Two days back, news about Reliance planning to offload 40% stake in Reliance Retail to Amazon spread like wildfire in the corporate world and gave a significant boost to Reliance in the equity market, although there was no confirmation from Amazon’s side. If the deal sails through, it will have a long and lasting impact on the organised retail industry.
Post-acquisition of Future Group by Reliance, it will emerge as a clear leader in retail space by having almost 7 times the retail space of its closest rival, D-Mart.
On the other hand, Amazon along with Samara Capital acquired “More”, a chain owned by the Aditya Birla Group in order to gain market share in the Indian retail industry.
Apart from the brick-and-mortar model, there is an intense fight in online retail space among Amazon, Walmart (Flipkart) and the newcomer, Jiomart. With the rapid growth of Jio, we will see a more intense fight for market share.
In this overall scenario, presence of Walmart in offline retail is insignificant through its 28 Best Price wholesale stores. In such a scenario, what impact can the said deal have on the Indian retail market?
Will it lead to only one mega player in brick and mortar retail format? Will the deal have significant impact on online retail space? Will it give major boost to Omni channel players?
Many such questions will arise from this acquisition. Once Reliance and Amazon agree to go hand in hand, it will be an uphill task for any competitor to reach near their volume, and economy of scale will always favour them.
The only competitor that can make efforts to challenge them will be Walmart. But their presence in off-line channel is so weak that it will take a good amount of time and capital to create infrastructure and competencies.
The second largest player D-mart is strong in Grocery segment while the third largest retailer ABFRL is in the apparel segment only.
But the success of the Reliance Retail and Walmart deal will significantly help in boosting investment in backend as overseas players can acquire up to 51% in multi brand retail segment subject to minimum 50% investment in backend.
This back-end investment is made towards processing centre, manufacturing facilities, distribution, quality control, packaging, logistics and warehouse development etc. For Logistics sector, it will definitely be a positive sign. In organised retail, whether such deal will lead to monopoly, duopoly or oligopoly, is too early to comment upon.
This article has been authored by Vikash Khatri, Founder, Aviral Consulting. Views expressed are of the author’s own.