Reliance Jio, the Mukesh Ambani-led Reliance Industries phone and data services subsidiary, is readying for its biggest bet yet — an expansion into ecommerce with an app that will serve millions of Indian kirana or small, neighbourhood stores.
The app will form the bedrock of Ambani’s strategy to integrate Reliance’s retail business with its digital services business. The aim is to bring together the company’s $10-billion retail business housed under Reliance Retail with the data and digital payments services of Jio with a tighter integration into the country’s loosely-tied supply chain and logistics ecosystem.
The app, it is expected, will be a one-stop shop for offline merchants to get on to Reliance’s ecommerce platform; manage their inventory, logistics and supply chain requirements; accept payments and credit money back; and place orders from Reliance’s cash-and-carry or wholesale mega-stores.
Reliance is already piloting the app with 5,000 kirana stores in Mumbai and Ahmedabad. It expects to roll it to out across merchants the country by the end of the year and scale it up next year.
The USP in this plan is a “tokenisation platform” that will allow consumer product companies such as Hindustan Unilever and Dabur to generate select promotional coupons together with merchants to clear stock, target users in a particular catchment area, and help increase customers visiting a particular retail outlet. It can also be used to target product sampling accurately. Brands can offer discounts using coupons, too.
The coupons will be available on the Jio Money app of the user or be offered as a click-through message promotion.
“The app is a critical part to build the ecosystem around ecommerce. Ecommerce in India cannot be successful without the physical retail network,” said a source with close knowledge of the plan.
“It is not important for a user to shop on the website. The user can go up to the store,” said the second source explaining the offline part of the plan. “As long as the person is using any of the Jio platforms – commerce or ecommerce – doesn’t matter. The user should be inside the Jio world.” Both these sources, as also another one quoted later, wanted to stay anonymous in this story.
In doing so, Reliance will channel customers to a large in-house business: Reliance Retail, which posted Rs 69,198 crore revenues and Rs 2,064 crore profits in 2017-18 – making it India’s largest organised retail business with 7,573 stores (including Jio stores) across India spread over 17.7 million sq ft of retail space.
What’s in it for the kirana stores to step into the Jio fold? Supply chain, logistics, tax filings (including GST), and inventory management are few of the problems that the app aims to solve for the merchants. More on this later.
The ground-up approach at Reliance is not to be part of the “discounting game” and find a business model that will create stickiness for merchants and users. Executives at Reliance believe that the company’s entry into ecommerce will not be to compete with Amazon and Flipkart, the two leaders in Indian ecommerce. “We will chart our own way into ecommerce and not follow what the others are doing,” said one Reliance Industries executive, working closely with Reliance Retail on the plan.
Offline, the path to online
India’s ecommerce business has been growing fast – it has expanded over seven times over three years to some $38 billion in 2017 and is expected to top $200 billion in a decade’s time.
The market so far has been dominated by Amazon and Flipkart (backed by Walmart) – holding some 70% of the market. Future Group, run by Kishore Biyani, is in talks with Amazon to build large-scale ecommerce operations. Chinese ecommerce giant Alibaba is planning a big-bang entry into India with its shareholding in Paytm (more here).
Reliance Industries, India’s largest company, on the other hand, hasn’t yet started its ecommerce journey but for a few pilots and AJIO.com, a fashion portal under Reliance Retail.
That is set to change.
However, the integration between online and offline cannot happen without a large-scale technology integration, which ties together supply chain, payments, logistics, merchants and customers under the same umbrella — which is what the new Reliance app attempts to do and will act as the base for the integration.
Reliance is building the technology in-house, a third source said, and it is being developed in India and Jio’s technology centre near Dallas, Texas in the US. Once fully ready, the app will allow merchants to file GST by inputting invoices, file claims, manage the store inventory, and order for a pick-and-drop to a customer’s doorstep. “Some of these problems that we are trying to solve are big problems for merchants. It will be a one-stop destination for merchants to buy, sell, and manage,” said the first source.
To put the above quote in context, India has some 50 million kirana or mom-and-pop stores. Only a few lakh of them sell online on Flipkart, Amazon and others. Reliance wants to get those merchants online.
Kumar Rajagopal, CEO of Retailers Association of India said, “The ecommerce business lacks trust. Every (online) buyer thinks that he is buying from an ecommerce site (like Flipkart and Amazon) but it is actually the (offline) merchant who is selling on the site. An omnichannel strategy helps in building the trust, especially with a hyperlocal approach.”
Indians have been used to calling up the neighbourhood store and order goods home. Reliance wants to bring that experience in ecommerce – by helping a customer order online but have the delivery done by the local kirana store. “Every retailer needs an omnichannel approach… It will also help the smaller retailers,” Rajagopal said.
Reliance’s cash-and-carry business has already got 10 million registered merchants (not all of them buy from Reliance). “Our plan is it get more of those merchants to use the app,” said the first source. Jio has over 180 million customers, about one-fourth of who are in rural areas.
The app will act as a PoS (short for point of sale) application for merchants. The app will allow a merchant to accept payments and money directly from the Jio Money wallet.
Experts believe that besides the large, online anchor sellers like Cloudtail (for Amazon) and WS Retail (for Flipkart), there are a bunch of offline sellers waiting to be created in the Indian market. “That’s the natural progression,” said Amnish Aggarwal, retail analyst with Prabhudas Lilladher, a Mumbai-based stockbroking firm.
Still, Aggarwal said that offline-to-online model doesn’t work for everything. “It’s product specific, but it’s catching up. But will it replace the pure online model, it’s too early to say,” he added.
Once merchants start using the app to manage the business, Reliance believes that it will be able to convince them to start selling their products to customers online. And eventually, buy products from Reliance and further sell to the customer.
The app is just the first step into the ecosystem. Reliance wants to tie its retail business into the ecommerce business. “Once the ecommerce business gets started we will build a hub-and-spoke model, but it won’t be an inventory-led business like some of the large ecommerce companies,” said the second source.
At the heart of Reliance’s ecommerce strategy is to build a large hub-and-spoke system of offline kirana stores, Reliance Retail stores and warehouses, and Reliance Jio outlets.
“Reliance doesn’t believe that it’s just the brand (Jio) that is close to the customers, it’s also the locality merchants who are close, as well,” said the second source.
It’s a numbers game as much as a proximity game. Put Reliance’s plan across a network of more than 7,500 Reliance Retail and Jio stores that will act as distribution points. It also has 45-50 warehouses, which will also go into building the supply chain for ecommerce. “We will not build warehouses especially for ecommerce – it has to be part of the overall retail business. That will help us spread the cost over a much larger revenue base,” said the first source.
Reliance plans to use the Reliance Retail stores as a distributor-like supplier to the kirana store and also directly to the customer. “We are not sure how this will evolve in the months to come but now it is a little open,” the first source said.
Once kirana stores get on the app, Reliance will leverage it as a platform to get more retailers to sell its private labels. “Ours is not just an ecommerce play. It is a mix of online, offline, products and technology,” said this source.
Reliance believes there is a natural draw from customers for its private labels. In fashion, there are brands in Reliance Trends — DNMX, Fusion, Teamspirit, Riogirl, among others. For food and grocery, there is Reliance Fresh. Private labels make for more than 25% of Reliance Retail’s total sales.
It also has partnerships with 40 international brands including Diesel, Brooks Brothers, Gas, Hamleys, among others.
To deliver to the merchants, Reliance has plans to build a logistics network that will be serviced in-house and by third-party logistics providers. Here, too, there will be integration with Reliance’s retail stores: they will be used as storage points from where delivery boys can pick up and deliver to customers. The kirana stores will also double up as small storage points.
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