A rumoured Amazon-Reliance rishta in retail
The TLDR: Bloomberg News sent Reliance stock soaring with a report that Amazon is in talks to buy a whopping 40% stake in Reliance Retail for the low, low price of $20 billion. Unlike previous such reports, this is a much, much bigger deal if it does indeed go through. It will be the biggest ever in India as well as for Amazon. We take a quick look at the rivalry between the two giants—and also why any such jodi is bad news for the Indian consumer.
A mouth watering market
India’s retail market will be worth $1.3 trillion by 2025—a dizzying rise from $700 billion in 2019. And everyone wants a piece of it. That’s exactly why global companies have rushed into India—from apparel brands like H&M and Adidas to retail giants like Walmart, which bought Flipkart for $16 billion in May 2018. The richest and largest gorillas in the e-commerce space right now are Reliance, Amazon and Flipkart.
The OG Godzilla in retail
Reliance Retail encompasses every kind of store: supermarkets, India’s largest consumer electronics chain store, a cash and carry wholesaler, fast-fashion outlets and the online grocery store JioMart. It reported $22 billion (Rs 1.63 trillion) in revenues in March. It operates almost 12,000 stores in nearly 7,000 towns.
But this year, Mukesh Ambani pulled off two key deals that truly sealed his dominance.
Future Group buyout: At the end of last month, Reliance paid $3.4 billion (Rs 247.1 billion) to buy the retail arm of the Future Group—which owned everything from Big Bazaar to Central, FBB and Foodhall. The deal added another 1,800 stores to Reliance’s kitty. Quartz called it “a giant leap in the retail sector, leaving behind all domestic and international rivals.”
A Zuck-sized play: In 2019, Reliance launched JioMart to move into the ecommerce space—which has long been a weak spot. But rather than build a mega-platform a la Flipkart or Amazon, JioMart works as a WhatsApp order-booking service. Four months later, Facebook shelled out $5.7 billion for a 9.9% stake in Ambani’s digital arm Jio Platforms.
At the time, Mark Zuckerberg talked up “bringing together JioMart, Jio’s small business initiative, with the power of WhatsApp.” The power of WhatsApp: its direct access to 400 million users in India. The number of Jio phone users: 388 million. And that makes for an unbeatable combination:
“If the user happens to be a Jio telecom customer—a one in three chance right now—then Reliance effectively captures every phase of the transaction and can mine all that valuable data while doing so.”
On Ambani’s shopping list: He’s already bought an e-pharmacy (Netmeds), and is reportedly eyeing furniture (Urban Ladder), grocery delivery (Milkbasket), lingerie (Zivame) and even social media (TikTok).
The wannabe Godzilla
When Amazon entered India in 2013, it invested over $5 billion. Earlier this year, it put in another $1 billion—but it’s done little to win any favours with government regulators.
Lawsuits galore: In February, the Competition Commission of India (CCI) filed a lawsuit against Amazon India and Walmart-owned Flipkart. In August, a group of over 2,000 online sellers filed an antitrust case against Amazon.
The charge against Amazon: It sells wholesale products at a loss to select sellers—which then allows them to offer steep discounts on Amazon. These allow the favoured sellers to undercut their competition on the platform.
Point to note: Reliance oddly has never experienced any such pressure despite its dizzying expansion. Ambani’s very sweet deal to buy Future Group will need CCI’s approval—which it will most likely receive.
Limited reach: Amazon has quickly emerged as a major player in the e-commerce space—but online shopping accounted for only 1.6% of total retail trade in 2019. Amazon has tried to get into brick-and-mortar stores by buying stakes in Shoppers Stop and Aditya Birla’s grocery chain More. But the potential of those offline deals is miniscule compared to Ambani’s shopping spree.
Not-so-friendly government: It doesn’t help Amazon’s cause that the government has been increasingly hostile to foreign companies. Over the past few years, it has introduced an array of restrictions—all of them designed to cramp their ability to compete. As Andy Mukherjee noted back in 2019:
“Ambani’s ability to influence policies in his home market shouldn’t be underestimated. Just as Reliance gets ready to push ahead, the Indian government has tweaked its e-commerce rules and made them more onerous for Amazon and Walmart-Flipkart...
The Indian government is forcing Amazon CEO Jeff Bezos to compete with one hand tied behind his back. He could still beat Ambani, but he won’t be able to avoid getting bruised.”
If you can’t beat ‘em...
Given this lopsided playing field, cutting a mega-deal that keeps Mukesh Ambani happy makes perfect sense. Bezos was edged out of China thanks to local giants like Alibaba, and he doesn’t want to lose the next biggest market, as well.
It’s unclear what this would mean for Amazon’s operations in India. Some analysts say the “deal makes sense for Amazon only if it wants to exit India and become a portfolio investor. Given the flip-flops in policies in favor of domestic retailers, I will not be surprised if they want to do so.”
Or it may be the beginning of beautiful friendship. Reliance will finally fulfill its dream of becoming an ecommerce platform to rival Alibaba. And Amazon can now leverage Ambani’s retail empire and the now cash-rich and powerful Jio Platforms.
All market analysts agree on one fact: The Amazon-Reliance monster will destroy any hope of real competition.
The bottomline: All roads to the Indian market now lead through Ambani’s living room. We will soon live in a world owned and operated by Mukesh & Friends.
Reading list
- Bloomberg via Yahoo News has the original scoop.
- Reuters has a follow up on Ambani approaching foreign investors in Jio Platforms to also put money in Reliance Retail.
- Economic Times reports on Reliance Industries' latest landmark: It is the first Indian company to be valued at $200 billion.
- Quartz has an excellent analysis on the Amazon vs Reliance slugfest.
- ZDNet details the recent flurry of tit-for-tat purchases.
- BloombergQuint looks at the Future Group deal and the chances of it being approved.
The Print has more on Amazon’s legal troubles in India.
