Asia’s richest man takes on foreign eCommerce giants in India’s festive season

It was by offering $2 data plans and free voice calls that billionaire Mukesh Ambani demolished rivals in India’s telecommunications market.

Four years later, to gain an advantage in the highly competitive eCommerce space in the country, he is employing a very similar strategy which is cutthroat pricing.

Diwali boost

As India approaches the height of its largest shopping season this week, the Diwali festival, the retail websites of the tycoon, like JioMart, are elbowing their way into a market long dominated by Jeff Bezos-owned Amazon.com and Flipkart Online Services, the local unit of US-based Walmart.

Ambani’s portals offer blockbuster discounts of as much as 50 percent on popular sugar confections and other holiday staples, such as spice mixes for India’s rice delicacy, biryani, to ramp up competition. His Reliance Digital platform is also offering certain flagship Samsung smartphones at rates cheaper than competitors, with up to 40 percent discounts.

This is a move that comes as Reliance Industries, Ambani’s vast conglomerate, is flush with cash. It has moved fundraising to its retail arm after raising an eye-popping $20 billion for its technology unit Jio Platforms, which has won over $6 billion in investments from heavyweights such as KKR and Silver Lake in recent months. The online ambitions of Ambani, now the largest brick-and-mortar retailer in India, pit him against the two US giants (Amazon and Walmart), both of which have invested heavily in India.

Threat to international players

The country, one of the last major consumer markets, is still up for grabs, and by 2026, experts estimate that India will generate $200 billion in sales from eCommerce. Yet, a cautionary tale for the American giants is the billionaire’s telecommunications triumphs where he started out as a tiny player, but outpaced proven rivals by undercutting them on price and capitalizing on regulatory changes.

In retail, Ambani’s company has an enormous advantage because government policies are steadily stacked in favor of domestic retailers, the largest of which is Reliance. Since the end of 2018, India’s foreign investment laws have also prohibited Amazon and Walmart’s local unit Flipkart from featuring exclusive products and owning inventory in an effort to curb their ability to directly control rates and offer discounts. More than 51 percent of local brick and mortar retail chains are not permitted to be owned by international companies. Even that limitation is subject to conditions such as the establishment only in cities with populations below 1 million.

With his local strategy, low-cost procurement and chain of brick-and-mortar stores, Ambani has the ability to shake up online retail, said analysts. “JioMart can dent the fortunes of grocery eCommerce majors like Bigbasket & Grofers,” they said, referring to the country’s biggest online grocers. “And impact the grocery, home & personal care category of e-tail majors like Amazon and Flipkart in coming days.”

Pricing and strategy

The performance of Ambani in telecommunications demonstrates his capacity to benefit from pricing and strategy. In 2013, the Indian government tweaked rules to establish a “unified license” that allowed broadband wireless license operators to make voice calls by paying a one-time fee.

At the time, only one operator had such a permit nationwide: Reliance Jio. After securing a unified license and rolling out telecom services by Reliance Jio in September 2016, Ambani sold voice and data plans at rock bottom rates. The new rules helped it move quickly and it has made digital services for millions of Indians more accessible.

While rivals won similar licenses, others, including his younger brother, Anil’s Reliance Communications Ltd, went bankrupt in the subsequent price war. Eventually, non-state telecommunications operators fell to three from at least a dozen. In 2018, Jio turned profitable. With over 400 million customers, it’s currently India’s biggest wireless operator.

High stakes

The stakes are high for American retailers in India. Jeff Bezos, the hard-charging founder and Chief Executive Officer of Amazon, has promised to invest $6.5 billion in the country.

In 2018, Walmart spent $16 billion to buy India’s Flipkart portal in the largest deal ever, and this year invested more than $1 billion in the e-tailer and gradually plowed cash into its sister unit, PhonePe’s payments business.

Not that simple

But for Ambani, Asia’s richest man with a net worth of $78 billion, the push for eCommerce could turn out to be harder than telecom. He’s going to be up against formidable opponents first. The wireless operators he beat were all homegrown companies, lacking Amazon or Walmart’s heft, expertise and deep pockets. Moreover, the eCommerce websites of his company are also newer than those of its rivals.

JioMart’s Reliance group, which only began this year and is still in the beta stage, has had distribution troubles and refund delays, and some users have not been shy about venting them on Twitter. All of that means it could take years to win big over Walmart and Amazon.

Homegrown advantages

Yet Reliance is already the largest company in India and its $185 billion market capitalization is around 6.6 percent of India’s GDP. Its heft would only increase if it gains a greater eCommerce foothold, something that is becoming increasingly relevant in India, which has suffered a lockdown for most of the year due to the pandemic and where organized retail is still going to penetrate rural corners The pandemic is giving Reliance a boost since, due to financial difficulties, many local stores do not offer aggressive discounts.

Although Amazon and Walmart are far ahead in online retail, to respond to India’s complex and heavily rural geography, a winner would need to cover both worlds, physical and virtual.

Nevertheless, the limitations on international businesses that own grocery stores put them on the backfoot. That is in line with the objective of India’s Prime Minister Narendra Modi to nurture home-grown champions. The protection of domestic companies by China across the border has produced technology behemoths such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

Ambani has built his businesses with a decades-long understanding of India’s bargain-hungry consumers. Over the years, he’s also aligned Reliance’s own ambitions with government goals across different administrations. In 2016, when he launched Reliance Jio, the telecom business, he promoted it as part of Mr. Modi’s Digital India initiative.