Reliance prepares the ground for e-commerce launch

Mumbai: Reliance Industries Ltd’s retail arm—Reliance Retail Ltd—is testing its food and grocery app among its employees before the commercial launch of its e-commerce venture, mirroring the strategy India’s most valuable company adopted ahead of launching its 4G telecom service in Reliance Jio Infocomm Ltd.

The grocery app would be made available to the public by this year-end and orders made on the app fulfilled by local merchants, two people aware of the matter said, requesting anonymity.

Reliance Industries’ entry into the Indian e-commerce market, if its aggressive foray into the telecom industry is anything to go by, may similarly upend the online retail industry that is dominated by US giants Amazon.com Inc. and Walmart Inc.-owned Flipkart, at present. While food and grocery is the largest consumption category in India, accounting for two-thirds of India’s retail market, online sales in this category are still restricted to the top cities.

“We think Reliance Retail is most suited for an e-commerce play. They have the capital strength, a big offline presence, good brands in their kitty and significant grocery operation. If not this Diwali, we expect a launch of the e-commerce venture next year for sure," said Satish Meena, senior forecast analyst at Forrester Research. “Though it may challenge the position of existing e-commerce majors, it will also attract new online buyers, which will be good for the segment."

Queries emailed to Reliance remained unanswered till the publishing of this story.

Reliance Retail operates neighbourhood stores, supermarkets, hypermarkets, and wholesale, speciality and online stores.

“We believe given the vast store network (10,415 stores) it gets an edge to implement the omnichannel platform," brokerage Jefferies India said in a note to clients on 22 April.

For its e-commerce venture, RIL plans to sign on local merchants, boosting their sales through what is known as the O2O (online-to-offline) marketplace, a business model pioneered by the Chinese e-commerce giant Alibaba Group Holding Ltd.

Under the O2O model, a consumer searches for the product or services online but buys it through an offline channel. RIL’s plan is to consolidate merchants under an e-commerce platform. The merchants, in turn, will cater to the demand. This will help the company save costs and enter areas currently outside the traditional purview of e-commerce companies.

Reliance already sells food and grocery products through its website Reliancesmart.in.

The launch of the grocery app for its employees is also RIL’s first effort to combine the strengths of Jio numbers and retail’s cash-and-carry model, according to one of the two people cited earlier.

“The plan has always been to integrate the advanced infrastructure built by Reliance Jio and physical retail business to create a differentiated model," said the person, requesting anonymity.

In January, RIL chairman and managing director Mukesh Ambani said that group companies Reliance Retail and Reliance Jio would jointly launch a new e-commerce platform in the country and Gujarat would be the first state to get it.

The e-commerce bet is in line with Ambani’s aim to generate half of the group’s revenue from the consumer businesses over the next 10 years. Currently, 80% of the group’s sales come from its traditional oil and gas business.

Significantly, Reliance Retail has withdrawn its fashion and lifestyle products from online marketplaces including Amazon and Flipkart.

Reliance Retail reported an 89% jump in sales at «¤??1.3 trillion in the year ended 31 March from «¤??69,198 crore in the previous year. The retailer’s reach expanded to 6,600 towns and cities at the end of the fiscal.

Jefferies in its report adds that online retail is currently $18 billion in size and accounts for 3% of the total retail market in India, according to India Brand Equity Foundation.

“We estimate the share of online retail in India will increase to about 8% by 2030, with the total size at $170 billion. This implies a 21% compound annual growth rate (CAGR) for online retail over FY18-30E, versus 15% CAGR over FY18-30E for physical organized retailers. Over the same period, we expect the overall retail in India to grow by 9% as unorganized players lose market share," said Jefferies India in the note.

On Tuesday, RIL shares rose 1.38% to «¤??1,363.30 apiece on the BSE while the benchmark Sensex shed 0.21% to end the day at 38,564.88 points.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.