Ambani-Bezos Fight Threatens The Backbone Of India’s Retail Trade
A battle of billionaires and digitisation threaten the backbone of India’s $854-billion household retail sector—distributors of soaps to staples.
Mukesh Ambani’s Reliance Retail Ltd. is co-opting neighbourhood stores into his vision of creating a network for JioMart—a marriage of brick-and-mortar and online retail. These kirana outlets serve the last mile, supplying grocery and other products ordered on JioMart, taking on Jeff Bezos’ Amazon, the world’s biggest retailer.
The problem for distributors is that Ambani has also turned into a bulk supplier, offering smaller retailers incentives to buy from it. His ultimate goal is to stock shelves with Reliance Retail’s higher-margin private labels, something that may spook consumer goods makers. But for now, that means distributors are losing business to Ambani.
General trade—as distribution through bulk suppliers is called—commands about 90% of India’s household retail supply chain. They are the central artery that keeps everything from dairy to detergents flowing from the factory gate to millions of small stores in every corner of Asia’s third-largest economy. And so far, they have withstood challenges from goods and services tax and the threat from online retail which, according to a report by the Retail Association of India and Deloitte, is still less than 7% of the nation’s grocery market.
The existing distribution model is inefficient. It requires physical store visits to take orders, causes delays and distributors have to offer informal credit to retailers. Large consumer goods makers like Hindustan Unilever Ltd. are already digitising their last-mile supply. Ambani, too, is betting on technology to create an alternative via JioMart.
He's not alone. Other large wholesalers are also formalising business-to-business retail, offering a better reach to the likes of HUL to Marico Ltd. Udaan, an e-commerce platform for retailers to buy in bulk, has expanded across the country. And then there is Tata Group-owned BigBasket’s wholesale unit.
JioMart offers retailers margins of 15-20% on products procured from Reliance, against 8-12% they earn otherwise, three distributors told BloombergQuint—they didn’t want to be identified out of business concerns. And Reliance is also digitising orders and helping merchants go online.
A merchant joining JioMart has to download an app and register. For a small security deposit, Reliance Retail instals a point-of-sale terminal—JioPOS—allowing the retailer to take card and digital payments.
The machine is also integrated with the product catalogue and billing, allowing a store to place orders for bulk supplies with JioMart. Eventually, it will be linked to the JioMart consumer app, letting retail stores receive and orders online.
Ambani is supplying mom-and-pop stores consumer goods in bulk in at least 50 cities. And he is encouraging small stores to stock his private labels alongside known brands.
“JioMart’s products under the private labels of Reliance Retail are stocked by all the retail partners, perhaps indicating push from JioMart as well as a better general acceptance of these brands,” Jefferies said in a report. “On the contrary, only 22% of Amazon retailers seem to be stocking its private labels.”
Kotak Institutional Equities’ survey in Bengaluru, where JioMart has onboarded 100 retailers, found that Reliance is offering better margins. Its representatives keep track by paying monthly visits, building a relationship like distributors.
Most retailers also prefer having JioMart as a partner, the Kotak report said, adding that it has cornered 20% market share from distributors in the city.
BloombergQuint could not independently verify this in its interactions with distributors. A distributor in Mumbai, however, said Reliance Retail has cornered 4-5% share in the city but it's expanding fast.
Distributors are concerned that retailers will prefer Reliance because of its quality of service. According to the Bengaluru survey of retailers by Kotak:
100% cited price levels and availability as the most important parameters while deciding on engaging with a distributor.
79% and 75% said comprehensive range and discounts offered were critical, respectively.
73% said the timely delivery was also important.
Other important parameters are quality of goods, doorstep deliveries, general service levels and credit facility.
Reliance trumps services offered by dealers on all fronts.
According to Jefferies, ultimately kirana stores will become fulfilment centres, helping Reliance optimise on costs and working capital and driving efficiency. That, however, will likely take time, it said.
Reliance Retail didn't respond to BloombergQuint's emailed queries.
Dinesh Thapar, group chief financial officer, said in a January earnings call that the company is also building its supply chain through its own stores. “This is poised to expand across cities during the current quarter.” Meaning, distributors in more areas will feel the pinch.
Recognising the digital threat, distributors and retailers are also going online for bulk trade.
The Confederation of All India Traders released a mobile app on March 11 and plans to onboard seven lakh members by December. Bharat e-Market will allow both retailers to place bulk orders and consumers to buy directly, according to its statement. Every member will be able to create an e-dukan (online store) free on the platform.
Competing with the tech prowess at the disposal of Ambani, Bezos and others, however, may be tough.