RIL takes hyperlocal route to battle Amazon, Flipkart

It’s a match made in heaven when a massive platform invests in an equally large distribution network to digitise one of the most crucial cogs of an economy’s consumption wheel. In that context, the Facebook-Reliance Jio juggernaut is unique in what it has set out to achieve—digitise unorganised retail.

According to an August 2019 note by CARE Ratings, unorganised retail accounted for 88% of the $792-billion retail pie in 2018. Needless to say, Facebook and Jio have put their fingers in the right basket.

This approach is unlike the path treaded by the two dominant forces in India’s e-commerce landscape, Amazon, and Walmart-owned Flipkart. Both companies have overlooked the potential of doing business with the millions of neighbourhood stores strewn across almost every other nook and corner of the country. Truth be told, Amazon and Flipkart have woken up to their potential of late, but the engagement is largely restricted to utilising this vast network as points of last-mile delivery. Amazon, however, has an omnichannel presence through its stake in the More chain of supermarkets and Kishore Biyani’s Future Coupons, for its grocery business. Of course, their payment arms—Amazon Pay and Flipkart’s wholly-owned subsidiary PhonePe—are active in this ecosystem, enabling digital payments at the stores.

Unlike these well-entrenched e-commerce businesses, neighbourhood stores will be at the centre of Reliance’s online commerce universe. “Our focus will be India’s 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants, and millions of small and medium enterprises in the informal sector, in addition to empowering people seeking various digital services,” the company said on Wednesday.

“Concurrent with the investment, Jio Platforms, Reliance Retail Limited (“Reliance Retail”) and WhatsApp have also entered into a commercial partnership agreement to further accelerate Reliance Retail’s New Commerce business on the JioMart platform using WhatsApp and to support small businesses on WhatsApp,” the statement added.

In effect, the engagement will explore a hyperlocal delivery model, say industry observers.

Both Reliance and Facebook, thus, stand to gain from each other.

Facebook is a champion of the consumer internet play. India is Facebook’s largest market in terms of users. The parent app, according to Statista, had 260 million users as of January 2020, approximately 80 million more than its home market, the U.S. Instagram, owned by Facebook, had another 80 million, second to the 120 million users in the U.S. However, WhatsApp, which boasts of 400 million users in India and happens to be Facebook’s biggest buy—the 9.9% stake buy in Jio comes second—steals the thunder with its sheer ubiquity.

Yet, Facebook doesn’t make much money from India. The company earned $41.41 per user in the U.S. and Canada in the quarter ended December 2019. It earned a paltry $3.57 per user from the Asia-Pacific region, of which India is a part. Launched in India in 2018, Facebook’s Marketplace offering, a platform that connects buyers and sellers, hasn’t flown off the shelves either. WhatsApp Pay is stuck in a regulatory maze. Besides, Chinese behemoth ByteDance has been quietly sniping at its heels. According to reports, TikTok, Vigo, and Helo, all Bytedance products, have approximately 300 million active users in India.

It was about time for Facebook to step on the gas in India.

Reliance, on its part, has been eyeing e-commerce for quite some time—it soft-launched JioMart earlier this year—without much headway. Some of the country’s biggest offline retailers, be it the Future Group, the Tata group, or the Arvind group, have struggled at e-commerce. While Jio’s content services have found resonance with consumers, its payments business, Jio Money, is yet to take off in a meaningful way, yet.

But that is how Reliance operates.

“The play simply is, now that you have built the infrastructure, you also want to control or own what they are consuming on that infrastructure, what they are shopping, watching, talking, everything. They already have a working prototype in everything,” says a person familiar with the Reliance way of doing business, declining to be identified as he is not authorised to speak with the media.

“The way Jio usually operates is that, they don’t mind taking time in the experimental phase. Until and unless they perfect the operating model, they will keep the experiments going. The moment they reach the optimised operating model, they will scale it as much they possibly can. People don’t realise that even for Jio, it was in the works for many years before it was launched. People say it took them three years to reach 380 million users, but the reality is that it took them several more years to build everything,” this person added.

Facebook and Reliance complement each other. In Jio, Facebook gets a partner to tide through regulatory hurdles, access to the telco’s 388 million users, and a hope to counter ByteDance’s aggressive manoeuvres in India. Also, the use of WhatsApp for business is slated to make WhatsApp Pay mainstream in India. While it will begin with payments, the service might as well be extended to offering credit and other value-added services. Similarly, in Facebook, Reliance has not only found a source of a large pool of capital to reduce its debt, but also a technology partner with deep insights and expertise in building consumer-facing digital products.

“India remains an important and large long-term opportunity for Facebook given the 400 million-plus users on WhatsApp. We have written in the past about the multi-billion-dollar UPI and payments opportunity in India and are hopeful that deeper partnership with RIL [Reliance Industries Ltd] will help Facebook continue to drive user and merchant adoption. Long-term direct connections between users and merchants are likely to create incremental monetisation opportunities,” Morgan Stanley said in a report.

While the plan looks perfect on paper, it is fraught with challenges.

“On the one hand, JioMart could enable inventory and the back-end supply chain for small shops, on the other, the WhatsApp platform could enable ordering and payments, providing seamless customer experience,” said a research report by Edelweiss. “We do see formidable execution challenges as well as opportunities,” it added.

The development comes at an opportune moment. The Covid-19 outbreak is poised to expedite the adoption of digital services in India. Still, launching and running an online shop that caters to both businesses and end-consumers is not devoid of challenges.

The challenge lies in implementing the Reliance-Facebook juggernaut’s core proposition—digitising small businesses.

Explains Sumit Ghorawat, co-founder at ShopKirana, an Info Edge-backed startup that supplies to neighbourhood grocery stores, of Reliance’s strategy to install point of sale (POS) systems at neighbourhood stores, “I believe that POS will not work immediately. With POS, you are trying to change a behaviour. For a POS to work accurately, you not only need to enter every sale on the system, but also enter every piece of inventory that enters the store. A kirana store owner is not trained to do that. It isn’t easy to do so because every kirana store works with several suppliers. For this to work seamlessly, it is imperative that the stores work with a single supplier,” says Ghorawat. “However, if you can create a communication between retail stores and consumers, that works very well.”

In fact, a number of startups such as Udaan, ShopKirana, Jumbotail, OkCredit, and KhataBook, to name a few, have spotted an opportunity in serving the small business owners, either as suppliers who also give them credit, or partners who digitise their operations. Together, these startups have raised close to a billion dollars over the past 18 months, with Udaan accounting for the bulk of the money.

“The supply chain for grocery is such that nobody has it ready at scale, particularly to cater to kiranas. Supplying to your own stores is very different from supplying to millions of kiranas,” says an investor at a large B2B e-commerce company, declining to be identified.

Similarly, hyperlocal grocery delivery hasn’t worked particularly well in India. In grocery, Grofers had started out by sourcing from neighbourhood stores, but soon pivoted to an inventory-led model in line with its larger rival bigbasket. Flipkart had earlier shuttered its hyperlocal wing, Nearby. Similarly, food delivery startups such as Swiggy and Zomato, which are helical delivery businesses as well, have been bleeding money. It isn’t immediately clear whether JioMart will have the small business owners undertake last-mile delivery or deploy its own fleet (it had bought hyperlocal delivery startup Grab in March last year).

Besides, customer acquisition in a consumer internet business would entail some cash burn, to begin with.

That said, nobody’s undermining the might of Reliance. Says an investor in the online grocery segment on the condition of anonymity, “People should be worried, why not? At the end of the day, it’s Reliance. But it is still too early for us to change our hypothesis that this isn’t a winner-takes-it-all market.”)