BackBeyond the Bezos vs Ambani battle for India’s retail market
Another war rages over control of what corner shops stock and sell
PremiumA bruising battle for supremacy between two of the world’s richest men is hogging the limelight, but the silent changes in India’s retail landscape deserve equal attention. The ongoing digital transformation of kirana stores, tens of millions of shops catering to 1.3 billion consumers, will matter for everyone from Unilever and Procter & Gamble to State Bank of India. It will also be important to Amazon boss Jeff Bezos and Reliance Industries Chairman Mukesh Ambani.
The two billionaires are circling each other over an Indian retailer in crisis. The founder of Future Group took Bezos’s money, but sold his debt-laden business to Ambani when the pandemic pressure became too much. Amazon is in India’s courts to scuttle the $3.4 billion sale, which could end up making Reliance’s dominance over the consumer economy unshakeable.
Yet, a different contest is shaping up for control of what goes on shop shelves. Reaching small stores in a country of more than 660,000 villages and 8,000 cities and towns has traditionally been an uphill task for brands. Even Unilever, which has been in India for almost a century, can barely tap 15% of all retailers directly. It needs wholesalers to boost that reach to 80%-plus, according to Sanford C. Bernstein & Co.
Wholesalers rely on their knowledge of (and trust in) retailers in their vicinity. But these relationship-oriented networks are small and expensive. Throwing them wide open with digitization is a big opportunity. Leading the charge is Udaan, a startup that in five years has taken 80% of the business-to-business e-commerce market, delivering goods it stocks in 200 warehouses nationwide to more than 1.7 million retail stores in 900 cities every day. Suppliers receive their cash on time after Udaan takes their products. Retailers get credit they would have otherwise obtained at high interest rates from wholesalers. Everything happens on an app, which helps small shopkeepers create a payment reliability record. Financiers gain the confidence to lend working capital, and brands get less convoluted access. The platform has 3 million registered buyers and sellers.
As Vaibhav Gupta, one of Udaan’s three co-founders, says, “We’ve solved the problem of trust on the internet." Sujeet Kumar, another co-founder, credits some of the success to the 2017 GST. With multiple rates and high compliance costs, it’s a cumbersome tax, but it’s uniform across India. Warehousing decisions that used to be driven by a confusing smorgasbord of local levies are now guided by efficiency.
Disruption doesn’t mean apeing the West. Kumar and Gupta were part of the team that built Flipkart as India’s answer to Amazon and left it two years before Walmart bought the e-com site for $16 billion. Amod Malviya, their third partner, was Flipkart’s chief technology officer. At Udaan, though, the founders haven’t copied a global template. None exists. While affluent consumers may have preferences similar to their Western counterparts, the vast majority of price-conscious customers buy everyday items in tiny quantities. “Kitchens and refrigerators are small, and the median buyer of shoes pays ₹200," Gupta says.
Udaan was built for the India its founders grew up in. Kumar arrived at the Indian Institute of Technology in New Delhi from Bhabua, Bihar. The distance between Bhabua and Udaan in Bangalore isn’t measured in kilometres or miles, but in decades of progress that mobile internet is trying to squeeze into years. As a supply chain specialist, Kumar is not looking to fundamentally alter behaviour. He’s simply removing inefficiencies to speed up the flow of capital. This is crucial for retailers who work on 10% to 12% margins, half of what their peers in the West make.
The business-to-consumer side of retail is both deeply political and booby-trapped with regulatory minefields. New Delhi’s noose around foreign-owned e-com sites—Amazon as well as Walmart-Flipkart—seems to be tightening, as India pursues a more nationalist economic agenda. Ambani has a clear edge, but Bezos is far from giving up. The Seattle-based e-com major recently announced a plan to manufacture its Fire TV Stick devices locally, lending support to the country’s ‘Make in India’ campaign.
Will kirana stores become collateral damage in the tycoons’ war? Perhaps not. Even by the end of this decade, when India’s retail market grows to $2 trillion, tripling from when the data revolution was just kicking in, small shops will command a 65% share, by Bernstein’s estimates. However, a little under half of their trade will have gone digital by then. Startups like Udaan will modernize the back-end. In doing so, they’ll raise the value of the prize that Ambani and Bezos are vying for—by the storefront.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.
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