Reliance Fresh is a modern supermarket chain operating in the new market segment of urban consumers with higher purchasing

power. The company is a part of the Reliance Group, Indias largest industrial holding. To secure a steady supply of fresh milk for its retail outlets, the Reliance Group established a specialized dairy firm in 2006: Reliance Dairy Foods Ltd. It supplies dairy products to the Reliance Fresh chain of supermarkets, as well as to other urban retailers. When setting up its supply chain, Reliance chose not to source milk from the government run dairies. The firm was not sure that these dairies could assure the quality and quantity required, and it was concerned about the payment terms and the danger of political interference. The company also decided not to use the existing private traders. It wanted to extend opportunities to others. Reliance thus decided to build its own milk chain. It designed a milk chain consisting of three tiers: 1. Village Pooling points where the farmers can bring their milk on a daily basis, even in small portions 2. Bulk milk cooling centres where the milk from various village pooling points is collected and cooled 3. Dairies where the milk from various cooling centres is processed, packaged and distributed to the market outlets Reliance figured that, rather than controlling the full supply chain by itself, the best way was to train selected local villagers and provide them with the necessary infrastructure and technical support, so they could operate the pooling points and cooling centres as independent business people. 1. Village Pooling points These are a common point in a village where farmers bring their milk on a daily basis. It is run by a village service provider who is selected in a common village meeting. The average investment per pooling point is $1480. Producers are given a price in the range of 20-26. Franchisers are paid a commission of 3.75 % of the value of milk delivered. 2. Bulk milk cooling centres The milk from various pooling points is collected here. Each cooling center serves 10-12 pooling points. These are also operated on a franchise basis where the owner gets a commission or Rs 0.30 per litre of milk from Reliance. Reliance provides all the cooling equipment with an investment of $ 14300 per cooling centre. Each cooling centre can handle 2000 litres of milk each day. 3. Dairies Reliance has its milk processed at defunct or underutilised private dairies. The dairies pasteurise and package the milk. The finished product is sent to wholesalers, supermarkets and retailers from where it reaches consumers. Up to 25% goes to Reliance Fresh. Management Information System A state-of-the-art management information system with easy to use equipment, a backup and uninterrupted power supply manages the entire milk supply chain. It measures milk quantity, calculates payments and prints payment receipts and calculates the amount of milk procured.

Franchisee Model All three tiers of the collection system village pooling points, cooling centres and dairies are run on a franchise system. The owner must provide the building and staff; Reliance provides equipment to the pooling points and cooling centres, and trains the franchisees and staff how to use them. A network of Reliance field staff supervises and supports the three tiers. This model reduces Reliances capital and running costs, since Reliance does not have to build its own entire infrastructure and employ lot of staff. It also spreads the risk, since each franchisee is responsible for delivering the product to the next stage in the chain, and bears the risk if something goes wrong. BASIXs Services It promotes farmer producer groups in each village, provides agribusiness development services and extends microfinance to the producer groups. KBS bank provides loans while BASIX provides agricultural and business development services to KBS bank customers. Producers Groups Reliance helps producers in each village to form groups to improve their productivity. There are 15 members in each group. Members are farmers, wishing to improve their dairying activities. Agribusiness development services BASIX provides various business development services to members of the producer groups: Improve productivity - Selecting stronger and more productive animals, advise on fees and fodder management Disease prevention - Vaccinations against foot-and-mouth disease, regular deworming, and periodic visits to check animal health by veterinarians Market linkages - Forming producer groups and providing institutional development services to help farmers supply milk to pooling points Capacity building - Training on bookkeeping, accounting, management and help with formalizing the group

Financial Services Producer group has to form a joint account with KBS bank and starts saving regularly KBS consider providing loans to the group based on at least 3 months of its performance Hard collateral is not required Group as a whole is responsible for repayment if the borrower defaults Average loan is $ 440 Loan disbursement time is 15 days from the date of application Monthly installment facility for repayment Also provides saving services and livestock insurance coverage to the members of the producer group

BENEFITS Milk Producers Higher income (Rs. 20-26 as compared to market rate Rs. 16-18) Sales volume has increased from average of 2 litre to 3 litre a day No need to search for buyers. Village pooling point is in each village Loans are available at affordable rates (18%) The loan issuance time is very short, 15 days only Livestock insurance, means livelihoods are protected in case of death or accident Easy access to regular technical advisory service at affordable rate

KBS Bank/BASIX New potential customers (500 out of 2000 farmers supplying milk to Reliance ) 400 members using agribusiness development services from BASIX, paying full cost, $9 per member per year Average saving per month is around $ 500 per producer group

Reliance Easy availability of milk (procures 7500 litre per day) Access to good quality of milk(current capacity= 83%) Cost involved in the value business model is reasonable Experience of handling dairy business and can expand into other regions Proposal to install high capacity chilling centre to reduce operating costs

Chain as a whole More milk available to consumers Better quality of milk More efficient chain, producing high value product than before Source of inspiration to other market players, especially government