There’s been a rash of e-commerce acquisitions by Reliance Industries Limited (RIL). A few days ago RIL bought 60 per cent controlling interest in the online pharmacy stores Netmeds for around I620 crore.
The pandemic has boosted the online pharmacy market, and Ernst & Young (E&Y) says it is estimated to touch I20,000 crore by 2023.
Mukesh Ambani’s Reliance Group is keen to grab a part of the quickly expanding online pie; but then it has to take on the big daddies. Amazon has just launched its ‘Amazon Pharmacy’ and Flipkart, now owned by Walmart, is believed to be not far behind.
Beyond online pharmacies, Mukesh Ambani has gone shopping to bolster his newly-launched online retail operations, JioMart.
The long-negotiated takeover of the Kishore Biyani-promoted Future Group’s retail business is likely to fructify by the end of the month.
Other deals in the pipeline could include part or full buyouts of the online furniture store Urban Ladder for about I240 crore and lingerie online seller Zivame for I800 crore.
Reliance has come in late into e-commerce, but as is the Mukesh Ambani style, it’s with all guns blazing. There is obviously going to be no going down the road of organic growth, no building brick by brick.
The strategy is simple: it will be plugged into its existing networks and expand through the acquisition of online, established players.
THE DRYING UP OF OIL
Reliance’s new online retail push is also the answer to the serious hit its core oil refining / hydrocarbon and chemicals business is taking.
The coronavirus has pushed the world economy into recession and oil and gas are among the worst hit sectors.
Evaporation of demand had pulled down crude prices to as low as $20-30 a barrel.
Analysts figure the enterprise value of the company’s oil refining and chemicals divisions may have eroded from $75 billion last August to as low as $55 billion by end-April.
This has also put to risk Saudi Aramco’s intent of taking a $15 billion stake, since it was based on valuations of August 2019.
The movement towards the ‘new’ businesses of telecom and retail is an old script. Reliance Retail came into existence in 2006. By 2019, one-fourth of the Group’s revenue had moved away from its ‘legacy’ industries of oil and chemicals.
The retail market, estimated at $1 trillion, has an organized component of only 8-10 per cent, marking a huge opportunity for those who have an all-India footprint.
Within that, e-tailing is growing at a faster clip of 30-35 per cent year-on-year, and is expected to carve out 15 per cent of total retail sales in the next 4-5 years, compared to the current 5 per cent share.
However, Reliance has been slow on online retailing, and it was only in 2018 that Reliance announced a full-fledged entry into e-commerce with an online-offline hybrid model. It got going with a series of acquisitions that included logistics startup Grab, software firm C-Square, and Indian government services aggregator, EasyGov.
By then, a host of other more experienced online sellers - Amazon, Flipkart, Snapdeal, and Grofers and Big Bazar in the groceries space had established themselves.
Now, with the pandemic, the shift away from physical sales has given a new opportunity, and Reliance seems to be determined to cash in.
CAN JIOMART TAKE ON AMAZON?
JioMart, the Reliance Retail online store, had a soft launch in December last year with a focus on groceries and vegetables.
The strategy was to link the thousands of mom-and-pop kirana outlets as online sellers with local consumers using popular platforms like WhatsApp and FB.
By mid-July this year, with the pandemic raging, Reliance had fast-forwarded plans. In the company’s AGM, Mukesh Ambani had announced that JioMart would be expanded to cover electronics, fashion, pharmaceutical and healthcare.
Can JioMart take on the Amazons and Flipkarts? To be fair, Reliance is not really a ‘new’ player. It has been in retail since 2006, it has a network of 11,800 stores and revenues of nearly Rs 1.5 lakh crore for FY20. It has established telecom and technology platforms, and over 6,000 Jio stores.
And it has an unlimited war chest to fight competition. On the other hand, logistics is a weak point, and the initial months of groceries and vegetable supplies for online orders have not received good feedback.
On the other hand, Amazon and the other established players are both focused and have got their logistics well organized. Amazon is backed by a parent company that clocked $280 billion in revenue last year, and has access to tested technology and artificial intelligence.
Flipkart is owned by Walmart, whose revenue for FY2020 was over 20 times Reliance Retail at $524 billion and has stores covering over 700 million square feet of real estate.It will be an interesting fight and a lot will depend on how much the international daddies are interested in investing in the India story.