Can Reliance Redefine The e-Commerce Landscape In India?

I remember watching the Mani Ratnam directed, superhit movie Guru as a child, more than a decade ago. The film gave me goosebumps, and inspired me like anything. I had memories of almost wanting to stand up and clap for the titular character in the climax sequence where he speaks in his defense, and tells them how he made a profit of 30 seconds from his allotted 5 minutes.

Today when I thought of revisiting the scene in hopes of fishing out a quote to begin this article with, I realized, the guy was just bullshitting around.

The movie, loosely based on the life and times of Dhirubhai Ambani, ends on a note of happiness and hope, when he puts a rhetorical question to a stadium full of his shareholders, “Humne sapna dekha tha, Hindustan ki sabse badi company banne ka sapna... banna chahte ho duniya ki sabse badi company?”

This is exactly what Mukesh Ambani, the richest Indian, the richest Asian, and the 9th richest in the world, seems to do next.

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Walmart has long been the king of retail. Massive stores in large numbers, employing millions of people and having everything available in a single complex, Walmart simplified shopping. But that was the 70s through the 90s, and come the dotcom boom, a new rival was to take birth and displace the 50-year-old behemoth.

Customers aplenty: eComm is huge, but nowhere among the largest retailers

Amazon today is giving Walmart a hard run for its money, and has become the world’s largest retailer by enabling customers to order items at the touch of a finger and get it shipped to them for free.

As both companies realize that either store-only and online-only strategies are not going to win them the crown, both are moving towards omnichannel retailing. What this means is, Walmart is rapidly embracing and expanding its online presence, while Amazon is trying hard to establish a physical connect with customers through tech-enabled brick and mortar stores.

With an approximately 20% year-on-year growth and seemingly unlimited cash to burn, Amazon is poised to overtake Walmart soon. The Goliath here is threatened, and in a bid to match up to and probably beat its rival’s online services and quick delivery, Walmart has a strategy that helps it offer faster delivery at a cheaper cost, hence benefitting the customers immensely.

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With all the convenience that buying stuff from Amazon offers, one service that stands apart and ties customers to the company is Prime. It is essentially a pre-paid delivery charge, and subscribing to this paid, annual service lets you order items with an option of a free one-day delivery free of cost. To top it, Amazon also offers the Prime Now service, that guarantees free delivery within two hours.

No doubt these services are very lucrative and combined with other add-ons like music and video streaming, it manages to attract and retain customers year-round, such robust delivery timelines are the Achilles Heel for Amazon and cost a bomb. Amazon has acquired warehouse management robotics companies, freight service companies and other logistics companies to cut on shipping costs, but shipping cost still remains a major area of concern.

The shipping costs are so high that often times the company refunds the customers and lets them keep products that they want to return, to save on shipping, which will be more expensive than losing out the product.

Let’s see how a rival measures up. Walmart, unheard of sometime back in the ecommerce space, since 2016, has seen its online sales rise 78% and beat Amazon’s return by 30%. This is just the beginning. Walmart has an innovative strategy in its playbook on how to beat Amazon at its own game. The US’ largest brick and mortar retailer operates over 4700 stores which are supplied with items from over 150 distribution centers that span 1 million square feet. Such is the scale of Walmart’s physical presence in the US, that 90% of Americans live within 10 miles of a store.

Walmart's giant distribution centers and warehouses create a big advantage in its strategy to beat Amazon

Walmart plans to use 1600 of these physical locations as warehouses by the end of this year. In comparison, Amazon has just 110 warehouses across the US.

Since the physical stores are already profitable, dedicating a small space to act as a warehouse adds little cost. If a customer’s order is fulfilled from a local distribution center or warehouse, this will have huge implications on the shipping costs incurred by Walmart. Even if they take a sizable part of this saving, the customer still gets to save a lot. Walmart, whose official purpose is "saving people money so they can live better" is doing just that and helping itself win the market in the process.

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Mukesh Ambani joined his father’s business at a very young age, and has been phenomenally disruptive since. From the world’s largest petrochemicals refinery in Jamnagar to betting big on digital as early as 2002 with the introduction of CDMA in India, he bets on the future and bets big.

He is known to take time setting groundwork for big businesses and then launch with a bang and completely disrupt the industry. He did this for his refinery, cutting the project completion time from 6-7 years to 2 years, making the whole world take notice. He introduced free incoming calls with his telecom service in the undivided Reliance back in 2002, and then became the first one to offer free calling and 4G data that too at dirt cheap prices with Jio, changing the Indian telecom industry in 2016 forever.

Reliance Retail, world's third largest retailer, seems poised to grow alot on the back of its digital ambitions.

Ambani has signaled that he wants to diversify and focus more on retail and digital services than the more traditional energy sector. To that end, he has built Reliance Retail, the nation’s largest retailer with close to 11,000 physical stores selling a range of products from groceries to apparels to jewels to electronics, and Reliance Jio, the country’s second largest telecom operator and internet service provider with its own army of digital services like music, video and payments.

As the world finally catches up with ecommerce and this becomes the new normal, industry leaders have already identified the next big thing: omnichannel retailing.

The customer is offered a seamless experience across channels, all channels being integrated in an ecosystem

eCommerce is still a small percentage of organized retail, which itself is a very small number when compared to unorganized retail. It is imperative that to achieve growth and realize profits, retailers have to tap into the large number of people still not opting in for shopping online.

As eCommerce firms and brick-and-mortar stores poach each others’ customers and also foray into each others’ retail channels, it is clear that the retail industry will only converge at a middle point - omnichannel retailing. The companies that are able diversify their channels, upgrade their technology, systems and logistics, and not just focus on either only-online or only-physical stores are eventually going to win the long game. This is even in the interest of the average consumer who will gain from having the flexibility of choosing from multiple brands from multiple channels as per convenience and switch easily as and when required.

Reliance, on its part, can leverage the 360 million strong customer-base of Jio and other digital and advanced AI enabled services offered by Jio and its acquired firms. Moving forward, they could also think about combining services like JioSaavn and JioCinema to compete with the likes of AmazonPrime.

With the "Desh Ki Nayi Dukaan" tagline, JioMart aims to cash in on the friendly neighbourhood feels of the masses

In fact, the soft launch of JioMart is a step towards omnichannel retailing. It was launched as a pilot in three cities in Maharashtra without any big bang usually associated with Reliance. However, all of Jio’s 360 million customers were sent pre-signing offers offering discount on launch of services.

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JioMart aims to connect 200 million households with 30 million offline retailers.

JioMart promises to be the next big disruption from the Ambani stable

Starting with grocery services partnering with small kirana shops, the company plans to expand once the pilot achieves its aims. What remains to be seen is whether JioMart will limit itself to letting customers order groceries online and pick them up at their local kirana shops, or go beyond that to include physical stores under the Reliance Retail aegis and get them onboard as display centres and use their distribution centres/warehouses to compliment an all-encompassing ecommerce platform.

Reliance Retail has the muscle, resources and capital to truly get online and compete with and even beat Amazon and Flipkart in India. It is very wise of Reliance to straight away target omnichannel retailing and connect with kirana shops to achieve this.

However, what looks to be a masterstroke with the kirana shops might turn out to be a difficult and expensive affair. Providing a reliable internet connection and installing an AI-enabled PoS machine at each shop, itself an arduous task, is the easier one. Persuading shop owners/workers to use these systems, providing them with training, and making sure that the systems are used continuously will be an uphill task. And so will be maintaining these systems and keeping the shops hooked in case of any technical failures, however small they might be.

Once it gets what it wants from its pilot with groceries in JioMart, and moves to selling all products available under Reliance Retail brands online as well, it can try emulate something on the lines of what Walmart is trying to do in the US currently. With its pan-India presence with 11,000 stores, (to be) supplemented by the targeted 30 million local shops, Reliance can also use some of its physical stores and already existing warehousing and distribution facilities to support its online efforts.

Reliance can achieve massive scale in such an ecommerce venture if it is able to make this two-pronged strategy work, essentially putting together what Walmart in the US and Alibaba in China are doing. Given Reliance Retail is already profitable and can be scaled at will if need be, and the facts that the fundamentals of Jio are quite stable as per projections and expectations, and that the Reliance group already has a cash cow in the form of its energy business, the ecommerce venture can afford to burn through heavy cash for a couple of years, but the rate at which it acquires customers will be crucial in that case.

To that end, RIL has been on an acquisition spree. As underscored by Ambani in RIL's 42 AGM, tech is not a traditional forte for the company and hence the only way to grow fast is to go inorganic. In the last three years, RIL has spent in excess of $3 billion to boost its offerings, primarily Reliance Retail and Reliance Jio Infocomm. RIL has put in $566 million in media and education, $194 million in retail, $1.2 billion in telecom and internet firms, $100 million in digital and $391 million in the chemicals and energy space.

With Jio forging its own digital ecospace with services around Music and Video streaming, TV and Gaming through partnerships and acquisitions, Reliance Retail is not far behind, acquiring logistics firms, AI firms and localised grocery chains (like Coimbatore based Shri Kannan Departmental Stores) and retail chains (like Genesis Luxury).

We have seen Ambani’s knack of executing market-entry propositions with big bang disruptions, as recently witnessed by the telecom industry with Jio, one won’t be betting against the odds if they trust Reliance to devise effective market entry as well as expansion strategies to do the same in this case as well.

One major advantage that Reliance might enjoy is the availability of a huge pool of potential customers, if they are able to execute a strategy of making customers stick to the service through platforms and then cross-sell services.

Cross-selling is easy with Jio bringing in useful synergies

Jio is sitting on a minefield of potential customers, a 360 million strong minefield to be precise. All of them are being offered discounts for pre-signing on the JioMart service currently. Advertising can even be done using a single push notification on the MyJio app installed on every phone running the Jio network. Not only is this easy advertising, this is also a prime example of creating synergies to cut costs.

On the other hand, the present customers of Reliance Retail and all the kirana stores being partnered with would still want to shop through the same sellers. They just need to be shown in a correct and simple manner that the ecommerce helps them do just that, albeit with the comfort of sitting at home.

Also, with Reliance being an Indian company, it will stand to benefit from its competitors being caught in crosshairs on FDI rules in ecommerce and other allegations of unfair trade practices.

What remains to be seen is whether Reliance would do things on such expected lines, or write a new playbook for the industry altogether. Whatever it might be, the consumer will be happy to have another big competitor enter, pushing the industry to offer better services at lower prices.