Can Reliance Retail replicate the success of Jio in the retail sector cover Jiomart stores

Can Reliance Retail Replicate the Success of Jio in the Retail Sector?

After severely disrupting the telecom sector, Mukesh Ambani led Reliance has set its eyes on the Indian retail sector. Today, we are going to discuss one of the most popular questions these days i.e. can Reliance Retail replicate the success of Jio in the retail sector similar to what they did in telecom? Here, we assess the acquisition spree undertaken by reliance and the possibility of a disruption in the retail segment. Let’s get started.

Reliance jio mart

Reliance and Future group acquisition

On August 29th, Reliance Retail reached an agreement with Future Group. According to the deal, Reliance would buy Future retail, wholesale, logistics, and warehousing business for $3.4 billion (Rs. 24713 cr.)

The Future Group was founded by Indian businessman Kishore Biyani as a stonewashed fabric seller in the 1980s. Today it is known for its retail segment which includes the BigBazaar hypermarket chain, Pantaloons clothing shop, FBB, Foodhall, Easyday, Nilgiris, Central, and Brand Factory.

But unfortunately for the Future group, its success came with huge amounts of debt and the COVID-19 pandemic finally broke the last straw. The deal gives Reliance access to 1500 stores in more than 400 cities with millions of customers.

future group big bazaar

Why did Reliance Choose Future?

Future despite being a brand that used to be successful is loaded with debt and doesn’t come close to compete with Reliance retail which as of September 2019 had over 10900 stores in 6700+ cities. The answer to this could lie in Futures’ presence on a scale in the brick and mortar retailing established brands, work systems, and human resources built over the years. The sale comes with established label brands that have a vendor ecosystem that has been developed.

The deal also includes Futures supply chain solutions which offer warehousing and logistics services. Its customers include the likes of Tata which uses this company as a service provider for dealers across the country and such a deal would help Mukesh Ambani in expanding his reach.

The deal, however, fell through with restrictions placed on the man who led the organized retail revolution in India. Kishore Biyani and his family members are not allowed to re-enter the retail segment for the coming 15 years. This is part of the non-compete agreements that are valid generally for 3-5 years.

The possible reasons for the long period maybe the financials of Future. Biyani is still allowed to operate in the home retailing sector through hometown stores. He owns Praxis Retail which has around 48 stores and has a generated revenue of Rs.702 crore in the last fiscal year.

Investing and Acquisition Spree of Reliance in Retail

After disrupting the telecom spree, Reliance recognized the potential of the Indian retail sector. This began in 2018 with Reliance announcing its entry into the e-commerce space with an online and offline hybrid system. This was followed by a series of acquisitions and finally the founding of Jiomart late in 2019.

Acquisitions and Investments

One of Reliance retails biggest acquisitions includes that of Hamleys for Rs. 620 crores. The acquisition of the 259-year-old toy store chain will give reliance added foothold in global markets to compete with the likes of Wallmart and Amazon. Reliances other investments include Genesis Luxury Fashion, apparel firm Future 101 Design, GLF Lifestyle brands, GIB body care, etc. and Zivame. Reliance also acquired Rhea Retail. In the pharma, segment Reliance acquired an online pharma company Netmeds for 420 crores.

Reliance has not limited itself to only expanding into the organized retail segment. It has also taken steps to ensure that the retail segment can be easily integrated into the online market place by making some significant acquisitions in the following startups

Other Acquisitions

Company AcquiredFunction
GrabLogistics startup
C-Square software firm
Reverie Language TechnologiesA vernacular language-as-a-service platform that enables real-time delivery of online content in many vernacular languages.
EasyGovIndian government schemes/services aggregator enables people to apply for various government schemes
SankhyaSutra LabsA multi-physics simulation service helps to find solutions to industrial problems.

Strategy for the Retail Sector

Reliance first entered into the retail segment in 2006. At this point, Reliance has not even been partitioned between Mukesh and Anil Ambani. By 2014 Reliance already had surpassed market leaders like Future in terms of revenue. It was in 2018 that Reliance tested the eCommerce space through reliancefreshdirect.com and ajio.com. In November 2018 reliance began testing JioMart “Desh ki Nayi Dukan”. It was tested in Mumbai, Thane, and Kalyan.  Here orders could be placed through the instant messaging app Whatsapp. This gives Reliance access to the massive 400 million user base through Jio and Whatsapp. In the eCommerce, space Reliance is still behind market leaders like Amazon and Walmart.

So what plans does Mukesh Ambani have in store for the retail sector?

After having fair amounts of success in the organized retail sector Reliance has turned its focus towards the unorganized sector which includes local Kiranas. Mukesh Ambani has made it clear that Reliance’s future includes prospects where 50% of the groups’ revenue would be made through consumer-facing business in a decades time. Retail currently accounts for 21% of Reliances revenue. 

So what plans does Mukesh Ambani have in store for the retail sector?

In order to achieve this goal through the unorganized sector Reliance place to get local merchants on its eCommerce platform. Here the digital infrastructure built by Reliance Jio will be combined with its physical retail business. This is also known as O2O (Online to Offline marketplace) a business model used by Chinese eCommerce giant Alibaba. Here the consumer searches and orders the product through an online platform but buys it through offline channels. In the midst of all this will be the Point of Sale (PoS) terminal which is still being tested.

This PoS terminal will not only help merchants carry out common debit and credit card transactions but also enable them to keep a product inventory and also order through the wholesale store network. The apps and systems that will enable this are still being tested. 

After understanding the design set in place the acquisition mentioned earlier(particularly support services) look more like strategic acquisitions. Examples include the purchase of ‘Grab a Grub’ a Mumbai based hyperlocal delivery company, Csquare info solutions – a company that provides software solutions for distributors and retailers, Haptik Infotech will provide conversation AI-enabled devices to users. These strategic acquisitions will not only boost Reliance’s mission but also help the startups extend their reach and funding under Reliance.

Challenges in the Unorganized Sector

One of the challenges that Reliance would face is getting local traders to tag along. Praveen Khandelwal, Secretary-General of the Confederation of All India Traders has lobbied in the past against eCommerce MNC’s players. He also states that the same rules would apply to domestic entrants as well.

This is mainly due to the predatory pricing followed by eCommerce players. This is mainly due to the predatory pricing followed by eCommerce players. If we look at how Reliance had gained significant market share in the telecom sector it becomes clear that there is a good possibility that the same predatory pricing measures may be used in the initial stages of the retail venture.

The Big Question: Can Reliance Retail Disrupt the Retail segment?

The Indian retail market was valued at 700 billion in 2019 and is expected to grow to $1.3trillion by 2025.  Out of this the organized retail sector forms only a 10% share. The online retail segment is much smaller than this and it is worth only 3% of the total retail market in India. This shows why Mukesh Ambani was towards the retail segment.

Infiltrating the unorganized sector through the means of retail offers unlimited scope for growth. This also shows how only a small portion of the market has been tapped offering room for multiple players. Reliance may be able to grow within the sector but a disruption like the one seen in telecom is far fetched. 

Bloomberg reported that a 40% stake has been offered to Amazon in Reliance retail in exchange for a $20 billion investment in the company. What’s interesting is that the near future will bring the possibility that two of the wealthiest men teaming up or otherwise competing to exploit the vast Indian retail opportunity.