by Aakash Athawasya
This is Part 2 of the great Indian retail battle. Part 1 detailed the investments in Reliance Industries' JioMart and Reliance Retail Ventures, and its Future Retail acquisition which was halted by Amazon.
Amazon, needless to say, wasn’t pleased with Reliance swooping up Future Retail months after the e-commerce company had invested in its promoter. But it wasn’t just Future Retail that Amazon let slip, it missed out on another massive retail giant, which fell into the lap of yet another competitor. A domestic competitor which not only leads Amazon in the Indian e-commerce market but one which roped off its prized acquisition to prevent anyone doing to it what Reliance did to Amazon.
In the midst of Amazon being neither here nor there with its retail purchases, another superstar was on the brink of consolidating its fragmented presence in the retail market eyeing a big-fish acquisition to take the fight right to Mukesh Ambani, as only one family-owned business can.
Tata Group has a diverse retail variety in both FMCG and lifestyle products. With consumer brands like Tata Salt, Tata Tea, Tata Coffee, and Tata Sampan, lifestyle products like Taneira, Titan, Tanishq, and Fastrack, the StarBazaar supermarket chain, its e-commerce luxury company Tata CLiQ, not to mention operating major outlets like Starbucks and Zara, its foundation in the retail space is strong, but missing a big-name to center its synergies around. To consolidate its fragmented-presence Tata is looking at a company leading a market in which Amazon, Flipkart, and Reliance are fighting for second-place.
On October 28, reports stated that Tata Group is positioned to acquire a 50% stake for $1 billion (~Rs. 7,433.5 crores) in e-grocery company BigBasket. Interestingly, this sale, if materialized, would see Chinese e-commerce giant Alibaba divest its 26% stake in the company. While BigBasket would be front-and-center of Tata’s retail ploy, it won’t be the only. Tata Group is also looking to purchase IndiaMart InterMesh, a B2B e-commerce company, which has seen a stellar performance on bourses. The Dinesh Agarwal-led company listed in July 2019 and since then its price has jumped by over 250%. Another company potentially in its shopping cart is Snapdeal, which has fallen behind Amazon and Flipkart in the e-commerce race.
The source for this investment-thrust into the e-commerce space emanates from Tata Group’s newly created digital arm, Tata Digital, a key initiative spearheaded by Natarajan Chandrasekaran, the Group’s chairman himself. What’s more, this retail consolidation, with BigBasket potentially at the fore, is part of a big, even ‘super’ plan. Tata Group plans to launch a “super app” which will bring together its retail components, weak in isolation, and strong in unison, under one banner for the first time. The ‘super-app’ slated to launch by December 2020, or early next year, will pit a consolidated Tata against Amazon and Reliance. Speaking on combining the retail-efforts of the company, Chandrasekaran told FT,
“How do we give a simple online experience connecting all of this, and at the same time a beautiful omnichannel experience?... That is the vision.”
Despite being on the outside looking in, Flipkart also made big moves in the retail space. What will please Flipkart, even more, is the company it teamed up with was courted by its e-commerce adversary, Amazon.
Flipkart penned two key deals in the wholesale and the retail space, complimenting its e-commerce core. The Walmart-owned company purchased its parent company’s wholesale business and then formed a partnership with another household Indian conglomerate, backed by a name that can go toe to toe with Reliance and Tata.
In July, Flipkart said that it would acquire its parent company, Walmart India’s wholesale business. Walmart India operates the ‘Best Price’ cash-and-carry wholesale stores, present in 29 locations across 9 states in the country, with over 15 lakh SME members. The deal was quid pro quo, with Flipkart taking over the wholesale business, and Walmart increasing its stake in the e-commerce company, from 77% to 82%, leading a $1.2 billion (Rs. 8,296.1 crores) financing round.
The acquisition of Walmart India’s wholesale business would be consolidated within Flipkart as Flipkart Wholesale, which would cater to SME businesses, similar to kirana stores Reliance’s JioMart aimed to woo. In fact, Flipkart has already been trying out wholesaling functions of supplying FMCG retail products to kirana stores in the Delhi-NCR region. Speaking on the same Adarsh Menon senior vice-president at Flipkart, leading its B2B segment told ET,
“We think the catchment around Delhi NCR is a representative market for other parts of the country as well, to test and learn and then use as a model to scale up.”
JioMart is operating a similar prototype marketplace model. Following its cascade of investments in April, the Reliance e-commerce company began home delivery of essential items in Navi Mumbai, Thane, and Kalyan, satellite cities around Mumbai. Reports stated that this test model would soon be phased out throughout the country.
Complimenting its internal purchase of Walmart India’s wholesale business, Flipkart made a big-money investment in a heavyweight retail player. On October 23, Flipkart invested Rs. 1,500 crores for 7.3 crore equity shares in Aditya Birla Fashion and Retail (ABFRL), the retail subsidiary of the Aditya Birla Group. ABFRL operates numerous lifestyle retail brands like Pantaloons, Peter England, Van Heusen, Allen Solly, Louis Phillipe, Forever 21 among others. Flipkart’s investment would translate into a 7.8% equity stake in the company. ABFRL will use the investment to formulate its “digital transformation strategy” and Flipkart will boost the retail outlet’s brands on its own channel as well as that of its subsidiary, Myntra, stated a joint press release.
ABFRL will see multiple e-commerce channels open up courtesy of Flipkart and Myntra, which collectively hold 38% of the e-tailer market. Further, ABFRL's move to pivot towards online retail was a precursor to this partnership. In Q1FY21, before the Flipkart deal was announced, the ABFRL’s e-commerce sales increased significantly, contributing 21% to overall sales, up from 6% in FY20. Prior to COVID-19, offline buying on ABFRL’s stores was concentrated at 90%, and online buying at just 10%. However, during the lockdown and the gradual reopening of the retail sector, offline buying shrunk to 60%, and online buying jumped to 40%.
A key detail in the fine print of the deal was a “right of first refusal” for a period of 1 to 5 years given to the Walmart-owned company. This gives Flipkart the ability to ward off any interested party in ABFRL. A preemptive move allowing the e-commerce company to prevent other big-names from snapping up a stake in ABFRL, which attracted the likes of the aforementioned Reliance, Tata, and most notably Amazon, which held talks with the retail company prior to Flipkart’s making its move.
Get ready to rumble
Never before has one market attracted domestic and foreign heavyweights alike, but with India’s retail market expected to grow at a CAGR of 10% to $1.2 trillion (~Rs. 89.2 lakh crores) in the next five years, according to BCG, the competition and investment are warranted.
Amazon and Flipkart are building their wholesale wings while strengthening essential retail in FMCG products. Reliance is strengthening its kirana e-commerce play with JioMart backed by Google and Facebook while scaling its retail ambitions with the purchase of Future Retail. Tata is consolidating its retail synergies under one banner, and eyeing three big-name e-commerce companies to spearhead its all in one super-app. Aditya Birla is paving online channels for its fashion brands and has locked in a massive backer in Flipkart which fought off and fenced away e-commerce rivals for its ABFRL stake. And this is only the beginning.
While some are locked in legal disputes, and others still in potential negotiations, one thing is certain, with big money and big names like these, it looks like Amazon, Flipkart, Reliance, and Tata are set to fight it out in the great Indian retail rumble.