A merchant selling consumer goods shows off Reliance’s JioMart point-of-sale machine which he uses to order supplies for his store in Sangli, western state of Maharashtra, India on October 21, 2021. REUTERS
SANGLI from India: For eight consecutive days, household goods seller Vipresh Shah has failed to sell a single packet of Dettol soap to merchants who buy from him since he took over the family business as a teenager. 14 years old.
Shah is an official distributor of British Reckitt Benckiser in Vita, near the town of Sangli, about 200 miles south of Mumbai. But he said once-loyal customers are now pointing to an app – JioMart Partner – on their smartphones that is priced up to 15% lower, instead of placing orders.
“As a distributor of Reckitt, I was like a prince in the market,” Shah said. “Now the buyer says to me, ‘See how badly you ripped us off! “”
The 31-year-old said he lost $ 2,000 of his own money as he slashed products to match prices on JioMart, the app deployed by Reliance Industries billionaire Mukesh Ambani in his drive to revolutionizing retail distribution in India.
From top to bottom in India in places like the small town Vita, family-owned stores that make up four-fifths of a nearly $ 900 billion – over $ 700 billion – retail market are turning more and more to JioMart to source foreign and domestic products. brands.
Just as Ambani, India’s richest man, disrupted the country’s telecommunications industry, the mogul intends to shake up retail distribution, taking on US e-commerce giants like Amazon and Walmart Inc. , expanding rapidly in India.
The country has approximately 450,000 traditional distributors, who have legions of vendors to service all corners of the vast nation, including 600,000 villages. They typically earn a 3-5% markup on product prices and typically take orders physically once a week, delivering to retailers within days.
But Reliance’s model throws a wrench in that supply chain: mom-and-pop stores, known as “kiranas,” can order merchandise on JioMart Partner with promised deliveries within 24 hours. Reliance also offers training on orders, credit facilities and free product samples for Kiranas affiliate customers.
This means that hundreds of thousands of salespeople representing consumer giants like Reckitt, Unilever and Colgate-Palmolive, face an existential threat to their business, according to interviews with salespeople, 20 distributors and a group of traders with members across India.
Many distributors contacted by Reuters said they had downsized their workforce or fleet of vehicles, seeing their door-to-door agent sales plummet 20-25% in the past year, with traders teaming up with Reliance .
In Vita, salesperson Shah said he had to lay off half of his four employees. He fears the 50-year-old family business will not last beyond the next six months.
The scale and speed of the disruption sparked tensions between traditional distributors and Reliance which escalated into physical confrontation in some cases.
In Maharashtra state to the west – where Vita lives – and Tamil Nadu to the south, traditional vendors have organized blockades of some JioMart delivery vehicles.
“We will use guerrilla tactics,” said Dhairyashil Patil, president of the Federation of Indian Consumer Products Distributors, which represents 400,000 agents of local and foreign consumer companies. “We will continue to agitate,” he told Reuters, “we want (consumer goods) companies to realize our value.”
Reliance is not discouraged to move forward with Ambani’s “new business” retail business, first announced in 2018.
Last year, she raised funds from reputable investors, including Silver Lake Partners and KKR & Co Inc, as she seeks to incorporate mom-and-pop stores into what she has billed as a more inclusive approach to digital commerce. This push is widely seen as violating Amazon, which for years has faced – and denied – allegations in India of favoring certain big sellers over smaller retailers.
A source close to Reliance said the company is determined to continue growing its business for mom-and-pop stores. He believes his model can coexist with the traditional approach in one of the world’s largest retail markets, the person said, declining to be identified due to lack of authority to disclose the company’s plans. .
Ambani said in 2018 that he ultimately wanted to connect 30 million small businesses to the Reliance network. So far, it has 300,000 partner merchants in 150 cities ordering consumer goods from Reliance, but the transformation will be amplified several times if it reaches the goal of adding 10 million partner stores by 2024.
Reliance did not respond to requests for comment for this article.
Colgate declined to comment, while Reckitt said its customers and distributors are an integral part of its business but does not comment on its relationship with them. Unilever’s Indian branch, Hindustan Unilever, did not respond to a request for comment.
Traditional distribution methods remain important to consumer goods manufacturers, even amid disruption, according to industry watchers.
Himanshu Bajaj, former head of consumer and retail Asia at consulting firm Kearney, said CEOs of consumer companies he met in September expressed concerns over Reliance’s upsetting strategy. the traditional distribution chain.
“Companies don’t want to kill their own distributors. The concern is real,” he said.
Asked about Reliance’s model and distributor concerns, Sunil D’Souza, CEO of Tata Consumer Products in India, told Reuters in an interview last month that he “cannot afford to sit idly by and to ignore “no major distribution channel, but Tata was trying to minimize conflict and strike a balance.
Jefferies estimated in March that Kiranas “will steadily increase the share of” Reliance “purchases at the expense of traditional distributors.” Such sales for Reliance could reach $ 10.4 billion by 2025, compared to just $ 200 million in 2021-2022, Jefferies estimates.
An executive who works for a rival of Reliance said Ambani “is spreading its wings very quickly” in kirana maintenance and already has an advantage in price negotiations, due to long-standing relationships with the manufacturers of goods. consumers who have counted Reliance and its 1,100 supermarkets as a big customer for years.
Along with Kirana’s partners, Ambani adds another major vertical. “Brands can’t afford to dismiss Reliance, it’s just their purchasing power,” said the executive, who declined to be identified because he was not authorized to speak with the media.
ALL ABOUT PRICES
Many kiranas are cramped shops in aging buildings, where branded goods are placed on wooden shelves and small pouches hang from the ceiling. These retailers are embracing Reliance as a way to increase their profit margins.
When Reuters accompanied Anuruddh Mishra, a Colgate sales agent, on a field visit to Mumbai’s Dharavi area, it struggled to convince Shivkumar Singh, the 50-year-old owner of a dilapidated store, to make purchases. Dharavi is home to 1 million people and is ranked among the largest slums in the world.
Singh opened his JioMart app and showed the much lower prices on offer. “How can I order from traditional distributors? ” he said. “The price difference is huge. Now I mainly order from Reliance.”
A Reuters review of offers to buy on the JioMart Partner app showed that the Dharavi retailer could wholesale a two-tube combo of Colgate MaxFresh toothpaste for around 115 rupees ($ 1.55). Vendor Mishra’s distribution company gets it for 145 rupees, and his latest offer to the Dharavi retailer was 154 rupees, more than a third more than the Reliance price.
Back in Sangli, traditional distributors said they sometimes chased Reliance vehicles and confronted drivers, alleging unauthorized deliveries.
Sunil Pujari, who works in the city for a JioMart delivery agent, said he was warned by his supervisors to alert them immediately if angry distributors stop vehicles.
But business remains dynamic.
“The prices offered by JioMart cannot be matched by anyone,” he said, making another delivery to a crowded market.