Reliance Retail is on a shopping spree of sorts. Asia’s richest man, Mukesh Ambani, had spent the initial few months of 2020 raising funds by selling stakes in Jio to Facebook and other investors. His acquisition of Kishore Biyani’s Future Group is all over the news now. With this deal, the Reliance Group acquired the retail, wholesale, logistics and warehousing units of Future Group for approximately $3.4 billion – a move that will propel his ambitions to dominate India’s retail sector by taking Amazon and Flipkart head-on.
Plans for the ‘Future’
“Strong retail franchises and brands, that we have created over time, are going in stronger hands,” said Kishore Biyani in a recent statement. “This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors.” The Future Group had debts to pay to its investors and the losses amplified when the pandemic struck. This is a classic example of someone’s loss becoming someone’s gain, and from what we know today, time was right for Mr. Ambani to step in. He is on a mission to transform his billion-dollar conglomerate into a consumer-services oriented company. The world knows how Jio disrupted India’s telecom sector, and with eyes on retail, we know he is trying to reduce the company’s dependence on revenue generated from the petrochemical and oil refining business.
The Future Group deal will go a long way in bolstering the retail business of Reliance Group, which by the way, is already the country’s largest retailer by the number of offline stores. According to Boston Consulting Group and Retailer’s Association India, the retail sector was worth around $700 billion last year, and is tipped to skyrocket to $1.3 trillion by 2025.
The Big Billion Dollar Shopping Spree
Buying the Future Group was not an impulsive move made by Mr. Ambani. His plans to shift his businesses to retail was years in the making. Over the last few years, Reliance Group has spent billions acquiring companies from different business spectrums. From Artificial Intelligence and Internet of Things (IoT) services to online gaming and video conferencing solutions, Reliance Group has been sending out statements of intent one after the other.
Here is a list of companies that were acquired by Reliance Group over the last few years:
Fynd (Online shopping)
Haptik (Customer engagement)
Reverie (Language processing)
Saavn (Music platform)
Tesseract (AR/VR solutions)
Den Networks, Hathway Cable and Datacom (Broadband network)
Hamleys (Toy retailer)
Netmeds (Online pharmacy)
Asteria Aerospace (Robotics company)
NowFloats Technologies (Cloud-based services)
Radisys (Mobile Technology)
Balaji Telefilms and Eros International (TV content)
C-Square (Software solutions)
Netradyne (Fleet management)
Talks are in progress for the takeover of Urban Ladder (online furniture store) and Zivame (lingerie store).
Where does this deal leave Amazon and Flipkart?
Mukesh Ambani’s deal also draws the battle lines between Reliance Group and Amazon, as well as Walmart Inc (Flipkart). Over the years, these two companies have spent billions in a bid to dominate the world’s only billion-people-plus market but are still facing threats from homegrown players. Last year, Amazon had agreed to buy 49% in one of Future Group’s unlisted firms that allowed the American e-commerce giant to acquire 1.3% stake in Future Retail. But this deal never went through for some reason.
Soon after that Amazon Inc. began making headways into consumer divisions like grocery delivery, online insurance, drugs, and other offline services. The company was dishing out an à la carte of services in India at a pace that was not seen anywhere else in the world. It’s worth noting that the eclectic choices made my Amazon coincide with the incessant expansion of Reliance’s retail business. If you haven’t connected the dots already, the battle between Reliance and other e-tailers (especially Amazon) is to meet a customer’s everyday needs – from online retail and financial services to entertainment and more.
Interestingly, as of the publication of this article, it was announced that Reliance could offer Amazon a stake worth $20 billion in their retail business. We know Amazon is a direct competitor of Reliance Retail, so if Amazon decides to buy a big stake in the company, it’s effectively buying the biggest chunk of its competitor’s business.
What it means for India
India is looking at an economic crisis and could do with some money being infused into the markets, and thereby increase consumer spending. Our country is the world’s biggest consumer market and is expected to reach $5 trillion market cap by 2025. Using Future Group’s existing infrastructure, Reliance will be able to accelerate its e-commerce business using JioMart and thereby take on existing e-commerce leaders Amazon and Flipkart. How this game for retail dominance will pan out remains to be seen. For consumers, exciting times are ahead for sure.