Reliance deploys Jio playbook to disrupt FMCG space

With a ₹11,500 crore revenue in FY25, Reliance Retail’s FMCG business has already found a berth among the topmost FMCG biggies of India. Unlike its competitors (who have been around for decades) who have been struggling to get volume growth and are growing on the back of premiumisation, Reliance’s FMCG game plan, at least for the time being, is to target the masses. From personal care brand Velvette or SIL in jams and sauces and Ravalgaon in confectionery, almost all their recent FMCG acquisitions have been legacy mass brands.

While the narrative of most large FMCG company CEOs has been one of volume growth eluding them due to softening of demand, the focus of Reliance, be it with the soft drink brand Campa-Cola or staples brand Independence, has largely been the general trade. And the strategy is paying off. Volume growth is not eluding Reliance. Walk into a non-descript general store in Chennai, Bangalore or in NCR, the Campa-Cola cooler is rather prominent. So, what has Reliance done differently, which the others haven’t been able to crack? It has flexed its distribution muscle and wooed the trade with higher margins.

To begin with, it has launched a 200 ml bottle of Campa-Cola at a ₹10 price point, thereby forcing incumbents Pepsi and Coke to slash prices. “Their distribution might not be comparable to Coke or Pepsi but they have been able to make a dent across markets. They would at least have a high single-digit or low double-digit market share by now,” points out former Nielsen director, Sriprakash Nadadhur Sridharan, currently founder, Prajna Consulting.

Mohit Kumar Kundalia, COO, Tirupati Trading (a Jaipur-headquartered FMCG distributor), claims that Campa-Cola’s market share in Rajasthan, with little over a year of distribution, is already 25%. “The retailer price of 500 ml and 750 ml packs of Coke and Pepsi were ₹40 and ₹45 respectively, but Reliance started selling at ₹20 and ₹25. They have launched bottled water brand Independence at ₹10 for a 750 ml bottle, while competitors are selling a 1-litre bottle at ₹20. Reliance is playing the margin game and the trade loves higher margins.”

In eastern Uttar Pradesh, Bhagirath Jalan, director, Jalan’s Retail (a seven-store hypermarket chain headquartered in Varanasi), is yet to sell any of Reliance’s FMCG brands, but he has already been getting feelers of a 10% higher margin. “For a retailer, even a 5% margin is a lot of money, Reliance’s 10% offer is bound to tempt a retailer to give preference to their portfolio,” he says.

Will a Gen Z or a millennial even relate to Campa-Cola or Velvette? Unlikely. But Reliance has made sure that Campa-Cola resonates with consumers through high-decibel advertising during this year’s IPL. “They have Jio, Jiostar and Reliance Retail, an ecosystem which none of the FMCG companies have. They can track shopping behaviour and build narratives accordingly,” explains Prajna’s Sridharan.

Distribution Muscle vs Brand Power

Reliance is clearly looking at replicating its telecom strategy in FMCG – it is wooing the trade and consumers with competitive pricing. But what happens to the brands that have been built by iconic companies such as Unilever, Nestlé, Marico and Dabur over decades? Will Reliance’s money power eventually lead to the downfall of these brands? Certainly not. Deep pockets will make Reliance disruptors but there is a lot more in the FMCG environment like creativity, brand, product and innovation. “Building a full-scale FMCG business is not just about acquiring brands and pushing them through distribution. You can reach some distance through that, but eventually one needs to think about building long-term brand equity,” explains Angshuman Bhattacharya, national leader (consumer product and retail sector) E&Y.

Retail margins can’t change market share, argues Bhattacharya. “It’s not the percentage margin but the absolute margin that matters. Why HUL operates at 4% distributor margin and negative working capital or why an ITC is able to work on cash? It is because they have huge consumer pull which enables them to do a significant amount of business.”

“You can give 10% higher margins but the in-store share can just be 5%. On the other hand, somebody else has 50% in-store share and gives 3% less margin. Eventually, it’s the total amount of money that the retailer is making. The challenge is not about sell-in, it’s about sell-out,” Bhattacharya further explains.

Jalan of Jalan’s Retail agrees that however better margins a new incumbent may offer, retailers can’t afford not to have legacy brands such as Surf, Ariel, Tata Salt, Tata Tea or Nescafé. “I will lose consumers if I don’t have these brands in my store.”

D2C and Regional Brands

Even before Reliance announced its FMCG entry, the legacy incumbents have been going through several ups and downs. As if the impact on volume growth wasn’t enough, most of them were losing consumers to direct-to-consumer (D2C) brands. On the other hand, scaling up for the D2C brands was getting difficult as they didn’t have the financial muscle to afford physical distribution. It was a win-win for the legacy companies and the D2C brands when the former invested in them. The last few years have seen a lot of D2C brands getting acquired by large FMCG companies. While HUL acquired Minimalist, Tata Consumer Products acquired Soulfull and Marico acquired Beardo.

While these acquired D2C brands have now got physical wings, there are a host of regional brands across markets that have also been silently taking away market share from the legacy FMCG players. Though the biggies prefer to call the regional brands fly-by-night operators, in reality they have been giving them stiff competition. They are a favourite of the retailers as they give them better margins. Brands such as Fena and Ghadi give stiff competition to Surf and Ariel in Uttar Pradesh and Bihar. Similarly, Ranchi-headquartered atta brand, Panchkanya gives ITC’s Aashirvaad atta a run for its money.

So, how will these regional brands defend their turf? Tirupati Trading’s Kundalia says regional brands will be bought out by Reliance. Kundalia’s detergent brand Yaare, priced 25% lower than Wheel and Rin, is a dominant challenger brand in Rajasthan. “I would rather partner with Reliance or sell out to them than succumb.”

But the emergence of strong D2C as well as regional brands has proved that it is no longer “big is beautiful” in the FMCG business. In fact, FMCG companies such as Marico have realised that they can’t sell their D2C brands in their conventional distribution network. They are letting them carve their own go-to-market strategy. The likes of Tata Consumer have also allowed the original founder team of their acquired brands to run the show at Soulfull. “An FMCG engine can’t work on the back of push, it will lead to margin erosion,” says E&Y’s Bhattacharya.

Reliance will surely disrupt in the short term on the back of its deep pockets, but its competitors in the FMCG sector are way too strong to lie low. They will surely give a tough fight.