RIL ups game in FMCG space
Incumbents in FMCG space likely to face tough time given RIL’s ability to disrupt market
NEW DELHI: After disrupting the telecom and retail space, India’s largest company- Reliance Industries Ltd (RIL) - is eyeing to repeat a similar feat in the FMCG sector.
In less than a month after announcing its formal foray into the FMCG space with the launch of the brand ‘Independence’, billionaire Mukesh Ambani-led RIL has acquired a handful of legacy brands through its subsidiaries and is in the course to bring many more brands under its ambit.
“RIL has been testing the waters for the past two years with some in-house brands such as Good Life, Best Farms and Desi Kitchen. These brands were pushed through their own retail platforms like JioMart and Reliance Fresh…It has been aggressive in acquisitions by buying brands like Campa Cola and Sosyo. Further, it is in talks to buy a number of brands, including Garden, Lahori Zeera, and Bindu Beverages,” said Deepak Jasani, head of Retail Research, at HDFC Securities.
Jasani adds that with a big war chest and backed by a strong and developing distribution infrastructure, Reliance definitely has the power to disrupt the FMCG market. “RIL has set a very ambitious target of Rs 50,000 crore sales by FY27 and with its demonstrated aggression, it looks on course to hit the target,” he noted.
Coming to aggression, RIL in the past month acquired a 100% stake in METRO Cash & Carry India (‘METRO India’) for Rs 2,850 crore, a 51% stake in Lotus Chocolate Company for Rs 75 crore and 50% stake in Sosyo Hajoori Beverages. As per reports, Reliance has plans to build a portfolio of 50 to 60 grocery, household and personal care brands in near future.
Reliance on December 15 launched its fast-moving consumer goods (FMCG) brand “Independence” in Gujarat. The new brand, launched by Reliance Consumer Products, a subsidiary of Reliance Retail Ventures Ltd (RRVL), said it will offer several indigenous products including processed foods, staples and daily essentials. While the products will initially be available in Gujarat, RRVL has plans to extend the brand and include retailers from outside Gujarat in the coming months
Existing infra to boost FMCG business
Unlike some of the ventures where the oil-to-telecom conglomerate started afresh, the FMCG business is expected to receive high leverage from RIL’s existing infrastructure. “From being the country’s largest telecom operator to having the biggest footprint in the retail space, RIL has all the ammunition to scale big in no time… Besides, the JioMart-Whatsapp partnership and ramping up of financial services could aid growth,” said a senior analyst tracking the FMCG/Retail sector at a leading consultancy firm, requesting anonymity.
He adds that the major challenge for RIL would be to acquire shelves in the unorganised market where the incumbents have a solid presence. “If RIL would have been successful in acquiring Future Retail, particularly Big Bazaar, the work that now would be done in 4 years, could have been done in 2-3 years,” he said.
Jasani explains the two factors deciding the success of FMCG firms are the strength of their brand and the depth of their distribution network. By virtue of being the largest retailer and developed e-commerce platform in the form of JioMart, Reliance already has a strong presence in fast-growing modern trade and e-commerce channels.
“Reliance Retail being the largest retailer operates more than 16,500 stores and has grown its merchant partner base to over 2 million under its new commerce initiative. It is on course to partner with 10 million merchants as it expands its presence to cover the entire country. HUL currently has the most extensive network at 8 million outlets and with 10 million, Reliance will become the most widely available FMCG brand within the next few years,” said Jasani.
Existing players to face heat
Incumbents in the FMCG space are expected to face a tough time given RIL’s ability to disrupt the market by underpricing everyone for a long time. “This is not a very positive development for smaller players who have been hit by a prolonged slowdown in rural consumption. Reliance can easily offer similar or better products at a lesser price to increase its presence and minimise competition,” said the senior analyst quoted above.
Not only smaller players, but even bigger ones are facing inflationary pressure for quite some time now and to protect margins, they have resorted to price hikes or grammage cuts. “General trade accounts for 85% of the industry’s volume and RIL will have work to do here. The biggest challenge would be to build a brand. Thus, we feel the firms operating in mass-market/ commoditised goods (pulses and grains) will face the biggest heat,” said Jasani.
He adds that the likes of Nestle and ITC, which operate in the premium segment, may not be at major risk immediately but if RIL succeeds in this foray in the next few years, it could lead to shrinkage of valuations for FMCG players.
Raising the bets
RIL announced a formal foray into fast-moving consumer goods (FMCG) space with the launch of the brand ‘Independence’
Reliance Industries has set a very ambitious target of Rs 50,000 crore in sales in FMCG by FY27
It has been aggressive on acquisitions, buying out brands like Campa Cola and Sosyo
It also bought a 51% stake in Lotus Chocolate Company for Rs 75 crore and a 50% stake in Sosyo Hajoori Beverages
Its FMCG push will get a boost from Reliance Retail’s 16,500 stores and over 2 million merchant partner