Reliance Jio, with its competitive pricing disrupted the telecom industry, but ecommerce is a different ball game.

Reliance plans big foray into ecommerce what does it mean for Amazon and Flipkart
Atom Ecommerce Friday, November 24, 2017 - 13:12

On September 5, 2016, Chairman of India’s largest conglomerate Mukesh Ambani, made an announcement that changed the face of telecom forever: The launch of Reliance Jio. With free voice calls and dirt cheap 4G internet, it disrupted the telecom sector and has since been giving sleepless nights to all telecom majors.

Last week, news reports emerged that Ambani was planning a similar disruption in the ecommerce sector with its retail arm, causing the entire industry to stand up and take notice.

Ecommerce is an exciting industry in itself, with the fierce battle between Flipkart and Amazon. No wonder, reports of Reliance’s entry into ecommerce has got tongues wagging.

Reliance Retail’s ecommerce strategy

According to Economic Times, which first reported this, Reliance Retail is planning an entry into ecommerce in early FY19. What Reliance is looking to do, is linking manufacturers and kirana stores to 136 million+ customers of Jio. It will sell digital coupons online, which can be redeemed at kirana stores at discounted rates.

While a Reliance spokesperson told The News Minute that these reports are strictly speculative, ET reported that the company is running a pilot project of this scheme in Mumbai, Chennai and Ahmedabad. There have also been reports that Reliance is looking to sell mobile phones, consumer electronics, FMCG items, and grocery in towns with 50,000 residents. 

Reliance, the disruptor

There was evident excitement in the media post this revelation. “ Inc. had better watch out,” Mint said in its report.

It calls it a smart move considering the scope online shopping still has in India. Of the 432 million internet users in the country, only 60 million are online shoppers. “The e-commerce industry, including online food delivery, is just $15 billion a year, or 40% less than Alibaba Group Holding Ltd.’s Singles’ Day sales in China,” the Mint report stated.

In fact, former Infosys CFO Mohandas Pai agrees as well.  "In e-commerce, the biggest threat to Amazon and Flipkart will be Reliance Retail because Reliance Jio is there all over India. They can easily connect to all the small retail stores and supply to them and improve their business dramatically," he told PTI

How good is the strategy?

“The idea sounds innovative on the face of it, simply because it’s different. But anything that’s different is not innovation. It’s simply different. If I were a customer, I wouldn’t fall for it,” says K Vaitheeswaran, author of Failing to Succeed.

Online shopping works because of three factors – convenience, variety and low prices. When you get a coupon for offline redemption, Vaitheeswaran says that two of those factors – variety and convenience – are lost.

That essentially leaves discounts and the net price customers would get. Unless that’s ridiculously low, they are unlikely to buy it, he adds.

Even if price and discounts will be Reliance’s strategy, will it be sustainable?

Another point Vaitheeswaran makes is that of cost. “Telecom business is very different from ecommerce. Telecom is a fixed cost business. You build a platform and tech, a large part of the cost is done. The smaller component of variable pricing is something they can play around with as an entry strategy. Shopping is different. The cost is largely variable,” he adds.

But Madhukar Sinha of India Quotient says that he sees no reason for them not to give it a shot. Reliance Retail has a vast network of retail outlets, ready infrastructure and warehouses.

The digital discount coupons could probably work as a promotional activity to drive footfall into its retail stores. Reliance Retail is present in all categories – grocery, electronics, apparel and footwear. “If these coupons go to its subscribers and get good deals, the customer may buy more products there in stores,” he says.

While this is a good strategy to improve footfall in its own stores, Madhukar expresses reservations on what percentage of users have the paying capacity, given that Jio’s target has mostly been tier 2, 3, 4 and rural markets.

“Most of Jio’s apps, hardly anyone uses it. In urban areas, Jio is used mostly as a second sim. The same thing will happen here as well. It is unlikely to make a dent into Flipkart and Amazon because most of Jio’s subscribers are those who don’t buy on Flipkart or Amazon. However, Reliance’s entry could lead to expansion in some categories due to increased buying,” Madhukar adds.

One reason why Reliance Jio outdid Airtel, Vodafone and the others is the massive investment it made into the business, which the latter couldn’t match up to. But will it be ready to do the same for its ecommerce entry?

The ecommerce industry in India is a different ball game. It is not about revenues, or profitability as much as it is about GMV (gross merchandising value) and market share.

Amazon is betting big on its India arm and has been pumping in massive amount of funds. The Amazon India head was also recently quoted as saying that the company plans to double its investments in India, having already committed to invest at least $5 billion. Backed by SoftBank and Tencent, Flipkart too, is flush with funds. Another player in the market, Paytm Mall, is backed by ecommerce giant Alibaba.

Vaitheeswaran says that it might be difficult for Reliance to compete with Amazon and Alibaba in terms of investment.

“They will not be able to bleed out an Amazon or Alibaba. Whatever Reliance invests, they will manage to invest the same amount to stay at the top, as they have been doing,” he adds.

Reliance’s strategy is anyway different from those of current ecommerce giants. But what is common is that the key for all of them to acquire customers has been discounts, offers and the lowest of prices. How the final battle will play out, only time will tell.

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