Reliance Enters Digital Retail: A Threat to Global Giants Finding Feat in India Reliance's upper hand over Walmart-Amazon in digital retail

Mukesh Ambani has an insight that no other Indian or even foreign businessman for that matter, has been able to defeat. Operating in a fragmented market like India can be tough but Reliance Industries' chairperson understands what the world's second most populous nation wants. The instant acceptance of Jio was proof that he is an epitome of vision and foresight.

Now, India's largest conglomerate has decided to foray into the online retail sector to create the country's biggest offline to online (O2O) platform. Reliance's entry into the digital retail would have multiple implications among being a peril for global giants like Amazon and Walmart that are trying to find feet in India. The question is why?

A Threat to International Giants

1.3 billion people of diverse backgrounds, choices and tastes co-existing in India function differently and over the years, Reliance has grasped the nerve of each of them wants. Moreover, the recent changes in the e-commerce policy and the restrictions on marketplaces with FDI have created a favourable environment for homegrown companies like Reliance Retail to launch new operations.

Thanks to the ongoing policy changes, the online retail sales in India are expected to grow by 25.8 per cent to reach $85 billion by 2023. It is a perfect opportunity for Reliance to use its existing retail infrastructure to deliver goods to customers in a new fashion. Reliance currently has nearly 10,000 outlets of its retail arm in over 6,500 cities in India.

While it is a threat to international giants like Walmart and Amazon, Reliance needs to seek a lesson from the home-grown Paytm Mall on why providing exclusive offers to maintain customer loyalty might not work for them always. Flipkart's plans to go physical via opening grocery stores across the country have proved that the parent company Walmart has done the homework well.

Interestingly, unlike the general retail sector, in the food retail business 100 per cent FDI is allowed, which provides Walmart with a perfect opportunity to amplify its presence in the country. The retailer's expertise in the food space would further add to its advantages. The good part - Food accounts for about two-thirds of India's total retail market.

However, due to FDI norms, Walmart is allowed only to operate a business-to-business (B2B) wholesale segment in India. Walmart's global competitor Amazon also has a keen interest in the Indian market. Recently, it committed to invest about $500 million in the food retail business through its food retail arm Amazon Retail India.

Upgradation of Kirana Stores

The Indian retail industry worth about $710 billion is 90 per cent unorganized and dominated by 15 million kirana stores. With Reliance's entry in online retaining, 15,000 digitized retail stores might expand to over 5 million by 2023, a study of Bank of America Merrill Lynch predicted. Why? Because the kirana stores are keen to upgrade their technology and Reliance might just help them out.

Reliance is reportedly looking at installing Jio MPoS (mobile point-of-sale) device at kirana stores to connect neighbourhood suppliers to its high-speed 4G network that can be used by its customers to order supplies. The PoS system is likely to ease the billing/generating of GST complaint bills and help sync inventory for kirana stores.

The launch of Reliance Jio Infocomm's point of sale (PoS) terminal is to further intensify the digitization battle. "Currently, 15 per cent of this 15 million (kirana stores) can afford the PoS terminal and its technology. The PoS market is significantly fragmented with only 2-3 large players and hundreds of small regional players," stated SBI Cap Securities, the brokerage arm of the SBI Group in a note.

There are various market opportunities to create an ecosystem around the PoS terminal by vertical as well as horizontal integration. Reliance's history of winning over customers by heavy discounts during the initial stage is likely to work in its favour. The company has reportedly entered the space by providing MPoS terminals to small retailers at a highly subsidized price (actual cost per terminal $170).

Reliance is likely to provide various integrated solutions around PoS terminals, such as payments with Jio Money and supply chain management. Driven by low price points and integrated services, this move may open up the PoS terminal market significantly. The concerns around the sustainability of business model due to high investments, subsidy approach and depth of consumer touch points will remain.