up of industrial infrastructure
10] Adlabs is involved in production, distribution,
and processing of Hindi films
11] Yash Raj Films is one of the leading Hindi
films production company.
12] Marks & Spencer is one of the largest clothing
and food retailers in UK and has 760 stores in more than 30 countries. |
