Mukesh Ambani’s e-commerce venture is arguably the most eagerly awaited developments in the recent history of India’s burgeoning online retail market that has already seen Aditya Birla Group, Godrej, and Tata burning their fingers in the past. Even Reliance’s previous initiatives such as Reliancesmart.in and Ajio.com couldn’t do wonders. However, the new venture by Reliance this time has got most of what’s required to take on Amazon and Flipkart on its side.
First of all, it is the policy that is on Reliance’s side. Unlike Amazon or Walmart, homegrown Reliance doesn’t have constraints around restrictions on FDI in e-commerce. “Any company that’s not FDI backed will benefit from the new policy and Reliance will make good use of it to leverage its existing retail infrastructure to deliver goods to customers,” Satish Meena, senior forecast analyst at Forrester Research told Financial Express Online.
Second, comes capital. The biggest retailer in India — Reliance Retail posted $18.7 billion in revenue in FY19 and had grown at a CAGR of 55 per cent in the last five years. Its parent, Reliance Industries posted revenues worth $81 billion and $9.4 billion in profit in FY19, said the report titled The State of the Online Retail Market in India in 2019, co-authored by Meena. The report pegged the size of India’s online retail market to increase from $26.9 billion in 2018 to $84.6 billion in 2023.
“If you compare Reliance, Flipkart and Amazon, cash is something that Reliance also has because of their other businesses particularly petroleum, textile etc.
Third is the presence in terms of Reliance Retail stores and brands it has. It currently has a whopping 10,415 stores in over 6,600 cities, with 500 million annual footfalls that can easily allow the company to launch swiftly across the country. Moreover, it has more than 40 brands in the midmarket and beyond such as Hamleys and Marks & Spencer.
These can provide a boost to the fashion and lifestyle segment, which will be the largest category by online spending in the coming years, the report added. “Reliance’s retail stores are the largest in number in India and also they have a large number of foreign brands,” said Meena.
Market share (GMV) in Indian E-commerce
Reliance’s Jio ecosystem is the fourth area of strength. Reliance is already the third largest telecom player with Jio having over 300 million subscribers. Adding a content sub-ecosystem that includes including music streaming app Savan, Balaji Telefilms, and Eros, along with payment vertical Jio Money, Jio Payments Bank, and point-of-sale (PoS) terminals for small stores, gives Reliance the firepower to develop on for its online retail play.
“Reliance is going to capture Indian household by not just spending on digital content but also on grocery, fashion, and electronics towards which majority household spending goes,” added Meena.
Fifth, Reliance has been launching businesses through heavy discounts offered. For instance, in 2003 it forayed into the telecom sector with the Monsoon Hungama tariff plan that reduced the tariffs for voice calls to just Rs 0.40 per minute from Rs 2 per minute. In 2016, with Jio launch, the data cost dropped to Rs 50 per GB from Rs 250 per GB.
This kind of discounting can disrupt any market, and we expect something similar to happen in the grocery space during Reliance’s launch, the report said. Reliance launched its food and grocery app for its employees in April 2019.
Not a Smooth Ride
Nonetheless, the area challenging for Reliance Retail would be customer experience to compete with Flipkart and Amazon. “This will be the differentiating factor. They know how to bring customers on the platform but whether they can retain with a superior experience is going to be seen. Unlike a mobile connection — one-time purchase for which you pay monthly bills or do recharge, you have to do a new transaction every time in retail. If your initial purchase experience is not good then it will be difficult to retain the customer,” said Meena.
On the Flipkart side, which enjoys the dominance in online fashion through Myntra and Jabong, it is likely to pump capital in the grocery and general merchandise category to boost the number of purchases and the average spending per household.
To take on Amazon Prime and retain its high-spending customers, Flipkart launched its reward facility Flipkart Plus, the report said.
With respect to Amazon, the company is looking to monetize its superior customer experience than Flipkart to push more products to customers at the household level, particularly in grocery and long-tail categories, to become the first choice in online retail. “We expect Amazon to invest aggressively in the food and fashion categories in 2019,” Meena said.
Last but not the least, Paytm Mall unless turns around its business model to attract customers beyond just giving cashbacks it “cannot survive in the long term against Amazon and Flipkart, even after getting a new round of funding,” Meena added in the report.
However, would Reliance have to look at a mindset shift — towards cash burn and delayed profitability to succeed in online retail? Maybe not.
“If having a profit-mindset is a problem then why loss-making Flipkart was bought by Walmart which is profitable since last 40 years. Jio turned profits only in the last three quarters after making losses since its launch. Reliance Retail started in 2005, didn’t report profit till 2015,” Harminder Sahni, founder and managing director at consulting firm Wazir Advisors had told Financial Express Online.