Transfin.
HomeNewsGuidesReadsPodcastsTRANSFIN. EOD
  1. Reads
  2. Deep Dives

The Rise of Reliance Retail - How the Company Is on the Cusp of Monopolising the Retail Industry

Editor, TRANSFIN
Jan 6, 2021 1:52 PM 4 min read
Editorial

Reliance claims (with much gusto) that it has absolutely “no plans” to enter contract farming. But can you really blame the skepticism of protestors? 

After all, Reliance is omnipresent and maybe omnipotent, no? Especially Retail. 

Look around and there’s a good chance that a store or brand you see has something to do with Reliance. Burberry stores in India are run by Reliance. So is Canali. And Furla. And Hamley’s, Mothercare, Jimmy Choo, Marks & Spencer, Superdry…phew! If it is on the shop floor today, who is stopping them from focusing on the backend?? Considering the company’s historic love for vertical integration (from textiles to petrochemicals). 

Let’s focus on Reliance Retail for now...

The Story of Reliance's Retail Fetish

Reliance Retail Venture, a wholly-owned subsidiary of RIL, was launched in 2006. As of now, it maintains a retail presence through 11,784 stores and sales worth ₹1,62,936cr ($22.3bn), making it the largest retailer in India today.

Revenue grew by 89% to ₹1,30,566cr ($18bn) in FY19 and operational footprint grew by 24.2% to cover a retail space of c. 22 million sq. Ft. In fact, in a recent trend, over 20% of RIL's annual revenues have shifted towards its non-petrochemical businesses.

The shift is a careful execution of business-expansion strategy modelled by taking increasing help of various digital vectors and strategic capital deployment. Considering the projected growth of India's retail market to $1,750trn by 2026, the company's efforts to scale up opportunities in the sector is not surprising.

In addition, Mr Ambani announced his plans to escalade the online retail business by enlisting the services of millions of mom-and-pop stores that dominate the Indian retail market, 90% of which thrive in the unorganised sector.

Since 2018, the company has invested close to $170m in investments into multifarious businesses to ease the above-stated expansion. This includes acquisitions of government services aggregators, logistics companies, simulation services and artificial intelligence, among others, which have enabled the former's retail businesses in Tier 2 and Tier 3 cities substantially. 

They are also a part of the company's efforts to amalgamate the strengths of its telecom arm (Reliance Jio) and retail to create a combined commerce platform which will integrate the data and online expanse of Jio along with the offline reach of Reliance Retail.

Fun Fact: The Competition Commission of India (CCI), however, while green-lighting the Jio-Facebook deal in 2020 compelled a stipulation from both parties that under no circumstances will there be acquisition of "user information" and any data swapping will have to be "limited" and "proportionate", a move that now seems all the more redundant!

 

Other Players

For a market that presents such seamless opportunities, it is only fair to expect multiple players vying towards capitalisation in the same. Big money is pouring into the Indian retail sector sector through numerous acquisitions and investments.

The news of a recent adversarial legal battle between Reliance and Amazon can testify to this. The order of a Singapore-based arbitration panel has disrupted Reliance's plans to acquire and expand its retail presence to Future Group's popular store brands such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory.

Having said that, be it with or without the deal, Reliance still rules over the country's $700bn retail industry. Using cash flows from legacy businesses like energy and petrochemicals, leveraging high-octane partnerships (like Facebook and Google) to acquire domain strengths in the digital space and cultivating its telecom presence to get people to transact with itself have aided to this carpet-bombing strategy of taking over the retail landscape in India.

Competition Perspectives

When the CCI replaced the Monopolies and Restrictive Trade Practices Commission (MRTPC) in 2002, Indian competition and antitrust regulatory environment underwent a categorical transformation. While the latter was of a singularly anti-monopolistic mindset, the former has adopted a more nuanced approach which goes so far as to say that monopolies aren't necessarily bad, unless they are anti-competitive. 

This is one of the loopholes exercised by many firms, including Reliance, to enter into advantageous mergers or acquisitions, which might be detrimental to the interests of other market players. For instance, as per Indian Express, the Reliance-Future deal is estimated to result in 30% of the market share within a single entity in the organised retail sector. This poses appreciable challenges to adversaries, especially by its effect of creating entry barriers in the physical brick-and-mortar retail market. 

But, as it happens, the "doctrine of failing firm defence" is something that Reliance can rely on to clear the regulatory pathway for itself because this doctrine uses a combined assessment of market share over all retail markets (physical, online, organised and unorganised) which is likely in single digits, and hence does not amount to anti-competitive behaviour. 

In any case, while it is certainly better in Indian corporate and capital interests to see a well-known conglomerate building such large-scale greenfield projects, it remains to be seen how well it capitalises upon this opportunity to emphasise upon consumer education, retailer-interests and overall progress of the industry in the coming years. 

FIN.

Congratulations! You've made it to the end. Looking for more takes on Business, Finance, Markets and Investing? Subscribe to TRANSFIN. E-O-D for informative and insightful daily news updates, smartly curated from top sources and delivered straight to your inbox.