Taking all shelf space: Why Reliance Retail will be a tough act to follow

Arvind Singhal, Chairman, Technopak
This article was published on January 23, 2020. It is being shared again because of the following developments:

Silver Lake to invest Rs 7,500 cr in Reliance Retail for 1.75% equity

KKR in advanced talks to invest $1 billion for stake in Reliance Retail
For last several years, the buzzword in the world of retail is “omnichannel”. However, the real big deal in the making is “omnipresent” (or “ubiquitous”) retail. Slowly but steadily some of the largest e-commerce companies such as Amazon and Alibaba have created their own proprietary ecosystems that engage their hundreds of millions of customers into an ever-expanding suite of products and services 24 x 365. These behemoths have moved far beyond purveying physical merchandise to end consumers or businesses using a combination of digital and physical retail platforms. Amazon’s engagement with its customers and consumers includes merchandise, entertainment, and a host of web services. Alibaba’s engagement with its customers and consumers includes merchandise, news publishing, mapping data, financial products, entertainment, instant messaging, and healthcare. 

None of these global giants however seem to be as audaciously ambitious as Reliance Industries. Before we try to connect the seemingly many unconnected dots that give some idea about Reliance’s vision, let us look at India’s consumer business opportunity. 

Retail nation

At a nominal GDP growth rate of about 10% (real GDP growth of about 6% per year) between 2020-25, India is expected to become a US $4.6-trillion economy by 2025, up from about US $2.8 trillion in 2020. In 2020, India’s private consumption is estimated to be about US $1.68 trillion, of which merchandise (retail) consumption will be about US $825 billion. By 2025 private consumption is expected to grow to about US $2.9 trillion, of which merchandise consumption will be about US $1.3 trillion. Of the merchandise retail market in 2020, only about 10% (i.e. about US $82 billion) will be accounted for by modern, organised retail. E-tail will account for just about 2.5% to 3%—about US $20 billion to US $25 billion. By 2025, organised brick-and-mortar retail is expected to be about 12% (i.e. about US $150 billion-US $160 billion) of the total retail market and e-tail another 6% at best i.e. about US $80 billion-US $85 billion. The traditional independent retail will continue to thrive and will account for the remaining 82% (or about US $1.05 trillion-US $1.10 trillion) of total consumer spending on merchandise. 

With this background, it is clear why India’s largest private business entity--Reliance Industries--has such a strong interest in retail business. The company launched its first retail stores in 2007: in multiple formats ranging from small specialty stores to large hypermarkets and cash-and-carry centres, addressing nearly all major consumer product categories. It may close financial year 2019-20 with retail segment revenues of about Rs 180,000 crore (about US $25 billion, with a healthy positive EBIDTA). As of March 31, 2019, it operated about 2.2 million square metres of retail space across over 10,000 retail stores in 6,600 cities and towns in India. The numbers for March 2020 are expected to be substantially higher. The retail business has been growing upwards of 35% CAGR and it should touch US $75 billion-US $100 billion in annual revenues by 2025. 

Telecom marries retail

However, Reliance’s bigger retail vision is beginning to unfold only now. To start with, Reliance is the only large global retailer that is also one of the largest telecom operators in the world with about 350 million subscribers in September 2019. By end of 2020, it is very likely to become the largest telecom operator in India with over 400 million subscribers with most of them using a smartphone and 4G access to still very low-priced data. 

On the ecosystem side, Reliance has been putting together (organically and through acquisitions) an incredible suite of technology on side (AI, Voice Recognition, AR & VR for examples) and an equally incredible suite of consumer focused products and services that include music and entertainment, finance that includes insurance, and education. Healthcare should follow soon. With 400 million captive users of its telecom platform Jio, Reliance has an incredible advantage over all its rivals who have to put in mega efforts and mega bucks to have potential customers download their own apps and then to incentivise them to use them frequently. Reliance, being an entirely Indian-owned and India-funded business, is not hamstrung by the country’s onerous policy relating to foreign investment in the retail sector that impacts Amazon, Walmart and other international players. 

Reliance’s “new commerce” initiative is now being rolled out nationally with “JioMart” that will focus on the grocery segment. The big plan is to enlist as many as 8 million to 9 million (out of about 22 million) independent retail outlets (mom-&-pop variety) to become an integral part of Reliance’s retail ecosystem. With a purpose built multi-functional POS (point of sale) system being at the heart of this initiative, each of these 8 million-9 million independent retail outlets are expected to be networked with Reliance’s overall retail enterprise. This will allow these retail outlets to gradually shift a substantial part of their own buying through the Reliance’s B2B retail platform (fulfilled by Reliance-owned supply chains, distribution centres, and logistics). In addition, most of these Reliance enlisted retail outlets are expected to fulfil the role of millions of “spokes” from which the last-mile delivery of merchandise (and returns) can be affected for Reliance retail’s B2C e-tail platform. If successfully executed, Reliance will not only become (by far) the largest B2B retail business in India, but also the lowest cost B2C e-tail business (when factoring in the cost of deliveries to and returns from consumers). By 2025-26, this business alone can potentially generate revenues in the range of US $25 billion for Reliance, making its overall retail business a US $75 billion-US $100 billion (in revenues) entity and one potentially valued at upwards of US $200 billion at that time. 

Amazon, Walmart, and Metro (Cash & Carry) are obviously taking their own steps to create a similar B2B business by enlisting India’s millions of independent retailers but how far they will succeed remains to be seen.

Reliance’s “omnipresent” retail—physical and digital—lets Indian consumers do just about everything: be entertained, carry out payments, buy financial products, access education-oriented products, and in the future perhaps also access healthcare. It is a unique business model that will be perhaps hard to emulate by other retail players in India but even by some of the most successful retail businesses anywhere in the world.

The author is chairman of Technopak, a management consulting firm

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