Alibaba eyes investment in Reliance Digital in India

By VARINDIA - 2018-08-25

Alibaba eyes investment in Reliance Digital in India

The Indian e-commerce market is at an inflection point, thanks largely to the disruption of the telecom landscape, with dramatic reduction in data rates and rapid adoption of 4G smartphones and feature phones.

 

Amazon vs. Alibaba in India...

 

The key to Amazon’s strategy in India is its ability to think globally but act locally – leveraging its massive scale, logistics capabilities and balance sheet while creating customized local offerings developed ground-up for the Indian market. This “Glocal” strategy is in sharp contrast with other U.S. companies.

 

Amazon entered the India space in 2013; it is the second big player in India currently worth $16 billion, already deeply committed to the country, where it has pledged to deploy more than $5 billion to grow its business. In this short span of 5 years it has captured about 30% market share in the Indian ecommerce market, and is poised to grow that 23% annually until 2027. After picking 10 percent stake in Shopper Stop for 180 crore approx. last year, Amazon already kicked off investment in India’s $70 billion retail market. Now, Amazon is in talks with Future group to buy 10% stake in the company for an amount of $600 Million.

 

Recently, Amazon is on the advance foot step to acquire 42-49% in Aditya Birla Retail entity - More supermarket chain. Amazon is also joining hands with India-focused private equity firm Samara Capital for a complete buyout of More from the Aditya Birla Group for ₹4,200-4,400 crore. Amazon’s team speaks of the value that they are creating for consumers and sellers. It seems a lot of hard work has gone into offering the Go-local strategy.

 

Technology plays a crucial role in defining the business criticality; there is no doubt on Amazon pioneering in understanding the power of AI and technology disruption. With the help of Amazon Web Services (AWS), a subsidiary of Amazon.com, it started the mission long back to prepare an industry-ready workforce and nurture start-ups in the country to nurture talent in India. Amazon Web Services (AWS) is a comprehensive, evolving cloud computing platform provided by Amazon. It provides a mix of infrastructure as a service (IaaS), platform as a service (PaaS) and packaged software as a service (SaaS) offerings.

 

The company is working very closely with the entire accelerator and incubator space in India. AWS has various programmes that it runs in India that help all the stakeholders further drive invested or incubated companies move forward on new-age technologies.

 

The fact is India is an open market and opportunity is available for everyone to explore with their innovative marketing strategies.

 

In the case of Alibaba, the global e-commerce giant is increasing its investment to support its New Retail strategy - a series of initiatives to integrate the online and offline shopping experiences for consumers across a number of products and services, which is the reality of life.

 

Alibaba’s core commerce revenue rose 61 per cent to 69.2 billion yuan by creating a formidable omni channel (aka O2O) business in China through its ecosystem consisting of payments, supply chain, and offline retail. It further created 31 million jobs in China, with the unique business module. Alibaba is seeing great success by adopting an ‘online-to-offline’ model in China to support the unorganised and small to medium retail business. “Omni-channel or multi-channel retailing” provides shoppers with a consistent and seamless buying experience across online and offline stores, which it wants to replicate in India, by giving jobs to the youngsters. This seems possible by taking the route to invest in companies like Reliance Group, Tata Group and Future Retail.

 

Strong investments by Alibaba into various ventures in India have proved its uniqueness - Jack Maa, the founder of Alibaba has better understood India to succeed the India business through its Omni-channel model.

 

A major chunk of online retailers in India have realised that India can’t be built without strong offline support. Right from Amazon to Myntra, Pepperfry including many others are slowly leveraging offline outlets as experience centres as well as a medium of sales channel. Paytm Mall recently also expressed interest in launching a physical store. The idea is simple - when every e-commerce company is selling at a cheap price, then the choice of the consumer will shift towards trust and brand evaluation.

 

Alibaba has been pushing plans in India since Walmart acquired Flipkart and the strong focus of Amazon by increasing investment up to $5Bn in the last five years of its operations. According to the report, Alibaba is also planning to hold talks with other companies beyond Future Group, Reliance and Tata. The question is with whom the deal is going close.

 

Alibaba is exploring joint venture with Reliance Retail to form a mega Indian retail joint venture (JV), with an investment of at least $5 billion plus to challenge the dominance of Flipkart and Amazon in the world’s fastest-growing economy. It is also focusing on using the older investments in Paytm Mall, Zomato, Big Basket and TicketNew to propose new partnerships and open a new synergy. It has been pushing Paytm Mall to approach the market with the O2O model which is running successfully in China, unlike other players who rely on a mix of inventory and marketplace model in India.

 

“Our New Retail initiatives are substantially growing Alibaba’s total addressable market in e-commerce,” Joseph Tsai, the executive vice-chairman at Alibaba said.

 

Lastly, Alibaba has also announced that it will invest 100 billion yuan over five years to build a global logistics network, while working on an aggressive overseas expansion plan.

 

Advantage Reliance Digital...

 

With the strong omni-channel expansion of Reliance Digital, it now becomes India’s largest electronic brick-and-mortar retail chain. It has disrupted the market with its low-cost business models targeting the masses and aggressive pricing in its offline stores. It is expected that by the festive season Reliance Digital will look at acquiring a significant market share in the consumer electronics and smartphones sector by giving a strong competition to Flipkart and Amazon.

 

Reliance Retail, the offline retail subsidiary of India’s top billionaire Mukesh Ambani's Reliance Industries has forayed into online sales of smartphones and electronic appliances such as refrigerators, air conditioners, and televisions. To complement this, Reliance Digital and smaller Jio stores act as fulfilment centres for the online orders. Reliance Digital has 305 + brick-and-mortar stores in India and Jio is the Reliance Industries-owned mobile network operator which sells its offerings through more than 1700 stores across the country.

 

Whereas, Reliance Retail is the largest retailer in India in terms of revenue, its retail outlets offer food, groceries, apparels, lifestyle and home-care products, consumer electronics, farm implements and so on. Reliance Retail is doing a great business in India of Rs. 2,529 cr. PBITA, as of 31st march 2018 and is present in 5,200 towns and cities, with 8,533 stores including 4,530 Jio Points. The number is still increasing.

 

Also with Alibaba Group proposing to acquire a large stake in Reliance Retail to create a behemoth in the digital marketplace and also expand Alibaba’s physical retail businesses in India, this might sound the arrival of two deep-pocketed companies planning to come together to take on the market leaders.

 

Advantage Future Group...

 

Indian modern retail rests on the strength of two pillars – scale and efficiencies. As front-runners in both areas, Future Group firmly believes in providing protection to customers from the overall rate of inflation. While the scale and size of its operations helps to improve efficiencies, it also ensures that it delivers greater value to its customers.

 

The retail thrust is focused on four principal verticals of Food, Fashion, General Merchandise and Home. These four categories together account for nearly 65% of the consumption in the country and represent mass consumer aspirations.

 

Future Group’s controlled neighbour format stores, EasyDay service customers within a radius of 2-2.5 kms. It allows consumers to buy from the convenience of their home and avail the membership benefits of faster delivery and great deals. With the present of 950 stores in the country, Future has plans to increase to 10K by 2022. Since fruits and vegetables are a great way to get customers frequently and are daily products; this would help them in getting the first mover advantage. Delivering fresh fruits and vegetables from a central warehouse to customers’ house (which most ecommerce players do at present) is unimaginable.




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