"EDITION 163"

Published: 9/27/2020

Happy Monday folks, Vedica here. Mint had a long read on Reliance retail this weekend, and today's update is a long-ish summary of the article. It's a good read, so would recommend checking it out.

https://bit.ly/3kLZ0NI: The reality behind Reliance’s retail rush

➡️ Since the start of the pandemic, Reliance has moved fast to make inroads into the e-commerce market, which it entered through its app JioMart last December, and consolidated its leadership in organized offline retail.

➡️ This month, Reliance kickstarted a separate fund-raising spree for its retail unit, Reliance Retail, bagging about $1.8 billion from private equity firms Silver Lake and KKR, two of the investors in Jio. Several more investment firms, including other shareholders in Jio, are expected to join them.

➡️ JioMart expanded to more than 200 cities this summer. While its service levels have been inconsistent, JioMart is registering similar order volumes to BigBasket, the largest e-grocer, on the back of aggressive marketing and discounts.

➡️ However, these volumes still comprise a small fraction of the overall business of Amazon India and Walmart-owned Flipkart, the two dominant online retailers. JioMart is only selling groceries as of now; with plans to sell other products like fashion and electronics soon. As it expands the products it offers, it is likely to become a more serious competitor to Flipkart and Amazon.

➡️ When Facebook invested in Jio in April this year, press releases highlighted a potential partnership between JioMart and WhatsApp. The aim was that JioMart would soon connect ~3 crore kirana stores with their neighbourhood customers via WhatsApp.

➡️ Analysts have been positive about the benefits of this partnership. In July, Goldman Sachs estimated that Reliance’s entry will help expand the online grocery market by 20 times to about $29 billion by 2024. It argued that Reliance’s partnership with Facebook could help the firm become the leader in e-grocery and garner a market share of more than 50% by 2024.

➡️ However, Mint reports that Reliance is sourcing a majority of orders on JioMart in many cities through Reliance Retail’s supply chain, with only a small number of orders are served through kirana stores. While JioMart is signing up a few thousand kirana stores every month, its expansion is happening at a slower rate than many analysts expect.

➡️ Industry experts note that JioMart’s average order value is lower than that of other e-grocers, which means that Reliance is losing larger amounts of money on every order. The lower order value is partly because most of JioMart’s 200 city-markets are non-metros.

➡️ Reliance is betting on expanding the e-grocery market rather than taking market share from incumbents, which generate an overwhelming majority of their sales from 10-15 cities. While Reliance may be able to attract customers in smaller cities initially with discounts, this makes profitability tougher.

➡️ One way for Reliance to boost margins is by selling more private label products. In the grocery category, Reliance Retail already generates 14% of its revenues from private labels. According to sources, the company wants to push its private label products to kirana stores, with a focus on groceries which is largely an unstructured category.

➡️ Reliance is hoping to leverage existing policies to its benefit. Amazon, Flipkart, Facebook and others face many policy-related restrictions. For instance, foreign investment rules prevent Amazon and Flipkart from owning inventory or selling private labels, while Reliance has no such constraints.

➡️ Flipkart and Amazon have already stepped up their lobbying efforts with the emergence of Reliance as a threat. Since the pandemic, there has been a thaw in the government’s attitude towards the US e-commerce firms because e-commerce has become an important pillar to keep the economy going. How this attitude changes once the pandemic is over, is to be seen.

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