Jio vs Amazon vs Flipkart: An epic e-commerce battle?

Retail Riches: Mukesh Ambani is moving to transform India’s retail landscape. Will he succeed?

American e-commerce giants Amazon.in and Walmart-owned Flipkart raked in close to $5 billion in festive season sales – between Dasara and Deepavali -- this year, compared to $3 billion in that period last year.

And just like last year, offline retailers and their associations – consisting mostly of the vast segment of unorganised retail in the form of mom-and-pop stores -- are up in arms at the heavily discounted – they say, predatory – pricing that these e-commerce companies, backed by vast reserves of funding – offered on their platforms to achieve these sales at a time when offline retailers are taking the brunt of the slowdown in consumption.

But wait, there’s now a new kid waiting to get on the e-commerce block.

READ: Doing a Jio in e-com, taking on Amazon won't be easy

In late October, Mukesh Ambani’s Reliance Industries Limited (RIL) announced that it is opening a new holding company for the group’s Reliance Jio Infocomm and upcoming ‘digital services’ businesses. The RIL board approved a proposal to invest Rs 1.08 lakh crore (about $15 billion) into the new holding company which will, in turn, invest that amount in Reliance Jio, in addition to the Rs 3.5 lakh crore that has already been poured into it and which has made Jio the world’s second largest single-country telecom service provider, with over 355 million subscribers in just three years after launch.

The parent company – RIL – will invest the money in the holding company through optionally convertible preference shares, a model followed by Chinese e-commerce giant Alibaba Group Holdings Ltd. and Google’s Alphabet Inc. In other words, Ambani is modelling it to become a ‘platform’ under which several strategic business units will function, the first and fundamental of them being the Jio telecom arm. “It (the holding company structure) helps organise related businesses better,” an industry analyst told DH.

Simultaneously, the parent RIL will take on the existing debt of Jio to make the latter net debt-free by March 2020. Net debt is the difference between the company’s gross debt and the cash flows – which for the company stood at Rs 1.54 lakh crore at the end of FY19. That ‘net debt-free’ status is the wind beneath the wings, and the $15 billion new capital the engine that will provide the high thrust required for the jumbo jet that Ambani hopes will take off.

One wing of that jumbo jet is Reliance’s new e-commerce platform, aimed at the consumer, and under which Reliance will also bring its media streaming business, a la Amazon Prime offerings of video and music. Being Mukesh Ambani’s company, of course, it will also premiere new movies on a screen, not near you but at your home. The other wing, in due course as 5G telecommunications take off, will take Reliance into yet another lucrative segment – the enterprise, with its Internet of Things business, again anchored by Jio.

Platform is the new empire

Those who have worked closely with Mukesh Ambani say it is difficult to gauge his moves in advance because “he can chalk out multiple strategies at one point in time” and no one knows which one he would put into action until he does. But the e-commerce plan seems fairly straightforward, if humongous. Ambani is setting out to do what Amazon has done in America or Alibaba in China – create platforms on which people can come and sell and buy almost anything – from products to services.

What remains to be seen is how Ambani plans to beat the incumbent big players in India – Amazon and Walmart-Flipkart, both with huge backing of experience, capital, technology and geographical spread.

According to one insider, Ambani’s strategy is two-pronged – a ‘sum-of-the-parts’ model of bringing together various elements of the business, and ‘value for money’ for the consumer.

The ‘sum-of-the-parts’ model calls for a high degree of backward and forward integration, which is where Jio comes in as the backbone, the communication channel and the medium. The ‘value for money’ proposition is already visible in how Reliance Retail functions and in general how RIL functions – offer the lowest prices possible by cutting off as many intermediaries involved in the business as possible, across the chain from manufacturing to retailing.

This is quite distinct from the discount model followed by Amazon and Flipkart. That model has caused both companies to incur losses every year in India. In FY19, Flipkart India made losses of Rs 3,835.3 crore, and Amazon India Rs 5,685 crore.

On the other hand, Ambani will hope to repeat the company’s Jio performance in the retail business. Jio made humongous investments over years as it prepared to start the telecom business, but once in business it offered the lowest prices in the market to customers and yet began to turn in quarterly profits of nearly Rs 1,000 crore three years into the business, while large, long-established players Airtel and Vodafone-Idea struggle on profitability.

Sum of the parts

When Reliance enters the e-commerce business, it will be backed from day one by its huge network of Reliance Retail stores, which includes Reliance Fresh, Reliance Trends, Reliance Digital, and the British toy retailer Hamleys.

On top of it, Reliance is bringing into its e-commerce fold mom-and-pop stores across the country. When you order on its e-commerce site, it may be the local kirana store that delivers the goods to you. But unlike Amazon and Flipkart, which also have tie-ups with local stores but currently use them only for last-mile delivery, Reliance is integrating these small traders into its business.

It is said to have already tied up with more than 2.5 million kirana stores, installing its Jio point of sale (PoS) machines in them, connecting them into its high-speed 4G network on which its customers can order supplies, and working with the store-owners on inventory and billing. What’s more, unlike conventional PoS terminals, the Jio PoS machines will not only help do the transaction, they will also store data, would be connected to the cloud and will store customer information, which would be accessible to that particular retailer only, according to sources. According to BofA-ML estimates, Reliance will have helped digitise 5 million kirana stores by 2023, and given them store-level customer intelligence, the key to the success of Amazon and Flipkart.

In comparison, while Flipkart has about one lakh sellers on its platform, Amazon has 5.5 lakh sellers on its platform – most of them catering to the millennial crowd. Jio, by tying up with millions of Kirana stores in the country, is expected to give Reliance the edge by covering the broader consumption base of middle-class India. Of course, it’s not as though Amazon and Walmart are unaware of Ambani’s moves or are not acting to brace for Reliance’s entry. Walmart recently even wrote to Prime Minister Narendra Modi seeking a ‘level playing field’.

Indian FDI norms do not currently allow Amazon or Walmart to have physical stores in the country. Both companies have to work around these norms. Amazon, for instance, has ‘indirect’ investments in Shoppers’ Stop, the Future Group and the Aditya Birla Group’s More store-chain. Moreover, Amazon has started working with kirana stores, too, and is said to have about 25,000 such stores currently, while Flipkart-Myntra have some 32,000 local store partners between them.

In addition, over the past two years, Reliance has acquired stakes in over 20 start-ups, including one that develops technology to onboard kirana stores onto large platforms; the music streaming service Saavn that helps it take on Amazon’s Prime Music; and it already has JioCinema and other services that compete with Prime Video. These start-ups are also developing technologies and services in AI, agriculture, healthcare, all of which Reliance plans to integrate on its e-commerce platform. Indeed, as Ambani’s presentation at the company’s recent AGM showed, the company also plans to offer Government-to-Consumer (G2C) services on its platform, a la Alibaba. So, the next time you apply for a visa to visit another country, you might be doing so on the Jio platform.

Ambani has said that Reliance Retail will contribute half of the company’s revenues in the coming days, as against the current 32% (its revenues crossed Rs 1.3 lakh crore last year). The e-commerce business is the way the company is going to achieve that, company sources said. With the Indian e-commerce market expected to grow at nearly 20% annually from the current level of $25.3 billion a year, Ambani’s assertion makes sense. It also means, India’s retail landscape is set to be transformed, just like its telecom landscape has been transformed by Jio.