Mukesh Ambani’s Reliance wants to disrupt India’s retail supply chain

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Pashuram Verma was surprised to see a vendor from India’s largest conglomerate standing outside his tiny kiosk in Mumbai, which sells everything from buns and eggs to cigarettes.

The seller said he represents JioMart, the online store of Mukesh Ambanis Reliance Industries, India’s largest company. He encouraged Verma to order products from the e-commerce site and offered discounts on cookies that the store owner would normally buy from a retailer.

“My shop is too small for something like JioMart,” he disagreed.

But the 11 million stores like Verma’s, known as kiranas, make up the largest part of the Indian retail market, which is estimated to be the fifth largest in the world. Reliance has already disrupted the telecoms sector and meddled in retail, but is now trying to cater to corner shops and threatening to undermine a system that has been in place for decades.

The steep discounts offered by JioMart and competitors like Udaan, the country’s first business-to-business online platform for delivering kiranas, are bad news for the 450,000 retailers representing fast-moving consumer goods giants like Hindustan Unilever and Nestlé. This network of vendors traditionally supplies Kiranas with consumer goods and visits the stores weekly to take restocking orders.

“The entire fraternity is in distress,” said Dhairyashil Patil, national president of the All India Consumer Products Distributors Federation. “Their livelihood has been called into question.”

Mom-and-pop shops made up at least 85 percent of India’s fragmented retail market, said Kanaiya Parekh, retail specialist at consultancy Bain, adding that they are “still by far the dominant force wherever you go.”

According to consultancy Technopak, India’s retail market was worth about US$800 billion in 2019-20 and is projected to reach US$1.5 trillion by 2030. According to Bain, e-commerce accounts for less than 5 percent of sales in the country despite the surge in the pandemic.

Ambani has transformed Reliance from an oil refinery into a conglomerate ranging from energy to telecommunications and has become Asia’s richest man. His corporate reorganization included the expansion of the company’s retail unit, which includes thousands of stores, Reliance’s own product lines and e-commerce unit.

Bhavin Satra’s Kirana has started buying products from JioMart which launched in Spring 2020 due to the big discounts. The shopkeepers buy from both the JioMart partner app and JioMart’s B2C shop, whichever is cheaper. “It’s not about the service, it’s about the price,” he said, comparing JioMart to traditional sellers. “It’s much, much cheaper. . . almost 20 or 30 percent,” he estimated.

Founded five years ago, Udaan has 80 percent of the market for online sales to Kiranas, according to a report by asset manager Bernstein. But while Udaan was the first mover, Patil said it was the arrival of bigger player JioMart that had unsettled distributors.

“It went very downhill after JioMart got involved,” Patil said. “You rarely see that, these companies have deep pockets and venture capitalists invest in these companies.”

“So they burn cash,” he complained. “The average sales margin is 3-5 percent. And these people discount 15 percent.”

The changes pose a problem for big consumer brands. “The entire competitive advantage of fast-moving consumer goods companies is the distribution network they have, even in today’s digital world,” said Angshuman Bhattacharya, head of EY’s Indian consumer goods and retail practice, of the Professional Services Group. “Remember that e-commerce accounts for between 3 and 8 percent. For most consumer companies, the remaining 92 come from traditional distributors.”

In order to protect themselves from allegedly unfair pricing, retailers have turned to the manufacturers. In January, after sending letters of complaint, Patil’s association threatened to stop selling some products made by Hindustan Unilever and Colgate-Palmolive in Maharashtra, India’s second most populous state.

A man wearing a mask walks past a Reliance Jio store in Kolkata, India
Reliance disrupted the telecom market when it introduced Jio, a low-cost carrier that undercut its competitors © Debarchan Chatterjee/NurPhoto/Getty Images

Hindustan Lever said it strives to ensure distributors get “a fair return on their investments”.

“General Trade (GT) remains our largest channel and our distributors (redistribution stockists) are and will continue to be our valued partners in our quest to meet the needs of our consumers across India,” the company added.

Colgate-Palmolive said it is “committed to forging productive partnerships with our distribution network to serve consumers.”

Bhattacharya said price parity is something “that companies really need to work towards to ensure that nobody is left behind in the overall process.” Both Hindustan Lever and Colgate-Palmolive met the association and the strike was averted.

Kiranas also face online challengers who might steal their customers. This includes fast delivery companies like Dunzo, who bring daily essentials directly to customers. Reliance Retail Ventures this month bought a 25.8 percent stake in Dunzo for $200 million.

But Kiranas also deliver, and many offer their small logistics capabilities to large corporations. The mom-and-pop stores now handle about a third of the monthly deliveries for Walmart-owned Flipkart, the company said in September.

Satra has started selling to customers via WhatsApp, but others remain skeptical about the move online. A few blocks away, Verma turned down JioMart and opened an account with Udaan, but he has yet to place an order.

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