Home >Industry >Retail >Reliance to use Future deal to get edge in FMCG space
Reliance Retail and Future Group’s network could contribute 8-10% of sales revenue for top FMCG players. Mint
Reliance Retail and Future Group’s network could contribute 8-10% of sales revenue for top FMCG players. Mint

Reliance to use Future deal to get edge in FMCG space

RIL’s retail arm is also expected to aggressively push its private brands, say analysts

Reliance Retail is expected to drive hard bargains with fast-moving consumer goods (FMCG) companies for its brick-and-mortar stores and online retail, bolstered by funds from investors and the added scale from the takeover of Future Group, according to analysts and industry experts.

The retail arm of Reliance Industries Ltd is also expected to aggressively push its private brands, the analysts said. The Future Group deal has given Reliance a 27% share of India’s organized grocery retail market worth about $544 billion. This could alter ways in which RIL will negotiate trade terms with FMCG firms as its influence over trade outlets, kirana stores, and e-commerce channels, will grow multifold.

The combined network of Reliance Retail and Future Group’s retail business could contribute as much as 8-10% of sales revenue for the top FMCG players, making Reliance Retail their largest customer based on FY20 revenues, according to estimates by financial services company Jefferies.

“Reliance Retail’s acquisition of Future Group consolidates the organized grocery retail, but becomes a concern for the FMCG industry," analysts at Jefferies said in a report. The large scale that Reliance Retail will enjoy would increase its bargaining power with FMCG firms, vendors for general merchandise and logistic partners, the brokerage said.

Smaller companies said they are already anticipating a scenario where they could be asked to dole out offers. “I foresee some kind of a monopolistic approach and more of the industry and brands will have to really struggle to get the right targets or volumes from them, or else there will be pressure from them to give more offers, schemes or discounts," said a founder of a mid-sized FMCG company on condition of anonymity. Reliance Retail will run about 2,000 grocery stores with Future Group’s formats, including Big Bazaar, Heritage, Easyday and Nilgiris, and its own retail formats such as Reliance Fresh, Reliance Smart and the business-to-commerce Reliance Market. This will give the company a combined grocery business of $5.5 billion, analysts at CLSA said in a recent report. There is also its newly-launched e-commerce JioMart platform, which connects kiranas with consumers, giving it inroads into the general trade market.

Some analysts point to the change in dynamics between FMCG firms and Reliance Retail, while others said large multinationals will not be easy to roll over. “They (Reliance) are hard negotiators and will look to maximise this opportunity of scale. But, that said, I don’t think you can just roll over successful and popular consumer companies such as Hindustan Unilever Ltd, Nestle India Ltd, Godrej Consumer Products Ltd, and Marico Ltd, and leave them out of the growth strategy," said Rajeev Krishnan, former MD and CEO Spar Hypermarket.

An email sent to Reliance for comments did not elicit a response.

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