As India hits the peak of its biggest shopping season, the Diwali festival this week, the mogul’s retail websites, including JioMart, elbow their way into a space long dominated by Amazon.com Inc. and the local Walmart Inc. unit Flipkart Online Services Pvt.
Increasing competition, Ambani portals offer discounts of up to 50% on popular sugary sweets and other Christmas staples like spice mixes for India’s rice delicacy, biryani. Meanwhile, its Reliance Digital website is selling some flagship Samsung smartphones for cheaper prices than rivals, with discounts of up to 40%.
It’s a boost that comes when Ambani’s expanding conglomerate Reliance Industries Ltd. is full of cash. After raising $ 20 billion for his tech company, he switched fundraising to his retail arm, which has made more than $ 6 billion in investments in recent weeks from heavyweights like KKR & Co. and Silver Lake. . Ambani, which is already India’s largest traditional retailer, is pitting it against the two American giants, who have invested heavily in India.
The country, one of the last major consumer markets, is still up for grabs, and Morgan Stanley estimates that India will generate $ 200 billion in e-commerce sales by 2026. However, the billionaire triumphs in telecommunications, where he started as a Small player, but outperformed established rivals by downgrading them and capitalizing on regulatory changes, they are a warning to the American giants.
Great advantage
In retail, Ambani’s company has a big advantage: Government policies are increasingly stacked in favor of national retailers, of which Reliance is the largest. Since late 2018, India’s foreign investment rules have also banned Amazon’s local Flipkart unit and Walmart from listing exclusive products and owning inventory, in an attempt to restrict their ability to directly influence prices and offer discounts. International companies cannot own more than 51% of local supermarket chains. Even that limit is subject to conditions like installation only in cities with populations of less than 1 million.
With its local strategy, low-cost acquisitions and brick-and-mortar chain, Ambani has the ability to revolutionize online retail, said Siju Narayan, chief experience officer at RexEmptor Consult LLP in Mumbai. “JioMart can make a dent in the fortunes of ecommerce grocery specialties like Bigbasket & Grofers,” he said, referring to the nation’s largest online grocery stores. “And affect the grocery, home and personal care category of e-tail specialties like Amazon and Flipkart in the days to come.”
Representatives for Reliance and Bigbasket declined to comment, while those for Walmart, Amazon and Grofers did not respond to requests for comment.
Modified rules
Ambani’s success in telecommunications demonstrates its ability to benefit from pricing and policies. The Indian government amended the rules in 2013 to create a “unified license” that allowed operators with a broadband wireless permit to offer voice calls for a one-time fee. Only one operator had such a permit in the entire country at the time: Reliance Jio. After receiving a unified license and implementing telecommunications services from Reliance Jio in September 2016, Ambani sold voice and data plans at rock-bottom prices. That made digital services more affordable for millions of Indians. Although its rivals obtained similar licenses, some filed for bankruptcy amid the price war that followed, including its younger brother Anil’s Reliance Communications Ltd. Non-state telecom operators eventually fell to three out of at least a dozen. Jio became profitable in 2018. It is currently the largest wireless operator in India with more than 400 million. subscribers.
High stakes
In India, the stakes are high for American retailers. Jeff Bezos, founder and CEO of Amazon, has pledged to invest $ 6.5 billion there. Walmart spent $ 16 billion in 2018 to acquire the Indian portal Flipkart in its largest deal, and has invested more than $ 1 billion this year in the e-retailer and has consistently invested cash in its sister unit, the payments service PhonePe. But for Ambani, 63, the richest man in Asia with a net worth of $ 78 billion, the push for e-commerce may prove tougher than that of telecommunications. First, you will face formidable rivals. The wireless carriers it defeated were mostly local players, lacking the weight, experience, and deep pockets of Amazon or Walmart. Also, your group’s e-commerce websites are newer compared to their rivals.
JioMart from the Reliance group, which just started this year and is still in beta, has had delivery issues and delays in refunds, and some users have had no qualms about venting on Twitter. All of that means winning big against Walmart and Amazon could take years.
Future business
However, getting it right is key because Ambani has cast retail and technology as the future of Reliance, starting in the textile industry with his father and then progressing into the petrochemical industry and oil refining. Two of his older children, Ivy League-educated twins Isha and Akash, are on the board of directors of Reliance Retail Ventures Ltd.
Reliance is already India’s largest company and its $ 185 billion market capitalization equates to approximately 6.6% of India’s GDP. Its weight would only increase if it achieves a greater presence in e-commerce, something that is becoming increasingly important in India, which has suffered a lockdown for much of the year due to the pandemic and where organized retail has not yet penetrated. in rural corners. The pandemic is offering a boost to Reliance because many local stores are unable to offer aggressive discounts due to financial difficulties, said Laiji Varghese, who runs a grocery store in Nerul, a city on the outskirts of Mumbai, and has a partnership with Reliance to deliver orders. “Reliance Retail is a big player with a lot of money,” he said. “They have the financial muscle to offer such discounts compared to others.”
Samsung phones
For Diwali, JioMart has a “Bestival Sale” and has been promoting the “biggest grocery sale of the season” with deep discounts and cash rebates until November 8. Flipkart and Amazon are also showing a slew of discounts, putting the three companies side by side. .
However, on some key items, Ambani’s sites are offering bigger price cuts. A Samsung S20, this year’s flagship model from the world’s largest smartphone maker, for example, cost Rs 43,999 earlier this week at Reliance Digital. The same phone on the Amazon website in India was available for Rs 47,990 and on Flipkart for Rs 69,999. Regardless of who is attracting the most customers and offering the biggest price cuts this holiday season, a lengthy and upbeat battle is likely to unfold for India’s online shoppers for years to come.
Complex constraints
Despite the complex price constraints Walmart and Amazon face in India, they have been able to show the discounts offered through manufacturers and brands. In some cases, they may restructure their relationships with sellers to be able to legally offer price cuts and have teamed up with banks and credit card companies, who can offer deals that give buyers price benefits on websites.
However, in the long run, pricing rules that favor local businesses would allow Ambani’s JioMart and other websites to be more agile in adjusting costs as they are subject to fewer restrictions. JioMart and Reliance Retail account for around $ 12 billion of the Indian retail market combining physical and digital sales, according to Ankur Bisen, senior vice president and head of Technopak’s retail consulting division. Meanwhile, Amazon and Flipkart, leveraging their pure online games, can claim around $ 14 billion each, he said.
Although Amazon and Walmart are far ahead in online retail, a winner will need to span both physical and virtual domains to serve India’s highly rural and diverse geography. However, the restrictions imposed on foreign companies that own grocery stores put them on a setback. That is in line with Prime Minister Narendra Modi’s goal of building local champions. Across the border, China’s protection of domestic companies has created tech giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
Ambani has built its businesses on a decades-long understanding of India’s bargain-hungry consumers. Over the years, he has also aligned Reliance’s own ambitions with government goals in different administrations. In 2016, when he launched Reliance Jio, the telecom business, he promoted it as part of Modi’s Digital India initiative.
Alibaba from India
“Narendra Modi has clearly decided that he wants to produce an Indian equivalent of Alibaba or Tencent, and he knows that Reliance is the only plausible candidate,” said James Crabtree, associate professor of practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore, author of The Billionaire Raj, which chronicles the economic opening of India and has on its cover the famous Ambani house in Mumbai.
To consolidate its position as the nation’s number one retailer, Ambani bought Future Group’s retail, wholesale, logistics and warehousing units for $ 3.4 billion in August. Amazon, which owns a small stake in one of the unlisted firms in Future Group, has sought to block the sale in an arbitration court. Meanwhile, Reliance said it intends to complete the transaction without delay. “It’s head-on competition in online retail,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight. “An extremely well capitalized and very aggressive player is the new challenger.”
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