Mukesh Ambani’s Reliance wants to shake up India’s retail supply chain

Pashuram Verma was surprised to see a salesman from India’s largest conglomerate standing outside his small kiosk in Mumbai, which sells everything from bread to eggs to cigarettes.

The seller said he represents JioMart, the online store of Mukesh Ambani’s Reliance Industries, India’s largest company. He encouraged Verma to order products from the e-commerce site and discount cookies that store owners usually buy from distributors.

“My business is too small for something like JioMart,” he said.

But 11m stores like Verma’s, known as kiranas, accounts for the majority of India’s retail market, which by some estimates is the fifth largest in the world. Reliance has ramped up telecommunications and focused on retail but is now looking to deliver retail outlets, risking undermining a decades-old system.

The steep discounts offered by JioMart and rivals like Udaan, the country’s first online business platform designed to offer kirana, are bad news for the 450,000 distributors representing consumer groups. as fast as Hindustan Unilever and Nestlé. This network of salespeople traditionally supplies kirana with consumables, visiting stores weekly to take replenishment orders.

“The whole brotherhood is in distress,” said Dhairyashil Patil, national president of the All India Confederation of Consumer Products Distributors. “Their livelihoods have been challenged.”

Retail stores account for at least 85 percent of India’s fragmented retail market, said Kanaiya Parekh, retail expert at consulting firm Bain, adding that they “remain the dominant force by far.” treatment anytime, anywhere”.

India’s retail market is worth around $800 billion between 2019-20 and is expected to reach $1.5 billion by 2030, according to consulting firm Technopak. According to Bain, e-commerce represents less than 5% of sales in the country despite the outbreak of the pandemic.

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

Bhavin Satra’s kirana has started buying products from JioMart, which was launched in spring 2020, because of huge discounts. Store owners buy from the JioMart Partner app as well as from JioMart’s B2C store – whichever has the better price. “It’s not about service, it’s about ratio,” he said, comparing JioMart to traditional salespeople. “It’s a lot cheaper. . . closer to 20 or 30%,” he estimates.

While Indian mom and pop stores still dominate the retail market

Udaan was founded five years ago and has an 80% market share selling kirana online, according to a report by wealth manager Bernstein. But while Udaan was the first mover, Patil says the emergence of larger company JioMart has worried distributors.

“After JioMart joined, things went a lot south,” said Patil. “It’s rare to see that these companies are having deep pockets and venture capitalists are investing in these companies.”

“So they’re burning cash,” he complained. “The average distribution margin is 3-5%. And these guys are 15% off. ”

The changes pose a problem for major consumer brands. “The whole competitive advantage of FMCG companies is the network of distributors they have, even in today’s digital world,” said Angshuman Bhattacharya, head of product and retail. Indian consumers at EY, the professional services group, said. “Remember that e-commerce accounts for 3 to 8%. For most consumer companies, the remaining 92 companies come from traditional distributors.”

In search of protection from what they see as unfair pricing, distributors have battled manufacturers. After filing a letter of complaint, Patil’s union in January 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 telecoms market with the launch of Jio, a low-cost operator that has knocked out rivals © Debarchan Chatterjee / NurPhoto / Getty Images

Hindustan Lever said it was committed to ensuring distributors earn a “fair return on their investments”.

“General Commerce (GT) continues to be our largest channel, and Distributors (Redistributors) are and will be our key partners in our quest to serve the needs of our consumers.” across India,” the company added.

Colgate-Palmolive said it was “committed to building effective partnerships with our distribution network to serve consumers”.

Bhattacharya said price parity is something that “companies will have to really work towards to ensure that no one gets shortchanged in the overall process.” Both Hindustan Lever and Colgate-Palmolive met with the union and the strike was averted.

Kiranas also face online challengers who can steal their customers. These companies include express delivery companies like Dunzo, which bring everyday essentials directly to customers. Reliance Retail Ventures bought a 25.8% stake in Dunzo this month for $200 million.

But kirana also delivers, and many are supplying their small-scale logistics capacity to large companies. Mother and child stores currently handle about a third of the monthly deliveries for Walmart-owned Flipkart, the company said in September.

Satra has already started selling to customers via WhatsApp, but others remain skeptical of the online business. A few streets away, Verma turned down JioMart and opened an account with Udaan, but he still hasn’t placed the order.

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