Reliance Jio is becoming the great startup story of the Indian business arena. It had a blockbuster launch with mobile network segment. Though Jio Fibre is yet to pick up as much, there is a good scope of expansion. Reliance saw unprecedented interest in stake sale for Jio. This was on the backdrop of its substantial growth and soon to be launched – JioMart. JioMart had a big bang launch in 200 cities and is planning to revamp the way India does business.
Background Of Indian Retail
Before we jump to the business model and possible growth story of JioMart, let’s look at the Indian business scenario. In the Indian context, 70% of the business is in the retail space. This is highly governed by a supply chain, distributors, wholesalers, and retailers. This whole supply chain is inefficient and expensive. Future Group, Flipkart, and Amazon identified this as a possible business idea and introduced India to various ways of purchasing goods. These new mediums had better efficiency and a much lesser cost mechanism. In India, offering something at low cost, would provide significant business advantage, effectively high stickiness of consumers and slowly form an economic moat for the company.
With growth of Amazon and Flipkart, the retail market wasn’t growing substantially. Hence the market share saw a dynamic shift. The major loser was the Indian Kirana store (also know as Mom and pop stores). Not only was their business disrupted, but their whole supply chain suffered. Indian Kirana stores were left with little market share and big challengers in the form of aggregators.
The Scale Problem
Even if these Kirana stores wanted to go online and sell through e-commerce platforms, they faced a mega challenge. The way these aggregators are designed is that they favor the sellers with scale. If you sell 1000 Crore Rs worth in a year, your products get a lot of visibility, offers, low-cost structure, etc. A small Kirana store or say a tea merchant (who sells packaged tea of his brand), would have to pay substantial commission and delivery fee, thus leaving little or no scope for huge business. Small scale businesses had no means to catch the fast running train of e-Commerce.
The Yin and Yang philosophy
Taking an analogy from the Chinese Yin and Yang philosophy goes, there is always a bright side in the dark. The biggest problem that all e-Commerce aggregators today are facing is of the last-mile delivery. So much is the pain that Amazon has introduced a program called Amazon Flex, which would allow students and non-employed individuals to deliver goods to end customers.This program is still growing fast.
Jio mart realized that this is a great opportunity. Since the Kirana stores already have inventory and local presence, they could utilize the presence to reach the masses. They planned to become aggregators of the sinking business of mom and pop stores. The wholesalers and small retail shops would get an electronic order to fulfill. All they have to do is process these orders.
Sustainable Model for the Future
The obvious question is, will this work? If we look at the west, Instacart has implemented a similar model. Though they have two major differences, they deal with most major chains and their delivery boys do the delivery. During the 2020 Pandemic times, Instacart has seen exponential growth in its business. You may argue that this is a fad and may not sustain, but convenience is the pillar on which many industries rely.
JioMart has a presence through its Jio Mobile network. Jio can easily lure the customer base to its JioMart platform. As far as the service goes, it did an initial launch of service on commonly used Whatsapp. Though it has faced some challenges in establishing itself, it has received some good feedback in its pilot run.
Can Jio bring back Kirana stores in business?
Jio will have an advantage of scale at the aggregation level. For example, a Biscuit packet or Noodles, which would be sold in all Kirana stores, could be contracted at a much cheaper rate as compared to what the Individual Kirana store brings it down to. Effectively meaning, Jio could offer the shop owners to buy from its platform and then sell it to end-users. If shop owner buys from Jio, it will have a much cheaper rate and ease of managing inventory. Kirana stores will be digitized and also ordering their requirements online. For Jio, they need to ensure they form a strong network and supply chain which can process the scale.
All Rosy picture?
Kirana stores may completely lose the network of their existing chain and may become heavily dependent on the Jio network for their inventory. It may also be a case that Jio may establish its delivery centers similar to D-mart has in the future, which might hurt Kirana stores too. But all this is dependent on many factors which may or may not happen.
In the foreseeable future, Jiomart does bring in a ray of hope for the local shops. If this opportunity is well utilized, expect many other startups to tap the opportunity in a similar space.
Also Read – Curious case of Amazon Restaurant
Rise of InstaCart and grocery delivery – https://www.youtube.com/watch?v=WRc3USp1RAQ