Mukesh Ambani is eyeing stakes in a host of Indian e-retailers to bolster Reliance’s retail offerings as it enters the e-commerce domain. A number of deals are in the works which, if successful, could help the company compete head-on in a fast-growing online retail market projected to be worth an estimated $170 billion by the end of the next decade.
With the coronavirus pandemic decimating stock valuations and forcing companies to cut corners, the time is right for astute businessmen to go bargain hunting. Reliance Industries Chairman Mukesh Ambani is casting a wide net for niche online retailers to power Reliance Retail’s e-commerce ambitions. The 63-year old billionaire is set on giving retail heavyweights Amazon and FlipKart a run for their money by creating a hybrid marketplace that connects small neighborhood stores, or Kirana, to consumers through a digital e-commerce platform.
Watch: JioMart: Mukesh Ambani launches the first of a new breed of e-commerce retailers
Unorganized retailers are the last unexplored frontier in a burgeoning Indian retail market serving hundreds of millions of consumers every day. The battle lines have been drawn, with Jeff Bezos announcing plans to tap the same market and win over brick and mortar store owners who have been vociferous, of late, in their criticism of Amazon.
How Mukesh Ambani is priming the e-commerce venture for growth
The latest reports from Dalal Street say that Reliance is exploring tie-ups with brands like Zivame, Urban Ladder, Milkbasket and NetMeds to complement the already substantial footprint of its retail business. RIL’s consolidated Annual Report for 2019 pegs Reliance Retail at a market capitalization of INR 1,30,566 crores with more than 10,000 stores currently operating across the country.
Reliance is exploring tie-ups with brands like Zivame, Urban Ladder, Milkbasket and NetMeds to complement the already substantial footprint of its retail business.
The prospective acquisitions will help it round out its portfolio and strengthen market share. Under its New Commerce Initiative, Reliance Retail is focusing on leveraging digitization to build a full-service value chain for B2C and B2B customers. The ecommerce platform that will make this possible has already entered limited testing at select locations in Mumbai, Ahmedabad and Chennai, and reportedly features real-time analytics, small business automation and digital payment capabilities.
Watch: Reliance bets big bet on eCommerce
The ambitious network is being built jointly with group company, Reliance Jio Infocomm, which is already working to bring some of the best known Indian brands like Dabur and Amul on board. Consumers will be able to use the Jio Money app to purchase goods from neighborhood stores. Small time store owners will, in turn, be able to tap Reliance’s extensive supply chain network to buy supplies besides getting digital payment and inventory tracking facilities.
The ambitious network is being built jointly with group company, Reliance Jio Infocomm, which is already working to bring some of the best known Indian brands like Dabur and Amul on board.
The last year may have stymied the Indian economy, but Reliance’s star is still shining bright. Jio has raked in more than $20 billion since the beginning of 2020 with big names like Google and Facebook picking up stakes. The company could barely conceal its excitement when it announced that it had “fulfilled our promise to the shareholders by making Reliance net debt-free much before our original schedule of 31st March 2021.” Mukesh Ambani’s appetite for acquisitions would have undoubtedly been whetted by the massive inflow of capital.
Watch: Reliance’s acquisition drive is powered by a strong cash flow position
Mukesh Ambani’s Art of Domination
Reliance’s strategy of outpricing the competition has served it well in the past. Mukesh Ambani has leveraged his vertically integrated and horizontally diversified business empire to disrupt new markets. Take the case of the telecom sector. In 2012, Reliance Jio was a minnow in a market that was dominated by Vodafone, Airtel and Idea. The cross-subsidies from its vast oil, textile and petrochemicals value chain enabled Reliance Jio to wean consumers away from other players by offering free voice and data at rock bottom prices for 6 months. The strategy enabled Jio to carve out a substantial share of the market. It went from zero to 100 million subscribers in just 5 months after its launch.
Reliance’s strategy of outpricing the competition has served it well in the past.
Reliance took the same tried and tested acquisition route to enter the telecom market in 2010. It bought a controlling stake in Infotel Broadband Services Limited (IBSL), which had managed to secure 4G licenses across the country. After investing aggressively to build a countrywide Optical Fibre Network (OFC) network, Jio launched its own line of 4G handsets, which made it an irresistible value proposition for India’s largely 2G users, while driving down costs.
In a span of less than four years, Reliance Jio has upstaged Bharti Airtel to become the country’s largest mobile network operator with 33% market share. Competitors like Vodafone and Idea have been humbled by the unstoppable Jio juggernaut, which is now developing a 5G technology solution, something no other Indian mobile operator can afford to do. Other, less fortunate competitors like TATA Docomo, Aircel and Telenor, have gone out of business, as have many smaller vendors and subcontractors that supported these organizations.
Reliance is already working to undercut Amazon’s extensive monopoly in India by urging the government to tighten pricing and private label sourcing norms. Commerce Minister Piyush Goyal’s recent diatribe against Jeff Bezos for not following the “letter and spirit” of Indian law is the perfect backdrop for Reliance to position itself as a home-grown alternative that is sensitive to the needs of small traders and retailers whose margins are being steadily eroded by multi-national e-commerce brands. Whether Reliance’s JioMart venture can find a market gap and exploit it effectively on the strength of its massive subscriber base in the country remains to be seen.
Watch: Piyush Goyal criticizes Amazon for flouting Indian regulations
By all indications, disrupting the e-commerce market, as it did in telecom, may well be an uphill task for Mukesh Ambani. However, the acquisitions that Reliance is currently eyeing and its intimate understanding of its home market may yet enable it to take the reigning e-commerce champions by surprise.