It’s an important piece of news (Link to the original news article).
As per the news article, JioMart has been increasing it’s distribution play to local retailers (also known as kirana, mom and pop stores) primarily based on the lower pricing. Given the bulk buying by Reliance, traditional distributors are unable to match the pricing and hence face a potential existential threat.
Other key points highlighted in the article –
- Of the total $900 bn retail market, 4/5th or about $700 bn is contributed by the local retailers. As per Jefferies, Reliance’s sales to this segment accounted for only $200 million in 2021-22 but could increase to $10.4 billion by 2025 (i.e., 1.5% of the total market size).
- In 2018, Ambani had given a target to connect 30 million small merchants to the Reliance network. So far, it has 300,000 merchant partners in 150 cities but targets significantly higher numbers at 10 million partner stores by 2024.
- India has about 4,50,000 traditional distributors who typically earn 4-5% margin on distribution. Some examples in the article mention JioMart’s pricing to be lower by 15-30%. With these facts, it seems economically impossible for traditional distributors to match JioMart’s pricing.
- As per the article, fear seems to be for real as many of the distributors contacted by Reuters said their sales have reduced by 20-25% in last one year due to retailers’ shift towards JioMart.
- Consumer companies themselves also don’t want to kill the traditional distribution channel but given the increasing might of the Reliance are confused what to do.
Based on the facts presented in the article, the threat truly seems real and there are not much counters that one can offer.
To my mind, only three points –
- Brands would ideally hate to put all their eggs in one basket and being completely reliant on Reliance.
- Distributors’ strength lies in logistics, working capital and personal connect. Whether Reliance will be able to manage these efficiently and what scale, only time will tell.
- Openness of local retailers to completely open their books for scrutiny is another point that should be kept in mind. Most retailers have traditionally operated under the shadows. However, by operating through a tech platform, they are bound to open themselves for a greater scrutiny on various counts.
As of now, the lure seems to be all about pricing and logically so. Whether there can be any future roadblocks in terms of execution or any vested interests, is anybody’s guess !