IF WHAT MUKESH AMBANI did to the telecom sector by launching Jio two years ago is anything to go by, India’s e-commerce sector is in for a huge disruption. Reliance Retail, a subsidiary of Ambani’s Reliance Industries Ltd, is already the largest retailer in the country with more than 10,000 outlets in fashion, lifestyle, grocery and electronics segments. While that network will continue to grow, it will also take a giant leap in e-commerce.
The size of India’s organised retail market is currently estimated to be around Rs5 lakh crore, while the unorganised market is at about Rs48 lakh crore. Ambani is looking to transform this unorganised neighbourhood kirana market and give Reliance’s e-commerce plans a platform. “Local kirana stores is the real opportunity,” said Gaurav Jain, head of strategy and business development at Reliance Retail. “Organised retail is still under 10 per cent. So, if you really want to work with the rest, the broken, archaic retailers, are the real partners.”
At the heart of this will be a point of sale (POS) terminal, which the company is currently testing across cities. This POS terminal will not only help merchants carry out the common debit and credit card transactions, but also enable them to keep product inventory and order through the wholesale store network, said a source.
Consumers will be connected to Reliance’s digital retail ecosystem through a mobile app, which is also being tested. Products bought through the app will be delivered by the neighbourhood store. “We have been mapping customer journey across the lifecycle,” said Jain.
Meanwhile, Reliance is plugging the gaps in the system by making strategic acquisitions. It will buy Mumbai-based hyperlocal delivery company Grab a Grub Services for Rs146 crore. It has acquired C-Square Info Solutions, a company that provides software solutions for distributors and retailers, for about Rs82 crore. The acquisitions, done through the subsidiary Reliance Industrial Investments and Holdings, will augment Reliance’s e-commerce plans and strengthen business-to-business and business-to-customer logistics.
The big digital push will ride on Jio’s network. The telecom company has also taken the acquisition route to gain expertise in new technologies. It acquired Haptik Infotech for about Rs700 crore, a move that will help it manage various touch points and provide conversational, AI-enabled devices to Indian users.
Last year, Reliance acquired a 5 per cent stake in film and entertainment company Eros International for $46.6 million. It has also invested in the music streaming app Saavn and Balaji Telefilms. “These acquisitions are part of the overall digital ecosystem that we are creating,” said Jain. The acquisitions will help Ambani take on Amazon, which has established presence across online shopping and video and music streaming.
Reliance reported a net profit of Rs39,588 crore on a revenue of Rs6,22,809 crore last financial year. Reliance Retail’s profit before depreciation, interest and taxes stood at Rs6,201 crore, more than double year-on-year, on a revenue of Rs1,30,566 crore. Retail now accounts for around 21 per cent of Reliance’s total revenue. Ambani wants half of the group’s revenues to be made from consumer facing businesses in a decade.
Reliance is not stepping off the pedal on store expansion. Last financial year, it opened 2,829 outlets, taking the total to 10,415 stores, covering more than 22 million square feet space. “The two segments (Retail and Jio) combined delivered 23 per cent of overall EBIT (earnings before interest and taxes) in 2018-19, up from 11 per cent in 2017-18. We expect their contribution to rise to 44 per cent by 2020-2021, transforming RIL to a consumer-solutions company from an energy products company,” said Probal Sen, analyst at Centrum Broking.
Currently, digital platforms contribute only a small amount to Reliance Retail’s revenues. But it is scaling it up. Reliance Brands, a subsidiary, has a portfolio of some 40 international luxury, bridge-to-luxury and high-premium brands. These brands are being withdrawn from rival e-commerce platforms and will be exclusively offered on ajio.com, Reliance’s fashion portal.
According to research firm Forrester, online spending among metropolitan Indian buyers grew 28 per cent in 2018. Smartphones and fashion accounted for 56 per cent of the online retail market last year, so companies are focusing on these segments. Forrester expects online retail sales in India to be around 05.8 lakh crore by 2023, at a 25.8 per cent compounded annual growth rate.
Reliance Retail has made a cautious start in online grocery commerce. Its platform, reliancesmart.in, is live in Bengaluru, Pune and Mumbai. Startups Grofers and BigBasket have continued to scale up and attract more funding, and Amazon and Flipkart, too, are pumping in money into grocery retailing.
Leveraging its strong presence in physical retail will be Reliance’s biggest advantage in its online play. “Due to the recent changes in e-commerce policy and the restrictions on an inventory-led model for marketplaces with FDI, Reliance Retail is in a favourable policy environment to launch operations where it can use its existing retail infrastructure to deliver goods to customers,” said Satish Meena, senior forecast analyst at Forrester.
Customer experience, however, could be a key challenge. “Forrester’s customer experience index showed that multichannel retailers had the lowest industry average score in India in 2018,” said Meena. “To compete with Amazon and Flipkart, Reliance will have to significantly improve the customer experience, both in stores and on its online channel.”
How Reliance can get local traders together is something to watch out for. Praveen Khandelwal, secretary general of Confederation of All India Traders, which had lobbied hard against the multinational e-commerce players, says the same rules should also apply to domestic companies. The trader body is against e-commerce companies resorting to predatory pricing, deep discounting and exclusivity.
In the past few years, Ambani has used Reliance’s annual shareholder meetings to make big ticket announcements. Last year, Reliance dedicated a lot of its time on the upcoming fibre-to-home broadband service. This year could well be that of new commerce.
Reliance Retail’s profit before depreciation, interest and taxes in 2018-19 was Rs6,201 crore
Reliance Retail’s revenue in 2018-19 was Rs1,30,566 crore, up 89 per cent from the previous year
Reliance is the largest physical retailer in India, with 10,415 outlets and 22 million square feet of retail space
Will tap into the unorganised ecosystem of neighbourhood stores through a point of sale terminal , which offers payment solutions and manages inventories
Made several acquisitions and investments to strengthen digital play—Grab a Grub Services, C-Square Info Solutions, Haptik, Saavn and Hamleys