Amazon, Flipkart, Reliance Success In India's $900 Billion Retail Market Depends On Kirana Store

India's retail sector, estimated at $883 billion in 2020 is projected to become $1.3 trillion by 2024, has forced the retail giants to woo the mom-and-pop stores to become a part of their success story

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India's mom-and-pop stores that account for three-fourth of the consumer goods markets will determine the big retail giants' success - Amazon, Flipkart (owned by Walmart), and Mukesh Ambani-led Reliance Retail in the country's fast-changing retail landscape.

India's retail sector, estimated at $883 billion in 2020 is projected to become $1.3 trillion by 2024, has forced the retail giants to woo the mom-and-pop stores to become a part of their success story. Grocery retail, accounting for $608 billion or over two-thirds of the total retail market, is still dominated by the local "Kirana" or the mom-and-pop stores in India. 

Organized Retail:

Mukesh Ambani-led Reliance Retail has emerged as India's largest and most profitable retailer in the country, with revenues of Rs 1.6 lakh crore and EBITDA of Rs 9,330 crore. The company has been ranked to be the fastest-growing retailer globally and the only Indian Retailer to feature in the Top 100 list of global retailers. 

Last year, Reliance Retail agreed to buy Future Group's assets, India's second-largest retailer, for Rs 24,713 crore, but the deal has fallen into legal hurdles, with Jeff Bezos led Amazon challenging it in the courts. If the deal goes through, Reliance Retail will further consolidate its position in India's growing retail market. 

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While the e-commerce leaders in India, Amazon, and Flipkart are looking at expanding their ties with the Kirana stores to strengthen their last-mile delivery, Reliance Retail is seen aggressively ramping up its presence e-commerce space. 

"We find Reliance Retail is well-positioned to ride the strong organized retail opportunity with its strong presence across grocery, apparel & electronics. We expect RR to sustain its leadership position and forecast 19% revenue CAGR and 22% EBITDA CAGR over FY20-23E," said Jefferies in its latest report. 

Dmart, owned by Avenue Supermarts Ltd, is another success story in India's organized market. However, comparatively, Reliance Retail is four times bigger than DMart in its retail area footprint. . In grocery, Reliance Retail has a 20% share amongst organized players and is as much as 40% bigger than the second-largest player DMart.

"We remain bullish on DMart, in view of the massive total addressable market for grocery retail, with 96% unorganized share. This creates a big opportunity for all players, and DMart's business model is well placed to take advantage of it," said Sheela Rathi, equity analyst at Morgan Stanley. 

Invest India, the country's investment promotion arm ranks India among the best countries to invest in Retail space as the overall retail market is set to cross the $1.75 trillion mark by 2026. 

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"Factors that make India so attractive include the second largest population in the world, a middle class of 600 million people, increasing urbanization, rising household incomes, connected rural consumers, and increasing consumer spending," said Invest India. 

Retail in India accounts for over 10% of the country's GDP and 8% of total employment. 

E-commerce:

The Indian e-commerce market is estimated at $40 billion as of 2020 is projected to grow at a 16% CAGR over the next five years to $100 billion by 2025. 

Flipkart (majority-owned by Walmart) and Amazon India are the industry leaders, controlling about 80% of the Indian e-commerce market. Flipkart is said to be number one, with a GMV of $13 billion in FY20 (including Myntra, which has a 43 per cent share). With the acquisitions of Letsbuy, Myntra, Jabong, eBay India, and other companies since 2010, the business has expanded inorganically.

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On the other hand, Amazon launched its e-commerce business in India in 2013 (much later than Flipkart, which launched in 2007) but quickly expanded to a GMV of over $10 billion and a market share of 36%. As of 2020, Amazon has 140 million monthly active customers, 10 million Prime members, more than 200k active sellers, and 50 fulfilment centres spread across 15 states.

Reliance Retail has also been ramping up its presence in the under-penetrated e-commerce space, with the government policies on FDI in e-commerce that are more favourable to the Indian players. 

Kirana Is The King: 

Reliance Retail's expansion strategy in grocery aims at linking Kirana stores (neighbourhood mom & pop stores) digitally with the help of the JIO POS device. 

The device allows retailers to accept digital payments (credit/ debit cards, digital wallets) and other functionalities, including billing, inventory management, generating tax returns, procurement from RR's cash & carry stores, paying vendors digitally, managing customer accounts, and tracking purchase behaviour.

"In our blue-sky scenario for Reliance Retail's (RR's) new-commerce business, we build in aggressive ramp-up in Kirana enrollment over the next four years, taking the partner Kirana count to three million. As a result, RR's B2B GMV (Kirana procurement which is not sold through the JioMart app) comes to $10.4bn by FY25. In B2C, we estimate RR to capture a 25% share of the Indian e-commerce market by FY25, taking the B2C GMV to US$27.5bn," said Jefferies in its report. 

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According to Prem Kumar, CEO & Founder, SnapBizz, everyone should focus on exploring how the robust ecosystem of distribution possessed by the Kirana store infrastructure can be leveraged to co-exist with e-commerce. "This is essential to ensure the inclusive revival and not creation of a deeper divide over the next year for retailers and consumers alike."

"After the issues faced by other platforms such as OYO and Uber, which promised high earnings to partners, mom-and-pop store owners will ask more questions over a long-term business case for themselves instead of a short-term gain. JioMart will have to not only answer these questions but also compete with similar offerings from Amazon and Walmart-owned Flipkart, which are also targeting the same audience," said Satish Meena, senior forecast analyst at Forrester Research, after Facebook announced $5.7 billion investments in Jio Platforms last year. 

No wonder Amazon, Flipkart, and Reliance Retail are fighting tooth and nail to woo the Kirana shop owners to have the upper hand in India's retail market.