Since JioMart announced its plan to venture into fashion and electronic e-commerce, experts have opined the e-tailer would find it extremely tough to make inroads into e-commerce market currently dominated by Amazon and Flipkart. As per a Live Mint report, in the past six months, Reliance has raised more than $21 billion for its digital unit Jio Platform. This month, its retail unit, Reliance Retail, bagged about $1.8 billion from private equity firms Silver Lake and KKR. This would help the company transform itself into a 21st century digital giant and India’s answer to Amazon, Facebook, Google, Alibaba and other world-class digital giants.
JioMart launched its e-services late last year. The company aims to deliver products from local kirana stores for which it will connect 3 crore kirana stores with neighborhood customers. Its entry in the online grocery market will expand the market 20 times to $29 billion 2024, says Goldman Sachs. Reliance’s partnership with Facebook will help the firm to garner market share of more than 50 per cent by 2024.
Low order value slows expansion plans
JioMart sources majority of its orders through the Reliance Retail supply chain. The e-tailer signs up with a few thousand kirana stores every month, though analysts believe, its expansion rate is slower rate than other e-tailers. The company’s average order value is lower than that of other e-grocers as its delivery costs are higher. Though Reliance plans to expand its e-grocery market to smaller cities, it may find it extremely difficult to maintain profitability in these markets.
Reliance will boost profit margins by selling more products through private labels. The company plans to sell private labels both in grocery and FMCG categories. These products form a key component of its retail and wholesale business plans However, Reliance’s focus on private labels is making large FMCG companies such as Hindustan Unilever, Marico and Dabur, wary of working with its B2B arm. To create an integrated ecosystem, Reliance will have to work with many kirana stores, brands and modern retailers across the country.
Focus on private labels
Analysts believe, though Reliance has a better chance to push its private labels in wholesale and retail markets, it may struggle to scale in electronics and FMCG categories, currently dominated by big brands, kirana stores and e-commerce firms. Particularly in fashion, it will have to tap low-priced private labels to attract customers.
Google and Facebook have invested more than $10 billion in Reliance as they plan to enter the Indian e-commerce market and expand in other sectors like payments and content. Both these companies will collaborate with Reliance in a few areas. However, they may end up competing with the firm in others
As the pandemic has made e-commerce indispensable, the government has softened its stand towards US e-commerce firms. This has encouraged Flipkart and Amazon to step up their lobbying efforts to counter growing Reliance might. However, the winner amongst these three will ultimately be decided by the consumers.