Jeff Bezos’ sprawling e-commerce empire in India is staring at its moment of truth, again. Earlier it was back in 2013 when Amazon entered the very nascent and almost untapped e-commerce market characterised by an underdeveloped infrastructure with only 16 per cent population connected to the internet, and cash being the undisputed king. The then e-commerce market had Flipkart and Snapdeal arguably the only and top e-commerce players. Amazon was able to quickly adapt itself to the Indian way of selling goods online and flush with capital, as it always is being an internet powerhouse in the US, elbowed out Snapdeal to take Flipkart head-on and overcome the challenges. The differentiator then was largely the capital, now it is more of an enabler as the planet’s richest person Bezos gets into the e-commerce slugfest with Asia’s richest billionaire Mukesh Ambani.
What’s on the block is quite overt – the e-commerce market of among the fastest-growing economies in the world – India, reaching $99 billion in size by 2024, according to Goldman Sachs. There is probably no other major economy in the world offering that level of scale. And to win this market, which is merely 1.6 per cent of the total retail sales, according to a 2019 World Bank Group report, offline or traditional retail is the slingshot that would catapult Reliance, Amazon, or Walmart to lead the market comfortably for the following decade and further.
Reliance, Amazon, and Flipkart didn’t respond to the questionnaire seeking responses to this story.
For Ambani, it is certain that Reliance already has a clear headway when it comes to traditional retail with 11,931 stores, as of September 30, 2020. Reliance Retail has been operating neighbourhood stores, supermarkets, hypermarkets, wholesale cash & carry stores, etc. under a multi-pronged strategy in close to 7,000 towns witnessing 640 million footfalls that have given Ambani unprecedented procurement base and fulfillment strength. The shift from oil and telecom to technology and e-commerce is also quite evident at Reliance. Reliance Retail Ventures raised around $6.4 billion from Silver Lake, KKR, Mubadala, Abu Dhabi Investment Authority, GIC, TPG, General Atlantic and Saudi Arabia’s Public Investment Fund to double down on its e-commerce bet JioMart.
According to Reliance, JioMart continues to scale-up rapidly with a consistent increase in daily customer orders — 4X up in Q2 over Q1 FY21. In fact, in Q1 itself, Reliance had claimed to deliver over 4 lakh orders every day “which is significantly higher than any other grocery home delivery company,” it had said in a statement. Following Facebook’s $5.7 billion investment in Jio Platforms, Ambani had also enabled ordering groceries via WhatsApp. In the past few months, JioMart had expanded to fashion and electronics as well – among segments that drive sales for existing large e-commerce marketplaces. Reliance’s intention to push these key segments first for the bigger e-commerce play ahead is obvious. “Reliance definitely has a head start in omnichannel sales because of its physical presence. We see the company building on it through investments in technology and customer experience,” Madhur Singhal, Managing Partner, Praxis Global Alliance told Financial Express Online.
The recent ruling by the competition watchdog Competition Commission of India (CCI) in favour of the Rs 24,713-crore Reliance deal to acquire debt-strapped Future Group’s retail, wholesale, logistics, and warehousing businesses would further add to Reliance’s retail strength. This might be a temporary setback for Amazon as it would lose prized access to over 1,500 stores including Big Bazaar, Food Bazaar, FBB, Food Hall, Easyday, and more across over 400 cities amid $6 billion investment commitment Bezos has made in India so far including the $1 billion he announced in January this year. The company has also been running various initiatives to boost small businesses in the country and to ramp its 7 lakh seller base.
Amazon, which anyways has been an aggressive competitor, is expected to be firing on all cylinders to get more small businesses and kiranas on its marketplace in case it eventually loses to Reliance in laying its hands on Future’s assets. “Reliance is the largest offline player and in the organised grocery, they have around 25 per cent market share while Future has around 10 per cent share. So that’s why Amazon was interested because if they cannot work with Reliance, which is number one, then they would want to work with number two and have fighting chance in grocery,” Satish Meena, Senior Forecast Analyst, Forrester told Financial Express Online. Here, Walmart-owned Flipkart has been lacking, unlike other categories such as fashion, not just against Amazon and JioMart but also BigBasket and Grofers.
Amazon India’s base of 7 lakh sellers, which are mostly micro-businesses, recently surpassed the U.K. and Germany marketplaces to become the second-largest marketplace in terms of the number of sellers. In fact, Amazon has been onboarding more sellers on its India marketplace than in other markets where it is present except the US, according to Marketplace Pulse research. The company has been adding 20,000 sellers over the past few months. Bezos, during his India trip, in early 2020 shared plans to get over 10 million (1 crore) micro, small, and medium enterprise sellers online by 2025. The figure seems a very long shot unless Amazon is somehow able to drastically increase the seller base and particularly micro-enterprises, which make up for a majority of businesses in India, that have been averse to technology adoption. Close to 99 per cent of Indian enterprises have come under the MSME category after the recent revision of the MSME definition by the government.
However, in its battle with Reliance, the differentiator would be the experience much like in its competition with Flipkart as all the three players are extremely well-capitalized. “Amazon by far is the most successful e-commerce player in the world. They got strong technology strength, huge capital access, strengths of operating in various parts of the world, bringing very strong private labels of their own across multiple categories. Also, Amazon doesn’t have to go back to investors to raise money. Reliance has to do all that as far as e-commerce is concerned while their execution and capital raising skills is amazing,” Arvind Singhal, Chairman, Technopak Advisors told Financial Express Online.
While Reliance has strength in offline and B2B segment but on-ground, it lacks expertise in running pure-play online companies, according to experts. “Ultimately here the winner would be a company that can provide customers a large number of products and superior customer experience. Even if you convince them for some time on pricing but after that customers will look for experience, something which Reliance needs,” an e-commerce consultant told Financial Express Online.
“Reliance surely has a pervasive brand name and deep offline presence across cities. They are also well-capitalized. However, e-commerce systems, protocols, supply chain, user interface, and consumer trust will take time to build. While capital can short circuit that time, but the team needs to be pulled together,” added Madhur.
Particularly for pricing, which is a critical component to pull extremely price-sensitive Indian customers to shop online, Reliance might try to replicate its telecom success with Jio by reducing prices and offering cheaper goods to nearly stifle competition. This might work well to cater to the shoppers particularly living in semi-urban or Tier-III and beyond regions who are more value-conscious than urban buyers but it just can’t be a long-term bet.
Meena explains that the pricing part works well in telecom but in e-commerce you have to give the same experience on every order. In telecom, usually, people take the connection and use it for many years but in e-commerce, if one doesn’t get a good experience on one portal, he/she will switch to another. One might not do that frequently with the telecom provider where there is a process to switch. So, you have to deliver a better experience. He added that Reliance is not a pure-play B2C company run by technology that is ready to take on e-commerce. There are Reliance stores, there will be Future’s stores presumably and then you are working with kiranas and also you have warehouses. So, these four different areas you have to integrate and optimize to deliver from the nearest store to customer. In the backend, a lot of things have to be done for integration and this will not be easy, he said.
The regulatory guidelines for the e-commerce sector, which have to an extent proven to be headwinds for Amazon and Flipkart, might also play their role ahead as well. However, they won’t be as aggressive as China’s. The government’s 2018 Press Note 2 allowed 100 per cent FDI in B2B e-commerce while marketplaces are required to meet certain criteria. Also, the marketplaces are not allowed to exercise ownership over inventory retailed on the portal or influence their sale directly or indirectly. Moreover, any seller entity wherein the marketplace has an equity stake cannot sell online. Amazon, for example, had to reportedly restructure its ownership in Cloudtail to bring down its stake to 24 per cent from 49 per cent following the new FDI norms enforced in February last year.
The government had also tightened FDI policy earlier this year for investments from countries sharing a border with India to curb ‘opportunistic takeovers’ of domestic firms — a step seen in the light of restricting investments from China and boost Make in India and Vocal for Local campaigns. With the tweaked rule, the entities based in neighbouring countries can invest only under the government route.
“You will see some kind of regulations which give preference to Indian companies but It is not going to be very aggressive like China because India still needs investments,” the e-commerce consultant said. “The Government has managed to create a pro-business environment in the last few years. There has been no reversal of any FDI norms. In fact, foreign investment is being relaxed every passing hour. There is a drive to self-reliance from a manufacturing/production perspective but that has not changed anything in retail,” added Madhur.
Nonetheless, for Reliance, the initial battle would be to acquire market share by establishing itself as an alternate to Flipkart and Amazon in customers’ minds instead of jostling for the bragging rights for being on top of the table. Even with a close second or third rank, Reliance would highly likely be a significant player in the Indian e-commerce market and that shouldn’t irk Ambani.