In recent years, omni channel retailing was the buzzword in the retail world. But the real big deal in the making is ‘omnipresent’ retail. This case study on Reliance Industries in India shows how.
Slowly but steady, some of the largest e-commerce companies such as Amazon and Alibaba have created their own proprietary ecosystems that engage hundreds of millions of customers into an ever-expanding suite of products and services 365×24. These behemoths have moved far beyond purveying physical merchandise using a combination of digital and physical retail platforms. Amazon’s engagement with its customers includes merchandise, entertainment, and a host of web services. Alibaba’s engagement with its consumers includes merchandise, news publishing, mapping data, financial products, entertainment, instant messaging, and healthcare.
However, none of these global giants seem to have ambitions quite as audacious as that of Reliance Industries in India. Before we try to connect the many seemingly unconnected dots that give some idea about Reliance’s vision, let’s look at India’s consumer business opportunity.
India, the Land of Omni Channel Retailing Opportunities
At a nominal GDP growth rate of over 13% between 2015-18, projected at 11% between 2018-25, India is expected to become a US$ 4.5 trillion economy by 2023 and about US$ 5.5 trillion by 2025, up from about US$ 2.8 Trillion in 2018. In 2018, India’s private consumption was about US$ 1.6 Trillion, of which retail made for about US$ 765 billion. By 2025, private consumption is expected to further grow to about US$ 3 Trillion, of which retail will be about US$ 1.5 Trillion. Omni channel retailing in India is one part of it.
Of the merchandise retail market in 2018, only about 10% (i.e. about US$ 77 billion) is accounted for by modern, organised retail. And e-tail accounted for around 3% (i.e. about US$ 22 billion) in 2018. By 2025, organised brick & mortar retail is expected to grow to 17% (i.e. about US$ 250 billion) of the total retail market and e-tail another 7-8%, i.e. US$ 100-125 billion. Indian organised retail businesses are currently valued at 3-4x of one year forward revenues. And if this trend holds, India’s organised retail sector (both physical and e-tail) is likely to create an additional US 800 billion – US$ 1.0 Trillion of valuation for investors in such businesses, with omni channel retailing beeing a major driver.
With these numbers, it is no surprise that Walmart found it prudent to pay nearly US$ 16 billion for a significant majority stake in India’s home grown e-tailer Flipkart, valuing the business nearly US$ 20 billion (estimated Gross Merchandise Value at Flipkart in 2018 was about US$ 6 billion). Another home grown and relatively large-format value retailer D’Mart (parent company: Avenue Supermarkets) closed the financial year 2018-19 at about US$ 3.3 billion in revenues and enjoys a very rich market capitalisation of almost US$ 12 billion. Venture capital and private equity continues to flow into India’s retail and consumer businesses in increasing billions of dollars, year after year.
Case Study: Omni Channel Retailing at Reliance Industries
Against this background, it becomes very clear why India’s largest private business entity – Reliance Industries – has such a strong interest in the retail sector.
A Solid Footing in Retail & Telecom
Its first retail stores were launched in 2007 and included multiple formats, addressing nearly all major consumer product categories. Reliance closed the financial year 2018-19 with revenues of about US$ 18 billion (and an EBITDA of about US$ 265 million). As of 31st March 2019, it operated about 2.2 million square meters of retail space, across over 10,000 retail stores, spread across 6,600 cities and towns in India. Of these revenues, e-tail accounted for a negligible share. The retail business has been growing upwards of 35% CAGR even at this relatively high base and by itself, and should therefore reach US$ 75 billion – US$ 100 billion in annual revenues by 2025.
However, Reliance’s bigger retail vision is beginning to unfold only now. To start with, Reliance is the only large global retailer that is also one of the largest telecom operators in the world, and at about 300 million subscribers, the second largest in India. By 2020, it is very likely to become the largest telecom operator in India with over 400 million subscribers with most of them using a smartphone and 4G access to extremely low-priced data.
A Vast Product Ecosystem
On the ecosystem side, Reliance has been putting together (organically and through acquisitions) an incredible suite of technology on one side (including AI, Haptics, Voice Recognition, AR & VR etc.) and an equally incredible suite of consumer focussed products & services that include music and entertainment, finance and insurance, as well as education. Healthcare is expected to follow soon.
With an expected 400 million (by 2020) nearly captive users of its telecom platform Jio, Reliance will have an incredible omni channel retailing advantage over all its competitors, who have to put in mega efforts and mega bucks to get potential customers to download their own apps and to incentivise frequent use.
As Reliance is an entirely Indian owned and funded business entity, the company is not hamstrung by India’s onerous policy relating to foreign investment in the retail sector that adversely affects Amazon, Walmart and other international players.
An Expanding POS Network
Reliance has now embarked to launch a unique omni channel retailing business platform that is already being piloted across India, and is expected to be rolled out nationally in the coming years. The big plan is to enlist as many as 8-9 million (out of about 22 million) independent retail outlets of the mom & pop variety to become an integral part of Reliance’s retail ecosystem.
With a purpose-built multi-functional POS (point of sale) system at the heart of this initiative, each of these 8-9 million independent stores are expected to be networked with Reliance’s overall retail enterprise. This will allow these smaller retailers to gradually shift a substantial part of their own buying through the Reliance’s B2B omni channel retailing platform (fulfilled by Reliance owned supply chains, distribution centres, and logistics). In addition, most of these retail outlets are expected to fulfil the role of ‘spokes’ from which the last-mile delivery of merchandise (and returns) can be effected for Reliance Retail’s B2C e-tail platform.
Paving the Way for an Omni Channel Retailing in Future
If successfully executed, Reliance will not only become (by far) the largest B2B retail business in India, but also the lowest cost B2C e-tail business (when factoring in the cost of deliveries to and returns from consumers). By 2025-26, this business alone can potentially generate revenues in the range of US$ 50 billion for Reliance, making its overall retail business a US$ 150 billion (in revenues) entity and one potentially valued at upwards of US$ 300 billion.
Within this omnipresent retail vision, Indian consumers will be able to do just about everything that can currently be done either through a physical retail model or through a digital one, all while getting entertained, carrying out payments, buying financial products, accessing education oriented products, and in future, accessing healthcare at the same time. Such omnipresence may present a unique business model that will be hard to emulate, not only by other retail players in India but by some of the most successful retailers anywhere in the world.
Amazon, Walmart, and Metro (Cash & Carry) are taking their own steps to create a similar B2B environment by enlisting India’s millions of independent retailers, but how far they will succeed remains to be seen.
About the Author:
Arvind Singhal is Chairman and Managing Director of Technopak, one of India’s leading management consulting firms advising across a wide range of sectors, including retail, fashion, textiles and apparel and education. He has previously contributed regular columns for the Business Standard and the Economic Times. Read his posts here and connect with him on LinkedIn.