THE BATTLE FOR INDIAN RETAIL

HOW MUKESH AMBANI, AMAZON’S JEFF BEZOS AND WALMART’S DOUG MCMILLON ARE FIGHTING TO GET A BIGGER SLICE OF INDIA’S $ 850 BILLION RETAIL MARKET

Ostensibly, Mukesh Ambani, Chairman, Reliance Industries, and the world’s richest man, Jeff Bezos, CEO of Amazon, are engaged in a court battle over ownership of the ` 26,000 crore debt-laden Future Group. But at the core of the fight is the struggle for supremacy in the $850 billion (`62.8 lakh crore) Indian retail industry. Having been pushed into a corner by Alibaba, not only in China but also in South East Asia, Amazon sees India as its only hope of achieving scale outside the US. Bezos is doing all he can to ensure that the opportunity to buy India’s second-largest retailer does not go out of his hand easily.

But this isn’t a two-way fight. There’s a third, perhaps, even a fourth, player vying for leadership of what is projected to be a $1.3 trillion (`96 lakh crore) industry by as early as 2025. The Walmart-Flipkart combination, led by global CEO Doug McMillon, acquired minority stakes in Arvind Brands and Aditya Birla Fashion Retail in quick succession. And one of India’s oldest and largest business houses, the Tata Group, is prepping to up its retail ante by bidding for India's biggest online grocery retailer Big Basket.

Big money is being committed for leadership of that lip-smacking trillion dollar pie. The top three have cumulatively invested $33.3 billion (`2.46 lakh crore). The world’s largest retailer Walmart invested $16 billion to buy e-commerce giant Flipkart and recently announced an additional $2 billion (`14,478 crore) investment. Reliance has invested ` 30,000 crore and is spending another ` 24,713 crore to buy Future Group’s retail assets. Amazon has pumped in $6.5 billion and is neck-and-neck with Flipkart in India’s e-tail landscape.

In January, Bezos announced an additional $1 billion investment to bring 10 million traders and micro, small, and medium enterprises ( MSMEs) online and promised to create one million jobs. “We are investing to create a million new jobs here in India over the next five years,” he said.

Readying More Firepower

That’s just the beginning. Each of the contenders is aware that this corpus is not going to be enough in the tough battle that lies ahead. They are readying fresh arsenal. The Walmart-Flipkart combo is believed to be looking at an overseas IPO with projected valuation of $40- 50 billion (the homegrown e- commerce giant is currently valued at $24.9 billion).

Ambani’s ` 1.63 lakh crore Reliance Retail is already valued at ` 4.2 lakh crore ($56.8 billion). He’s unlocking value to raise more funds for growth. During the lockdown, Reliance Retail raised ` 47,265 crore by selling 10.09 per cent stake to top private equity investors such as Abu Dhabi Investment Authority, Silver Lake, General Atlantic, Mubadala, GIC and TPG. Reliance Retail is now among the world’s most valued retail firms. At this rate, it can offload another 15 per cent stake to raise ` 75,000 crore, taking the war chest to nearly ` 1.25 lakh crore. Reliance Retail did not respond to BT queries.

Amazon Inc. invested ` 2,500 crore in Amazon Seller Services and Amazon Data in January 2020, followed by a second round of investment of ` 2,310 crore in Amazon Seller Services (Amazon’s marketplace arm) in June.

“India is at a unique inflection point. The country’s vision is to be a $ 5 trillion economy fueling consumption and a $1 trillion digital economy powered by the world’s largest and youngest mobile internet base. Additionally, millions of small and medium businesses will embrace technology and become digital. With online retail penetration at barely low singledigit levels, the long- term online opportunity is massive,” says Amit Agarwal, SVP and Country Head, Amazon India.

Sweeping Brands For Heft

With such large war chests, it’s hardly surprising that the majors are vying with each other to pick up anything and everything that is on sale to gain heft. This year, so far, Reliance has acquired five companies and brands worth ` 2,917 crore; Walmart bought Flipkart in 2018 and is now consolidating its 28-store strong cash and carry business under Flipkart Wholesale to create a formidable omni- channel wholesale play. Flipkart has also invested in fresh produce supply start-up Ninjacart.

Indian FDI rules don’t allow foreign retailers to own physical stores. However, Amazon has found a way to invest in physical stores through its investment arm. Its latest attempt is the contested ` 1,500 crore investment in Future Retail through Future Coupons. In 2018, in partnership with Samara Capital, Amazon bought the Aditya Birla group’s grocery retail arm, More, for ` 4,200 crore. It also bought a 5 per cent stake in Shoppers Stop in 2017. “In the long term, there will be space for at least three large players and one small player. Whether it will be the Tatas, D’Mart or even Swiggy, you never know,” says Manpreet Ratia, Partner, Jungle Ventures, a venture capital firm.

Reliance is the mightiest due to its sprawling physical presence of 12,000 stores. It has also accelerated acquisitions of late. In May, it rolled out its e- commerce venture, JioMart, and bought online furniture retail company Urban Ladder and lingerie platform Zivame. It also acquired online pharmacy retailer Netmeds. In July last year, it bought global toy retail company Hamleys for ` 620 crore. It also announced a joint venture with American luxury jewellery retailer Tiffany & Co. RIL already has exclusive rights to retail UK-based Marks and Spencers’ products in India, along with 45 global luxury brands such as Armani Exchange, Bally, Canali and Emporio Armani. Reliance has also invested in technology solutions in artificial intelligence, haptics, voice recognition and virtual reality.

The Tata Group is also upping the ante. Despite being first movers in organised re

tail, the Tatas have been conservative about expansion. The revenue is all of ` 8,771 crore between two retail entities Trent (which houses Westside and Star Bazaar) and Infiniti Retail (Croma) compared to late entrant Reliance Retail (which entered retail in 2007, a decade after the Tatas), which has set up a formidable ` 1,62,936 crore empire. Tatas’ e- commerce arm, Tata Cliq, is still to make an impact in the e-tail space. However, Chairman N. Chandrasekaran recently announced that the company would soon have a super app that would help consumers shop across its consumer-facing businesses. Tata Group is also in advanced talks to buy the ` 6,000- crore online grocery platform BigBasket.

Battle Zone Retail

Interestingly, modern retail is just 10 per cent of India’s $ 850 billion retail industry. If the Future Group judgement goes in favour of Reliance, it would gain an additional revenue of ` 26,000- odd crore. However, if Amazon wins, it will be a distant number two player with 1,700 stores over 12 million sq.ft. It has another 500- odd ‘More’ stores which it acquired from Aditya Birla Retail. Walmart owns 28 cash and carry stores, while the Tata Group has 344 stores across Westside, Landmark, Zudio, Star and Croma brands.

But they will have to cope with the formidable Reliance Retail. With 27 million sq.ft. space across 6,700 towns and cities, Reliance Retail is by far the biggest retailer. Online platform JioMart gives it a distinct advantage of robust multi- channel presence. “If modern retail is just 10 per cent and Reliance has 30 per cent of that, its share of the total retail market will be quite small, and hence there is no dominance,” says Arvind Singhal, Chairman of retail consultancy Technopak. This gives Amazon and WalmartFlipkart enough room to battle it out in India.

“This year has accelerated online adoption, be it in education, communication or shopping, as people prioritise health and safety. As we make investments that focus on developing and nurturing the retail ecosystem, we are also committed to making our platform easier to navigate and richer for consumers in terms of content and experience,” says Kalyan Krishnamurty, CEO, Flipkart.

Grocery, The Holy Grail

The big dilemma most retail majors are grappling with is scale versus profitability. While Flipkart or Amazon is where a consumer will invariably buy a mobile phone or a washing machine, such purchases are one- off. It is fashion and grocery that enable marketplaces to build a long-term relationship with consumers. Apparel generates more volumes and margins. But grocery gives most volumes and stickiness. A consumer is likely to visit a marketplace at least twice, if not more, for day-to- day grocery. If a marketplace like Amazon can win her over with wide range of products at great prices, it will get her loyalty too.

This has pushed the likes of Amazon to burn crores on getting the grocery business right. While the US and the UK have a largely homogeneous population, Indians have diverse habits. This makes the grocery business complicated. The market has to grow city by city to cater to diverse needs, which makes it a slow process.

“Grocery’s asset-heavy model (dominant model currently) is trending towards a hyperlocal business and one would possibly create depth city by city in terms of fulfilment. Every per cent of ecommerce penetration in grocery gives a significant jump to online grocery market size, as

THE COUNTRY’S VISION IS TO BE A $5 TRILLION ECONOMY FUELING CONSUMPTION AND $1 TRILLION DIGITAL ECONOMY. WITH ONLINE RETAIL PENETRATION AT BARELY LOW SINGLE-DIGIT LEVELS, THE LONG-TERM ONLINE OPPORTUNITY

IS MASSIVE

Amit Agarwal, SVP and Country Head, Amazon India

the base is so huge (upwards of $600 billion). Hence, the online grocery market will grow in the coming years, but will take more than 10-12 years to reach more than 10 per cent of penetration. The penetration uptick would be gradual,” says Rishav Jain, Senior Director and Consumer, Consumer Tech & Retail Lead, Alvarez & Marsal.

Jain expects some of the online grocers, both vertical and horizontal leaders, to play a meaningful role in the medium to long term in the top 20- 30 cities, which are likely to contribute to more than 80 per cent to the online grocery sale “Online grocery penetration will grow incrementally, but given the big base, the incremental growth will also be very big for some of these online players. Every 100 basis points increase in penetration results in $ 6 billion of revenue.”

But tapping this opportunity will require huge investments and smart strategy. So, acquisition of BigBasket will help the Tatas reach a wider consumer base, but to really grow the segment, they will have to invest big money. Amazon tried to find a sweet spot in the low margin grocery business by promoting its private brands. Through the Covid-19 lockdown, when supply was a challenge for national brands, Amazon pushed its private brands. If the consumer clicked on detergents or dish cleaners, the search threw up names of Amazon’s own brands such as Skrubble and Scyclone. In staples, one found brands such as Solimo and Vedaka. These brands are priced more competitively and offer higher margins. Reliance and BigBasket are also aggressive in pushing private brands.

Amazon wants the largest wallet share for grocery purchases. That was the idea behind investing in Future Retail. The plan was to use Future Group grocery stores as fulfilment centres and last-mile delivery points. Apart from

AS WE MAKE INVESTMENTS ON DEVELOPING AND NURTURING THE RETAIL ECOSYSTEM, WE ARE COMMITTED TO MAKING OUR PLATFORM EASIER TO NAVIGATE AND RICHER FOR CONSUMERS IN CONTENT AND EXPERIENCE

Kalyan Krishnamurthy, CEO, Flipkart

regular grocery service, Amazon Pantry, it expanded Amazon Fresh (earlier available in NCR, Bengaluru and Mumbai) service to Kolkata, Ahmedabad, Pune and Chennai. Amazon Fresh, with 5,000- odd SKUs that include fresh food products such as vegetables, dairy products, meat and staples, promises same- day delivery.

Flipkart is slightly conservative about its grocery strategy. The Flipkart spokesperson says they are in the process of identifying what the consumer needs in each city. Reliance, on the other hand, is bullish on its online grocery retail business. However, experts believe that over 60 per cent of Reliance’s grocery growth will continue to come from offline stores. “The fight is getting into all three levels. Earlier, it was about getting into pure online or pure brick and mortar, now the fight is online, offline as well as B2B,” says Govind Shrikhande, Former MD, Shoppers Stop.

Unravelling Game Plan

Reliance Retail seems to have an advantage for now. Apart from scale, it is also profitable (`5,448 crore in FY20), unlike Walmart and Amazon, which are burning cash to es