Mukesh Ambani’s Reliance wants to shake up India’s retail supply chain

Pashuram Verma was surprised to find a salesman from India’s biggest conglomerate standing outside his tiny kiosk in Mumbai, which sells everything from bread buns and eggs to cigarettes.

The salesman said he represented JioMart, the online shop of Mukesh Ambani’s Reliance Industries, India’s biggest company. He encouraged Verma to order products from the ecommerce site and offered discounts on biscuits, which the shopkeeper usually buys from a distributor.

“My business is too small for something like JioMart,” he demurred.

But the 11m shops like Verma’s, known as kiranas, account for the vast majority of India’s retail market, which some estimates say is the fifth biggest in the world. Reliance has already upended the telecoms sector and muscled into retail but is now looking to supply mom-and-pop stores, threatening to undermine a system that has existed for decades.

The steep discounts offered by JioMart and rivals such as Udaan, the country’s first business-to-business online platform designed to supply kiranas, are bad news for the 450,000 distributors that represent fast-moving consumer goods groups such as Hindustan Unilever and Nestlé. This network of salespeople has traditionally supplied kiranas with consumer goods, visiting the stores on a weekly basis to take orders for replenishment.

“The entire fraternity is in distress,” said Dhairyashil Patil, national president of the All India Consumer Products Distributors Federation. “Their livelihood has been challenged.”

Mom-and-pop stores accounted for at least 85 per cent of India’s fragmented retail market, said Kanaiya Parekh, a retail specialist at consultancy Bain, adding that they “are still by far the dominant force wherever you go”.

India’s retail market was worth about $800bn in 2019-20 and is projected to reach $1.5tn by 2030, according to consultancy Technopak. Ecommerce represents less than 5 per cent of sales in the country despite surging in the pandemic, according to Bain.

Ambani has transformed Reliance from an oil refiner into a conglomerate spanning energy to telecoms and has become Asia’s richest man. His reshaping of the company has included expanding the company’s retail unit, which comprises thousands of stores, Reliance’s own product lines and its ecommerce unit.

Bhavin Satra’s kirana has started buying products from JioMart, which was launched in spring 2020, because of the large discounts. The shopkeepers buy from the JioMart Partner app as well as JioMart’s B2C store — whichever has the better price. “It’s not about the service, it’s about the rate,” he said, comparing JioMart to traditional salespeople. “It’s much, much cheaper . . . almost 20 or 30 per cent,” he estimated.

Udaan was launched five years ago and has 80 per cent of the market for online sales to kiranas, according to a report by wealth manager Bernstein. But while Udaan was the first mover, Patil said it was the arrival of bigger player JioMart that had unnerved the distributors.

“After the entry of JioMart, things have gone very south”, said Patil. “This is rarely seen that these companies are having deep pockets and venture capitalists are investing in these companies.”

“So they are burning cash,” he complained. “The average distribution margin is 3-5 per cent. And these people are discounting 15 per cent.”

The changes pose a problem for big consumer brands. “The whole competitive advantage of fast-moving consumer goods companies is the distributor network they have, even in today’s digital world,” said Angshuman Bhattacharya, who leads the India consumer products and retail practice at EY, the professional services group. “Remember that ecommerce is between 3 and 8 per cent. For most consumer companies, the remaining 92 is coming out of traditional distributors.”

Seeking protection from what they allege is unfair pricing, the distributors have taken their fight to the manufacturers. After sending letters of complaint, Patil’s federation in January threatened to stop selling some products made by Hindustan Unilever and Colgate-Palmolive in Maharashtra, India’s second-most populous state.

Hindustan Lever said it was committed to ensuring distributors earn “a fair return on their investments”.

“General Trade (GT) continues to be our largest channel and our Distributors (Redistribution Stockists) are and will remain our valued partners in our quest to serve the needs of our consumers across India,” the company added.

Colgate-Palmolive said it was “committed to forging productive partnerships with our distribution network to serve consumers”. 

Bhattacharya said price parity was something “companies will have to really work towards in terms of making sure that nobody is short-changed in the overall process”. Both Hindustan Lever and Colgate-Palmolive met the federation and the strike was averted.

Kiranas also face online challengers that could steal their customers. These include speedy delivery companies such as Dunzo, which bring daily essentials direct to customers. Reliance Retail Ventures bought a 25.8 per cent stake in Dunzo this month for $200m.

But kiranas also deliver, and many are offering their small-scale logistics capacity to big companies. The mom-and-pop shops now undertake about one-third of the monthly deliveries for Walmart-owned Flipkart, the company said in September.

Satra has started selling to customers over WhatsApp but others remain sceptical about going online. A few streets away, Verma turned down JioMart and opened an account with Udaan but he has yet to place an order.